Full Year Results announcement

About this update from Compass Group Plc

[{"type":"text","content":"\n \n \n \n RNS Number : 1842T \n Compass Group PLC \n 23 November 2021 \n   \n \n \n \n   \n \n \n   \n \n \n Annual Results Announcement \n \n \n Legal Entity Identifier (LEI) No. 2138008M6MH9OZ6U2T68 \n \n \n   \n \n \n   \n \n \n   \n \n \n Full year results announcement for the year ended 30 September 2021 \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying 1 results \n \n \n \n \n Statutory results \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n Change \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n Change \n \n \n \n \n \n \n Revenue \n \n \n \n \n £18.1 billion \n \n \n \n \n £19.2 billion 2 \n \n \n \n \n (6.3)% 3 \n \n \n \n \n £17.9 billion \n \n \n \n \n £19.9 billion \n \n \n \n \n (10.2)% \n \n \n \n \n \n \n Operating profit \n \n \n \n \n £811 million \n \n \n \n \n £522 million 2 \n \n \n \n \n 55.4% 2 \n \n \n \n \n £545 million \n \n \n \n \n £294 million \n \n \n \n \n 85.4% \n \n \n \n \n \n \n Operating margin \n \n \n \n \n 4.5% \n \n \n \n \n 2.9% \n \n \n \n \n 160bps \n \n \n \n \n 3.0% \n \n \n \n \n 1.5% \n \n \n \n \n 150bps \n \n \n \n \n \n \n Earnings per share \n \n \n \n \n 29.5 pence \n \n \n \n \n 17.1 pence 2 \n \n \n \n \n 72.5% 2 \n \n \n \n \n 20.0 pence \n \n \n \n \n 8.0 pence \n \n \n \n \n 150.0% \n \n \n \n \n \n \n Free cash flow \n \n \n \n \n £660 million \n \n \n \n \n £213 million \n \n \n \n \n 209.9% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Operating cash flow \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n £1,171 million \n \n \n \n \n £845 million \n \n \n \n \n 38.6% \n \n \n \n \n \n \n Annual dividend per share \n \n \n \n \n 14 pence \n \n \n \n \n - \n \n \n \n \n \n \n \n \n \n \n \n 14 pence \n \n \n \n \n - \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  Reconciliation of statutory to underlying results can be found in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n 2.  Measured on a constant currency basis. \n \n \n 3.  Organic revenue change. \n \n \n   \n \n \n Focused on growth following a year of strong recovery \n \n \n   \n \n \n Performance summary \n \n \n • \n Underlying revenue recovered to 88% of 2019 revenue by Q4. FY underlying revenue 77% of 2019 \n \n \n • \n Underlying margin improved to 5.8% in Q4. FY underlying margin of 4.5% \n \n \n • \n Strong FY operating cash flow of £1 billion whilst maintaining gross capex at 3.6% of underlying revenue. Reduced leverage r \n atio to \n 1.6x \n \n \n • \n Reinstating the dividend with a payout policy of c.50% of underlying earnings \n \n \n Operational highlights \n \n \n • \n Healthcare & Senior Living and Defence, Offshore & Remote sectors performed well above pre-pandemic volumes, with strong recovery in Education and Sports & Leisure by Q4 \n \n \n • \n Record new business wins of £2.1 billion, with around half from first time outsourcing and client retention of 95.4% \n \n \n • \n Announced a global commitment to deliver net zero by 2050, including validated Science Based Targets to 2030 \n \n \n Strategy \n \n \n • \n Focused on growth: \n \n \n -  \n Significant structural opportunities, especially in \n first time outsourcing \n \n \n -  \n Enabled by our strategic priorities: evolution of our operating model, innovation and digital, investing in capex and M&A and sustainability commitments \n \n \n Outlook \n \n \n • \n FY22 organic revenue growth expected to be 20%-25% \n \n \n • \n FY22 underlying operating margin anticipated to be over 6%, with an exit rate of c.7% \n \n \n • \n Progress expected to be weighted towards the second half of the year due to mobilisation costs and inflationary pressures during H1 \n \n \n Statutory results \n \n \n • \n Statutory revenue decreased by 10.2 \n % due to the pandemic's continuing impact on our operations \n \n \n • \n Statutory o \n perating profit increased by 85.4 \n % to £545 million reflecting actions taken to control the controllable, including resizing the cost base and improved cost control \n \n \n   \n \n \n   \n \n \n Business review \n \n \n \n   \n \n \n \n   \n \n \n Dominic Blakemore, Group Chief Executive, said: \n \n \n \"Our strong financial recovery in 2021, including record new business wins and client retention, is a credit to our teams' exceptional resilience, dedication and expertise in extraordinary circumstances.  We are pleased to be reinstating the dividend reflecting our strong cash flow and increasing confidence in the Group's performance. \n \n \n Looking ahead we are now focused on growth, driven by encouraging market trends and our ability to provide more bespoke, digital and sustainable solutions that meet the evolving needs of clients in a post-pandemic world. The tailwinds from first time outsourcing continue and, combined with our differentiated operating model and investment opportunities, we are in a strong position for growth. \n \n \n In the short term, we expect FY22 organic revenue growth to be 20%-25%. Full year underlying margin is anticipated to be over 6%. With ongoing mobilisation costs and inflationary pressure, further improvement will be weighted towards the second half of the year as we return to underlying margin of around 7% by year end.  \n \n \n As we emerge from the pandemic, our strategic focus is on sustained growth for the future, to enhance our competitive advantages and further strengthen our position as an industry leader in food services. We are increasingly excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels, and rewarding shareholders with further returns.\" \n \n   \n \n Results presentation today \n \n \n A recording of the results presentation for investors and analysts will be available on the Company's website today, Tuesday 23 November 2021, at 7.00 a.m.. \n There will be a question and answer session at 9.00 a.m., \n accessible via the Company's website, \n \n www.compass-group.com \n \n , \n and you will be able to participate by dialing \n : \n \n \n Please connect to the call at least 10-15 minutes prior to the start time. \n \n \n \n \n \n UK Toll Number: \n \n \n \n \n +44 (0) 33 0551 0200 \n \n \n \n \n \n \n UK Toll-Free Number: \n \n \n \n \n 0808 109 0700 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n US Toll Number: \n \n \n \n \n +1 212 999 6659 \n \n \n \n \n \n \n US Toll-Free Number: \n \n \n \n \n 1 866 966 5335 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Participant PIN Code: \n \n \n \n \n Compass \n \n \n \n \n \n Financial calendar \n \n \n \n \n \n Ex-dividend date for 2021 final dividend \n \n \n \n \n 20 January 2022 \n \n \n \n \n \n \n Record date for 2021 final dividend \n \n \n \n \n 21 January 2022 \n \n \n \n \n \n \n Q1 Trading Update / Annual General Meeting \n \n \n \n \n 3 February 2022 \n \n \n \n \n \n \n Last day for DRIP elections \n \n \n \n \n 7 February 2022 \n \n \n \n \n \n \n 2021 final dividend date for payment \n \n \n \n \n 28 February 2022 \n \n \n \n \n \n \n Half year results \n \n \n \n \n 11 May 2022 \n \n \n \n \n \n Enquiries \n \n \n \n \n \n Investors \n \n \n \n \n Agatha Donnelly, Helen Javanshiri & Simon Bielecki \n \n \n \n \n +44 1932 573 000 \n \n \n \n \n \n \n Press \n \n \n \n \n Giles Robinson, Compass Group PLC \n \n \n \n \n +44 1932 963 486 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Tim Danaher, Brunswick \n \n \n \n \n +44 207 404 5959 \n \n \n \n \n \n \n Website \n \n \n \n \n \n www.compass-group.com \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n   \n Basis of preparation \n \n Throughout this preliminary results announcement, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group's performance. \n \n \n The Executive Committee manages and assesses the performance of the Group using various underlying and other Alternative Performance Measures (APMs). These measures are not recognised under International Financial Reporting Standards (IFRS) or other generally accepted accounting principles (GAAP) and may not be directly comparable with alternative performance measures used by other companies. Underlying measures reflect ongoing trading and, therefore, facilitate meaningful year on year comparison. Management believes that the Group's underlying and alternative performance measures, together with the results prepared in accordance with IFRS, provide comprehensive analysis of the Group's results. \n \n \n The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n Group overview  \n \n 2021 has been a year of strong recovery. Underlying operating margins improved sequentially quarter on quarter from breakeven at the end of Q4 2020 to 5.8% by Q4 2021 \n delivering 4.5% 1 for the full year. Our year end cash position was strong and our leverage is now close to our target range of 1x-1.5x. All this was achieved through controlling the controllable by managing our cost base, resizing the business and adapting our operations. \n \n \n Whilst we have made progress recovering revenue in H2, driven by strong net new business, the pandemic continued to affect performance for the year. Our Healthcare & Senior Living and Defence, Offshore & Remote sectors performed well above pre-pandemic revenues, and we experienced a strong recovery in Education and Sports & Leisure in the fourth quarter. Revenues in our Business & Industry sector have remained subdued due to the delayed return to offices in our major markets. Successfully adapting our operations to the circumstances has been key to our recovery to date and will continue to be so as we evolve alongside our clients to provide more flexible, bespoke offers. \n \n \n Group performance \n \n \n Our 2021 results reflect the strong recovery from the pandemic's impact on our business. Our revenue in 2021 declined by 6.3% 1 on an organic basis as the pandemic continued to impact our revenues and, throughout the year, lockdowns and restrictions were imposed and relaxed across our markets. We had excellent new business at 7.2% and retention at 95.4%. Net new business was 2.6% and, encouragingly, in the second half of the year was 6.2%, higher than the historical trend of around 3% and, although benefiting from a lower denominator, this indicates positive momentum into 2022.  \n \n Organic revenue 1 \n \n \n \n \n % organic change \n \n \n \n \n Q1 \n \n \n \n \n Q2 \n \n \n \n \n Q3 \n \n \n \n \n Q4 \n \n \n \n \n FY \n \n \n \n \n \n \n Business & Industry \n \n \n \n \n (43.4)% \n \n \n \n \n (41.5)% \n \n \n \n \n 20.4% \n \n \n \n \n 19.3% \n \n \n \n \n (21.0)% \n \n \n \n \n \n \n Education \n \n \n \n \n (37.0)% \n \n \n \n \n (25.6)% \n \n \n \n \n 93.7% \n \n \n \n \n 41.8% \n \n \n \n \n (3.7)% \n \n \n \n \n \n \n Healthcare & Senior Living \n \n \n \n \n 0.8% \n \n \n \n \n 3.1% \n \n \n \n \n 15.0% \n \n \n \n \n 9.3% \n \n \n \n \n 6.9% \n \n \n \n \n \n \n Sports & Leisure \n \n \n \n \n (76.5)% \n \n \n \n \n (66.6)% \n \n \n \n \n 412.6% \n \n \n \n \n 334.6% \n \n \n \n \n (6.7)% \n \n \n \n \n \n \n Defence, Offshore & Remote \n \n \n \n \n (1.2)% \n \n \n \n \n 2.5% \n \n \n \n \n 17.8% \n \n \n \n \n 15.0% \n \n \n \n \n 8.3% \n \n \n \n \n \n \n Group \n \n \n \n \n (33.7)% \n \n \n \n \n (26.8)% \n \n \n \n \n 36.4% \n \n \n \n \n 32.9% \n \n \n \n \n (6.3)% \n \n \n \n \n \n   \n \n \n   \n \n \n   \n \n \n \n \n \n   \n \n 1.  \n Alternative Performance Measure (APM). The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n Underlying revenue 2 \n \n \n \n \n Underlying revenue as % of 2019 1 \n \n \n \n \n Q1 \n \n \n \n \n Q2 \n \n \n \n \n Q3 \n \n \n \n \n Q4 \n \n \n \n \n FY \n \n \n \n \n \n \n Business & Industry \n \n \n \n \n 61.5% \n \n \n \n \n 57.8% \n \n \n \n \n 60.8% \n \n \n \n \n 68.4% \n \n \n \n \n 62.1% \n \n \n \n \n \n \n Education \n \n \n \n \n 66.9% \n \n \n \n \n 72.0% \n \n \n \n \n 77.7% \n \n \n \n \n 93.6% \n \n \n \n \n 76.5% \n \n \n \n \n \n \n Healthcare & Senior Living \n \n \n \n \n 105.2% \n \n \n \n \n 105.2% \n \n \n \n \n 107.2% \n \n \n \n \n 111.3% \n \n \n \n \n 107.2% \n \n \n \n \n \n \n Sports & Leisure \n \n \n \n \n 24.7% \n \n \n \n \n 28.3% \n \n \n \n \n 48.8% \n \n \n \n \n 89.3% \n \n \n \n \n 49.1% \n \n \n \n \n \n \n Defence, Offshore & Remote \n \n \n \n \n 107.1% \n \n \n \n \n 108.6% \n \n \n \n \n 110.6% \n \n \n \n \n 108.8% \n \n \n \n \n 108.8% \n \n \n \n \n \n \n Group \n \n \n \n \n 71.1% \n \n \n \n \n 71.7% \n \n \n \n \n 76.2% \n \n \n \n \n 88.5% \n \n \n \n \n 76.8% \n \n \n \n \n \n   \n \n \n 1. On a constant currency basis. Throughout this report, underlying revenue as a percentage of 2019 is calculated on a constant currency basis. \n \n \n We further progressed on rebuilding revenue in the second half, with the fourth quarter at 88% of our 2019 revenues reflecting significant improvements in Sports & Leisure and a strong return to Education after the summer break. Defence, Offshore & Remote and Healthcare & Senior Living continued to operate at over 100% of 2019 revenues, however, in Business & Industry, the pace of recovery remained subdued. \n \n \n On a statutory basis, revenue decreased by 10.2% reflecting the continued impact of the pandemic on the business. \n \n Operating profit and operating margin \n \n When the pandemic hit in March 2020, we immediately took actions to reduce our food (MAP 3) costs, in unit labour and in unit overheads (MAP 4) and our above unit (MAP 5) costs to offset the impact of lower volumes and to adjust our business model to the new trading environment. \n \n \n Throughout 2021, we continued to control the controllable, including resizing the cost base and increasing levels of labour flexibility, and have incurred an additional £157 million of COVID-19 resizing charges. These actions, along with continued contract renegotiations, a focus on procurement and purchasing compliance, as well as general cost control, have allowed our underlying operating margin to rebuild quarter on quarter despite subdued volume recovery, with the fourth quarter underlying operating margin at 5.8%. \n \n \n Underlying operating profit increased by 55% 2 to £811 million 2 on a constant currency basis and our underlying operating margin was 4.5% 2 . \n \n \n On a statutory basis, operating profit increased by 85% to £545 million reflecting the actions taken to control costs despite the lower trading volumes as a result of the pandemic. \n \n \n Capital allocation \n \n \n Our capital allocation framework is clear and unchanged. Our priority is to invest in the business to fund growth opportunities, target a strong investment grade credit rating and pay an ordinary dividend, with any surplus capital being returned to shareholders through share buybacks and/or special dividends, subject to our leverage target of 1x-1.5x net debt to EBITDA.  \n \n \n Growth investment consists of (i) capital expenditure to support organic growth in both new business wins and retention of existing contracts, and (ii) bolt-on M&A opportunities that strengthen our capabilities and broaden our exposure. We have a proven track record of strong returns from our investment strategy evidenced by our historical returns on capital employed. \n \n \n The Board has proposed a final dividend of 14.0 pence per share for FY21, payable in February 2022. From FY22 the dividend policy is to pay out around 50% of underlying earnings through an interim and final dividend. \n \n \n   \n \n \n \n \n \n   \n \n 2.  \n Alternative Performance Measure (APM). \n The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n \n Regional performance \n \n \n North America - 61.6% Group underlying revenue (2020: 63.1%) \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying \n \n \n \n 1 \n \n \n \n \n \n \n Change 1 \n \n \n \n \n \n \n Regional financial summary \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n Reported rates \n \n \n \n \n Constant currency \n \n \n \n \n Organic \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n £11,170m \n \n \n \n \n £12,746m \n \n \n \n \n (12.4)% \n \n \n \n \n (6.9)% \n \n \n \n \n (6.7)% \n \n \n \n \n \n \n Regional operating profit \n \n \n \n \n £608m \n \n \n \n \n £606m \n \n \n \n \n 0.3% \n \n \n \n \n 6.1% \n \n \n \n \n 6.5% \n \n \n \n \n \n \n Regional operating margin \n \n \n \n \n 5.4% \n \n \n \n \n 4.8% \n \n \n \n \n 60bps \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  Reconciliation of statutory to underlying results can be found in note 2 (segmental analysis) of the consolidated financial statements. \n \n \n Underlying \n \n \n Full year organic revenue declined by 6.7% and we saw revenues at c.76% of 2019 revenue, with the fourth quarter exit rate at around 90%. Reported new business at 7.5%, with double digit new business growth in Healthcare & Senior Living and Sports & Leisure and continued high retention rates at 96.4%, saw net new business of 3.9% with the second half of the year at 7.3%. Of the top 10 new business wins by value, eight were from first time outsourcing. \n \n \n Our Sports & Leisure business performed well in the second half of the year benefiting from improved attendance, particularly of outdoor sports events, with strong per capita spend. Our Education sector has seen strong reopening numbers following the summer break and high on campus spend. Our Business & Industry sector, being weighted towards business, continued to be significantly impacted by the pandemic with a slow recovery and gradual return to offices. Our Healthcare & Senior Living business has been resilient throughout the pandemic, particularly in support services, and continued to trade above 100% of 2019 revenues. Our remaining laundries business was disposed of during the year. \n \n \n Underlying operating profit was £608 million, which represents 6.1% year on year growth on a constant currency basis. The actions taken to rebuild the margin and our continued focus on efficiency and cost control, have allowed the underlying operating margin to improve by 60bps from 2020 to 5.4%, with an underlying operating margin of 6.2% in Q4 2021, an improvement of 330bps over the fourth quarter of 2020. \n \n \n Statutory \n \n \n Statutory revenue decreased by 12.4% to £11,149 million as the pandemic continued to negatively impact the business. \n \n \n Statutory operating profit was £560 million, a £72 million increase, due to the improved margin and the £48 million of non-underlying resizing costs recognised in the prior year. \n \n \n   \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n \n Europe - 25.6% Group underlying revenue (2020: 25.0%) \n \n \n \n \n \n   \n \n \n \n \n \n Underlying \n \n \n \n 1 \n \n \n \n \n \n \n Change 1 \n \n \n \n \n \n \n Regional financial summary \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n Reported rates \n \n \n \n \n Constant currency \n \n \n \n \n Organic \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n £4,641m \n \n \n \n \n £5,048m \n \n \n \n \n (8.1)% \n \n \n \n \n (6.3)% \n \n \n \n \n (9.6)% \n \n \n \n \n \n \n Regional operating profit/(loss) \n \n \n \n \n £147m \n \n \n \n \n £(29)m \n \n \n \n \n 606.9% \n \n \n \n \n 520.0% \n \n \n \n \n 1,570.0% \n \n \n \n \n \n \n Regional operating margin \n \n \n \n \n 3.2% \n \n \n \n \n (0.6)% \n \n \n \n \n 380bps \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  Reconciliation of statutory to underlying results can be found in note 2 (segmental analysis) of the consolidated financial statements. \n \n \n Underlying \n \n \n Organic revenue declined 9.6% with net new business broadly flat albeit with the retention rate improving year on year. Encouragingly, net new business in the second half of the year was positive at 3.5% driven by improving trends in the UK, Turkey and Iberia. Overall revenue was c.75% of 2019 levels reflecting the adverse impact of national and local lockdowns on our Business & Industry, Education and Sports & Leisure sectors. The more resilient sectors of Healthcare & Senior Living and Defence, Offshore & Remote were broadly in line with 2019 levels. \n \n \n Governments across Europe continued to provide ongoing support to protect jobs during the pandemic and, where appropriate, we utilised these schemes. We ceased participation in the UK Government's Coronavirus Job Retention Scheme and have repaid the funds our employees benefited from in the year. \n \n \n There remains uncertainty in the current trading environment, especially as to the pace of office reopenings in our major markets. We have continued with our resizing actions to adjust our cost base and have incurred a £149 million non-underlying charge in the year. No further resizing charges are expected, although the cash cost will continue into 2022.  \n \n \n The region returned to profitability with underlying operating profit at £147 million and the underlying operating margin improving by 380bps to 3.2%. The actions taken, including resizing, continued contract renegotiations and the focus on cost control as client sites reopened, resulted in an underlying operating margin of 5.7% in Q4 2021, an improvement of 980bps over the fourth quarter of 2020. \n \n \n Statutory \n \n \n Statutory revenue was £4,434 million, with the difference from underlying revenue being the presentation of the share of results of our joint ventures operating in the Middle East. \n \n \n The statutory operating loss of £62 million represents a £103 million improvement on 2020 driven by improved trading performance, partially offset by higher non-underlying charges in relation to acquisition and resizing activity. \n \n \n   \n \n \n \n Business review \n \n \n continued) \n \n \n \n \n   \n \n \n \n   \n \n \n Rest of World - 12.8% Group underlying revenue (2020: 11.9%) \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying \n \n \n \n 1 \n \n \n \n \n \n \n Change 1 \n \n \n \n \n \n \n Regional financial summary \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n Reported rates \n \n \n \n \n Constant currency \n \n \n \n \n Organic \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n £2,325m \n \n \n \n \n £2,404m \n \n \n \n \n (3.3)% \n \n \n \n \n 1.9% \n \n \n \n \n 3.0% \n \n \n \n \n \n \n Regional operating profit \n \n \n \n \n £130m \n \n \n \n \n £94m \n \n \n \n \n 38.3% \n \n \n \n \n 41.3% \n \n \n \n \n 44.4% \n \n \n \n \n \n \n Regional operating margin \n \n \n \n \n 5.6% \n \n \n \n \n 3.9% \n \n \n \n \n 170bps \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  Reconciliation of statutory to underlying results can be found in note 2 (segmental analysis) of the consolidated financial statements. \n \n \n Underlying \n \n \n The 3.0% organic revenue increase in our Rest of World region reflects double digit growth in LATAM and New Zealand and in our Defence, Offshore & Remote sector in Australia, partially offset by Japan where around 50% of revenues are from the Business & Industry sector. New business growth was 9.3% and retention was 94.3%, an improvement of 90bps from the prior year. Net new business improved during the year with the second half of the year at 6.1%. Revenues were around 86% of 2019 levels, with Q4 revenues at around 90%. \n \n \n The region continues to be relatively protected from the impact of COVID-19 with around 60% of revenues from the more resilient sectors of Healthcare & Senior Living and Defence, Offshore & Remote. Slower vaccination roll out in LATAM has impacted the Business & Industry recovery along with localised lockdowns across the wider region. \n \n \n Underlying operating profit was £130 million, an increase of 41.3% on a constant currency basis, resulting in an underlying operating margin of 5.6%, a 170bps year on year improvement. The focus on actions to control costs and improve efficiency, as well as a return to seasonal trading norms, has resulted in an underlying operating margin of 7.3% in Q4 2021, an improvement of 450bps over the fourth quarter of 2020. \n \n \n Statutory \n \n \n Statutory revenue declined by £79 million to £2,325 million. There is no difference between statutory and underlying revenue. \n \n \n Statutory operating profit was £120 million, an increase of £54 million reflecting improved trading performance and lower non-underlying resizing costs. \n \n \n   \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n   \n Strategy \n \n Compass' addressable market offers significant structural growth opportunities. The market pre-COVID-19 was estimated to be at least £220 billion, just over half of which is currently outsourced, providing considerable scope for first time outsourcing as well as market share gains from large and regional competitors. We continued to benefit from new business wins as organisations turned to us during the pandemic for our health and safety expertise, supply chain resilience and financial stability. Whilst we have seen good new business wins across all sectors, we are particularly pleased with the increased momentum in Healthcare \n & Senior Living. \n \n \n Our strategic focus on food, with some specialised support services, remains relevant as food is our core competency. As the largest global player, our procurement scale and focus on cost efficiencies give us competitive advantages which translate into greater value for clients. Our sectorised and sub sectorised approach enables us to provide tailor made food services which meet clients' evolving needs. \n \n \n COVID-19 required us to evolve our operations and innovate at pace. Digital and culinary initiatives, which were previously subscale, accelerated quickly as we adapted to the changing restrictions and health and safety requirements. These new models have enabled us to offer clients unique customised offers which are even more relevant as we adapt to a new normal, including hybrid working. This more agile operating model, alongside our more flexible in unit labour and reduced above unit overheads, are improving the quality of the business for the long term. \n \n \n The strategic priorities of People, Performance and Purpose focus our efforts on important initiatives which enable us to provide a more relevant client offer and meaningful experiences for consumers. As we emerge from the pandemic this focus will be even more important as we work towards creating sustainable long term value for all our stakeholders. \n \n People \n \n Our people are at the heart of who we are and what we do. As new waves of lockdowns and restrictions were imposed and relaxed across our markets, the tremendous efforts and commitment of people all around Compass have been our special ingredient. Our people's ability to pull together to work as one positive and caring team, despite all the uncertainty, has been extraordinary. Their engagement and motivation positively impacts our clients, customers, communities and other colleagues. Furthermore, we know that when we take care of our people, they take care of our business. \n \n \n In addition to the many ways in which we have worked together as a team to handle uncertainty this year, we have continued to care for our people, keep them safe and prepare them for future opportunities. We used our expertise in specialist cleaning to support our contamination prevention and personal protection training as well as providing help and assistance to support our colleagues' wellbeing. \n \n \n As we reopened more sites, investing in skills to enable our colleagues to adapt to new circumstances, proactively addressing global labour challenges and leveraging our digital training capabilities have been essential. We are committed to hiring and engaging our diverse talent to reflect the communities we serve and have sought new ways to support their development. The launch of the UK & Ireland's Compass Group Academy, which will open in 2023, reflects our deep commitment to social mobility as we invest in developing our capability by supporting c.12,000 people from disadvantaged areas to learn skills to enter the workplace and embark on fulfilling careers in our industry.  We know we have the power to create lifetime opportunities to support social mobility and believe that nurturing a winning, caring culture where all colleagues are welcomed, feel they belong and can fulfil their potential, makes us a better business. \n \n Purpose \n \n Our Group-wide sustainability strategy seeks to maximise the positive value we create for people and planet, creating a more sustainable future for Compass and our stakeholders. \n \n \n Safety remained our top priority during 2021, as we continued to manage the challenges of COVID-19. Our enhanced hygiene protocols and robust operating procedures helped to keep our people and consumers safe. On food safety, we have concentrated on building local compliance with our Global Allergen Management Plan. \n \n \n We recognise the material importance of tackling climate change and have set a Group-wide commitment to deliver climate net zero greenhouse gas emissions by 2050 across our global operations and value chain. Furthermore, we have set 2030 emissions reduction targets which have been validated by the Science Based Targets initiative to reduce our emissions in line with the 2015 Paris Agreement to limit global warming, alongside a further commitment to be carbon neutral worldwide in our own operations (scope 1 and 2) by 2030. \n \n \n We aim to halve food waste across the Group by 2030 and Compass teams around the world have demonstrated creative ways to reduce food waste throughout our value chain. We have continued to raise awareness of this issue with clients, consumers and colleagues, and have taken action in our kitchens to measure, monitor and reduce our waste on a global scale. \n \n \n   \n \n \n \n Business review \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n \n Through our responsible approach to sourcing, we are also helping to build more resilient and sustainable supply chains, using more seasonal and locally sourced produce, reducing the risk of contributing to deforestation and raising standards on animal welfare. \n \n \n Summary and outlook \n \n \n Over the last year, Compass has made considerable progress recovering from the unprecedented disruption caused by the pandemic. The significant improvement in our performance over the course of the year illustrates the success of our financial and operational recovery efforts. We focused on controlling what we could control; managing costs, strengthening the balance sheet and adapting our operations to continue to deliver excellent client service. \n \n \n With our more dynamic and sustainable food offer, digital innovation and flexible approach to serving clients, we are now even more relevant to consumers' changing needs for increased convenience and versatility. Furthermore, by resizing the business and creating a more flexible approach to labour, we have also refined our internal processes creating greater efficiencies. Overall, these initiatives have created a more agile operating model for the business which will enable further growth as we emerge from the pandemic. \n \n \n Whilst many parts of our business have adapted, the way we create value remains unchanged and very effective. Our market leading position gives us benefits of scale which, combined with our focus on operational excellence, client retention and new business, drives revenue growth and underlying margin improvement over time. To further support growth, our disciplined capital allocation framework prioritises reinvestment in the business to fund organic and inorganic growth opportunities which deliver attractive capital returns, ensures a robust balance sheet and rewards shareholders through the ordinary dividend, with any surplus capital being returned as additional shareholder returns. \n \n \n Looking ahead, there is still some uncertainty in the macroeconomic environment particularly as it relates to labour shortages, inflation and the pandemic, which we expect to continue to impact our business in the nearer term. That said, the new business pipeline continues to be strong and we remain very confident in the long term growth potential of the Group supported by exciting significant structural market opportunities globally. \n \n \n   \n \n \n   \n \n \n   \n \n \n Dominic Blakemore \n \n \n Group Chief Executive Officer \n \n \n 23 November 2021 \n \n \n   \n \n \n   \n \n \n Financial results \n \n \n \n   \n \n \n \n   \n \n \n Group performance \n \n \n We track our performance against underlying and other Alternative Performance Measures (APMs) which are not defined by generally accepted accounting principles (GAAP). Accordingly, the relevant statutory measures are also presented where appropriate. The Group's management believes that these APMs reflect our strategic priorities of growth, efficiency and shareholder returns. Certain of these measures are financial Key Performance Indicators (KPIs) which measure progress against our strategy. The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n £m \n \n \n \n \n 2020 \n \n \n £m \n \n \n \n \n Change \n \n \n \n \n \n \n Revenue \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 18,136 \n \n \n \n \n 20,198 \n \n \n \n \n (10.2)% \n \n \n \n \n \n \n Underlying - constant currency 1 \n \n \n \n \n \n \n \n \n \n \n \n 18,136 \n \n \n \n \n 19,234 \n \n \n \n \n (5.7)% \n \n \n \n \n \n \n Organic \n \n \n \n \n \n \n \n \n \n \n \n 18,045 \n \n \n \n \n 19,259 \n \n \n \n \n (6.3)% \n \n \n \n \n \n \n Statutory \n \n \n \n \n \n \n \n \n \n \n \n 17,908 \n \n \n \n \n 19,940 \n \n \n \n \n (10.2)% \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 811 \n \n \n \n \n 561 \n \n \n \n \n 44.6% \n \n \n \n \n \n \n Underlying - constant currency 1 \n \n \n \n \n \n \n \n \n \n \n \n 811 \n \n \n \n \n 522 \n \n \n \n \n 55.4% \n \n \n \n \n \n \n Statutory \n \n \n \n \n \n \n \n \n \n \n \n 545 \n \n \n \n \n 294 \n \n \n \n \n 85.4% \n \n \n \n \n \n \n Operating margin \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 4.5% \n \n \n \n \n 2.9% \n \n \n \n \n \n \n \n \n \n \n \n \n \n Return on capital employed \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 7.7% \n \n \n \n \n 4.7% \n \n \n \n \n \n \n \n \n \n \n \n \n \n Basic earnings per share \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 29.5p \n \n \n \n \n 18.6p \n \n \n \n \n 58.6% \n \n \n \n \n \n \n Underlying - constant currency 1 \n \n \n \n \n \n \n \n \n \n \n \n 29.5p \n \n \n \n \n 17.1p \n \n \n \n \n 72.5% \n \n \n \n \n \n \n Statutory \n \n \n \n \n \n \n \n \n \n \n \n 20.0p \n \n \n \n \n 8.0p \n \n \n \n \n 150.0% \n \n \n \n \n \n \n Free cash flow \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying - reported rates 1 \n \n \n \n \n \n \n \n \n \n \n \n 660 \n \n \n \n \n 213 \n \n \n \n \n 209.9% \n \n \n \n \n \n \n Reported 1 \n \n \n \n \n \n \n \n \n \n \n \n 464 \n \n \n \n \n 105 \n \n \n \n \n 341.9% \n \n \n \n \n \n \n Full year dividend per ordinary share \n \n \n \n \n \n \n \n \n \n \n \n 14.0p \n \n \n \n \n - \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n   \n \n \n \n Financial results \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n \n Segmental performance \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying revenue 1 \n \n \n \n \n \n \n \n \n \n \n \n Change \n \n 1 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n \n \n \n \n \n \n \n Reported rates \n \n \n \n \n Constant currency \n \n \n \n \n Organic \n \n \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n £m \n \n \n \n \n \n \n \n \n \n \n \n \n \n North America \n \n \n \n \n 11,170 \n \n \n \n \n 12,746 \n \n \n \n \n \n \n \n \n \n \n \n (12.4)% \n \n \n \n \n (6.9)% \n \n \n \n \n (6.7)% \n \n \n \n \n \n \n Europe \n \n \n \n \n 4,641 \n \n \n \n \n 5,048 \n \n \n \n \n \n \n \n \n \n \n \n (8.1)% \n \n \n \n \n (6.3)% \n \n \n \n \n (9.6)% \n \n \n \n \n \n \n Rest of World \n \n \n \n \n 2,325 \n \n \n \n \n 2,404 \n \n \n \n \n \n \n \n \n \n \n \n (3.3)% \n \n \n \n \n 1.9% \n \n \n \n \n 3.0% \n \n \n \n \n \n \n Total \n \n \n \n \n 18,136 \n \n \n \n \n 20,198 \n \n \n \n \n \n \n \n \n \n \n \n (10.2)% \n \n \n \n \n (5.7)% \n \n \n \n \n (6.3)% \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n Underlying operating profit 1 \n \n \n \n \n \n \n \n \n \n \n \n Underlying operating margin 1 \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n 2020 \n \n \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n £m \n \n \n \n \n \n \n \n \n \n \n \n £m \n \n \n \n \n £m \n \n \n \n \n \n \n North America \n \n \n \n \n 608 \n \n \n \n \n 606 \n \n \n \n \n \n \n \n \n \n \n \n 5.4% \n \n \n \n \n 4.8% \n \n \n \n \n \n \n Europe \n \n \n \n \n 147 \n \n \n \n \n (29) \n \n \n \n \n \n \n \n \n \n \n \n 3.2% \n \n \n \n \n (0.6)% \n \n \n \n \n \n \n Rest of World \n \n \n \n \n 130 \n \n \n \n \n 94 \n \n \n \n \n \n \n \n \n \n \n \n 5.6% \n \n \n \n \n 3.9% \n \n \n \n \n \n \n Unallocated overheads \n \n \n \n \n (73) \n \n \n \n \n (85) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Regional \n \n \n \n \n 812 \n \n \n \n \n 586 \n \n \n \n \n \n \n \n \n \n \n \n 4.5% \n \n \n \n \n 2.9% \n \n \n \n \n \n \n Associates \n \n \n \n \n (1) \n \n \n \n \n (25) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Total \n \n \n \n \n 811 \n \n \n \n \n 561 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n 1.  The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n Statutory and underlying results \n \n \n \n \n \n \n \n \n \n \n \n \n 2021 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2020 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Statutory £m \n \n \n \n \n Adjustments £m \n \n \n \n \n \n Underlying \n \n \n 1 \n \n \n £m \n \n \n \n \n \n \n \n \n \n \n \n \n Statutory £m \n \n \n \n \n Adjustments £m \n \n \n \n \n Underlying \n \n 1 \n \n £m \n \n \n \n \n \n \n Revenue \n \n \n \n \n 17,908 \n \n \n \n \n 228 \n \n \n \n \n 18,136 \n \n \n \n \n \n \n \n \n \n \n \n 19,940 \n \n \n \n \n 258 \n \n \n \n \n 20,198 \n \n \n \n \n \n \n Operating profit \n \n \n \n \n 545 \n \n \n \n \n 266 \n \n \n \n \n 811 \n \n \n \n \n \n \n \n \n \n \n \n 294 \n \n \n \n \n 267 \n \n \n \n \n 561 \n \n \n \n \n \n \n Net gain on sale and closure of businesses \n \n \n \n \n 10 \n \n \n \n \n (10) \n \n \n \n \n - \n \n \n \n \n \n \n \n \n \n \n \n 59 \n \n \n \n \n (59) \n \n \n \n \n - \n \n \n \n \n \n \n Net finance costs \n \n \n \n \n (91) \n \n \n \n \n (22) \n \n \n \n \n (113) \n \n \n \n \n \n \n \n \n \n \n \n (143) \n \n \n \n \n 9 \n \n \n \n \n (134) \n \n \n \n \n \n \n Profit before tax \n \n \n \n \n 464 \n \n \n \n \n 234 \n \n \n \n \n 698 \n \n \n \n \n \n \n \n \n \n \n \n 210 \n \n \n \n \n 217 \n \n \n \n \n 427 \n \n \n \n \n \n \n Tax expense \n \n \n \n \n (107) \n \n \n \n \n (64) \n \n \n \n \n (171) \n \n \n \n \n \n \n \n \n \n \n \n (75) \n \n \n \n \n (41) \n \n \n \n \n (116) \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n 357 \n \n \n \n \n 170 \n \n \n \n \n 527 \n \n \n \n \n \n \n \n \n \n \n \n 135 \n \n \n \n \n 176 \n \n \n \n \n 311 \n \n \n \n \n \n \n Less: Non-controlling interests \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n \n \n \n \n \n \n \n (2) \n \n \n \n \n - \n \n \n \n \n (2) \n \n \n \n \n \n \n Attributable profit \n \n \n \n \n 357 \n \n \n \n \n 170 \n \n \n \n \n 527 \n \n \n \n \n \n \n \n \n \n \n \n 133 \n \n \n \n \n 176 \n \n \n \n \n 309 \n \n \n \n \n \n \n Average number of shares (millions) \n \n \n \n \n 1,784 \n \n \n \n \n - \n \n \n \n \n 1,784 \n \n \n \n \n \n \n \n \n \n \n \n 1,658 \n \n \n \n \n - \n \n \n \n \n 1,658 \n \n \n \n \n \n \n Basic earnings per share (pence) \n \n \n \n \n 20.0p \n \n \n \n \n 9.5p \n \n \n \n \n 29.5p \n \n \n \n \n \n \n \n \n \n \n \n 8.0p \n \n \n \n \n 10.6p \n \n \n \n \n 18.6p \n \n \n \n \n \n \n EBITDA \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 1,554 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 1,418 \n \n \n \n \n \n   \n \n \n 1.  The Group's APMs are defined in note 13 and reconciled to GAAP measures in notes 2 (segmental analysis), 5 (earnings per share) and 13 (non-GAAP measures) of the consolidated financial statements. \n \n \n   \n \n \n \n Financial results \n \n \n (continued) \n \n \n \n \n   \n \n \n \n   \n \n Statutory results \n Revenue \n \n Revenue was £17,908 million (2020: £19,940 million), a decrease of 10.2%, due to the continuing impact of COVID-19 on our operations. \n \n Operating profit \n \n Operating profit was £545 million (2020: £294 million), an increase of 85.4%, reflecting actions taken to control the controllable, including resizing the cost base and improved cost control. \n \n \n Statutory operating profit includes non-underlying items of £266 million (2020: £267 million), including COVID-19 resizing costs of £157 million (2020: £122 million) and acquisition related costs of £106 million (2020: £70 million). The prior year also included a £75 million charge in relation to the cost action programme announced in November 2019. A full list of non-underlying items is included in note 13. \n \n Net gain on sale and closure of businesses \n \n The Group continues to simplify its portfolio and, during the year, sold the remaining US laundries business, with a net gain of £10 million on the sale and closure of businesses. In the prior year, there was a net gain of £115 million on the sale and closure of businesses, partly offset by £56 million of exit costs and asset write downs related to committed or completed business exits. \n \n Net finance costs \n \n Net finance costs decreased to £91 million (2020: £143 million) mainly due to a reduction in net debt following the placing of shares in May 2020, lower interest rates compared with the prior year, gains on unhedged derivatives and hedge ineffectiveness. \n \n \n T ax expense \n \n Profit before tax was £464 million (2020: £210 million), giving rise to an income tax expense of £107 million (2020: £75 million), equivalent to an effective tax rate of 23.1% (2020: 35.7%). The rate was higher in 2020 given the tax expense that arose on the sale of 50% of the Japanese Highways business. \n \n Earnings per share \n \n On a statutory basis, basic earnings per share was 20.0 pence (2020: 8.0 pence), an increase of 150%, reflecting the higher profit for the year, partly offset by an increase in the number of ordinary shares in issue following the placing of shares in May 2020. \n \n Underlying results \n Revenue \n \n In 2021, our underlying revenue was £18,136 million, an organic decline of 6.3% as the pandemic continued to impact our volumes, with lockdowns and restrictions being imposed and relaxed across our markets.  \n \n \n New business was 7.2% with retention improving to 95.4% and, encouragingly, net new business in the second half of the year was 6.2%, higher than the historical trend of around 3% and, although benefiting from a lower denominator, indicates positive momentum into 2022.  \n \n \n We further progressed on rebuilding revenue in the second half, with the fourth quarter at 88% of our 2019 revenues reflecting significant improvements in Sports & Leisure and a strong return to Education after the summer break. Defence, Offshore & Remote and Healthcare & Senior Living continued to operate at over 100% of 2019 revenues, however, in Business & Industry, the pace of recovery remained subdued. \n \n Operating profit \n \n Throughout 2021, we continued to control the controllable, including resizing the cost base and increasing labour flexibility. These actions, along with continued contract renegotiations, a focus on procurement and purchasing compliance, as well as general cost control, allowed our margin to rebuild quarter on quarter despite subdued volume recovery. Our underlying operating margin improved to 4.5% compared with 2.9% in the previous year. \n \n \n Our underlying operating profit was £811 million (2020: £561 million), an increase of 44.6%. \n \n \n If we restate 2020's underlying operating profit at the 2021 average exchange rates, it would decrease by £39 million to £522 million and, therefore, on a constant currency basis, underlying operating profit has increased by £289 million or 55.4%. \n \n \n   \n \n \n \n Financial results \n \n (continued) \n \n \n \n   \n \n \n   \n Net finance costs \n \n Underlying net finance costs decreased to £113 million (2020: £134 million) mainly due to a reduction in net debt following the placing of shares in May 2020 and lower interest rates compared with the prior year. \n \n Tax expense \n \n On an underlying basis, the tax charge was £171 million (2020: £116 million), equivalent to an effective tax rate of 24.5% (2020: 27.2%) and, based on current tax rates, we expect the effective tax rate to be around the same level next year. The decrease in rate from last year primarily reflects the remeasurement of deferred tax balances as a result of the increase in the UK corporation tax rate from 19% to 25% enacted in the Finance Act 2021 for profits arising after 1 April 2023. \n \n \n The tax environment continues to be uncertain, with more challenging tax authority audits and enquiries globally. As we look ahead beyond next year, we expect some upward pressure on the effective tax rate due to the impact of the UK corporation tax rate increase and the potential for tax regime changes in the US. \n \n Earnings per share \n \n On a constant currency basis, underlying basic earnings per share increased by 72.5% to 29.5 pence (2020: 17.1 pence) mainly as a result of the higher profit for the year, partly offset by an increase in the number of ordinary shares in issue following the placing of shares in May 2020. \n \n \n Free cash flow \n \n \n Free cash flow totalled £464 million (2020: £105 million). During the year, we made cash payments of £186 million in relation to the programmes aimed at resizing the business (2020: £108 million). Adjusting for this, and acquisition transaction costs of £10 million included in free cash flow in 2021, underlying free cash flow was £660 million (2020: £213 million), a £447 million or 209.9% increase, with underlying free cash flow conversion of 81% (2020: 38%). \n \n \n Gross capital expenditure of £654 million (2020: £749 million) is equivalent to 3.6% (2020: 3.7%) of underlying revenue. \n \n \n The working capital inflow, excluding provisions and pensions, was £165 million (2020: £143 million outflow), including amounts repaid in respect of COVID-19 indirect and payroll tax payment deferral schemes available in different countries. At 30 September 2021, £16 million is deferred in respect of these schemes (2020: £234 million). \n \n \n The net interest outflow was £116 million (2020: £137 million), of which £35 million (2020: £36 million) relates to interest on lease obligations. \n \n \n The net tax paid was £200 million (2020: £228 million), equivalent to an underlying cash tax rate of 29% (2020: 53%). The rate was significantly higher in 2020 due to changes in the UK's corporation tax instalment payment regime and tax payments made based on higher profits arising before the COVID-19 outbreak. \n \n \n The outflow related to post employment benefit obligations net of service costs was £8 million (2020: £9 million). \n \n \n Acquisitions \n \n \n The total cash spent on acquisitions in the year, net of cash acquired, was £172 million (2020: £479 million), comprising £28 million of bolt-on acquisitions and investments in associates, £134 million of deferred consideration relating to prior years' acquisitions and £10 million of acquisition transaction costs (included in net cash flow from operating activities in 2021). \n \n \n The main acquisition during the prior year was the purchase of 100% of the issued share capital of Fazer Food Services, a leading food service business in the Nordic region, for an initial consideration of £363 million net of cash acquired. The remaining contingent consideration is payable within seven years and is dependent on the operation of an earn-out. The net present value of the contingent consideration was £49 million at 30 September 2021 (2020: £53 million). \n \n \n Disposals \n \n \n The Group has continued to simplify its portfolio of businesses and sold its remaining US laundries business during the year. The Group received £32 million (2020: £41 million) in respect of disposal proceeds net of exit costs and paid £43 million (2020: £12 million) of tax in respect of prior year business disposals. \n \n \n \n \n \n \n   \n \n \n \n Financial results \n \n (continued) \n \n \n \n   \n \n \n   \n \n Financial position \n \n \n Liquidity \n \n \n The Group finances its operations through cash generated by the business and borrowings from a number of sources, including banking institutions, the public and the private placement markets. The Group has developed long term relationships with a number of financial counterparties with the balance sheet strength and credit quality to provide credit facilities as required. The Group seeks to avoid a concentration of debt maturities in any one period to spread its refinancing risk. The average period to maturity is 3.7 years (2020: 4.6 years). \n \n \n The Group has issued US Private Placement notes which contain financial covenants. These consist of a leverage covenant test and an interest cover covenant test which are tested semi-annually at 31 March and 30 September. The leverage covenant test stipulates that consolidated net debt must be less than or equal to 3.5 times consolidated EBITDA. The interest cover covenant test stipulates that consolidated EBITDA must be more than or equal to 3 times consolidated net finance costs. Consolidated EBITDA and consolidated net finance costs are based on the preceding 12 months. The leverage and interest cover ratios were 1.5 times and 14.7 times, respectively, at 30 September 2021. Net debt, consolidated EBITDA and net finance costs are subject to certain accounting adjustments for the purposes of the covenant tests. \n \n \n In May 2020, the Group completed a £1,972 million equity raise to strengthen the balance sheet and liquidity position, reducing leverage to deal with the challenging environment and ensuring Compass remained resilient in the event of further negative developments in the pandemic. \n \n \n At 30 September 2021, the Group has access to £3,656 million of liquidity, including £2,000 million of undrawn committed bank facilities and £1,656 million of cash net of overdrafts. Our solid financial position will allow us to weather any further negative developments in the pandemic whilst continuing to invest in the business to strengthen our competitive advantages and support our long term growth prospects. \n \n \n Our credit ratings remain strong investment grade - Standard & Poor A/A-1 Long and Short term (outlook Negative) and Moody's A3/P-2 Long and Short term (outlook Stable). \n \n \n Net debt \n \n \n Net debt at 30 September 2021 was £2,538 million (2020: £3,006 million). The ratio of net debt to market capitalisation of £27,210 million at 30 September 2021 was 9.3% (2020: 14.4%). At 30 September 2021, the ratio of net debt to underlying EBITDA was 1.6x. Our leverage policy is to maintain strong investment grade credit ratings and to target net debt to EBITDA in the range of 1x-1.5x. \n \n \n Net debt decreased by £468 million to £2,538 million at 30 September 2021 (2020: £3,006 million) mainly reflecting free cash flow of £464 million. In the prior year, net debt reduced by £1,261 million to £3,006 million mainly reflecting free cash flow of £105 million and the net proceeds of the share placing (£1,972 million), partially offset by business acquisitions net of disposal proceeds (£450 million) and the final dividend for the 2019 financial year (£427 million). \n \n \n Return on capital employed \n \n \n Return on capital employed was 7.7% (2020: 4.7%) based on net underlying operating profit after tax at the underlying effective tax rate of 24.5% (2020: 27.2%). The increase mainly reflects higher profit and lower average capital employed due to lower trade receivables, higher restructuring provisions and exchange translation during the year. The average capital employed was £7,931 million (2020: £8,683 million). \n \n \n Post employment benefits \n \n \n The Group has continued to review and monitor its pension obligations throughout the year, working closely with the trustees and actuaries of all schemes across the Group to ensure appropriate assumptions are used and adequate provision and contributions are made. The Compass Group Pension Plan (UK) surplus decreased to £353 million (2020: £441 million) reflecting a decrease in the market value of plan assets as gilt and corporate bond yields have increased. The net deficit in the rest of the Group's defined benefit pension schemes has decreased to £224 million (2020: £251 million). The total pensions charge to operating expenses for defined contribution schemes in the year was £124 million (2020: £118 million) and £24 million (2020: £25 million) for defined benefit schemes. \n \n \n   \n \n \n \n Financial results \n \n (continued) \n \n \n \n   \n \n \n   \n \n Dividends \n \n \n Our dividend policy is to pay out around 50% of underlying earnings through an interim and final dividend. \n \n \n In determining the level of dividend in any year, the Board considers a number of factors, which include but are not limited to: \n \n \n · \n the level of available distributable reserves in the parent company \n \n \n · \n future cash commitments and investment requirements to sustain the long term growth prospects of the business \n \n \n · \n potential strategic opportunities \n \n \n · \n the level of dividend cover \n \n \n Further surpluses, after considering the matters set out above, may be distributed to shareholders over time by way of special dividend payments, share repurchases or a combination of both. \n \n \n Compass Group PLC, the parent company of the Group, is a non trading investment holding company which derives its distributable reserves from dividends paid by subsidiary companies. The level of distributable reserves in the parent company is reviewed annually and the Group aims to maintain distributable reserves that provide adequate cover for dividend payments. The distributable reserves of the parent company include the balance on the profit and loss account reserve, which are £3,125 million at 30 September 2021 (2020: £2,935 million). \n \n \n The Group is in a strong position to fund its dividend, which is well covered by cash generated by the business. Details of the Group's going concern assessment can be found on page 34. \n \n \n The ability of the Board to maintain its future dividend policy will be influenced by a number of the principal risks identified on pages 22 to 27 that could adversely impact the performance of the Group, although we believe we have the ability to mitigate those risks as outlined on pages 22 to 27. \n \n \n It is proposed that a final dividend of 14.0 pence per share be paid on 28 February 2022 to shareholders on the register on 21 January 2022. No interim dividend was paid and no dividends were paid in respect of the prior year. The dividend is covered 2.1 times on an underlying earnings basis. \n \n \n The final dividend of 14.0 pence will be paid gross and a Dividend Reinvestment Plan (DRIP) will be available. The last date for receipt of elections for the DRIP will be 7 February 2022. \n \n \n Treasury \n \n \n The Group manages its liquidity, foreign currency exposure and interest rate risk in accordance with the policies set out below. \n \n \n The Group's financial instruments comprise cash, borrowings, receivables and payables that are used to finance the Group's operations. The Group also uses derivatives, principally interest rate swaps, forward currency contracts and cross currency swaps, to manage interest rate and currency risks arising from the Group's operations. The Group does not trade in financial instruments. The Group's treasury policies are designed to mitigate the impact of fluctuations in interest rates and exchange rates and to manage the Group's financial risks. The Board approves any changes to the policies. \n \n \n Foreign currency risk \n \n \n The Group's policy is to balance its principal projected cash flows by currency to actual or effective borrowings in the same currency. As currency cash flows are generated, they are used to service and repay debt in the same currency. Where necessary, to implement this policy, forward currency contracts and cross currency swaps are taken out which, when applied to the actual currency borrowings, convert these to the required currency. \n \n \n The borrowings in each currency can give rise to foreign exchange differences on translation into sterling. Where the borrowings are either less than, or equal to, the net investment in overseas operations, these exchange rate movements are treated as movements on reserves and recorded in the consolidated statement of comprehensive income rather than in the consolidated income statement. \n \n \n Non-sterling earnings streams are translated at the average rate of exchange for the year. Fluctuations in exchange rates have given, and will continue to give, rise to translation differences. The Group is only partially protected from the impact of such differences through the matching of cash flows to currency borrowings. \n \n \n Interest rate risk \n \n \n As set out above, the Group has effective borrowings in a number of currencies and its policy is to ensure that, in the short term, it is not materially exposed to fluctuations in interest rates in its principal currencies. The Group implements this policy either by borrowing fixed rate debt or by using interest rate swaps so that the interest rates on at least 80% \n \n \n   \n \n \n \n Financial results \n \n (continued) \n \n \n \n   \n \n \n \n   \n \n \n of the Group's projected debt are fixed for one year. For the second and third year, interest rates are fixed within ranges of 30% to 70% and 0% to 40% of projected debt, respectively. \n \n Tax \n \n As a Group, we are committed to creating long term shareholder value through the responsible, sustainable and efficient delivery of our key business objectives. This will enable us to grow the business and make significant investments in the Group and its operations. \n \n \n We adopt an approach to tax that supports this strategy and also balances the various interests of our stakeholders, including shareholders, governments, employees and the communities in which we operate. Our aim is to pursue a principled and sustainable tax strategy that has strong commercial merit and is aligned with our business strategy. We believe this will enhance shareholder value whilst protecting our reputation. \n \n \n In doing so, we act in compliance with the relevant local and international laws and disclosure requirements, and we conduct an open and transparent relationship with the relevant tax authorities that fully complies with the Group's Code of Business Conduct and Code of Ethics. \n \n \n After many years of operations, the Group has numerous legacy subsidiaries across the world. Whilst some of these entities are incorporated in low tax territories, Compass does not seek to avoid tax through the use of tax havens. \n \n \n In an increasingly complex international corporate tax environment, a degree of tax risk and uncertainty is, however, inevitable. Tax risk can arise from differences in interpretation of regulations, but most significantly where governments apply diverging standards in assessing intragroup cross border transactions. This is the situation for many multinational organisations. We manage and control these risks in a proactive manner and, in doing so, exercise our judgement and seek appropriate advice from relevant professional firms. Tax risks are assessed as part of the Group's formal governance process and are reviewed by the Board and the Audit Committee on a regular basis. \n \n Risks and uncertainties \n \n The Board takes a proactive approach to risk management with the aim of protecting the Group's employees and customers and safeguarding the interests of the Group, its shareholders, employees, clients, consumers and other stakeholders. \n \n \n The principal risks and uncertainties that face the business and the activities the Group undertakes to mitigate these are set out on pages 22 to 27. \n \n \n Related party transactions \n \n \n Details of transactions with related parties are set out in note 11 of the consolidated financial statements. These transactions have not had, and are not expected to have, a material effect on the financial performance or position of the Group. \n \n \n Going concern \n \n \n The uncertainty as to the future impact on the financial performance and cash flows of the Group as a result of COVID-19 has been considered as part of the Group's adoption of the going concern basis in its financial statements. The factors considered by the directors in assessing the ability of the Group to continue as a going concern are discussed on page 34. \n \n \n The Group has access to considerable financial resources, together with longer term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. \n \n \n Based on the assessment discussed on page 34, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the period to 31 March 2023. For this reason, they continue to adopt the going concern basis in preparing the financial statements. \n \n \n Viability statement \n \n \n In accordance with provision 31 of the UK Corporate Governance Code 2018, the directors have assessed the viability of the Group, taking into account the Group's current trading performance and position, the latest three year strategic plan and the potential impact on cash flow of the principal risks documented on pages 22 to 27. \n \n \n Strategic planning process \n \n \n The Board considers annually a three year, bottom up strategic plan and a more detailed budget which is prepared for the following year. Current year business performance is reforecast during the year. The plan is reviewed and approved by the Board, with involvement throughout from the Group CEO, Group CFO and the management team. The Board's \n \n \n \n Financial results \n \n (continued) \n \n \n \n   \n \n \n   \n \n role is to consider the appropriateness of key assumptions, considering the external environment and business strategy. The most recent three year plan was approved by the Board in November 2021. \n \n \n Period of assessment \n \n \n The directors have determined that a three year period to 30 September 2024 is an appropriate period over which to provide its viability statement on the basis that it is the period reviewed by the Board in its strategic planning process and is aligned to the typical length of the Group's contracts (three to five years). The directors believe that this presents the Board and readers of the Annual Report with a reasonable degree of confidence over this longer term outlook. \n \n \n Viability assessment \n \n \n In making its assessment, the Board carried out a robust evaluation of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. A downside scenario has been modelled to reflect the COVID-19 pandemic risk (see page 22) on the basis that the Group's three year strategic plan is most sensitive to potential changes in the duration and severity of the impact of COVID-19. \n \n \n This scenario represents an extension of the 'severe but plausible' downside scenario from the going concern assessment (see page 34) and reflects the potential impact of prolonged pandemic disruption by modelling an 18 month delay in the recovery of revenue from the COVID-19 pandemic and limited margin progression over the assessment period. Unlike the going concern assessment, the downside scenario for the viability assessment does not assume that there is no new M&A activity as a mitigating action. \n \n \n The impact of the downside scenario has been reviewed against the Group's projected liquidity headroom, credit ratings and financial covenants over the three year viability period. Should this scenario occur, the Group remains within its financial covenants and has sufficient committed headroom on liquidity without any significant mitigating actions being deployed. \n \n \n At 30 September 2021, the Group had £2,000 million of undrawn committed bank facilities, which mature in August 2024 (£140 million) and August 2026 (£1,860 million), and £1,656 million of cash net of overdrafts. Term debt maturities in the three year period total £1.6 billion. Based on forecast cash flows in the strategic plan, it is anticipated that the Group will need to refinance maturing debt during the three year period to 30 September 2024 in order to maintain the desired level of headroom. Under the downside scenario, this refinancing requirement is not accelerated given the strong liquidity position of the Group. If necessary, mitigating actions could be implemented to reduce the refinancing requirement. \n \n \n The Group's long term (A/A3) and short term (A-1/P-2) credit ratings and well established presence in the debt capital markets provide the directors with confidence that the Group could raise additional debt finance if required. In the event that the financial covenants come under pressure, mitigating actions include repaying the loan notes from available liquidity in advance of their maturity, negotiating covenant waivers and refinancing the debt. \n \n \n Mitigating actions were identified and implemented last year as part of the Group's COVID-19 pandemic response including, but not limited to, reducing planned capital spend, resizing the cost base of the Group, renegotiating client contracts, pausing M&A activity, securing additional committed funding and pausing shareholder returns. In addition to these actions, the Group also completed a £2 billion equity raise in the prior year. \n \n \n The potential impact of the Group's other principal risks has not been modelled as part of the viability assessment on the basis that they are not sufficiently material to change the conclusion. \n \n \n In addition to our downside scenario, we have prepared a reverse stress test to identify the circumstances that would cause us to breach our headroom or covenants. The reverse stress test shows that revenue would have to reduce to approximately 60% of 2019 levels throughout the three year assessment period before the leverage covenant is reached. Whilst this is considered to be extremely unlikely, mitigating actions could be implemented as described above. \n \n \n The geographical and sector diversification of the Group's operations helps to minimise the risk of serious business interruption or catastrophic damage to our reputation. Furthermore, the Group's business model is structured so that the Group is not reliant on one particular group of clients or sector. The Group's largest client constitutes only 3% of Group revenue and the Group's top 10 clients account for 12% of Group revenue. \n \n \n The Audit Committee reviews the output of the viability assessment in advance of final evaluation by the Board. Having reviewed the Group's current trading performance and position, forecasts, debt servicing requirements, total facilities and principal risks, the Board has a reasonable expectation that the Group will be able to continue in operation, meet its liabilities as they fall due and retain sufficient available cash over the three year period to 30 September 2024. \n \n \n   \n \n \n   \n \n \n   \n \n \n Palmer Brown \n \n \n Group Chief Financial Officer \n   \n \n \n 23 November 2021 \n \n \n Risk management \n \n \n \n   \n \n \n \n   \n \n Identifying and managing risk \n \n The Board continues to take a proactive approach to risk management, with the aim of protecting the Group's employees, clients and consumers and safeguarding the interests of the Company and its shareholders in what is a constantly changing environment. \n \n \n Risk management is an essential element of business governance and the Group has risk management policies, processes and procedures in place to ensure that risks are properly identified, evaluated, and managed at the appropriate level. \n \n \n The identification of risks and opportunities, the development of action plans to manage the risks and maximise the opportunities, and the continual monitoring of progress against agreed key performance indicators (KPIs) are integral parts of the business process and core activities throughout the Group. \n \n \n In compliance with provision 28 of the UK Corporate Governance Code 2018, the Board has carried out a robust assessment of the Company's emerging and principal risks. The pages which follow set out the Board's approach to assessing and mitigating risk, the principal risks of the Company and the procedures in place to identify emerging risks. \n \n Risk management framework \n \n The Board has overall responsibility for risk management and has approved a risk management policy. The Group operates a formal risk management process in accordance with this policy, under which the Group's principal risks (highlighted on pages 22 to 27) are assessed and prioritised biannually. \n \n \n Risks and the corresponding controls and mitigations are reviewed by country and regional leadership teams on an ongoing basis. Risk updates form an integral part of periodic management reviews and are also reviewed regularly by the Regional/Group Governance Committees and the Executive Committee. A critical component of the risk review process is the dynamic identification of developing and emerging risks at a country, regional and Group level. This bottom up and top down approach provides a comprehensive assessment of the key risks facing the Group. The findings of the risk reviews, including the principal risks and any developing trends, are reported to and considered by the Board twice a year. \n \n \n Risk appetite \n \n \n The Board interprets appetite for risk as the level of risk that the Company is willing to take in order to meet its strategic objectives. The Board's attitude to and appetite for risk are communicated to the Group's businesses through the strategy planning process and the internal risk governance and control frameworks. In determining its risk appetite, the Board recognises that a prudent and robust approach to risk mitigation must be carefully balanced with a degree of flexibility so that the entrepreneurial spirit which has greatly contributed to the success of the Company is not inhibited. \n \n \n With respect to internal controls and risk management, as part of its remit and under its terms of reference, the Audit Committee keeps under review the adequacy and effectiveness of the Company's and Group's internal financial controls and risk management systems. \n \n \n New and emerging risks \n \n \n The Board has established processes for identifying emerging risks, and horizon scanning for risks that may arise over the medium to long term. Emerging and potential changes to the Group's risk profile are identified through the Group's risk management framework and through direct feedback from management, including in regard to changing operating conditions, and market and consumer trends. \n \n \n During the year, climate change, which had featured as a significant risk on the Group's risk registers, was elevated to a principal risk to the Group. This decision was made in recognition of global climate change which is having an impact on all of our lives. Direct impacts on the Group businesses that we believe have the potential to materialise in future include issues around food sourcing and our supply chains in some of our markets. Issues in these areas could affect the availability of some food products, and potentially may lead to food cost inflation. To mitigate this risk, we continue to focus on evaluating our exposure to climate change and seek to identify potential future issues early so that our sourcing and operations can be adjusted, and our menus adapted appropriately. We support the aims of the Task Force on Climate-related Financial Disclosures (TCFD), and we will continue to work with our clients and suppliers to propose, execute and measure solutions to support their efforts and ours in reducing greenhouse gas emissions (GHG). We have targeted net zero GHG emissions by 2050 alongside validated Science Based Targets to reduce emissions by 2030 (from a 2019 base year) in line with the 2015 Paris Agreement. \n \n \n \n Risk management \n \n (continued) \n \n \n \n   \n \n \n \n   \n \n \n Ensuring high standards of business ethics with regards to human rights and social equality has always been important to Compass. The ethical behaviour of large businesses is increasingly important to investors, other stakeholders and society. In recognition of this, we have reaffirmed our focus on ensuring high standards of business ethics, and have reclassified our risks to address this as a principal risk in its own right. Our business is reliant on our people to deliver great service to our clients and consumers, and we recognise that their welfare and wellbeing is the foundation of our culture and business. To enhance our ability to counter the risks to our businesses and supply chains represented by modern slavery, we have focused on the areas where our human rights strategy can have the greatest impact. This is being done through the work of our Human Rights Working Group, the engagement of specialist external advisors, our Modern Slavery eLearning tools and ongoing work to strengthen and improve our human rights due diligence as part of our supplier evaluation and labour agency reviews. \n \n \n In respect of emerging risks, the Board remains alert to the continuing structural change and development in many of our markets, particularly in Business & Industry, where working practices have changed, including an increase in working from home. This trend has been greatly accelerated by the pandemic and working habits and consumer trends may not fully revert to their pre-COVID position. In addition, office and other work sites may become smaller and more numerous. Furthermore, competition from online food vendors offering delivery services is an increasing trend which may compete with our established offerings in Business & Industry, Healthcare & Senior Living and Education. \n \n \n To mitigate the risk to the businesses of changes in consumer habits, we are adapting our service offering and evolving our strategy to meet the needs of our clients and consumers while continuing to create long term value. We are focused on innovation and have invested in technology, our supply chain and our ability to scale solutions that take advantage of emerging trends in the food service sector to ensure we continue to satisfy the demands of our existing and future clients and consumers. \n \n \n As we emerge from the pandemic, we are cognisant of changes in the macro economic environment such as pressure on food commodity prices, fuel and labour, and the inflationary impact these can bring to the business. The macro economic environment is kept under evaluation though regular business reviews, which provides the agility to flex our contracts and operating model accordingly. \n \n \n Our principal risks \n \n \n On pages 22 to 27 we set out the principal risks and uncertainties facing the business at the date of this Report and any changes to the status of these risks since 2020. These have been subject to robust assessment and review. \n \n \n They do not, however, comprise all of the risks that the Group may face and are not listed in any order of priority. Additional risks and uncertainties not presently known to management, or which are considered to be remote or are deemed to be less material at the date of this Report, may also have an adverse effect on the Group. \n \n \n Brexit \n \n \n A post-Brexit deal on trade and other issues was agreed in December 2020 between the UK and the EU. While there is clearly more for the UK and EU to work through, we believe that the deal as agreed, coupled with our own contingency planning, means we do not expect any material financial or operational impact resulting from Brexit. We are confident that we can continue supporting and delivering great services for our UK and international clients and consumers. \n \n \n COVID-19 pandemic risk \n \n \n The global pandemic has continued longer than expected and while Group operations continue to be disrupted, our focus has been on the health, safety and wellbeing of our employees, clients and consumers. Sites that are open are operating with enhanced health and safety protocols. Personal Protective Equipment requirements are in line with local government and public health guidance and there is a continued focus on employee mental health awareness. \n \n \n Employees \n \n \n At the onset of the pandemic, steps were taken to retain the skills and experience of our colleagues, to try to protect as many jobs as possible and to facilitate mobilisation of the businesses at the appropriate time. Employees working in units that still remain closed have, where possible, been redeployed to other sites where critical work is required, e.g. in Healthcare & Senior Living and Education. In jurisdictions where such options were available, operations took advantage of local government support schemes where appropriate and labour regulations. Our regions provide a variety of support mechanisms through employee assistance programmes and many have established funds and other mechanisms to support employees who face financial difficulties as a result of the challenges of the pandemic. \n \n \n In line with local government and public health guidance, provisions are in place throughout our operations to safeguard the health and safety of employees globally, including travel restrictions, remote working and ensuring our operations are COVID-19 secure, to continually guard against the spread of the virus. Where we operate on site, we have employed suitable health and safety protocols to ensure our employees, clients and consumers remain safe. Additional measures to combat the spread of the virus continue to operate in line with local government and public health guidance.   \n \n \n \n Risk management \n \n (continued) \n \n \n \n   \n \n \n \n   \n \n \n Locally, there has been an increased focus on providing mental health awareness, stress management and resilience toolkits, whilst individual support has been provided through employee assistance programmes and our local People teams. \n \n \n Profitability and liquidity \n \n \n In 2020, we implemented action plans to reduce a significant proportion of our cost base to preserve the profitability and liquidity of the Group. With the slow pace of volume growth this year, we have focused on controlling the controllable by continuing to manage our cost base, resizing our workforce and evolving and adapting our operations. We have continued to utilise government support, where appropriate, to mitigate the impact of the pandemic across the businesses. \n \n \n In the fourth quarter of the year, underlying revenue recovered to 88% of pre-COVID levels and underlying operating margin increased to 5.8% compared with 0.6% in the prior year. At 30 September 2021, the Group has access to £3,656 million of liquidity, including £2,000 million of undrawn committed bank facilities and £1,656 million of cash net of overdrafts. \n \n \n The Board has proposed a final dividend of 14.0 pence per share for FY21, payable in February 2022. From FY22 the dividend policy is to pay out around 50% of underlying earnings through an interim and final dividend. \n \n \n   \n \n \n Our solid financial position should allow us to weather any further negative developments in the pandemic whilst continuing to invest in the business to strengthen our competitive advantages and support our long term growth prospects. The Board will continue to monitor the situation and to adjust the Company's capital and liquidity strategy as appropriate to deal with the situation as it continues to evolve. \n \n \n Governance and operational effectiveness \n \n \n Robust incident management and business continuity plans were quickly implemented at the onset of the pandemic throughout our businesses to safeguard governance processes and operational effectiveness. We have adopted a flexible approach in using technology to facilitate governance oversight and, where necessary, regional and country management, Executive Committee and Board meetings have been conducted with some members joining remotely, as needed, to ensure that the Group is able to respond to any immediate or emerging concerns, and monitor the effectiveness of strategic measures. Special measures that were put in place as a short term response to counter the initial severity of the COVID-19 outbreak, including remote working, have been proven to work effectively and can be employed as necessary. \n \n \n We continue to ensure that our technology infrastructure supports remote working where necessary. Our digital diagnostics and monitoring initiatives with mainstream technology and service providers assist us in mitigating the risks presented by an attack on our technology estate and we continue to closely monitor our infrastructure and any reliance we have on third parties to ensure continuity of business critical systems and processes. \n \n \n As a result of these special measures, business usage of and reliance on the internet has risen, leading to a significant increase in the number of sophisticated malware and phishing attacks across all organisations. To mitigate the risk of these types of attacks, we have run awareness campaigns to help our employees be better equipped to identify these attacks. We use the lessons learned from those exercises to target areas for improvement in our awareness campaigns. \n \n \n Planning for the unknown \n \n \n Due to the unpredictable nature of COVID-19 and the complexity of factors involved, we believe that the pandemic continues to represent a principal risk to the Group. We have taken the lessons learned from our businesses' response and have incorporated them into our risk management processes and procedures to mitigate the impact of this risk as far as possible in the event of further outbreaks of COVID-19, or another pandemic. With respect to managing the COVID-19 risk, we will continue to monitor recurrences of the virus, and will retain the ability to adapt our service offering, employ relevant health and safety precautions and deploy resources as necessary. Our prudent financial controls and robust modelling scenarios assist us in accounting for this risk. \n \n \n   \n \n \n \n Risk management \n \n (continued) \n \n \n \n   \n \n \n \n   \n \n \n Other principal risks \n \n \n The Group faces a number of operational risks on an ongoing basis, such as litigation and financial risks, as well as some wider risks, for example, environmental and reputational. Two new principal risks affecting the Group were added during the year: climate change and social and ethical standards, and were reported in the 2021 half year results announcement. Bidding, which was identified as a standalone risk in previous reports, has been incorporated into the sales and retention risk. All of the other risks are consistent with those reported in the 2020 Annual Report. \n \n \n All risks disclosed in previous years can be found in the annual reports available on our website www.compass-group.com. We recognise that these risks remain important to the business and they are kept under regular review. However, we have focused the disclosures on pages 22 to 27 on those risks that are currently considered to be more significant to the Group. \n \n \n   \n \n \n Principal risks \n \n \n \n   \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n Key \n \n \n \n \n Link to \n \n \n \n \n \n \n \n \n \n \n \n \n \n People \n \n \n \n \n Client sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n \n Performance \n \n \n \n \n Consumer sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n \n Purpose \n \n \n \n \n Cost of food \n \n \n \n \n \n \n \n \n \n \n \n \n \n Increased risk \n \n \n \n \n In unit costs \n \n \n \n \n \n \n \n \n \n \n \n \n \n Static risk \n \n \n \n \n Above unit overheads \n \n \n \n \n \n \n \n \n \n \n \n \n \n New risk \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n RISK \n \n \n \n \n DESCRIPTION \n \n \n \n \n MITIGATION \n \n \n \n \n \n \n CLIMATE CHANGE AND SUSTAINABILITY \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Climate Change \n \n   \n \n \n Trend \n \n \n   \n \n \n \n \n We recognise the impact of climate change on the environment and Compass; for example the operational impacts of extreme weather events, supply shortages caused by water scarcity, and transition risks, such as changes in technologies, markets and regulation. \n \n \n \n \n We evaluate macroeconomic trends and insights from stakeholders and industry experts to develop and adapt our operations and strategy which take into consideration the forces that are impacting the global food system, our industry and our operations. For example, whilst the diversification of our purchasing strategy allows us to adapt to supply changes, we are developing climate scenario analysis to more closely evaluate and respond to the risks of climate change on our business. \n \n \n \n \n \n \n \n \n \n \n \n \n Social and Ethical Standards \n \n   \n \n \n Trend \n \n \n   \n \n \n \n \n We rely on our people to deliver great service to our clients and consumers, so we recognise that their welfare is the foundation of our culture and business. We remain vigilant in upholding high standards of business ethics with regard to human rights and social equality. \n \n \n \n \n To enhance our ability to counter the risks to our businesses and supply chains represented by modern slavery, we have focused on the areas where our human rights strategy can have the greatest impact. This has been done through our Human Rights Working Group, the engagement of external specialist advisors, our Modern Slavery eLearning tools and ongoing work to strengthen and improve our human rights due diligence as part of our supplier evaluation and labour agency reviews. \n \n \n \n \n \n \n \n HEALTH \n \n \n AND \n \n \n \n \n \n SAFETY \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Pandemic COVID-19 \n \n \n   \n \n \n Trend \n \n \n   2021   2020 \n \n \n \n \n The Group's operations have been significantly disrupted due to the ongoing global COVID-19 pandemic and associated containment initiatives. Further outbreaks of the virus, or another pandemic, could cause further business risk. \n \n \n \n \n Operations and working practices have been adjusted to retain the skills and experience of our colleagues and provide flexibility in the event of a resumption of containment measures. \n \n \n To protect our employees, clients and consumers, enhanced health and safety protocols and Personal Protective Equipment requirements and guidelines, hygiene requirements and site layout solutions, developed in consultation with expert advisors and with our clients, have been adopted accordingly. \n \n \n Careful management of the Group's cost base and robust measures to protect the Group's liquidity position have ensured that we remain resilient and well placed to take advantage of appropriate opportunities as they arise. \n \n \n Robust incident management and business continuity plans are in place and are being monitored for effectiveness and regularly reviewed to reflect best practice. \n \n \n \n \n \n \n \n \n   \n \n \n Principal risks \n \n (continued) \n \n \n \n   \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n Key \n \n \n \n \n Link to \n \n \n \n \n \n \n \n \n \n \n \n \n \n People \n \n \n \n \n Client sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n \n Performance \n \n \n \n \n Consumer sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n \n Purpose \n \n \n \n \n Cost of food \n \n \n \n \n \n \n \n \n \n \n \n \n \n Increased risk \n \n \n \n   In unit costs \n \n \n \n \n \n \n \n \n \n \n \n \n Static risk \n \n \n \n \n  Above unit overheads \n \n \n \n \n \n \n \n \n \n \n \n \n \n New risk \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n RISK \n \n \n \n \n DESCRIPTION \n \n \n \n \n MITIGATION \n \n \n \n \n \n \n \n HEALTH \n \n \n AND \n \n \n \n \n \n SAFETY \n \n \n (CONTINUED) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Health and Safety \n \n \n   \n \n \n Trend \n \n \n   \n 2021  2020 \n \n \n \n \n Compass feeds millions of consumers and employs hundreds of thousands of people around the world every day. For that reason, setting the highest standards for food hygiene and safety is paramount. \n \n \n Health and safety breaches could cause serious business interruption and could result in criminal and civil prosecution, increased costs and potential damage to our reputation. \n \n \n \n \n Management meetings throughout the Group feature a health and safety update as one of their first substantive agenda items. \n \n \n Health and safety improvement KPIs are included in the annual bonus plans for each of the business' management teams. The Group has policies, procedures and standards in place to ensure compliance with legal obligations and industry standards. \n \n \n The safety and quality of our global supply chain are assured through compliance with a robust set of standards which are regularly reviewed, audited and upgraded as necessary to improve supply chain visibility and product integrity. \n \n \n Further mitigations in place include our Global Operational Safety Standards, Global Supply Chain Integrity Standards and a Global Allergen Management Plan. \n \n \n \n \n \n \n \n PEOPL \n \n \n E \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Recruitment \n \n \n   \n \n \n Trend \n \n \n   \n 2021  2020 \n \n \n   \n \n \n \n \n Failure to attract and recruit people with the right skills at all levels could limit the success of the Group. \n \n \n The Group faces resourcing challenges in some of its businesses in some key positions due to a lack of industry experience amongst candidates, appropriately qualified people, the seasonal nature of some of our businesses and availability issues related to COVID-19. \n \n \n \n \n The Group aims to mitigate this risk by efficient, time critical resource management, mobilisation of existing, experienced employees within the organisation, improved use of technology such as apps and social media, and targeted recruitment, training and development programmes. \n \n \n \n \n \n \n \n \n \n \n \n \n \n Retention and Motivation \n \n \n   \n \n \n Trend \n \n \n   2021   2020 \n \n \n \n \n Retaining and motivating the best people with the right skills, at all levels of the organisation, is key to the long term success of the Group. \n \n \n The current economic conditions may increase the risk of attrition at all levels of the organisation. \n \n \n Business closures resulting from lockdowns or other social distancing controls may significantly impact the Group's workforce in affected regions. \n \n \n \n \n The Group has established tools, training, development, performance management and reward programmes to help retain, develop, motivate and support our best people. \n \n \n The Group has a number of well established initiatives, which help us to monitor levels of engagement and to respond to our people's needs. Specifically, we have increased our local focus and employee support on mental health awareness, stress management and resilience, to better equip our people in times of uncertainty and change. \n \n \n To protect our workforce we employ measures available to us to retain as many of our skilled workforce as possible, including redeployment and, where relevant, government support schemes. \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n Principal risks \n \n (continued) \n \n   \n \n \n \n \n   \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n Key \n \n \n \n \n Link to \n \n \n \n \n \n \n \n \n \n \n \n \n \n People \n \n \n \n   Client sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n Performance \n \n \n \n   Consumer sales and marketing \n \n \n \n \n \n \n \n \n \n \n \n \n Purpose \n \n \n \n   Cost of food \n \n \n \n \n \n \n \n \n \n \n \n \n Increased risk \n \n \n \n \n  In unit costs \n \n \n \n \n \n \n \n \n \n \n \n \n \n Static risk \n \n \n \n \n  Above unit overheads \n \n \n \n \n \n \n \n \n \n \n \n \n \n New risk \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n RISK \n \n \n \n \n DESCRIPTION \n \n \n \n \n MITIGATION \n \n \n \n \n \n \n \n CLIENTS AND CONSUMERS \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Sales and Retention \n \n \n   \n \n \n Trend \n \n \n   2021   2020 \n \n \n \n \n Our businesses rely on securing and retaining a diverse range of clients. \n \n \n The potential loss of material client contracts in an increasingly competitive market is a risk to our businesses. \n \n \n Reduced office attendance, closure of client sites and fewer site visitors as a result of COVID-19 may impact revenues in affected sectors. \n \n \n \n \n We have strategies that strengthen our long term relationships with our clients and consumers based on quality, value and innovation. \n \n \n Our business model is structured so that we are not reliant on one particular sector or group of clients. \n \n \n We are using technology to support the delivery of efficiencies and to contribute to growth through, for example, cashierless and cashless payment systems and the use of artificial intelligence. This benefits our clients and consumers and positively impacts retention and new business wins. \n \n \n Compass continues to focus on financial security and safety. In today's environment these are key strengths for our clients. \n \n \n Contracts may be renegotiated. We continue to focus on retention and new sales, and use technology and innovative client solutions such as cashless and cashierless payment systems and food delivery applications. \n \n \n \n \n \n \n \n \n \n \n \n \n \n Service Delivery, Contractual Compliance and Retention \n \n \n   \n \n \n Trend \n \n \n   2021   2020 \n \n \n \n \n The Group's operating companies contract with a large number of clients. Failure to comply with the terms of these contracts, including proper delivery of services, could lead to the loss of business and/or claims. \n \n \n \n \n Processes are in place to ensure that the services delivered to clients are of an appropriate standard and comply with the required contract terms and conditions. \n \n \n \n \n \n \n \n \n \n \n \n \n \n Competition and Disruption \n \n \n   \n \n \n Trend \n \n \n   \n 2021  2020 \n \n \n \n \n We operate in a highly competitive marketplace. The levels of concentration and outsource penetration vary by country and by sector. Some markets are relatively concentrated with two or ...

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