Full-year results from contract caterer Compass Group left a nice taste in investors' mouths, as cost-cutting helped profits hit the top end of analysts' expectations.
Chief executive Richard Cousins said that a "step change in efficiency" had generated £161m of cost savings, which had combined with steady levels of net new business to push operating margins up by 70 basis points to 6.5 per cent. Despite ever higher food inflation, Compass saved £60m on food costs, and also £70m on what it calls "unit overheads" - the costs associated with running its concessions, including staff, thanks to better scheduling and meal planning. It said that with unit overheads of £1.8bn, there was still plenty of room for further improvement around the world.
News that there is further room for cost-cutting will certainly ease fears over the revenue growth prospects for the group. The impressive turnover growth came almost entirely from acquisitions, as well as currency movements. In fact, organic sales growth was flat year-on-year, with volume declines of 3 per cent offset by price increases at a similar level.
Although Mr Cousins said that the rate of decline had slowed, and that the pipeline of new business was strong, analysts don't expect particularly strong revenue growth this year, even though customers are facing greater pressure to outsource catering operations. Customer retention slipped a percentage point to 93 per cent, as tough economic conditions saw site closures, although the group is winning a steady stream of new contracts, including a recently signed a £100m five-year deal with Lloyds Banking Group to provide catering services across its 78 UK sites.
Compass also has high hopes for its education and healthcare-focused businesses, which saw good like-for-like volume growth offset cyclical weakness in its business and industry segment. Budgetary pressures in these sectors means customers are far more likely to take valuable multi-service contracts, which helped Compass expand its non-food support services business to account for 13 per cent of turnover.
Meanwhile, strong cash generation saw net debt fall by £62m to £943m. Broker Evolution Securities expects 2010 pre-tax profits of £813m and EPS of 31.5p.
COMPASS GROUP (CPG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 424p | MARKET VALUE: | £7.86bn | |
| TOUCH: | 423-424p | 12-MONTH HIGH: | 427p | LOW: 237p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 137p* | NET DEBT: | 37% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 12.7 | 171 | nil | 9.8 |
| 2006 | 10.8 | 374 | 13.7 | 10.1 |
| 2007 | 10.3 | 436 | 15.0 | 10.8 |
| 2008 | 11.4 | 566 | 20.9 | 12.0 |
| 2009 | 13.4 | 773 | 29.5 | 13.2 |
| % change | +18 | +37 | +41 | +10 |
Ex-div: 28 Jan Payment: 1 Mar *Includes intangible assets of £4.1bn, or 220p a share | ||||
