Compass Group Plc · LSE:CPG
Compass — FY2018 Earnings Presentation
50 slides from Compass's earnings presentation, Nov 20, 2018
Slide 1: 2018 Full Year Results
2018 Full Year Results 20 November 2018
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
Slide 4: Today's agenda
Today’s agenda 1. Dominic Blakemore Welcome & highlights 2. Johnny Thomson Full year results 3. Dominic Blakemore Full year review & strategy 4. Q&A 3
Slide 5: 2018 highlights
2018 highlights +5.5% 7.4% +12.5% ORGANIC REVENUE GROWTH OPERATING MARGIN EPS GROWTH (CONSTANT CURRENCY) £1.1bn +17% +12.5% FREE CASH FLOW FREE CASH FLOW GROWTH DIVIDEND GROWTH 4
Slide 6: Johnny Thomson, Group Finance Director
Johnny Thomson Group Finance Director 5
Slide 7: Revenue
Revenue £m Organic revenue growth +7.8% +2.1% +2.9% +5.5% 154 92 1,154 (1,013) 23,239 22,852 21,839 FY 2017 Currency FY 2017 at 2018 North Europe Rest of World FY 2018 Revenue FX rates America Revenue 6 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see
Slide 8: Operating profit
Operating profit £m Constant currency operating profit growth +7.1% 35 4 94 (18) (79) 1,705 1,741 1,626 FY 2017 Currency FY 2017 at North Europe Rest of World Other FY 2018 Operating 2018 FX rates America Operating profit profit 7 Notes: Based on underlying performance at reported exchange rates unl
Slide 9: Operating profit margin
Operating profit margin 2018 2017 North America 8.1% 8.1% Europe 6.8% 7.3% Rest of World 7.5% 6.7% Group 7.4% 7.4% 8 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 48-49.
Slide 10: Currency impact on operating profit
Currency impact on operating profit £m IMPACT ON PROFIT FY 2017 FY 2018 USD (55) 58 EUR 3 1 CAD (2) 1 AUD (4) - BRL (6) (1) TRY (3) (3) Other (12) 2 Total currency impact (79) 58 9 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 4
Slide 11: Income statement
Income statement £m 2018 2017 Operating profit 1,741 1,705 • 2019 net finance cost expected to be Net finance costs (114) (114) around £120m Profit before tax 1,627 1,591 • FY18 tax rate lower due to the tax Tax (390) (404) reform in the US • 2019 tax rate expected to be around Profit after tax 1,23
Slide 12: Operating cash flow
Operating cash flow £m 2018 2017 Operating profit 1,741 1,705 Depreciation and amortisation 500 483 • D&A up slightly due to our Net capital expenditure (757) (683) investments in capex Net cash flow 1,484 1,505 • FY18 Gross capex 3.5% Net cash flow conversion 85% 88% • FY19 Gross capex up to 3.5% T
Slide 13: Free cash flow
Free cash flow £m 2018 2017 Operating cash flow 1,580 1,419 Post-employment benefits (8) (14) • FY19 expected to be £20m Net interest (95) (97) • FY19 expected to be in line with 2018 Net tax (323) (332) • FY18 cash tax 20% slightly better Other (13) (2) due to lower rates in the US • FY19 expected
Slide 14: Net debt
Net debt £m Reinvestment in Returns to the business shareholders 548 117 413 757 3,446 3,383 (1,898) 2017 Opening FCF Net capex Acquisitions/ Dividends FX/other 2018 Closing net net debt pre-capex Disposals debt 13 Notes: Based on underlying performance at reported exchange rates unless indicated ot
Slide 15: Portfolio
Portfolio SALES AND EXITS TOTAL PORTFOLIO COMPLETED YTD UNDER REVIEW Annual Revenues c. £300m c. £1.2bn Operating margin c. 2% c. 7% Proceeds c. £50m For organic growth modelling purposes • Total disposals to be removed from FY 2018: Revenues £280m, operating profit £6m • Total acquisitions* to be a
Slide 16: Ongoing priorities for uses of cash
Ongoing priorities for uses of cash CAPEX M&A Appropriate investment: Efficient Required returns > cost of capital Up to 3.5% of sales by the end of year 2 balance sheet Strong investment grade credit rating Target net debt/ RETURNS TO DIVIDEND Growing in line with EBITDA 1.5x SHAREHOLDERS constant
Slide 17: IFRS 15 has a minimal impact on Group
IFRS 15 has a minimal impact on Group MEASURE FY 2018 PROFORMA • Minimal impact on main KPIs of Revenue c. 0.5% decrease revenue, operating profit, margin and ROCE Operating profit c. 0.3% increase • To be adopted in FY19 Margin c. 4 bps increase • Comparatives for HY18 and FY18 Free cashflow No imp
Slide 18: 2019 guidance for modelling purposes
2019 guidance for modelling purposes Interest charge c. £120m P&L tax rate 24.0% Cash tax rate 20-22% Gross capex Up to 3.5% of revenues Working capital Small outflow Post employment cash contribution c. £20m Foreign exchange impact on 2018 EBIT (at current spot rates) £58m 17 Notes: Based on underl
Slide 19: Financial summary FY 2018
Financial summary FY 2018 Organic revenue growth 5.5% Operating profit margin 7.4% Free cash flow growth 17.1% EPS growth (constant currency) 12.5% Dividend growth 12.5% 18 Notes: Based on underlying performance at reported exchange rates unless indicated otherwise, see definitions on page 48-49.
Slide 20: Dominic Blakemore, Chief Executive
Dominic Blakemore Chief Executive
Slide 21: FY 2018 organic revenue growth
FY 2018 organic revenue growth 9.1% 1.5% 5.5% (5.1)% New business Lost business LFL Organic growth 20
Slide 22: North America: excellent progress in our largest region
North America: excellent progress in our largest region Organic revenue up 7.8% • Broad based sector growth Sports & Leisure Business & 15% Industry • Retention rate remains at c. 97% 31% Sector revenue Margin strong at 8.1% Defence, Offshore • Successfully offsetting labour cost inflation & Remote
Slide 23: North America: broad-based growth across sectors
North America: broad-based growth across sectors Organic growth by sector FY 2018 New business wins by source 100% 35% 75% 25% 50% 15% 7.8% 25% 5% 0% -5% Total North 2013 2014 2015 2016 2017 2018 America -15% Education Sports & Leisure Defence, Offshore & Remote Large players Regional players First
Slide 24: North America: labour initiatives
North America: labour initiatives Labour Management Ensuring basic labour costs are controlled Productivity Maximizing the efficiency of the workforce Work Design Changing the model to take out labour Acquisition & Retention Attract, onboard, train and retain talent 23
Slide 25: Europe: a mixed picture
Europe: a mixed picture Organic revenue up 2.1% Continental UK Europe • Very good growth in the UK driven by new business wins Revenue Subdued but • Subdued but improving growth in Very good growth improving Continental Europe Low inflation & Margin down as expected Cost pressures & Margin increasin
Slide 26: Rest of World: pleasing progress
Rest of World: pleasing progress Organic revenue up 2.9%, up 5.0% ex O&R • +20% growth in Turkey, China, India and Spanish speaking LATAM • Offshore & Remote down 3.0% Margin increased by 80bps to 7.5% • Benefit from the delay in the final transition from construction to production • Better overhead
Slide 27: Strategy
2M FST@MPANY swing smULITIUE) eet our SOR Ts Urchas BuEAurr)
Slide 28: Increasing our focus on food
Increasing our focus on food Leveraging our competitive advantages Food services market c. £200bn* • Strong organic growth Stuctural Growth Opportunity Regional • Decentralised/ flexible structure players • Sectorisation and sub-sectorisation approach • Unique scale in purchasing and overheads Self
Slide 29: The 3 Ps
The 3 Ps PEOPLE PERFORMANCE PURPOSE DELIVERING BETTER QUALITY, MORE SUSTAINABLE LONG TERM GROWTH 28
Slide 30: Performance: continuing to drive organic growth
Performance: continuing to drive organic growth NEW BUSINESS RETENTION PORTFOLIO WINS 29
Slide 31: Performance: operational priorities
Performance: operational priorities PRICING PURCHASING PRODUCTIVITY 30
Slide 32: People: becoming a true people business
People: becoming a true people business EXCEPTIONAL QUALITY UNIT HIGHLY ENGAGED DIVERSITY & LEADERSHIP MANAGEMENT COLLEAGUES INCLUSION Increase internal promotion Improve onboarding & Camaraderie, recognition To reflect the society we development and progression live in and communities we serve 31
Slide 33: Purpose: living our social purpose
Purpose: living our social purpose ENVIRONMENTAL HEALTH AND BETTER FOR THE GAME- WELLBEING WORLD CHANGERS SAFETY CULTURE 32
Slide 34: Continuing to drive the Compass model
Continuing to drive the Compass model Organic revenue growth 4 – 6% Operating margin Modest margin improvement Dividend Growth in line with constant currency EPS Capex Up to 3.5% of revenues Surplus cash used for M&A or returned to shareholders via Net Debt / EBITDA 1.5x buy-backs or special dividen
Slide 35: Summary and outlook
Summary and outlook • 2018 was another excellent year • Focused on execution • 2019 Outlook: o Continued strong organic growth in the middle of 4-6% range o Modest margin improvement 34
Slide 36: Supplementary information
Supplementary information
Slide 37: Revenue
Revenue ROW 16% North America Support services 59% Support 15% Sports & Other Row Services Leisure Brazil DOR Support Business & Japan Healthcare Australia 2% 8% Services 12% Industry 13% & Seniors 3% DOR Food 2% 3% Service Other 5% 39% Europe 9% 24% Sector Germany 3% Geography Service Line 55% 4% F
Slide 38: Geographic revenue by sector
Geographic revenue by sector 7% 8% 15% 31% 16% 14% 42% North America Europe 7% Rest of World 29% 13% 57% 2% 7% 23% 29% Business & Industry Healthcare & Seniors Education Sports & Leisure Defence, Offshore & Remote 37 Notes: Based on underlying performance, definitions on page 48-49.
Slide 39: Geographic financials
Geographic financials £m North America Europe Rest of World Other1 Total 2018 Revenue 13,785 5,783 3,671 23,239 Organic growth 7.8% 2.1% 2.9% 5.5% Operating profit 1,120 395 276 (50) 1,741 Margin 8.1% 6.8% 7.5% 7.4% Cash flow 1,023 407 200 (489) 1,141 Cash flow conversion 91% 103% 72% 66% ROCE 28.7%
Slide 40: Dividend cover
Dividend cover 2018 2017 2016 2015 2014 Per share (pence) Dividend (interim plus final) 37.7p 33.5p 31.7p 29.4p 26.5p Underlying earnings 77.6p 72.3p 61.1p 53.7p 48.7p Dividend earnings cover 2.1x 2.2x 1.9x 1.8x 1.8x Cash (£m) Cash cost of ordinary dividend (in the year) 548 531 496 457 444 Underlyi
Slide 41: Balance sheet
Balance sheet Overview (£m) 2018 2017 Goodwill 4,270 3,994 Other non-current assets 3,245 2,820 Working capital (1,222) (821) Net Assets held for sale 164 0 Provisions (394) (398) Post employment benefit obligations 122 28 Current tax payable (158) (141) Deferred tax (4) 84 Net debt (3,383) (3,446)
Slide 42: Financing
Financing Components of debt £m Bonds 2,893 Private placements 1,457 Bank loans - 4,350 Finance leases 6 Other loans and fair value accounting adjustments (8) Derivatives (72) Gross debt 4,276 Cash net of overdrafts (893) Closing net debt at 30 September 2018 3,383 41 Notes: Based on nominal value o
Slide 43: Financing
Financing Maturing in Drawn Principal borrowings Coupon Financial Year £m Bonds €600m 3.125% 2019 535 €500m 1.875% 2023 445 €750m 0.625% 2024 668 £250m 2.000% 2025 250 £250m 3.850% 2026 250 €500m 1.500% 2028 445 £300m 2.000% 2029 300 Total 2,893 US private placements $1,000m (2011 Notes) 3.31% - 4.1
Slide 44: Financing
Financing £m 1000 900 800 700 600 500 400 300 200 100 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 £ bond € bond US$ private placement 43 Notes: Based on borrowings and facilities in place as at 30 September 2018, maturing in the financial year ending 30 September. The average life of th
Slide 45: Financing
Financing Debt ratios and credit ratings Ratings Outlook Confirmed Standard & Poors A Stable 15 Mar 18 Moody’s A3 Stable 07 Mar 18 Fitch (unsolicited) A- Stable 24 Oct 17 Ratios 2018 2017 Net debt1 / EBITDA2 1.5x 1.6x EBITDA2 / net interest3 19.6x 19.2x 44 Notes: 1. Net debt is adjusted where necess
Slide 46: Exchange rates
Exchange rates Rates used in consolidation Income Statement 1 Balance Sheet 2 2018 per £ 2017 per £ 2018 per £ 2017 per £ Australian Dollar 1.77 1.67 1.80 1.71 Brazilian Real 4.73 4.09 5.21 4.24 Canadian Dollar 1.73 1.68 1.69 1.68 Chilean Peso 850.39 837.69 860.15 857.49 Euro 1.13 1.15 1.12 1.13 Jap
Slide 47: Exchange rates
Exchange rates Effect on 2018 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 48: Exchange rates
Exchange rates Effect on 2018 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 49: 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 50: Definitions
Definitions ROCE Return on capital employed (ROCE) divides NOPAT by the 12 month average capital employed. acquisition transaction costs; adjustment to contingent consideration on acquisition; amortisation of intangibles arising on acquisition; change in the fair value of investments; Specific adjus