Caterers cash in as spending cuts bring in orders

Compass yesterday beat full-year profit forecasts and raised its dividend by a third.

The company, which feeds office workers and the armed forces, and cooks school lunches, gave its upbeat message as it looked forward to further growth and higher margins while pushing up its annual dividend payout by 33 per cent, to 17.5p a share.

Analysts highlighted the bigger-than-expected dividend and positive outlook as the main factors behind the company's share price rise.

Chief executive Richard Cousins said new contract wins helped its second-half underlying sales to the end of September rise by nearly six per cent, after a flat first half. But he was cautious about prospects in Western Europe and Japan.

"We are not assuming the economies in the UK, Western Europe and Japan will help us, but austerity measures give us an opportunity as many institutions look to outsource," Mr Cousins told a briefing after its full-year results were published.

Mr Cousins said his group was winning new business in countries like Australia, Brazil and the US, while emerging markets, which make up around 15 per cent of its worldwide business, were growing underlying sales at more than 10 per cent.

The group, which counts London's O2 arena, Amazon.com and the Super Bowl among its clients, said it had recently won new contracts with Oracle, Google and the UK Ministry of Justice.

As heavily-indebted governments look to cut expenditure, Mr Cousins believes his group can provide catering at better quality and lower costs.

It has secured a strong pipeline of new business from these recent contract wins.

He added: "Looking forward, while economic conditions remain challenging, we are excited by the growth opportunities we have around the world. and the new business pipeline is strong."

Mr Cousins took over in May 2006 after the company issued a series of profit warnings following a period of acquisitions.

Mr Cousins led a turnaround of the group's fortunes and set it back on a track for growth, despite the economic slump caused by the financial crisis of late 2008, which had a devastating effect on global business confidence.

Compass, which serves four billion meals each year in more than 50 countries, reported underlying pre-tax profit for the year to the end of September of 922m.

"We see this as a positive sign of the company's confidence regarding its prospects and intention to make its balance sheet work.

"We expect further bolt-on acquisitions rather than anything major," said analyst Ian Rennardson at Bank of America Merrill Lynch. The company's overall annual sales rose 7.6 per cent, to 14.5bn, and underlying operating profits increased 13 per cent, to 1bn, while its underlying operating margin rose 40 basis points, to 6.9 per cent, as it made cost saving of 20m in the year.

Earlier this month, France's Sodexho, the world's second largest caterer, was cautious about the recovery in Europe and the US as it reported a 3.4 per cent rise in operating profits in the year to the end of August.

Surrey-based Compass, which provides catering at venues including Chelsea Football Club and the Wimbledon tennis championships, said the year to September 30 saw strong growth in the US and emerging markets.

Compass said there were signs of improvement in the UK and Ireland but revenues in the region still fell 2.6 per cent, to 1.78bn, with profits flat at 114m.

It said UK economic conditions continued to affect volumes in the sport and leisure and business and industry sectors.

However, Compass said it had secured new business, such as a contract to cater for 10,000 Virgin Media staff in 17 locations.

Going in the right direction

Compass reported good growth in the UK healthcare sector, while the turnaround of its school catering arm continued after it won a contract with Rugby School.

The company's biggest growth engine is North America, where it improved revenues by 9.7 per cent to 6.37bn and profits rose 11 per cent, to 491m.

Contract wins included The Gates Foundation's new campus site and Amazon.com's headquarters, both based in Seattle, and Sun Microsystems, which is part of the company's larger Oracle contract. Around 17 per cent of its business is in fast-growing and emerging economies.