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Compass Group Pointing in the Right Direction

Thursday - 5/16/2013, 5:49pm  ET

LONDON -- Compass Group , the food and support services supplier with operations in 50 countries worldwide, reported for the six months ended March 31 an increase in revenues in constant currency of 4% to 8,804 million pounds, operating profits rising 6.6% to 650 million pounds, and profits before tax jumping 8.1% to 611 million pounds. The revenue growth was driven in large part by North America rising by 6.8% to 4,059 million pounds and the fast-growing and emerging segment increasing 13% to 1,665 million pounds.

Earnings per share was 23.1 pence (2012: 22.5 pence) and an interim dividend of 8 pence per share was announced, an 11.1% increase. Free cash flow from continuing operations totaled 343 million pounds, a rise of 25%. Early trading saw the shares jump 2.3% to 890 pence.

Commenting on the results, Richard Cousins, group chief executive, said:

Compass has started the year well. We have generated organic revenue growth of over 4%, reflecting the strength of the performance in North America and Fast Growing and Emerging. Economic conditions in Europe and Japan remain challenging but we are executing the action plans we announced last year and improving our operating efficiency significantly. 

This, combined with ongoing efficiencies across the business, has delivered a 15 basis points increase in the operating margin. Looking forward, I remain positive about the significant structural growth opportunities in our markets and the potential for further revenue and margin growth.

Food is still the core business for Compass. The estimated market size is 200 billion pounds and the penetration rate so far is around 50%, so there is room for growth. The company believe that health care and education establishments have the most potential as operations in business and industry are well established now. 

Compass is continuing to pursue other service areas, the largest of which is defense. The strategy is to adopt a low-risk incremental approach rather than invest heavily in infrastructure at this point. This all points to further steady growth, with only European markets remaining a real concern.

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This article was originally published as Compass Group Pointing in the Right Directionon Fool.com

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