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Compass Group PLC (CPG)

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Wednesday 30 September, 2020

Compass Group PLC

Pre-Close Trading Update

RNS Number : 5013A
Compass Group PLC
30 September 2020
 

Legal Entity Identifier (LEI):   No. 2138008M6MH9OZ6U2T68

 

 

 

30 September 2020

   

 

Pre-Close Trading Update

 

This statement updates investors on the Group's progress in the current financial year, ahead of the announcement on 24 November 2020 of our results for the year to 30 September 2020.

 

Group

 

The Group's organic revenue performance in the fourth quarter improved as clients in Education and Business & Industry began to return to schools and offices in our main markets. 

 

 

Organic revenue

 

Q3 2020

Q4 2020[1]

FY 20201

North America

(45)%

c(38)%

c(19)%

Europe

(53)%[2]

c(39)%

c(25)%

Rest of World

(21)%[3]

c(18)%

c(9)%

Group

(44)%

c(36)%

c(19)%

 

The reopening of units and initial increase in volumes, combined with positive contract renegotiations and a relentless focus on efficiencies are expected to improve the Group's fourth quarter operating margin to breakeven, before any contract impairments.  We are reviewing our contract portfolio[4] and at this preliminary stage we estimate, subject to audit, that we will have to impair around £100 million1,[5] of contract assets.  Including estimated contract impairments, the fourth quarter underlying operating margin is expected to be around (3)%1 (Q3 2020: (5.2)%)[6].  The full year underlying operating profit margin is expected to be around 3%1,[7]

 

 

Q4 2020 1

FY 2020 1

Estimated contract impairments

c(3)%

c(0.5)%

Underlying operating margin after estimated impairments

c(3)%

c3% 7

 

Resizing costs in the fourth quarter were around £90 million1, bringing total FY2020 resizing costs to around £130 million1.  These costs have been excluded from underlying operating profit to avoid distorting the progress in the underlying operating margin. 

 

Regions

 

Performance in North America improved as clients in Education began to re-open for the school year and Business & Industry slowly started to recover.  Healthcare remained strong, whilst our Sports & Leisure business was still closed.  

 

We have made some changes to our management structure in Europe.  As of the fourth quarter, our Middle East business has been managed within our European business.  Full restated numbers for Europe including the Middle East and Rest of World excluding the Middle East are included in the Appendix of this announcement. 

 

In Europe - now including the Middle East - we saw continued good performance in Healthcare and a meaningful increase in clients reopening in both Business & Industry and Education across the region.  Our Sports & Leisure sector remained mostly closed. 

 

In Rest of World - now excluding the Middle East - we saw an improvement in Education in our Asia Pacific business, however we did not see a material change in reopening rate in the rest of the sectors around the region.

 

Tax

 

As a result of the distortive impact of unrelieved foreign taxes and other non-tax-deductible expenses against a low profit base, we expect the 2020 full year tax rate to be a few percentage points higher than the HY 2020 rate of 24%.  

 

Capital expenditure

 

Capital expenditure was around £175 million1 in the fourth quarter, mostly contractually committed spend but also included investments to support new business wins in North America.  FY 2020 capital expenditure is expected to be around £720 million1

 

Financial position

 

Our liquidity remains strong and we expect our liquidity at 30 September 2020, to be around £5 billion1 (£2.8 billion in undrawn credit facilities, £600 million available CCFF limit and around £1.6 billion in cash1).  Our solid financial position is allowing us to continue to invest in the business through the crisis to strengthen our competitive advantages and support our long-term growth prospects.

 

Currency

 

Trading results from our overseas operations are translated at the average exchange rates for the period.  At current spot rates[8], foreign exchange translation is expected to reduce 2019 reported revenue and underlying operating profit by around £355 million and £28 million respectively. 

 

Summary

 

We are pleased with our progress in the quarter and that the business is now at breakeven at a trading level.  We continue to proactively manage the business, reducing our costs, rebuilding our margins and investing to strengthen our competitive advantages.  However, the pace at which our revenues and margins will recover remains unclear, especially given the possible increase in lockdown measures in the Northern Hemisphere through the winter months. 

 

Despite the current challenges, when looking further ahead, we remain excited about the significant structural market opportunity globally, and the return to organic revenue growth, margin improvement and returns to shareholders over time.

 

We will provide a further update on trading at our full year results on 24 November 2020.

 

 

 

Enquiries

 

Investors  Sandra Moura, Agatha Donnelly & Helen Javanshiri +44 (0) 1932 573000

Press  Tim Danaher & Fiona Micallef-Eynaud, Brunswick  +44 (0) 207 404 5959

Website  www.compass-group.com  

 

 

 

APPENDIX

 

Regional Restatement

 

We have made minor changes to our regional reporting structure.  Our Europe region now includes the Middle East which is now excluded from Rest of World.  Our North America region remains unchanged.  To enable comparison with prior periods we are providing restated 3 year historical figures for the new regional structure.  While these restatements affect regional results, they do not affect the Group's overall income statement, balance sheet, or cash flow.

 

 

Reported figures £'s million

Full Year

 

Europe

 

ROW

 

 

 

 

 

2020

2019

2018

 

2020

2019

2018

 Revenue

Old

 

6,160

6,050

 

 

3,298

3,379

Net restatement

 

231

206

 

 

(231)

(206)

New

 

6,391

6,256

 

 

3,067

3,173

 

 

 

 

 

 

 

 

 

 

 Organic revenue growth

Old

 

5.1%

3.0%

 

 

2.4%

1.4%

New

 

5.2%

3.1%

 

 

2.0%

1.1%

 

 

 

 

 

 

 

 

 

 

 Operating profit

Old

.

389

414

 

 

264

257

Net restatement

 

32

23

 

 

(32)

(23)

New

 

421

437

 

 

232

234

 

 

 

 

 

 

 

 

 

 

 Margin

Old

 

6.3%

6.8%

 

 

8.0%

7.6%

New

 

6.6%

7.0%

 

 

7.6%

7.4%

 

 

 

 

 

 

 

 

 

 

 Cash flow

Old

 

380

420

 

 

269

187

Net restatement

 

25

21

 

 

(25)

(21)

New

 

405

441

 

 

244

166

 

 

 

 

 

 

 

 

 

 

 ROCE

Old

 

10.0%

10.9%

 

 

31.8%

29.8%

New

 

10.8%

11.6%

 

 

28.6%

27.7%

 

Reported figures in £'s million

Half Year

 

Europe

 

ROW

 

 

 

 

 

2020

2019

2018

 

2020

2019

2018

 Revenue

Old

3,061

3,130

3,072

 

1,474

1,647

1,688

Net restatement

124

114

100

 

(124)

(114)

(100)

New

3,185

3,244

3,172

 

1,350

1,533

1,588

 

 

 

 

 

 

 

 

 

 Organic revenue growth

Old

(4.3%)

6.4%

1.5%

 

3.1%

1.4%

1.7%

New

(3.9%)

6.4%

1.6%

 

2.6%

1.0%

1.6%

 

 

 

 

 

 

 

 

 

 Operating profit

Old

148

205

210

 

91

108

111

Net restatement

17

14

12

 

(17)

(14)

(12)

New

165

219

222

 

74

94

99

 

 

 

 

 

 

 

 

 

 Margin

Old

4.8%

6.5%

6.8%

 

6.2%

6.6%

6.6%

New

5.2%

6.8%

7.0%

 

5.5%

6.1%

6.2%

 

 

 

 

 

 

 

 

 

 Cash flow

Old

77

170

192

 

66

120

76

Net restatement

24

11

(0)

 

(24)

(11)

0

New

101

181

192

 

42

109

76

 

 

 

 

Note to Editors

 

a)  Compass Group PLC is the world's leading food service company, which generated annual revenues of £25.2 billion in the year to 30 September 2019. The Company specialises in providing food and a range of support services across the core sectors of Business & Industry, Healthcare & Seniors, Education, Sports & Leisure and Defence, Offshore & Remote, with an established brand portfolio. 

 

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

 

c)  Forward looking statements

 

Certain information included in this announcement is forward-looking and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations, including, without limitation, discussions of expected future revenues, financing plans, expected expenditures and divestments, risks associated with changes in economic conditions, the strength of the foodservice and support services markets in the jurisdictions in which the Group operates, fluctuations in food and other product costs and prices and changes in exchange and interest rates. Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as "believes", "estimates", "anticipates", "expects", "forecasts", "intends", "plans", "projects", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. All forward-looking statements in this announcement are based upon information known to the Company on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be met and readers are cautioned not to place undue reliance on forward-looking statements, which speak only at their respective dates. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

 

d)  A copy of this release, together with all other recent announcements and presentations can be found on Compass Group's website at www.compass-group.com.

 

 

 


[1] Expected figures based on unaudited positions.

[2] Restated to include Middle East.

[3]   Restated to exclude Middle East.

[4] As per IAS 36 - Impairment of assets and as per IAS 37 - Provisions, Contingent Liabilities and Contingent Assets.

[5] Of the £100m charge, around half is in North America and the other half in Europe.

[6] Excluding Q3 resizing costs of £42m.

[7] Excluding full year resizing costs of around £130m.

[8] Closing rates as at 25 September 2020.

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