Compass Group Plc · LSE:CPG
Compass — H1 2017 Earnings Presentation
55 slides from Compass's earnings presentation, May 10, 2017
Slide 1: 2017 Half Year Results
2017 Half Year Results 10 May 2017
Slide 2: Disclaimer
Disclaimer Certain information included in the following presentation 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
Slide 3: Richard Cousins, Chief Executive
Richard Cousins Chief Executive
Slide 4: Today's agenda
Today’s agenda 1. Richard Cousins Welcome & highlights 2. Johnny Thomson Full year results 3. Richard Cousins Growth strategy & outlook 4. Q&A 4
Slide 5: Highlights
Highlights ORGANIC REVENUE GROWTH OPERATING PROFIT MARGIN FREE CASH FLOW 3.6% 20bps 27% EPS (CONSTANT CURRENCY) INTERIM DIVIDEND SPECIAL DIVIDEND 37.9p 11.2p £1bn 4.1% 5.7% Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page
Slide 6: Johnny Thomson, Group Finance Director
Johnny Thomson Group Finance Director
Slide 7: Revenue
Revenue £m Organic Revenue Growth +7.1% +1.6% -5.1% +3.6% +2.6% -20% 48 31 421 127 11,617 1,578 11,244 9,666 H1 2016 Currency H1 2016 at 2017 North Europe Rest of World Rest of World H1 2017 Revenue FX rates America (excl. Offshore Offshore & Remote) & Remote Notes: Based on underlying performance a
Slide 8: Underlying growth trends
Underlying growth trends Q1 2017 Q2 2017 Q2 2017 Actual Actual Estimated* North America 7.0% 7.2% 6.8% Europe 0.0% 3.2% 1.7% Rest of World -6.5% -3.7% -3.6% Group 2.8% 4.4% 3.8% Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 54/5
Slide 9: Operating profit
Operating profit £m Constant currency operating profit growth of 5.2% 2 5 9 894 38 (10) 126 850 724 H1 2016 Currency H1 2016 North Europe Rest of World Australia Restructuring/ H1 2017 Operating at 2017 FX America (excl. Other Operating profit rates Australia) profit Notes: Based on underlying perfo
Slide 10: Operating profit margin
Operating profit margin H1 2017 H1 2016 North America 8.5% 8.5% Europe 7.5% 7.4% Rest of World 6.3% 6.4% Group 7.6% 7.4% Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 54/55. 10
Slide 11: Currency impact on operating profit
Currency impact on operating profit £m Impact on H1 2016 Profit Impact on FY 2016 Profit USD 76 103 EUR 17 20 CAD 5 5 AUD 8 10 BRL 5 9 JPY 4 6 Other 11 15 Total currency impact 126 168 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on pa
Slide 12: Income statement
Income statement £m H1 2017 H1 2016 Operating profit 894 724 H1 2017 effective interest of 3% Net finance costs (52) (47) FY 2017 net finance costs expected to be around £110m Profit before tax 842 677 Tax (213) (166) FY 2017 expected to be 25.5% Profit after tax 629 511 Non-controlling interest (6)
Slide 13: Operating cash flow
Operating cash flow £m H1 2017 H1 2016 Operating profit 894 724 Depreciation and amortisation up c.£20m due to higher Depreciation and amortisation 239 189 capex and c.£30m due to FX Net capital expenditure (325) (251) H1 2017 gross capex 2.9% of revenues Net cash flow 808 662 FY 2017 capex expected
Slide 14: Free cash flow
Free cash flow £m H1 2017 H1 2016 Operating cash flow 711 574 H1 2017 lower as UK plan is in surplus with no further deficit funding required Post-employment benefits (5) (21) FY 2017 expected to be around £20m Net interest (38) (39) Net tax (159) (112) H1 2017 net tax 19% due to phasing Net other i
Slide 15: Net debt
Net debt £m Reinvestment in Returns to the business shareholders 18 83 2,874 827 2,866 347 46 325 Oct 2016 FCF Net capex Acquisitions/ Dividends Share FX/ other H1 2017 Opening net pre-capex Disposals buyback Closing net debt debt Notes: Based on underlying performance at reported exchange rates unl
Slide 16: Ongoing priorities for uses of cash
Ongoing priorities for uses of cash CAPEX M&A Appropriate investment: Efficient Required returns > cost of 2.5-3.0% of sales balance sheet capital by the end of year 2 Strong investment grade credit rating DIVIDEND Target net debt/ EBITDA 1.5x RETURNS TO Growing in line with SHAREHOLDERS constant cu
Slide 17: Shareholder return: £1bn special dividend
Shareholder return: £1bn special dividend • Proposed £1bn special dividend (61p per share) • Share consolidation • Strong deleveraging profile: estimated 2017 net debt/ EBITDA around 1.7x • Continuing to target strong investment grade credit rating and net debt/ EBITDA of 1.5x • Payment date 17 July
Slide 18: 2017 guidance for modelling purposes
2017 guidance for modelling purposes Interest charge c. £110m P&L tax rate c. 25.5% Cash tax rate 20-23% Gross capex c. 3% of revenue Working capital small outflow Post employment cash contribution c. £20m Foreign exchange impact on 2016 EBIT (at current spot rates) £168m Notes: Based on underlying
Slide 19: Financial summary
Financial summary Organic revenue growth +3.6% Operating profit margin +20bps EPS (constant currency) 37.9p +4.1% Free cash flow +27% Interim dividend 11.2p +5.7% Share buyback £18m Special dividend £1bn Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, se
Slide 20: Richard Cousins, Chief Executive
Richard Cousins Chief Executive
Slide 21: H1 2017 organic revenue growth
H1 2017 organic revenue growth 8.1% 5.7% 1.2% 3.6% New business Lost business Like for like Organic revenue growth Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 54/55. 21
Slide 22: HY 2017 margin progression
HY 2017 margin progression 7.6% 7.5% 7.4% H1 2016 Cost reduction Overhead Price Cost Reinvestment Volume H1 2017 margin End of H1 2017 & efficiencies leverage increases inflation declines Pre-restructuring restructuring Notes: Based on underlying performance at reported exchange rates unless indicat
Slide 23: North America: core growth engine
North America: core growth engine Organic revenue up 7.1% Food services market • Strong growth across all sectors c. $84bn Structural • Excellent retention Growth Opportunity • Sensible pricing, some volume growth Regional players Margins are strong at 8.5% • Good efficiencies and pricing Self opera
Slide 24: North America: sub-sectorisation driving growth
North America: sub-sectorisation driving growth Organic revenue growth H1 2017 20% 10% 0% Total North America -10% Business & Industry Healthcare & Seniors Education Sports & Leisure Defence, Offshore & Remote Notes: Based on underlying performance at reported exchange rates unless indicated otherwi
Slide 25: Rest of World: a mixed picture
Rest of World: a mixed picture Organic revenue down 5.1% Rest of World Revenue • Revenue up 2.6%, excluding Offshore & Remote by sector • Continued weakness in commodity related business 5% 9% 33% Margin down 10bps 15% • Restructuring savings continue to help offset volume and pricing pressures • Co
Slide 26: Rest of World: improving trend
Rest of World: improving trend Offshore & Remote organic revenue growth 15% 5% -5% -15% -25% 2012 2013 2014 2015 H1 2016 H2 2016 Q1 2017 Q2 2017 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 54/55. 26
Slide 27: Europe: improving performance
Europe: improving performance Organic revenue up 1.6% Food services market • New business run rate improving c. £75bn Structural • Sensible pricing Growth Opportunity • Challenging in North Sea and France Regional players Margins up 10bps • Efficiencies from the creation of the 9 business Self units
Slide 28: Europe: now managed as 9 Business Units
Europe: now managed as 9 Business Units Italy Iberia Turkey UK & Ireland CEE Revenue by Nordics Business Units Benelux DACH (Germany, Austria and Switzerland) France 28
Slide 29: Our strategy is clear
Our strategy is clear • Focus on food – our core competence Food services market c. £200bn • Incremental approach to support services Structural Growth • Prioritise organic growth Opportunity Regional • Bolt-on M&A players • Best-in-class execution: cost advantage of scale, quality & innovation Self
Slide 30: Business model
Business model Growth Organic Margin Operating efficiency Opex Investment Capex Bolt-on M&A Returns to EPS growth Progressive dividend Shareholders Capital returns A proven and sustainable model 30
Slide 31: Returns to shareholders
Returns to shareholders £bn 2 1.5 £9bn returned to shareholders since 2006 1 0.5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017 Ordinary dividend £4.2bn Share buyback £2.6bn Special Dividend £2.0bn Notes: the above includes the proposed £1billion special dividend, which is subject
Slide 32: Summary and outlook
Summary and outlook • Continued strength in North America • Rest of World a challenge but trends are encouraging • Improving run rate in Europe • Expectation for 2017 positive and unchanged • £1bn special dividend • Focused on strong growth with discipline 32
Slide 33: 2017 Half Year Results
2017 Half Year Results 10 May 2017
Slide 34: Supplementary information
Supplementary information
Slide 35: Proposed special dividend timetable
Proposed special dividend timetable Record date for entitlement to the Interim Dividend 19 May 2017 General Meeting 7 June 2017 Payment of Interim Dividend 19 June 2017 Record date for entitlement to the Special Dividend 26 June 2017 New shares traded on the London Stock Exchange 27 June 2017 Paymen
Slide 36: Geographic revenue by sector
Geographic revenue by sector ROW North Support 16% America services 7% 3% 58% 16% 13% 11% 3% 3% 3% 5% 38% 10% 23% 2% Geography 54% Service Line Sector 5% 9% 79% Food 8% 4% 20% service Europe 84% 26% USA Canada UK Food service DOR Food service Business & Industry France Germany Other Europe DOR suppo
Slide 37: Geographic revenue by sector
Geographic revenue by sector 8% 9% 14% 30% 14% 15% 38% North America Europe 5% Rest of World 28% 57% 15% 2% 6% 26% 33% Business & Industry Healthcare & Seniors Education Sports & Leisure Defence, Offshore & Remote Notes: Based on underlying revenues, definitions on page 54/55. 37
Slide 38: Geographic financials
Geographic financials £m North America Europe Rest of World Other1 Total 2017 Revenue 6,792 3,023 1,802 11,617 Organic growth 7.1% 1.6% (5.1)% 3.6% Operating profit 580 226 113 (25) 894 Margin 8.5% 7.5% 6.3% 7.6% Cash flow 479 200 76 (253) 502 Cash flow conversion 83% 88% 67% 56% 2016 Revenue 5,418
Slide 39: Geographic financials
Geographic financials Group Revenue (£bn) & Organic Growth (%) Group Operating Profit (£m) & Margin (%) 11.6 894 11.2 850 10.5 812 9.6 10.0 763 719 4.1% 4.2% 5.7% 5.8% 3.6% 7.3% 7.4% 7.5% 7.4% 7.6% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 NA Revenue (£bn) & Organic Growth (%) NA Operating P
Slide 40: Geographic financials
Geographic financials Europe Revenue (£bn) & Organic Growth (%) Europe Operating Profit (£m) & Margin (%) 3.0 3.0 226 2.9 2.9 221 2.8 216 207 210 (2.9)% (1.0)% 1.3% 3.7% 1.6% 7.2% 7.3% 7.4% 7.4% 7.5% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 ROW Revenue (£bn) & Organic Growth (%) ROW Operati
Slide 41: Dividend cover
Dividend cover 2016 2015 2014 2013 2012 Per share (pence) Dividend (interim plus final) 31.7p 29.4p 26.5p 24.0p 21.3p Underlying earnings 61.1p 53.7p 48.7p 47.7p 42.6p Dividend earnings cover 1.9x 1.8x 1.8x 2.0x 2.0x Cash (£m) Cash cost of dividend (in the year) 496 457 444 404 378 Underlying free c
Slide 42: Operating cash flow
Operating cash flow £m 2016 2015 2014 2013 2012 Operating profit 1,445 1,296 1,245 1,265 1,178 Depreciation and amortisation 395 340 317 299 282 Net capital expenditure (549) (476) (445) (434) (366) Net cash flow 1,291 1,160 1,117 1,130 1,094 Net cash flow conversion 89% 90% 90% 89% 93% Trade workin
Slide 43: Free cash flow
Free cash flow £m 2016 2015 2014 2013 2012 Operating cash flow 1,293 1,123 1,114 1,197 1,108 Post employment benefits (39) (59) (46) (54) (54) Net interest (94) (93) (71) (65) (73) Net tax (246) (242) (259) (256) (225) Net other items (6) (7) (1) 12 4 Free cash flow 908 722 737 834 760 Cash conversi
Slide 44: ROCE
ROCE £m 2016 2015 2014 2013 2012 NOPAT 1,081 973 926 930 867 Average capital employed 5,565 5,093 4,799 4,878 4,774 ROCE 19.4% 19.1% 19.3% 19.1% 18.2% Notes: Based on underlying performance, definitions on page 54/55. 44
Slide 45: Balance sheet
Balance sheet Overview (£m) 2017 HY 2016 HY 2016 FY Goodwill 4,126 3,768 4,050 Other non-current assets 2,840 2,392 2,694 Working capital (837) (711) (897) Provisions (415) (398) (423) Post employment benefit obligations 17 8 (21) Current tax payable (152) (130) (118) Deferred tax 94 125 109 Net deb
Slide 46: Capital expenditure
Capital expenditure % of revenue 2.9% 2.9% 2.8% 2.7% 2.7% 2.3% 2.3% 2.3% 2.1% 1.9% 1.9% 1.7% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 HY 2017 Notes: Based on underlying performance, definitions on page 54/55. Gross capital expenditure includes tangible and intangible assets, including
Slide 47: Financing
Financing Components of net debt £m Bonds 1,191 Private placements 1,519 Bank loans 577 3,287 Finance leases 12 Other loans and fair value accounting adjustments 70 Derivatives (114) Gross debt 3,255 Cash net of overdrafts (389) Closing net debt at 31 March 2017 2,866 Notes: Based on nominal value o
Slide 48: Financing
Financing Maturing in Drawn Principal borrowings Coupon Financial Year £m Bonds €600m 3.125% 2019 513 €500m 1.875% 2023 428 £250m 3.850% 2026 250 Total 1,191 US private placements $1,000m (2011 Notes) 3.31% - 4.12% 2019 – 2024 799 $500m (2013 Notes) 3.09% - 3.81% 2020 – 2025 400 $400m (2015 Notes) 3
Slide 49: Financing
Financing £m 700 600 500 400 300 200 100 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 £ bond € bond US$ private placement Bank bilateral RCFs Syndicated bank RCF Notes: Based on borrowings and facilities in place as at 31 March 2017, maturing in the financial year ending 30 September. The are no b
Slide 50: Financing
Financing Debt ratios and credit ratings Ratings Outlook Confirmed Standard & Poors A Stable 25 Feb 17 Moody’s A3 Stable 02 Mar 17 Fitch (unsolicited) A- Stable 16 May 16 Ratios 2017 2016 Net debt1 / EBITDA2 1.4x 1.8x EBITDA2 / net interest3 19.8x 16.8x Notes: 1. Net debt is adjusted where necessary
Slide 51: Exchange rates
Exchange rates Rates used in consolidation Income Statement 1 Balance Sheet 2 2017 per £ 2016 per £ 2017 per £ 2016 per £ Australian Dollar 1.66 2.04 1.64 1.87 Brazilian Real 4.02 5.73 3.97 5.09 Canadian Dollar 1.66 1.98 1.67 1.86 Euro 1.16 1.34 1.17 1.26 Japanese Yen 138.07 174.46 139.34 161.55 Nor
Slide 52: Exchange rates
Exchange rates Effect on 2016 revenue and profit US Dollar Canada Dollar Euro £m cumulative change for an £m cumulative change for an £m cumulative change for an incremental 5 cent movement incremental 5 cent movement incremental 5 cent movement Exchange Revenue Profit Exchange Revenue Profit Exchan
Slide 53: Exchange rates
Exchange rates Effect on 2016 revenue and profit Australian Dollar Brazilian Real Turkish Lira £m cumulative change for an £m cumulative change for an £m cumulative change for an incremental 5 cent movement incremental 20 centavo movement incremental 20 kurus movement Exchange Revenue Profit Exchang
Slide 54: Definitions
Definitions Constant currency Restates the prior year results to current year’s average exchange rates. Underlying revenue The combined sales of Group and share of equity accounted joint ventures. Underlying operating profit - Includes share of profit after tax of associates and profit before tax of
Slide 55: Definitions
Definitions Organic revenue Calculated by adjusting underlying revenue for acquisitions (excluding current year acquisitions and including a full period in respect of prior year acquisitions), disposals (excluded from both periods) and exchange rate movements (translating the prior period at current