Compass Group reports strong trading performance, revenue increased by 10.8%

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Compass Group plc (LON:CPG) has announced its full yeasr results for the year ended 30 September 2024.

	Underlying¹ results			Statutory results
	2024	Restated²2023	Change	2024	Restated²2023	Change
Revenue	$42.2bn	$38.1bn³	10.6%⁴	$42.0bn	$37.9bn	10.8%
Operating profit	$2,998m	$2,576m³	16.4%³	$2,584m	$2,313m	11.7%
Operating margin	7.1%	6.8%	30bps	6.2%	6.1%	10bps
Earnings per share	119.5c	104.3c³	14.6%³	82.3c	92.2c	(10.7)%
Operating cash flow	$2,642m	$2,228m	18.6%	$3,135m	$2,536m	23.6%
Free cash flow	$1,740m	$1,516m	14.8%
Annual dividend per share	59.8c	52.6c	13.7%	59.8c	52.6c	13.7%

Another year of strong performance.

Confident in delivering high single-digit profit growth⁵ in 2025.

Strong revenue and profit growth:

· Underlying operating profit growth of 16.4%³

– organic revenue increased by 10.6% with net new business growth of 4.2%, which accelerated in H2

– underlying operating margin of 7.1% (+30bps year on year), with good progress in all regions

· Underlying operating cash flow increased by 18.6% to $2.6bn, providing flexibility for investment

· Invested $2.6bn in growth through capex (3.7% of underlying revenue) and M&A ($1bn)

· Returned $1.5bn to shareholders through dividends and share buybacks

· Strong balance sheet (net debt to EBITDA of 1.3x) and consistent capital allocation model

Strategic highlights:

· Increased focus and investment in the significant growth opportunities across our core markets

· Acquired, or agreed to acquire, attractive businesses in Europe: HOFMANN^S, CH&CO, Dupont Restauration and 4Service AS

· Further improved the quality of our portfolio by exiting, or agreeing to exit, nine non-core markets

Outlook:

· For 2025, we expect high single-digit underlying operating profit growth⁵ driven by organic revenue growth above 7.5% and ongoing margin progression

· Longer term, we are confident in sustaining mid-to-high single-digit organic revenue growth, ongoing margin progression and profit growth ahead of revenue growth

Statutory results:

· Revenue increased by 10.8% reflecting the strong trading performance

· Operating profit, including non-underlying charges related to business acquisitions and reshaping our portfolio, increased by 11.7% to $2,584m

· Basic earnings per share decreased by 10.7%, to 82.3c, as the higher operating profit is more than offset by the impact of the reclassification of cumulative currency translation differences on sale of businesses, higher finance costs and higher effective tax rate

1. Reconciliation of statutory to underlying results can be found in notes 2 (segmental analysis) and 14 (non-GAAP measures) to the consolidated financial statements.

2. With effect from 1 October 2023, the reporting currency of the Group was changed from sterling to US dollars. The results for the year ended 30 September 2023 have been restated in US dollars.

3. Measured on a constant-currency basis.

4. Organic revenue change.

5. On a constant-currency basis, including announced acquisitions, disposals and exits in 2024 and to date in 2025.

Business review

Dominic Blakemore, Compass Group Chief Executive, said:

“2024 has been a year of strong operational and financial performance, with net new business growth accelerating in the second half as expected. The business continues to successfully capitalise on the dynamic market trends, using its proven competitive advantages to drive higher revenue and profit growth.

We have exited, or agreed to exit, nine non-core countries, further improving the quality of our portfolio and enabling us to better focus on our core markets with the greatest growth opportunities. To support this growth, we’re investing in capex to drive net new business and are currently prioritising strategic acquisitions to further enhance our unique sectorised approach to clients.

We have a proven track record of successful M&A in North America and are using that blueprint to unlock growth in other regions. The integration of recent high-quality acquisitions in Europe is progressing well, and we’re excited by the capabilities they bring to the Group.

In 2025, we expect high single-digit underlying operating profit growth, driven by organic revenue growth above 7.5% and ongoing margin progression. Longer term, we are confident in sustaining mid-to-high single-digit organic revenue growth with ongoing margin progression, leading to profit growth ahead of revenue growth. Our priority is to invest in the business through capex and M&A to support future growth, with surplus capital being returned to shareholders as we maintain our strong track record of delivering long-term, compounding shareholder returns.”

Results presentation today

Today, 26 November 2024, management will present Compass Group’s Full Year 2024 results.

At 9:00 am (UK time), investors and analysts will be able to view a video presentation which will stream live on the Compass Group website at www.compass-group.com. An audio-only telephone option is available if you are unable to watch the video.

Following the video presentation, management will host a live Q&A session for investors and analysts. Participants must be connected by phone to ask a question during the conference call.

Participant dial in details:

UK	+44 (0) 33 0551 0200
UK Toll-Free	0808 109 0700

US	+1 786 697 3501
US Toll-Free	+1 866 580 3963

Financial calendar

Ex-dividend date for 2024 final dividend	16 January
Record date for 2024 final dividend	17 January
Last day for dividend currency elections	3 February
Last day for DRIP elections	6 February
Q1 Trading Update / Annual General Meeting	6 February
Sterling equivalent of 2024 final dividend announced	11 February
Half-year results	14 May

Business review (continued)

Basis of preparation

With effect from 1 October 2023, the reporting currency of the Group was changed from sterling to US dollars. The change in presentation currency provides investors and other stakeholders with greater transparency in relation to the Group’s performance and reduces foreign exchange volatility on earnings given that approximately three-quarters of the Group’s underlying operating profit originates in US dollars. The amounts for prior periods have been translated into US dollars at average exchange rates for the relevant periods for income statements and cash flows, with spot rates used for significant transactions, and at the exchange rates on the relevant balance sheet dates for assets and liabilities.

Throughout this Annual Results Announcement, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group’s performance alongside statutory measures (see page 6).

Strategy

Compass is focused on the provision of food services, with targeted support services where appropriate. By divesting of non-core markets we have further improved the quality of our portfolio. This also enables us to better focus on our core markets, where there remain significant opportunities for growth. We now operate in around 30 countries in North America, Europe, and Asia-Pacific.

Our addressable market in food services is worth c.$320bn, a significant proportion of which remains self-operated. More demanding consumer expectations and increased macroeconomic pressures have contributed to the acceleration of first-time outsourcing, and we have clear competitive advantages built over the last 30 years to capture these opportunities.

Our sector and sub-sector portfolio enables us to better differentiate our offer compared to our competitors and create bespoke solutions for our clients. We also leverage our scale, particularly in food procurement, and are increasing the flexibility of our offer, ranging from different food models to digital or sustainability initiatives.

Our thought leadership and solutions in these areas are also often cited by clients as one of the reasons they outsource to Compass.

Performance

Compass has delivered another strong year, with organic revenue growth of 10.6%¹ and underlying operating margin improving by 30bps to 7.1%¹. As a result, underlying operating profit grew by 16.4%¹ on a constant-currency basis to $2,998m¹ (2023: $2,576m).

Statutory revenue increased by 10.8% reflecting the strong trading performance. Statutory operating profit increased by 11.7% to $2,584m.

Cash flow generation remains robust, with underlying operating cash flow of $2,642m¹ (2023: $2,228m) and underlying free cash flow of $1,740m¹ (2023: $1,516m). Leverage (net debt to underlying EBITDA) remains well within the Group’s guided range at 1.3x¹ as at 30 September 2024.

Our strong balance sheet provides us with flexibility to invest in future growth, both through M&A and capital expenditure, which was 3.7% of underlying revenue¹. This was slightly higher than our guidance of 3.5% due to catch-up from the prior year.

Net M&A expenditure was $1,040m, the main outflows being HOFMANN^S (Germany) and CH&CO (UK and Ireland), offset by an inflow from the disposal of Brazil. Subsequent to the year-end, the Group also completed the acquisition of Dupont Restauration, a food services business in France, and agreed to acquire 4Service AS, a catering and facility management services business in Norway.

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The Group has refined its portfolio and has exited five countries during the year, those being Argentina, Angola, Brazil, mainland China and the United Arab Emirates. In addition, we have also agreed to exit Chile, Colombia, Mexico and Kazakhstan, subject to regulatory approval and completion procedures.

Revenue

Organic revenue growth was strong at 10.6%¹, including net new business growth of 4.2%¹, which remains above our historical level of approximately 3%, pricing of around 4% and like-for-like volume growth of around 2%. As expected, volume growth moderated during the year as we lapped strong prior year comparatives. Client retention rates remained strong at 96.0%.

On a statutory basis, revenue increased by 10.8% to $42,002m (2023: $37,907m).

Profit

Underlying operating profit increased by 16.4%¹ on a constant-currency basis, to $2,998m¹, with underlying operating margin at 7.1%¹ (2023: 6.8%). Strong margin progression was achieved across all regions, underpinned by our operational scale, efficiencies and appropriate levels of pricing to mitigate inflation.

1.	Alternative Performance Measure (APM). The Group’s APMs are defined in note 14 (non-GAAP measures) and reconciled to GAAP measures in notes 2 (segmental analysis) and 14 to the consolidated financial statements.

Business review (continued)

Statutory operating profit was $2,584m (2023: $2,313m), an increase of 11.7%, with statutory operating margin of 6.2% (2023: 6.1%).

Statutory profit before tax of $2,056m (2023: $2,137m) includes net charges of $693m¹ (2023: $289m) which are excluded from underlying profit before tax, including net charges of $373m (2023: $94m) in relation to our strategic portfolio review to focus on the Group’s core markets and acquisition-related charges of $244m (2023: $153m).

Charges related to our strategic portfolio review include a net loss of $203m (2023: net gain of $24m) on the sale and closure of businesses, including exit costs of $92m (2023: $14m) and a charge of $250m (2023: credit of $1m) in respect of the reclassification of cumulative currency translation differences. We exited five countries during the year and, in July, the Group agreed the sale of its businesses in Chile, Colombia and Mexico, subject to regulatory approval and completion procedures. Subsequent to the year-end, we agreed the sale of our business in Kazakhstan, subject to regulatory approval. As part of our strategic portfolio review, and considering country exits, ongoing advancement of technologies and the increased decentralisation of our business, we have reviewed our European regional business transformation ERP programme that commenced a number of years ago. We have decided to discontinue the implementation and roll out of our cross-market ERP programme and, accordingly, have recognised a charge of $160m as a specific adjusting item, which includes $146m for the non-cash impairment of work-in-progress head office (non-client-related) computer software assets. An impairment charge of $10m has been recognised in respect of our business in Qatar.

In the prior year, the net charge included the exit from seven tail countries and the sale of a business, site closures and contract renegotiations and terminations in the UK.

2025 guidance

The Group expects to achieve high single-digit underlying operating profit growth² in 2025 with organic revenue growth above 7.5%¹. We expect underlying finance costs to be around $300m¹, with an underlying effective tax rate of around 25.5%¹.

The net impact of announced acquisitions, disposals and exits in 2024 and to date in 2025 is expected to reduce underlying operating profit by around $30m¹ in 2025.

Capital allocation

Our capital allocation framework is clear and unchanged. Our priority is to invest in the business to fund growth opportunities, target a strong investment-grade credit rating with a leverage target of around 1x-1.5x net debt to EBITDA and pay an ordinary dividend, with any surplus capital being returned to shareholders.

Growth investment consists of: (i) capital expenditure to support organic growth in both new business wins and retention of existing contracts; and (ii) bolt-on M&A opportunities that strengthen our capabilities and broaden our exposure. We have a proven track record of strong returns from our investment strategy as evidenced by our historical returns on capital employed.

Shareholder returns

Our dividend policy is to pay out around 50% of underlying earnings through an interim and final dividend, with the interim dividend reflecting around one-third of the total annual dividend. The Board has proposed a final dividend of 39.1c which, including the interim dividend of 20.7c, gives a total dividend of 59.8c for 2024.

Shareholders appearing on the Register of Members or holding their shares through CREST will automatically receive their dividends in sterling, but have the option to elect to receive their dividends in US dollars. Details on how to elect to receive the final dividend in US dollars are provided on page 10.

At the date of this Announcement, $476m of the $500m share buyback announced in November 2023 had been completed, with the remainder scheduled to complete in December 2024. We prioritise investment in the business through capex and M&A to support future growth, with any surplus capital being returned to shareholders as we maintain our strong track record of delivering long-term, compounding shareholder returns.

People

Our team of about 580,000 colleagues delivers exceptional experiences to clients and consumers worldwide every day. These dedicated professionals are the core of our business, and our people strategy is designed to identify, attract, develop, support, and retain the high-calibre talent essential for achieving our objectives.

Our goal is to provide lifelong opportunities for diverse individuals from the communities we serve, ensuring they work in a positive and secure environment. This approach is bolstered by empowered teams and proactive leaders, grounded in respect, teamwork, and growth.

1.	Alternative Performance Measure (APM). The Group’s APMs are defined in note 14 (non-GAAP measures) and reconciled to GAAP measures in notes 2 (segmental analysis) and 14 to the consolidated financial statements.
2.	On a constant-currency basis, including announced acquisitions, disposals and exits in 2024 and to date in 2025.

Business review (continued)

When sourcing new talent, we assess the specific requirements of each sector and organisational level, adjusting our recruiting strategies accordingly. For example, our North America business employs targeted campaigns, process automation, AI, and other tools to locate suitable candidates and facilitate their engagement with the selection process in their preferred language and at convenient times.

We aspire to cultivate a diverse and inclusive workforce at all levels. Our focus is on treating everyone with fairness and respect, providing opportunities for growth and development, and fostering a positive, supportive workplace throughout their careers.

Recognising the challenges of daily life, we offer a variety of support measures to ensure our employees’ wellbeing, encompassing physical, financial, and mental health.

Purpose

We are dedicated to building a sustainable future for everyone. We harness our passion for food, advocate for responsible sourcing, and reduce food waste on a large scale to drive global change and improve lives.

Through culinary innovation, collaboration, and partnerships, we are committed to achieving climate net zero across our global operations by 2050 as part of our Planet Promise. This isn’t achievable through a single solution; instead, we continually review and enhance our practices across the Group to amplify our impact and expedite our progress towards sustainability goals.

One significant initiative demonstrating our commitment to reducing food waste is linking a food waste-related KPI to the annual bonus plan of our executive directors and senior management.

Our culinary teams and front-line staff understand the importance of minimising food waste and are utilising various waste-reduction technologies. For example, Waste Not 2.0 is our proprietary tablet-based online tracking tool for chefs, and has been deployed in 12 countries, helping kitchen teams to identify opportunities to reduce food waste and giving our unit managers tools to report on their carbon footprint.

Whilst the Group’s absolute Scope 1, 2 and 3 emissions increased year on year due to new business wins, our overall greenhouse gas intensity ratio (normalised for revenue growth) reduced by 4% compared to 2023.

Part of our core identity is being an ethical, sustainable, and inclusive business. By integrating these principles into our culture, we aim to make a meaningful difference and positively influence the world. Our customers and partners increasingly align with these values, which are crucial for our growth goals and long-term success.

Summary

Our 2024 results were strong across all our key performance metrics. We delivered double-digit organic revenue growth and good margin progress, driving strong underlying operating profit growth. The Group remains very cash generative, enabling us to invest in future opportunities for growth and return capital to shareholders, whilst maintaining a strong balance sheet.

We have further improved the quality of our portfolio, having exited, or agreed to exit, nine countries. The Group is also increasing investment in its core markets, particularly in Europe, where there are significant first-time outsourcing opportunities. We are consistently delivering net new business growth in our target 4 to 5% range, with excellent client retention.

The Group is continuing to develop its sub-sector portfolio, particularly in Europe, where we have acquired, or agreed to acquire, four great businesses. These also provide us with additional resources and talent to help drive growth. We are also increasing investment in more flexible operating models and innovating our offer to meet more sophisticated consumer demands.

We remain excited about the significant global structural opportunities and continue to anticipate profit growth ahead of revenue growth. We expect our established value creation model to continue to deliver strong earnings momentum, rewarding shareholders with compounding returns over the long term.