18th May 2005 07:01
Compass Group PLC18 May 2005 PRESS RELEASE18 May 2005 COMPASS GROUP PLC INTERIM UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2005 _________________________________ ____________ _______ _________ ________Financial summary Reported ConstantFor the six months ended 31 March movement Currency 2005 2004 _________________________________ ____________ _______ _________ ________Turnover £6,191m £5,844m 5.9% 7.8%Operating profit- reported £192m £210m (8.6)%- underlying (1) £328m £346m (2.9)%Operating margin(2) 5.4% 6.1% (70)bpsProfit before tax- reported £124m £145m (14.5)%- underlying(1) £260m £282m (7.8)%Basic earnings per share- reported 1.9p 2.5p (24.0)%- underlying at constantcurrency(1) 8.2p 8.5p (3.5)%Free cash flow £81m £86m (5.8)%Dividend per ordinary share 3.3p 3.1p 6.5%_________________________________ ____________ _______ _________ ________ Business summary • Turnover of £6.2 billion, up 6% on a like for like basis(3). • Underlying operating profit on constant currency basis 2.9% lower. • Basic earnings per share on an underlying constant currency basis 3.5% lower. • Interim dividend of 3.3 pence per share, up 6.5%. • On track to achieve full year cash flow of £350m - £370m at 2004 exchange rates. • Will achieve at least 6% like for like growth in the full year. • Agreed sale of 75% stake in Au Bon Pain for $90m. • Overhead savings over next 18 months of £50m. • Objective for improvement in ROCE of 100 basis points over the period 2006-2008. • Objective to generate £1 billion of free cash flow over the period 2006-2008._____________________________________________________________________________(1) Underlying performance is before goodwill amortisation and excludes discontinued activities.(2) Excludes fuel, associates and goodwill amortisation.(3) Like for like growth excludes fuel and is calculated by adjusting for acquisitions (excluding current year acquisitions and including a full year in respect of prior year acquisitions), disposals (excluded from both years) and exchange rate movements (translating the prior period at current period exchange rates)and compares the results against 2004. Outlook We are encouraged by the first half cash position and remain on track to deliverfull year free cash flow in the range of £350 million to £370 million at 2004reported exchange rates. For the full year, we would expect turnover and margin to continue the trendsseen in the first half, helped in particular by continued good performance inNorth America and a slight pick up in Continental Europe & rest of the world. Michael J Bailey - Chief Executive - said: "I am not happy with our recent performance. We need to respond more rapidlythan we have to the changes taking place in our market. The business review I have initiated has already identified an initial set ofactions in terms of operational efficiency, for example on overheads. The reviewis on-going and we will evaluate all opportunities to extract maximum value fromCompass Group. Our objectives over the medium-term (2006-2008) will be to deliver animprovement of 100 basis points in return on capital employed and to generatefree cash flow of £1 billion. I am totally committed to implementing and driving forward the operating,financial and cultural changes necessary to deliver enhanced value forshareholders". Appointment of new Chairman As confirmed on 9 May 2005, Sir Francis Mackay will step down as planned fromthe Board of Compass Group after 19 years, the last 6 years as Chairman, at theGroup's Annual General Meeting in February 2006. The Nominations Committee hasbegun the search to appoint a new Chairman from outside the Group. Enquiries:Compass Group PLC 01932 573000Michael J Bailey Chief ExecutiveAndrew Martin Finance DirectorSarah Ellis Director of Corporate Strategy and Investor Relations Brunswick 020 7404 5959 Simon SporborgPamela Small Websitewww.compass-group.com Presentation and teleconference details are in the attached notes. OPERATING AND FINANCIAL REVIEW Compass Group today announces its results for the six months to 31 March 2005.Half year turnover was £6,191 million (2004: £5,844 million) with like for likegrowth of 6%, in line with expectations. Turnover continues to be driven by newbusiness wins and high levels of contract retention in the Group's primarycontract catering business. This growth has been particularly strong in NorthAmerica, the UK, Australasia and Latin America. Performance in ContinentalEurope and elsewhere has been mixed and in some areas remains very challenging. New business was also driven by the continued trend towards outsourcingparticularly in Healthcare and Education and high levels of activity in offshoreand remote site locations. An update on contract wins and renewals is attachedin the appendix to this release. Business review The Group has initiated a comprehensive operational and financial review toidentify and confirm the opportunities to drive value creation and performance.The initial conclusion of this on-going review is that there are significantopportunities across the Group. Operational efficiency gains will come from purchasing, overhead reduction andlabour productivity including: • the on-going roll-out of our procurement model which will be a key driver of operational efficiency and the Group's purchasing teams have been tasked to ensure that growth in food cost across the business continues to be contained at well below market levels; • a range of labour monitoring, scheduling and reporting tools are being introduced across the Group to drive improvements in labour productivity; and • following a review of the Group's structure set against the backdrop of operating in over 90 countries and "above unit overheads" of circa £1 billion, a programme is now underway to deliver savings of £50 million over the next 18 months. This will be achieved through restructuring and streamlining the organisation to deliver more effective day to day decision making and control. The opportunity for enhanced revenue generation lies in adopting a more retailfocused approach in terms of product management and development, merchandisingand, in particular, pricing. Return on capital employed (ROCE) and free cash flow The Group is today announcing medium-term (2006-2008) objectives to improve ROCEby 100 basis points and generate free cash flow of £1 billion over the period. ROCE in 2004 was 6.4% (restated at a 30% tax rate). For the full year 2005, wecurrently expect a decline in ROCE which is a reflection of the impact ofcurrency and previously announced trading issues. From this start point, ourobjective is to increase ROCE by 100 basis points by 2008. This assumes a 30%tax rate throughout and ignores the impact of IFRS, which still has to befinally quantified.________________________________ __________ ________ _________ _________Financial summary Reported ConstantFor the six months ended 31 March 2005 2004 movement currency________________________________ __________ _________ _________ _________Turnover £6,191m £5,844m 5.9% 7.8%Operating profit- reported £192m £210m (8.6)%- underlying(1) £328m £346m (2.9)%Operating margin(2) 5.4% 6.1% (70)bpsProfit before tax- reported £124m £145m (14.5)%- underlying(1) £260m £282m (7.8)%Basic earnings per share- reported 1.9p 2.5p (24.0)%- underlying at constantcurrency(1) 8.2p 8.5p (3.5)%Free cash flow £81m £86m (5.8)%Dividend per ordinary share 3.3p 3.1p 6.5% (1) Underlying performance is before goodwill amortisation and excludes discontinued activities.(2) Excludes fuel, associates and goodwill amortisation._____________________________________________________________________________ Turnover growth The main factors that affected the period on period change in turnover aresummarised below. %Like for like growth(1) 6Contribution from acquisitions 2Movements in translation rates (2)_______________________________________ ___Total - continuing activities 6_______________________________________ ___ (1) Like for like growth excludes fuel and is calculated by adjusting foracquisitions (excluding current year acquisitions and including a full year inrespect of prior year acquisitions), disposals (excluded from both years) andexchange rate movements (translating the prior period at current period exchangerates), and compares the results against 2004. Overall like for like turnover growth of 6% was achieved as a result of newcontract gains of 11% offset by contract losses of 5% and marginally positivethroughput. In addition to securing new business, the Group remains focused on clientretention, which remained strong at 95%. Like for like turnover growth bysector, by geographic segment, excluding fuel, is set out below. --------------------- -------- --------- -------- ------- North CE & ROW UK Group America % % % % --------------------- -------- --------- -------- ------- Contract:Business & Industry 11 1 8 5 Defence, Offshore & Remote Site 46 4 9 7 Education 12 - (2) 6 Healthcare 15 5 6 10 Sports & Leisure 9 - 5 5 --------------------- -------- --------- -------- -------Total Contract 12 2 6 6 Vending 4 1 13 3 Travel Concessions (1) 12 2 6 7 --------------------- -------- --------- -------- ------- Total 12 2 6 6 --------------------- -------- --------- -------- ------- (1) Travel concessions principally comprises: Creative Host Services and Au BonPain in North America; Rail Gourmet, Inflight, airport concessions, motorways inItaly, Japan and Portugal and Mitropa in Continental Europe and rest of theworld; and in the UK, Moto, railways, airports, Harry Ramsden's, Millies Cookiesand the remaining hotels. ___________________________ _____ ______ __________ ___________ _________Divisional performance Constant LikeSix months ended 31 March 2005 Reported currency for like movement movement Movement 2005 2004 % % %___________________________ _____ ______ __________ ___________ _________Turnover(1) (£m)North America 1,921 1,778 8 14 12Continental Europe& rest of the world 2,666 2,563 4 4 2United Kingdom 1,364 1,272 7 7 6___________________________ _____ ______ __________ ___________ _________Total - continuingactivities 5,951 5,613 6 8 6 __________ ___________ _________Fuel(2) 240 231___________________________ _____ ______ Total 6,191 5,844___________________________ _____ ______ Total operating profit(1)(3)(4) (£m) Subsidiary undertakingsNorth America 97 84 15 25Continental Europe& rest of the world 141 139 1 2United Kingdom 89 122 (27) (27)_____________________________ ________ _____ ________ _______ 327 345 (5) (3)Associates (UK) 1 1 - -_____________________________ ________ ______ _________ _________Total - continuing activities 328 346 (5) (3) ________ __________Discontinued activities- associates (CE&ROW) - 2____________________________ ________ ______ Total 328 348____________________________ ________ ______ Operating margin(5)(%)North America 5.0 4.7Continental Europe& rest of the world 5.3 5.4United Kingdom 6.2 9.2________________________ _______________ ___________ Total - continuing activities 5.4 6.1________________________ _______________ ___________ (1) Certain minor reclassifications have been made to the previously reported analysis of operations to align with the Group's current management structures. These include the transfer of the defence business previously reported under the UK to Continental Europe & rest of the world.(2) Fuel turnover comprises £16 million in Continental Europe & rest of the world and £224 million in the UK (2004: £13 million and £218 million respectively).(3) Total operating profit is before goodwill amortisation of £136 million (2004: £138 million).(4) Operating profit from subsidiary undertakings includes £4 million in the UK from fuel (2004: £5 million).(5) Operating margin is based on turnover and total operating profit excluding fuel, associates and goodwill amortisation. Divisional performance for the six months ended 31 March 2005 is summarisedbelow; the commentary excludes fuel turnover. North America - 32% Group sales (2004: 32%) North America reported turnover increased to £1,921 million (2004: £1,778million) and by 12% on a like for like basis. New business growth has beenbuoyant across all sectors with only Vending showing a more modest increase at4% on a like for like basis, reflecting continuing weakness in manufacturing. Within Contract, Business & Industry has enjoyed good growth of 11% reflectinghigher levels of corporate events and increasing participation. In Healthcare, Morrison and Crothall continued to show strong progress withmajor new contract mobilisations including Vancouver Island and Fraser HealthAuthorities. Our position in this important market was further strengthened bythe acquisition of HDS Services, the only significant acquisition in the firsthalf, which was completed in January 2005 for £16 million. In Education, Chartwells continues to deliver strong performance with newcontract mobilisations including Newark Public Schools and Case Western ReserveUniversity. Modest positive throughput is being driven by the continued roll outof healthy eating initiatives such as 'Balanced Choices' and 'Breakfast atSchool'. Retention and margins continue to be driven by targeted allocation ofincremental capital investment. Total operating profit (excluding associates and goodwill amortisation) oncontinuing activities increased from £84 million to £97 million, up 15%.Overall, operating margin moved ahead to 5.0% (2004: 4.7%) and strong salesgrowth has converted through to good growth in operating profit. Increases infood and employee related costs were offset by better pricing, tighter labourcontrols and good performance in purchasing, including the roll through ofpurchasing deals completed in the second half of 2004. Second half margin willcompare against a particularly strong margin performance in the second half of2004. Continental Europe & rest of the world - 45% Group sales (2004: 46%) Turnover increased to £2,666 million (2004: £2,563 million) with growth of 2% ona like for like basis. Northern Europe continues to be very challenging, withlittle sign of top line growth. Australia, Asia, Latin America and Spain haveenjoyed good trading conditions and delivered strong growth, and this isconverting through to operating profit growth. Australia in particular isbenefiting from the strength of the remote site business as the extractiveindustries sector meets the growing demand for crude oil and minerals. In LatinAmerica, we are also seeing good business growth of 17% driven by Chile, Mexicoand Brazil. Within the Contract business which produced overall turnover growth of 2%,Business & Industry managed to maintain last year's levels of activity despitethe very challenging markets in Northern Europe where several large clients arerestructuring and reducing staff numbers. Japan and Spain showed strong growthrates of 5% and 7% respectively. Vending grew by 1%, with the core business in Switzerland delivering a 3%increase. Healthcare produced growth of 5% on a like for like basis, with good growth inAustralasia, Latin America and France (a large component of the business) whichgrew by 4% over last year. Education like for like sales were flat compared withlast year; however Italy, Switzerland and Japan performed well. ESS, which manages a major part of the Group's Defence, Offshore and Remotesites business, produced turnover of £273 million (2004: £285 million). Theoffshore and remote site businesses have continued to grow strongly, againdriven by the growing demand for crude oil and minerals. However, as previouslyreported, revenues from the Middle East defence businesses are declining, todate being replaced in part by lower margin peacekeeping business. The integration of the recent Mitropa acquisition was substantially completed inthe first half and contributed 2% to sales growth. Total operating profit (excluding associates and goodwill amortisation) oncontinuing activities has increased by 1% to £141 million despite the difficulttrading conditions in Northern Europe and the impact of the reduction in thevolume and margin of our Middle East business. Overall, operating marginsremained broadly in line with the prior period at 5.3% (2004: 5.4%). In thefirst half we have spent £5 million on restructuring the Northern Europebusiness, and we would expect to see the benefit of reduced overhead costs flowthrough in the second half. In Japan, we continue to see progress in moving themargin forward. Australia has seen good margin progression helped by the strongremote site business. ESS operating profit was £22 million (2004: £33 million)with the reduction principally arising due to the slow down in Middle Eastmilitary activity, some restructuring costs and opening costs for new UNpeacekeeping contracts (the benefit of which should flow through in the secondhalf). For the full year overall, the impact on margins from purchasing andJapan is likely to be offset by lower Middle East margins. UK - 23% Group sales (2004: 22%) Turnover was £1,364 million in the period (2004: £1,272 million) up 6%. InContract, like for like sales also increased by 6% with solid performances inall sectors except Education, which saw sales decline by 2%. Major contractsmobilised included the Shell Centre and the Earls Court & Olympia exhibitioncentres. All Leisure successfully integrated last year's acquisition of the Keith Prowsehospitality business and is now able to deliver a 'one source' hospitalityservice to a wide range of the UK's most prestigious sporting and culturalevents. Travel Concessions achieved like for like growth of 6% with Rail performingstrongly, with the continuing roll out of the M&S Simply Food concept. TheTravel Concessions business remains heavily weighted towards the second half. Total operating profit (excluding associates and goodwill amortisation) oncontinuing activities was £89 million (2004: £122 million). The reductionprimarily arising due to the effects of the matters reported during the secondhalf of 2004 including increased distribution costs, higher pension charges,accounting changes and a more accurate allocation of purchasing income andcentral costs. The underlying UK first half 2004 margin post these items was6.9%. In first half 2005, we have incurred £5 million of expenditure relating tothe investment in operational and front line management teams as referred to inour 31 March trading update. The margin achieved overall in the period was 6.2%.We are now winning and retaining an increasing amount of business with a lowerlevel of capital spend, but at a lower margin and this trend, together withincreasing cost pressures, is likely to impact margins for the full year. Group operating profit Total operating profit from continuing activities, including associates butbefore goodwill amortisation was £328 million (2004: £346 million). Interest Net debt at 31 March 2005 was £2,494 million (30 September 2004: £2,373million). Net interest for the period was £68 million (2004: £65 million). Profit before taxation Profit before taxation and goodwill amortisation decreased by 8% from £283million to £260 million. Taxation The overall Group tax charge was £65 million giving an overall tax rate onordinary activities of 25% of profit before tax and goodwill amortisation, whichis below the UK corporate tax rate of 30%. The main reasons for the lower rateare the recognition of reliefs associated with past acquisitions (2%), lossesbrought forward (2%), the tax deductibility of part of the Group's goodwill(2%), and the benefit of prior year items (2%), offset by higher overseas taxrates (3%). Under IFRS (see more detailed comments below), the earnings benefit of the taxdeduction for goodwill in the US will no longer be available, although there isno cash tax impact. Overall, the Group's tax rate under IFRS is expected to bemore volatile than under UK GAAP. This, combined with the 2005 Budget impact oncross border financing structures, means it is now likely that the Group's taxcharge for 2006 onwards is expected to move to around 30% (previously mid tohigh 20's) and that the cash tax rate is expected to move to mid to high 20's(previously mid 20's). Goodwill amortisation The goodwill amortisation charge for the period was £136 million (2004: £138million). Earnings per share Basic and diluted earnings per share on a reported basis, after goodwillamortisation, were both 1.9 pence (2004: 2.5 pence and 2.4 pence on a basic anddiluted basis respectively). Basic earnings per share before goodwillamortisation for the period was 8.2 pence (2004: 8.8 pence). Underlying basic earnings per share before goodwill amortisation, adjusting fordiscontinued activities and currency translation, is down by 3.5% period onperiod at 8.2 pence per share. Attributable profit and basic earnings per shareare reconciled below. Attributable profit Basic earnings per share 2005 2004 2005 2004 £m £m Pence Pence Change___________________ __________ _________ _______ ________ __________ Reported 41 53 1.9 2.5 (24.0)% Goodwillamortisation 136 138___________________ ___________ _________Before goodwillamortisation 177 191 8.2 8.8 (6.8)% Currencytranslation - (8)___________________ __________ _________ Underlying 177 183 8.2 8.5 (3.5)%___________________ __________ _________ The effect of currency translation is calculated by applying 2005 translationrates to 2004 attributable profit. Dividends The recommended interim dividend is 3.3 pence per share (2004: 3.1 pence pershare), an increase over the 2004 interim dividend per share of 6.5%. Disposals Today, the Group announces the agreed sale of a 75% stake in the North Americanbakery cafe chain, Au Bon Pain, for a consideration of $90 million. Under theterms of the transaction the Group will retain a 25% equity stake, Au Bon Pain'sairport operations and an exclusive franchise for core Compass business channelssuch as vending, business and industry and education. Au Bon Pain has 224outlets and, in the year ended 30 September 2004, revenues relating to the partsof the business being sold were circa £100 million and operating profit wascirca £4 million. Au Bon Pain was acquired by the Group in December 2000.Profits on disposal of businesses and fixed assets were £nil million (2004:£5million). For the full year, profits on disposals are expected to total circa£10 million arising in Continental Europe & rest of world and North Americarather than in the UK as previously anticipated. Acquisitions The Group's strategic focus continues to be on the organic development of itsexisting core businesses. During the period, the Group purchased businesses for£30 million with £1 million of the aggregate purchase price being deferredconsideration payable in the future and including £3 million of cash acquired.The Group also purchased further shares in companies not wholly owned, for £61million. The most significant of these was a further 30% of the remaining sharecapital in Onama, the Group's Italian contract catering business, for £41million taking the Group's total share holding to 90%. The Group also paid £14million of deferred consideration in the period in respect of prior yearacquisitions. The Group does not anticipate any significant further spend on new acquisitionsin the remainder of the 2005 financial year. Further deferred considerationpayments of circa £20 million are anticipated in respect of prior yearacquisitions. Cash flow Net cash flow from operations was in line with last year at £373 million. Freecash flow for the first half of 2005 was £81 million (2004: £86 million). Payments in respect of provisions for liabilities and charges absorbed £14million (2004: £24 million). £10 million was spent on reducing liabilities inrespect of insurance, pensions and other post-employment benefits, £3 million onsettling onerous contracts and £1 million in respect of legal and other claims. Interest payments absorbed a net £78 million (2004: £58 million). Interest paidwas higher principally because of the effect of the swap monetisation concludedin the second half of 2004. The net tax paid in 2005 of £43 million (2004: £35 million) represents 17% ofprofit before tax and goodwill amortisation and is significantly less than thetotal tax charge for the period of £65 million. The main reasons for thisdifference are tax losses brought forward and utilised in the year, capitalallowances in excess of depreciation and the timing of tax payments. The Group'scash tax rate is likely to be in the range of 18-20% for full year 2005. Net capital expenditure absorbed £164 million (2004: £182 million). The Group is in the process of finalising discussions with the trustees of theUK pension schemes. Our current estimates indicate an increase in the Group'scash contributions to these schemes from 2006 onwards in the range £10 millionto £15 million per annum. International Financial Reporting Standards We are well advanced with preparation for the adoption of InternationalFinancial Reporting Standards (IFRS) and, as previously announced, the Groupwill adopt IFRS for the first time in respect of its 2006 financial reporting.The work we have completed indicates that the expected UK GAAP to IFRSadjustments having the most significant impact on the Group's projected 2005earnings are: • Ceasing to amortise goodwill; • Accounting for the costs of share based payments; and • The loss of the income statement benefit of tax deductions on overseas goodwill. The combined impact of these adjustments would be an estimated increase of £200million to £220 million in the Group's profit for the financial year under IFRS.Before goodwill amortisation the Group's profit for the financial year underIFRS is estimated to be in the range £55 million to £65 million lower than underUK GAAP. This would equate to an increase in earnings per ordinary share of 120%- 140% on a post goodwill amortisation basis or a reduction in earnings perordinary share of 13% - 15% on a pre goodwill amortisation basis. The above estimate of the impact of adopting IFRS on 2005 earnings does not takeinto account a number of smaller differences which in aggregate are notcurrently anticipated to result in material adjustments between reportedearnings under UK GAAP and IFRS. They also do not reflect the possible effect onearnings of the IAS 39 requirements relating to financial instruments whichcannot be quantified until the year end value of these financial instruments isknown. IAS 39 hedging rules mean that hedge accounting treatment will not applyto all the Group's net investment and interest rate hedges and consequently willresult in some income statement volatility caused by changes to market interestand foreign exchange rates. The expected UK GAAP to IFRS adjustments having the most significant impact onthe Group's opening IFRS balance sheet at 30 September 2004, are: • The recognition of additional pension liabilities amounting to approximately £220 million - £240 million arising from the requirements of IAS 19 Employee Benefits; • Existing goodwill in the Group balance sheet being 'frozen' at the 30 September 2004 level of circa £4.2 billion and no longer subject to amortisation. The balance will however be subject to annual impairment testing and movements in exchange rates; • IAS10 Events after the Balance Sheet Date does not permit recognition of a proposed dividend as a liability; consequently, at 30 September 2004, the liability for the final dividend of £134 million will be added back to reserves; and • IAS 32 and IAS 39 require the Group to recognise as a liability the discounted acquisition cost associated with the potential exercise of put options held by minority shareholders. This will reduce net assets at 30 September 2004 by an estimated £200 million. The first financial information to be reported by the Group in accordance withIFRS will be for the six months ending 31 March 2006 but the requirement topresent comparative information means that a balance sheet as at 30 September2004 and primary statements for the six months to 31 March 2005 and the year to30 September 2005, prepared in accordance with IFRS, will also be required. TheGroup will continue to report its consolidated financial statements inaccordance with UK GAAP for the year to 30 September 2005. The above estimate of the adjustments required has been based on the Group'scurrent knowledge and understanding of the requirements of IFRS, although IFRSstandards, interpretation and practice continue to evolve. Outlook We are encouraged by the first half cash position and remain on track to deliverfull year free cash flow in the range of £350 million to £370 million at 2004reported exchange rates. We would expect turnover and margin to continue the trends seen in the firsthalf, helped in particular by continued good performance in North America and aslight pick up in Continental Europe & rest of world. Michael J Bailey Sir Francis H MackayChief Executive Chairman NOTES (a) The financial information set out in the announcement relating to 30September 2004 does not constitute the Company's statutory accounts for the yearended 30 September 2004 but is derived from those accounts, which have beenfiled with the Registrar of Companies. The auditors have reported on thoseaccounts; their report was unqualified and did not contain a statement undersection 237 (2) or (3) of the Companies Act 1985. (b) Forward looking statements This Press Release contains forward looking statements within the meaning ofSection 27A of the Securities Act 1933, as amended, and Section 21E of theSecurities Exchange Act 1934, as amended. These statements are subject to anumber of risks and uncertainties and actual results and events could differmaterially from those currently being anticipated as reflected in such forwardlooking statements. The terms 'expect', 'should be', 'will be', 'is likely to'and similar expressions identify forward looking statements. Factors which maycause future outcomes to differ from those foreseen in forward lookingstatements include, but are not limited to: general economic conditions andbusiness conditions in Compass Group's markets; exchange rate fluctuations;customers' and clients' acceptance of its products and services; the actions ofcompetitors; and legislative, fiscal and regulatory developments. (c) The timetable for the proposed interim dividend of 3.3p per share is asfollows: Ex dividend date: 13 July 2005Record date: 15 July 2005Payment date: 15 August 2005 (d) A presentation for analysts and investors will take place at 9:30 am (BST/London) on Wednesday 18 May 2005 at Merrill Lynch Financial Centre, 2 KingEdward Street, London, EC1. The live presentation can also be accessed via both a webcast and dial-inteleconference starting at 9:30 am: • To listen to the live presentation via teleconference, dial (UK) +44 20 7784 1018. • To view the presentation slides and/or listen to a live audio webcast of the presentation, go to www.compass-group.com or www.cantos.com. • Please note that remote listeners will not be able to ask questions during the Q&A session. A replay recording of the presentation will also be available via teleconferenceand webcast: • A teleconference replay of the presentation will be available for five working days, until 24 May 2005. To hear the replay, dial (UK) +44 20 7784 1024 or (US) +1 718 354 1112. The replay passcode is 1580174#. • 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 answerconference call starting at 1:00pm (EDT/New York) •To participate in the live question and answer session via conference call, dial (US) +1 718 354 1152. •A teleconference replay of the call will be available for five working days, until 24 May 2005. To hear the replay, dial (US) +1 718 354 1112. The replay passcode is 5146017#. •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 573000Michael J Bailey Group Chief ExecutiveAndrew Martin Group Finance DirectorSarah Ellis Director of Corporate Strategy and Investor Relations Brunswick + 44 (0) 20 7404 5959Simon SporborgPamela Small Websitewww.compass-group.com. Compass Group is the world's largest foodservice company with annual revenues ofsome £12 billion. Compass Group has over 400,000 employees working in more than90 countries around the world. For more information visit www.compass-group.com. Appendix CONTRACT GAINS AND RENEWALS1. New contract gains and renewals announced today and previously released in the financial year 2004/2005. Please note that contract gains/ renewals announced today are indicated with an '*'. Contract Business & Industry • * UK - Centrica renewed and extended its contract with Eurest for a further five years with annual turnover of £4.2 million (includes previously announced Selecta contract with annual turnover of £1.4 million).• * Germany - Alcatel (Stuttgart & Berlin) awarded Eurest a new five-year contract with annual turnover of £3.0 million.• * USA - AT&T awarded Eurest, in conjunction with Canteen, a new three-year contract with annual turnover of £2.7 million.• Sweden - Saab AB Linkoping awarded Eurest a new three-year contract with annual turnover of £1.3 million.• France - Bouygues Arc de Seine awarded Eurest a new three-year contract with annual turnover of £1.7 million.• Japan - Japan Post awarded Seiyo Food Systems a new three-year contract with annual turnover of £18.3 million. Defence, Offshore & Remote Site • * Australia - Commonwealth Government of Australia (Department of Defence, Corporate Services and Infrastructure Group) awarded ESS a new five-year contract with annual turnover of £13.1 million.• * UK - Transcocean awarded ESS Support Services Worldwide a new two-year contract with annual turnover of £2.8 million.• * Norway - Bechtel awarded ESS Onshore AS Norway a new two-year contract with annual turnover of £2.8 million.• UK - Armada project (MoD PFI) awarded ESS Support Services Worldwide a new five-year contract with annual turnover of £4.0 million.• Norway - Statoil renewed its contract with ESS Offshore for a further five years with annual turnover of £11.6 million, covering Statfjord A, B and C platforms. Healthcare • * Morocco - University Hospital of Rabat (CHIS) awarded Eurest Maroc a new five-year contract with annual turnover of £1.9 million.• * Sweden - Maria Gamla Stan District Council awarded Medirest a new three-year contract with annual turnover of £1.5 million.• * USA - Trinitas Hospital (NJ) awarded Morrison Management Specialists, in conjunction with Crothall and Canteen Vending, a new five-year contract with annual turnover of £1.0 million.• Norway - Ulleval Patient Hospital awarded Medirest a new three-year contract with annual turnover of £2.1 million.• USA - Rest Haven Christian Services (IL) awarded Morrison Management Specialists a new five-year contract with annual turnover of £4.1 million.• UK - West Hertfordshire Hospitals NHS Trust renewed its contract with Medirest for a further five years with annual turnover of £8.6 million.• UK - Homerton University Hospital NHS Foundation Trust awarded Medirest a new five-year contract with annual turnover of £4.0 million. Education • * USA - Chicago Public Schools expanded and extended its contract with Chartwells-Thomson Hospitality for a further year with annual incremental turnover of £14.7 million.• * USA - Edinboro University awarded Chartwells Higher Education Dining Services a new seven-year contract with annual turnover of £2.7 million.• UK - Durham County Council renewed its contract with Scolarest for a further two years with annual turnover of £8.6 million.• UK - Millfield School (Somerset) renewed its contract with Scolarest for a further three years with annual turnover of £2.5 million.• USA - Olivet College (MI) awarded Chartwell's Higher Education a new ten-year contract with annual turnover of £0.8 million.• USA - Norfolk State University (VA) awarded Thomson Hospitality a new five-year contract with annual turnover of £3.0 million. Correctional • * Netherlands - The Directorate for Temporary Detention and Special Facilities awarded Eurest a new four-year contract with annual turnover of £2.8 million.• * Mexico - Reclusorios Edo Jalisco awarded Eurest a new one-year contract with annual turnover of £2.6 million. Sports & Leisure • * UK - Bristol Zoo Gardens awarded Milburns (All Leisure) a new ten-year contract with annual turnover of £1.8 million.• Germany - SAP Arena (Mannheim) awarded Eurest Sports & Food a new two-year contract with annual turnover of £2.7 million.• Japan - Fukuoka Mutual Aid Association awarded Seiyo Food Systems a new five-year contract with annual turnover of £2.3 million.• UK - Hatfield House awarded Leith's a new ten-year contract with annual turnover of £1.0 million.• USA - University Place at Indiana University-Purdue University Indianapolis (IN) awarded Flik Conference Center Management a new ten-year contract with annual turnover of £8.5 million. Vending • * USA - United Parcel Service awarded Canteen a new five-year contract with annual turnover of £1.0 million.• USA - Cardone Industries, Inc. awarded Vendlink a new one-year contract with annual turnover of £0.5 million. Travel Concessions • * Norway - Oslo Lufthavn AS extended its contract with SSP for a further seven years with annual turnover of £17.2 million.• * Boston Logan International Airport awarded Creative Host Services a new eight-year contract with annual turnover of £1.5 million.• Spain - AVE-Renfe renewed its contract with Rail Gourmet for a further four years with annual turnover of £24.1 million. INDEPENDENT REVIEW REPORT TO COMPASS GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2005 which comprises the consolidated profit andloss account, the consolidated balance sheet, the consolidated statement oftotal recognised gains and losses, the consolidated cash flow statement, thenotes to the consolidated cash flow statement and related notes 1 to 11. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe 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 wehave formed. Directors' responsibilities The 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 accountingpolices 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. Review work performed We 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 United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On 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 2005. Deloitte & Touche LLPChartered AccountantsLondon18 May 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 31 March 2005 Year Before ended 30 Sep goodwill Goodwill 2005 2004 2004In £ million Notes amortisation amortisation Reviewed Reviewed Audited------------------- ------- ------- ------- ------- ------- ------ TurnoverContinuingactivities 6,185 - 6,185 5,844 11,772Acquisitions 6 - 6 - -------------------- ------- ------- ------- ------- ------- ------ Total turnover 2 6,191 - 6,191 5,844 11,772Operatingcosts (5,864) (136) (6,000) (5,637) (11,276)------------------- ------- ------- ------- ------- ------- ------ Operating profitContinuingactivities 327 (136) 191 207 496Acquisitions - - - - -------------------- ------- ------- ------- ------- ------- ------ 2 327 (136) 191 207 496 Share of operatingprofits ofassociatedundertakingsContinuingactivities 1 - 1 1 2 Discontinuedactivities - - - 2 2------------------- ------- ------- ------- ------- ------- ------ Total operatingprofit: Group andshareof associatedundertakings 2 328 (136) 192 210 500------------------- ------- ------- ------- ------- ------- ------ Interestreceivable andsimilar income 1 - 1 4 5Interestpayable andsimilarcharges (69) - (69) (69) (135)------------------- ------- ------- ------- ------- ------- ------ Net interest (68) - (68) (65) (130)------------------- ------- ------- ------- ------- ------- ------ Profit onordinaryactivitiesbeforetaxation 260 (136) 124 145 370Tax on profiton ordinaryactivities 3 (65) - (65) (73) (152)------------------- ------- ------- ------- ------- ------- ------ Profit onordinaryactivitiesafter taxation 195 (136) 59 72 218Equityminorityinterests (18) - (18) (19) (38)------------------- ------- ------- ------- ------- ------- ------ Profit for thefinancialperiod 177 (136) 41 53 180Equitydividends 4 (71) - (71) (66) (200)------------------- ------- ------- ------- ------- ------- ------ Amounttransferredto/(from)reserves 7 106 (136) (30) (13) (20)------------------- ------- ------- ------- ------- ------- ------ Basic earningsper ordinaryshare 5 1.9p 2.5p 8.3p------------------- ------- ------- ------- ------- ------- ------ Basic earnings perordinary share -excludinggoodwillamortisation 5 8.2p 8.8p 21.1p------------------- ------- ------- ------- ------- ------- ------ Dilutedearnings perordinary share 5 1.9p 2.4p 8.3p------------------- ------- ------- ------- ------- ------- ------ Diluted earningsper ordinary share-excludinggoodwillamortisation 5 8.2p 8.8p 21.0p------------------- ------- ------- ------- ------- ------- ------ The half-year results are unaudited but have been reviewed by the auditors. Theresults for the year ended 30 September 2004 do not comprise statutory accountsfor the purpose of Section 240 of the Companies Act 1985 and have been extractedfrom the Group's published accounts for that year which have been filed with theRegistrar of Companies. The audit report on these accounts was unqualified anddid not contain a statement under Section 237 (2) or (3) of the Companies Act1985. CONSOLIDATED BALANCE SHEETAs at 31 March 2005 31 Mar 2005 31 Mar 2004 30 Sep 2004In £ million Notes Reviewed Reviewed Audited----------------------------- ------ -------- ------- -------- Fixed assetsintangible assets 4,148 4,217 4,223Tangible assets 1,822 1,735 1,805Investments 35 75 30----------------------------- ------ -------- ------- -------- 6,005 6,027 6,058 ----------------------------- ------ -------- ------- -------- Current assetsStocks 282 251 279Debtors: amounts falling duewithin one year 1,734 1,549 1,568amounts falling due after morethan one year 283 271 287Cash at bank and in hand 272 284 266----------------------------- ------ -------- ------- -------- 2,571 2,355 2,400Creditors: amounts falling duewithin one year (2,944) (2,900) (2,872)----------------------------- ------ -------- ------- -------- Net current liabilities (373) (545) (472)----------------------------- ------ -------- ------- -------- Total assets less currentliabilities 5,632 5,482 5,586 Creditors: amounts falling dueafter more than one year (2,728) (2,500) (2,665)Provisions for liabilities andcharges 6 (388) (399) (385)Equity minority interests (69) (58) (54)----------------------------- ------ -------- ------- -------- Net assets 2,447 2,525 2,482----------------------------- ------ -------- ------- -------- Capital and reservesCalled up share capital 216 215 216Share premium account 7 93 92 93Capital redemption reserve 7 9 9 9Merger reserve 7 4,170 4,170 4,170Profit and loss account 7 (2,040) (1,960) (2,005)Less: own shares (1) (1) (1)----------------------------- ------ -------- ------- -------- Total equity shareholders' 8 2,447 2,525 2,482funds ------ -------- ------- ------------------------------------- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the six months ended 31 March 2005 Year ended 2005 2004 30 Sep 2004In £ million Reviewed Reviewed Audited-------------------------------- -------- ------- -------- Profit for the financial period 41 53 180Currency translation differences on foreigncurrency net investments (5) 21 (17)-------------------------------- -------- ------- -------- Total gains and losses recognised in theperiod 36 74 163-------------------------------- -------- ------- -------- CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 March 2005 Year ended 2005 2004 30 Sep 2004In £ million Notes Reviewed Reviewed Audited---------------------------- ------ -------- -------- -------- Net cash inflow from operatingactivities I 373 373 735Dividends from associated 2 2 4undertakings ------ -------- -------- ------------------------------------Returns on investments and servicingof financeInterest received 1 3 5Interest paid (78) (60) (134)Proceeds from termination ofinterest - - - 104rate swapsInterest element of finance leaserental payments (1) (1) (2)Dividends paid to minority interests (9) (14) (30)---------------------------- ------ -------- -------- -------- Net cash outflow from returns oninvestments and servicing of finance (87) (72) (57)---------------------------- ------ -------- -------- -------- TaxationTax received 13 1 5Tax paid (56) (36) (112)---------------------------- ------ -------- -------- -------- Net tax paid (43) (35) (107)---------------------------- ------ -------- -------- -------- Capital expenditure and financialinvestmentPurchase of tangible fixed assets (175) (196) (365)Sale of tangible fixed assets 11 14 36---------------------------- ------ -------- -------- -------- Total capital expenditure andfinancial investment (164) (182) (329)---------------------------- ------ -------- -------- -------- Free cash flow 81 86 246---------------------------- ------ -------- -------- --------Acquisitions and disposalsPurchase of subsidiary companies andinvestments in associated (101) (50) (167)undertakingsNet proceeds from businesses heldfor - - 19resaleSale of minority interest - - 3Sale of subsidiary companies andassociated undertakings - 6 64---------------------------- ------ -------- -------- -------- Total acquisitions and disposals (101) (44) (81)Equity dividends paid (134) (183) (249)---------------------------- ------ -------- -------- -------- Net cash outflow from investingactivities (235) (227) (330)---------------------------- ------ -------- -------- -------- Net cash outflow before financing (154) (141) (84)---------------------------- ------ -------- -------- --------FinancingIssue of ordinary share capital - 8 10Repurchase of share capital - (91) (91)Purchase of own shares, net - (1) (1)Debt due within a year:Decrease in bank loans and loan (42) (47) (26)notesDebt due after a year:Increase in bank loans and loan 122 291 270notesCapital element of finance leaserentals (9) (14) (21)---------------------------- ------ -------- -------- -------- Net cash inflow from financing 71 146 141---------------------------- ------ -------- -------- -------- (Decrease)/increase in cash in theperiod (83) 5 57---------------------------- ------ -------- -------- -------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 March 2005 Year endedRelated Shares:
Compass Group