Trading issues in the UK, weak markets in Northern Europe and currency conversions all hit profits during what the Compass Group called a "challenging year".
The good news in the group's results for the year to 30 September included a strong performance in North America and continued growth at ESS, its military, remote site and offshore business division.
Group turnover increased from £11.29b to £11.77b, representing a like-for-like rise of 7%. Pre-tax profit grew to £370m, from £358m the previous year.
However, before exceptional items and goodwill amortisation, pre-tax profit fell from £661m to £645m. Currency conversions between sterling and the US dollar alone wiped £28m off profits.
During the year, Compass signed new contracts worth £1.2b in annual turnover (of which 12% was new business). Its contract retention rate was 95%.
It sold the Yoshinoya fast-food chain in Japan and Little Chef and Travelodge in the UK, which contributed £17m to pre-tax profits in 2003.
In the UK, turnover grew by 2% (or 5% like-for-like) to £2.57b. Operating profit, however, dropped from £360m to £294m.
Switching ESS's accounts to other areas cost the UK division £18m in profits, but boosted the Europe/rest of the world division by £13m and North America by £5m.
Three events wiped a further £30m off UK profits. They included the demise of key distributor Peter's Foods, start-up costs at in-store restaurants, and lower-than-expected margins from local authority education contracts (which must now be approved by the Compass board).
Contract and vending turnover grew by 4% and concessions catering by 9%, with strong performances in both sports and leisure concessions and travel concessions.
A trial of Marks & Spencer's Simply Food concept at the Moto motorway service area in Toddington is to be rolled out to 15 sites over the next three years.
Continental Europe and the rest of the world
In Continental Europe and the rest of the world, turnover grew by 12% (or 6% like-for-like) to £5.2b from £4.6b and operating profit increased from £229m to £287m.
Latin America, Australia and Asia all performed robustly but trade was weak in Germany, Holland, France and Italy.
Like-for-like turnover at ESS grew by 45%, while contract and vending registered an 8% rise.
Turnover in North America fell by 1% to £3.5b (but rose by 7% like-for-like), while operating profit grew from £177m to £190m.
The profits rise was driven by favourable purchasing deals and like-for-like growth of 15% in concessions (especially sports), 9% in healthcare and 7% in education.
Group chief executive Michael Bailey said the group's focus for 2005 would be on organic growth, returning to profit growth, and improving return on capital.
"We've got 80% of the business that we need to grow by 6% already achieved," he said.
"I don't expect to see any further acquisitions for the balance of this year," he added.
by Angela Frewin
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