Compass points way to improve profits

May 14 2008

The world’s biggest catering firm managed to post an increase in profitability today, despite wrestling with continued high food inflation.

Compass said its profit margin rose to 5.7% during the first half to March 31, compared to 5.1% for the previous year’s period.

The group, whose UK clients include Premiership teams Manchester United and Chelsea, the Bank of England, and Wimbledon’s All-England Lawn Tennis club, also enjoyed organic sales growth of 5%, taking total revenues to £5.6 billion.

Compass said its “basket of goods” was costing up to 5% more but was countering the higher bills by using fewer suppliers, re-jigging menus and passing on the increased costs to customers.

The firm reported pre-tax profits of £281 million, up more than a quarter from the previous year and ahead of City estimates.

Compass, which spends £3.5 billion on food every year, said: “We continue to see market inflation for our basket of goods of 4% to 5%.

“Although the increases occurring in dairy, rice and pasta prices have been at significantly higher rates, these account for only about 10% of the group’s spend on food.”

The firm highlighted its contract retention rates of 94%, and its balanced geographical spread as well as exposure to different business sectors. Earlier this month its top end UK catering business, Restaurant Associates, signed a deal with chef Gordon Ramsay to help develop blue-chip corporate dining.

Nearly half of Compass’ business comes from North America, which saw 7% organic growth during the first half.

UK sales were £965 million, up 1%, with the rest of Europe contributing £1.48 billion, 4% ahead. The rest of the world weighed in with £869 million of sales, 9% ahead.

Robert Morton at Numis Securities hailed the results as “very impressive”.

He said: “Today’s results are clearly very good, with the strong margin improvement particularly impressive. Prospects for the full year and next year look very encouraging.”

Shares were up more than 2%.