29th Nov 2005 07:03
Compass Group PLC29 November 2005 Compass Group PLC PRESS RELEASE 29 November 2005 COMPASS GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2005_____________________________________________________________________________Financial summary Reported ConstantFor the year ended 30 September 2005 2004 movement currency____________________________________________________________________________Turnover £12,704m £11,772m 7.9% 8.3% Total operating profit- reported £302m £500m (39.6)%- underlying (1) £711m £775m (8.3)% (7.7)% Operating margin(2) 5.7% 6.8% (110)bps Profit before tax- reported £171m £370m (53.8)%- underlying(1) £581m £645m (9.9)% Basic earnings per share- reported 0.0p 8.3p- underlying (1) 19.1p 21.1p (9.5)% (8.6)% Free cash flow £348m £246m 41.5% 43.5% Return on capital employed 5.7% 6.4% (70)bps Dividend per ordinary share 9.8p 9.3p 5.4%_____________________________________________________________________________ Business highlights • Turnover £12.7 billion, up 7.0% on a like for like basis(3). • Strong growth in profit and ROCE in North America and Continental Europe and Rest of the World (excluding Middle East military business). Turnaround in UK progressing. • Free cash flow £353m at 2004 exchange rates, up 43.5%. • Final dividend of 6.5 pence per share, up 4.8%. • Sir Roy Gardner appointed Senior Independent Director from 1 October 2005, will replace Sir Francis Mackay as Chairman by summer 2006. • Recruitment of Group CEO underway. • Targets of 100 basis points of ROCE growth and £800 - £850m of free cash flow over the period 2006-2008 (post SSP disposal) reconfirmed._____________________________________________________________________________ (1) Underlying performance excludes goodwill amortisation and exceptional items.(2) Operating margin excludes fuel, associates, goodwill amortisation and exceptional items.(3) Like for like growth excludes fuel and is calculated by adjusting for acquisitions (excluding current year acquisitions and including a full year in respect of prior year acquisitions), disposals (excluded from both years) and exchange rate movements (translating the prior period at current period exchange rates) and compares the results against 2004. New Chairman and Senior Management Update Sir Roy Gardner joined the Board as Senior Independent Director and Chairman ofthe Nominations Committee on 1 October 2005 and will succeed Sir Francis Mackayas Chairman by the summer of 2006. Since joining the Board, Sir Roy has already spent time in the business,focusing on its strategy and financial performance. Sir Roy believes that thereis significant opportunity to improve performance in the Group's core business. As Chairman of the Nominations Committee, Sir Roy's immediate priority is therecruitment of a new Group Chief Executive to replace Michael Bailey who hasannounced his intention to step down. The Nominations Committee has appointedhead hunter Korn Ferry to conduct a full search and the process is beingconducted expeditiously. Michael Bailey will continue as Chief Executive for aslong as is required by the Board. The Board has agreed to appoint two new non-executive directors during 2006. Sale of Travel-Related Concessions Business The Group announced on 28 September 2005 its decision to sell its travel-relatedconcessions business, primarily Select Service Partner (SSP). The formal saleprocess for SSP has commenced and an Information Memorandum has been circulatedto interested parties. The sale is expected to be completed by mid-2006. SSP is the largest operator of travel concessions in Europe and Asia, providingcatering for roadside, railway and airport concessions in over 20 countries. SSPincludes brands such as, Upper Crust, Whistlestop, Millie's Cookies and HarryRamsden's. In 2005, revenues (including fuel) of the businesses being sold werecirca £1.8 billion (£1.3 billion excluding fuel), EBITDA (including fuel) wascirca £160 million and EBIT (including fuel) was £115 million. Whilst the travel concessions market offers considerable further growthopportunities, the sale of the travel-related business will allow management tofocus solely on the Group's core contract catering operations and the growth ofthe support services business. The Board considers that, in the longer term,this focus will improve the Group's financial performance and drive greatervalue for shareholders. UN Contracting On 21 October the Group announced that it had instructed Freshfields to conductan investigation into the relationships between ESS, IHC and the United Nations.Ernst & Young are assisting Freshfields in the investigation, reporting to theChairman of the Compass Group PLC Audit Committee. On 3 November the Group announced that the investigation raised serious concernsas to whether, within ESS, there had been in connection with IHC and the UN,improper conduct and a failure to comply with the Group's statement of businessprinciples (which apply to all staff, whatever their seniority). As a result,three employees were dismissed. The investigation is ongoing and, as yet, no final conclusions have beenreached. The Group continues to co-operate voluntarily and fully as appropriate with theUN and US authorities, including the Office of the United States Attorney forthe Southern District of New York. UN contracts account for less than 0.5% of the Group's turnover and profits. Outlook In 2006, the Group anticipates continued strong trading in North America and theRest of the World (excluding the impact of scaling back the Middle East militarybusiness). In Continental Europe, where the macro-economic climate is expectedto continue to contribute to a difficult trading environment, the focus willremain on keeping a tight cost base and working to improve client retention. Inthe UK, cost pressures are expected to remain a significant challenge, however,actions are being taken to deliver a robust contract base with the aim ofachieving a similar level of profit to that in 2005. Overall the Group willcontinue to focus on free cash flow and improving return on capital employed. Michael J Bailey, Group Chief Executive, said: "Three out of our four geographies, North America, Continental Europe and theRest of the World have performed to our expectations, with North America and theRest of the Word (excluding the Middle East military business) delivering aparticularly strong result this year. The performance of the UK has beenunsatisfactory. However, we have gripped the issues and the turnaround of thisbusiness is underway. We have taken decisive action to improve our financial performance to meet ourthree year targets for free cash flow and return on capital employed. Everyonein the business is firmly focused on delivering for our clients, customers andshareholders" Enquiries:Compass Group PLC +44 (0) 1932 573000Investors/Analysts: Sarah EllisMedia: Paul Kelly Brunswick +44 (0) 20 7404 5959 Simon SporborgPamela Small Websitewww.compass-group.com Presentation and teleconference details are in the attached notes. GROUP TRADING REVIEW The Group achieved 7% like for like turnover growth in 2005 with strongperformances in North America and Rest of the World regions but difficulttrading particularly in the UK and several European countries. Actions areunderway to improve financial performance, with continued focus on delivery ofstrong free cash flow and improved returns on capital employed ("ROCE") over themedium term. The Group has announced medium-term (2006-2008) objectives toimprove ROCE by 100 basis points and to generate free cash flow over the periodof £800 - £850 million (post the disposal of SSP). As the market leader in afragmented market place, the Group is well positioned to benefit from its strongpresence in the key geographies, where significant opportunities remain. Group Performance The Group's reported financial summary for the year ended 30 September 2005 isset out below. Increase/ 2005 2004 (decrease)--------------------------------- --------- -------- ---------Turnover £12,704m £11,772m 7.9%Total operating profit- reported £302m £500m (39.6)%- underlying (1) £711m £775m (8.3)%Operating margin (2) 5.7% 6.8% (110)bpsProfit before tax- reported £171m £370m (53.8)%- underlying (1) £581m £645m (9.9)%Basic earnings per share- reported 0.0p 8.3p- underlying (1) 19.1p 21.1p (9.5)%Free cash flow £348m £246m 41.5%Return on capital employed (3) 5.7% 6.4% (70)bps--------------------------- --------- -------- ---------(1) Underlying performance excludes goodwill amortisation and exceptional items.(2) Operating margin excludes fuel, associates, goodwill amortisation and exceptional items.(3) See below for basis of calculation. Turnover The main factors that affected the year on year change in turnover aresummarised below. %-------------------------------------------- ----Like for like growth 7Contribution from acquisitions 2Movements in translation rates (1)-------------------------------------------- -----Total - excluding fuel 8-------------------------------------------- -----Like for like growth excludes fuel and is calculated by adjusting foracquisitions (excluding current year acquisitions and including a full year inrespect of prior year acquisitions), disposals (excluded from both years) andexchange rate movements (translating the prior period at current period exchangerates), and compares the results against 2004. Like for like turnover growth was achieved as a result of new contract gains of11% offset by contract losses of 5% and positive throughput of 1%, driven byNorth America where the business has been focused on driving volumes withinexisting accounts as well as achieving price increases. Throughput represents the movement in turnover in the existing estate,influenced by headcount changes, participation rates, price increases andaverage spend per head. Throughput varies by sector with Education andHealthcare, which are much less affected by the economic cycle, achievingpositive throughput of 3% and 2% respectively in 2005. Business and Industry andVending were broadly flat. Throughput in the Travel Concessions sector was alsopositive at 2%. The Group continues to focus on client retention, which was again high in theyear at 95%. This was achieved as a result of continued investment in people,client account management and contract retention teams. The strong performance in like for like turnover growth was driven by newbusiness wins across all sectors, with a continued trend to outsourcing inHealthcare and a high level of activity around the globe in Offshore and Remotesupporting the buoyant extractive industries sector. The table below sets out like for like growth by sector for each geographicdivision and the Group total. North CE & America UK ROW Group % % % %--------------------------- -------- ------ ------- -------Contract:Business and Industry 11 9 2 6Defence, Offshore and Remote 28 13 8 10Education 12 (1) 2 7Healthcare 15 5 5 10Sports and Leisure 17 3 5 9--------------------------- -------- ------ ------- -------Total Contract 13 6 4 8Vending 4 19 2 4Travel Concessions 20 4 4 6--------------------------- -------- ------ ------- ------- Total 12 6 4 7--------------------------- -------- ------ ------- -------Travel Concessions principally comprises: Creative Host in North America; Moto,railway and airport concessions, Harry Ramsden's and Millie's Cookies in the UK;Rail Gourmet, Inflight, airport concessions and motorways (in France, Italy,Portugal, Germany and Japan) in Continental Europe and Rest of the World. Total operating profit The decline in total operating profit, before goodwill amortisation andexceptional items, of 8% resulted primarily from tough trading in the UK and thereduction in scale and profitability of the Group's Middle East militarybusiness. Trading conditions in Continental Europe remained difficult in France,Germany, the Netherlands and particularly Italy which saw a significant downturnin the Business and Industry sector. In North America, there has been a slightdecline in the year on year operating margin mainly due to the impact of theNational Hockey League strike and Hurricane Katrina but operating profit grewstrongly at 9%. Profit before tax Profit before tax, goodwill amortisation and exceptional items for 2005 was £581million (2004: £645 million). Basic earnings per share Basic earnings per share, before goodwill amortisation and exceptional items,were 19.1 pence (2004: 21.1 pence). Free cash flow Free cash flow for 2005 recovered strongly in the year to £348 million (2004:£246 million). Reduced operating profit and higher cash interest payments(including £20 million as a result of the 2004 swap monetisation) were more thanoffset by a stringent allocation of capital expenditure and improvements inworking capital management. Free cash flow in 2004 of £246 million was adversely impacted by a significantworking capital outflow offset in part by a one-off receipt of £104 million inrespect of the monetisation of certain "in the money" interest rate swaps. Return on capital employed Return on capital employed was 5.7% (2004: 6.4%) based on total operating profitbefore goodwill amortisation and exceptional items (excluding the Group'sminority partners' share of total operating profit) net of tax at 30%, and anaverage capital employed for the year of £8,069 million (2004: £7,894 million). Average capital employed has been calculated by adding back net debt, goodwillwritten off to reserves and goodwill amortised through the profit and lossaccount. The capital employed in the business as at 30 September 2005 and 2004is detailed in the table below. 2005 2004 £m £m----------------------------------- ---------- ------Net assets 2,284 2,482Net debt 2,316 2,373Goodwill written off to reserves 2,147 2,132Goodwill amortised through the profitand loss account 1,382 1,021----------------------------------- ---------- ------Capital employed 8,129 8,008----------------------------------- ---------- ------ International Financial Reporting Standards ("IFRS") The Group will report under IFRS for the year ending 30 September 2006. In May2005, the Group provided an indication of the principal effects of IFRS on theGroup. Further information, including restatement of the 2005 results underIFRS, will be presented prior to the announcement of the 2006 Interim Results. UK Client and Supplier Relationships A core part of the Group's strategy is to leverage its scale through purchasingefficiencies and to achieve this through building good, long-term and mutuallybeneficial relationships with all its suppliers. The UK business has beenworking hard with its suppliers to encourage investment in processes and systemsto improve quality and traceability and to ensure that the Group has the rightrange and quality of products, at the most competitive prices to meet the needsof its client base. The success of this approach is reflected in the high levelsof client satisfaction with contract retention in the UK at 95% and an averagelength of client relationship of over 9 years. The investment made last year in improving payment terms is reflected in thereduction of average creditor days to around 55 in 2005. Over the past yearpayables of over 90 days have never amounted to more than £1 million in abusiness with turnover of over £2 billion. Over 80% of suppliers (by invoicevalue) are now on Electronic Data Interchange ("EDI") and this has improvedefficiency and speeded up payment. Of the UK suppliers who account for over 75%of total purchases, 95% have been supplying Compass for over four years. The Group's relationship with its clients and suppliers is governed by a strict,zero tolerance based Code of Ethics. Purchasing policies and practices are beingenshrined in a Supplier Code of Conduct for buyers with a formal process forsuppliers to escalate any complaints. Our People The Group has seen continued evidence of the success of its strategy to berecognised as a preferred employer. The most recent global workforce surveyshows an increase in loyalty, pride in the company and the likelihood torecommend Compass as a place to work. Compass Group was named 7th best largecompany to work for in the annual Best Companies to Work For list produced bythe Sunday Times, based on the paper's own independent survey of the Group'semployees. Most recently, on 24 November, the Group won three awards at thePersonnel Today Awards: Employer Branding; Best HR Strategy in Line withBusiness; and the Best Overall HR award. At the Culinary Olympics the Group won an outstanding 57 awards, including 3gold, 32 silver and 14 bronze medals. In the aftermath of Hurricane Katrina the Group continued to service clients andcustomers in the affected regions. In anticipation of the hurricane, Eurest,along with their clients, had organised and prepared food services, water andbasic living supplies for thousands of evacuees. Over 20,000 meals were serveddaily in affected areas and temporary 'tent cities' were established providingessentials for relief workers and victims, and Eurest supported six tent citieslocated in the Gulf States region. A relief centre was set up in Pascagoula,Mississippi that provided shelter and food for 15,000 evacuees. Four tentvillages, supporting over 2,600 employees and families were also set up.Morrison Management Specialists teams stayed in place through the hurricane toassist in the evacuation of six hospitals and served 15,000 meals daily topatients and residents at four hospitals and two senior dining communities inthe Gulf Coast states. DIVISIONAL TRADING REVIEW Constant Like Reported currency for like increase increase increase 2005 2004 % % % --------------------- ------ ------- -------- -------- --------Turnover (£m) North America 3,937 3,531 11 15 12UK 2,812 2,626 7 7 6Continental Europeand Rest of the World 5,443 5,119 6 5 4--------------------- ------ ------- -------- -------- --------Total - excluding fuel 12,192 11,276 8 9 7Fuel 512 496 3 3 3--------------------- ------- ------- -------- -------- -------- Total 12,704 11,772 7 8 7 --------------------- ------- ------- -------- -------- -------- Constant Reported currency increase increase 2005 2004 % %------------------------------------------ -------- ------ -------- --------Total operating profit including fuel (£m) Subsidiary undertakingsNorth America 207 190 9 12UK 205 294 (30) (30)Continental Europe and Rest of the World 297 287 3 3------------------------------------------ -------- ------ -------- -------- 709 771 (8) (7)Associates 2 4 - ------------------------------------------- -------- ------ -------- -------- Total 711 775 (8) (8)------------------------------------------ -------- ------ -------- -------- Operating margin excluding fuel (%)North America 5.3 5.4UK 7.0 10.9Continental Europe and Rest of the World 5.5 5.6------------------------------------------ -------- ------ -------- -------- Total 5.7 6.8------------------------------------------ -------- ------ -------- -------- Certain minor reclassifications have been made to the previously reportedanalysis of Divisional performance to align with the Group's current managementstructures. Total operating profit is before goodwill amortisation of £269million (2004: £275 million), a goodwill impairment charge of £95 million (2004:£ nil) and an exceptional operating charge of £45 million (2004: £ nil). Fuelturnover comprises £480 million in the UK and £32 million in Continental Europeand Rest of the World (2004: £466 million and £30 million respectively). Profitfrom subsidiary undertakings includes £8 million in the UK and £ nil inContinental Europe and Rest of the World from fuel (2004: £8 million and £ nilrespectively). Operating margin is based on turnover and total operating profitexcluding fuel, associates, goodwill amortisation and exceptional items. North America 32% of Group turnover, excluding fuel (2004: 31%) 2005 has been another successful year in North America, both in terms ofturnover and profit growth, extending across all the primary business sectors.Reported turnover increased to £3,937 million (2004: £3,531 million) and by 12%on a like for like basis, well ahead of last year's 7%. In Healthcare,Morrison's and Crothall's like for like turnover growth was 15%. Our position inthe important Healthcare market was further strengthened by the acquisition ofHDS Services, the only significant acquisition in the year, which was completedin January 2005 for £16 million. Sports and Leisure has had another very strongyear with like for like growth of 17%, reflecting the success of our LevyRestaurants business in delivering not only strong contract gains, but alsoincreased customer spend at our venues. The Business and Industry and Educationsectors delivered solid performances. Growth was driven by new business wins inconjunction with improved throughput. A significant success has been theconcerted drive to increase participation and spend per head, including passingon price increases. Vending showed a more modest increase of 4% on a like forlike basis. Total operating profit, excluding associates, goodwill amortisation andexceptional items, increased by £17 million to £207 million (2004: £190million). There has been a slight decline in the operating margin to 5.3% (2004:5.4%), mainly due to the impact of the National Hockey League strike andHurricane Katrina towards the end of the year. UK 23% of Group turnover, excluding fuel (2004: 23%) Reported turnover, excluding fuel, increased to £2,812 million (2004: £2,626million) and by 6% on a like for like basis, broadly in line with last year. In Contract, like for like turnover increased by 6% to £1,930 million (2004:£1,794 million) with strong performances in all sectors except Education wheresales declined by 1%. Most contract caterers in the Education sector have beenimpacted by declining participation during the year following recent negativepublicity regarding the standard of school meals. Healthcare has again had astrong year benefiting from new contract gains, renewals and extensions to therange of services offered. This resulted in growth of 5% on a like for likebasis. We have continued to see good growth in the Business and Industry sector,helped by the mobilisation of a significant contract for managed services withone of our large banking clients. Travel Concessions achieved turnover growth of 4% on a like for like basis,increasing from £775 million in 2004 to £814 million in 2005, despite the impactof the London bombings on our railway station operations. The M&S Simply Foodconcept roll-out continued at our motorway and railway sites and was wellreceived in the year. Total operating profit, including fuel but excluding associates, goodwillamortisation and exceptional items, was £205 million (2004: £294 million). Thedecline is due in part to cost pressures affecting, in particular, the Businessand Industry sector and the impact of the London bombings. The remainder of thedecline is the result of increased pension costs, lower disposal profits of £16million, significant restructuring costs, the sale of the Gatwick Meridien hotel£4 million and the £5 million impact on profits of reduced capital spend. Theoverall margin, excluding fuel, achieved in the year was 7.0% (2004: 10.9%). In Contract and Vending, operating margins were 5.9% (2004: 8.6%) and operatingprofit, excluding associates, goodwill amortisation and exceptional items, was£117 million (2004: £160 million) Travel Concessions operating margins were 9.8% (2004: 16.3%) and operatingprofit, excluding associates, goodwill amortisation and exceptional items,decreased to £80 million (2004: £126 million). Continental Europe and Rest of the World 45% of Group turnover, excluding fuel (2004: 46%) Reported turnover, excluding fuel, increased to £5,443 million (2004: £5,119million) with like for like turnover growth of 4%. Strong performances in Restof the World, particularly Australasia and South America, were partly offset bymore challenging trading conditions in France, Germany, the Netherlands andItaly and a scaling down of our Middle East military business. In Continental Europe, overall like for like turnover grew by 2%, with flat likefor like growth in Contract. Market conditions in Northern Europe continued tobe difficult with client site closures and headcount reductions holding backgrowth in Germany, France, the Netherlands and Italy in particular. We havestrengthened our management teams in these countries to focus on clientretention and drive throughput via participation and spend per head. Spain andSwitzerland again performed strongly growing by 7% and 6% respectively.Scandinavia continues to perform well and benefited from high levels of activityin the Travel Concessions sector and the oil and gas business. Rest of the World like for like turnover growth of 8% reflects the strength ofthe Remote Site sector in Australasia as the extractive industries continue tomeet the high demand for crude oil and minerals. In South America, we alsocontinue to see good business growth led by Brazil where Business and Industryand Remote Site operations are particularly buoyant. The Group continues toscale down its Middle East military business with turnover reducing to £170million in 2005 (2004: £250 million). There are still opportunities for militarybusiness in the Middle East but increasingly, the Group is choosing not toparticipate in this work because the margin is becoming less attractive relativeto the complexity of the operations and associated risks. Excluding the MiddleEast military business, like for like turnover growth was 14%. Total operating profit, excluding associates, goodwill amortisation andexceptional items, has increased by 3% to £297 million (2004: £287 million) andoperating margin is broadly in line with 2004 at 5.5% (2004: 5.6%). In Continental Europe, total operating profit, excluding associates, goodwillamortisation and exceptional items, increased by 7% to £190 million (2004: £178million). The operating profit improvement results from a strong turnaround inthe Travel Concessions business, particularly in Germany, France andScandinavia. Operating margin in Continental Europe increased to 5.3% in 2005(2004: 5.2%). Rest of the World total operating profit, excluding associates, goodwillamortisation and exceptional items, reduced by 2% to £107 million (2004: £109million) and operating margin has moved back slightly to 5.7% (2004: 6.3%)reflecting the impact of scaling back our Middle East military business whereoperating profit, before exceptional items, was £35 million (2004: £50 million).Excluding this, total operating profit, excluding associates and goodwillamortisation was £72 million (2004: £59 million), a 22% increase. Operatingmargin was 4.2% (2004: 4.0%), driven by good conversion of incremental sales toincremental profit in Australasia and South America. Interest Net debt at 30 September 2005 was £2,316 million (2004: £2,373 million). Netinterest expense for the year was £130 million (2004: £130 million). The averagecost of funding for the year was 4.8% (2004: 4.8%). Interest cover for 2005 was5.5 times total operating profit before goodwill amortisation and exceptionalitems. Higher dollar borrowing costs are expected to increase the net interestexpense to nearer £140 million in 2006 (before the impact of proceeds fromdisposals and the adoption of IFRS). Profit before taxation Profit before taxation, goodwill amortisation and exceptional items decreased by9.9% from £645 million to £581 million. Taxation The overall Group tax charge was £134 million giving an effective tax rate onprofit on ordinary activities before taxation, goodwill amortisation andexceptional items of 23.1% (2004: 23.6%), which is below the UK corporate taxrate of 30%. The main reasons for the low overall rate in 2005 are prior year adjustmentsrepresenting the recognition of reliefs associated with past acquisitions andalso the successful resolution during the course of the year of severalsignificant issues, principally overseas. A reconciliation of the effectivecurrent tax rate for the year (i.e. the overall rate excluding deferred tax andprior year adjustments) is included in note 4 to the financial statements. Thisreconciliation summarises the reasons why the Group's effective current tax rateof 28% was below the UK corporate tax rate of 30%. The main reasons were thebenefit arising from the tax deductibility of part of the Group's goodwill (2%),losses brought forward (2%) and other items (a net benefit of 1%) offset by theimpact of higher overseas tax rates (3%). The overall Group effective tax rate for 2006 onwards (when the Group willreport under IFRS) is expected to move to around 30%. This increase reflects thefact that the earnings benefit of the tax deduction for goodwill in the US willno longer be recognised through the profit and loss account (although there isno cash tax impact). The Group's cash tax rate for 2005 was 19% (2004: 17%). For 2006 onwards, thecash tax rate is likely to average out, over time, in a range from the mid tohigh 20's. Goodwill amortisation and exceptional items The goodwill amortisation charge for the year was £269 million (2004: £275million) and an additional charge of £95 million in respect of the impairment ofgoodwill carried on the Italian business was incurred. The decline in scale of the Group's Middle East military business in 2005, withturnover down from £250 million in 2004 to £170 million in 2005 and withoperating profit, before exceptional items, down from £50 million in 2004 to £35million in 2005, is likely to continue into 2006, with operating profit expectedto be no more than £5 million. In the light of this quicker than expectedscaling back in activity, asset write-downs and provisions of £45 million havebeen reported as an exceptional item in 2005. The Group also disposed of 75% ofAu Bon Pain in North America, the Gatwick Meridien hotel in the UK and paidfurther costs relating to previous disposals resulting in a net exceptional losson disposal of businesses of £1m. There were no exceptional items in 2004. Earnings per share Basic and diluted earnings per share on a reported basis were both nil pence(2004: 8.3 pence). Basic earnings per share before goodwill amortisation andexceptional items for the year was 19.1 pence (2004: 21.1 pence). Attributableprofit and basic earnings per share are reconciled below. Attributable Profit Basic Earnings Per Share --------------------------------------------------------- 2005 2004 2005 2004 £m £m Pence Pence Growth -------------------- -------- -------- -------- -------- -------Reported 1 180 - 8.3Goodwill amortisation 269 275Exceptional items 141 --------------------- -------- -------- -------- -------- -------Underlying (1) 411 455 19.1 21.1 (9.5)%Currency translation - (4)-------------------- -------- -------- -------- -------- -------Constant currency 411 451 19.1 (20.9) (8.6)%-------------------- -------- -------- -------- -------- ------- (1) Underlying performance excludes goodwill amortisation and exceptional items. Dividends The recommended final dividend is 6.5 pence per share resulting in a totaldividend for the year of 9.8 pence per share, an increase of 5.4% on 2004,reflecting confidence in the Group's ability to generate strong free cash flow.Dividend cover for 2005 was 1.9 times profit before goodwill amortisation andexceptional items. In the short term, earnings and cash dividends cover will beimpacted by IFRS, the increase in the cash tax rate and the disposal of SSP.Whilst we remain committed to continue to grow the dividend in real terms, ourobjective over the medium term will be to move the dividend cover more towardsthe 2 times level. Acquisitions The Group's strategic focus continues to be on the organic development of itsexisting core businesses. During the year there have been a small number ofacquisitions either to strengthen the Group's geographic coverage or toreinforce its sectoral presence in certain areas. The Group purchased businessesfor £39 million in 2005 and purchased further shares in subsidiary companies notwholly owned for £66 million. £4 million of the aggregate purchase price isdeferred consideration payable in the future. In aggregate, the net liabilitiesacquired had a provisional fair value of £8 million, including £2 million of netcash, resulting in goodwill of £113 million. Details of the acquisitions aregiven in note 15 to the financial statements. The acquisition of other minority interests and the payment of deferredconsideration is currently expected to amount to around £150 million in 2006.The Group does not currently anticipate any significant new acquisitions during2006. Pensions In total, the Group charged £78 million (2004: £70 million) to profit before taxin respect of its pension arrangements, of which £52 million (2004: £48 million)relates to defined benefit schemes and £26 million (2004: £22 million) relatesto defined contribution schemes. Actuaries to the Group's defined benefitpension arrangements advise the Pension Trustees on the funding rates requiredby the Group. In total, the Group paid £100 million (2004: £74 million) duringthe year to the pension providers in order to enable the pension funds to fulfiltheir obligations. Disclosure in accordance with FRS 17: Retirement Benefits is provided in note 16to the financial statements. This shows that, at 30 September 2005, there was anunprovided pension deficit, net of deferred tax, of £222 million (2004: £131million). Had the Group adopted FRS 17, the charge to the profit and lossaccount, before interest and tax, would have been £63 million (2004: £56million, net of a £6 million one-off curtailment credit). The correspondingfinancing charge recorded to interest expense would have been £15 million (2004:£19 million) giving a total charge of £78 million (2004: £75 million). Free cash flow Free cash flow of £348 million (2004: £246 million) reflects reduced operatingprofit and higher cash interest payments (including a £20 million outflow as aresult of the 2004 swap monetisation), more than offset by a stringentallocation of capital expenditure and improvements in working capitalmanagement. Payments in respect of provisions for liabilities and charges absorbed £40million (2004: £73 million). £31 million was spent on insurance, pensions andother post-employment benefits, £6 million on settling onerous contracts and £3million in respect of legal and other claims. Interest payments absorbed a net £159 million (2004: £131 million, before aone-off derivatives monetisation receipt of £104 million). The net tax paid of £108 million (2004: £107 million) represents 19% of profitbefore tax (2004 : 17%), goodwill amortisation and exceptional items and issignificantly less than the total tax charge for the year of £134 million. Themain reasons for this difference are deductions allowable for tax but which arenot charged to the profit and loss account, tax losses brought forward andutilised in the year, capital allowances in excess of depreciation and thetiming of tax payments. Net capital expenditure absorbed £291 million (2004: £329 million). Includingthe £12 million of fixed assets acquired under finance lease contracts (2004: £9million), net capital expenditure represents 2.5% of turnover excluding fuel(2004: 3.0%). The Group has stringent controls on capital expenditure that aremonitored centrally. There are fixed authority limits at each subsidiary companylevel and internal rate of return criteria that each project must achieve toobtain approval. Acquisition payments were £124 million, comprising £105 million of considerationpaid, less £2 million of cash acquired and £21 million of deferred considerationand costs paid in respect of previous acquisitions. In aggregate, deferred consideration payable at 30 September 2005 amounted to£28 million (2004: £41 million). In 2005, dividend payments totalled £205 million (2004: £249 million). 2004reflected the payment of three dividends as the Group accelerated the timing ofdividend payments. Net proceeds from the sale of 75% of Au Bon Pain and the Gatwick Meridien hotelwere £75 million (proceeds from disposals in 2004: £86 million). The net cash inflow for the year was £94 million, before £1 million of proceedson the issue of ordinary shares, £12 million of new finance leases and atranslation loss on net debt for the year of £26 million, principally as aresult of the closing US dollar rate moving from 1.81 to 1.77 over the year, andthe closing Euro rate moving from 1.46 to 1.47 over the year. Closing net debt as at 30 September 2005 was £2,316 million (2004: £2,373million). Outlook In 2006, the Group anticipates continued strong trading in North America and theRest of the World (excluding the impact of scaling back the Middle East militarybusiness). In Continental Europe, where the macro-economic climate is expectedto continue to contribute to a difficult trading environment, the focus willremain on keeping a tight cost base and working to improve client retention. Inthe UK, cost pressures are expected to remain a significant challenge, however,actions are being taken to deliver a robust contract base with the aim ofachieving a similar level of profit to that in 2005. Overall the Group willcontinue to focus on free cash flow and improving return on capital employed. Michael J Bailey Sir Francis H Mackay Chief Executive Chairman NOTES (a) The results for the year ended 30 September 2005 were approved by the Directors on 29 November 2005 and have been prepared on the basis of accounting policies disclosed in the 2004 Annual Report. The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 30 September 2005 or 30September 2004 but is derived from those accounts. The auditors have reported onthese accounts; their reports were unqualified and did not contain a statementunder section 237 (2) or (3) of the Companies Act 1985. The 2005 accounts willbe delivered to the Registrar of Companies following the Company's AnnualGeneral Meeting. (b) Forward looking statements This Preliminary Statement Press Release contains forward looking statementswithin the meaning of Section 27A of the Securities Act 1933, as amended, andSection 21E of the Securities Exchange Act 1934, as amended. These statementsare subject to a number of risks and uncertainties and actual results and eventscould differ materially from those currently being anticipated as reflected insuch forward looking statements. The terms 'expect', 'should be', 'will be', 'islikely to' and similar expressions identify forward looking statements. Factorswhich may cause future outcomes to differ from those foreseen in forward lookingstatements include, but are not limited to: general economic conditions andbusiness conditions in Compass Group's markets; exchange rate fluctuations;customers' and clients' acceptance of its products and services; the actions ofcompetitors; and legislative, fiscal and regulatory developments. (c) The timetable for the proposed final dividend of 6.5p per share is as follows: Ex dividend date: 8 February 2006Record date: 10 February 2006Payment date: 6 March 2006 (d) A presentation for analysts and investors will take place at 9:30 am (GMT/ London) on Tuesday 29 November 2005 at the Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ. The live presentation can also be accessed via both a webcast and dial-inteleconference starting at 9:30 am: • To listen to the live presentation via teleconference, dial (UK) +44 20 7365 1854. • To view the presentation slides and/or listen to a live audio webcast of the presentation, go to www.compass-group.com or www.cantos.com. • Please note that remote listeners will not be able to ask questions during the Q&A session. A replay recording of the presentation will also be available via teleconferenceand webcast: • A teleconference replay of the presentation will be available for five working days, until 6 December 2005. To hear the replay, dial (UK) +44 20 7784 1024 or (US) +1 718 354 1112. The replay passcode is 3149869#. • A webcast replay of the presentation will be available for six months, at www.compass-group.com and www.cantos.com. For North American based investors, there will be a question and answer conference call starting at 1:00pm (EST/New York) •To participate in the live question and answer session via conference call, dial (US) +1 718 354 1158. •A teleconference replay of the call will be available for five working days, until 6 December 2005. To hear the replay, dial (US) +1 718 354 1112. The replay passcode is 8794285#. •The North American investor conference call will also be audio webcast live, and archived for replay, at www.compass-group.com and www.cantos.com. Enquiries: Compass Group PLC + 44 (0) 1932 573000Investor/Analysts: Sarah EllisMedia: Paul Kelly Brunswick + 44 (0) 20 7404 5959Simon SporborgPamela Small Websitewww.compass-group.com. Compass Group is the world's largest foodservice company with annual revenues ofover £12 billion. Compass Group has some 400,000 employees working in more than90 countries around the world. For more information visit www.compass-group.com. NOTES A selection of recent contract gains and renewals is set out below. Contract Business & Industry • Switzerland - World Health Organisation (OMS) awarded Eurest Switzerland a new three year contract with annual turnover of £2.5 million. • Switzerland - Zurich-Kloten Airport renewed its contract with Compass Group (Suisse) SA for a further seven years with annual turnover of £6.3 million. Healthcare • UK - Nottinghamshire Hospitals PFI renewed and extended its contract with Medirest for a further six and a half years with an annual turnover of £8.3 million. • USA - Desert Regional Medical Center (CA) awarded Morrison Management Specialists a new five-year contract with annual turnover of £3.0 million. • USA - University of Kentucky Hospital (KY) awarded Morrison Management Specialists a new three-year contract with annual turnover of £2.9 million. Education • USA - Thunderbird The Garvin School of International Management (AZ) awarded Compass Group The Americas in conjunction with Chartwells, FLIK and Canteen a new three-year contract with annual turnover of £3.6 million. • USA - Rochester City Schools (NY) awarded Chartwells a new one-year contract with annual turnover of £3.5 million. Sports & Leisure • UK - Imperial War Museum North awarded Milburns a new five-year contract with annual turnover of £0.6 million. • USA - The Bradley Center awarded Levy Restaurants a new seven-year contract with annual turnover of £5.4 million. Travel Concessions • USA - Long Beach Airport (CA) awarded Creative Host Services a new ten-year contract with annual turnover of £ 3.5 million. • Jamaica - Montego Bay Airport awarded Creative Host Services a new ten-year contract with annual turnover of £2.9 million. CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 September 2005 Before goodwill Goodwill amortisation amortisation and and goodwill exceptional exceptional Total amortisation Goodwill Total items items 2005 Before amortisation 2004 Notes £m £m £m £m £m £m ------- ------- ------ ------- ------- ------Turnover 1Continuingoperations 12,636 - 12,636 11,772 - 11,772Acquisitions 68 - 68 - - - ------- ------- ------ ------- ------- ------Total turnover 12,704 - 12,704 11,772 - 11,772Operatingcosts (11,995) (409) (12,404) (11,001) (275) (11,276) ------- ------- ------ ------- ------- ------OperatingprofitContinuingoperations 708 (409) 299 771 (275) 496Acquisitions 1 - 1 - - - ------- ------- ------ ------- ------- ------ 709 (409) 300 771 (275) 496Share ofprofits ofassociatedundertakingsContinuingoperations 1 2 - 2 2 - 2Discontinuedoperations 1 - - - 2 - 2 ------- ------- ------ ------- ------- ------Totaloperatingprofit: Groupand share ofassociatedundertakings 1 711 (409) 302 775 (275) 500 ------- ------- ------ ------- ------- ------Loss ondisposal ofbusinesses 2 - (1) (1) - - - ------- ------- ------ ------- ------- ------Interestreceivable andsimilar income 4 - 4 5 - 5Interestpayable andsimilarcharges 3 (134) - (134) (135) - (135) ------- ------- ------ ------- ------- ------Net interest (130) - (130) (130) - (130) ------- ------- ------ ------- ------- ------Profit onordinaryactivitiesbeforetaxation 581 (410) 171 645 (275) 370Tax on profiton ordinaryactivities 4 (134) - (134) (152) - (152) ------- ------- ------ ------- ------- ------Profit onordinaryactivitiesafter taxation 447 (410) 37 493 (275) 218Equityminorityinterests (36) - (36) (38) - (38) ------- ------- ------ ------- ------- ------Profit for thefinancial year 411 (410) 1 455 (275) 180Equitydividends 5 (211) - (211) (200) - (200) ------- ------- ------ ------- ------- ------Amounttransferredto/(from)reserves 14 200 (410) (210) 255 (275) (20) ======= ======= ====== ======= ======= ====== Basic earningsper ordinaryshare 6 0.0p 8.3p ====== ======Basic earningsper ordinaryshare -excludinggoodwillamortisationandexceptionalitems 6 19.1p 21.1p ======= =======Dilutedearnings perordinary share 6 0.0p 8.3p ====== ======Dilutedearnings perordinary share- excludinggoodwillamortisationandexceptionalitems 6 19.0p 21.0p ======= ======= CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2005 2005 2004 £m £m Profit for the financial year 1 180Currency translation differences 9 1Tax in profit and loss reserve relating to currency 2 (18)translation -------- --------Total gains and losses recognised in the year 12 163 ======== ======== RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDSFor the year ended 30 September 2005 2005 2004 £m £m Profit for the financial year 1 180Dividends (211) (200) -------- -------- (210) (20)Currency translation differences 9 1Tax in profit and loss reserve relating to currencytranslation 2 (18)Issue of shares 1 10Repurchase of shares - (69)Purchase of own shares - (1) -------- --------Net reduction in shareholders' funds (198) (97)Opening shareholders' funds 2,482 2,579 -------- --------Closing shareholders' funds 2,284 2,482 ======== ======== CONSOLIDATED BALANCE SHEETAs at 30 September 2005 Notes 2005 2004 £m £mFixed assetsIntangible assets 7 3,969 4,223Tangible assets 8 1,777 1,805Investments 9 51 30 -------- -------- 5,797 6,058 -------- --------Current assetsStocks 263 279Debtors: amounts falling due within one year 10 1,692 1,568 amounts falling due after more than one year 10 276 287Cash at bank and in hand 318 266 -------- -------- 2,549 2,400Creditors: amounts falling due within one year 11 (3,000) (2,872) -------- --------Net current liabilities (451) (472) -------- --------Total assets less current liabilities 5,346 5,586Creditors: amounts falling due after more than oneyear 12 (2,591) (2,665)Provisions for liabilities and charges 13 (398) (385)Equity minority interests (73) (54) -------- --------Net assets 2,284 2,482 ======== ======== Capital and reservesCalled up share capital 216 216Share premium account 14 94 93Capital redemption reserve 14 9 9Merger reserve 14 4,170 4,170Profit and loss reserve 14 (2,204) (2,005)Less: own shares (1) (1) -------- --------Total equity shareholders' funds 2,284 2,482 ======== ======== CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2005 2005 2004 ----------------------------------- £m £m £m £mNet cash inflow from operating activities 931 735(note I)Dividends from associated undertakings 4 4Returns on investments and servicing offinanceInterest received 4 5Interest paid (161) (134)Proceeds from termination of interest rate - 104swapsInterest element of finance lease rental (2) (2)paymentsDividends paid to minority interests (29) (30) ------- -------Net cash outflow from returns on investmentsand (188) (57)servicing of financeTaxationTax received 23 5Tax paid (131) (112) ------- -------Net tax paid (108) (107)Capital expenditure and financial investmentPurchase of tangible fixed assets (339) (365)Sale of tangible fixed assets 48 36 ------- -------Total capital expenditure and financial (291) (329)investment ------- -------Free cash flow 348 246 ------- -------Acquisitions and disposals (note IV)Purchase of subsidiary companies andinvestments in (124) (167)associated undertakingsNet proceeds from businesses held for resale - 19Sale of minority interest - 3Sale of subsidiary companies and associatedundertakings 75 64 ------- -------Total acquisitions and disposals (49) (81)Equity dividends paid (205) (249) ------- ------- (254) (330) ------- -------Net cash inflow/(outflow) before management ofliquid resources and financing 94 (84)FinancingIssue of ordinary share capital 1 10Repurchase of share capital - (91)Purchase of own shares, net - (1)Debt due within one year:Decrease in bank loans and loan notes (61) (26)Debt due after one year:Increase in bank loans and loan notes 11 270Capital element of finance lease rentals (16) (21) ------- -------Net cash (outflow)/inflow from financing (65) 141 ------- -------Increase in cash in the year 29 57 ======= =======Reconciliation of net cash flow to movement innet debt (note II)Increase in cash in the year 29 57Cash outflow/(inflow) from change in debt andlease 66 (223)finance ------- -------Change in net debt resulting from cash flows 95 (166)Loans acquired with subsidiaries and changesin (12) (19)finance leasesEffect of foreign exchange rate changes (26) 120 ------- -------Movement in net debt in the year 57 (65)Opening net debt (2,373) (2,308) ------- -------Closing net debt (2,316) (2,373) ======= ======= NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2005 I Reconciliation of operating profit to net cash inflow from operatingactivities: 2005 2004 £m £m Operating profit before goodwill amortisation and exceptionalitems 711 775Depreciation excluding exceptional items 293 258 -------- --------EBITDA 1,004 1,033Profit on disposal of fixed assets (9) (8)Profit on disposal of businesses - (10)Share of profits of associated undertakings (2) (4)Expenditure in respect of provisions for liabilities andcharges (40) (73)Amounts charged in respect of provisions 29 28Increase in stocks (4) (57)Increase in debtors (119) (110)Increase/(decrease) in creditors 72 (64) -------- --------Net cash inflow from operating activities before exceptionalitems 931 735 ======== ========II Analysis of net debt: Acquisitions (excluding Other 1 October Exchange cash and non-cash 30 September 2004 Cash flow movements overdrafts) changes 2005 £m £m £m £m £m £m Cash at bankand 266 48 4 - - 318in handOverdrafts (14) (19) - - - (33) ------ ------ -------- -------- ------ -------- 252 29 4 - - 285 ------ ------ -------- -------- ------ --------Debt duewithin (85) 61 - - (77) (101)one yearDebt dueafter (2,486) (11) (29) - 77 (2,449)one yearFinance (54) 16 (1) - (12) (51)leases ------ ------ -------- -------- ------ -------- (2,625) 66 (30) - (12) (2,601) ------ ------ -------- -------- ------ --------Total (2,373) 95 (26) - (12) (2,316) ====== ====== ======== ======== ====== ======== NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued)For the year ended 30 September 2005 III Purchase and disposal of subsidiary companies and investments in associatedundertakings: 2005 2005 2004 2004 £m £m £m £m Purchases Disposals Purchases Disposals Net assets acquired/(disposedof):Tangible fixed assets - (57) 28 (1)Investments 3 - 7 (47)Stocks - (3) 4 (1)Debtors 8 (8) 25 (1)Cash 2 - 21 -Loans - - (7) -Leases - - (3) -Creditors (10) 10 (56) 1Provisions (3) - (5) -Tax - (2) 6 -Minority interests (6) - 6 - -------- ------- ------- ------- (6) (60) 26 (49)Loss on disposal - 1 - 2Goodwill acquired/(disposedof) 115 (31) 162 (17) -------- ------- ------- ------- 109 (90) 188 (64) ======== ======= ======= =======Satisfied by:Cash considerationpayable/(receivable) 105 (75) 169 (64)Investment in associatedundertaking - (15) - -Deferred consideration payable 4 - 19 - -------- ------- ------- ------- 109 (90) 188 (64) ======== ======= ======= ======= IV Analysis of net flow of cash in respect of the purchase and disposal ofsubsidiary companies and investments in associated undertakings: 2005 2005 2004 2004 £m £m £m £m Purchases Disposals Purchases Disposals Cash considerationpaid/(received net ofliabilities settled) 105 (75) 169 (64)Cash acquired (2) - (21) - -------- ------- ------- ------- 103 (75) 148 (64)Deferred consideration andcosts relating to previousacquisitions 21 - 19 - -------- ------- ------- ------- 124 (75) 167 (64) ======== ======= ======= ======= The cash effect of the disposals consists of £48 million net cash considerationon the disposal of 75% of Au Bon Pain in North America, £30 million net cashconsideration on the disposal of the Gatwick Meridien hotel in the UK and £3million of costs relating to previous disposals. NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2005 1. Turnover and operating profit Continuing operations Acquisitions 2005 2004 £m £m £m £mTurnoverFoodservice:Geographical analysis:- North America 3,885 52 3,937 3,531- United Kingdom 3,292 - 3,292 3,092- Continental Europe and Rest ofthe World 5,459 16 5,475 5,149 ------- ------- ------ ------ 12,636 68 12,704 11,772Total operating profit: Group and share of associated undertakingsBefore goodwill amortisation andexceptional itemsFoodservice:- The Company and its subsidiaryundertakingsContinuing 708 1 709 771- Associated undertakingsContinuing 2 - 2 2Discontinued - - - 2 ------- ------- ------ ------ 710 1 711 775 ======= ======= ====== ======Geographical analysis:- North AmericaThe Company and its subsidiaryundertakings 206 1 207 190- United KingdomThe Company and its subsidiaryundertakings 205 - 205 294Associated undertakings 1 - 1 1- Continental Europe and Rest ofthe WorldThe Company and its subsidiaryundertakings 297 - 297 287Associated undertakingsContinuing 1 - 1 1Discontinued - - - 2 ------- ------- ------ ------ 710 1 711 775 ------- ------- ------ ------Amortisation of goodwill -continuing operations- North America (49) - (49) (48)- United Kingdom (157) - (157) (156)- Continental Europe and Rest ofthe World (63) - (63) (71) ------- ------- ------ ------ (269) - (269) (275) ------- ------- ------ ------Exceptional items - continuingoperations - Continental Europe and Rest of the world (140) - (140) - Total goodwill amortisation andexceptional items (409) - (409) (275) ------- ------- ------ ------Total operating profit: Group andshare of associated undertakings 301 1 302 500 ======= ======= ====== ====== Total operating profit after goodwill amortisation for the year ended30 September 2005 relates to foodservice analysed as North America £158 million,UK £49 million and Continental Europe and Rest of the World £95 million (2004:£142 million, £139 million and £219 million respectively). Certain minor reclassifications have been made to the previously reportedgeographical analysis of operations to align with the Group's current managementstructures. NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 2. Exceptional items 2005 2004 £m £m Charged within operating profit:Exceptional operating items - continuing operationsMiddle East military catering operations 45 -Impairment of goodwill - Italy 95 - ------- ------ 140 - ======= ======Charged after operating profit:Exceptional loss - disposal of businesses 1 - ======= ======= The Group is reducing the scale of its military catering operations in theMiddle East. Related asset write-downs and provisions have resulted in anexceptional charge of £45 million. In addition, the goodwill arising on theacquisition of Onama in Italy was impaired following a review of theprofitability of the underlying business. The Group also disposed of 75% of Au Bon Pain in North America and the GatwickMeridien hotel in the UK and paid further costs relating to previous disposalsresulting in a net loss of £1m. 3. Interest payable and similar charges 2005 2004 £m £m Bank loans and overdrafts 23 34Other loans 109 99Finance lease interest 2 2 -------- -------- 134 135 ======== ======== 4. Tax on profit on ordinary activities 2005 2004 £m £m UK corporation tax at 30% (2004: 30%) 51 49Overseas tax 109 105UK tax on share of profits of associated undertakings 1 1Overseas tax on share of profits of associated undertakings 1 2 -------- --------Current tax charge on profit before goodwill amortisation andexceptional items 162 157UK deferred tax 8 18Impact of discounting UK deferred tax (1) (1)Overseas deferred tax 27 17Impact of discounting overseas deferred tax (12) (12) -------- -------- 184 179 -------- --------Adjustments in respect of prior years:UK corporation tax (8) 10Overseas tax (51) (32)UK deferred tax 4 (2)Overseas deferred tax 5 (3) -------- -------- (50) (27) -------- --------Total tax charge before exceptional items 134 152 -------- -------- Exceptional items:UK corporation tax (2) -UK deferred tax 5 -Impact of discounting UK deferred tax (2) -Overseas tax 3 -Overseas deferred tax (4) - -------- --------Total exceptional tax - - -------- --------Tax on profit on ordinary activities after exceptional items 134 152 ======== ======== NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 4. Tax on profit on ordinary activities (continued) The main factors affecting the future tax charge are addressed in the sectionheaded Taxation on page 11. 2005 2004 % % Reconciliation of the UK statutory tax rate to the effectivecurrent tax rate Tax charge on profit on ordinary activities before goodwillamortisation and exceptional items at the UK statutory rate of 30 3030%Increase/(decrease) resulting from:Permanent items 2 1Amortisation of tax deductible goodwill (2) (2)Overseas taxes at higher rates 3 2Losses bought forward (2) (5)Capital allowances for the period in excess of depreciation - (1)chargedTax credits (1) -Other timing differences (2) (1) -------- --------Current tax rate on profit before goodwill amortisationandexceptional items 28 24Non-deductible goodwill amortisation and exceptional items 67 18 -------- --------Current tax rate on profit before taxation 95 42 ======== ======== 5. Dividends Per 2005 Per 2004 share £m share £m Dividends on ordinary shares of 10p each:Interim 3.3p 71 3.1p 66Proposed final 6.5p 140 6.2p 134 -------- -------- -------- -------- 9.8p 211 9.3p 200 ======== ======== ======== ======== NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 6. Earnings per share Average Average Attributable number Earnings Attributable number of Earnings profit of shares per share profit shares per share 2005 2005 2005 2004 2004 2004 £m Millions Pence £m Millions Pence------------------- -------- ------ ------- -------- ------ ------Basic earningsper share 1 2,156 0.0 180 2,158 8.3Effect ofdilutive shareoptions - 2 0.0 - 7 0.0------------------- -------- ------ ------- -------- ------ ------Dilutedearnings pershare 1 2,158 0.0 180 2,165 8.3------------------- -------- ------ ------- -------- ------ ------Reconciliation ofearnings per shareto exclude goodwillamortisation andexceptional itemsBasic earningsper share 1 2,156 0.0 180 2,158 8.3Effect ofgoodwillamortisation(net of tax) 269 - 12.6 275 - 12.8Effect ofgoodwillimpairment(net of tax) 95 - 4.4 - - -Effect ofexceptionalitems (net oftax) 46 - 2.1 - - -------------------- -------- ------ ------- -------- ------ ------Basic earningsper shareexcludinggoodwillamortisationandexceptionalitems 411 2,156 19.1 455 2,158 21.1------------------- -------- ------ ------- -------- ------ ------ Dilutedearnings pershare 1 2,158 0.0 180 2,165 8.3Effect ofgoodwillamortisation(net of tax) 269 - 12.5 275 - 12.7Effect ofgoodwillimpairment(net of tax) 95 - 4.4 - - -Effect ofexceptionalitems (net oftax) 46 - 2.1 - - -------------------- -------- ------ ------- -------- ------ ------Dilutedearnings pershareexcludinggoodwillamortisationandexceptionalitems 411 2,158 19.0 455 2,165 21.0------------------- -------- ------ ------- -------- ------ ------ Earnings per share excluding goodwill amortisation and exceptional items hasbeen shown to disclose the impact of these on underlying earnings. 7. Intangible fixed assets Goodwill £mCostAt 1 October 2004 5,244Additions arising from acquisitions 115Disposal (43)Currency adjustment 35 --------At 30 September 2005 5,351 --------AmortisationAt 1 October 2004 1,021Charge for the year 269Impairment 95Disposal (12)Currency adjustment 9 --------At 30 September 2005 1,382 --------Net book amountAt 30 September 2005 3,969 ========At 30 September 2004 4,223 ========Additions to goodwill arising from acquisitions relates to the acquisitionsshown in note 15. Goodwill on acquisitions is being amortised over periods of upto 20 years which are considered to be the estimated useful lives. NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 8. Tangible fixed assets Freehold Long Short Plant Fixtures land and leasehold leasehold and and buildings property property machinery fittings Total £m £m £m £m £m £mCostAt 1 October2004 493 61 391 1,447 770 3,162Currencyadjustment - - 5 18 8 31Additions 14 1 21 203 112 351Disposals (9) (3) (7) (154) (46) (219)Businessdisposals - - (25) (53) (6) (84)Transferbetweencategories - 1 5 (18) 12 -------------------- ------- ------- ------- ------- ------- -------At 30September 2005 498 60 390 1,443 850 3,241------------------- ------- ------- ------- ------- ------- -------DepreciationAt 1 October2004 95 7 69 796 390 1,357Currencyadjustment - - 2 10 4 16Charge for theyear 11 2 14 177 89 293Exceptional - - - 5 - 5Disposals - - (1) (133) (46) (180)Businessdisposals - - (3) (21) (3) (27)Transferbetweencategories - 1 5 (6) - -------------------- ------- ------- ------- ------- ------- -------At 30September 2005 106 10 86 828 434 1,464------------------- ------- ------- ------- ------- ------- -------Net book amountAt 30September 2005 392 50 304 615 416 1,777------------------- ------- ------- ------- ------- ------- -------At 30September 2004 398 54 322 651 380 1,805------------------- ------- ------- ------- ------- ------- ------- The net book amount of the Group's tangible fixed assets includes, in respect ofassets held under finance leases, freehold buildings and long and shortleasehold property £9 million (2004: £9 million), plant and machinery£37 million (2004: £34 million) and fixtures and fittings £3 million (2004:£3 million). 9. Investments held as fixed assets Investment in associated undertakings £mCostAt 1 October 2004 30Additions 4Investment in associated undertaking retained on disposal ofsubsidiary 15Share of retained profits less losses -Dividends received (4)Currency and other adjustments 6 ---------At 30 September 2005 51 ========= Investment in associated undertakings includes £15 million being the remaining25% of the Group's share of Au Bon Pain which is incorporated in the USA and isunlisted. NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 10. Debtors 2005 2004 £m £mAmounts falling due within one yearTrade debtors 1,318 1,186Amounts owed by associated undertakings 2 1Overseas tax recoverable 9 12Other debtors 141 153Prepayments and accrued income 222 216 -------- -------- 1,692 1,568 ======== ======== Amounts falling due after more than one yearOther debtors 199 189Overseas tax recoverable - 3Deferred tax 77 95 -------- -------- 276 287 ======== ======== The closing total deferred tax balance is analysed as follows: 2005 2004 £m £m Deferred tax analysis Deferred tax assets:UK capital allowances in excess of depreciation (10) (10)UK short-term timing differences 73 72UK other timing differences (7) -Overseas tax deductible intangible assets (80) (80)Overseas tax depreciation in excess of book (18) (17)depreciationOverseas short-term timing differences 46 60Discount on UK and overseas timing differences 73 70 -------- -------- 77 95Deferred tax liabilities:Overseas tax depreciation in excess of book (17) -depreciation -------- --------Net deferred tax 60 95 ======== ======== £mThe movements on total deferred tax are as follows:At 1 October 2004 95Arising from acquisitions (1)Arising from disposals (3)Charged to profit and loss account (30)Credited to profit and loss reserve 3Other movements (4) --------At 30 September 2005 60 ======== Deferred tax assets of £80 million (2004: £73 million) have not been recognisedas the timing of recovery is uncertain. NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 11. Creditors - amounts falling due within one year 2005 2004 £m £m Loan notes 82 19Bank loans 19 66Bank overdrafts 33 14Obligations under finance leases 15 16Trade creditors 1,035 926Amounts owed to associated undertakings 2 2Corporation tax 232 211Overseas tax 101 142Other tax and social security costs 220 203Other creditors 258 264Deferred consideration 13 14Accruals and deferred income 850 861Proposed dividend 140 134 ------- ------- 3,000 2,872 ======= ======= 12. Creditors - amounts falling due after more than one year 2005 2004 £m £m Bonds 1,339 1,348Loan notes 487 550Bank loans 623 588Obligations under finance leases 36 38Other creditors 40 44Deferred consideration 15 27Accruals and deferred income 51 70 ------- -------- 2,591 2,665 ======= ======== All amounts due under bonds, loan notes and bank facilities are shown net ofunamortised issue costs. Bonds are unsecured and consist of the following:- Euro Eurobond with nominal value €750 million redeemable in 2009 and bearing interest at 6.0% per annum.- Sterling Eurobond with nominal value £200 million redeemable in 2010 and bearing interest at 7.125% per annum.- Sterling Eurobond with nominal value £325 million redeemable in 2012 and bearing interest at 6.375% per annum.- Sterling Eurobond with nominal value £250 million redeemable in 2014 and bearing interest at 7.0% per annum. The bond redeemable in 2014 is recorded at its fair value to the Group onacquisition in 2000. The Group has fixed term, fixed interest private placements totalling US$991million (£560 million) at interest rates between 5.11% and 7.955%. US$618million (£349 million) is repayable in five to ten years.Maturity of financial liabilities and other creditors falling due after morethan one year as at 30 September 2005 is as follows: NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 12. Creditors - amounts falling due after more than one year (continued) 2005 2004 ------------------------------------------- ------------------------------------------ Bonds and loan Loans and Other Total Bonds and loan Loans and Other Total notes overdrafts £m £m notes overdrafts £m £m £m £m £m £mIn more thanone year but not more thantwo years 30 29 98 157 75 5 79 159 In more thantwo years butnot more thanfive years 818 589 35 1,442 627 574 82 1,283 In more than five years 978 5 9 992 1,196 9 18 1,223 ------- ------- ------- ------- ------- ------- ------ ------ 1,826 623 142 2,591 1,898 588 179 2,665 In one yearor less, or on demand 82 52 28 162 19 80 30 129 ------- ------- ------- ------- ------- ------- ------ ------ 1,908 675 170 2,753 1,917 668 209 2,794 ======= ======= ======= ======= ======= ======= ====== ====== 2005 2004 £m £m Bank loans: Repayable by instalments in more than five years 5 9Repayable by instalments within five years 24 23Less: amounts falling due within one year (5) (5) --------- ---------Amounts repayable by instalments falling due after more thanone 24 27year ========= ========= Repayable otherwise than by instalments within five years 613 622Less: amounts falling due within one year (14) (61) --------- ---------Amounts repayable otherwise than by instalments falling dueafter 599 561more than one year ========= ========= 13. Provisions for liabilities and charges Pensions and other post Legal and employment Onerous other Deferred benefits Insurance contracts claims Environmental tax Total £m £m £m £m £m £m £m At 1 October2004 253 38 31 52 11 - 385Arising fromacquisitions 2 - - 1 - - 3Expenditure inthe year (26) (5) (6) (3) - - (40)Charged toprofit andloss account 19 6 - 4 - - 29Credited toprofit andloss account (1) - (2) (1) - (1) (5)Reclassified 4 (1) - 1 - 18 22Currencyadjustment 2 - 1 1 - - 4 ------- ------ ------ ------ --------- ------ -----At 30September 2005 253 38 24 55 11 17 398 ======= ====== ====== ====== ========= ====== ===== Pensions and other post-employment benefits and insurance relate to the costs ofself-funded pension schemes or statutory retirement benefits and self-fundedinsurance schemes respectively and are essentially long-term in nature. Onerouscontracts represent the liabilities in respect of short and long term leases onnon-utilised properties and other contracts lasting under five years. Legal andother claims relate principally to provisions for the cost of litigation andother claims. The timing of the settlement of these claims is uncertain.Environmental provisions are in respect of liabilities relating to the Group'sresponsibility for maintaining its operating sites in accordance with statutoryrequirements and the Group's aim to have a low impact on the environment. 14. Reserves Consolidated profit and loss reserve ------------------------------------ Capital Share premium redemption Merger Before goodwill Goodwill account reserve reserve written off written off Total £m £m £m £m £m £m At 1October 2004 93 9 4,170 127 (2,132) (2,005)2004 Currencytranslationdifferences - - - 24 (15) 9 Tax oncurrencytranslationdifferences - - - 2 - 2 Premium onordinarysharesissued,net of expenses 1 - - - - - Amounttransferredfrom reserves - - - (210) - (210) ------ ------- ------ ------- ------- ------ At 30September 2005 94 9 4,170 (57) (2,147) (2,204) ====== ====== ====== ======= ======== ======= Currency translation differences are net of £26 million of exchange losses onloans which have been offset in reserves against gains of £35 million onretranslation of overseas net assets.Goodwill written off represents the excess of the consideration for theoperations acquired prior to 1 October 1998 over the fair value of the netassets acquired. The goodwill has been written off to profit and loss reserve onconsolidation. NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 15. AcquisitionsBusinesses acquired during the year are shown below.Adjustments have been made to reflect the provisional fair value of assets andliabilities acquired as follows: Consideration Net assets Fair value Accounting Fair value Goodwill and costs acquired adjustments policy of assets realignment aquired £m £m £m £m £m £m-------------- -------- ------ ------- ------- ------- -------Furtherpurchase of30% of Onama 42 (15) - - (15) 57HDS 20 (2) (1) - (3) 23Others 43 14 (1) (3) 10 33-------------- -------- ------ ------- ------- ------- -------Totalacquisitionsin the year 105 (3) (2) (3) (8) 113-------------- -------- ------ ------- ------- ------- -------Adjustments toprior periods: Deferredconsiderationpayable 4 - - - - 4Adjustments tonet assetsacquired - - 2 - 2 (2) -------- ------ ------- ------- ------- ------- 4 - 2 - 2 2 -------- ------ ------- ------- ------- ------- 109 (3) - (3) (6) 115 ======== ====== ======= ======= ======= ======= Net assets Fair value Accounting Fair value to acquired adjustments policy the Group realignment £m £m £m £mTangible fixedassets 1 (1) - -Investments 4 (1) - 3Debtors 6 2 - 8Cash 2 - - 2Creditors (9) (1) - (10)Provisions (1) (2) - (3)Tax - 3 (3) -Minorityinterests (6) - - (6) -------- -------- -------- -------- (3) - (3) (6) ======== ======== ======== ======== All acquisitions were accounted for under the acquisition method of accounting.Fair value adjustments principally relate to asset valuation adjustments,recognising pension commitments and other liabilities not previously recorded.Adjustments made to the fair value of assets of businesses acquired in 2005 areprovisional owing to the short period of ownership.Adjustments to prior year acquisitions relate to the restatement of the valuesof assets and liabilities in the light of knowledge arising from a more extendedperiod of ownership and additional consideration and costs, all in respect ofacquisitions made during the year ended 30 September 2004.There was no material difference between operating profits arising fromacquisitions and cash flows contributed by those acquisitions.16. Pensions The assets and liabilities of the major schemes operated by the Group and theeffect that adoption of FRS 17 would have had on the Group's profit and lossreserves are shown below: UK schemes US schemes Other schemes Total schemes 30 September Long term Long term Long term Long term 2005 expected rate expected rate expected rate expected rate of return £m of return £m of return £m of return £m --------------------------------------------------------------------------------------------------Equities 7.5% 496 8.3% 53 6.2% 44 7.5% 593Bonds 4.5% 310 5.0% 17 3.4% 65 4.3% 392Other 4.0% 18 3.9% 1 3.0% 48 3.3% 67assets -------- ------ -------- ------ -------- ----- -------- ------Market 824 71 157 1,052valueLiabilities (1,179) (166) (239) (1,584) ------ ------ ------ -----Deficit (355) (95) (82) (532)Deferred taxasset 107 33 29 169 ------ ------ ----- ------Net FRS 17liability (248) (62) (53) (363) ====== ====== ===== ====== Net FRS 17liability (363) Reverseexistingprovisions/assets net ofdeferred tax 175 Reverseexisting SSAP24 prepaymentfor Grouppensionschemes (34) ------ Net adjustmentwhich wouldresult fromthe adoptionof FRS 17 (222) Profit andloss reserveas reported (2,204) ------Profit andloss reserveon a FRS 17basis (2,426) ====== The FRS 17 deficit has increased during the year ended 30 September 2005as set out below: £mAs at 1 October 2004 (426)Current service costs (37)Contributions paid 73Other financial costs (15)Actuarial losses (124)Exchange rate losses (3) ------As at 30 September 2005 (532) ====== NOTES TO THE FINANCIAL STATEMENTS (continued)For the year ended 30 September 2005 17. Contingent Liabilities On 21 October, the Group announced that it had instructed Freshfields to conductan investigation into the relationships between ESS, IHC and the United Nations.Ernst & Young are assisting Freshfields in the investigation, reporting to theChairman of the Compass Group PLC Audit Committee. On 3 November, the Group announced that the investigation raised seriousconcerns as to whether, within ESS, there has been in connection with IHC andthe UK, improper conduct and a failure to comply with the Group's statement ofbusiness principles (which apply to all staff, whatever their seniority). As aresult, three employees have been dismissed. The investigation is ongoing and, as yet, no final conclusions have beenreached. The Group will continue to co-operate voluntarily and fully as appropriate withthe UN and US authorities, including the Office of the United States Attorneyfor the Southern District of New York. UN contracts account for less than 0.5% of the Group's turnover and profits. No provision has been made in these financial statements in respect of thesematters and it is not currently possible to quantify any potential liabilitywhich may arise. The Directors currently have no reason to believe that anypotential liability that may arise would be material to the financial positionof the Group. 18. Exchange rates Exchange rates for major currencies used during the period were: 2005 2004 2005 2004 Average Average Closing Closing Rate Rate Rate Rate Australian Dollar 2.42 2.47 2.32 2.50Canadian Dollar 2.26 2.37 2.05 2.29Danish Krone 10.83 10.94 10.95 10.84Euro 1.46 1.47 1.47 1.46Japanese Yen 198.34 194.98 200.51 199.44Norwegian Krone 11.76 12.32 11.54 12.18Swedish Krona 13.35 13.43 13.67 13.17Swiss Franc 2.25 2.28 2.28 2.26US Dollar 1.85 1.79 1.77 1.81 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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