Compass Group Plc · LSE:CPG
Compass — FY2020 Earnings Presentation
69 slides from Compass's earnings presentation, Nov 24, 2020
Slide 1: 2020 Full Year Results
2020 Full Year Results 24 November 2020 1
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: Dominic Blakemore, Chief Executive
Dominic Blakemore Chief Executive 3
Slide 4: Today's agenda
Today’s agenda 1. Dominic Blakemore Our response to COVID-19 2. Karen Witts Full year results 3. Dominic Blakemore Regional reviews and strategy 4. Conference call and Q&A session at 9:00 a.m. (U.K.) 4
Slide 5: Actions to mitigate the impact of COVID-19 in 2020
Actions to mitigate the impact of COVID-19 in 2020 • Protected consumers and colleagues • Reduced costs • Renegotiated contracts to reflect new trading environment • Resized the business and addressed all impairment risks • Returned to profitability and cash neutrality • Reduced leverage and increas
Slide 6: The Compass model of value creation remains strong
The Compass model of value creation remains strong Organic revenue growth 1/2 Value created by the Operating margin 3/4/5 operations Capex To drive organic revenue growth Value created Bolt on M&A To gain expertise, exposure or scale through capital allocation Returns to shareholders Ordinary divide
Slide 7: Karen Witts, Chief Financial Officer
Karen Witts Chief Financial Officer 7
Slide 8: Revenue
Revenue £m Organic revenue 5.3% (2.1)% (44.3)% (34.1)% (18.8)% 285 (92) (383) (2,706) 25,152 24,769 (2,058) 20,198 FY 2019 Currency FY 2019 at Q1 Q2 Q3 Q4 FY 2020 Revenue 2020 FX rates Revenue Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see the defin
Slide 9: Organic revenue trends
Organic revenue trends By Sector Q1 2020 Q2 2020 Q3 2020 Q4 2020 2020 Business & Industry 4.4% (3.8)% (50.7)% (44.1)% (23.9)% Education 4.4% (5.1)% (60.2)% (35.1)% (21.7)% Healthcare & Seniors 5.4% 5.5% (5.1)% 0.2% 1.5% Sports & Leisure 9.0% (10.9)% (89.9)% (78.9)% (45.1)% DOR 4.3% 1.0% (8.8)% (7.6)
Slide 10: Operating profit and margin
Operating profit and margin £m (30) (614) 1,882 1,852 (396) 3.5% 2.9% (113) (49) 680 (119) 561 FY 2019 Currency FY 2019 at North Europe Rest of World Other Operating Impairments* FY 2020 Operating 2020 FX rates America profit pre Operating profit impairments profit Notes: Based on underlying perform
Slide 11: Operating profit margin
Operating profit margin 2019 5m to Feb 20 H1 2020 Q3 2020 Q4 2020 2020 North America1 8.2% 8.5% 8.1% (2.5)% 2.9% 5.3% Europe1 6.6% 6.7% 5.2% (12.9)% (4.1)% 0.4% Rest of World1 7.6% 5.2% 5.5% 2.4% 2.8% 4.2% Group before impairments 7.4% 7.2% 6.7% (4.8)% 0.6% 3.5% Group 7.4% 7.2% 6.7% (5.2)% (2.0)% 2.
Slide 12: COVID cost actions
COVID cost actions £m 2020 Resizing costs Estimated in unit Estimated In unit Above unit annual cost above unit (MAP 4) (MAP 5) avoidance annual savings (MAP 4) (MAP 5) North America 22 26 140 55 Europe 41 20 100 13 Rest of World 11 2 40 2 Group 74 48 280 70 12
Slide 13: Repositioning the business
Repositioning the business £m 2020 Asset impairments* (88) Onerous contracts (31) Total impairments (119) COVID-19 Resizing (122) 2019 Cost Action Plan (75) Total below the line (197) *Contract related non-current asset impairments 13
Slide 14: Challenging comparators for 2021
Challenging comparators for 2021 Revenue and margin 2020 8,000 10.0% 8.0% 6,000 6.0% 4.0% 4,000 2.0% 0.0% 2,000 -2.0% -4.0% 0 -6.0% Q1 Q2 Q3 Q4 Revenue £m Operating Margin* Notes: Previously reported figures have reclassified Turkey and Middle East from our Rest of World region into our Europe regio
Slide 15: Journey to rebuild the margin
Journey to rebuild the margin Phase 1 - The crisis Phase 2 - Reopening Phase 3 - Recovery March - May June - Present Looking ahead Short term actions to reduce labour • Renegotiated contracts to reflect new Benefits of new operating model and cost costs rapidly trading environment flexibility • Limi
Slide 16: Income statement
Income statement Reconciliation from IFRS16 to IAS17 FY 2020 FY 2020 FY 2019 £m IAS17 adj IFRS16 IFRS16 IAS17 Operating profit 533 28 561 1,882 • FY 21 net finance cost Net finance costs (98) (36) (134) (110) c.£120m Profit before tax 435 (8) 427 1,772 Tax (117) 1 (116) (413) • FY 20 ETR 27% Profit
Slide 17: Underlying operating cash flow
Underlying operating cash flow Reconciliation from IFRS16 to IAS17 FY 2020 FY 2020 FY 2019 £m IAS17 adj IFRS16 IFRS16 IAS17 • D&A higher due to increased capex investment Operating profit 533 28 561 1,882 Depreciation and amortisation 605 164 769 577 • FY 20 gross capex was 3.7% of revenue Asset imp
Slide 18: Underlying free cash flow
Underlying free cash flow Reconciliation from IFRS16 to IAS17 FY 2020 £m FY 2020 FY 2019 IAS17 adj IFRS16 IFRS16 IAS17 Operating cash flow 485 35 520 1,720 Post-employment benefits (9) - (9) (15) Net interest (101) (36) (137) (107) Net tax (228) - (228) (328) Net other items1 66 1 67 (23) Free cash
Slide 19: Net debt
Net debt £m New Acquisitions £1bn less Final COVID Mainly FX & accounting (incl. Fazer than last dividend resizing & non cash Equity raise standard, less year from 2019 2019 CAP items FY19 nil disposals) 427 108 450 (33) 995 (2,000) (213) 3,272 3,006 Oct 2019 Impact of FCF Acquisitions/ Dividends Re
Slide 20: Capital investment
Capital investment Capex by region Capex by purpose 2020 2020 £m Digital, 700 infrastructure & compliance 600 500 400 300 200 New wins 100 0 North Europe ROW Central Retention & America LFL New wins Retention & LFL Digital, infrastructure & compliance 20
Slide 21: Investing for growth: bolt on M&A
Investing for growth: bolt on M&A M&A spend by year £m 500 • Sector expertise 400 • Exciting brand 300 • Scale and synergies 200 • FoodTech / digital capability 100 • Talented people 0 2016 2017 2018 2019 2020 Track record of disciplined acquisitions with attractive returns 21
Slide 22: Capital allocation priorities
Capital allocation priorities Invest in the business M&A Capex for organic growth Resilient Required returns > cost of capital by Resizing as required the end of year 2 balance sheet Strong investment grade credit rating New target net debt/ Dividends EBITDA 1-1.5x over Returns to Shareholders To be
Slide 23: Financial summary
Financial summary • Returned to profitability and stabilised cash • Robust balance sheet and strong liquidity • Prioritising investment and prudent capital allocation • Well positioned to accelerate out of crisis • Excellent track record gives confidence for future 23
Slide 24: Dominic Blakemore, Chief Executive
Dominic Blakemore Chief Executive 24
Slide 25: 2020 organic revenue growth
2020 organic revenue growth 5.7% (4.9)% 5.3% Q1 (2.1)% Q2 (44.3)% Q3 (34.1)% Q4 (19.6)% (18.8)% (18.8)% FY New business Lost business LFL Organic change Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see the definitions. 25
Slide 26: Regional performance: North America
Regional performance: North America Organic revenue by sector Revenue • New business wins 6.9% (Q4 6.1%) - double digit Healthcare & Senior Living Education new business wins in Healthcare • Retention 96.4% Sports & Leisure • Like for like volume trends: Healthcare strong, Defence, Education mixed,
Slide 27: Regional performance: Europe
Regional performance: Europe Organic revenue by sector Revenue Healthcare & Senior Living Education • New business wins 2.8% • Retention 92.6% Sports & Leisure Industry • Like for like volume trends: UK reopening slower Defence, than Continental Europe Offshore & Remote Operating margin 0.4%* Busine
Slide 28: Regional performance: Rest of World
Regional performance: Rest of World Organic revenue by sector Revenue Industry Healthcare & • New business wins 5.8% Senior Living • Retention 93.4% Education Business Sports & Leisure • Like for like volume trends: Reasonable return to office in B&I, excellent performance in DOR, Healthcare is stro
Slide 29: Building back stronger for all our stakeholders
Building back stronger for all our stakeholders PEOPLE PERFORMANCE PURPOSE Large and responsible Support the community and Long term value creation employer protect the environment 29
Slide 30: Protecting and supporting our People
Protecting and supporting our People • Strengthened Health & Safety protocols • Redeployed employees to sectors that are open • Provided hardship funds and mental health support • Recognised and rewarded those providing critical and essential services 30
Slide 31: We continue to focus on our People agenda
We continue to focus on our People agenda • Long term commitment to hiring, developing and retaining our diverse talent • Increasing the representation of women in senior roles • Engaged with 250,000 employees • Living Wage Recognised Service Provider • Great social mobility initiatives in the UK, A
Slide 32: Purpose – supporting our communities during COVID-19
Purpose – supporting our communities during COVID-19 • Redirected resources to help feed medical workers, first responders and those in quarantine • Prepared and distributed food to vulnerable populations • Donated food and supplies to charities, food banks and homeless shelters • Worked with NGOs t
Slide 33: Sharpening our Purpose priorities and reporting
Sharpening our Purpose priorities and reporting • Three key priorities • Food waste • Our environmental impact including climate change • Responsible sourcing: resilient and sustainable supply chains • Aligning reporting with GRI and SASB frameworks • Reviewing guidelines for TCFD reporting 33
Slide 34: Performance: controlling the controllable
Performance: controlling the controllable The structural growth Reopening safely opportunity and risk and profitably Return to a 7%+ operating margin and accelerate future growth Innovating and Investing for growth evolving our operating model 34
Slide 35: The food services market remains very attractive
The food services market remains very attractive Global food services market Global food services market by Global food services market by c. £220bn region sector Large Self- operated players Self- Self- Self- operated operated operated Self- Self- operated operated Self Compass operated Regional pl
Slide 36: Structural volume risk
Structural volume risk Working from home Online learning Disruption from delivery Any structural revenue losses to be mitigated through new business wins and innovation into profitable new revenue streams 36
Slide 37: Operating safely and introducing new formats
PERFORMANCE PERFORMANCE Operating safely and introducing new formats • Best in class Health and Safety protocols • COVID specific support services include: • Certified cleaning programs • Enhanced touchpoint cleaning • Disinfection services • Temperature checking • Testing centres • New food formats
Slide 38: Evolving the operating model
Evolving the operating model Getting food to Food production Ordering & paying consumers • Innovate offer: menus, • In person in cafeteria: • In person pop ups, take home kits cash & cashless - In cafeteria - Collection point • Labour flexibility: within • Kiosk on site: cashless and across units •
Slide 39: Evolving the operating model
Evolving the operating model Getting food to Food production Ordering & paying consumers • Innovate offer: menus, • In person in cafeteria: • In person pop ups, take home kits cash & cashless - In cafeteria - Collection point • Labour flexibility: within • Kiosk on site: cashless and across units •
Slide 40: Central production units
Central production units • Using CPUs to produce food for batch delivery to Culinary Compass sites and end consumers across different innovation sectors Development Sustainability • We operate 70 CPUs across the Group and training initiatives • We are also partnering with clients to use their kitche
Slide 41: Case study: Grab & Go and Central Production Units
Case study: Grab & Go and Central Production Units • Fresh hand-crafted grab & go ready meals and snacks • Partnership with recognised consumer brands • Frequent rotation to add variety • Uniquely branded products • 11 Central Production Units • Serving all 50 States by Q1 2021 41
Slide 42: Using labour more flexibly and efficiently
Using labour more flexibly and efficiently • Reviewing labour contracts/ collective agreements to allow more flexibility • Improving scheduling and rostering to get the right mix of permanent and casual workers • Operating a pool to share labour across units • Consolidating labour in Central product
Slide 43: Case study: Constellation – Connected Workforce
Case study: Constellation – Connected Workforce • A pool of staff who can work across all sectors • Ability to flex labour with large fixed teams • Better utilisation of existing casual employees • Significant reduction in temporary agency spend • Consistent training and level of customer service •
Slide 44: Digital: improving productivity and consumer experience
Digital: improving productivity and consumer experience Getting food to Food production Ordering & paying consumers • Menu management • Click & collect • Inventory management • Mobile ordering and payment • Data analytics • Unattended markets • Labour management • Promotions, loyalty and • Market pr
Slide 45: Case study: Return to work app
Case study: Return to work app • Developed and piloted in 8 weeks • Provides for a seamless consumer experience and a safe return to the office • Table top ordering, pre-order/pre-pay, book your table in the cafeteria, pick up locations, delivery • Back-end integration enables cashless payments, dat
Slide 46: Evolving the operating model
Evolving the operating model Getting food to Food production Ordering & paying consumers • Innovate offer: menus, • In person in cafeteria: • In person pop ups, take home kits cash & cashless - In cafeteria - Collection point • Labour flexibility: within • Kiosk on site: cashless and across units •
Slide 47: Delivery and the consumer experience
Delivery and the consumer experience Cafeteria Compass kitchen on site Table in cafeteria Delivery solutions operated by Coffee shop or small outlet Compass operated CPU Compass or third at client site parties Collection point on site Third party operated CPU Desk or dorm room at client site Restaur
Slide 48: Case study: Delivery CxRA
Case study: Delivery CxRA • Central Production Unit in New York • Operated by Restaurant Associates • Pre-Covid B2B delivery: Corporate dining and event catering • Current delivery model: - Corporate drop offs - Working from home - Virtual fundraising - Online groceries delivered to homes - Emergenc
Slide 49: The Compass model of value creation remains strong
The Compass model of value creation remains strong Accelerated first time out sourcing, increased share gains from Organic revenue growth small/ regional players Value created by the Continued margin improvement: MAP framework, focus on operations Operating margin pricing, procurement and productivi
Slide 50: FY 2020 Summary
FY 2020 Summary • Faced into COVID impact and returned to profitability • Investing in exciting growth opportunities • Innovating and modifying our operating model • Managing costs and controlling the controllable • Expect Q1 2021 operating margin to be 2.5% • Committed to rebuild margin back to 7%+
Slide 51: Supplementary Information
Supplementary Information 51
Slide 52: Revenue
Revenue RoW 12% North America Food service 83% Other 63% Support Sports & Brazil RoW Japan services Leisure Australia DOR Business & 2% Healthcare 9% 3% 4% Support Industry Other 3% services 15% & Seniors Europe DOR 2% 11% 37% Food 6% Germany service 2% 29% France 4% Geography Service Line Sector 59
Slide 53: Geographic revenue by sector
Geographic revenue by sector 10% 8% 3% 16% 31% 18% 38% 5% North America Europe Rest of World 35% 51% 2% 12% 22% 11% 38% Business & Industry Healthcare & Seniors Education Sports & Leisure Defence, Offshore & Remote Notes: Based on underlying performance at reported exchange rates unless indicated ot
Slide 54: Geographic financials
Geographic financials £m North America Europe1 Rest of World1 Other2 Total 2020 Revenue 12,746 5,048 2,404 20,198 Organic growth (18.5)% (24.0)% (7.9)% (18.8)% Operating profit 606 (29) 94 (110) 561 Margin 4.8% (0.6)% 3.9% 2.9% Cash flow 488 67 118 (460) 213 Cash flow conversion 81% (231)% 126% 38%
Slide 55: Balance sheet
Balance sheet Overview (£m) 2020 FY 2019 FY1 Goodwill 4,669 4,576 Other non-current assets 4,900 3,856 Working capital (1,218) (1,381) Net Assets held for sale 6 105 Provisions (637) (489) Post employment benefit obligations 190 189 Current tax payable (117) (159) Deferred tax 26 (38) Net debt (3,00
Slide 56: Components of net debt
Components of net debt £m Bonds 2,388 Private placements 1,121 3,509 Leases 942 Other loans and fair value accounting adjustments 173 Derivatives (231) Gross debt 4,393 Cash net of overdrafts (1,387) Closing net debt at 30 September 2020 3,006 Notes: Based on nominal value of borrowings as at 30 Sep
Slide 57: Financing
Financing Maturing in Principal borrowings Coupon Financial Year £m Bonds €500m 1.875% 2023 454 €750m 0.625% 2024 680 £250m 2.000% 2025 250 £250m 3.850% 2026 250 €500m 1.500% 2028 454 £300m 2.000% 2029 300 Total 2,388 US private placements $750m (2011 Notes) 3.98% - 4.12% 2022 - 2024 580 $300m (2014
Slide 58: Maturity profile
Maturity profile £m 1,000 800 600 400 200 0 2021 2022 2023 2024 2025 2026 2027 2028 2029 £ bond € bond US$ private placement Notes: Based on borrowings and facilities in place as at 30 September 2020, maturing in the financial year ending 30 September. 58 The average life of the Group’s principal bo
Slide 59: Financing
Financing Debt ratios and credit ratings Ratings Short term Long term Outlook Confirmed Standard & Poors A-1 A Negative 24 Mar 20 Moody’s P-2 A3 Stable 26 Mar 19 Ratios for USPP covenant purposes4 2020 FY 2019 FY5 Net debt1 / EBITDA2 2.3x 1.5x EBITDA2 / net interest3 9.6x 20.4x Notes: 1.Net debt exc
Slide 60: Liquidity position
Liquidity position £m HY 2020 FY 2020 Revolving Credit Facility maturing 2025* 2,000 2,000 Revolving Credit Facility maturing 2021** - 800 Total Committed Revolving Credit Facilities (RCF) 2,000 2,800 Bank of England COVID Corporate Finance Facility (CCFF) *** 600 600 Amount drawn down from RCF & CC
Slide 61: Currency impact on operating profit
Currency impact on operating profit £m IMPACT ON FY 2020 PROFIT IMPACT ON FY 2019 PROFIT USD (16) (5) EUR 0 (2) TUR (3) (3) CAD (1) (1) AUD 3 (3) BRL 1 (7) JPY 0 1 Other 0 (10) Total currency impact (16) (30) Notes: Based on underlying performance at reported exchange rates unless indicated otherwis
Slide 62: Exchange rates
Exchange rates Rates used in consolidation Income Statement 1 Balance Sheet 2 2020 per £ 2019 per £ 2020 per £ 2019 per £ Australian Dollar 1.89 1.81 1.80 1.83 Brazilian Real 6.21 4.96 7.29 5.13 Canadian Dollar 1.72 1.69 1.73 1.63 Chilean Peso 1,013.12 875.59 1,018.50 897.37 Euro 1.14 1.13 1.10 1.13
Slide 63: Exchange rates
Exchange rates Effect on 2020 revenue and profit US DOLLAR CANADIAN 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 Exch
Slide 64: Exchange rates
Exchange rates Effect on 2020 revenue and profit AUSTRALIAN DOLLAR TURKISH LIRA JAPANESE YEN £m cumulative change for an £m cumulative change for an £m cumulative change for an incremental 5 cent movement incremental 20 kurus movement incremental 10 yen movement Exchange Revenue Profit Exchange Reve
Slide 65: Middle East Restatement
Middle East Restatement £m FY EUROPE FY ROW 2019 2018 2019 2018 Old1 6,160 6,050 3,298 3,379 Revenue Restatement 231 206 (231) (206) New 6,391 6,256 3,067 3,173 Old1 5.1% 3.0% 2.4% 1.4% Organic revenue growth New 5.2% 3.1% 2.0% 1.1% Old1 389 414 264 257 Operating profit Restatement 32 23 (32) (23) N
Slide 66: Middle East Restatement
Middle East Restatement £m HY EUROPE HY ROW 2020 2019 2018 2020 2019 2018 Old1 3,061 3,130 3,072 1,474 1,647 1,688 Revenue Restatement 124 114 100 (124) (114) (100) New 3,185 3,244 3,172 1,350 1,533 1,588 Old1 (4.3)% 6.4% 1.5% 3.1% 1.4% 1.7% Organic revenue growth New (3.9)% 6.4% 1.6% 2.6% 1.0% 1.6%
Slide 67: Dividend cover
Dividend cover 2020 2019 2018 2017 2016 Per share (pence) Dividend (interim plus final) - 40.0p 37.7p 33.5p 31.7p Underlying earnings 18.6p 85.2p 77.9p 72.3p 61.1p Dividend earnings cover - 2.1x 2.1x 2.2x 1.9x Cash (£m) Cash cost of ordinary dividend (in the year) 427 611 548 531 496 Underlying free
Slide 68: Definitions
Definitions Total equity shareholders' funds adjusted for net debt, post employment benefit obligations net of associated deferred tax, amortised intangibles arising on acquisition, Capital employed impaired goodwill and excluding the Group's non-controlling partners' share of net assets and net ass
Slide 69: Definitions
Definitions ROCE Return on capital employed (ROCE) divides NOPAT by the 12 month average capital employed • acquisition related costs; • one-off pension charge; • cost action programme and COVID-19 resizing costs; Specific adjusting items • tax on share of profit of joint ventures; • gain/(loss) on