Compass Group Plc · LSE:CPG
Compass — FY2007 Earnings Presentation
73 slides from Compass's earnings presentation, Nov 28, 2007
Slide 1: Forward looking statements
This presentation contains certain forward looking statements as defined under US legislation (section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934). By their nature, such statements involve uncertainty; as a consequence, actual results and developments ma
Slide 2: Compass Group PLC 2007 Preliminary Results
Compass Group PLC 2007 Preliminary Results 28th November 2007 2
Slide 3: Presentation Structure
Presentation Structure Welcome and highlights Sir Roy Gardner Financial results Andrew Martin Business Review and Strategy Richard Cousins Summary and Outlook Richard Cousins Questions & Answers 3
Slide 4: Business Highlights
Business Highlights 1 • Delighted with progress – ahead of schedule • Strong performance across almost every country • Excellent financial results with: • Operating margin up 70 bps • Underlying EPS increased by 62% • A step change in our free cash flow 4
Slide 5: Business Highlights
Business Highlights 2 • Strategic plan on track • MAP framework successfully rolled out • New Board appointments • Dividend up 7% to 10.8p 5
Slide 6: Presentation Structure
Presentation Structure Welcome and highlights Sir Roy Gardner Financial results Andrew Martin Business Review and Strategy Richard Cousins Summary and Outlook Richard Cousins Questions & Answers 6
Slide 7: Revenue
Revenue Change Reported Constant Organic 1 2 2007 2006 Rates Currency Growth Continuing Operations £m £m % % % North America 4,162 4,290 -3% 6% 6% Continental Europe 2,553 2,484 3% 4% 4% UK 1,931 1,882 3% 3% 2% Rest of the World 1,622 1,611 1% 8% 9% Total Revenue 10,268 10,267 0% 5% 5% Notes: 1. Con
Slide 8: Operating Profit and Margin - Published
Operating Profit and Margin - Published Margin 2 2007 2006 1 Change 2007 2006 Continuing Operations £m £m £m % % North America 261 245 16 6.3% 5.7% Continental Europe 151 122 29 5.9% 4.9% UK 107 107 - 5.5% 5.7% Rest of the World 64 47 17 3.9% 2.9% Unallocated Overheads (58) (66) 8 - - Associates 4 2
Slide 9: Operating Profit and Margin – Constant currency
Operating Profit and Margin – Constant currency Margin 2 2007 2006 1 Change 2007 2006 Continuing Operations £m £m £m % % North America 261 222 39 6.3% 5.7% Continental Europe 151 120 31 5.9% 4.9% UK 107 107 - 5.5% 5.7% Rest of the World 64 43 21 3.9% 2.9% Unallocated Overheads (58) (66) 8 - - Associ
Slide 10: Income Statement
Income Statement Underlying Reported 2007 2006 2007 2006 Continuing Operations £m £m £m £m Revenue 10,268 10,267 10,268 10,267 Operating Profit1 529 457 529 457 Net Finance Costs2 (87) (145) (93) (134) Profit before Tax 442 312 436 323 Tax3 (126) (101) (124) (105) Profit after Tax 316 211 312 218 Mi
Slide 11: Free Cash Flow
Free Cash Flow 2007 2006 Continuing Operations £m £m Total Operating Profit 529 457 Depreciation and Amortisation 173 188 EBITDA 702 645 Working Capital (including provisions) 38 (18)- Net Interest (127) (174)- Tax (117) (93)- Net Capital Expenditure (155) (163)- Dividends to Minority Partners (3) (
Slide 12: Working Capital
Working Capital Historically Ongoing • 2004/05 and previous years • Process increasingly embedded • c.£60 – 80m outflow p.a. • Attention on debtors and discounts • Little focus receivable • Average sustainable annual improvement • 2005/06 • Improving process and focus • £20 – 30m p.a. • £18m outflow
Slide 13: Net Debt
Net Debt £m Opening Net Debt at 1 October 2006 1,095 Impact on Net Debt of: Free Cash Flow from Continuing Operations (357) Free Cash Flow on Discontinued Operations 48 1 Acquisitions 31 2 Disposals (818) Tax on profits from prior year disposals 51 Contribution to Pension Fund 45 Share Buy-Back 576
Slide 14: Operating Profit Growth - Analysis
Operating Profit Growth - Analysis Constant Currency Growth £m (estimated) 2007 Historic Net New Business 30 50 Base Estate 35 (15) - price & volume - cost inflation - efficiencies Above Unit Overheads 36 (10) - inflation £(14)m - efficiencies £50m Total 101 25 14
Slide 15: Summary
Summary Solid base £101m operating profit growth Significant opportunity £357m free cash flow Step change Increased focus through MAP Visibility and clarity 15
Slide 16: Presentation Structure
Presentation Structure Welcome and highlights Sir Roy Gardner Financial results Andrew Martin Business Review and Strategy Richard Cousins Summary and Outlook Richard Cousins Questions & Answers 16
Slide 17: My Agenda
My Agenda 1 MAP and operating performance 2 Regional Reviews 3 Strategy and Future 4 Summary and Outlook 17
Slide 18: MAP – Management and Performance
“MAP” – (Management and Performance) Framework to develop strategy and drive performance 1 Client sales and marketing 2 Consumer sales and marketing 3 Cost of food 4 Unit costs 5 Above unit overheads 18
Slide 19: Operating Profit Growth - Analysis
Operating Profit Growth - Analysis Constant Currency Growth £m (estimated) 2007 Historic Net New Business 30 50 Base Estate 35 (15) - price & volume - cost inflation - efficiencies Above Unit Overheads 36 (10) - inflation £(14)m - efficiencies £50m Total 101 25 19
Slide 20: Operating Profit Growth - Analysis
Operating Profit Growth - Analysis Constant Currency Growth £m (estimated) 2007 Net New Business 30 Price &volume Base Estate 35 Cost efficiencies Above Unit Overheads 36 Total 101 20
Slide 21: Net New Business Profit Growth - £30m 2007
Net New Business Profit Growth - £30m 2007 Client sales and marketing • Less, but better quality new business • More focus on – Outsourced penetration – Contract discipline • Retention rate down a little due to exiting loss making contracts • Encouraging pipeline for 2007/08 Driving quality new busi
Slide 22: Driving Like for Like Revenue
Base Estate Profit Growth - £35m 2007 Driving Price and Volume (Like for Like Revenue) Client Sales and Marketing • Client pricing strategy • Additional services Consumer Sales and Marketing • Retail philosophy • Consumer pricing strategy • Participation and spend per head Driving Like for Like Reve
Slide 23: Driving Cost Efficiencies
Base Estate Profit Growth - £35m 2007 Driving Cost Efficiencies Cost of Food • Menu planning • Purchasing & supply chain • Unit processes Unit Costs • Labour productivity, scheduling • Control of labour costs • In unit overhead opportunity Driving Cost Efficiencies 23
Slide 24: Above Unit Overhead Savings - £36m 2007
Above Unit Overhead Savings - £36m 2007 Above Unit Overheads • Management reorganisation • Consolidated back office functions • Change management processes • Tight control of discretionary spend Driving Cost Efficiencies 24
Slide 25: Food Price Inflation – The Analysis
Food Price Inflation – The Analysis • Global increase in demand and insufficient capacity • Food price inflation – Many geographies and most food lines • Cost impact for Compass – £3.5bn spend on food, one third of our cost base – Each one percentage point of inflation is £35m cost A business challe
Slide 26: Food Price Inflation – The Action
Food Price Inflation – The Action Using the MAP framework to drive: 1 Purchasing and Supply Chain efficiencies 2 Unit cost efficiencies and menu re-engineering 3 Client and consumer prices And to raise awareness and spread best practice 26
Slide 27: Food Price Inflation – The Conclusion
Food Price Inflation – The Conclusion • Food price inflation is well understood and is being acted upon • MAP is in place and doing its job • Gross margins held steady in 2007 • We will continue to action inflation, with increasing intensity 27
Slide 28: Delivering Operating Performance – Process & People
Delivering Operating Performance – Process & People • New standardised monthly financial and MAP reporting • Detailed Business Reviews • More functional group centre • Management development and MAP training • Encouraging change in culture 28
Slide 29: My Agenda
My Agenda 1 MAP and operating performance 2 Regional Reviews 3 Strategy and Future 4 Summary and Outlook 29
Slide 30: North America – Progress and Results
North America – Progress and Results • Continues to make excellent progress: • Operating profit up 18% £4.2bn • Full year margin up 60bps 40% • Acceleration in margin in second half, up 40 bps • Real focus on like for like revenue growth and on efficiencies • A healthy pipeline for 2008 • Acquired “
Slide 31: North America – The Sectors
North America – The Sectors Education 20% DOR Healthcare 3% 23% B&I 30% Sports and Leisure Vending 13% 11% • Good growth across the key sectors • A balanced portfolio 31
Slide 32: Continental Europe – Progress and Results
Continental Europe – Progress and Results • Strong profit growth; up 26%, margin up 100bps • Good performances across all countries; £2.6bn particularly Spain and Germany 25% • Turnarounds in France and the Netherlands now complete • Eastern European businesses becoming more established • Excellent
Slide 33: UK and Ireland – Progress and Results
UK and Ireland – Progress and Results • Results in line with our expectations £1.9bn • Largely completed turnaround or exit of poor 19% performing contracts • B & I and Education re-structured – significant overhead savings • Education, after difficult period now stabilised • More solid platform fro
Slide 34: Rest of the World – Progress and Results
Rest of the World – Progress and Results • Profit up 49%, margin up 100bps £1.6bn 16% • Excellent progress in Australia supported by energy and extraction sectors • Flat revenues but good profit improvement in Japan • Good growth in Latin America and UAE • Ongoing growth opportunities Note: 1. Profi
Slide 35: My Agenda
My Agenda 1 MAP and operating performance 2 Regional Reviews 3 Strategy and Future 4 Summary and Outlook 35
Slide 36: Progress Over The Last 18 Months
Progress Over The Last 18 Months • Defined a clear, focused strategy and launched MAP • Good progress in developing Support Services • Sold non core businesses, and reduced countries to 64 • Much improved operating performance, margin up 70 bps • Step up in free cash flow • Reduced debt to £0.8bn •
Slide 37: Reflection
Reflection • This phase of our strategy is successfully completed, but … 1. Is that it? No Is it just a quick fix with 2. little more to come? No 37
Slide 38: What Happens Next?
What Happens Next? We believe that the new, focussed and transparent model will generate sustainable opportunities to: • Grow the top line organically • Improve margins and grow profitably • Generate significant cash flow A new phase of sustainable value creation 38
Slide 39: The next phase
The next phase • No change in our core strategy • Focus on penetrating both Foodservice and Support Services markets • Stay focussed on MAP and further embed across the business • Continued focus on operational efficiencies • Significant cash flow generation will strengthen balance sheet enabling us
Slide 40: My agenda
My agenda 1 MAP and operating performance 2 Regional Reviews 3 Strategy and Future 4 Summary and Outlook 40
Slide 41: Summary of 2006/07
Summary of 2006/07 • Strategy tightened and more focussed • Restructuring phase completed • MAP is driving improved performance • £101m operating profit growth • Structural change in cash flow and strengthened balance sheet 41
Slide 42: Outlook for 2007/08
Outlook for 2007/08 • Restructuring phase complete • Positive trading momentum continuing into 2008 • We see a year of • Healthy organic revenue growth • Profit growth and margin improvement • Excellent cash flow generation We are optimistic about the future of Compass 42
Slide 43: Supplementary Information
Compass Group PLC 2007 Preliminary Results 28th November 2007 Supplementary Information 43
Slide 44: Contents
Contents Revenue 45 Group Revenue by Geography Financing 59 Principal Borrowings 60 Maturity Profile of Principal Borrowings 61 Sources of Committed Borrowings Revenue by Sector 46 Group 62 Effective Currency of Borrowings 47 North America 63 Debt Ratings and Ratios 48 Continental Europe 49 UK 50 Re
Slide 45: Revenue - Group Revenue by Geography
Revenue - Group Revenue by Geography Continuing Operations 2007 Rest of the Latin America 4% World 16% Australia 4% 2006 Other 4% Rest of the Latin America 3% Japan 4% World 16% Australia 4% Switzerland 1% Other 4% Netherlands 2% Japan 5% North America 40% Spain 2% Switzerland 1% Nordic 2% Netherlan
Slide 46: Revenue by Sector – Group
Revenue by Sector – Group Continuing Operations 2007 Vending 4% Sports & Leisure 2006 11% Vending 5% Sports & Leisure 12% Business & Business & Industry Industry 44% 43% Healthcare 17% Healthcare 17% Education 14% Education 14% Defence, Offshore Defence, Offshore & Remote 9% & Remote 10% 46
Slide 47: Revenue by Sector – North America
Revenue by Sector – North America Continuing Operations 2007 2006 Vending 11% Business & Vending 12% Industry 30% Business & Sports & Leisure Industry 30% 13% Sports & Leisure 13% Defence, Offshore & Defence, Offshore Remote 2% & Remote 3% Healthcare 23% Healthcare 23% Education 20% Education 20% 47
Slide 48: Revenue by Sector – Continental Europe
Revenue by Sector – Continental Europe Continuing Operations 2007 2006 Sports & Leisure 6% Sports & Leisure 5% Healthcare 18% Healthcare 18% Business & Business & Industry Industry 61% 62% Education 12% Education 11% Defence, Offshore & Defence, Remote 4% Offshore & Remote 3% 48
Slide 49: Revenue by Sector – UK
Revenue by Sector – UK Continuing Operations 2007 2006 Sports & Leisure 13% Sports & Leisure 13% Healthcare 9% Healthcare 9% Education 12% Business & Education 12% Business & Industry 58% Industry 58% Defence, Defence, Offshore & Offshore & Remote 8% Remote 8% 49
Slide 50: Revenue by Sector – Rest of the World
Revenue by Sector – Rest of the World Continuing Operations 2007 2006 Sports & Leisure 15% Sports & Leisure 18% Business & Healthcare 9% Industry 33% Business & Industry 34% Healthcare 9% Education 5% Education 5% Defence, Offshore & Defence, Remote 34% Offshore & Remote 38% 50
Slide 51: Sector Financials - Group
Sector Financials - Group North Continental Rest of America Europe UK the World Other 1,2 Total Continuing Operations £m £m £m £m £m £m 2007 Revenue 4,162 2,553 1,931 1,622 - 10,268 Organic Growth 6% 4% 2% 9% 5% Operating Profit 261 151 107 64 (54) 529 3 Margin 6.3% 5.9% 5.5% 3.9% - 5.1% Cash Flow 2
Slide 52: Sector Financials – North America
Sector Financials – North America Contract Vending Total Continuing Operations £m £m £m 2007 Revenue 3,704 458 4,162 Operating Profit 230 31 261 Margin 6.2% 6.8% 6.3% Cash Flow 226 28 254 Cash Flow Conversion 98% 90% 97% 2006 Revenue 3,763 527 4,290 Operating Profit 213 32 245 Margin 5.7% 6.1% 5.7%
Slide 53: Net Finance Cost
Net Finance Cost 2007 2006 £m £m Bank Loans and Overdrafts 5 35 Other Loans 104 107 Finance Lease Interest 3 3 112 145 Bank Interest Income (28) (15) 84 130 Interest on Pension Scheme Liabilities, Net of Expected Return on Scheme Assets 2 11 86 141 Unwinding of Discount on Put Options Held by Minori
Slide 54: Earnings and Dividends per Share
Earnings and Dividends per Share 2007 2006 Basic Earnings per Share Continuing and Discontinued Operations 25.6p 13.3p Discontinued Operations and Exceptional Items (10.6p) (3.6p) Continuing Operations before Exceptional Items 15.0p 9.7p Hedge Accounting Ineffectiveness1 0.2p (0.3p) Underlying 15.2p
Slide 55: Balance Sheet - Overview
Balance Sheet - Overview 30 September 2007 30 September 2006 £m £m Non - Current Assets 755 956 Working Capital (231) (218) Provisions (437) (307) Interest Payable (50) (65) Post Employment Benefit Obligations (162) (282) Current Tax Payable (161) (347) Deferred Tax 235 219 Total Before Goodwill and
Slide 56: Balance Sheet - ROCE
Balance Sheet - ROCE 30 September 2007 30 September 2006 30 September 2005 £m £m £m NOPAT - continuing operations IFRS 363 310 293 add back IFRS adjustments 1 22 22 22 NOPAT - continuing operations UK GAAP 385 332 315 Capital Employed - continuing operations IFRS 2,934 2,894 2,608 add back goodwill
Slide 57: Capital Expenditure as a % of Revenue
Capital Expenditure as a % of Revenue % of Revenue 5 4.5% 3.9% 4 3.6% 3.3% 2.9% 3 2.5% 1.9% 1.9% 2 1 2001 2002 2003 2004 2005 2005 2006 2007 Group UK GAAP Continuing IFRS Notes: 1. Group data is shown on a UK GAAP basis for 2001 to 2005. 57 2. The continuing business is shown on an IFRS basis for 20
Slide 58: Financing – Components of Net Debt
Financing – Components of Net Debt £m Bonds 1,010 Private Placements 377 Bank Loans 16 1,403 Finance Leases 50 Other Loans 20 Swap Monetisation and IFRS adjustments for derivatives 12 Gross Debt 1,485 Cash Net of Overdrafts (721) Closing Net Debt at 30 September 2007 764 58
Slide 59: Financing – Principal Borrowings
Financing – Principal Borrowings Maturing in Bonds Calendar Year £m £250m 7.00% 2014 276 4 £325m 6.38% 2012 325 £200m 7.13% 2010 200 €300m 6.00% 2009 209 1,010 Maturing in US Private Placements Calendar Year £m $695m 2002 Notes 2007-2012 341 $24m 2002 Notes 2011 12 $50m 2003 Notes 2010-2013 24 377 M
Slide 60: Financing – Maturity Profile of Principal Borrowings
Financing – Maturity Profile of Principal Borrowings £m 600 500 400 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 Facilities maturing in financial years ending 30 September £ Bonds € Bonds US $ Private Placement Bank Notes: 1. Based on borrowings and facilities in place as at 30 September 20
Slide 61: Financing – Source of Committed Borrowings
Financing – Source of Committed Borrowings Bank Loans 1% Private Placements 27% Bonds 72% Note: 1. Based on borrowings as at 30 September 2007. 61
Slide 62: Financing – Effective Currency of Borrowings
Financing – Effective Currency of Borrowings Other 12% Yen 7% € $ US 15% 66% Notes: 1. Based on borrowings as at 30 September 2007. 2. The Group hedges its economic exposure to its non-sterling cash flows by matching the currencies of its centrally held debt to the currencies of its principal projec
Slide 63: Financing – Debt Ratings & Ratios
Financing – Debt Ratings & Ratios Ratings Outlook Confirmed Standard & Poors BBB+ Stable 05-Jul-07 Moodys Baa2 Negative 14-May-07 Fitch ( unsolicited ) BBB+ Stable 24-Jan-07 Ratios FY 2007 FY 2006 Net debt / EBITDA1 1.0 1.4 1 2 EBITDA / Net Interest 8.7 5.6 2 Interest cover 6.3 3.6 Notes: 1. Include
Slide 64: Exchange Rates – Rates Used in Consolidation
Exchange Rates – Rates Used in Consolidation 2 3 Income Statement Balance Sheet 2007 2006 2007 2006 per £ per £ per £ per £ Australian Dollar 2.44 2.41 2.30 2.53 Brazilian Real 4.02 3.97 3.75 4.22 Canadian Dollar 2.19 2.06 2.02 2.13 Euro 1.48 1.46 1.43 1.48 Japanese Yen 234.05 209.07 234.33 220.54 N
Slide 65: Exchange Rates – Effect on Revenue & Profit
Exchange Rates – Effect on Revenue & Profit Revenue Operating Profit Approximate impact Approximate impact of 5 cent change of 5 cent change on 2007 reported results on 2007 reported results +/- £m +/- £m US Dollar Impact on North America 95 7 Impact on Rest of the World 3 - 98 7 Euro Impact on Cont
Slide 66: Taxation – Statutory Tax Rates
Taxation – Statutory Tax Rates 2007 1 Key Statutory Tax Rates within the Group : % 3 UK 30% USA (Blended Average of Federal and State Taxes) 40% France 34% 5 Germany 39% 4 Netherlands 27% Italy 33% Nordic 28% Brazil 34% Canada 34% Japan 41% Spain 35% Australia 30% Blended Statutory Tax Rate2 34% Not
Slide 67: Use of Sale Proceeds & Further Share Buy Back
Use of Sale Proceeds & Further Share Buy Back £818m (net of expenses) UK PENSION SCHEME SHARE BUY-BACK DEBT REPAYMENT £45m £500m £273m IAS 19 Position - 30.09.2007 TOTAL BUY-BACK (£m) £1bn Assets Liabs Net UK scheme 834 (746) 88 UK plan 456 (453) 3 Latest Position UK unfunded - (29) (29) 30.09.2007
Slide 68: FY 2006 Restated – Group by Geography
FY 2006 Restated – Group by Geography Continential Rest of the Continuing Discontinued North America Europe UK World Other Operations Operations Total £m £m £m £m £m £m £m £m Revenue As presented 4,290 2,863 1,957 1,705 - 10,815 - 10,815 Transfers - 46 - (46) - - - - Discontinued - (425) (75) (48) -
Slide 69: FY 2006 Restated – North America
FY 2006 Restated – North America Travel Continuing Discontinued Contract Vending Concessions Operations Operations Total £m £m £m £m £m £m Revenue As presented 3,763 527 - 4,290 - 4,290 Transfers - - - - - - Discontinued - - - - - - Restated 3,763 527 - 4,290 - 4,290 Operating Profit As presented 21
Slide 70: FY 2006 Restated – Continental Europe
FY 2006 Restated – Continental Europe Travel Continuing Discontinued Contract Vending Concessions Operations Operations Total £m £m £m £m £m £m Revenue As presented 2,434 408 21 2,863 - 2,863 Transfers 61 6 (21) 46 - 46 Discontinued (11) (414) - (425) 425 - Restated 2,484 - - 2,484 425 2,909 Operati
Slide 71: FY 2006 Restated - UK
FY 2006 Restated - UK Travel Continuing Discontinued Contract Vending Concessions Operations Operations Total £m £m £m £m £m £m Revenue As presented 1,889 68 - 1,957 - 1,957 Transfers - - - - - - Discontinued (7) (68) - (75) 75 - Restated 1,882 - - 1,882 75 1,957 Operating Profit As presented 112 2
Slide 72: FY 2006 Restated – Rest of the World
FY 2006 Restated – Rest of the World Travel Continuing Discontinued Contract Vending Concessions Operations Operations Total £m £m £m £m £m £m Revenue As presented 1,649 - 56 1,705 - 1,705 Transfers 10 - (56) (46) - (46) Discontinued (48) - - (48) 48 - Restated 1,611 - - 1,611 48 1,659 Operating Pro
Slide 73: H1 2007 Restated – Group by Geography
H1 2007 Restated – Group by Geography Continential Rest of the Continuing Discontinued North America Europe UK World Other Operations Operations Total £m £m £m £m £m £m £m £m Revenue As presented 2,133 1,306 957 789 - 5,185 - 5,185 Transfers - - - - - - - - Discontinued - - (2) (1) - (3) 3 - Restate