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Cost-cutting helps boost Compass Group full-year profit, offsetting impact of lower volumes, flat margins

The FTSE 100-listed company's underlying operating profit rose to £1.74bn for the year ended September 30, up from £1.63bn a year earlier, even though its operating margin was flat at 7.4%
Catering food
The world’s biggest contract caterer saw its full-year underlying revenue rise by 5.5% to £23.24bn, up from £21.84bn a year earlier

Compass Group PLC (LON:CPG) saw the benefits of its cost-cutting plans help boost its full-year profit, offsetting the impact of lower volumes, flat margins, and higher costs at its UK business.

The FTSE 100-listed company's underlying operating profit rose to £1.74bn for the year ended September 30, up from £1.63bn a year earlier, even though its operating margin was flat at 7.4%.

READ: Compass Group serves up lukewarm offering

The world’s biggest contract caterer saw its full-year underlying revenue rise by 5.5% to £23.24bn, up from £21.84bn a year earlier.

The firm highlighted excellent growth in North America, with organic revenue up 7.8%, while in Europe organic revenue grew by 2.1% driven by strong net new business in the UK.

Dominic Blakemore, Compass’s group chief executive, said: “We are actively managing the portfolio to increase our focus on food and are in the process of disposing of up to 5% of revenues in non-core businesses. We continually look at bolt-on acquisition opportunities that strengthen our offer and meet our strict returns criteria.”

He added: “Our expectations for FY2019 are positive. The pipeline of new contracts is strong and our focus on organic growth, efficiencies and cash gives us confidence in achieving another year of progress. We expect organic growth to be in the middle of our 4-6% range with modest margin progression.”

The CEO concluded: “In the longer term, we remain excited about the significant structural growth opportunities globally, the potential for further revenue growth and margin improvement, combined with further returns to shareholders." 

The group raised its annual dividend by 12.5% to 37.7p per share, up from 33.5p a year earlier

Solid performance

Steve Clayton, manager of the HL Select funds which have positions in Compass Group said: “This was a solid performance by Compass, with 12.5% growth in adjusted earnings per share and dividends. At the reported level, currency is holding the numbers back, but the underlying progress is strong.”

He added: “Like many companies with large workforces, Compass is finding it harder to get the staff it needs without wage rates edging up, especially in the UK and USA.  This is the environment when managements prove their worth and so far, Compass seems to be handling the labour squeeze well.

“The group’s 95% client retention rate means that new contract wins quickly drop through to growth, rather than being needed to replace clients who have walked away. The combination of strong cost control and loyal clients allowed the group to edge margins higher, despite the difficult economic backdrop.”

In late morning trading, Compass Group shares were 2,7% higher at 1,629.50p.

 -- Adds fund manager comment, share price --

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