More on Compass
Compass: H1 results
Compass Group reported a 7.8% increase in turnover but a 2.9% decrease in underlying operating profits for the six months ended March 2005. Reported underlying profit declined by 8.6% to £192m compared to last year.
The company says revenue growth was due to new business wins, (partly driven by the continued trend towards outsourcing particularly in hospitals and schools) high levels of contract retention in the contract catering business. Growth has been particularly strong in North America, the UK, Australasia and Latin America but weaker in Continental Europe and elsewhere.
Operating margins have strengthened in America (to 5% from 4.7% last year) but weakened elsewhere, particularly in the UK (6.2% against 9.2% last year) and Continental Europe & rest of the world (5.3% against 5.4%).
The company does not explain the reasons for the decline in overall operating profits (they do explain why UK profits have declined) but the launch of a “comprehensive operational and financial review” does offer a clue as to where the problem lies. The review hopes to gain efficiencies in purchasing, overhead reduction and labour productivity.
Compass operates in 90 countries and has overheads of about £1bn, which means the drive for squeezing efficiencies will need to operate on a fairly wide scale. Compass hopes to deliver savings of £50m over the next 18 months.
Margins in the companies major markets are under pressure and growth prospects seem limited to improvements in operational efficiency which, given the scale of the companies operations, may not be particularly easy to deliver.
The share trades at 224.5p, on a prospective PE of 11x with a yield of 4.3%.
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