13th May 2015 13:40
LONDON (Alliance News) - Compass Group PLC Wednesday reported a rise in profit in the first half of its financial year, boosted mainly by strong sales in North America, and although its performance could have been better had it not been hit by exchange rate translations, it said it is confident it will sustain positive growth rates going forward.
The catering and outsourcing company reported a 4.9% rise in pretax profit for the six months to March 31 to GBP621 million, while organic revenue grew 5.7% to GBP8.9 billion. Its underlying operating margin increased by 10 basis points to 7.5%.
Reported revenue grew 4.7%, lower than organic revenue which Compass said was due to a negative currency translation. Like-for-like sales grew 2.7% reflecting some pricing and modest like-for-like volume increases.
Compass said its sales were boosted by "excellent" performances in North America and the fast growing and emerging markets, while Europe and Japan returned to organic growth despite "a mixed economic backdrop" in the regions.
Regionally, sales in North America grew to GBP4.7 billion from GBP4.2 billion, driven by new business wins in Johnson & Johnson, the Culinary Institute of America and the Royal Bank of Canada, as well as "unusually" high retention rates. Compass said North America, which contributes 52% of group revenue, is likely to remain the principal growth engine for the group.
Revenue grew 0.4% in the fast growing and emerging markets, but would have grown 6.1% if exchange rates had remained constant. The Middle East, Turkey and Latin America benefited from contract wins, but these were partly offset by like-for-like volume declines in Turkey and negative organic revenue in Australia.
Compass said it has reduced headcount in Australia, Brazil and its Turkish food business by 10% to help improve the pressure that negative like-for-like volumes are putting on margins.
"Although some of these markets can be volatile, we are continuing to invest and hope to see good growth rates maintained well into the future," it said.
Europe and Japan demonstrated 0.9% organic revenue growth, or 1% if exchange rates had remained the same, but reported revenue declined 4.9% to GBP2.8 billion from GBP3 billion. Compass said that while recent investments in sales and retention teams are paying off, the economic picture remains "mixed" as like-for-like volumes, while stabilising, remain negative at 0.5%.
"The fundamentals of our businesses in Europe & Japan are good and we see many opportunities to drive growth in revenue and margin. We continue to see opportunities for efficiencies and to make our operations more competitive," the company said.
Compass said it will pay an interim dividend of 9.8 pence, up 11% on the prior year.
"Our expectations for the full year remain positive and unchanged. However, the economic environment in some of our emerging markets is uncertain, and lower commodity prices are impacting our Offshore & Remote business. Nevertheless, our pipeline of new contracts is encouraging, and our continued focus on organic growth and efficiencies gives us confidence in achieving another year of delivery," Chief Executive Richard Cousins said in a statement.
"In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue and margin growth, as well as continued returns to shareholders," Cousins added.
Panmure analyst Anna Barnfather said that the results were in line with estimates and doesn't alter the broker's full-year forecasts. It still expects organic growth of 5.2% and 13 basis points of margin improvement to give GBP18.3 billion in revenue and GBP1.36 billion in operating profit.
"We retain our Hold given the lack of positive catalysts, concerns over sustainability of retention rates and slowdown in margin progression/cost inflation," the analyst said.
Shares in Compass Group were down 2.6% at 1,133.00 pence Wednesday afternoon.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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