Compass Group Plc · LSE:CPG
Compass — H1 2015 Earnings Presentation
56 slides from Compass's earnings presentation, May 13, 2015
Slide 1: 2015 Half Year Results
2015 HALF YEAR RESULTS Wednesday 13 May 2015
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: Today's agenda
Today’s agenda 1. Richard Cousins Welcome & highlights 2. Dominic Blakemore Half year results 3. Richard Cousins Growth strategy & outlook 4. Q&A 3
Slide 4: Highlights
Highlights Organic revenue growth 5.7% Operating profit margin 7.5% 10bps EPS 28.4p 12.3% Interim dividend 9.8p 11.4% 4
Slide 5: 2015 Half Year Results
2015 Half Year Results Dominic Blakemore Group Finance Director
Slide 6: Revenue
Revenue Change Reported Constant Organic 2015 2014 Rates Currency Growth £m £m % % % North America 4,693 4,151 13.1% 7.8% 8.2% Europe & Japan 2,805 2,951 (4.9)% 1.0% 0.9% Fast Growing & Emerging 1,564 1,557 0.4% 6.1% 7.7% Revenue 9,062 8,659 4.7% 5.3% 5.7% Notes 1. Based on underlying revenues, defi
Slide 7: Operating profit at reported currency
Operating profit at reported currency Change Analysed By Acquisition 2015 2014 Change Currency / Disposal Organic £m £m £m £m £m £m North America 398 350 48 18 - 30 Europe & Japan 205 213 (8) (14) - 6 Fast Growing & Emerging 109 110 (1) (5) - 4 Unallocated central overheads (32) (32) - - - - Associa
Slide 8: Impact of currency on operating profit
Impact of currency on operating profit 2014 HY 2015 HY Impact on 8-May Impact on Average Rate Average Rate 2014 HY Profit Spot Rate 2014 FY Profit USD 1.64 1.55 £19m 1.54 £44m CAD 1.77 1.85 £(1)m 1.87 £(2)m EUR 1.20 1.31 £(9)m 1.37 £(17)m YEN 166.95 181.31 £(1)m 184.73 £(3)m AUD 1.80 1.89 £(3)m 1.95
Slide 9: Operating profit and margin at constant currency
Operating profit and margin at constant currency Margin Change 2015 2014 2015 2014 £m £m £m % % % North America 398 368 30 8.2% 8.5% 8.4% Europe & Japan 205 199 6 3.0% 7.3% 7.2% Fast Growing & Emerging 109 105 4 3.8% 7.0% 7.1% Unallocated central overheads (32) (32) - Associates 8 6 2 Operating prof
Slide 10: Income statement
Income statement 2015 2014 £m Reported Non-underlying Underlying1 Underlying1 Revenue 8,941 (121) 9,062 8,659 Operating profit 674 (14) 688 647 Other losses (1) (1) - - Net finance costs (52) (1) (51) (39) Profit before tax 621 (16) 637 608 Tax (155) 4 (159) (152) Tax rate 25% 25% 25% Profit after t
Slide 11: Underlying income statement at constant currency
Underlying income statement at constant currency 2 £m 2015 2014 Growth Revenue 9,062 8,604 Operating profit 688 646 +7% Net finance costs (51) (39) Profit before tax 637 607 Tax (159) (151) Tax rate 25% 25% Profit after tax 478 456 Non-controlling interest (4) (2) Attributable profit 474 454 Average
Slide 12: Free cash flow
Free cash flow £m 2015 2014 1 Operating profit 688 647 Depreciation and amortisation 171 154 EBITDA 859 801 Net capital expenditure 2 (220) (202) Trade working capital (106) (57) Provisions (4) (4) Post employment benefits (23) (22) Net interest (45) (35) Net tax (127) (137) Net other items (11) (7)
Slide 13: Net debt
Net debt £m Opening net debt at 1 October 2014 2,353 1 Underlying free cash flow from continuing operations (323) European exceptional cash flow 21 Acquisitions 58 Disposals (4) Equity dividends 295 Purchase of own shares 139 Impact of foreign exchange rates 105 Other 11 Closing net debt at 31 March
Slide 14: Ongoing priorities for use of cash
Ongoing priorities for use of cash Capex M&A Appropriate investment: Required returns > cost of circa 2.5% of revenue capital by end of year 2 Efficient balance sheet Strong investment grade credit ratings Target net debt / EBITDA 1.5x Dividend Shareholder returns Growing in line with EPS 14
Slide 15: Financial summary
Financial summary Organic revenue growth 5.7% Margin progression 10bps Constant currency EPS growth 12.3% Free cash flow generation £323m Increase in interim dividend to 9.8 pence per share 11.4% Existing share buyback, to be completed in 2015 £500m Strong financial performance Notes 1. Based on und
Slide 16: Growth strategy & outlook
Growth strategy & outlook Richard Cousins Group Chief Executive
Slide 17: Our strategy and strengths
Our strategy and strengths Strategy • Focus on food - our core competence • Ranked #1 or #2 in most key markets • Incremental approach to support services 83% Strengths • Scale and sector approach • Culture and our people We are well placed to capture the large structural market opportunity Note: ma
Slide 18: 2015 H1 organic revenue growth
2015 H1 organic revenue growth 18
Slide 19: Core growth engine
North America Core growth engine • Revenue up 8.2% • Strong growth across all sectors • Unusually high retention • Small improvement in like for like volumes 65% • Good momentum Note: market data figures based on Compass Group management estimates and revenue refers to organic revenue as per the def
Slide 20: Segmenting the market further
North America Segmenting the market further Note: market data figures based on Compass Group management estimates 20
Slide 21: Specialising with our portfolio of B2B brands
North America Specialising with our portfolio of B2B brands Client Facing Brands Business & Industry Healthcare & Seniors Education Central procurement Group functions Sports & Leisure Defence Offshore & Remote 21
Slide 22: Innovation: Office Coffee Services
North America Innovation: Office Coffee Services Compass Office Coffee Services 3 yr CAGR 26% Note: CAGR: compound annual growth rate 22
Slide 23: Innovation: Digital
North America Innovation: Digital • Investing to drive MAP 1 and MAP 2 • Engage with consumers via social media 12.11pm • Payment solutions to increase speed of service • Data analytics to improve consumer insights 12.21pm 12.25pm 12.26pm 23
Slide 24: Return to growth
Europe & Japan Return to growth Revenue up 0.9% • New business wins driving top line • Retention rates improving • Mixed economic backdrop 88% Margins up 10bps • Continued operational efficiencies • Reinvesting for growth: sales and retention Note: market data figures based on Compass Group manageme
Slide 25: Investing in sales and retention
Europe & Japan Investing in sales and retention • Up-skilled sales team • Increased retention resources Retention (excl • Significant increase in training New business xcluding planned exits) Good progress but there’s more to do 25
Slide 26: Reducing food costs in "WAVE"s
Europe & Japan Reducing food costs in “WAVE”s • New intensity behind MAP 3 food costs • “WAVE” programme to rationalise SKUs • Bottom up approach • Starting with highest spend items • Savings to come through over time SKU: stock keeping unit 26
Slide 27: Forging a new growth culture in the UK
Europe & Japan Forging a new growth culture in the UK Revenue up mid-single digits • Improved sales training • Increased focus on retention Margin • Opportunities in procurement and labour utilisation • M&A to replicate US food procurement model Note: revenue refers to organic revenue growth as per
Slide 28: Strong growth in emerging markets
Fast Growing & Emerging Strong growth in emerging markets Revenue up 7.7% • Emerging markets up 14% • Australia - challenging as expected • Like for like performance mixed Margin down 10bps c70% Emerging • Continued productivity and efficiency gains markets • Negative volumes in emerging markets • R
Slide 29: CAMEAT
Fast Growing & Emerging CAMEAT Turkey • Growth driven by new business wins • Macro weakness impacting volumes Middle East & Central Asia • Good growth across all sectors, with some weakness in Offshore & Remote South Africa • Strong net new business especially in Healthcare 29
Slide 30: ASIA PAC
Fast Growing & Emerging ASIA PAC Australia • Weak commodity prices a challenge • Good growth in Business & Industry and Education Rest of region • Good revenue growth • Trend towards outsourcing • Excellent growth in China and India 30
Slide 31: LATAM
Fast Growing & Emerging LATAM Brazil • Very strong net new business • Weakening like for like volumes Rest of LATAM • New wins in Offshore & Remote in Chile • Contractual pricing and good wins in Argentina • Colombia back to growth 31
Slide 32: Challenges and opportunities
Fast Growing & Emerging Challenges and opportunities • Tough backdrop: weak commodity prices and uncertain economic environment in emerging markets • Negative like for like volumes • Clients looking for cost savings • Increasing inflationary pressures • Taking out costs Continue to grow by leveragin
Slide 33: Diverse range of performance drivers
Diverse range of performance drivers New Business Retention LFL Volume & Price Operational Efficiency (MAP 1) (MAP 1) (MAP 2) (MAP 3, 4 & 5) North America (52% of sales) Europe & Japan (31% of sales) Fast Growing & Emerging • Australia (5% of sales) • Emerging markets (12% of sales) Compass Group Re
Slide 34: Business model
Business model GROWTH Organic MARGIN Operating efficiency Opex INVESTMENT Capex Infill M&A EPS growth RETURNS TO Progressive dividend SHAREHOLDERS Capital returns A proven and sustainable model 34
Slide 35: Summary and outlook
Summary and outlook An excellent first half Continued strength in North America Europe returned to growth Acceleration in emerging markets Ongoing returns to shareholders Focused on strong growth with discipline 35
Slide 36: Q&A
Q&A
Slide 37: Supplementary Information
2015 Half Year Results Supplementary Information
Slide 38: Contents
Contents Group revenue 39 By geography, sector & service line Free cash flow 46 Reconciliation of reported to underlying Revenue by sector 40 External geographies Balance sheet 47 Overview 48 Capital expenditure % of revenue Geographic financials 41 Group Financing 49 Components of net debt 42 Group
Slide 39: Group revenue
Group revenue By geography, sector & service line Fast Growing & Emerging 17% North America 52% Europe & Japan 31% Food: 85% Support services: 15% Notes 1. Based on underlying revenues, definitions on page 56 39
Slide 40: Revenue by sector
Revenue by sector External geographies North America Fast Growing & Emerging Europe & Japan Notes 1. Based on underlying revenues, definitions on page 56 40
Slide 41: Geographic financials
Geographic financials Group Fast Growing & North America Europe & Japan Emerging Other2 Total £m £m £m £m £m 2015 Revenue 4,693 2,805 1,564 9,062 Organic growth 8.2% 0.9% 7.7% 5.7% Operating profit 398 205 109 (24) 688 Margin 8.5% 7.3% 7.0% 7.5% Cash flow 360 139 37 (213) 323 Cash flow conversion 90
Slide 42: Geographic financials: Group and North American trends
Geographic financials Group and North American trends Group Revenue (£bn) & Organic Growth Group Operating Profit (£m) & Margin (%) 5.0% 2.6% 0.4% 5.7% 5.0% 4.1% 4.2% 5.7% 5.7% 6.5% 7.0% 7.2% 7.2% 7.3% 7.4% 7.5% NA Revenue (£bn) & Organic Growth NA Operating Profit (£m) & Margin (%) 7.0% 4.4% 2.8% 7
Slide 43: Geographic financials: E&J and FG&E trends
Geographic financials Europe & Japan and Fast Growing & Emerging trends E&J Revenue (£bn) & Organic Growth E&J Operating Profit (£m) & Margin (%) 3.0% (0.7)% (2.8)% (0.4)% (0.4)% (3.6)% (1.6)% 0.9% 6.2% 6.5% 7.0% 6.8% 6.6% 6.9% 7.2% 7.3% FG&E Revenue (£bn) & Organic Growth FG&E Operating Profit (£m)
Slide 44: Earnings and dividends per share
EPS/dividends Earnings and dividends per share 2015 2014 Earnings per share Continuing operations 27.7p 24.8p Adjustments 0.7p 0.5p Underlying earnings per share 28.4p 25.3p Dividends per share Interim dividend 9.8p 8.8p Final dividend 17.7p Total dividend 26.5p Notes 1. Underlying performance, defi
Slide 45: Dividend cover
EPS/dividends Dividend cover 2014 2013 2012 2011 2010 Per share (pence) Dividend (interim plus final) 26.5p 24.0p 21.3p 19.3p 17.5p Underlying earnings 48.7p 47.7p 42.6p 39.0p 35.7p Dividend earnings cover 1.8x 2.0x 2.0x 2.0x 2.0x Cash (£m) Cash cost of dividend (in the year) 444 404 378 360 258 Und
Slide 46: Free cash flow reconciliation of reported to underlying
Free cash flow Reconciliation of reported to underlying £m 2015 2014 Reported Adjs1 Other2 Underlying Reported Adjs1 Other2 Underlying Operating profit 654 - (34) 688 616 - (31) 647 Depreciation and amortisation 184 - 13 171 165 - 11 154 EBITDA 838 - (21) 859 781 - (20) 801 Net capital expenditure (
Slide 47: Balance sheet overview
Balance sheet Overview 2015 HY 2014 HY 2014 FY £m £m £m Goodwill 3,600 3,514 3,528 Other non-current assets 2,111 1,849 1,959 Working capital (674) (688) (769) Provisions (427) (471) (438) Post employment benefit obligations (141) (153) (170) Current tax payable (133) (130) (116) Deferred tax 208 21
Slide 48: Capital expenditure % of revenue
Balance sheet Capital expenditure % of revenue Notes 1. Based on underlying performance, definitions on page 56 48 2. Gross capital expenditure includes tangible and intangible assets , including assets acquired under finance leases, for Group entities and share of equity accounted joint ventures
Slide 49: Components of net debt
Financing Components of net debt £m Bonds 1,046 Private placements 1,424 Bank loans 415 2,885 Finance leases 15 Other loads and fair value accounting adjustments 89 Derivatives (44) Gross debt 2,945 Cash net of overdrafts (290) Closing net debt at 31 March 2015 2,655 Notes 1. Based on nominal value
Slide 50: Principal borrowings
Financing Principal borrowings Maturing in Coupon Financial Year £m Bonds €600m 3.125% 2019 434 €500m 1.875% 2023 362 £250m 3.850% 2026 250 Total 1,046 US private placements $162m (2008 Notes) 6.720% 2016 109 £35m (2008 Notes) 7.550% 2017 35 $1,000m (2011 Notes) 3.31%-4.12% 2019-2024 674 $500m (2013
Slide 51: Maturity profile of principal borrowings
Financing Maturity profile of principal borrowings Notes 1. Based on borrowings and facilities in place as at 31 March 2015, maturing in the financial years ending 30 September 51 2. The average life of the Group's principal borrowings as at 31 March 2015 was 6.7 years (2014: 5.5 years)
Slide 52: Debt ratios and credit ratings
Financing Debt ratios and credit ratings Ratings Outlook Confirmed Standard & Poors A Stable 27 Feb 15 Moody’s Baa1 Stable 14 May 14 Fitch (unsolicited) A- Stable 6 Feb 15 Ratios 2015 2014 Net debt1 / EBITDA2 1.7x 1.0x EBITDA2 / net interest3 16.5x 20.4x Notes 1. 2. Net debt is adjusted where necess
Slide 53: Rates used in consolidation
Exchange rates Rates used in consolidation Income Statement 2 Balance Sheet 3 2015 per £ 2014 per £ 2015 per £ 2014 per £ Australian Dollar 1.89 1.80 1.94 1.80 Brazilian Real 4.18 3.79 4.74 3.76 Canadian Dollar 1.85 1.77 1.88 1.84 Euro 1.31 1.20 1.38 1.21 Japanese Yen 181.31 166.95 178.03 171.69 Nor
Slide 54: Effect on 2014 revenue and profit
Exchange rates Effect on 2014 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 55: Effect on 2014 revenue and profit
Exchange rates Effect on 2014 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 56: Definitions
Definitions 1. Constant currency basis restates the prior period results to 2015’s average exchange 6. Underlying basic earnings per share excludes specific adjusting items and the tax rates. attributable to those items. 2. Underlying revenue represents the combined sales of Group and share of equit