Final Results - Pre-tax Profit Up 21.7%, Part 1

Compass Group PLC 9 December 1999 Part 1 COMPASS GROUP PLC PRELIMINARY UNAUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 1999 All businesses demonstrating strong organic growth with margins continuing to improve. HIGHLIGHTS * Turnover up 14.3% to £4,815 million (1998: £4,214 million). * Profit before taxation and goodwill up 21.7% to £193.6 million (1998: £159.1 million). * Earnings per share up 21.5% before goodwill amortisation. * Total dividend up 14.4% to 6.35p per share (1998: 5.55p per share). * Interest cover 3.8 times (1998: 3.7 times). * Free cash flow £215.5 million (1998: £158.9 million). * Major new contract gains. Francis Mackay, Chairman, said: 'Compass Group operates in a marketplace with very favourable growth characteristics. In addition we have shown an increase in market share and prospects for future growth continue to be attractive.' Mike Bailey, Chief Executive, said: 'Our continued success in the growth of our business reflects the emphasis on the quality and consistency of the service we provide.' ANNUAL REVIEW Results The Group has reported turnover and operating profit, before goodwill amortisation, growth of 14.3% and 19.9% respectively, with each division moving forward strongly. The performance on a reported basis and on a like for like basis (i.e. excluding the impact of acquisitions and currency movements) is set out below. The significant year on year growth in turnover and profit is largely driven by strong organic growth with minimal impact from acquisitions in the current year. Like for like margin growth has been delivered through food and beverage purchasing efficiencies and close control over other cost categories. This growth has been achieved after continuing to make significant investments in the key areas of sales, purchasing and the infrastructure to support the Group's market segmentation strategy. These factors have enabled the Group to deliver annual trading results that have generated basic earnings per share growth of 21.5% before goodwill amortisation. Like for like Increase increase 1999 1998 % % TURNOVER £M UK 813.2 746.6 9 9 Continental Europe and the rest of the world 2,421.0 2,073.2 17 9 North America 1,580.4 1,394.0 13 7 ------------------------------------ 4,814.6 4,213.8 14 8 ------------------------------------ OPERATING PROFIT £M UK 60.7 54.3 12 12 Continental Europe and the rest of the world 125.5 102.1 23 18 North America 75.2 61.6 22 18 ------------------------------------ 261.4 218.0 20 17 ------------------------------------ Margins (%) UK 7.5 7.3 3 3 Continental Europe and the rest of the world 4.9 4.8 2 9 North America 4.8 4.4 9 12 ------------------------------------ Total 5.3 5.1 4 6 ------------------------------------ Goodwill amortisation is excluded from the above table and margins exclude profits from associated undertakings. Like for like increase excludes the impact of acquisitions and currency movements. In the UK division turnover has increased from £747 million in 1998 to £813 million in 1999, a 9% increase, and operating profit has increased from £54.3 million to £60.7 million, a 12% increase. Resulting like for like margins increased by 3%. Sales for the Continental Europe and the rest of the world division have increased from £2,073 million in 1998 to £2,421 million in 1999, a 17% increase, and operating profit has increased from £102.1 million to £125.5 million, a 23% increase. On a like for like basis, turnover has increased by 9% for the year and margins are also up by 9%. In the North America division turnover has increased from £1,394 million in 1998 to £1,580 million in 1999, a 13% increase, and operating profit has increased from £61.6 million to £75.2 million, a 22% increase. The margin has increased on a like for like basis by 12% and there has been growth of 7% in turnover on a like for like basis. Strategy We remain focused on the provision of foodservice in our target markets and committed to organic growth. We now have a wide coverage both geographically and by market sector and employ over 190,000 people in more than 70 countries. It is clear that there are still some gaps in our coverage so we intend to make infill acquisitions in the future. We are not committed to size for the sake of size but realise that scale, particularly now that more customers and suppliers are thinking nationally and even internationally, results in benefits in volume, cost, quality and efficiency. The Group's focus on national and international accounts has resulted in a number of important contract gains. Growth Organic growth has again been fuelled by contract gains some of which are highlighted below. They are proof that Compass Group remains at the forefront of the foodservice industry when outsourcing contracts are being awarded. Crown Cork & Seal Eurest has been awarded a foodservice contract with Crown Cork & Seal. The contract is for Europe, the Middle East and Africa. This will start with foodservice at 25 sites in France, Germany, Belgium and England extending to a further 15 future sites in Italy, Spain, Portugal, Switzerland and Morocco. The three-year contract is in addition to existing contracts with Crown Cork & Seal in France and Germany. MCI WorldCom Eurest and Canteen Vending have been awarded a national contract in the USA with MCI WorldCom for foodservice and vending at 11 sites catering for 18,000 staff and for providing office coffee services to a further 37,000 employees. Renfe Select Service Partner will be providing foodservice at numerous rail stations in Spain following the signing of a ten-year contract with Renfe, the Spanish rail company. United Technologies A ten-year contract for staff foodservice and vending at 27 sites has been won with total contract sales anticipated to be approximately $300 million. Just after the year end the Group gained a number of important contracts including staff foodservice at Disneyland in California, instore restaurants at Macy's Department Store in New York City and the staff foodservice contract for five sites in the UK for the Ford Motor Company Ltd. Financial Cash flow generation from operations continues to be favourable, with free cash flow in the year of £215.5 million (1998: £158.9 million). Net debt at 30 September 1999 of £1,065.6 million was up from £943.8 million at 30 September 1998 principally due to net cash outflow on acquisitions of £183.5 million. The taxation rate is 25.7% of the profit on ordinary activities before taxation. It is in line with the last three years and we believe that, subject to changes in tax rates, it can be maintained for the foreseeable future. A key reason for this low taxation charge is our ability to benefit from the tax amortisation of goodwill in the USA following the Canteen Corporation acquisition. This is a continuing benefit. Dividends A final dividend for the year of 4.35p net per share is being proposed, giving a total dividend for the year which is increased from 5.55p in 1998 to 6.35p, a 14.4% increase. Investment There have been three notable investments during the year: Selecta On 4 May 1999, Compass announced that it had increased its investment in Selecta Group from 20.3% to 33.3%, by buying 13.0% from Valora AG at a cost of £62.3 million. Selecta is the European market leader in food and beverage vending, mainly focused in Switzerland, France and Germany. This was an excellent opportunity for us to acquire an increased stake in this group at a good price. Our strategy for growth in the vending sector in Europe will be a key focus for the Group in the year 2000. Brazil In December 1998, Compass Group acquired 50% of Generale Restauration S.A., the largest foodservice company in Brazil, for £49.8 million in cash from Accor, the French hotel group. Brazil is the sixth largest foodservice market in the world with over 8.5 million meals served per day and represents a significant opportunity as currently it is still only 20% outsourced. Despite the economic problems suffered by Brazil since then, the company is trading successfully and has integrated well into the Group. Australia At the end of September 1999 the Group acquired the foodservice business of P&O Australia for £56.6 million. Activities acquired included foodservice for business and industry, remote site, offshore, education and leisure clients. This acquisition makes the Group the clear market leader in Australia and strengthens its position in the important remote site market. Recent contract gains in Australia include catering for the Olympic Games, the Sydney Football Stadium and Cricket Ground and the Olympic Dam. Post Balance Sheet Events USA There have been two acquisitions in the USA since the year end. The first, Newport Food Service, Inc., is a small catering establishment based in Philadelphia. The second, The Patina Group, is a high quality west coast based concession business which it has been agreed to acquire for US$40 million, $10 million of which is deferred for five years. These acquisitions will significantly add to the quality and geographical spread of our USA foodservice business. New non-executive director We are delighted to announce the appointment of a new non-executive director. With effect from 4 January 2000 Valerie Gooding, who is chief executive of BUPA, will be joining the Board. She will join an already strong non- executive team headed by Peter Cawdron who was appointed senior non-executive director on 1 July 1999. Prospects We have created a strong platform for organic growth in the expanding foodservice market. Our expectation is that we will continue to increase our market share and the organic growth that we have achieved in recent years will continue with prospects for long term growth remaining good. F H Mackay M J Bailey Chairman Group Chief Executive COMPASS GROUP PLC NOTES (a) The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 30 September 1999 or 30 September 1998. The financial information for the year ended 30 September 1998 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 30 September 1999 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. (b) Accounting policies have been applied on a consistent basis with those applied in the statutory accounts for the year ended 30 September 1998 except where such policies have been changed in order to ensure consistency with the following accounting standards applicable for the first time: FRS 10 'Goodwill and Intangible Assets', FRS 11 'Impairment of Fixed Assets and Goodwill', FRS 12 'Provisions, Contingent Liabilities and Contingent Assets' and FRS 14 'Earnings per Share'. Comparative figures have been restated where appropriate. (c) The timetable for the proposed final dividend of 4.35p (net) per share is as follows: Record date: 3 March 2000 Payment date: 7 April 2000 (d) To provide the Group with additional flexibility, it is our intention to seek authority from shareholders at the forthcoming AGM to purchase up to 10% of the Ordinary Share Capital of the Company. This will be a renewal of the authority granted at the previous AGM. Enquiries: 9 December 1999 Francis Mackay Chairman Compass Group PLC 0171 796 4133 Mike Bailey Chief Executive Compass Group PLC 0171 796 4133 Andrew Lynch Finance Director Compass Group PLC 0171 796 4133 Nick Lyon Hudson Sandler Limited 0171 796 4133 Thereafter Francis Mackay Compass Group PLC 01932 573 000 Mike Bailey Compass Group PLC 01932 573 000 Andrew Lynch Compass Group PLC 01932 573 000 Website www.compass-group.com MORE TO FOLLOW FR NFNAPEFXNFFN
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