16th May 2006 07:02
Compass Group PLC16 May 2006 INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2006 Stable performance; building a solid platform for future growth • Group revenue £5.7 billion, up 8% on a like for like basis.(1) • Underlying operating profit £259 million, up 0.4%.(3) • Good progress stabilising the UK business. • Interim dividend 3.4 pence per share, up 3.0%. • Agreed sale of SSP for £1,822 million and Inflight for £57 million. • £500 million share buy back over 12-18 months. • UK Pension deficit to be reduced by £275 million cash injection. • Remaining 51% of US based Levy Restaurants acquired for £143 million. • Strong new senior management team now in place. _________________________________________________________________________________Financial summary ReportedFor the six months ended 31 March 2006 2005(2) Change_________________________________________________________________________________Continuing Operations Revenue - reported £5,695m £5,142m 10.8% - underlying(3) £5,664m £5,039m 12.4% Operating profit (4) - reported £260m £274m -5.1% - underlying (3) £259m £258m 0.4% Operating margin(5) - reported 4.5% 5.3% -80bps - underlying(3) 4.5% 5.1% -60bps Profit before tax £184m £203m -9.4% Free cash flow £80m £97m -17.5% Basic earnings per share 5.6p 6.3p -11.1% Total Group Basic earnings per share 6.5p 7.2p -9.7% Dividend per ordinary share 3.4p 3.3p 3.0%_________________________________________________________________________________ (1) Like for like growth 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 2005(2) Prior period figures have been restated from UK GAAP to IFRS(3) Underlying performance excludes Middle East military(4) Includes share of profit of associates(5) Excludes share of profit of associates_________________________________________________________________________________ Andrew Martin, Group Finance Director, said: "In the UK, I'm satisfied that we are making progress in implementing theactions necessary to create a solid platform for future growth. Trading in NorthAmerica and the Rest of the World continues to be encouraging. In ContinentalEurope, as expected, trading conditions remain challenging. We remain on track to deliver on our full year expectations." Michael J Bailey, Group Chief Executive, commented: "This continues to be a case of 'steady as she goes'. Our performance during thefirst half of 2006 in maintaining high levels of contract retention and makingsignificant new business gains reflects the commitment and dedication of all ourteams." Enquiries:Compass Group PLC +44 (0)1932 573000Investors/Analysts Andrew MartinMedia Paul Kelly Websitewww.compass-group.com For presentation and teleconference details refer to the notes on pages 10 and 11. GROUP TRADING REVIEW Compass Group today announces its unaudited interim results for the six monthperiod ended 31 March 2006. These results are the first prepared and presentedin accordance with International Financial Reporting Standards ("IFRS") andcomparative figures for 2005 have been restated accordingly, as previouslyreported on 1 March 2006. _________________________________________________________________________________Financial summary ReportedFor the six months ended 31 March 2006 2005(1) Change_________________________________________________________________________________Continuing Operations Revenue - reported £5,695m £5,142m 10.8% - underlying(2) £5,664m £5,039m 12.4% Operating profit (3) - reported £260m £274m -5.1% - underlying (2) £259m £258m 0.4% Operating margin(4) - reported 4.5% 5.3% -80bps - underlying(2) 4.5% 5.1% -60bps Profit before tax £184m £203m -9.4% Free cash flow £80m £97m -17.5% Basic earnings per share 5.6p 6.3p -11.1% Total Group Basic earnings per share 6.5p 7.2p -9.7% Dividend per ordinary share 3.4p 3.3p 3.0%_________________________________________________________________________________(1) Prior period figures have been restated from UK GAAP to IFRS(2) Underlying performance excludes Middle East military(3) Includes share of profit of associates(4) Excludes share of profit of associates_________________________________________________________________________________ Discontinued Operations On 9 April 2006, Compass announced that it had entered into an agreement to sellits travel concession catering business, Select Service Partner, includingCreative Host Services in the United States (together, '"SSP"), for aconsideration of £1,822 million. Subject to obtaining various approvals, thesale is expected to complete in June 2006. SSP's revenue and operating profitsin 2005 were £1,804 million and £112 million respectively on an IFRS basis.During the period, the Group also completed the sale of its Inflight cateringbusiness for £57 million. Inflights' revenue and operating profits in 2005 were£137 million and £8 million respectively. The results of the SSP and Inflightbusinesses are treated as discontinued operations and are therefore excludedfrom the results of continuing operations in 2006. The 2005 results have beenrestated on a consistent basis. Middle East Military The Group's withdrawal from its Middle East military operations is well advancedand is expected to be completed by the year end. The results of the continuingoperations of the Group excluding Middle East military activities are presentedin this announcement as 'underlying' performance. Revenue Overall, the Group delivered revenue growth of 11% on a reported basis, 7% on aconstant currency basis and 8% on a like for like basis. Underlying revenue,excluding Middle East military, grew by 9% on a like for like basis. The main factors that affected the period on period change in revenue aresummarised below: Continuing Operations %------------------------------------------------------------------------------Like for like growth (underlying) 9 Contribution from acquisitions -Movements in translation rates 3 ------------------------------------------------------------------------------Underlying revenue 12Middle East military (1)------------------------------------------------------------------------------Total revenue 11------------------------------------------------------------------------------ The table below sets out like for like growth by sector for each geographicsegment and also shows the underlying position excluding the Middle Eastmilitary which the Group expects to exit by year end. Like for like growth iscalculated by adjusting for acquisitions (excluding current year acquisitionsand including a full year in respect of prior year acquisitions), disposals(excluded from both years) and exchange rate movements (translating the priorperiod at current period exchange rates), and compares the results against 2005. --------------------------------------------------------------------------------Like for like growth by sectorFor the six months ended 31 March 2006-------------------------------------------------------------------------------- NA UK CE ROW Under- ME Total lying military GroupContinuing Operations % % % % % % %--------------------------------------------------------------------------------Contract:Business & Industry 14 5 2 10 7 - 7Def.,Offshore & Remote 56 (2) 12 48 35 (72) 9 Education 11 (2) 8 15 8 - 8Healthcare 13 1 1 11 8 - 8Sports & Leisure 26 5 15 9 17 - 17--------------------------------------------------------------------------------Total Contract 15 3 3 20 11 (72) 9Vending (1) 7 2 - 0 - 0Travel Concessions(1) - 1 5 (4) 0 - 0--------------------------------------------------------------------------------Total 13 3 3 19 9 (72) 8--------------------------------------------------------------------------------(1) Residual travel concessions principally comprises: motorways in Italy, Japanand Portugal and in the UK, The Strand Palace Hotel Like for like turnover growth of 8% overall was achieved as a result of newcontract gains of 13% offset by contract losses of 6% and marginally positivethroughput. Throughput is the movement in revenue from the existing estate and is influencedby head count changes, rates of participation, average spend per transaction andour ability to pass on cost increases through pricing. The table below summarises the performance of the Group's continuing operationsby geographic segment and for the Group on an underlying basis. ________________________________________________________________________________Segmental performance Constant LikeSix months ended 31 March 2006 Reported currency for like change change change 2006 2005 % % %________________________________________________________________________________ Continuing Operations Revenue (£m) North America 2,283 1,881 21 12 13United Kingdom 1,006 984 2 2 3Continental Europe 1,518 1,490 2 3 3Rest of the world 857 684 25 20 19--------------------------------------------------------------------------------Underlying revenue 5,664 5,039 12 9 9Middle East military 31 103 (70) (72) (72)--------------------------------------- --------------------------------Total 5,695 5,142 11 7 8---------------------------------------- -------------------------------- Operating profit(1)(£m) North America 125 108 16United Kingdom 56 61 (8)Continental Europe 92 100 (8)Rest of the world 25 22 14Unallocated overheads (41) (33) -Associates 2 - -----------------------------------------------------Underlying 259 258 -Middle East military 1 16 -----------------------------------------------------Total 260 274 (5)---------------------------------------------------- Operating margin(2)(%) North America 5.5 5.7United Kingdom 5.6 6.2Continental Europe 6.1 6.7Rest of the world 2.9 3.2Middle East military 3.2 15.5----------------------------------------Total 4.5 5.3--------------------------------------- (1) Operating profit includes share of profit of associates UK £1m (2005:£nil) & North America £1m (2005: £nil)(2) Operating margin is based on revenue and operating profit excluding share of profit of associates North America - 40.1% Group revenue (2005: 36.6%) Revenue in North America grew strongly in the first half, up 13% on a like forlike basis to £2,283 million (2005: £1,881 million). The well-established salesand operating teams continue to successfully exploit a significant marketopportunity provided by the positive trend towards outsourcing. As aconsequence, we continue to direct more capital towards this business at a rateof 3.2% of sales in the first half of 2006 versus the Group average of 2.4%.Revenue growth has been strong across all sectors and particularly in Businessand Industry, Healthcare, Education and Sports and Leisure sectors. LevyRestaurants, which operates our Sports and Leisure business, has a leadingposition in most major sports. For example in basketball, Levy operates 12 outof the 16 NBA play-off team accounts. Levy has grown consistently since ouracquisition of a 49% interest in 2000. In April 2006, we completed theacquisition of the remaining 51% of Levy for $250 million (£143 million) takingour total investment to $337 million. The continuing strong sales performance and high client retention rates in theperiod demonstrate the effectiveness of our successful client retention teams. Total operating profit on continuing activities increased to £125 million (2005:£108 million), the first half operating profit benefiting from a strengtheningin the average dollar exchange rate, versus last year. The contract cateringbusiness generally performed well across all sectors but did suffer an adverseimpact from Hurricane Katrina, which reduced profits by £2 million in the firsthalf. Rising fuel costs also impacted the business as a whole, and vending inparticular, which is heavily reliant on a large fleet of trucks and vans toservice the nationwide estate. The estimated impact of rising fuel costs wascirca £2 million. The disposal of 75% of Au Bon Pain in the second half of 2005also resulted in a £2 million negative impact on operating profit in the period. In the second half, we expect to see continuing good revenue growth but atslightly lower levels than those seen in the first half and we expect operatingmargins to be closer to the level achieved in the same period last year. UK - 17.7% Group revenue (2005: 19.1%) In the UK and Ireland, revenue increased by 3% on a like for like basis to£1,006 million (2005: £984 million). We are encouraged by the level of newbusiness wins achieved in the period at 10%. We are continuing to make goodprogress in addressing lower margin contracts. By the end of the first half, wehad exited approximately 50% of lower margin contracts and are putting in placeplans to either exit or improve the margin on the remainder. This initiativecontributed towards the higher than normal level of lost business, in-line withour expectations. Our objective remains to deliver a contract base with a moresustainable profit level going forward. The UK has also focused on restructuring. Overhead reductions have beenconcentrated on "back of house" functions. The spend on restructuring outweighedthe benefits in the first half by £3 million, but we expect this to reverse bythe year end. In Purchasing, we are working to improve the leverage of our maindeals with suppliers through narrowing the product range and ensuring our unitmanagers buy only from approved suppliers. In Healthcare, we are working with several of our large clients to introduce aninnovative concept new to contract catering called 'Steamplicity'. This conceptenables us to prepare high quality fresh ingredients offsite in large volumes,packaged with a simple valve mechanism. This approach allows meals to be menuselected and served to patients within minutes of being cooked, with minimalloss of nutritional content or quality. Other advantages include no need for atraditional kitchen or kitchen staff on site, greater choice, high levels ofconsumer satisfaction and reduced wastage. We have exclusive rights to thistechnology in our market and expect to have introduced this to 20% of ourHealthcare clients by the year end. In Education, which continues to provide the greatest challenge, we are activelyworking with schools, teachers and parents to develop new healthier eatingconcepts such as fresh fruit bars, salad bars, pasta dishes, fresh dish of theday and yoghurt bars. This work is progressing well, in advance of theintroduction of the Government's new nutritional standards from September 2006. Operating profit for the first half was £56 million (2005: £61 million)reflecting the net cost of restructuring of £3 million in the first half. Thecurrent trends continue to point towards a similar level of overallprofitability for the full year as in 2005. Continental Europe - 26.6% Group revenue (2005: 29.0%) Revenue in Continental Europe grew by 3% overall on a like for like basis to£1,518 million (2005: £1,490 million). Overall, performance has improvedslightly over that seen in the past few years. In part, this reflects theincreased focus on client retention through investment in client retention teams- similar to the approach adopted successfully in North America. Defence,Offshore and Remote performed well on the back of continued strong oil and gassector demand and Education and Sports and Leisure also grew well. We have seena good start to the year in Spain, Eastern Europe, Switzerland, Scandinavia andGermany. Most of the European businesses are now on a more stable footing buttwo areas where we still have to see improvement are Italy and Selecta (ourEuropean vending business). These are two sizeable businesses. In both we haverecently introduced new management teams and are working towards improvingperformance. Operating profit in the first half amounted to £92 million (2005: £100 million).Continental Europe also saw a significant level of restructuring activity in theperiod including in particular France, Switzerland and the Netherlands where newcountry managing directors are completing the restructuring of their businesses.The net cost of restructuring in the first half was £4 million and should becompensated by a similar level of net benefit in the second half. As we look forward to the second half, we expect the profile of profit deliveryto be broadly similar to that of 2005. Rest of the World - 15.6% Group revenue (2005: 15.3%) Underlying revenue in the Rest of the World (i.e. excluding the Middle Eastmilitary) grew strongly across all sectors and by 19% overall on a like for likebasis, to £857 million (2005: £684 million). 34% of the business is in the underlying Defence, Offshore and Remote sector.This sector grew by 48% on an underlying basis, benefiting from the buoyant oiland gas and mining sectors around the world, particularly in Australasia up 25%and Latin America up 19%, where we continue to successfully capitalise on thesignificant opportunities. In Japan, we've seen good growth of 8% in this largeand fragmented market where our circa $1 billion business represents around 2%of the total market. Now that we have largely completed the exit from the retailbusiness in Japan, the focus is on improving operating margins. Operating profit was £25 million (2005: £22 million) on an underlying basisexcluding Middle East military. Unallocated Overheads First half unallocated overheads include £4 million of costs in related to theUnited Nations investigation and £2 million of net restructuring costs. Operating Profit Operating profit from continuing operations including associates was £260million (2005: £274 million). The reduction of 5.1% principally reflects theimpact of scaling back the Middle East military operations which generatedoperating profit of £1 million (2005: £16 million). On an underlying basis,excluding the Middle East military, Group operating profit for the period was£259 million (2005: £258 million) an increase of 0.4%. Finance Cost Net finance cost for the first half was £76 million (2005: £71 million)including a £7 million non cash credit relating to the impact of interest ratehedging instruments that do not qualify for hedge accounting under IAS 39. Weestimate the benefit from the receipt of SSP disposal proceeds in the secondhalf to be approximately £15 million. Ignoring the IAS 39 non cash creditreferred to above therefore, we anticipate full year finance costs to be around£145 million. Steps have been taken to eliminate the volatility arising on netinvestment hedges which arose in 2005. Profit before taxation Profit before taxation for continuing operations was £184 million (2005: £203 million). Taxation The overall Group tax expense for the period was £55 million (2005: £59million), based on an estimated full year effective tax rate of 30% (2005: 28%before exceptional items). Of the overall Group tax expense, £44 million isoverseas tax (2005: £42 million). We expect the Group's effective tax rate toremain around the 30% level for the foreseeable future. Basic earnings per share Basic earnings per share from continuing operations were 5.6 pence (2005: 6.3pence). Including the results of discontinued operations, total basic earningsper share were 6.5 pence (2005: 7.2 pence). On an underlying basis, basicearnings per share were 5.6 pence (2005: 5.7 pence). Continuing operations-------------------------------------------------------------------------------- Attributable profit Basic earnings per share 2006 2005 2006 2005 £m £m Pence Pence Change--------------------------------------------------------------------------------Reported 121 136 5.6 6.3 -11.1%Middle East military (1) (13) - (0.6)--------------------------------------------------------------------------------Underlying 120 123 5.6 5.7 -1.7%-------------------------------------------------------------------------------- Dividends The recommended interim dividend is 3.4 pence per share (2004: 3.3 pence), anincrease of 3.0% over 2005. Discontinued Operations As described in note 13 below, the Group announced on 9 April 2006 that it hadagreed to sell its travel concession catering business, Select Service Partner,including Creative Host Services in the US. The sale will complete during thesecond half of the 2006 financial year and will be recognised at that point.During the period, the Group also completed the sale of 90% of its Inflightcatering business. Accordingly, the results of these operations have beenclassified as discontinued. The operating profit for the period from these discontinued operations was £27million (2005: £26 million). Profit after tax from discontinued operations was£19 million (2005: £19 million). Financial Objectives The SSP sale will deliver a one-time step up in Return on Capital Employed(ROCE) of around 30 basis points, which is in addition to our three-year targetof 100 basis points improvement in ROCE between 2006 and 2008. The Group's FreeCash Flow target remains at £800 million - £850 million. Free Cash Flow Free cash flow from the continuing business totalled £80 million (2005: £97million). The major factors contributing to the period on period reduction were£5 million higher interest payments and £16 million higher tax payments in theperiod. The cash tax rate in the first half was 27% and we currently expect therate to remain around the mid to high 20's for the foreseeable future. Acquisitions The acquisition of the remaining 51% interest in Levy Restaurants, not alreadyheld, was completed on 18 April 2006 for $250 million (£143 million). Thisacquisition is not therefore reflected in the 31 March 2006 financial statementsand will be recorded in the second half. Andrew Martin, Group Finance Director, said: "In the UK, I'm satisfied that we are making progress in implementing theactions necessary to create a solid platform for future growth. Trading in NorthAmerica and the Rest of the World continues to be encouraging. In ContinentalEurope, as expected, trading conditions remain challenging. We remain on track to deliver on our full year expectations." Michael J Bailey, Chief Executive, commented: "This continues to be a case of 'steady as she goes'. Our performance during thefirst half of 2006 in maintaining high levels of contract retention and makingsignificant new business gains reflects the commitment and dedication of all ourteams." Michael J Bailey Sir Francis H MackayChief Executive Chairman NOTES (a) Financial information for the year ended 30 September 2005 and for the six months ended 31 March 2005, set out as comparative figures in this announcement, has been restated from UK Generally Accepted Accounting Principles ("UK GAAP") on the basis of accounting policies set out in 'Adoption of International Financial Reporting Standards "IFRS": Preliminary restatement of 2005 financial information', a separate document published in the Investor Relations section of the Group website (www.compass- group.com) on 1 March 2006 and which is also available on request. The Annual Report for the year ended 30 September 2005, which was prepared under UK GAAP, has been filed with the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The Group will be presenting its 30 September 2006 consolidated financial statements in accordance with applicable International Financial Reporting Standards ("IFRS") which are effective (or available for early adoption) at that date. (b) Forward looking statements This Press Release contains forward looking statements within the meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward looking statements. The terms 'expect', 'should be', 'will be', 'is likely to' and similar expressions identify forward looking statements. Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general economic conditions and business conditions in Compass Group's markets; exchange rate fluctuations; customers' and clients' acceptance of its products and services; the actions of competitors; and legislative, fiscal and regulatory developments. (c) The timetable for the proposed interim dividend of 3.4p per share is as follows: Ex dividend date: 12 July 2006 Record date: 14 July 2006 Payment date: 7 August 2006 (d) A presentation for analysts and investors will take place at 9:30 am (BST/ London) on Tuesday 16 May 2006 at Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1. The live presentation can also be accessed via both a webcast and dial-in teleconference starting at 9:30 am: • To listen to the live presentation via teleconference, dial (UK) +44 (0) 20 7138 0816. • 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 teleconference and webcast: • A teleconference replay of the presentation will be available for five working days, until 23 May 2006. To hear the replay, dial (UK) +44 (0)20 7806 1970 or (US) +1 718 354 1112. The replay passcode is 6453370#. Please note that the replay service is available from 14.00pm UK time. • 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 14:00pm (EDT/New York) • To participate in the live question and answer session via conference call, dial (US) +1 718 354 1171. • A teleconference replay of the call will be available for five working days, until 23 May 2006. To hear the replay, dial (US) +1 718 354 1112. The replay passcode is 5540875#. • 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 01932 573000Investors/analysts Andrew MartinMedia Paul Kelly Website www.compass-group.com. Compass Group is the world's largest foodservice company with annual revenue ofc. £11 billion. Compass Group has some 400,000 employees working in more than 90countries around the world. For more information visit www.compass-group.com. Appendix NEW CONTRACT GAINS AND RENEWALSContract CateringBusiness & Industry • USA - The University of Texas at Austin Hotel and Conference Center awarded Flik a new ten-year contract with annual turnover of £10.7 million.• Germany - Continental AG awarded Eurest a new five-year contract with annual turnover of £2.2 million and renewed its existing contract for a further five years with annual turnover of £3.4 million.• Netherlands - the Ministry of Agriculture (Ministerie LNV) awarded Eurest a new three-year contract with annual turnover £2.9 million.• Italy - Ansaldo Energia awarded Onama a new one-year contract with annual turnover of £2.6 million. Education • USA - Shippensburg University awarded Chartwells Higher Education a new five-year contract with annual turnover of £4.8 million.• Italy - Genova Municipality renewed and extended its contract with Onama for a further three years with annual turnover of £4.2 million.• USA - St. Mary's College of Maryland awarded Bon Appetit a new five-year contract with annual turnover of £2.4 million.• UK - Slough Borough Council renewed its contract with Scolarest for a further three years with annual turnover of £1.0 million. Healthcare • UK - Hammersmith Hospitals NHS Trust extended its contract with Medirest for a further two years with annual turnover of £14.0 million.• USA - Duke University Health System renewed its contract with Crothall for a further two years with annual turnover of £12.2 million.• UK - Skanska Innisfree (PFI) with Sherwood Forest Hospitals NHS Trust and Mansfield District Primary Care Trust awarded Medirest a new six-year contract with annual turnover of £8.3 million.• USA - University of Pennsylvania awarded Crothall a new five-year contract with annual turnover of £6.1 million. Defence, Offshore & Remote Site • Australia - Defence Sydney Central awarded ESS a new five-year contract with annual turnover of £14.4 million.• Norway - Statoil awarded ESS Onshore a new three-year contract with annual turnover of £8.8 million.• UK - British Army (2nd Division) awarded ESS a new seven-year contract with annual turnover of £7.5 million.• Australia - BHPB (Groote Eyland) awarded ESS a new three-year contract with annual turnover of £4.6 million. Sports & Leisure • USA - de Young Museum & Legion of Honor awarded Bon Appetit a new three-year contract with annual turnover of £2.2 million.• USA - Pacific Design Center awarded Wolfgang Puck a new ten-year contract with annual turnover of £2.0 million.• UK - Salisbury Cathedral extended its contract with Milburns for a further five years with annual turnover of £1.7 million.• UK - Beaulieu Enterprises Ltd awarded Leiths a new ten-year contract with annual turnover of £1.0 million. Travel Concessions • Australia - Sydney Airport Terminal 2 renewed its contract with Eurest for a further three years with annual turnover of £2.9 million. Vending • Europe - Shell awarded Selecta a new three-year contract with annual turnover of £2.7 million. INDEPENDENT REVIEW REPORT TO COMPASS GROUP PLC IntroductionWe have been instructed by Compass Group PLC ("the Company") to review thefinancial information for the six months ended 31 March 2006 which comprises theconsolidated income statement, the consolidated statement of recognised incomeand expense, the consolidated balance sheet, the consolidated cash flowstatement and related notes 1 to 14. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting StandardsAs disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performedWe conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2006. Deloitte & Touche LLPChartered AccountantsLondon15 May 2006 CONSOLIDATED INCOME STATEMENTfor the six months ended 31 March 2006 Year ended 30 September 2005 -------------------------------------- Six months to 31 March Before 2006 2005 exceptional Exceptional Total Total items items Total unaudited unaudited audited audited audited Notes £m £m £m £m £mContinuing operations: 2Revenue 5,695 5,142 10,453 - 10,453Operating costs (5,437) (4,868) (9,919) (153) (10,072) ----------------------------------------------------------- 2,4Operating profit 258 274 534 (153) 381Share of profit ofassociates 2 - - - -Finance income 3 1 4 - 4 3Finance costs (79) (72) (159) - (159) -----------------------------------------------------------Profit before tax 184 203 379 (153) 226 5Income tax expense (55) (59) (106) 3 (103) -----------------------------------------------------------Profit for the periodfrom continuingoperations 129 144 273 (150) 123 Discontinued operations:Profit for the periodfrom discontinued 6 operations 19 19 86 - 86 -----------------------------------------------------------Profit for the period 148 163 359 (150) 209 -----------------------------------------------------------Attributable to:Equity holders of theCompany 140 155 345 (150) 195Minority interest 8 8 14 - 14 ---------------------------------------------------------- 148 163 359 (150) 209 ----------------------------------------------------------Earnings per share From continuingoperations: 7Basic 5.6p 6.3p 5.0p -------------------- ----------- 7 Diluted 5.6p 6.3p 5.0p -------------------- ----------- From continuing anddiscontinuedoperations: 7Basic 6.5p 7.2p 9.0p -------------------- ----------- 7 Diluted 6.5p 7.2p 9.0p -------------------- ----------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the six months ended 31 March 2006 Year ended 30 September 2006 2005 2005 unaudited unaudited audited Notes £m £m £mFair value movement on cash flowhedges(net of deferred tax) 3 4 5Transfer to profit or loss fromequity on cash flow hedges (net of deferredtax) (1) - - Currency translation differences - (5) 14Income tax in translation reserverelating to currency translation - - 2 Actuarial losses on post-retirementemployee benefits - - (157)Deferred tax relating to actuarial losses on post-retirement employee benefits - - 35 Deferred income tax on itemspreviously recognised in equity (4) (4) (12) Current income tax on itemspreviously recognised in equity 4 4 10 ------------------------------------- Net income / (expense) recognisedin equity 2 (1) (103) Profit for the financial period 148 163 209 -------------------------------------Total recognised income and expense 8for the period 150 162 106 -------------------------------------Attributable to:Equity holders of the Company 141 154 92Minority interest 9 8 14 ------------------------------------- 150 162 106 ------------------------------------- CONSOLIDATED BALANCE SHEETas at 31 March 2006 31 March 31 March September 2006 2005 2005 unaudited unaudited audited Notes £m £m £mAssetsNon-current assetsGoodwill 3,434 4,276 4,220Other intangible assets 167 156 168Property, plant andequipment 928 1,711 1,657Interests in associates 50 35 51Deferred tax assets 200 194 198Trade and otherreceivables 137 139 140Derivative financialinstruments 29 30 44 -------------------------------------- 4,945 6,541 6,478 --------------------------------------Current assetsInventories 241 264 253Trade and otherreceivables 1,544 1,620 1,574Overseas taxrecoverable 4 10 9Derivative financialinstruments 6 3 2Cash and cashequivalents 231 242 281 -------------------------------------- 2,026 2,139 2,119 --------------------------------------Assets held in disposalgroups held for sale 6 1,663 - - --------------------------------------Total assets 8,634 8,680 8,597 --------------------------------------LiabilitiesCurrent liabilitiesShort-term borrowings 218 162 150Derivative financialinstruments 7 18 20Current tax liabilities 309 363 334Trade payables andother payables 2,196 2,256 2,437Provisions 10 10 10 -------------------------------------- 2,740 2,809 2,951 --------------------------------------Non-current liabilitiesLong-term borrowings 2,536 2,688 2,580Derivative financialinstruments 7 10 2Post-employment benefitobligations 553 433 555Provisions 143 133 143Deferred tax liabilities 18 17 17 Other liabilities 100 207 71 -------------------------------------- 3,357 3,488 3,368 --------------------------------------Liabilities included indisposal groups heldfor sale 6 235 - - --------------------------------------Total liabilities 6,332 6,297 6,319 --------------------------------------Net assets 2,302 2,383 2,278 --------------------------------------EquityShare capital 216 216 216Share premium account 94 93 94Capital redemption reserve 9 9 9 Less: own shares (1) (1) (1)Other reserves 4,161 4,091 4,137Retained earnings (2,204) (2,050) (2,204) --------------------------------------Total equity shareholders' funds 2,275 2,358 2,251Minority interests 27 25 27 --------------------------------------Total equity 8 2,302 2,383 2,278 -------------------------------------- CONSOLIDATED CASH FLOW STATEMENTfor the six months ended 31 March 2006 Year ended 31 March 31 March 30 September 2006 2005 2005 unaudited unaudited audited £m £m £mCash generated from operations 345 346 751Interest paid (87) (78) (161)Interest element of finance lease rentals (1) (2) (3)Tax received 5 13 23Tax paid (54) (46) (93) ------------------------------------Net cash from operating activities forcontinuing operations 208 233 517Net cash from operating activities fordiscontinued operations 33 22 131 ------------------------------------Net cash from operating activities 241 255 648 ------------------------------------Cash flow from investing activities Purchase of subsidiary companies andinvestments in associated undertakings (31) (98) (121)Proceeds from sale of subsidiarycompanies and associated undertakings 31 - 75Purchase of property, plant and equipment (128) (140) (253)Proceeds from sale of property, plant andequipment 13 11 36Purchase of intangible assets (13) (4) (20)Dividends received from associatedundertakings 1 2 4Interest received 4 1 4 ------------------------------------Net cash used in investing activities bycontinuing operations (123) (228) (275)Net cash used in investing activities bydiscontinued operations (35) (36) (61) ------------------------------------Net cash used in investing activities (158) (264) (336) ------------------------------------Cash flow from financing activitiesProceeds from issue of ordinary sharecapital - - 1Net increase / (decrease) in borrowings 16 172 (32)Repayment of obligations under financeleases (8) (11) (16)Equity dividends paid (140) (134) (205)Dividends paid to minority interests (5) (6) (16) ------------------------------------Net cash used in financing activities -continuing operations (137) 21 (268) ------------------------------------Net (decrease) / increase in cash andcash equivalents (54) 12 44 Cash and cash equivalents at beginning ofthe period 281 233 233Exchange gains and losses on cash andcash equivalents 4 (3) 4 ------------------------------------Cash and cash equivalents at end of theperiod 231 242 281 ------------------------------------ RECONCILIATION OF FREE CASH FLOW - continuing operations Net cash from operating activities for continuing operations 208 233 517 Purchase of property, plant and equipment (128) (140) (253)Proceeds from sale of property, plant and equipment 13 11 36Purchase of intangible assets (13) (4) (20)Dividends received from associated undertakings 1 2 4Interest received 4 1 4Dividends paid to minority interests (5) (6) (16) ------------------------------------Free cash flow - continuing operations 80 97 272 ------------------------------------ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the six months ended 31 March 2006 1. Basis of preparationThe accounting policies and methods of computation used in the preparation ofthe interim financial information are the same as those set out in 'Adoption ofInternational Financial Reporting Standards "IFRS": Preliminary restatement of2005 financial information', a separate document published in the InvestorRelations section of the Group website (www.compass-group.com) on 1 March 2006and which is also available on request. Financial information for the year ended30 September 2005 and for the six months ended 31 March 2005, presented ascomparative figures in this report, has been restated from UK Generally AcceptedAccounting Principles ("UK GAAP") on the basis of these accounting policies.Further disclosures concerning the impact of IFRS on the financial statements ofthe Group can also be found in that document including the reconciliationsrequired by IFRS 1 'First time adoption of International Financial ReportingStandards'. In accordance with the requirements of IFRS 5 'Non-current assets held for saleand discontinued operations', the IFRS consolidated income statements andconsolidated cash flow statements for 2005 previously presented have beenamended to reflect the classification of certain operations as discontinued, asshown in note 6. The unaudited interim financial statements for the six months ended 31 March2006, which were approved by the Board of directors on 15 May 2006, do notcomprise statutory accounts for the purpose of Section 240 of the Companies Act1985. The Annual Report for the year ended 30 September 2005, which was preparedunder UK GAAP, contained an unqualified audit report and has been filed with theRegistrar of Companies. The Group will be presenting its 30 September 2006consolidated financial statements in accordance with applicable InternationalFinancial Reporting Standards ("IFRS") which are effective (or available forearly adoption) at that date. 2. Segmental reporting North America United Kingdom Continental Rest of Middle East Eliminations Total Europe the World military £m £m £m £m £m £m £mRevenue Six months ended 31 March 2006 External revenue 2,283 1,006 1,518 857 31 - 5,695Inter-segment revenue - 3 8 8 - (19) - --------------------------------------------------------------------------------------------------Total revenue 2,283 1,009 1,526 865 31 (19) 5,695 --------------------------------------------------------------------------------------------------Six months ended 31 March 2005 External revenue 1,881 984 1,490 684 103 - 5,142Inter-segment revenue - - 12 1 - (13) - --------------------------------------------------------------------------------------------------Total revenue 1,881 984 1,502 685 103 (13) 5,142 --------------------------------------------------------------------------------------------------Year ended 30 September 2005 External revenue 3,869 1,999 2,910 1,500 175 - 10,453 Inter-segment revenue - - 26 5 - (31) - --------------------------------------------------------------------------------------------------Total revenue 3,869 1,999 2,936 1,505 175 (31) 10,453 -------------------------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the six months ended 31 March 2006 2. Segmental reporting (continued) North America United Kingdom Continental Rest of Middle East Unallocated Total Europe the World military corporate expenses £m £m £m £m £m £m £mOperating profitSix months ended 31 March 2006Operating profit 125 56 92 25 1 (41) 258Share of profit ofassociates 1 1 - - - - 2 -------------------------------------------------------------------------------------------------Segment result 126 57 92 25 1 (41) 260 -------------------------------------------------------------------------------------------------Six months ended 31 March 2005Operating profit 108 61 100 22 16 (33) 274Share of profit of associates - - - - - - - -------------------------------------------------------------------------------------------------Segment result 108 61 100 22 16 (33) 274 -------------------------------------------------------------------------------------------------Year ended 30 September 2005Operating profit beforeexceptional items 218 117 170 53 34 (58) 53Exceptional items 2 (1) (107) - (45) (2) (153) -------------------------------------------------------------------------------------------------Operating profit afterexceptional items 220 116 63 53 (11) (60) 381Share of profit of associates - - - - - - - -------------------------------------------------------------------------------------------------Segment result 220 116 63 53 (11) (60) 381 ------------------------------------------------------------------------------------------------- 3. Finance costs 2006 2005 Year ended 30 September 2005 £m £m £mLoans and overdrafts 76 69 133Finance lease interest 1 1 3 -------------------------------- 77 70 136Unrealised net gains on financial instruments (7) (1) (1)Unwinding of discount on put options 3 3 6Interest on pension scheme liabilities net ofexpected return on scheme assets 6 7 14Translation (gains) / losses on foreigncurrency - (7) 4 --------------------------------borrowings 79 72 159 -------------------------------- 4. Exceptional itemsExceptional items are disclosed and described separately in the interimfinancial statements where it is necessary to do so to provide furtherunderstanding of the financial performance of the Group. They are material itemsof income or expense that have been shown separately due to their nature oramount. 2006 2005 Year ended 30 September 2005 £m £m £mMiddle East military - - 45Impairment of goodwill - Italy - - 107Loss on disposal of businesses - - 1 --------------------------------- - - 153 --------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the six months ended 31 March 2006 4. Exceptional items (continued)The Group is reducing the scale of its military catering operations in theMiddle East. In the year ended 30 September 2005, related asset write-offs andprovisions resulted in an exceptional charge of £45 million. In addition, thegoodwill arising on the acquisition of Onama in Italy was impaired following areview of the profitability of the business. In 2005, the Group also disposed of75% of Au Bon Pain in North America and the Gatwick Meridien hotel in the UK andpaid further costs relating to previous disposals resulting in a net loss of £1million. 5. TaxThe tax charge for the period is based on an estimated full year effective taxrate of 30.0% (last full year 28.1% before exceptional items). Year ended 30 September 2005 --------------------------------- Before Exceptional Total 2006 2005 exceptional items items £m £m £m £m £mTax on continuingoperationsUK tax 11 17 31 (2) 29Overseas tax 44 42 75 (1) 74 --------------------------------------------------Total 55 59 106 (3) 103 -------------------------------------------------- 6. Discontinued operationsFollowing the decision to focus on its core contract catering business the Groupentered into an agreement to dispose of its Inflight catering operations, whichoperated principally in Continental Europe. The disposal was completed on 19December 2005, on which date control of the business passed to the acquirer.Accordingly, the results of these operations have been classified asdiscontinued. The gain / loss on disposal after tax amounted to £ nil. As described in note 13 below, the Group announced on 9 April 2006 that it hadagreed to sell its travel concession catering business, Select Service Partner,including Creative Host Services in the US (together, "SSP"). The sale willcomplete during the second half of the 2006 financial year and will berecognised at that point. Accordingly, the results of these operations have alsobeen classified as discontinued. 2006 2005 Year ended 30 September 2005 £m £m £mExternal revenue 897 901 1,941 --------------------------------Profit before tax from discontinued operations 27 26 120Tax on profit from discontinued operations (8) (7) (34) --------------------------------Profit after tax from discontinued operations 19 19 86 -------------------------------- The major classes of assets and liabilities of SSP classified as held for saleon 31 March 2006 are as follows: 2006 2005 Year ended 30 September 2005 £m £m £mGoodwill 813 - -Property plant and equipment 745 - -Inventories 27 - -Trade and other receivables 56 - -Other assets 22 - - --------------------------------Assets classified as held for sale 1,663 - - -------------------------------- Trade and other payables 199 - -Other liabilities 36 - - --------------------------------Liabilities classified as held for sale 235 - - -------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the six months ended 31 March 2006 7. Earnings per shareThe calculation of earnings per share is based on earnings after tax and theweighted average number of shares in issue during the period. The adjustedearnings per share figures have been calculated based on earnings excluding theeffect of exceptional items and discontinued activities; these are disclosed toshow the underlying trading performance of the Group. 2006 2005 Year ended 30 September 2005 £m £m £mProfit for the period attributable to equity holders of the Company 140 155 195less: profit for the periodfrom discontinued operations (19) (19) (86) -------------------------------------Attributable profit for the period from continuing operations 121 136 109 -------------------------------------Exceptional items net of tax - - 150 -------------------------------------Attributable profit for the periodbefore exceptional items from continuing operations 121 136 259 ------------------------------------- Millions of Millions of Millions of ordinary shares ordinary shares ordinary shares of 10p each of 10p each of 10p eachAverage number of shares forbasic earnings per share 2,156 2,155 2,156Dilutive share options 2 1 2 --------------------------------------------------Average number of shares fordiluted earnings per share 2,158 2,156 2,158 --------------------------------------------------Basic earnings per share pence pence penceFrom continuing anddiscontinued operations 6.5 7.2 9.0less: from discontinuedoperations (0.9) (0.9) (4.0) ---------------------------------------------------From continuing operations 5.6 6.3 5.0Effect of exceptional items (net of tax) - - 7.0 --------------------------------------------------From continuing operationsbefore exceptional items 5.6 6.3 12.0 --------------------------------------------------Diluted earnings per shareFrom continuing and discontinuedoperations 6.5 7.2 9.0less: from discontinued operations (0.9) (0.9) (4.0) ---------------------------------------------------From continuing operations 5.6 6.3 5.0Effect of exceptional items (net of tax) - - 7.0 -------------------------------------------------- From continuing operationsbefore exceptional items 5.6 6.3 12.0 -------------------------------------------------- 8. Reconciliation of movements in total shareholders' equity 2006 2005 Year ended 30 September 2005 £m £m £mOpening total shareholders' equity 2,278 2,269 2,269Total recognised income and expense 150 162 106Dividends paid (Note 9) (140) (134) (205)Issue of shares - - 1Other movements in total shareholders' equity 14 86 107 -----------------------------------------Closing total shareholders' equity 2,302 2,383 2,278 ----------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the six months ended 31 March 2006 9. DividendsThe interim dividend of 3.4p per share (2005: 3.3p per share) will be payable on7 August 2006 to shareholders on the register at the close of business on 14July 2006. The dividend was approved by the Board after the balance sheet date,and has thus not been reflected as a liability in these interim financialstatements. The dividends paid in the periods presented were as follows: 2006 2005 Year ended 30 September 2005 £m £m £mDividends on ordinary shares of 10p eachFinal 2004 - 6.2p per share paid 14 March 2005 - 134 134Interim 2005 - 3.3p per share paid 15 August 2005 - - 71Final 2005 - 6.5p per share paid 6 March 2006 140 - - ------------------------------------- 140 134 205 ------------------------------------- 10. Reconciliation of operating profit to cash generated by operations 2006 2005 Year ended 30 September 2005 £m £m £mOperating profit from continuing operations 258 274 381Adjustments for:Exceptional items - - 153Depreciation of property, plant and equipment 102 102 220Amortisation of intangible assets 15 10 21Loss / (gain) on disposal of property, plant and equipment 1 - (7)Decrease in provisions (3) (3) (25)Other non-cash items (net) 15 22 45 -------------------------------------Operating cash flows before movement in working capital 388 405 788Increase in inventories (10) (8) (6)Increase in receivables (42) (161) (112)Increase in payables 9 110 81 -------------------------------------Cash generated by operations 345 346 751 ------------------------------------- 11. Reconciliation of net cash flow to movement in net debt 2006 2005 Year ended 30 September 2005 £m £m £mNet (decrease) / increase in cash and cashequivalents (54) 12 44Cash (inflow) / outflow from changes in debtand lease financing (8) (161) 48Valuation movements and other non-cash changes 16 24 32Changes in finance leases (6) (8) (12)Foreign exchange movements (25) 41 (26) ----------------------------------------(Increase) / decrease in net debt during the period (77) (92) 86Opening net debt (2,425) (2,511) (2,511) ----------------------------------------Closing net debt (2,502) (2,603) (2,425) ---------------------------------------- The table above is presented as additional information to show movement in net debt, defined as overdrafts, bank and other borrowings and finance leases, net of cash and cash equivalents. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the six months ended 31 March 2006 12. Contingent liabilities On 21 October 2005 the Group announced that it had instructed FreshfieldsBruckhaus Deringer to conduct an investigation into the relationships betweenEurest Support Services ("ESS") (a member of the Group), IHC Services Inc.("IHC") and the United Nations. Ernst & Young assisted Freshfields BruckhausDeringer in this investigation. On 1 February 2006 it was announced that theinvestigation had concluded. The investigation established seriousirregularities in connection with contracts awarded to ESS by the UN. The workundertaken by Freshfields Bruckhaus Deringer and Ernst & Young gave no reason tobelieve that these issues extended beyond a few individuals within ESS to otherparts of ESS or the wider Group. IHC's relationship with the UN and ESS is partof wider and on-going investigations into the UN procurement activity beingconducted by the United States Attorney's Office for the Southern District ofNew York, the United States Congress and the UN itself, and with which the Groupis co-operating fully. In addition, lawsuits have been filed in connection with the matters covered bythis investigation in the United States District Court, Southern District of NewYork, by two competitors of the Group, ES-KO International Inc ("ES-KO") andSupreme Foodservice AG ("Supreme"), on 28 March 2006 and 6 March 2006respectively. The ES-KO complaint lists the Group as one of 14 named and variousunnamed defendants and in it, ES-KO claims lost profits of $123m, plus exemplaryand punitive damages. The Supreme lawsuit lists the Group as one of 13 nameddefendants and makes similar allegations against the Group. The total claimed bySupreme (including exemplary and punitive damages) is stated to be in an amount"exceeding $125 million". The total amounts claimed in both lawsuits bear norelation to the value of the UN contracts awarded to ESS. Both sets ofproceedings are in their very early stages and will be resolutely defended. No provision has been made in these accounts in respect of these matters and itis not currently possible to quantify any potential liability which may arise.The directors currently have no reason to believe that any potential liabilitythat may arise would be material to the financial position of the Group. 13. Events after the balance sheet dateFollowing the decision to focus on its core contract catering business, theCompany announced on 9 April that it had agreed to sell its travel concessioncatering business, Select Service Partner, including Creative Host Services inthe US (together, "SSP"). The transaction has been structured as a combined saleof Moto, the UK motorway services business, to a consortium lead by Macquariebank and the remainder of the SSP business to companies controlled by EQT for anaggregate consideration of £1,822 million on a debt and cash free basis, subjectto certain closing adjustments. The Company announced on 23 January 2006 that a put option requiring the Groupto purchase the remaining 51% interest in Levy Restaurants for a considerationof $250 million in cash, had been exercised. The completion of this acquisitiontook place on 18 April 2006. 14. Exchange ratesExchange rates for major currencies used during the period were: Translation rate for Closing rate as six months ended at 31 March 31 March 2006 2006 Australian Dollar 2.36 2.43Canadian Dollar 2.03 2.02Danish Krone 10.91 10.70Euro 1.46 1.43Japanese Yen 204.55 204.66Norwegian Krone 11.62 11.38Swedish Krona 13.76 13.52Swiss Franc 2.28 2.27US Dollar 1.75 1.73 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Compass Group