Compass looks for growth in health and education sector

Compass Group, the world's largest contract caterer, expects the UK healthcare and education markets to offer significant opportunities for the company in 2004.

But, while health and education might offer growth to the company - both are still dominated by public sector and in-house operations - by enlarging its small UK presence in these sectors, Compass could find itself in the media firing line as national concern grows over obesity.

The public is growing steadily more worried about rising levels of obesity in children, and the issue has the NHS worried, too. Diet-related illnesses currently cost it £4b a year, and both the incidence of such illnesses and the cost of treating them are likely to increase in future.

The Food Standards Agency is investigating how to fight the flab and will make recommendations to the Government next year. Despite this, Compass does not feel that education and healthcare are sectors to be avoided.

Speaking at last week's presentation of the company's full-year results, Michael Bailey, the group's chief executive, said the group was way ahead of its rivals in developing healthy menus and in educating customers.

"We have invested substantial sums in nutritional programmes and we have dietitians dedicated to devising healthy menus," Bailey said. "When you break it down to the nuts and bolts, it is talking to the kids about food groups and talking to them about nutrition. When you see what we do in the healthcare and education markets then, quite frankly, this situation is an opportunity and not a problem."

Bailey was particularly interested in the "kindergarten through 12" market in the USA, which covers 53 million children at 89,000 schools and is worth $11b a year. "Only 16% of that market is outsourced," he said, "so there's an opportunity for us to provide better food at a better price. I see a lot of growth coming from there."

While healthy eating certainly plays a part in the Compass mantra, supplying Atkins-style menus in the workplace was not on the menu.

Broad spectrum

Bailey said: "When you have an operation like ours, which operates over such a broad spectrum - from mines to prisons to newspaper offices - it [Atkins] is not going to have an effect on us." But he added that each business was individual enough to react to the clients' needs, so if Atkins was what a client wanted, that was what it would get.

Compass's vast scale definitely does have advantages. It has 40,000 restaurants in more than 90 countries around the globe, so a downturn in one location is often offset by an upturn elsewhere.

For example, while the war in Iraq hit its airport catering business, feeding troops at war replenished the coffers. And while vending revenues were hit by companies cutting back on weekend working and overtime, schools and hospitals across the world were increasingly outsourcing their food operations.

Compass also predicted that its business clients were at the bottom of their downturn and that the round of job cuts had bottomed out.

More good news, it said, came from England's win in the Rugby World Cup. Compass runs the catering at three international rugby stadia - Twickenham, Cardiff's Millennium Stadium and the Stade de France in Paris - which it expects will be packed to the rafters for the Six Nations tournament next year.

The group predictably hit its 6% like-for-like sales target in 2003 and announced that it already had 80% of next September's target of £750m net new business in the bag. If it can find the other 20% in the next 10 months, it will hit its growth target of 6% again.

One suspects it will.

financial highlights

• Results to 30 September 2003

• Turnover: £11.2b - like-for-like increase of 6%

• Pre-tax profit: £654m - up by 12%

• New contract gains: £1.3b

• Contract retention: 95%

• Business and Industry contract retention: 94%

• Earnings per share: 8.3p - down from 10p

• Dividend: 8.4p - up by 18%

selected new contracts

• Eurest Support Services has won a new deal with De Beers to supply food to the diamond company's 24,000 staff in 19 countries. Initial value is £10m, increasing to £50m a year.

• Woolworths' public in-store catering at 68 restaurants - 10-year deal worth £29m a year.

• Select Service Partner secured a new 10-year deal with Newcastle International Airport worth £8m a year.

• Disneyland, Los Angeles, has awarded Restaurant Associates a contract for its Disney Mexican Restaurant, with an annual turnover of $10m.

• Campolongo and Palermo Hospitals in Italy - combined turnover of £2m a year.