Final Results

Compass Group PLC 30 November 2004 30 November 2004 COMPASS GROUP PLC Preliminary RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2004 The Group's reported financial highlights for the year ended 30 September 2004 are set out below. 2004 2003 Turnover Â£11,772m Â£11,286m Total operating profit - reported Â£500m Â£521m - before goodwill amortisation Â£775m Â£797m Profit before tax - reported Â£370m Â£358m - before goodwill amortisation and exceptional items (1) Â£645m Â£661m Basic earnings per share - reported 8.3p 8.3p - before goodwill amortisation and exceptional items (1) 21.1p 20.8p - underlying at constant currency (2) 21.1p 19.5p Free cash flow Â£246m Â£415m Business highlights (2) â€¢ Turnover of Â£11.8 billion, up 7% on a like for like basis. â€¢ Basic earnings per share on an underlying constant currency basis, up 8% at 21.1p. â€¢ Final dividend of 6.2 pence per share, 9.3 pence per share for the full year, up 11%. â€¢ New contract gains of Â£1.2 billion per annum signed in the year and contract retention continues to be strong at 95%. Developments announced today include plans to open a total of nine Moto Marks & Spencer Simply Food units at its UK motorway service areas and a Â£22 million per annum contract with Bank of America in North America. (1) There were no exceptional items in 2004. (2) The bases for calculating like for like growth, underlying and continuing activities performance are explained in more detail in the attached preliminary results for Compass Group for the year ended 30 September 2004. Outlook After a difficult period, the Group enters the new financial year confident that actions have been taken to address the challenges of 2004 to give a solid platform from which to grow. 80% of the additional turnover needed in 2005 to deliver at least 6% like for like turnover growth has already been secured and the pipeline across all businesses is encouraging. With further benefits still to be achieved, especially in purchasing, the Group is confident of improved performance. The Group's expectations for free cash flow in 2005 remains unchanged at Â£350 million to Â£370 million. The Group is now increasing its focus on organic growth, with a renewed emphasis on how capital is used, in order to deliver sustainable improvements in return on capital employed. Sir Francis Mackay - Chairman - said: 'We have a market leading position in all the major world economies, a strong management team and a strategy for delivering shareholder value in an expanding sector of the economy. 2004 was a challenging year for the Group with a number of trading issues which had an impact on performance. Actions have been put in place to address these issues and I remain confident about the future prospects for the Group.' Michael J Bailey - Chief Executive - said: 'Our main drive is to return to delivering profit growth and strong free cash flow. We are putting a renewed emphasis on improving return on capital employed going forward. I am confident in the robustness of our business model and the commitment, motivation and capabilities of our employees will enable us to do what is required to deliver on our objectives for 2005 and beyond.' Enquiries: Compass Group PLC 01932 573000 Michael J Bailey Chief Executive Andrew Martin Finance Director Sarah Ellis Director of Investor Relations Brunswick 020 7404 5959 Simon Sporborg Pamela Small Website www.compass-group.com Presentation and teleconference details are in the attached notes. Trading Report 2004 was a challenging year for the Group with a number of trading issues which had an impact on performance. The Group is now increasing its focus on the delivery of strong turnover, profit and free cash flow growth. As market leader in a fragmented market place, the Group is well placed to benefit from its strong presence in the key geographies, where there remain significant opportunities. The immediate priority is to concentrate on maximising organic growth with an emphasis on the delivery of sustainable improvements in return on capital employed and free cash flow. Actions have been put in place to address those issues that affected 2004's performance and the Group remains confident of meeting its objectives in 2005. Group Performance The Group's reported financial highlights for the year ended 30 September 2004 are set out below. 2004 2003 Turnover Â£11,772m Â£11,286m Total operating profit - reported Â£500m Â£521m - before goodwill amortisation Â£775m Â£797m Profit before tax - reported Â£370m Â£358m - before goodwill amortisation and exceptional items Â£645m Â£661m Basic earnings per share - reported 8.3p 8.3p - before goodwill amortisation and exceptional items 21.1p 20.8p - underlying at constant currency (1) 21.1p 19.5p Free cash flow Â£246m Â£415m Return on capital employed (1) 7.0% 7.0% (1) See below for basis of calculation On 13 April 2004, the Group disposed of its 12.7% shareholding in Yoshinoya D&C, part of the Japanese business, for Â£61 million. During 2003, the Group also disposed of its Little Chef and Travelodge businesses. Both of these have been presented as discontinued activities. There were no exceptional items in 2004. Excluding these discontinued activities, goodwill amortisation and 2003's exceptional items, the financial highlights from continuing activities are set out below. 2004 2003 Increase/(decrease) Turnover Â£11,772m Â£11,206m 5% Total operating profit Â£773m Â£769m 1% Profit before tax Â£644m Â£644m - Basic earnings per share 21.1p 20.3p 4% Free cash flow Â£245m Â£403m (39)% Note: The above table excludes discontinued activities, goodwill amortisation and 2003's exceptional items. Movements in the profit and loss account translation rates for the Group's principal currencies, against which the Group seeks to ensure it is economically protected, had a net adverse effect on the presentation of 2004's results with the primary cause being the US dollar average exchange rate moving from 1.60 for 2003 to 1.79 for 2004. Turnover The main factors that affected the year on year change in turnover from continuing activities are summarised below. % Like for like growth - excluding fuel 7 Contribution from acquisitions 2 Movements in translation rates (4) _______________________________________ ____________________________________ Total - continuing activities 5 _______________________________________ ____________________________________ Like for like growth is calculated by adjusting for acquisitions (excluding current year acquisitions and including a full year in respect of prior year acquisitions), disposals (excluded from both years) and exchange rate movements, and compares the results against 2003. Like for like turnover growth was achieved as a result of new contract gains of 12% offset by contract losses of 5% and marginally positive throughput. Throughput represents the movement in turnover in the existing estate, influenced by headcount changes, participation rates and average spend per head. Throughput varies by sector with Education and Healthcare, which are much less affected by the economic cycle, achieving positive throughput of 3% and 2% respectively in 2004. Business and Industry had negative throughput of 1% with Vending at negative 2%. Throughput in the Defence, Offshore and Remote Site sector was marginally negative. In addition to securing record levels of new business, the Group has remained focused on client retention, which remained strong at 95%. This was achieved as a result of continued investing in people in client account management and contract retention teams. The strong performance in like for like turnover was driven by new business wins across all sectors, with a continued trend to outsourcing in Healthcare and Education and the continuing high level of military and peace-keeping activity around the globe, mainly in the Middle East, generating incremental turnover in the Defence, Offshore and Remote Site sector. This incremental turnover added approximately one percentage point to like for like turnover growth. The table below sets out the like for like growth by sector for each geographic division and the Group total. UK CE&ROW North America Total % % % % Business and Industry 5 2 5 3 Defence, Offshore & Remote Site 5 45 (10) 35 Education (1) 4 7 5 Healthcare 4 6 9 7 _____________________________ _________ ___________ ___________ _________ Contract 4 9 7 7 Vending 0 0 3 2 _____________________________ _________ ___________ ___________ _________ Contract and Vending 4 8 6 7 Concessions 9 0 15 6 _____________________________ _________ ___________ ___________ _________ Total 5 6 7 7 _____________________________ _________ ___________ ___________ _________ Total operating profit Growth in total operating profit before goodwill amortisation from continuing activities of 1% has been held back by movements in translation rates (3%) and by three issues in the UK (see below) together with tougher trading conditions over the summer in Continental Europe, particularly in France and the Netherlands. At the end of the 2004 financial year, the Group decided to make a change in the way it deals with certain costs for example, in North America, against the background of rising medical costs, the Group has increased the rate at which it accrues for workers' compensation costs. This did not adversely affect 2004's cash flow, it did however impact total operating profit by approximately Â£20 million. Profit before tax Discontinued activities contributed Â£1 million to profit before tax and goodwill amortisation in 2004 (2003: Â£17 million). Profit before tax and goodwill amortisation from continuing activities for 2004 was Â£644 million (2003: Â£644 million). Basic earnings per share Restating 2003's results at 2004's average translation rates shows an underlying increase at constant exchange rates in basic earnings per share before goodwill amortisation and exceptional items of 8%. Free cash flow Free cash flow for 2004 was adversely affected by two developments in the business. The rapid growth in Defence, Offshore and Remote Site business has required additional working capital to ensure the smooth operation of new contracts, particularly against the background of increasing logistical challenges. Secondly, there has been a change in the payment profile for a number of suppliers resulting in a decrease in trade creditor days for the Group of 58 days at 30 September 2004 compared to 70 days at 30 September 2003. Free cash flow for 2004 did, however, benefit from a one-off receipt of Â£104 million in respect of the monetisation of certain 'in the money' interest rate swaps. Interest payments will be higher by approximately Â£20 million per annum for the next five years as a result of this monetisation. The overall interest hedging position for the Group is unaffected by this transaction, as will be the interest charge in the profit and loss account going forward. 2004's free cash flow also includes a one-off payment of Â£32 million in late September cancelling an 'out of the money' call option over shares in the company that was originally set up as a hedge against share option requirements. This payment is included in provisions spend and had been provided for at the time of its cancellation. Free cash flow for 2004 included Â£1 million of dividends received from Yoshinoya D&C (2003: Â£2 million). Free cash flow for 2003 also included Â£23 million absorbed by Little Chef and Travelodge up to their dates of disposal and benefited from an exceptional tax receipt of Â£33 million. Excluding these items, free cash flow from continuing activities for 2004 was Â£245 million (2003: Â£403 million). Return on capital employed Return on capital employed on a reported basis was 7.0% (2003: 7.0%) based on total operating profit before goodwill amortisation and excluding the Group's minority partners' share of total operating profit, net of tax, and an average capital employed for the year of Â£7,894 million. Including the Group's minority partners' share of total operating profit, net of tax, return on capital employed for 2004 was 7.5% (2003: 7.4%). Average capital employed has been calculated by adding back net debt, goodwill written off to reserves and goodwill amortised through the profit and loss account. The capital employed in the business as at 30 September 2004 and 2003 is detailed in the table below. 2004 2003 Â£m Â£m ________________________ _________________________ _______________________ Net assets 2,482 2,579 Net debt 2,373 2,308 Goodwill written off to reserves 2,132 2,132 Goodwill amortised through the profit and loss account 1,021 760 ________________________ _________________________ _______________________ Capital employed 8,008 7,779 _______________________ _________________________ _______________________ The weighted average cost of capital for the Group was approximately 7.8%, assuming a risk free rate of return of 4.75%, an equity risk premium of 4.50% and a Beta of 1.1. Brands Being able to provide multi-product solutions for clients through a unique portfolio of international, local and bespoke foodservice brands is a key competitive advantage for the Group. In each of the key product categories such as coffee, bakery and burgers the approach has been to develop international brands that we own such as Caffe Ritazza and Upper Crust, or to enter into exclusive franchise rights for the sectors the Group operates in, where a successful brand is already established, such as Burger King. The Group's owned brands also include Au Bon Pain, Harry Ramsden's and Mamma Leone's and its convenience store offer, amigo. The Group also uses franchised brands such as Sbarro, Pizza Hut and Marks & Spencer Simply Food. Caffe Ritazza, the Group's coffee brand, was conceived in response to the trend towards ground and freshly prepared coffee. What differentiates Caffe Ritazza from competing brands is the complementary food offering that appeals to customers throughout the day thus increasing transactions and spend per head. Caffe Ritazza operates in travel concessions in 30 countries and is increasingly in demand in the Business and Industry, Healthcare and Education sectors. There are now 4,200 Ritazza and Caffe Ritazza units in the Group's estate. Wellness and Nutrition The Group is responding to the growing awareness amongst its customers of the importance of healthier eating and an active lifestyle by leading the way in developing offers that meet the particular needs of the sectors and geographies in which it operates. For example, in North America, the Group has developed 'Balanced Choices', a range of products that are low in carbohydrates and salt, low in fat, sugar and caffeine free and which are available across all sectors, including vending, where products such as fat free waffles with fresh fruit and sugar-free syrup, Greek salads with low-fat feta cheese, and Atkins diet products are now available in Canteen's vending machines. In the UK, Scolarest has reduced the salt content of meals in primary schools by 38% since 2002, is encouraging the use of baking and grilling of products as opposed to frying and, in conjunction with Selecta, is re-merchandising and re-branding vending machines to offer a range of juices, waters and healthy snacks. Select Service Partner has developed a 'Wellbeing' range in Upper Crust, which features filled multigrain baguettes and bagels. The Group will continue to develop products that provide its customers with a wide variety and choice of safe, wholesome and enjoyable offers with access to the right information to help them make informed decisions when selecting what to eat or drink. Purchasing Strategy The Group continues to invest in the rollout of its UK purchasing model and in October 2003 established a distinct European purchasing organisation, Sevita, to consolidate and leverage the Group's purchasing spend initially across Europe. Sevita's strategy is the continued consolidation of volumes and spend across Europe leading to improved commercial terms; sourcing back down the supply chain to procure from growers, producers and manufacturers; re-engineering of product specifications to support the Group's wellness and nutrition objectives and the establishment of robust logistics platforms across Europe. In North America, the Group's purchasing organisation, Foodbuy, adopts a similar strategy. A Culinary Initiatives Team made up of chefs from the Group's core sectors was established in 2004 to review Managed Order Guides to ensure maximum synergy and purchasing efficiency is achieved across sectors by rationalising product usage in high volume categories to achieve significant cost benefits without any loss in product quality or consistency. The Group will continue to invest in the rollout of its purchasing model in order to deliver increased profitability. Divisional Performance Constant Like Reported currency for like increase increase Increase % % % 2004 2003 Turnover (Â£m) United Kingdom (continuing activities) 2,567 2,514 2 2 5 Continental Europe & rest of the world 5,192 4,634 12 13 6 North America 3,517 3,562 (1) 9 7 ________________________ ______ ________ ________ _______ ________ Total - continuing activities 11,276 10,710 5 9 7 ________ _______ ________ Fuel 496 496 ________________________ ______ ________ 11,772 11,206 Discontinued activities (UK) - 80 ________________________ ______ ________ Total 11,772 11,286 _______________________ ______ ________ Total operating profit (Â£m) Subsidiary undertakings United Kingdom (continuing activities) 294 360 (18) (18) Continental Europe & rest of the world 287 229 25 29 North America 190 177 7 22 _______________________________ ______ _______ _______ _________________ 771 766 1 4 Associates (continuing activities) 2 3 (33) (33) _______________________________ ______ _______ _______ _________________ Total - continuing activities 773 769 1 4 _______ ________ _________________ Discontinued activities - subsidiaries (UK) - 16 - associates (CE&ROW) 2 12 _______________________________ ______ _______ Total 775 797 _______________________________ ______ _______ Operating margin (%) United Kingdom (continuing activities) 11.1 13.9 Continental Europe & rest of the world 5.5 4.9 North America 5.4 5.0 ___________________________ _____ ______ Total- continuing activities 6.8 7.1 Total operating profit is before goodwill amortisation of Â£275 million (2003: Â£276 million). Fuel turnover comprises Â£466 million in the UK and Â£30 million in Continental Europe and the rest of the world (2003: Â£466 million and Â£30 million respectively). Profit from subsidiary undertakings includes Â£8 million in the UK and Â£nil in Continental Europe and the rest of the world from fuel (2003 : Â£10 million and Â£nil respectively). Operating margin is based on turnover and total operating profit before goodwill amortisation excluding fuel. During 2004, significant growth in the Group's Defence, Offshore and Remote Site business, and the consequent expansion of local operations, has led to the creation of an infrastructure and management team within the Continental Europe and rest of the world division. Accordingly, that part of this activity previously reported in the UK division, now managed outside of the UK, is now reported within the Continental Europe and rest of the world division. In 2003, the turnover of these contracts was Â£110 million and they generated an operating profit of Â£25 million. With the exception of that part of the defence business that involves feeding military personnel based in the UK at any point of time, all other defence business outside of North America is now reflected in the Continental Europe and rest of the world division. This change, whilst having no overall effect on the Group operating margin, has contributed to the decrease in the UK operating margin and the increase in the Continental Europe and rest of the world margin. UK The UK grew its turnover on a like for like basis by 5%. In calculating like for like growth, 2003's turnover has been reduced by the Â£110 million referred to above which is now reported in Continental Europe and rest of the world division. Contract and Vending turnover growth was 4% and Concessions growth was 9%. There was a particularly strong performance in the Sports and Leisure (Concessions) business and good performances in the Business and Industry and Healthcare sectors. In Business and Industry, The Royal Mail renewed its contract for a further five years with annual turnover of Â£75 million. Westland Helicopters, Land Securities Trillium, a property outsourcing provider to the Department for Work and Pensions, GE Healthcare, Microsoft and London Stock Exchange each renewed contracts with over Â£18 million in total of annual turnover. New contract wins included Alliance and Leicester, National Grid Transco and Perkins Engines. Full details of contract gains and renewals are given in Appendix 2. In Healthcare, a renewed contract with East Kent Hospitals NHS Trust and an extended contract with Nottinghamshire Healthcare NHS Trust were amongst the highlights. A particularly strong performance by the Sports and Leisure business within the Concession sector was achieved through new contract gains with annual revenues of Â£14 million including Henley Royal Regatta, the Open Golf Championship, London Zoo, the Oval and Arena Coventry and increased throughput at existing venues. Growth in the Travel Concessions business was also strong. During the year a further eight Marks & Spencer Simply Food outlets at railway stations were opened, as well as a unit at Manchester Airport. Following the successful trial of Marks & Spencer Simply Food at the Moto motorway service area at Toddington, two more units have been opened. The Group is pleased to announce plans to open a further six units at Moto locations over the next eighteen months. Total operating profit (excluding associates and goodwill amortisation) on continuing activities decreased from Â£360 million to Â£294 million. Three trading related issues have held the UK profit back. One of the UK's principal distributors experienced financial difficulties and their business has been successfully transferred to an alternative major distributor but at a higher cost than previously charged. Secondly, a number of Local Education Authority contracts awarded over the past two years are failing to achieve the margin anticipated due to increased labour costs, lower than expected throughput and client pressure on school meal budgets. The third issue relates to the important in-store restaurant market, where the Group has won a number of significant contracts in 2004 but where initial start up costs are being incurred and expensed in accordance with the Urgent Issues Task Force Abstract 24 - Accounting For Start Up Costs. These contracts are being mobilised over the next three years and, as previously announced, further start up costs will be incurred over this period. In terms of segmental reporting, following the creation of a local infrastructure in the Defence, Offshore and Remote site business, as noted above, part of the activity previously reported in the UK division is now reported within the Continental Europe and rest of the world division. This has contributed to the decline in the UK's total operating profit. In addition, a thorough review of 2004's purchasing income and overhead allocation has led to a better allocation between divisions. The impact of this is to reduce the UK's total operating profit by Â£18 million and to increase that of Continental Europe and rest of the world by Â£13 million and North America by Â£5 million. Finally, as mentioned above, in closing the results for 2004 it was decided to make a change in the way the Group deals with certain costs, the effect of which is Â£12 million on the UK's total operating profit. Profit on the disposal of fixed assets and businesses contributed Â£18 million in 2004 to the UK's total operating profit (2003 : Â£5 million). Going forward, the Group expects to be able to maintain its underlying UK margin. Continental Europe & rest of the world In calculating like for like growth, 2003's turnover has been increased by Â£110 million of defence business now reported in this division as noted above. Like for like turnover growth of 6% for the Continental Europe and rest of the world divisions includes strong individual country performances of 15% in Australia, 49% in China (albeit from a small base) and 47% in Greece where the Group catered for the media centre and various corporate hospitality events at the Athens 2004 Olympics. Chile, Kazakhstan, Luxembourg, New Zealand and United Arab Emirates all achieved double digit growth in 2004. The economically tougher markets in France, Germany, the Netherlands and Italy achieved a combined 1% like for like growth. The strong growth in like for like turnover in the Defence, Offshore and Remote Site business of 45% has been accelerated by an increased level of military and peace-keeping activity, particularly in the Middle East. In relation to peace-keeping, the Group now feeds over 30,000 United Nations troops in Kosovo, Cyprus, East Timor, the Golan Heights, Lebanon, Liberia, Eritrea and Burundi. In addition to this, the Group continues to achieve strong growth in Offshore and Remote Site locations. Partnerships with major global clients such as ChevronTexaco, Schlumberger and EADS, and continuing expertise in both catering and support services, are continually leading to new business opportunities. Furthermore, the division's design-and-build capability generated good new business growth in this sector and in 2004 a new operation called 4D2 was created, which applies turnkey solutions to ensure that food and other delivery systems are cost effective and fit for purpose. Other divisions within the Group are already taking advantage of this expertise. For example, 4D2 recently managed the design and build of 19 food courts in colleges and universities in North America for Chartwells' clients. Contract and Vending like for like turnover growth was 8%. In Concessions, like for like turnover was flat principally as a result of the cancelling of loss making retail contracts in Japan. Excluding Japan, like for like Concessions turnover growth was 4%. In Business & Industry, the Group's status as multi-national, single preferred supplier to IBM was instrumental in securing an additional new contract with IBM in Japan. Other notable international client wins include Sony in France and Japan, Deutsche Bank in Italy and the extension of our global foodservice agreement with Philips for a further 10 years. In Healthcare, as the market evolves and develops, the Group's market segmentation strategy ensures that it is well placed to exploit growth opportunities. In France, Medirest added seven new contracts with over Â£20 million in annual turnover. Likewise, in Germany, notable contract wins with Markische Kliniken and Helios Kliniken position the Group for further success. In New Zealand, the Group won new business, notably with the Canterbury District Health Board, illustrating its capabilities in securing new business in highly competitive markets. In Japan, Seiyo Food Systems won a contract with Yuki Hospital (Ibaraki), having been assisted in the tender process by colleagues at Morrisons in North America. In Education, Scolarest delivered a good performance, with notable contract renewals and wins from clients including Direccao Regional de Educacao de Lisboa, in Portugal. In Scandinavia, two prestigious university contracts were secured, with Linkoping University in Sweden and with Avantor in Norway, for the BI Norwegian School of Management's new Oslo Campus. Earlier this year, the Group announced a strategically important joint venture with the Shanghai Railway Administration in China to provide station and onboard catering services to the four high-speed trains between Shanghai and Beijing. Other notable Rail Gourmet contract successes include new clients SNCB in Belgium, SNCF in France and the Turkish State Railways (TCDD). Total operating profit (excluding associates and goodwill amortisation) increased from Â£229 million to Â£287 million. As stated above, the increase in total operating profit benefited from the reporting of defence business previously included in the UK division and from a better allocation of purchasing income and overheads. Japan continued to make significant progress in 2004, achieving an operating margin of 3%. There remains considerable opportunity to further improve the margin in Japan and the combination of turnover growth together with purchasing synergies should deliver further improvement in profit and margin in 2005. Excluding the impact of the transfer of the defence business from the UK to the Continental Europe and rest of the world division, the underlying margin moved forward by 30 basis points, and the Group expects to deliver a similar increase in 2005. On 2 April 2004, the Group acquired Mitropa for an enterprise value of Â£9 million. This is considered by the Group to be a strategically important move into the Concessions market in Germany. Mitropa has contributed Â£41 million to turnover in 2004 and although it has reported a loss before interest and tax of Â£3 million in 2004, steps have already been taken to reduce the run rate of this loss and the Group remains confident that Mitropa should deliver an acceptable return in excess of its cost of capital in 2006. North America North America achieved a 7% like for like increase in turnover including strong growth in Education and Healthcare of 7% and 9% respectively with Business and Industry growing by 5% and Vending by 3%. Overall, Contract and Vending grew by 6% and Concessions by 15%. In Business & Industry, new business growth has been strong. This year the Group has benefited from a number of very large account wins such as Bank of America, as well as a continued stream of smaller accounts. Consolidation is increasing and many of our clients are streamlining their catering from local to regional, to national and ultimately global contracts. In Healthcare, where contractor penetration remains low, Morrisons has continued to deliver a steady new business pipeline. New business wins this year include notable contracts with the Medical Center of Central Georgia and St. Francis Hospital in South Carolina. Morrisons' sister specialist support services business, Crothall, grew from strength to strength with new business wins, including the California Development Centers, as clients increasingly demand multi-service provision. In Education, Chartwell's new business growth was driven by both the higher education and K-12 sub-sectors, including contract wins with Northern Kentucky University and the Newark and Richmond Public Schools in New Jersey and Virginia, respectively. In Sports & Leisure, growth was driven by continued success at Levy Restaurants and Wolfgang Puck. Together these two leading operators have opened up a number of new contracts in the sector, including their joint contract with Anshew Entertainment Group (AEG) to provide fine dining and catering at all AEG's entertainment properties worldwide. Total operating profit (excluding associates and goodwill amortisation) increased by Â£34 million to Â£190 million before the negative translation effect between 2003 and 2004. Reported margin grew from 5.0% to 5.4% reflecting excellent progress in purchasing and tight cost control. Looking forward to 2005, the Group expects to see a more normal rate of growth in the margin. Foodbuy, the North American purchasing division, had another successful year and has in 2004 been able to mitigate the worst effects of significant food price inflation across the US. There is still a significant opportunity in the US to deliver further purchasing savings. Interest Net debt at 30 September 2004 was Â£2,373 million (2003 : Â£2,308 million). Net interest for the year was Â£130 million (2003 : Â£136 million). The average cost of funding (net of cash balances) for the year was 4.8% (2003 : 5.0%). Interest cover for 2004 was six times total operating profit before goodwill amortisation. Profit before taxation Profit before taxation, goodwill amortisation and exceptional items decreased by 2% from Â£661 million to Â£645 million. Yoshinoya contributed Â£1 million to profit before tax in 2004. In 2003, Yoshinoya contributed Â£12 million to total operating profit and Little Chef and Travelodge contributed Â£16 million to total operating profit. Interest attributable to these businesses, based on the proceeds received at the Group's average interest rate, was Â£11 million. Accordingly, these discontinued activities contributed Â£17 million to profit before tax in 2003. Adjusting for this, profit before tax, goodwill amortisation and exceptional items on continuing activities remained constant at Â£644 million. Taxation The overall Group tax charge was Â£152 million giving an overall tax rate on ordinary activities of 23.6% of profit before tax, goodwill amortisation and exceptional items (2003 : 25.6%). The lower rate in 2004 principally reflects the recognition of reliefs associated with past acquisitions. For the same reason, it is currently anticipated that the Group tax rate will again be around the 24% level in 2005. The blended statutory tax rate for the Group, based on current statutory tax rates in force in the key countries in which the Group operates, is estimated at 33%. The Group has tax efficient structuring in place that results in an approximate six percentage point benefit on the blended statutory tax rate for 2006 onwards. Accordingly the Group tax rate for 2006 onwards is likely to move upwards, to the mid to high 20s range. A tax reconciliation of the current rate for the year is included in note 4 to the attached financial information. This reconciliation summarises the reasons why the Group's current tax rate of 24%, excluding deferred tax and prior year adjustments, was below the UK corporate tax rate of 30%. The main reasons were the utilisation of tax losses brought forward, 5%; the tax deductibility of part of the Group's goodwill, 2% and capital allowances in excess of depreciation, 1%; offset by higher overseas tax rates, 2%. The Group's cash tax rate for 2004 was 17% and is likely to move to 18-20% for 2005. Thereafter, the cash tax rate is likely to average out, over time, at the mid 20s level. Goodwill amortisation and exceptional items The goodwill amortisation charge for the year was Â£275 million (2003: Â£276 million). There were no exceptional items in 2004. The net exceptional item for 2003 was a loss of Â£1 million. Earnings per share Basic and diluted earnings per share on a reported basis, after goodwill amortisation and exceptional items, were both 8.3 pence (2003: 8.3 pence). Basic earnings per share before goodwill amortisation and exceptional items for the year was 21.1 pence (2003: 20.8 pence). Underlying basic earnings per share, adjusting for discontinued activities and currency translation, is up by 8% year on year at 21.1 pence per share. Attributable profit and basic earnings per share are reconciled below. Attributable profit Basic earnings per share 2004 2003 2004 2003 Â£m Â£m Pence Pence Growth Reported 180 184 8.3 8.3 - Goodwill amortisation 275 276 Exceptional items - 1 _________________ ________ ____________ Before goodwill amortisation and exceptional items 455 461 21.1 20.8 1% Discontinued activities - (10) _________________ ________ ____________ Continuing activities 455 451 21.1 20.3 4% Currency translation - (18) _________________ ________ ____________ Underlying 455 433 21.1 19.5 8% _________________ ________ ____________ Discontinued activities have been taxed at the UK rate of 30% and Yoshinoya's effective tax rate of 54%. The effect of currency translation is calculated by applying 2004's translation rates to 2003's attributable profit. Dividends The recommended final dividend is 6.2 pence per share resulting in a total dividend for the year of 9.3 pence per share, an increase in the total dividend per share of 11%. This reflects the Group's view of its ability to generate strong free cash flow. Dividend cover for 2004 was 2.3 times profit for the financial year before goodwill amortisation. Acquisitions The Group's strategic focus continues to be on the organic development of its existing core businesses. This has been complemented by a small number of acquisitions either to strengthen the Group's geographic coverage or to reinforce its sectoral presence in certain areas. The Group purchased businesses for Â£164 million in the 2004 financial year and purchased further shares in subsidiary companies not wholly owned for Â£19 million. Â£19 million of the aggregate purchase price is deferred consideration payable in the future. In aggregate, the net assets acquired had a provisional fair value of Â£22 million, including Â£11 million of net cash, resulting in goodwill of Â£161 million. Details of the acquisitions are given in note 15 to the attached financial information. On 4 November 2004, the Group agreed to acquire, in December 2004, a further 30% of the remaining share capital in Onama, the Group's Italian contract catering business, for Â£41 million taking the total share holding to 90%. The acquisition of other minority interests and the payment of deferred consideration is currently expected to cost between Â£40 million and Â£60 million in 2005. The Group does not anticipate any further new acquisitions in the remainder of the 2005 financial year. Pensions In total, the Group charged Â£70 million (2003: Â£60 million) to profit before tax in respect of its pension arrangements, of which Â£48 million (2003: Â£43 million) relates to defined benefit schemes and Â£22 million (2003: Â£17 million) relates to defined contribution schemes. Actuaries to the Group's defined benefit pension arrangements advise the Pension Trustees on the funding rates required by the Group. In total, the Group paid Â£74 million (2003: Â£64 million) during the year to the pension providers in order to enable the pension funds to fulfil their obligations. Disclosure in accordance with FRS 17 Retirement Benefits is provided in note 16 to the attached financial information. This shows that, at 30 September 2004, there was an unprovided pension deficit, net of deferred tax, of Â£131 million (2003: Â£79 million). Had the Group adopted FRS 17, the charge to the profit and loss account, before tax, would have been Â£53 million, net of a one-off curtailment credit of Â£6 million (2003: Â£52 million, net of Â£3 million). Free cash flow The decrease in free cash flow of Â£169 million is principally as a result of working capital absorbing Â£203 million (2003: Â£38 million) for the reasons detailed above. Payments in respect of provisions for liabilities and charges absorbed Â£41 million (2003: Â£46 million) excluding a one-off payment of Â£32 million settling a share related call option originally set up as a hedge against share option requirements. Â£21 million was spent on reducing liabilities in respect of insurance, pensions and other post-employment benefits, Â£14 million on settling onerous contracts and Â£6 million in respect of legal and other claims. Interest payments absorbed a net Â£131 million compared with Â£151 million in 2003 before a one-off derivatives monetisation receipt of Â£104 million in 2004. The net tax paid in 2004 of Â£107 million (2003: Â£78 million before an exceptional tax receipt of Â£33 million) represents 17% of profit before tax and goodwill amortisation and is significantly less than the total tax charge for the year of Â£152 million. The main reasons for this difference are items allowable for tax but which are not charged to the profit and loss account, tax losses brought forward and utilised in the year, capital allowances in excess of depreciation and the timing of tax payments. Net capital expenditure absorbed Â£329 million compared with Â£312 million in 2003. Including Â£9 million purchased under finance lease contracts, net capital expenditure represents 3.0% of turnover excluding fuel. The Group has stringent controls on capital expenditure that are monitored centrally. There are fixed authority limits at each subsidiary company level and internal rate of return criteria that each project must achieve to obtain approval. Acquisition payments were Â£167 million, comprising Â£169 million of consideration paid less Â£21 million of cash acquired (excluding Â£10 million of loans and finance lease obligations in the companies when acquired) and Â£19 million of deferred consideration paid in respect of previous acquisitions. In aggregate, deferred consideration payable at 30 September 2004 amounted to Â£41 million. During 2004, the timing of payment of dividends has been accelerated. Accordingly, the payment of dividends absorbed Â£249 million reflecting the payment of three dividends during 2004. Net proceeds from businesses held for resale, the sale of minority interests, subsidiary undertakings and associates generated Â£86 million including Â£61 million in respect of the disposal of the Group's remaining shareholding in Yoshinoya. The net cash outflow for the year was Â£84 million, before Â£10 million of proceeds on the issue of ordinary shares, paying Â£91 million for shares repurchased, Â£1 million cost for the purchase of own shares, Â£10 million of debt acquired with subsidiaries, Â£9 million of new finance leases and a translation gain on net debt for the year of Â£120 million, principally as a result of the US dollar moving from 1.66 to 1.81, and the Euro moving from 1.43 to 1.46 over the year. Closing net debt as at 30 September 2004 was Â£2,373 million (2003: Â£2,308 million). International Financial Reporting Standards Following the European Union's adoption of Regulation (EC) No 1606/2002, all publicly listed companies in the EU will be required to adopt International Financial Reporting Standards ('IFRS') including revised International Accounting Standards ('IAS'), in issue at 31 March 2004, for their financial statements from 2005. Consequently the Group will be implementing IFRS from 1 October 2005. The first financial information to be reported by the Group in accordance with IFRS will be for the six months ending 31 March 2006 but the requirement to present comparative information means that a balance sheet as at 30 September 2004 and primary statements for the six months to 31 March 2005 and the year to 30 September 2005, prepared in accordance with IFRS, will also be required. The Group will continue to report its consolidated financial statements in accordance with UK GAAP for the year to 30 September 2005. Appendix 1 sets out a summary of the process that the Group has adopted to manage the transition to IFRS and a summary of the areas that could affect the Group's financial statements in implementing IFRS. Outlook After a difficult period, the Group enters the new financial year confident that actions have been taken to address the challenges of 2004 to give a solid platform from which to grow. 80% of the additional turnover needed in 2005 to deliver at least 6% like for like turnover growth has already been secured and the pipeline across all businesses is encouraging. With further benefits still to be achieved, especially in purchasing, the Group is confident of improved performance. The Group's expectations for free cash flow in 2005 remains unchanged at Â£350 million to Â£370 million. The Group is now increasing its focus on organic growth, with a renewed emphasis on how capital is used, in order to deliver sustainable improvements in return on capital employed. Michael J Bailey Sir Francis H Mackay Chief Executive Chairman NOTES (a) The results for the year ended 30 September 2004 were approved by the Directors on 30 November 2004 and have been prepared on the basis disclosed in the 2003 Annual Report with the exception of the introduction of UITF abstract 38 Accounting for ESOP trusts which has impacted 2004 for the disclosure of own shares in the consolidated balance sheet and consolidated cash flow statement in respect of the purchase of own shares. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 30 September 2004 or 30 September 2003 but is derived from those accounts. The auditors have reported on these accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The 2004 accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting. (b) The timetable for the proposed final dividend of 6.2p per share is as follows: Ex dividend date: 16 February 2005 Record date: 18 February 2005 Payment date: 14 March 2005 (c) A presentation for analysts and investors will take place at 9:30 am (GMT) on Tuesday, 30 November 2004 at ABN Amro, 250 Bishopsgate, London EC2M 4AA. The live presentation can also be accessed via both a webcast and dial-in teleconference starting at 9:30 am: â€¢ To listen to the live presentation via teleconference, dial (UK) +44 20 7784 1014 or (US) +1 718 354 1158 â€¢ To view the presentation slides and/or listen to a live audio webcast of the presentation, go to www.compass-group.com or www.cantos.com â€¢ Please note that remote listeners will not be able to ask questions during the Q&A session. A replay recording of the presentation will also be available via teleconference and webcast: â€¢ A teleconference replay of the presentation will be available for five working days, until 7 December 2004. To hear the replay, dial (UK) +44 20 7984 7578 or (US) +1 718 354 1112. The replay passcode is 359337# â€¢ A webcast replay of the presentation will be available for six months, at www.compass-group.com and www.cantos.com For North American based investors, there will be a question and answer conference call starting at 1:00pm (EST) â€¢ To participate in the live question and answer session via conference call, dial (US) +1 718 354 1157. â€¢ A teleconference replay of the call will be available for five working days, until 7 December 2004. To hear the replay, dial (US) +1 718 354 1112. The replay passcode is 770029#. â€¢ The North American investor conference call will also be webcast live, and archived for replay, at www.compass-group.com and www.cantos.com (d) Forward looking statements This Preliminary Statement 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. (e) Management interviews Interviews with Michael J Bailey and Andrew Martin in video, audio and text are available from 7:00 am (GMT) on www.compass-group.com and www.cantos.com. Enquiries: Compass Group PLC 01932 573000 Michael J Bailey Group Chief Executive Andrew Martin Group Finance Director Brunswick + 44 (0) 20 7404 5959 Simon Sporborg Pamela Small Website www.compass-group.com Compass Group is the world's largest foodservice company with annual revenues of some Â£12 billion. Compass Group has over 400,000 employees working in more than 90 countries around the world. For more information visit www.compass-group.com CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 September 2004 Before goodwill Goodwill amortisation amortisation Before and and goodwill Goodwill Total exceptional exceptional Total amortisation amortisation 2004 items items 2003 Notes Â£m Â£m Â£m Â£m Â£m Â£m ___________ ___________ _________ ___________ ___________ _________ Turnover Continuing operations 11,633 - 11,633 11,206 - 11,206 Acquisitions 139 - 139 - - - ___________ ___________ _________ ___________ ___________ _________ 11,772 - 11,772 11,206 - 11,206 Discontinued activities - - - 80 - 80 ___________ ___________ _________ ___________ ___________ _________ Total turnover 1 11,772 - 11,772 11,286 - 11,286 Operating costs (11,001) (275) (11,276) (10,504) (276) (10,780) ___________ ___________ _________ ___________ ___________ _________ Operating profit Continuing operations 770 (274) 496 766 (276) 490 Acquisitions 1 (1) - - - - ___________ ___________ _________ ___________ ___________ _________ 771 (275) 496 766 (276) 490 Discontinued activities - - - 16 - 16 ___________ ___________ _________ ___________ ___________ _________ 771 (275) 496 782 (276) 506 Share of profits of associated undertakings Continuing operations 1 2 - 2 3 - 3 Discontinued activities 1 2 - 2 12 - 12 ___________ ___________ _________ ___________ ___________ _________ Total operating profit: Group and share of associated 1 775 (275) 500 797 (276) 521 undertakings ___________ ___________ _________ ___________ ___________ _________ Loss on disposal of businesses - discontinued activities 2 - - - - (27) (27) ___________ ___________ _________ ___________ ___________ _________ Interest receivable and 5 - 5 16 - 16 similar income Interest payable and similar 3 (135) - (135) (152) - (152) charges ___________ ___________ _________ ___________ ___________ _________ Net interest (130) - (130) (136) - (136) ___________ ___________ _________ ___________ ___________ _________ Profit on ordinary activities before taxation 645 (275) 370 661 (303) 358 ___________ ___________ _________ ___________ ___________ _________ Tax on profit on ordinary 4 (152) - (152) (169) 26 (143) activities ___________ ___________ _________ ___________ ___________ _________ Profit on ordinary activities 493 (275) 218 492 (277) 215 after taxation Equity minority interests (38) - (38) (31) - (31) ___________ ___________ _________ ___________ ___________ _________ Profit for the financial year 455 (275) 180 461 (277) 184 Equity dividends 5 (200) - (200) (183) - (183) ___________ ___________ _________ ___________ ___________ _________ Profit / (loss) for the year 14 255 (275) (20) 278 (277) 1 retained ___________ ___________ _________ ___________ ___________ _________ Basic earnings per ordinary 6 8.3p 8.3p share ======== ======= Basic earnings per ordinary share - excluding goodwill amortisation and exceptional items 6 21.1p 20.8p ========= ========= Diluted earnings per ordinary 6 8.3p 8.3p share ======== ======== Diluted earnings per ordinary share - excluding goodwill amortisation and exceptional items 6 21.0p 20.7p ========= ========= CONSOLIDATED BALANCE SHEET As at 30 September 2004 Consolidated balance sheet Notes 2004 2003 Â£m Â£m Fixed assets Intangible assets 7 4,223 4,436 Tangible assets 8 1,805 1,734 Investments 9 30 73 _________ _________ 6,058 6,243 _________ _________ Current assets Stocks 279 229 Debtors: amounts falling due within one year 10 1,568 1,530 amounts falling due after more than one year 10 287 309 Cash at bank and in hand 266 303 _________ _________ 2,400 2,371 Creditors: amounts falling due within one year 11 (2,872) (3,093) __________ __________ Net current liabilities (472) (722) __________ __________ Total assets less current liabilities 5,586 5,521 Creditors: amounts falling due after more than one year 12 (2,665) (2,457) Provisions for liabilities and charges 13 (385) (429) Equity minority interests (54) (56) __________ __________ Net assets 2,482 2,579 ======== ======== Capital and reserves Called up share capital 216 217 Share premium account 14 93 84 Capital redemption reserve 14 9 7 Merger reserve 14 4,170 4,170 Profit and loss account 14 (2,005) (1,899) Less: own shares (1) - __________ __________ Total equity shareholders' funds 2,482 2,579 ======== ======== CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2004 2004 2003 _________________________ _________________________ Â£m Â£m Â£m Â£m Net cash inflow from operating activities (note I) 735 933 Dividends from associated undertakings 4 5 Returns on investments and servicing of finance Interest received 5 15 Interest paid (134) (163) Proceeds from termination of interest rate swaps 104 - Interest element of finance lease rental payments (2) (3) Dividends paid to minority interests (30) (15) _____________ _________ Net cash outflow from returns on investments and (57) (166) servicing of finance Taxation Tax received 5 41 Tax paid (112) (86) _____________ _________ Net tax paid (107) (45) Capital expenditure and financial investment Purchase of tangible fixed assets (365) (376) Sale of tangible fixed assets 36 64 _____________ _________ Total capital expenditure and financial investment (329) (312) __________ ______________ Free cash flow 246 415 __________ ______________ Acquisitions and disposals (note IV) Purchase of subsidiary companies and investments in associated undertakings (167) (296) Net proceeds from businesses held for resale 19 30 Sale of minority interest 3 - Sale of subsidiary companies and associated 64 720 undertakings _____________ ________ Total acquisitions and disposals (81) 454 Equity dividends paid (249) (159) __________ ______________ Net cash (outflow)/inflow from investing activities (330) 295 __________ ______________ Net cash (outflow)/inflow before management of liquid resources and financing (84) 710 Management of liquid resources: Sale of marketable - 3 securities Financing Issue of ordinary share capital 10 12 Repurchase of share capital (91) (211) Purchase of own shares, net (1) - Debt due within one year: Decrease in bank loans and loan notes (26) (218) Debt due after one year: Increase/(decrease) in bank loans and loan notes 270 (464) Capital element of finance lease rentals (21) (16) _____________ _________ Net cash inflow/(outflow) from financing 141 (897) __________ ______________ Increase/(decrease) in cash in the year 57 (184) ========= ============ Reconciliation of net cash flow to movement in net debt (note II) Increase/(decrease) in cash in the year 57 (184) Cash (inflow)/outflow from change in debt and lease (223) 698 finance __________ _____________ Change in net debt resulting from cash flows (166) 514 Loans acquired with subsidiaries and changes in finance leases (19) (41) Effect of foreign exchange rate changes 120 (79) __________ ______________ Movement in net debt in the year (65) 394 Opening net debt (2,308) (2,702) __________ ______________ Closing net debt (2,373) (2,308) ========= ============ NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 September 2004 I Reconciliation of operating profit to net cash inflow from operating activities: 2004 2003 Â£m Â£m Operating profit before goodwill amortisation and exceptional items 775 797 Depreciation 258 243 ___________ __________ EBITDA 1,033 1,040 Profit on disposal of fixed assets (8) (3) Profit on disposal of businesses (10) (5) Share of profits of associated undertakings (4) (15) Expenditure in respect of provisions for liabilities and charges (73) (46) Increase in stocks (57) (33) Increase in debtors (110) (64) (Decrease)/increase in creditors (36) 59 ___________ __________ Net cash inflow from operating activities before exceptional items 735 933 ========= ========= Profit on disposal of fixed assets comprises Â£6 million in the UK and Â£2 million in Continental Europe and the rest of the world (2003 : UK Â£5 million, Continental Europe and the rest of the world Â£(3) million and North America Â£1 million). Profit on disposal of businesses comprises Â£12 million in the UK and Â£(2) million in Continental Europe and the rest of the world (2003 : Continental Europe and the rest of the world Â£5 million). II Analysis of net debt: Acquisitions (excluding Other 1 October Exchange cash and non-cash 30 September 2003 Cash flow movements overdrafts) changes 2004 Â£m Â£m Â£m Â£m Â£m Â£m Cash at bank and in hand 303 (25) (12) - - 266 Overdrafts (98) 82 2 - - (14) ________ _________ ____________ ____________ ________ ____________ 205 57 (10) - - 252 ________ __________ ____________ ____________ ________ ____________ Debt due within one year (111) 26 - - - (85) Debt due after one year (2,336) (270) 127 (7) - (2,486) Finance leases (66) 21 3 (3) (9) (54) ________ _________ ____________ ____________ _________ ____________ (2,513) (223) 130 (10) (9) (2,625) ________ _________ ____________ ____________ _________ ____________ Total (2,308) (166) 120 (10) (9) (2,373) ======= ======== ========== =========== ======= =========== NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) For the year ended 30 September 2004 III Purchase and disposal of subsidiary companies and investments in associated undertakings: 2004 2004 2003 2003 Â£m Â£m Â£m Â£m Purchases Disposals Purchases Disposals Net assets acquired/(disposed of): Tangible fixed assets 28 (1) 32 (773) Fixed asset investments 7 (47) - (38) Stocks 4 (1) 1 (4) Debtors 25 (1) 119 (8) Cash 21 - 19 (1) Bank overdrafts - - (29) - Loans (7) - (18) - Leases (3) - (12) - Creditors (56) 1 (130) 21 Provisions (5) - (45) - Tax 6 - 29 63 Minority interests 6 - 60 - _________ _______ ________ ________ 26 (49) 26 (740) Loss on disposal - 2 - 29 Goodwill acquired/(disposed of) 162 (17) 195 (14) _________ _______ _______ ________ 188 (64) 221 (725) ======== ======= ======= ======= Satisfied by: Cash consideration payable/(receivable) 169 (64) 208 (721) Deferred consideration receivable - - - (8) Deferred consideration payable 19 - 13 4 _________ _______ _______ ________ 188 (64) 221 (725) ========= ======= ======= ======== IV Analysis of net flow of cash in respect of the purchase and disposal of subsidiary companies and investments in associated undertakings: 2004 2004 2003 2003 Â£m Â£m Â£m Â£m Purchases Disposals Purchases Disposals Cash consideration paid/(received net of liabilities settled) 169 (64) 208 (721) Cash (acquired)/disposed of (21) - (19) 1 Overdrafts acquired - - 29 - ________ _______ _______ ________ 148 (64) 218 (720) Deferred consideration and costs relating to previous acquisitions 19 - 78 - ________ _______ _______ ________ 167 (64) 296 (720) ======== ======= ======= ======== NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2004 1. Turnover and operating profit Continuing Discontinued operations Acquisitions activities 2004 2003 Â£m Â£m Â£m Â£m Â£m Turnover Foodservice: Geographical analysis: - United Kingdom Continuing 3,021 12 - 3,033 2,980 Discontinued - - - - 80 _________ _________ __________ _____ ______ 3,021 12 - 3,033 3,060 - Continental Europe & rest of the world 5,150 72 - 5,222 4,664 - North America 3,462 55 - 3,517 3,562 _________ _________ __________ _____ ______ 11,633 139 - 11,772 11,286 ======== ======== ========= ===== ===== Operating profit Before goodwill amortisation and exceptional items Foodservice: - The Company and its subsidiary undertakings Continuing 770 1 - 771 766 Discontinued - - - - 16 - Associated undertakings Continuing 2 - - 2 3 Discontinued - - 2 2 12 _________ _________ __________ _____ ______ 772 1 2 775 797 ======= ======= ========= ===== ===== Geographical analysis: - United Kingdom The Company and its subsidiary undertakings Continuing 294 - - 294 360 Discontinued - - - - 16 Associated undertakings 1 - - 1 2 - Continental Europe & rest of the world The Company and its subsidiary 289 (2) - 287 229 undertakings Associated undertakings Continuing 1 - - 1 - Discontinued - - 2 2 12 - North America The Company and its subsidiary 187 3 - 190 177 undertakings Associated undertakings - - - - 1 _________ _________ __________ _____ ______ 772 1 2 775 797 _________ _________ __________ _____ ______ Amortisation of goodwill - continuing operations - United Kingdom (156) - - (156) (155) - Continental Europe & rest of the world (70) (1) - (71) (70) - North America (48) - - (48) (51) _________ _________ __________ _____ ______ (274) (1) - (275) (276) _________ _________ __________ _____ ______ Total operating profit: Group and share of associated undertakings 498 - 2 500 521 ======= ======= ========= ===== ===== Total operating profit after goodwill amortisation for the year ended 30 September 2004 relates to foodservice analysed as UK Â£139 million, Continental Europe & rest of the world Â£219 million and North America Â£142 million (2003: Â£223 million, Â£171 million and Â£127 million respectively). NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 2. Exceptional items 2004 2003 Â£m Â£m Loss on disposal of discontinued activities - Little - 27 Chef and Travelodge ======== ========= 3. Interest payable and similar charges 2004 2003 Â£m Â£m Bank loans and overdrafts 34 41 Other loans 99 108 Finance lease interest 2 3 __________ __________ 135 152 ======== ======== 4. Tax on profit on ordinary activities 2004 2003 Â£m Â£m UK corporation tax at 30% (2003: 30%) 49 41 Overseas tax payable 105 89 UK tax on share of profits of associated 1 - undertakings Overseas tax on share of profits of associated 2 6 undertakings __________ _________ Current tax charge on profit before goodwill 157 136 amortisation and exceptional items UK deferred tax 18 11 Impact of discounting UK deferred tax (1) 5 Overseas deferred tax 17 54 Impact of discounting overseas deferred tax (12) (12) __________ __________ 179 194 __________ _________ Adjustments in respect of prior years: UK corporation tax 10 (13) Overseas tax payable (32) (12) UK deferred tax (2) (16) Overseas deferred tax (3) 16 __________ _________ (27) (25) __________ _________ Total tax charge before exceptional items 152 169 __________ _________ Exceptional items: UK corporation tax - 4 Overseas tax payable - 3 Prior year UK corporation tax - (33) __________ __________ Total exceptional tax credit - (26) __________ __________ Tax on profit on ordinary activities after 152 143 exceptional items ======== ======== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 4. Tax on profit on ordinary activities (continued) Factors affecting the future tax charge The main factors affecting the future tax charge are addressed on page 13. 2004 2003 % % Reconciliation of the UK statutory tax rate to the effective current tax rate Tax charge on profit on ordinary activities before goodwill amortisation and exceptional items at the UK statutory rate of 30% 30 30 Increase/(decrease) resulting from: Permanent items 1 2 Amortisation of goodwill (2) (2) Overseas taxes at higher rates 2 3 Losses bought forward (5) (6) Tax credits - (2) Capital allowances for the period in excess of (1) (2) depreciation charged Other timing differences (1) (2) _________ __________ Current tax rate on profit before goodwill amortisation and exceptional items 24 21 ======== ======== 5. Dividends Per 2004 Per 2003 share Â£m share Â£m Dividends on ordinary shares of 10p each: Interim 3.1p 66 2.7p 60 Proposed final 6.2p 134 5.7p 123 __________ __________ __________ __________ 9.3p 200 8.4p 183 ======== ======== ======== ======== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 6. 6. Earnings per share Before goodwill Including amortisation goodwill Before and amortisation exceptional and goodwill Including items exceptional amortisation goodwill amortisation items 2004 2004 2003 2003 Â£m Â£m Â£m Â£m Attributable profit for basic and diluted earnings per share 455 180 461 184 ======== ========= ========= ========== Millions Millions Millions Millions Average number of shares for basic earnings per share 2,158 2,158 2,218 2,218 Dilutive share options 7 7 5 5 _________ __________ __________ ___________ Average number of shares for diluted earnings per share 2,165 2,165 2,223 2,223 _________ __________ __________ ___________ Basic earnings per share 21.1p 8.3p 20.8p 8.3p ========= ========= ========== =========== Diluted earnings per share 21.0p 8.3p 20.7p 8.3p ========= ========= ========== =========== Earnings per share excluding goodwill amortisation and exceptional items has been shown to disclose the impact of these on underlying earnings. 7. Intangible fixed assets Goodwill Â£m Cost At 1 October 2003 5,196 Additions arising from acquisitions 162 Disposal (19) Currency adjustment (95) _________ At 30 September 2004 5,244 _________ Amortisation At 1 October 2003 760 Charge for the year 275 Disposal (2) Currency adjustment (12) _________ At 30 September 2004 1,021 _________ Net book amount At 30 September 2004 4,223 ======== At 30 September 2003 4,436 ======== Additions to goodwill arising from acquisitions relates to the acquisitions shown in note 15. Goodwill on acquisitions is being amortised over periods of up to 20 years which are considered to be the estimated useful lives. The disposal relates to the goodwill attaching to the remaining 12.7% of Yoshinoya D & C held by Seiyo Foods disposed of during the year. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 8. Tangible fixed assets Freehold Long Short Plant Fixtures land and leasehold leasehold and and buildings property property machinery fittings Total Â£m Â£m Â£m Â£m Â£m Â£m Cost At 1 October 2003 486 58 327 1,446 661 2,978 Currency adjustment (10) - (3) (58) (15) (86) Additions 19 3 14 205 133 374 Businesses acquired 2 - 7 14 5 28 Disposals (1) (1) (3) (84) (42) (131) Business disposals - - - (1) - (1) Transfer between categories (3) 1 49 (75) 28 - ________ ________ ________ ________ ________ ________ At 30 September 2004 493 61 391 1,447 770 3,162 ________ ________ ________ ________ ________ ________ Depreciation At 1 October 2003 85 4 54 763 338 1,244 Currency adjustment (4) - (1) (28) (9) (42) Charge for the year 12 2 14 159 71 258 Disposals (1) - (3) (75) (24) (103) Transfer between categories 3 1 5 (23) 14 - ________ ________ ________ ________ ________ ________ At 30 September 2004 95 7 69 796 390 1,357 ________ ________ ________ ________ ________ ________ Net book amount At 30 September 398 54 322 651 380 1,805 2004 ====== ======= ====== ====== ====== ======= At 30 September 2003 401 54 273 683 323 1,734 ====== ======= ====== ====== ====== ======= The net book amount of the Group's tangible fixed assets includes, in respect of assets held under finance leases, freehold buildings and long and short leasehold property Â£9 million (2003: Â£11 million), plant and machinery Â£34 million (2003: Â£38 million) and fixtures and fittings Â£3 million (2003: Â£4 million). 9. Investments held as fixed assets Investment in associated undertakings Â£m Cost At 1 October 2003 73 Additions 7 Disposals (47) Share of retained profits less losses 1 Dividends received (4) Currency adjustments/other movements - ______________ At 30 September 2004 30 ============ During the year the Group disposed of its remaining 12.7% of Yoshinoya D&C. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 0. Debtors 2004 2003 Â£m Â£m Amounts falling due within one year Trade debtors 1,186 1,112 Amounts owed by associated undertakings 1 4 Overseas tax recoverable 12 15 Other debtors 153 184 Prepayments and accrued income 216 215 __________ __________ 1,568 1,530 ======== ======== Amounts falling due after more than one year Other debtors 189 177 Overseas tax recoverable 3 - Deferred tax 95 132 __________ __________ 287 309 ======== ======== 2004 2003 Â£m Â£m Deferred tax analysis UK capital allowances in excess (10) (8) of depreciation UK short term timing 72 100 differences Overseas deferred tax (37) (26) Discount on timing 70 66 differences __________ _________ 95 132 ======== ======== Deferred tax does not include any potential tax liabilities which might arise in the event of the distribution of unappropriated profits or reserves of overseas subsidiary companies as there is no current intention to distribute such profits or reserves. Deferred tax assets of Â£73 million (2003: Â£147 million) have not been recognised as the timing of recovery is uncertain. Â£m The movements on deferred tax are as follows: At 1 October 2003 132 Arising from acquisitions 2 Charged to profit and loss account (17) Other movements (22) _____________________ At 30 September 2004 95 ================== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 11. Creditors - amounts falling due within one year 2004 2003 Â£m Â£m Bonds - 94 Loan notes 19 12 Bank loans 66 5 Bank overdrafts 14 98 Obligations under finance leases 16 19 Trade creditors 926 1,060 Amounts owed to associated undertakings 2 4 Corporation tax payable 211 146 Overseas tax 142 188 Other tax and social security costs 203 208 Other creditors 264 241 Deferred consideration 14 25 Accruals and deferred income 861 810 Proposed dividend 134 183 _________________ ________________ 2,872 3,093 =============== ============== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 12. Creditors - amounts falling due after more than one year 2004 2003 Â£m Â£m Bonds 1,348 1,102 Loan notes 550 591 Bank loans 588 643 Obligations under finance leases 38 47 Other creditors 44 55 Deferred consideration 27 19 Accruals and deferred income 70 - __________________ _______________ 2,665 2,457 ================ ============== All amounts due under bonds, loan notes and bank facilities are shown net of unamortised issue costs. Bonds are unsecured and consist of the following: - Euro Eurobond with nominal value â‚¬750 million redeemable in 2009 and bearing interest at 6.0% per annum. - Sterling Eurobond with nominal value Â£200 million redeemable in 2010 and bearing interest at 7.125% per annum. - Sterling Eurobond with nominal value Â£325 million redeemable in 2012 and bearing interest at 6.375% per annum. - Sterling Eurobond with nominal value Â£250 million redeemable in 2014 and bearing interest at 7.0% per annum. The bond redeemable in 2014 is recorded at its fair value to the Group on acquisition. The Group has fixed term, fixed interest private placements totalling US$991 million (Â£548 million) at interest rates between 5.11% and 7.955%. US$654 million (Â£361million) is repayable in five to ten years. Maturity of financial liabilities and other creditors falling due after more than one year as at 30 September 2004 is as follows: 2004 2003 ______________________________________ ______________________________________ Bonds and Loans and Bonds and Loans and loan notes overdrafts Other Total loan notes overdrafts Other Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m In more than one year but not more than two years 75 5 79 159 30 45 70 145 In more than two years but not more than five years 627 574 82 1,283 130 598 36 764 In more than five years 1,196 9 18 1,223 1,533 - 15 1,548 _________ _________ _________ _________ _________ _________ ______ _________ 1,898 588 179 2,665 1,693 643 121 2,457 In one year or less, or on demand 19 80 30 129 106 103 44 253 _________ _________ ________ ________ _________ _________ ______ _________ 1,917 668 209 2,794 1,799 746 165 2,710 ========== ========= ======== ======== ========= ========= ====== ========= NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 12. Creditors - amounts falling due after more than one year (continued) 2004 2003 Â£m Â£m Bank loans: Repayable by instalments in more than five 9 - years Repayable by instalments within five years 23 - Less: amounts falling due within one year (5) - ____________ ___________ Amounts repayable by instalments falling due 27 - after more than one year =========== ========== Repayable otherwise than by instalments within 622 648 five years Less: amounts falling due within one year (61) (5) ____________ ___________ Amounts repayable otherwise than by instalments 561 643 falling due after more than one year =========== ========== 13. Provisions for liabilities and charges Pensions and other post Legal and employment Onerous other benefits Insurance contracts claims Environmental Total Â£m Â£m Â£m Â£m Â£m Â£m At 1 October 2003 247 32 48 91 11 429 Arising from acquisitions 2 - 3 - - 5 Expenditure in the year (16) (5) (14) (38) - (73) Charged to profit and loss account 21 7 - 6 - 34 Credited to profit and loss account - - - (5) - (5) Reclassified 5 4 (5) - - 4 Currency adjustment (6) - (1) (2) - (9) _________ _______ ________ ________ ____________ ________ At 30 September 2004 253 38 31 52 11 385 ======= ====== ======= ======= ========== ======= Pensions and other post-employment benefits and insurance relate to the costs of self-funded pension schemes or statutory retirement benefits and self-funded insurance schemes respectively and are essentially long-term in nature. Onerous contracts represent the liabilities in respect of short and long term leases on non-utilised properties and other contracts lasting under five years. Legal and other claims relate principally to provisions for the cost of litigation and other claims. The timing of the settlement of these claims is uncertain. Environmental provisions are in respect of liabilities relating to the Group's responsibility for maintaining its operating sites in accordance with statutory requirements and the Group's aim to have a low impact on the environment. The amount credited to the profit and loss account arises wholly within the UK. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 Share Capital Before premium redemption Merger goodwill Goodwill account reserve reserve written written Total off off Â£m Â£m Â£m Â£m Â£m Â£m At 1 October 2003 84 7 4,170 233 (2,132) (1,899) Foreign exchange reserve movements - - - (17) - (17) Premium on ordinary shares issued, net of expenses 9 - - - - - Repurchase and cancellation of shares - 2 - (69) - (69) Retained loss for the year - - - (20) - (20) _________ __________ _______ _________ _________ ________ At 30 September 2004 93 9 4,170 127 (2,132) (2,005) ======== ========= ====== ======== ======== ======= Goodwill written off represents the excess of the consideration for the operations acquired prior to 1 October 1998 over the fair value of the net assets acquired. The goodwill has been written off to profit and loss reserve on consolidation. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 15. Acquisitions Businesses acquired during the year are shown below. Accounting Fair value Consideration Net Fair value policy of assets assets and costs acquired adjustments realignment acquired Goodwill Â£m Â£m Â£m Â£m Â£m Â£m __________________________ ____________ ________ __________ __________ _________ _________ Creative Host 19 4 - - 4 15 Olland 20 4 (1) - 3 17 Mitropa 27 12 (3) - 9 18 Convenco 11 4 (3) - 1 10 Others 106 12 (6) (1) 5 101 __________________________ ____________ ________ __________ __________ _________ _________ Total acquisitions in the 183 36 (13) (1) 22 161 year __________________________ ____________ ________ __________ __________ _________ _________ Adjustments to prior periods: Deferred consideration payable 5 - - - - 5 Adjustments to net assets acquired - - 4 - 4 (4) ___________ _______ _________ ________ ________ ________ 5 - 4 - 4 1 ___________ _______ _________ ________ ________ ________ 188 36 (9) (1) 26 162 ========== ====== ======== ======== ======= ====== Accounting Net assets Fair value policy Fair value to acquired adjustments realignment the Group Â£m Â£m Â£m Â£m Intangible fixed assets 5 (4) (1) - Tangible fixed assets 30 (2) - 28 Fixed asset investments 9 - (2) 7 Stocks 5 (1) - 4 Debtors 23 - 2 25 Cash 21 - - 21 Loans and overdrafts (9) 2 - (7) Leases (2) (1) - (3) Creditors (45) (11) - (56) Provisions (2) (3) - (5) Tax (2) 8 - 6 Minority interests 3 3 - 6 ___________ ___________ ___________ ___________ 36 (9) (1) 26 ========== ========== ========== ========== All acquisitions were accounted for under the acquisitions method of accounting. Fair value adjustments principally relate to asset valuation adjustments, recognising pension commitments and other liabilities not previously recorded. Adjustments made to the fair value of assets of businesses acquired in 2004 are provisional owing to the short period of ownership. Adjustments to prior year acquisitions relate to the restatement of the values of assets and liabilities in the light of knowledge arising from a more extended period of ownership and additional consideration and costs, all in respect of acquisitions made during the year ended 30 September 2003. There was no material difference between operating profits arising from acquisitions and cash flows contributed by those acquisitions. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 16. Pensions The assets and liabilities of the major schemes operated by the Group and the effect that adoption of FRS 17 would have had on the Group's profit and loss reserves are shown below: UK schemes US schemes Other schemes Total schemes __________________ ________________ _________________ ___________________ Long Term Long Term Long Term Long Term expected expected expected expected rate of rate of rate of rate of 30 September 2004 return Â£m return Â£m return Â£m return Â£m Equities 8.0% 399 8.0% 43 6.7% 38 7.9% 480 Bonds 5.0% 272 5.7% 16 3.9% 46 4.9% 334 Other assets 4.8% 1 2.2% 1 3.2% 34 3.2% 36 ___________ ________ __________ _____ __________ ___ __________ ______ Market value 672 60 118 850 Liabilities (952) (143) (181) (1,276) ___________ ________ __________ _____ __________ ___ __________ ______ Deficit (280) (83) (63) (426) Deferred tax asset 84 29 22 135 ___________ ________ __________ _____ __________ ___ __________ ______ Net FRS 17 (196) (54) (41) (291) liability ========= ==== ========= ==== ========= === ========= ====== Net FRS 17 liability (291) Reverse existing provisions/assets net of deferred tax 184 Reverse existing SSAP 24 prepayment for Group pension schemes (24) Net adjustment which would result from the adoption of FRS 17 (131) Profit and loss reserve as reported (2,005) ______ Profit and loss reserve on a FRS 17 basis (2,136) ====== The FRS 17 liability has increased during the year ended 30 September 2004 as set out below: Â£m As at 1 October 2003 (366) Acquisitions (4) Current service costs (34) Curtailment credit 6 Contributions paid 53 Past service costs (6) Other financial costs (19) Actuarial losses (64) Exchange rate gains 8 ___________ As at 30 September 2004 (426) ========== NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2004 17. Exchange rates Exchange rates for major currencies used during the period were: 2004 2003 2004 2003 Translation Translation Closing Closing Rate Rate Rate Rate Australian Dollar 2.47 2.63 2.50 2.45 Canadian Dollar 2.37 2.35 2.29 2.24 Danish Krone 10.94 11.01 10.84 10.59 Euro 1.47 1.48 1.46 1.43 Japanese Yen 194.98 191.06 199.44 185.60 Norwegian Krone 12.32 11.48 12.18 11.72 Swedish Krona 13.43 13.55 13.17 12.85 Swiss Franc 2.28 2.22 2.26 2.19 US Dollar 1.79 1.60 1.81 1.66 APPENDIX 1 International Financial Reporting Standards Following the European Union's adoption of Regulation (EC) No 1606/2002, all publicly listed companies in the EU will be required to adopt International Financial Reporting Standards ('IFRS') including revised International Accounting Standards ('IAS'), in issue at 31 March 2004, for their financial statements from 2005. Consequently the Group will be implementing IFRS from 1 October 2005. The first financial information to be reported by the Group in accordance with IFRS will be for the six months ending 31 March 2006 but the requirement to present comparative information means that a balance sheet as at 30 September 2004 and primary statements for the six months to 31 March 2005 and the year to 30 September 2005, prepared in accordance with IFRS, will also be required. The Group will continue to report its consolidated financial statements in accordance with UK GAAP for the year to 30 September 2005. Compass has established a project steering committee to co-ordinate the transition to IFRS and a dedicated project team has been established to study the effects on the Group's accounts of adopting IFRS. The team has been following a three-phase transition plan: preliminary assessment, detailed impact study and implementation. It provides the project steering committee and the audit committee with regular updates of its progress and also works closely with the divisional teams through a network of key contacts. The Group is continuing to perform a detailed assessment of the impact of IFRS on its accounting policies and published financial statements. The following areas that could impact Compass Group's financial statements have been identified. This summary is not intended to be a complete list of areas. Further differences may arise as a result of the Group's continued detailed assessment and interpretations of IFRS and any pronouncements issued by the International Accounting Standards Board ('IASB'). In addition, the Group may elect to adopt early any further accounting standards issued by the IASB before the publication of its first consolidated IFRS financial statements. Financial instruments - The Group's policy is to match its principal projected cash flows by currency to actual or effective borrowings in the same currency. Where necessary it uses cross currency swaps and forward foreign exchange contracts to achieve this. The Group also uses interest rate swaps to achieve its policy that at least 80% of projected debt is fixed for the first year, reducing to 60% fixed for the second year and 40% fixed for the third year. Under IAS 39 Financial Instruments: Recognition and Measurement ('IAS 39'), all derivative instruments are measured at fair value. The Group will be required to designate its foreign currency borrowings and derivative contracts as hedges of specific assets, liabilities, income and/or expenses. Due to the non-IFRS compliant nature of certain historic instruments still in place, the Group may not be able to designate all of its existing foreign currency borrowings and derivative contracts as hedges in accordance with IAS 39. Where the Group is able to designate its foreign currency borrowings and derivative contracts as hedges, the effectiveness of each hedge will be tested against stringent defined criteria. If the hedges are effective, hedge accounting treatment will be achieved and the change in value of the effective portion of the hedges recognised as a movement in reserves. All other changes in value of foreign currency borrowings and derivative contracts will be recognised in the income statement for the period. Under the IFRS transition rules, IAS 39 and IAS 32 Financial Instruments: Disclosure and Presentation ('IAS 32') will apply to the accounting period beginning on 1 October 2005 with no requirement for comparative information in the period to 30 September 2005. However, the Group intends to apply the requirements of IAS 32 and IAS 39 to the comparative period, although hedge accounting treatment will not be available for all material foreign currency borrowings and derivative contracts for 2005. From 1 October 2005, the Group will aim to achieve hedge accounting treatment for all material foreign currency borrowings and, wherever possible, for its interest rate hedges. Goodwill - Under UK GAAP, the Group's policy is to capitalise goodwill in respect of businesses acquired and amortise it on a straight-line basis over its estimated useful economic life, which has been assessed as 20 years for all acquisitions to date. On transition to IFRS, IFRS 1 First-time Adoption of International Financial Reporting Standards ('IFRS 1') requires the Group to review the carrying value of capitalised goodwill at 30 September 2004 for potential impairment. In accordance with IFRS 3 Business Combinations, no amortisation of goodwill will be charged in the Group's consolidated IFRS income statement from 1 October 2004. Instead, annual reviews of the goodwill will be performed to test for potential impairment. Share-based payments - Under UK GAAP, the cost of share options is based on the intrinsic value of the option at the date of grant such that options granted to employees at market price or under Inland Revenue approved SAYE or equivalent overseas schemes do not generate an expense. Under IFRS 2 Share-based Payment, the Group is required to measure the cost of all share options granted since 7 November 2002 using option pricing models. As a result of the above, and in respect of other share-based payments, an additional non-cash expense will be recognised in the consolidated IFRS income statement. Post-employment benefit schemes - Under UK GAAP, the Group currently accounts for defined benefit pension schemes in accordance with SSAP 24 Accounting for Pension Costs ('SSAP 24'). The Group also reports in note 16 to the attached financial information the transitional disclosures required in accordance with FRS 17 Retirement Benefits ('FRS 17'), including the adjustment from the figures reported under SSAP 24 which would be required if FRS 17 was adopted in the financial statements. The methodology and assumptions used to calculate the value of pension assets and liabilities under FRS 17 are substantially consistent with the requirements of IAS 19 Employee Benefits ('IAS 19'). One area of difference that may impact the adjustment from FRS 17 to IAS 19 relates to the valuation of pension fund assets. Under FRS 17, equities are valued using mid-market prices at valuation date whereas IAS 19 requires the use of bid prices. Proposed dividends - Under SSAP 17 Accounting for Post Balance Sheet Events, proposed dividends are accrued for as an adjusting post balance sheet event in the accounting period to which they relate. Under IAS 10 Events after the Balance Sheet Date, dividends are recognised in the accounting period in which they are declared. Accordingly, the Group will not recognise the accrual for its 2004 final dividend in its 2004 IFRS balance sheet and will report it in the consolidated IFRS statement of changes in equity for the period ending 30 September 2005. Subsidiary companies - Under UK GAAP, an undertaking is treated as a subsidiary for accounting purposes in circumstances where the parent has the ability to direct the operating and financial policies of that entity with a view to gaining economic benefits from its activities. IAS 27 Consolidated and Separate Financial Statements ('IAS 27') defines a subsidiary on the basis of the legal form of arrangements determining control over its financial and operating policies. Accordingly, the Group is considering whether its interests in certain companies will continue to qualify as subsidiaries under IAS 27. Deferred tax - Under IAS 12 Income Taxes ('IAS 12'), certain temporary timing differences, for example in respect of rollover relief and revaluation gains that previously were not recognised under UK GAAP, will be recognised. In addition, the discounting of deferred tax balances, permitted under UK GAAP by FRS 19 Deferred Tax and adopted by the Group, is not allowed by IAS 12. IAS 12 does however permit the recognition in the income statement of tax relief on goodwill arising on acquisitions that was written off to profit and loss reserve under UK GAAP prior to 1 October 1998. Accordingly, under IFRS, the Group expects to maintain in the income statement the tax benefit of goodwill amortisation in line with amounts currently recognised as discounting under UK GAAP. Leases - The Group occupies a number of leased properties. IAS 17 Leases ('IAS 17') states that the land and buildings elements of a lease of land and buildings should be considered separately for the purposes of lease classification. The Group is assessing whether the buildings element of certain property leases, currently treated as operating leases under UK GAAP, should be capitalised as finance leases in accordance with the requirements of IAS 17. APPENDIX 2 NOTES 1. New contract gains and renewals announced today and previously released in 2004. Please note that contract gains/renewals announced today are indicated with an '*'. UK Business & Industry â€¢ * Alliance & Leicester awarded Eurest a new five-year contract with annual turnover of Â£0.8 million. â€¢ * GE Healthcare renewed and expanded its contract with Baxter & Platts for a further three years with annual turnover of Â£1.1 million. â€¢ * Westland Helicopters, part of AugustaWestland, renewed its contract with Eurest for a further five years with annual turnover of Â£1.5 million. â€¢ Bristol Zoo Gardens' Clifton Pavilion awarded Milburns (Restaurant Associates) a new three-year contract with annual turnover of Â£0.4 million. â€¢ Land Securities Trillium, property outsourcing provider to the Department for Work and Pensions, renewed its contract with Eurest for a further fourteen years with annual turnover of Â£12 million. â€¢ London Stock Exchange renewed its contract with Restaurant Associates for a further three years with annual turnover of Â£1 million. â€¢ Microsoft renewed its contract with Baxter and Platts for a further three years with annual turnover of Â£2.7 million. â€¢ National Grid Transco awarded Eurest a new three-year contract with annual turnover of Â£3 million. â€¢ Norwich Cathedral awarded Milburns (Restaurant Associates) a new three-year contract with annual turnover of Â£0.5 million. â€¢ Perkins Engines, a subsidiary of Caterpillar, awarded Eurest a new five-year contract with annual turnover of Â£0.9 million. â€¢ The Royal Mail renewed its contract with Quadrant Catering for a further five years with annual turnover of Â£75 million. Healthcare â€¢ East Kent Hospitals NHS Trust renewed its contract with Medirest for a further seven years with annual turnover of Â£14 million. â€¢ Nottinghamshire Healthcare NHS Trust extended its contract with Medirest for a further three years with annual turnover of Â£3 million. â€¢ South West Yorkshire Mental Health NHS Trust awarded Medirest a new five-year contract with annual turnover of Â£0.6 million. Education â€¢ * De Montford University awarded Scolarest a new ten-year contract with annual turnover of Â£1.8 million. â€¢ * Nottingham University renewed its contract with Scolarest for a further five years with annual turnover of Â£1.0 million. â€¢ Derby College renewed its contract with Scolarest for a further five years with annual turnover of Â£1.2 million. â€¢ Old Swinford Hospital School in Stourbridge awarded Scolarest a new three-year contract with annual turnover of Â£0.6 million to provide catering and hospitality services. Retail & Travel â€¢ Eurostar extended its contract with Momentum, a Compass / Cremonini SpA joint venture, for a further two years with annual turnover of Â£27 million. â€¢ First Great Western awarded Rail Gourmet UK a new contract to provide a full rail catering logistics service, which commenced 27 March 2004, with annual turnover of Â£6 million. The contract will run to the end of First Great Western's current franchise in March 2006. Sports & Leisure â€¢ * Galpharm Stadium, Huddersfield, awarded Letheby & Christopher, part of All Leisure, a new five-year contract with annual turnover of # Â£1.4 million. â€¢ * ICC Champions Trophy 2004 awarded Peter Parfitt Leisure, part of All Leisure, the contract to provide all corporate hospitality sales at the event worth total turnover of Â£1.0 million. â€¢ * National Railway Museum renewed its contract with Milburns for a further ten years with annual turnover of Â£2.0 million. â€¢ * The Royal Academy of Arts renewed its contract with Milburns for a further seven years, with annual turnover of Â£2.1 million. â€¢ * The Royal & Ancient Golf Club of St. Andrews - Open Golf Championships renewed its contract with All Leisure for a further five years with annual turnover of Â£3.5 million. â€¢ Arena Coventry awarded FMC (All Leisure) a new ten-year contract with annual turnover of Â£6 million. â€¢ Henley Royal Regatta renewed and expanded its contract with All Leisure for a further five years with annual turnover of Â£2 million. â€¢ London Zoo awarded All Leisure a new three-year retail catering contract with annual turnover of Â£2 million. This is in addition to the three-year extension of All Leisure's existing contract at the Zoo, with annual turnover of Â£1.3 million, to provide event catering and hospitality services. â€¢ Royal Horticultural Halls and Conference Centre awarded All Leisure a new seven-year contract with annual turnover of Â£0.7 million. Vending â€¢ Centrica awarded Selecta, in conjunction with Eurest, a new five-year contract with annual turnover of Â£1.4 million for vending alone. Defence, Offshore & Remote Site â€¢ * Derbyshire Police Authority renewed its contract with Eurest Criminal Justice for a further four years with annual turnover of Â£0.8 million. â€¢ * ESS Support Services Worldwide (Aberdeen) secured over Â£100 million total turnover in new and retained contracts for the year, with clients including Total E&P, Odfjell Drilling, ENI UK Ltd and Prosafe. â€¢ ESS Support Services Worldwide (Aberdeen) was awarded a number of new contracts, including: a new seven-year contract with Britannia Operator Limited, a joint venture between ChevronTexaco and ConocoPhilips; a new contract with Technip for up to five years; and extended its existing offshore contract with Maersk for a further five years, as well as expanding the contract for additional services. The aggregated annual turnover of these contracts is Â£7.5 million. NORTH AMERICA Business & Industry â€¢ * Bank of America awarded Compass Group a new three-year contract with annual turnover of Â£21.8 million. â€¢ * Hyundai awarded Eurest a new five-year contract with annual turnover of Â£0.8 million. â€¢ * Symantec Corporation awarded Bon Appetit two new five-year contracts with combined annual turnover of Â£0.8 million. â€¢ * USI Services Conference Center Service awarded Flik Conference Center a new five-year contract with annual turnover of Â£0.5 million. â€¢ Avon Products awarded Flik International Inc. a new three-year contract with annual turnover of Â£0.7 million. â€¢ Becton, Dickinson and Company awarded Flik a new three-year contract with annual turnover of Â£1 million. â€¢ Grey Global awarded Restaurant Associates a new five-year contract with annual turnover of Â£0.8 million. â€¢ LA Museum of Natural History awarded Wolfgang Puck Restaurants a new five-year contract with annual turnover of Â£1.5 million. â€¢ New York's Strathmore museum awarded Restaurant Associates a new contract for ten years with annual turnover of Â£3 million. Healthcare â€¢ * California Development Centers awarded Crothall a new three-year contract with annual turnover of Â£4.8 million. â€¢ * Medical Center of Central Georgia (GA) awarded Morrison Management Specialists a new six-year contract with annual turnover Â£3.4 million. â€¢ * St. Francis Hospital (SC) awarded Morrison Management Specialists a new five-year contract with annual turnover of Â£1.7 million. â€¢ * United Methodist Senior Services (MI) awarded Morrison Management Specialists a new eight-year contract with annual turnover of Â£0.9 million. â€¢ Jackson County Hospital Authority awarded Morrison Healthcare Food Services a new three-year contract with annual turnover of Â£0.8 million. â€¢ Jewish Hospital Medical Center awarded Morrison Management Specialists a new five-year contract with annual turnover of Â£1.5 million. â€¢ Johnson City Medical Center awarded Morrison Healthcare Food Services a new five-year contract with annual turnover of Â£2.7 million. â€¢ St. Michael's Hospital, Toronto, awarded Crothall Services Canada a new five-year contract with annual turnover of Â£0.6 million. Education â€¢ * Case Western Reserve University awarded Bon Appetit a new ten-year contract with annual turnover of Â£4.9 million â€¢ * Northern Kentucky University awarded Chartwell's Higher Education Division a new twelve-year contract with annual turnover of Â£2.6 million. â€¢ * Spotsylvania County Schools (VA) renewed its contract with Chartwell's School Division for a further year with annual turnover of Â£2.4 million. â€¢ Newark Public Schools (NJ) awarded Chartwell's School Division a new contract for up to five years with annual turnover of Â£5 million. â€¢ Richmond Public Schools (VA) awarded Chartwell's School Division a new contract for up to five years with annual turnover of Â£3 million. Retail & Travel â€¢ * Minneapolis St. Paul Airport awarded Creative Host a new eight-year contract with annual turnover of Â£4.0 million. Sports & Leisure â€¢ 2005 US Open Golf Championship awarded Restaurant Associates a new one-year contract with turnover of Â£2.7 million. â€¢ * Seattle Art Museum awarded Bon Appetit a new ten-year contract with annual turnover of Â£2.7 million. â€¢ AEG awarded Levy Restaurants and Wolfgang Puck Catering & Events a new ten-year contract to provide fine dining and catering at all AEG sports and entertainment properties worldwide. Vending â€¢ ThyssenKrupp Waupaca awarded Canteen a new five-year contract with annual turnover of Â£0.6 million. Defence, Offshore & Remote Site â€¢ * Diamond Offshore, Gulf of Mexico, expanded its contract with ESS Support Services Worldwide, generating additional annual turnover of Â£3.8 million. CONTINENTAL EUROPE AND REST OF THE WORLD Business & Industry â€¢ * France - Commissariat a l'Energie Atomique (CEA) awarded Eurest a new five-year contract with annual turnover of Â£1.3 million. â€¢ * France - GIAT Industries awarded Eurest a new three-year contract with annual turnover of Â£0.8 million. â€¢ * France - Michelin renewed its contact with Eurest for a further five years with annual turnover of Â£4.3 million. â€¢ * France - Sony France renewed its contact with Eurest for a further four years with annual turnover of Â£0.8 million. â€¢ * Germany - Dresdner Kleinwort Wasserstein Estrella awarded Eurest a new three and a half year contract with annual turnover of Â£1.4 million. â€¢ * Germany - Gillette renewed its contract with Eurest for a further three years with annual turnover of Â£3.5 million. â€¢ * Germany - R+V Versicherung renewed its contract with Eurest for a further year with annual turnover of Â£1.2 million. â€¢ * Italy - Deutsche Bank awarded Eurest, in conjunction with Selecta, a new three-year contract with an annual turnover of Â£0.7 million. â€¢ * Norway - Norwegian Parliament Complex awarded Eurest a new five-year contract with annual turnover of Â£1.7 million. â€¢ * Australia - Telstra awarded Eurest a new two-year contract with annual turnover of Â£1.7 million. â€¢ * China - Wuxi Alps Electronics Co., Ltd. awarded Eurest a new three-year contract with annual turnover of Â£0.6 million. â€¢ * China - Tianjin Alps Electronics Co., Ltd. awarded Eurest a new one-year contract with annual turnover of Â£0.5 million. â€¢ * Hong Kong - ASAT Holding Inc awarded Eurest a new three-year contract with annual turnover of Â£0.5 million. â€¢ * Japan - IBM Japan awarded Seiyo Food Systems a new ten-year contract with annual turnover of Â£1.1 million as part of the multi-national, single preferred supplier agreement with Compass Group. â€¢ France - Areva awarded Eurest a new five-year contract with annual turnover of Â£2.4 million. â€¢ France - Les Chantiers de l'Atlantique awarded Eurest a new five-year contract with annual turnover of Â£3 million. â€¢ France - Sanofi awarded Eurest a new five-year contract with annual turnover of Â£1 million. â€¢ Italy - Danieli Mechanical Industry awarded Onama a new two-year contract with annual turnover of Â£0.7 million. â€¢ Portugal - Ministerio Das Financas awarded Eurest a one-year contract with annual turnover of Â£1.3 million. â€¢ Sweden - Kraft Foods awarded Eurest a new three-year contract with annual turnover of Â£0.5 million for staff feeding services. â€¢ Sweden - Saabtech awarded Eurest a new three-year contract with annual turnover of Â£0.9 million. â€¢ Australia - Asian Pacific Building Corporation awarded Eurest a three-year contract with annual turnover of Â£0.5 million. â€¢ Hong Kong - ASAT Holding Ltd. awarded Eurest a new three-year contract with annual turnover of Â£0.5 million. â€¢ Japan - Nissan Motor Co., Ltd. awarded Seiyo Food Systems a new one-year contract with annual turnover of Â£1.4 million. Caffe Ritazza will be introduced into the corporate restaurant, the first in Japan. â€¢ Japan - Nippon Telegraph and Telephone East Corp. awarded Seiyo Food Systems a new one-year contract with annual turnover of Â£0.6 million. â€¢ Japan - Sony EMCS Co. awarded Seiyo Food Systems a new contract with annual turnover of Â£1.9 million. â€¢ Royal Philips Electronics extended its Global Foodservice Agreement with Compass Group for a further 10 years. Healthcare â€¢ * France - A.S.M. Limoux awarded Medirest a new 3-year contract with an annual turnover of Â£1.3 million. â€¢ * France - Clinique du Millenaire awarded Medirest a new contract with an annual turnover of Â£1.4 million. â€¢ * France - Centre Cardio-Thoracique Monaco awarded Medirest a new contract with an annual turnover of Â£0.5 million. â€¢ * France - Medica France renewed and extended its contract with Medirest with an annual turnover of Â£8.3 million. â€¢ * Hungary - Country Hospital Miskolc awarded Eurest a new ten-year contract with annual turnover of Â£1.3 million. â€¢ * Italy - Hospital S. Carlo awarded Onama a new fifteen-year contract with annual turnover Â£1.0 million. â€¢ * Australia - Royal Prince Alfred Hospital awarded Eurest a new contract with annual turnover of Â£0.5 million. â€¢ * Japan - Shinko Care Life awarded Seiyo Food Systems a new one-year contract with annual turnover of Â£0.8 million. â€¢ * Japan - Yuki Hospital (Ibaraki) awarded Seiyo Food Systems a new contract with annual turnover Â£0.5 million. â€¢ * New Zealand - Canterbury District Health Board awarded Eurest a new five-year contract with annual turnover of Â£4.5 million. â€¢ France - Groupe Le Tonkin-Merieux awarded Medirest a new contract with annual turnover of Â£1.4 million. â€¢ France - AREPA awarded Medirest a new three-year contract with annual turnover of Â£1.9 million. â€¢ France - the Public Hospital System of Marseille (APHM) awarded Medirest a new contract for three years with annual turnover of Â£6 million. â€¢ Germany - Markische Kliniken, Leudenscheid, awarded CCS Clinic Catering Service a contract with annual turnover of Â£1 million. â€¢ Germany - HELIOS Kliniken, Wuppertal, awarded CCS Clinic Catering Service a new contract with annual turnover of Â£1.5 million. â€¢ Norway - Cato Center renewed its contract with Medirest for a further five years with annual turnover Â£0.7 million. â€¢ Spain - Parc Sanitari Pere Virgili awarded Medirest a new ten-year contract with annual turnover of Â£0.6 million to provide patient and staff feeding as well as vending. Education â€¢ * France - Groupe scolaire Saint-Nicolas a Issy les Moulineaux awarded Scolarest a new year contract with annual turnover of Â£0.7 million. â€¢ * France - Ville d'Athis Mons awarded Scolarest a new 3-year contract with an annual turnover of Â£0.6 million. â€¢ * France - Ville de la Teste de Buch awarded Scolarest a new 3-year contract with an annual turnover of Â£0.6 million. â€¢ * Norway - Avantor, for BI Norwegian School of Management New Oslo Campus, awarded Eurest a ten-year contract with an annual turnover of Â£3.5 million. â€¢ * Portugal - Direccao Regional de Educacao de Lisboa renewed its contract with Scolarest for a further year with annual turnover of Â£7.2 million. In addition, Scolarest was awarded a second new one-year contract with annual turnover of Â£1.6 million. â€¢ * Sweden - Linkoping University awarded Eurest a new three-year contract with annual turnover of Â£1 million. â€¢ * Hong Kong - Island School awarded Chartwell a new five-year contract with annual turnover of Â£0.3 million. â€¢ Australia - University of Wollongong renewed its contract with Eurest for a further ten years with annual turnover of Â£0.7 million. â€¢ Japan - Taiyo-kai (Social Welfare Corporation) awarded Seiyo Food Systems a new one-year contract with annual turnover of Â£1 million. Retail & Travel â€¢ * Belgium - SNCB/NMBS awarded Rail Gourmet a new four-year contract with annual turnover Â£4 million. At the end of the initial period of four years, the contract is renewable for a further four years. â€¢ * Norway - Oslo Gardermoen Airport renewed its contract with Select Service Partner for a further seven years with annual turnover Â£27 million. â€¢ Denmark - DSB (Danish railways operator) awarded SSP (Denmark) a new ten-year contract with annual turnover of Â£5 million. â€¢ France - SNCF awarded Rail Gourmet a new four-year contract with annual turnover of Â£3.5 million. â€¢ Netherlands - Transavia awarded ILC and Eurest Inflight Services a new five-year contract with annual turnover of Â£2.4 million. â€¢ Norway - Avinor AS awarded SSP a new five-year contract with annual turnover of Â£1 million for the operation of food and beverage facilities at Tromso Airport. â€¢ Turkey - Turkish State Railways (TCDD) awarded Rail Gourmet Sofra and its joint venture partner SFTA Group a new four-year contract with annual turnover of Â£2 million. â€¢ Brazil - Select Service Partner has been awarded a new contract with annual turnover of Â£2 million to operate 18 locations in Sao Paulo's metro stations. â€¢ China - Shanghai Railway Administration entered into a fifteen-year joint venture contract with Rail Gourmet, creating the new company Shanghai Rail Gourmet Company Limited. â€¢ Singapore - Civil Aviation Authority of Singapore awarded SSP a new three-year contract with annual turnover of Â£0.4 million, introducing the first Caffe Ritazza at Singapore Changi Airport. Sports & Leisure â€¢ * Austria - Olympia Sport & Veranstaltungszentrum Innsbruck awarded Eurest a new five-year contract with annual turnover of Â£0.8 million. â€¢ * Italy - La Scala, Milan, awarded Onama a new five-year contract with annual turnover Â£2.1 million. â€¢ * Netherlands - Keukenhof Flower Exhibition extended its contract with Eurest Horeca for a further six years with annual turnover of Â£2.9 million. â€¢ * Australia - Sydney Town Hall awarded Restaurant Associates a new ten-year contract with annual turnover of Â£1.3 million. â€¢ * Australia - Adelaide Festival Centre awarded Restaurant Associates a new ten-year contract with annual turnover of Â£1.3 million. â€¢ Japan - Kurogi Town's Greenpia Yame leisure and resort awarded Seiyo Food Systems Kyushu a new ten-year contract with annual turnover of Â£4 million. â€¢ Japan - Takaki Town's Ikoi-no-mura Nagasaki resort awarded Seiyo Food Systems Kyushu a new five-year contract with annual turnover of Â£2.5 million. â€¢ Japan - Kasadojima Heights guesthouse awarded Seiyo Foods Systems Kyushu a new five-year contract with annual turnover of Â£1.6 million. Vending â€¢ * Germany - Total Fina Elf renewed its contract with Selecta for a further five year with annual turnover Â£0.7 million â€¢ * Switzerland - Unique (Zurich airport) awarded Selecta a new five-year contract with annual turnover of Â£0.7 million. â€¢ France - Club Med Gym awarded Selecta a new five-year contract with annual turnover of Â£0.3 million. â€¢ Spain - Madrid Metro renewed its contract with Selecta for a further year with annual turnover of Â£0.3 million. â€¢ Spain - RENFE (Spanish national rail operator) awarded Selecta a new three-year contract with annual turnover of Â£0.3 million. Defence, Offshore & Remote Site â€¢ * Iceland - Bechtel International's Team Village Operations awarded ESS Onshore Norge a new three-year contract with total turnover of Â£13.7 million. â€¢ * Australia - Hamersley Iron awarded ESS Support Services a new two-year contract with annual turnover of Â£1.9 million. â€¢ * Australia - Bechtel awarded ESS Support Services a new three-year contract with annual turnover of Â£1.9 million. â€¢ * Australia - BHP Billiton awarded ESS Support Services a new contract with annual turnover of Â£3.6 million. â€¢ * Lao People's Democratic Republic - VTS Agro Forestry awarded ESS Support Services Worldwide a new four-year contract with annual turnover of Â£7.5 million. â€¢ Norway - Statoil renewed a three-year contract with annual turnover of Â£5 million for services provision on Snorre A & B platforms in the North Sea. â€¢ Scandinavia - ConocoPhillips Scandinavia AS renewed its six-year contract with ESS Offshore AS with annual turnover of Â£12 million. â€¢ Nigeria - Chevron Nigeria Limited / Texaco Operating Company Nigeria awarded ESS Support Services Worldwide a new five-year contract with annual turnover of Â£10 million. â€¢ ESS Support Services Worldwide was awarded two contracts with the United Nations. These two contracts have a combined annual turnover of Â£14 million. â€¢ Italy - the Ministry of Defence awarded Onama a new contract for three years with annual turnover of Â£7 million. â€¢ Turkey - Four Turkish military units have awarded and renewed contracts with Eurest with a combined annual turnover of Â£7.6 million. â€¢ Chile - Antofagasta Minerals - Minera Los Pelambres awarded ESS a new three-year contract with annual turnover of Â£2.3 million. â€¢ Chile - OHL Agencia en Chile-Obrascon, Huarte y Lain awarded Compass Chile a new twenty-year contract with annual turnover of Â£3 million. â€¢ Chile - Vinci Construction Grand Projects (VCGP) awarded Compass Group a twenty-year contract with annual turnover of over Â£6 million to provide services to the Administration of Corrections, Chile. This information is provided by RNS The company news service from the London Stock Exchange

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