Compass points in right direction for profits rise

The Surrey-based group, which provides catering for businesses, schools and venues such as Chelsea Football Club and the All England Tennis Club, posted revenues of £7.9bn for the six months to March 31, an increase of 10 per cent.

Operating profits lifted 12 per cent to £559m while its strong cash generation meant a 30 per cent rise in its half-year dividend to shareholders.

Compass warned that the gradual increase in food cost inflation seen over the first half of the year was set to continue, but added that it was well placed to tackle it through menu planning, regional buying and flexible contracts.

It said: “This is not a new phenomenon and we have experienced many periods of higher inflation, most recently in 2008. The actions we took then enabled us not only to limit its effects but to actually increase the gross margin.”

Compass added that it continued to win new contracts, with its UK division recently securing work with the Department for Environment, Food and Rural Affairs and a contract extension with BSkyB.

Operating profits in the UK – where Compass generates about 12 per cent of its business – were flat at £54m after revenues edged up to £1bn.

On a like-for-like basis, revenues declined slightly by 0.4 per cent but this showed further improvement from a 5.7 per cent drop seen a year earlier.

It added: “This is despite quite difficult economic conditions continuing to impact like-for-like revenues in many of the sectors.”

The company’s Japanese business has been affected by the earthquake and tsunami, with volumes in offices at its client sites down by up to 15 per cent.

Compass said the earthquake and tsunami knocked £5m off its earnings, affecting the last three weeks of the period, and the group estimates it will result in a reduction in second-half profit of £20m.

“After absorbing the expected profit impact of the tragic events in Japan, our expectations for the full year remain unchanged,” chief executive Richard Cousins said.

The situation in the sports and leisure sector is more severe, with Compass estimating that volumes could be 25 per cent below normal in the current quarter.

Compass, which serves four billion meals each year in more than 50 countries, said it was targeting expansion in emerging markets having spent £300m on acquisitions this year.

The group is paying an interim dividend of 6.5p.

France’s Sodexho, the world’s second biggest caterer, last month raised its full-year sales target on the back of a healthy order book and a stronger-than-expected first half.

Liberum Capital said Compass had produced a good set of results, slightly ahead of forecasts.

“Compass is delivering in terms of good organic growth compounded by the ability to fund acquisitions out of annual cash generation which can add 4 to 5 per cent to the group’s turnover,” said Liberum analyst Nigel Hicks.