Trading Statement

RNS Number : 9721D

Compass Group PLC

31 March 2011

Compass Group PLC

Trading Update

This statement updates investors on the Group's progress in the current year, ahead of the announcement on 18 May 2011 of its results for the half year to 31 March 2011.

Group

Compass has had a good first half, with a continuation of the positive trends seen in the second half of last year. Including the impact of acquisitions, constant currency revenue growth is expected to be around 9.5% for the first half of the year. Organic revenue growth is expected to be around 5.5% for the same period. This is after adjusting down by approximately 0.5% for the impact of additional working days compared to the same period last year. Organic revenue growth has been driven by good levels of new business across the Group and encouragingly, a further slight improvement in the rate of retention. We have also seen a slight increase in like for like revenue against the weaker comparatives of the first half of 2010.

The Group has made good progress in growing the margin and we expect to deliver around 20 basis points improvement for the first half of the year, compared to the first half of last year. We are continuing to generate cost efficiencies, which in part are being reinvested to support the exciting growth opportunities around the world and in part flow through to the margin. As expected, we have seen an increase in the level of food inflation in the first half of the year and this is likely to continue through the second half. We are managing the effect of this inflation through a combination of menu planning, professional purchasing, ongoing efficiencies and price increases.

We expect a minimal impact on operating profit from the movement of our key currencies - translating the profits of last year's first half using this year's actual exchange rates. On a constant currency basis, underlying earnings per share is expected to grow by around 12%. Cash flow conversion remains in line with expectations.

North America

Organic revenue growth has continued to be driven by strong growth in net new business with consistently high levels of retention and an improvement in like for like revenue. Overall, for the first half of the year we expect organic revenue growth to be around 7.5%, a similar level to the second half of 2010, and an operating margin improvement of around 20 basis points.

Continental Europe

We have seen good organic revenue growth in Germany, Italy, Belgium, Turkey and Central and Eastern Europe. Economic conditions are, however, continuing to have an impact on some countries, including Spain and Portugal. Overall, we have seen good levels of new business and a slight improvement in retention. In the first half of the year, we expect organic revenue growth of around 1% for the region and an increase in the operating margin of around 20 basis points.

UK & Ireland

Economic conditions in the UK & Ireland remain challenging, particularly impacting like for like volumes in the Business & Industry sector, which still remain negative. However, we have made good progress in retention and for the first half of the year we expect organic revenue growth to be broadly flat. This compares to the first half of last year when organic revenue declined by 5.7%. The underlying operating margin is expected to remain flat. However, the impact of acquisitions made in the previous financial year and associated one-off restructuring costs will result in a reduction in the reported operating margin of approximately 30 basis points.

Rest of the World

We have continued to see good levels of new business across most territories in the Rest of the World. Australia and Brazil have delivered double digit organic revenue growth. The energy and extraction businesses around the world have also continued to perform well in the first half of the year. We remain excited by the prospects in the other key emerging markets, particularly India, China and Latin America.

In Japan, which accounts for close to 5% of Group revenue, a small number of our units are closed as a result of the tragic events of the recent earthquake and tsunami. The issues at the Fukushima power plant have caused some disruption to the wider Business & Industry sector, largely as a result of power shortages and to the Sports & Leisure sector. Our estimate of the likely profit impact of this in March is around £5 million. Although there is likely to be some ongoing impact on the business in the second half of the year, our emergency response teams have been quick to take action and there are some early signs that activity levels are starting to improve.

Overall in the first half of the year, including the financial impact of Japan, we expect organic revenue growth to be around 11%, which is consistent with the growth seen in the second half of 2010 and an improvement in operating margin of around 20 basis points.

Acquisitions

In the first half of the year we have committed around £140 million to acquisitions. These include in foodservice, the recent acquisition of Coffee Distributing Corp in the US and Elior's operation in the Netherlands. In support services, we have strengthened our offer further in the US with the acquisition of BW HLS Holdings Inc. We are continuing to seek out value creating small to mid sized acquisition opportunities and we are encouraged by the pipeline.

Summary and outlook

Compass has had a good start to the year, delivering both strong organic revenue growth and a further improvement in the margin. As we look out to the second half, we are encouraged by the pipeline of new business and the ongoing opportunities we have to generate further efficiencies. As such, our expectations for the full year remain unchanged.

Note to Editors:

(a) Compass Group is the world's largest foodservice company with annual revenues in 2010 of over £14 billion operating in around 50 countries.

(b) MAP (Management and Performance) is a simple, but clearly defined Group operating framework. MAP focuses on five key value drivers, enabling the businesses to deliver disciplined, profitable growth with the focus more on organic growth and like for like growth.

The five key value drivers are:

MAP 1: Client sales and marketing

MAP 2: Consumer sales and marketing

MAP 3: Cost of food

MAP 4: Unit costs

MAP 5: Above unit overheads

(c) Organic revenue growth, a term used throughout the announcement, is calculated by adjusting for acquisitions (excluding current period acquisitions and including a full period in respect of prior period acquisitions), disposals (excluded from both periods) and exchange rate movements (translating the prior period at current period exchange rates) and compares the current period results against the prior period.

(d) Operating profit, a term used throughout this announcement, includes share of profit of associates and is wholly consistent with the presentation in the Group's 2010 Annual Report and Accounts.

(e) This Press Release contains forward looking statements within the meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward looking statements. The terms 'expect', 'should be', 'will be', 'is likely to' and similar expressions identify forward looking statements. Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general economic conditions and business conditions in Compass Group's markets; exchange rate fluctuations; customers' and clients' acceptance of its products and services; the actions of competitors; and legislative, fiscal and regulatory developments.

A copy of this release, together with all other recent announcements can be found on Compass Group's website at www.compass-group.com. Copies of the presentations given to institutional investors and analysts are also available at this site.