Half Yearly Report

Compass Group PLC

Interim Results Announcement

For The Six Months Ended 31 March 2011

Richard Cousins, Chief Executive Officer, said:

"Compass has delivered another strong performance in the first half of the financial year. Including the impact of acquisitions, constant currency revenue increased by almost 10%, with organic revenues of 5.7% and an increase in margin of 20 basis points. In addition to good organic growth, infill acquisitions are now making an important contribution to the top line and we have committed £300 million to M&A so far this year. This includes a significant investment in expanding our business in emerging markets. In addition to making a number of important acquisitions in India, we are pleased to announce this morning the acquisition of the remaining 50% of our fast growing business in Turkey. We believe that the emerging markets offer considerable scope for development and we are excited about the opportunities we see. We are using our strong cash flow to support the expansion of the business and to reward shareholders. Furthermore, we have considerable flexibility in our balance sheet and we are keeping its structure under review."

Sir Roy Gardner, Chairman, said:

"I am delighted with the progress the Group has made, delivering another excellent performance, despite some geographies remaining economically challenging. We have significant opportunities to expand the business and Compass is well placed to exploit the structural growth potential in the food and support services market around the world. Strong cash flows have enabled us not only to invest in the business, but also to reward shareholders with a 30% increase in the interim dividend. Looking forward, I am confident that the Group will continue to make good progress in delivering value to shareholders."

Interim Management Report: Business Review

Group overview

Reported revenue has grown by 10.8% in the first six months to 31 March 2011, or 9.9% on a constant currency basis. Encouragingly, the strong organic revenue performance seen in the second half of last year has continued, with organic revenue growth of 5.7% in the period. This is after adjusting for the impact of acquisitions and disposals and normalising the impact of additional working days in North America.

The Group has made further strong progress on driving efficiency and we have added another 20 basis points to our operating margin. In addition to growing the margin, we are reinvesting some of our efficiencies to support new growth and develop the business for the medium and longer term. We have delivered £60 million of constant currency operating profit growth as follows:

£20 million of net new business growth

The launch of our "Mapping for Growth" programme a year ago marked the start of a new phase where quality sustainable growth became a core value and focus of the Group. Increasingly, we are seeing our businesses worldwide pull in best practices from around the world and we have invested significantly in sales resource and training to support this. We have also reflected the change in focus in our incentive plans. This, together with more outsourcing in parts of the business, is reflected in strong new business wins of 9% for the first half of the year. Encouragingly, the pipeline of new business for the rest of the year remains strong.

The positive momentum we saw last year in retention has continued into the first half of the year and we are now at a Group average rate of 94%. Key to this improvement has been the adoption of our best practice retention model, the Strategic Alliance Group, across our businesses. While good progress has been made, there is further opportunity as we continue to drive best practice deeper into the business.

£28 million of base estate profit growth

Like for like growth

There has been a small increase in like for like revenue growth, driven by a modest improvement in volumes, although this reflects a mixed picture globally, and by slightly higher price increases, reflecting higher rates of input cost inflation in the first half of the year. However, as we move into the second half of the year, the comparatives do start to become a little more difficult.

Cost efficiencies

We have continued to focus on managing food costs through everyday steps such as: continuing to rationalise our product and supplier base, managing logistics, recipe and menu planning and waste reduction. Significant opportunities still remain to drive more efficient processes and fully leverage our global scale. Within MAP 4 we continue to focus on labour, through productivity and scheduling and working to introduce more labour flexibility across our businesses. With in unit overheads we continue to work hard to remove unnecessary spend.

As expected, we have seen a gradual increase in food cost inflation during the first half of the year and this trend is expected to continue. This is not a new phenomenon and we have experienced many periods of higher inflation, most recently in 2008. The actions we took then enabled us not only to limit its effects but to actually increase the gross margin. Our approach to managing inflation is two fold. Firstly, we seek to partially mitigate the level of inflation by planning menus according to the varying price pressures on each product, professional purchasing techniques like regional buying where inflation levels are lower or making use of fixed term contracts for products and continual focus on driving efficiencies. Secondly, our contract structures typically enable us to pass on increases in costs, either through cost plus contracts, index linked escalation clauses or through price increases where we have price sovereignty. Overall, while we are by no means complacent, we do believe we have the right approach to managing this issue.

£2 million of net above unit cost savings

We have made very good progress in reducing our MAP 5 above unit costs, while at the same time growing the business. The £2 million net savings is after absorbing salary increases and the above unit costs of acquired businesses. We have delivered this through flatter organisation structures and simplified processes. Our ongoing aim is to contain this cost, as far as is sensible, whilst continuing to grow the business.

£10 million from acquisitions net of disposals

This relates to the incremental operating profit, after integration costs, of the acquisitions made. We currently expect restructuring costs in the second half of the year of around £10 million.

Strategy

Our strategy remains unchanged - to continue to focus on foodservice while building on the fast growth in our support services business. Our scale within countries enables us to drive efficiencies; our global reach and capability allow us to successfully bid for significant outsourcing opportunities around the world and to serve multinational clients. Sectorisation is a fundamental part of our strategy and we have built big businesses in all of the key market sectors.

We are now moving into what we believe will be a period of sustained quality growth, while retaining our relentless focus on efficiency. We are delivering good levels of organic growth and infill acquisitions are becoming a more significant part of our top line. The efficiencies we are making are, in part, being reinvested to deliver value to our customers and in putting the right resource in place to facilitate expansion, in particular, to develop support services and the fast growing and emerging markets and, in part, to deliver margin expansion.

In absolute terms, the USA remains our biggest growth engine. We remain optimistic about the prospects for this market where the culture towards outsourcing is vibrant. The other developed economies offer steady growth potential with the development of our support services capability opening new opportunities. The fast growing and emerging economies, which now account for almost 20% of the business, have the potential to deliver double-digit growth. We have large and fast growing businesses in Australia, Turkey and Brazil and smaller but significant businesses in parts of Africa, the UAE, Eastern Europe and Latin America. Russia, India and China are smaller but growing rapidly.

Foodservice remains our core business. The foodservice market, which is valued at about £200 billion globally, is just under 50% outsourced. Multi-service contracts, where we provide food and soft support services, now account for approximately 20% of our revenues. We have an established capability to deliver soft support services across many of our key markets in the Defence, Offshore & Remote site, Business & Industry, Healthcare and Education sectors. We are experiencing good growth in this market, not just from selling soft support and multi-service contracts to new clients, but also from cross-selling to our existing client base.

Fundamental to our growth ambitions is our continued cash generation. In addition to rebasing the dividend last November, we have some exciting acquisition opportunities and we have committed around £300 million so far this year. While we do not rule out a large deal, our strong preference is for small to medium sized infill acquisitions. We have today announced the acquisition of the remaining 50% of our Turkish business, Sofra, from our joint venture partner. Sofra is Turkey's leading food and support services business, employing 14,000 people with reported revenues of £180 million for the year ended 30 September 2010. The strength of our balance sheet has underpinned our confidence in increasing infill acquisition spend, but we recognise the importance of an efficient balance sheet and as such continue to keep its structure under review.

Outlook

Compass has had a good start to the year, delivering both strong organic revenue growth and a further improvement in the margin. As we look out to the second half, we are encouraged by the pipeline of new business and the ongoing opportunities we have to generate further efficiencies. After absorbing the expected profit impact of the tragic events in Japan, our expectations for the full year remain unchanged.

Richard Cousins

Group Chief Executive

18 May 2011

Revenue

Overall, reported revenue growth for the six months to 31 March 2011 was 10.8%, or 9.9% on a constant currency basis. Organic revenue growth for the period was 5.7%, after adjusting for the impact of acquisitions and disposals and normalising the impact of additional working days in North America.

Operating Profit

Underlying operating profit from continuing operations, including associates but excluding the amortisation of intangibles arising on acquisition and acquisition transaction costs, was £567 million, an increase of 12.5% on a reported basis over the prior period. Underlying operating profit increased by £60 million, or 11.8%, on a constant currency basis. This represents a 20 basis points improvement in margin to 7.2% (2010: 7.0% on a constant currency basis).

Operating profit after the amortisation of intangibles arising on acquisition of £4 million (2010: £3 million) and acquisition transaction costs of £4 million (2010: £1 million) was £559 million (2010: £500 million).

North America - 43.8 % Group revenue (2010: 43.1%)

Our North American business has delivered another excellent performance. Revenues were £3.5 billion (2010: £3.1 billion), with organic growth of 7.8%, reflecting good net new business and some like for like revenue recovery. Operating profit increased by £38 million, 15.6% on a constant currency basis, to £281 million (2010: £243 million on a constant currency basis). The continued drive for improved processes around food purchasing and sensible leverage of the overhead base has contributed to a half year margin improvement of 20 basis points to 8.1%.

The Business & Industry sector has delivered an encouraging result with an increase in like for like revenues and retention remaining strong. New contract wins include Starbucks, Lockheed Martin Space Systems Company and ShowBox SoDo, one of Seattle's premier music venues. We have been re-awarded the Johnson & Johnson contract and extended the number of sites we operate for them to 44. The recent acquisition of Coffee Distributing Corporation, an office coffee and refreshment service company, will further enhance our offering in this exciting market.

In Healthcare, our support services offer, strengthened by recent acquisitions, including BW HLS Holdings Inc. earlier in the year, has contributed to the delivery of good new business wins as well as maintaining excellent levels of retention. For example, we have recently been appointed to provide food and support services to the University of Louisville Hospital.

The Education sector has delivered good organic growth, again with excellent retention rates. The Southeast Service Corporation support services acquisition made last year is providing good cross-selling opportunities. We have recently won the foodservice contract for the Valdosta State University and a support service contract for the University of Pennsylvania providing housekeeping management services. We already provide food and vending services on campus as well as managing the campus museum.

In Levy, our Sports & Leisure business, we have seen strong organic revenue growth driven by excellent retention and improving like for like revenues. Combined with a continued focus on cost efficiencies, this has contributed to another good performance. Exciting wins include a significant contract for the Florida Marlins, a major league baseball team.

In Canada, we have recently been appointed by the Hudson Bay Company, one of the country's most high profile and oldest department stores, to provide innovative foodservice and catering at the Bay's 24 store restaurants across Canada. We have today announced the acquisition of the Marquise Group, a support services provider to a variety of sectors throughout Western Canada. Together with the Hurley Corporation acquired last year, this now enables us to provide support services right across Canada. 

Continental Europe - 23.9 % Group revenue (2010: 26.0%)

In Continental Europe, economic conditions in some countries remain challenging. We have generally seen increasing levels of new business. However, like for like revenues across much of the region remain difficult. Overall, revenue in Continental Europe totalled £1.9 billion (2010: £1.9 billion) with organic growth of 1.3%. Ongoing efficiency gains have resulted in an operating profit of £149 million (2010: £139 million on a constant currency basis), an increase of 7.2%, and a margin improvement of 20 basis points to 7.9%.

New contract wins include KBC in Belgium and Oyak-Renault and Mercedes Benz manufacturing plants in Turkey. We have also extended our foodservice contract with Yaşar Holding, one of the largest conglomerates in Turkey, to include security services, and our foodservice and vending contract with Volvo Car Corporation in Sweden.

In France, we are starting to see the benefits from our reinvestment in sales and retention in our net new business. We have won new contracts with Merial and GrDF Condorcet and renewed our existing contracts with CEA Grenoble H2, Clinique Vitalia La Châtaigneraie à Beaumont and RIA Caen. Our ongoing focus on driving cost efficiencies, particularly through purchasing and waste reduction initiatives, has moved the margin forward.

The German business is seeing a good level of new contract wins, especially in the Education and Healthcare sectors, as well as good levels of retention. The integration of Menke Menue, an established foodservice provider operating in the Business & Industry, Education and Healthcare sectors, is progressing well. We have won an exciting new contract with Koblenz-Touristik GmbH to provide foodservice at the Federal Gardening Exhibition (BUGA 2011) which is expected to attract over 1.7 million visitors.

Italy is delivering good levels of quality new business and improving margins through the continuing reduction of our cost base. We were awarded the contract to provide foodservice to the Italian lottery organisation, Sisal, and have renewed important contracts such as the Bollate School in Milan and Alenia Aeronautica, part of Finmeccanica Group.

The Spanish business is coping well with continuing economic challenges and high unemployment levels, delivering double-digit growth in new business while like for like revenues now seem to be stabilising. Examples of new business include Football Club Barcelona and two sites of the Inditex Group. Retention rates are improving with notable renewals such as Iberdrola, the number one energy company in Spain, where we have also strengthened our relationship by being awarded the contract for their new headquarters, a forty one floor, state of the art, tower building in Bilbao.

The acquisition of Elior Nederland BV was completed on 29 April 2011. This provides an excellent opportunity to expand our presence in the Netherlands.

UK & Ireland - 12.4% Group revenue (2010: 12.6%)

Revenues in the UK & Ireland increased to £1.0 billion (2010: £0.9 billion), including the impact of the acquisition of the VSG Group ('VSG'). On an organic basis, revenues declined slightly, by 0.4%, continuing the progressive improvement from a 5.7% decline in the first half of last year. This is despite quite difficult economic conditions continuing to impact like for like revenues in many of the sectors. We are pleased with the early signs of improvement in retention rates in the UK where we have invested in the retention process and team. There remains an ongoing focus on costs to mitigate the impact of reduced volumes and to integrate the VSG acquisition into the organisation, which is progressing well. Excluding the impact of re-investment and one-off integration costs, operating margins would have been broadly flat. Operating profit remained flat at £54 million (2010: £54 million).

We have continued to win high quality catering and support services business in the Business & Industry sector and we are seeing increasing levels of retention. For example, we have recently won a new contract with DEFRA and secured a contract extension with BSkyB.

The Healthcare sector continues to see revenue growth, through good levels of new business wins and like for like growth. The majority of contracts in this sector now include the provision of both food and support services. For example, we have recently signed a new contract with West Hertfordshire Hospital to provide food and support services and in Ireland we have won a new contract to provide the retail offer in the Mid Western Regional Hospital. We have continued to make progress on productivity where a focus on food costs and labour efficiencies has driven margin improvements.

In the Education sector we have also seen an increase in the rate of new business wins. We have recently won a new contract with Newport City Council to deliver its school catering and renewed our contracts with Christ's Hospital School and Haberdashers' Aske's School.

We have continued to have success in winning new business in the Sports & Leisure sector. For example, we have won a new contract with Edinburgh Zoo and have extended our relationship with Warwickshire County Cricket Club where we will now provide all retail and hospitality food service for Edgbaston's match-day and conference and banqueting business.

Rest of the World - 19.9% Group revenue (2010: 18.3%)

With revenues of £1.6 billion (2010: £1.3 billion), our Rest of the World businesses have delivered excellent organic revenue growth of 10.9%. Operating profit increased by £14 million, or 14.7%, on a constant currency basis to £109 million (2010: £95 million on a constant currency basis). The margin has increased by 20 basis points on a constant currency basis to 7.0%.

We are continuing to see good levels of new business wins across most countries in the region. For example, we have won a new contract in Colombia with Clinica Leon XIII, one of the top five hospitals in the country and extended our relationship with M&S with the opening of the Nanjing Lu Shanghai store in China.

Our Indian operation has delivered excellent organic growth and has been strengthened by infill acquisitions, the most recent of which were Vipul, a national Business & Industry support services provider and UHS, a foodservice provider in Hyderabad. Clients include Honda, Michelin, Du Pont and PricewaterhouseCoopers.

Australia has delivered double-digit organic revenue growth, driven by strong new business wins and good like for like revenues in the remote sector. For example, we have been awarded new contracts to provide catering, cleaning and accommodation management to MCJV for the QC LNG Export Pipeline and Gas Collection Header Project and by Ausenco to manage a wide range of services at the Rio Tinto Kestrel Mine Extension Project. Despite higher labour employment in Australia placing upward pressure on the wage rates, we have again seen further margin improvement by focusing on initiatives such as product and supplier rationalisation, labour productivity and overhead control.

In Japan, the tragic events of the earthquake and tsunami struck three weeks before the end of the period. Although there was only limited structural damage to client sites, there continues to be disruption to parts of the country's manufacturing base and volumes in offices at our client sites have been impacted by 10-15%. The situation in Sport & Leisure is more severe, and for our third quarter, like for like volumes could be 20-25% below normal levels. We are working very hard to reduce costs and hence mitigate the profit impact of the reduction in revenue. In the first half of the year the profit impact was £5 million. While the weekly impact is starting to subside, we do expect a further impact through the second half of the year. At this point our best estimate of the profit impact in the second half is around a £20 million reduction.

In Brazil, strong new business wins and like for like revenues have delivered double-digit organic revenue growth. The pipeline continues to look good and retention levels, which remain a focus, have improved. The business continues to seek efficiencies across all cost lines to drive margin improvement. The acquisition of the support services specialist, Clean Mall, last year has enhanced our ability to provide a multi-service offer to clients such as Ericsson.

In South Africa, good levels of new business have been achieved especially in the Education and Healthcare sectors, with an encouraging pipeline. In the Business & Industry sector we have won the contract to feed the employees of Richards Bay Minerals, a company jointly owned by BHP Billiton and Rio Tinto, to provide meals to the 4,300 employees on site.

Our UAE based business continues to perform well and has seen double-digit organic revenue growth driven by new business wins including support services both in the Defence, Offshore & Remote site and Education sectors. Retention remains strong.

Our businesses serving the energy and extraction sectors, which have a focus on blue chip international clients, have continued to deliver solid double-digit organic revenue growth and maintained excellent retention rates.

Unallocated Overheads

Unallocated overheads were £30 million (2010: £28 million), reflecting some reinvestment in the central sales and marketing teams and continued good control over costs as the business expands.

Finance Costs

Underlying net finance cost, excluding hedge accounting ineffectiveness and the impact of revaluing investments and non-controlling interest put options, was £36 million (2010: £42 million). The decrease largely reflects the lower levels of net debt compared to last year. We expect the underlying net finance cost for the full year to be around £75 million at current exchange rates, including a charge of around £14 million relating to the defined benefit pension schemes.

Other Gains and Losses

Other gains and losses include a £4 million credit (2010: £1 million credit) from hedge accounting ineffectiveness and a £1 million credit (2010: £nil) of revaluing investments and non-controlling interest put options.

Profit Before Tax

Profit before tax from continuing operations was £528 million (2010: £459 million).

On an underlying basis, profit before tax from continuing operations increased by 14.9% to £531 million (2010: £462 million), excluding the amortisation of intangibles arising on acquisition, acquisition transaction costs, hedge accounting ineffectiveness and the impact of revaluing investments and non-controlling interest put options.

Income Tax Expense

Income tax expense from continuing operations was £142 million (2010: £125 million).

On an underlying basis, excluding the amortisation of intangibles arising on acquisition, acquisition transaction costs, hedge accounting ineffectiveness and the impact of revaluing investments and non-controlling interest put options, the tax charge on continuing operations was £143 million (2010: £126 million), equivalent to an effective tax rate of 27% (2010: 27%). Based on current corporate tax rates, we expect the tax rate to average out around the 27% level in the short- to medium-term.

Basic Earnings per Share

Basic earnings per share, including discontinued operations, were 20.3 pence (2010: 17.9 pence).

On an underlying basis, excluding the amortisation of intangibles arising on acquisition, acquisition transaction costs, hedge accounting ineffectiveness, the impact of revaluing investments and non-controlling interest put options and the tax attributable to these amounts, the basic earnings per share from continuing operations were 20.4 pence (2010: 18.0 pence).

Dividends

We rebased the dividend at the end of last year with a 2010 total annual dividend of 17.5 pence per share. In order to get back to the approximate one third: two thirds split of the dividend between interim and final, we are increasing the 2011 interim dividend by 30%. This will then complete the rebasing exercise. An interim dividend of 6.5 pence per share will be paid on 1 August 2011 to shareholders on the register on 1 July 2011.

Free Cash Flow

Free cash flow from continuing operations totalled £349 million (2010: £351 million).

Gross capital expenditure of £184 million (2010: £147 million), including amounts purchased under finance leases of £1 million (2010: £1 million), is equivalent to 2.3% of revenues (2010: 2.1% of revenues).

We expect the level of gross capital expenditure for the full year to continue to be around 2.3% of revenues.

We are making further good progress in working capital management, limiting the overall seasonal working capital outflow (including provisions and post-employment benefit obligations) to £67 million (2010: £3 million outflow). This also reflects the reversal in the first half of the year of the cut-off timing differences we had at the end of the last financial year. We believe that there remains further scope for improvement, averaging out over time on an annual basis, at neutral to a small annual inflow.

The cash tax rate was 15% (2010: 16%), based on underlying profit before tax for the continuing operations, benefiting from some one-off tax refunds relating to prior years and the fact that many of the larger tax payments are made in the second half of the year. In the short- to medium-term we continue to expect the cash tax rate to average out towards the 27% level.

The net interest outflow was £29 million (2010: £47 million).

Acquisition Payments

The total cash spend on acquisitions in the first half was £126 million. This includes £119 million on infill acquisitions, £4 million on acquisition transaction costs and £3 million of deferred consideration relating to previous year acquisitions.

Since 31 March 2011, we have committed to a further £180 million on infill acquisitions, including the previously announced Elior Nederland BV (annual revenues circa £83 million). We are also pleased to announce today that the Group has agreed to acquire Marquise Facilities Corporation and MHC Services Corporation in Canada (annual revenues circa £46 million), the remaining 50% of our Turkish joint venture, Sofra Yemek Üretim ve Hizmet Anonim Şirketi (annual revenues for 50% circa £90 million) and Tampa Bay Vending Inc. in the USA (annual revenues circa £17 million).

Disposals

Payments made in respect of businesses disposed of or discontinued in prior years totalled £8 million in the period (2010: £4 million).

Exceptional employer contributions to post-employment benefit obligation

During the period we completed the April 2010 actuarial valuation of the two UK pension schemes. We have also now merged the two schemes, simplifying the administration and made a £50 million payment towards the combined April 2010 actuarial valuation deficit of £178 million.

The Group has continued to review and monitor its pension obligations throughout the period working closely with the Trustees and members of all schemes around the Group to ensure proper and prudent assumptions are used and adequate provision and contributions are made.

The Group's pension deficit at 31 March 2011 calculated on the accounting basis in accordance with IAS 19 for all Group defined benefit schemes was £199 million (2010: £336 million).

Proceeds from issue of share capital

The Group received cash of £12 million (2010: £68 million) from the issue of share capital in the period in connection with the exercise of employee share options.

Risks and Uncertainties

The Board takes a proactive approach to risk management with the aim of protecting its employees and customers and safeguarding the interests of the Company and its shareholders.

The principal risks and uncertainties facing the business and the activities the Group undertakes to mitigate these are set out in the section below, headed 'Managing Risk'.

Related Party Transactions

Details of transactions with related parties are set out in note 17. These transactions have not, and are not expected to have, a material effect on the financial performance or position of the Group.

Financial Position

During the first six months of the year net debt decreased to £671 million (2010: £766 million).

£23 million of US Dollar private placements were repaid during the period out of surplus cash. In addition, on 11 May 2011 the Group agreed a new £700 million 5 year committed bank facility. On the same date the existing committed facility of £697 million (at 31 March 2011), which was due to mature in May 2012, was cancelled.

Looking forward, £57 million of debt is due for repayment in the remainder of 2011, £606 million in 2012 and £nil in 2013. With considerable ongoing free cash generation the Group believes that it is in a strong financial position.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in this Business Review, as is the financial position of the Group, its cash flows, liquidity position, and borrowing facilities. In addition, note 19 of the Consolidated Financial Statements of our 2010 Annual Report includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Group has considerable financial resources together with long-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 despite the current uncertain economic outlook.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Interim Management Report: Managing Risk

The Board takes a proactive approach to risk management with the aim of protecting its employees and customers and safeguarding the interests of the Company and its shareholders.

As set out on pages 48 to 54 of the Corporate Governance section of our 2010 Annual Report, the Group has policies and procedures in place to ensure that risks are properly evaluated and managed at the appropriate level within the business.

The identification of risks and opportunities; the development of action plans to manage the risks and exploit the opportunities; and the continual monitoring of progress against agreed Key Performance Indicators ('KPIs') is an integral part of the business process, and a core activity throughout the Group.

Control is exercised at Group and business level through MAP, the Group's Management and Performance framework, monthly monitoring of performance by comparison with budgets and forecasts and through regular business reviews with the Group Chief Executive and the Group Finance Director.

This is underpinned by a formal major risk assessment process which is an integral part of the annual business cycle. As part of the process, each of the Group's businesses is required to identify and document major risks and appropriate mitigating activities and controls, and monitor and report to management on the effectiveness of these controls on a biannual basis. Senior managers are also required to sign biannual confirmations of compliance with key procedures and to report any breakdowns in, or exceptions to, these procedures. The results are reviewed by the Executive Committee and the Board.

The Group also has formal procedures in place, with clearly designated levels of authority, for approving acquisitions, material new business contracts and capital investments. This is supported by a subsequent review process for selected acquisitions, material new contracts and major items of capital expenditure.

The table below sets out the principal risks and uncertainties facing the business at the date of this Report and the systems and processes the Group has in place to manage and mitigate these risks.

Condensed Financial Statements

Directors' responsibilities

Independent review' report to the members of Compass Group PLC