Compass moving in the right direction

Underlying operating profit came in at £951m, an increase of 5.8 per cent on a constant currency basis. The related margin, at 7.5 per cent, was stable from the 2018 half-year despite a 30 basis point contraction in its European operations (24 per cent of sales). In addition to incremental cost controls, the group’s active portfolio management was brought to bear. Several disposals and £370m of bolt-on acquisitions have refocused operations, resulting in a “positive impact on the margin”.

The North American arm (62 per cent of sales) delivered underlying revenue growth of 7.9 per cent on the back of new business wins in the healthcare and seniors sector, positive pricing, and improved trading within the sports and leisure sector. Again, the underlying margin was stable, so the underlying operating profit came in at £664m, representing a 9.4 per cent increase.

Given the breadth and complexity of the group’s operations, there are just as many challenges as there are opportunities from a working capital perspective. A working capital outflow of £83m, excluding provisions and pensions, reflects the seasonality of the business and should narrow substantially by the year-end. The underlying free cash flow conversion rate of 56 per cent also points to the lagged nature of remittances, as do £2.87bn in receivables, equivalent to 23 per cent of revenues, although broadly stable from a historical perspective.

Net debt increased by 5 per cent to £3.56bn. Capex commitments as a percentage of underlying revenue are in line with FY2018, but free cash flow moved up to £530m, against £465m in the corresponding half-year.      

Bloomberg consensus points to £2.4bn in cash profits for the September 2019 year-end and EPS of 83.7p, rising to £2.53bn and 89.4p in FY2020.