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Compass sees flat operating profit, but promising contract retention

23 November 2011 by
Compass sees flat operating profit, but promising contract retention

Operating profit at Compass Group's UK and Ireland business remains broadly flat at £114m, which the company described as "progressive improvement" on the 3.3% decline it saw last year.

But profit margin was down to 5.8% from 6.4% the year before, as a result of a 9.5% increase in revenue for the UK and Ireland business in 2011, which climbed to £1.9b.

But a higher rate of contract retention as a result of increased investment drove the improvement in domestic performance, Compass reported, such as extensions to its food service deals at financial firms Citi and BNP Paribas.

Other sectors to see significant business retained include healthcare, with multi-service contracts retained at both West Hertfordshire Hospitals and Newham Gateway Surgical Centre, and education. Compass extended its contracts with Westminster City Council, West Sussex Schools and University College London.

However, the sports and leisure sector remains a tough sector. Despite spend per head increasing at the retail and hospitality offers of major events, the deferral of conferencing activities has contributed to greater pressures.

The catering giant said that it would exit or run down some of it non-core activities, such as catering in hotels and mobile food units at sporting events, in order to satisfy its desire to focus on core activities. The overall loss of revenue is expected to be around £70m.

Worldwide, the group saw an increase in revenue of 9.4% to £15.8b for the 12 months to 30 September 2011. Operating profit was also up 9% to just over £1b.

As expected, Compass announced plans to use its strong cashflow to buy back £500m of shares over the next 12 months, while continuing its strategy of infill acquisitions. It has invested more than £600m in the last two years in small to medium-sized businesses that have strengthened the diversity of services it provides and its presence in emerging markets such as Turkey.

Chief executive Richard Cousins said: "Whilst we are not immune from economic reality, the fundamentals of the business remain strong and our flexible cost base will enable us to respond quickly to any changes in economic conditions.

"We continue to see many opportunities for further outsourcing in our core food market and support services is adding an exciting new dimension to our growth. We are also placing greater emphasis on the fast growing and emerging markets, where we see real opportunity for further expansion."

Compass Group announced the appointment of Dominic Blakemore as finance director.

It also named Gary Green and Andrew Martin as chief operating officers. Under a new management structure, Green will be responsible for North America and Martin Europe and Japan while Cousins will focus more on emerging markets.

Compass to buy back £500m of shares >>

Compass to see decline in growth in UK and Ireland >>

Compass Group's operating profit remains flat >>

By Janie Stamford

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