REG - Compass Group PLC - Half-year results
10/05/2023 07:00
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RNS Number : 8509Y Compass Group PLC 10 May 2023
Legal Entity Identifier (LEI) No. 2138008M6MH9OZ6U2T68
Half-year results announcement for the six months ended 31 March 2023
Underlying(1) results Statutory results
HY 2023 HY 2022 Change HY 2023 HY 2022 Change
Revenue £15.8bn £12.6bn(2) 24.7%(3) £15.7bn £11.5bn 36.2%
Operating profit £1,050m £744m(2) 41.1%(2) £878m £638m 37.6%
Operating margin 6.6% 5.8% 80bps 5.6% 5.5% 10bps
Earnings per share 42.7p 29.9p(2) 42.8%(2) 36.4p 26.7p 36.3%
Operating cash flow £871m £557m 56.4% £944m £663m 42.4%
Free cash flow £590m £360m 63.9%
Interim dividend per share 15.0p 9.4p 59.6% 15.0p 9.4p 59.6%
Strong half-year results, raising FY 2023 guidance and announcing
a further share buyback of up to £750m
Half-year highlights
· Strong organic revenue growth of 25% with excellent net new business
of 5.2%
- First-time outsourcing trends continue, accounting for c.45% of new business
wins
- Balanced growth across all regions with very strong performance in Europe
- Maintaining strong client retention rate
· Operating profit over £1bn and operating profit margin of 6.6%, up
80bps
· Strong cash generation, net debt to EBITDA reduced to 1.1x
· Further share buyback of up to £750m to be completed this calendar
year
Strategic priorities for growth - capturing the outsourcing market
opportunities
· Sustaining the outperformance in North America
· Building a track record of growth in Europe and Rest of World
· Exited six tail countries as we continue to reshape our portfolio to
focus on growth opportunities in attractive markets
Raising FY 2023 outlook
· Operating profit growth(2) towards 30% (from above 20%), delivered
through:
- Organic revenue growth of around 18% (from around 15%)
- Operating margin in the range of 6.7% to 6.8% (from above 6.5%)
Change in reporting currency
· Group to report in US dollars from 1 October 2023 to align with our
business exposure and reduce foreign exchange volatility on earnings
Statutory results
· Statutory revenue increased by 36.2% reflecting trading performance
and favourable exchange translation
· Statutory operating profit, which includes charges from reshaping our
portfolio and acquisition-related charges both of which are excluded from
underlying operating profit, increased by 37.6%, with statutory operating
margin up 10bps
1. Reconciliation of statutory to underlying results can be found in notes
2 (segmental analysis) and 11 (non-GAAP measures) to the consolidated
financial statements.
2. Measured on a constant-currency basis.
3. Organic revenue change.
Business review
Dominic Blakemore, Group Chief Executive, said:
"The Group performed strongly in the first half of the year, benefiting from
balanced growth across all regions.
Net new business continued to be excellent, and significantly higher than our
historical rate. We are particularly pleased with the step change in our
Europe performance which has benefited from growth initiatives as well as
favourable outsourcing conditions.
Despite pockets of macroeconomic weakness, the outsourcing market remains very
attractive. We believe that many of the complexities that drive outsourcing,
such as increased regulation, changing client and consumer expectations, and
inflation, are here to stay. With our strong cash generation, we continue to
invest in our business and evolve our operating model, further enhancing our
scale and competitive advantage.
Following our strong first-half performance, we now expect operating profit
growth towards 30% on a constant-currency basis, to be delivered through
organic revenue growth of around 18% and an underlying operating margin in the
range of 6.7% to 6.8%. The strength of our balance sheet, along with our
confidence in the prospects for the business, give us the platform for further
returns to shareholders. In addition to our ordinary dividend, we are
announcing a further share buyback of up to £750m in 2023, taking the total
programme announced since May 2022 to £1.5bn.
Longer term, we expect the growth opportunities in the market to sustain
mid-to-high single-digit organic growth and a path back to our historical
margin, leading to profit growth above revenue growth. With our established
value creation model intact, we will continue rewarding shareholders with
compounding returns over the long term."
Results presentation today
A recording of the results presentation for investors and analysts will be
available on the Company's website today, Wednesday 10 May 2023, at 7.00am.
There will be a live Q&A session at 9.00am, accessible via the Company's
website, www.compass-group.com (http://www.compass-group.com) , and you will
be able to participate by dialing:
UK Toll Number:
+44 (0) 33 0551 0200
UK Toll-Free Number: 0808 109 0700
US Toll Number: +1 786 697 3501
US Toll-Free Number: +1 866 580 3963
Participant PIN Code: Compass
Please connect to the call at least 10 minutes prior to the start time.
2023 financial calendar
Ex-dividend date for 2023 interim dividend 8 June
Record date for 2023 interim dividend 9 June
Last day for DRIP elections 6 July
Q3 Trading Update 25 July
2023 interim dividend date for payment 27 July
Full-year results 20 November
Enquiries
Investors Agatha Donnelly, Helen Javanshiri & Simon Bielecki +44 1932 573 000
Press Giles Robinson, Compass Group PLC +44 1932 963 486
Tim Danaher, Brunswick +44 207 404 5959
Website www.compass-group.com (http://www.compass-group.com)
Business review (continued)
Basis of preparation
Throughout the Half Year Results Announcement, and consistent with prior
periods, underlying and other alternative performance measures are used to
describe the Group's performance alongside statutory measures.
The Executive Committee manages and assesses the performance of the Group
using various underlying and other Alternative Performance Measures (APMs).
These measures are not recognised under International Financial Reporting
Standards (IFRS) or other generally accepted accounting principles (GAAP) and
may not be directly comparable with APMs used by other companies. Underlying
measures reflect ongoing trading and, therefore, facilitate meaningful
year-on-year comparison. Management believes that the Group's underlying and
alternative performance measures, together with the results prepared in
accordance with IFRS, provide comprehensive analysis of the Group's results.
Certain of these measures are financial Key Performance Indicators (KPIs)
which measure progress against our strategy.
The Group's APMs are defined in note 11 (non-GAAP measures) and reconciled to
GAAP measures in notes 2 (segmental analysis) and 11 to the consolidated
financial statements.
Group performance
The Group continues to grow strongly, capitalising on the significant
structural opportunities in the outsourcing market. Organic revenue growth was
25%(1), with double-digit increases across all sectors and regions. Underlying
operating margin increased by 80bps to 6.6%(1) and underlying operating profit
increased to £1,050m(1) (2022: £673m).
We are continuing to invest in exciting growth opportunities both through
capital expenditure and M&A. Whilst capital expenditure was only 2.3%(1)
of underlying revenue in the first half, lower than historical levels due to
timing delays in some investments, we expect capital expenditure to be in the
range of 3.0% to 3.5% of underlying revenue for the full year. Net M&A
expenditure was £210m in the period, which was largely spent on a number of
bolt-on acquisitions mainly in the US and UK.
Cash flow performance remains strong, with underlying operating cash flow of
£871m(1) (2022: £557m) and underlying free cash flow of £590m(1) (2022:
£360m) helping our leverage (net debt to EBITDA) to reduce further to
1.1x(1), including £323m spent on share buybacks during the period.
Revenue
Organic growth of 25%(1) reflects net new business growth above historical
levels at over 5%, continuing our post-pandemic recovery, with like-for-like
volume growth of approximately 13%, and pricing benefits of around 7%. Net new
business growth was broad based, with all the Group's regions growing in the
range of 5% to 6%.
There were double-digit increases in organic revenue across all sectors in the
period and performance was particularly strong in Business & Industry, as
employees continued to return to the office, and Sports & Leisure, where
participation rates improved.
On a statutory basis, revenue was £15,658m (2022: £11,499m), an increase of 36.2%, reflecting the net new business growth, post-pandemic volume recovery and pricing benefits, together with favourable exchange translation.
Profit
Underlying operating profit increased by 41%(1) on a constant-currency basis,
to £1,050m(1), and our underlying operating margin was 6.6%(1) (2022: 5.8%).
The margin improvement reflects the benefits of operating leverage as volumes
returned post-pandemic, with operational efficiencies and pricing actions to
manage inflationary pressures, and is despite mobilisation costs associated
with higher new business growth.
On a statutory basis, operating profit was £878m (2022: £638m), an increase
of 37.6%, mainly reflecting the higher revenue and margin improvements,
together with favourable exchange translation.
Statutory profit before tax of £831m (2022: £632m) includes net charges of
£153m (2022: £4m) which are excluded from underlying profit before tax.
During the half year, we incurred a net charge of £70m in relation to our
ongoing strategic portfolio review of non-core activities to allow the Group
to focus its resources on our core operations. The net charge comprises the
exit from six countries, including Central and Eastern Europe (Czech Republic,
Hungary, Slovakia and Romania), and the sale of a business, site closures, and
contract renegotiations and terminations in the UK. Acquisition-related
charges totalled £61m (2022: £33m) and there was a one-off pension charge of
£12m (2022: £nil) following a change in legislation in Turkey eliminating
the minimum retirement age requirement for certain employees effective from
March 2023.
1. Alternative Performance Measure (APM). The Group's APMs are defined in note 11 (non-GAAP measures) and reconciled to GAAP measures in notes 2 (segmental analysis) and 11 to the consolidated financial statements.
Business review (continued)
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 to 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 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 approved an interim
dividend of 15.0p per share to be payable in July 2023.
The £250m share buyback programme announced in November 2022 was completed in
March 2023. Today, we have announced a further share buyback of up to £750m
to be completed this calendar year, which takes the total buyback programme
announced since May 2022 to £1.5bn.
Business review (continued)
Regional performance
North America - 67.4% of Group underlying revenue (2022: 65.9%)
Underlying Change(1) Statutory Change
results(1) results
Regional financial summary 2023 2022 Reported rates Constant currency Organic 2023 2022 Reported rates
Revenue £10,652m £7,657m 39.1% 23.8% 23.2% £10,643m £7,650m 39.1%
Operating profit £832m £535m 55.5% 38.4% 38.0% £795m £509m 56.2%
Operating margin 7.8% 7.0% 80bps 7.5% 6.7% 80bps
1. Reconciliation of statutory to underlying results can be found in notes
2 (segmental analysis) and 11 (non-GAAP measures) to the consolidated
financial statements.
Underlying
Organic revenue grew by 23.2%, with net new business growth of 5.1%.
All sectors performed strongly, with the highest growth in our Business &
Industry and Sports & Leisure sectors, which benefited from elevated per
capita spend and continued volume recovery from employees returning to the
office and higher attendance levels at live events.
Our Education and Healthcare & Senior Living sectors also delivered strong
organic revenue growth driven by net new business and like-for-like volume
growth.
Margin increased by 80bps to 7.8% driven by operating leverage benefits as
volumes increased, and a continued focus on operational efficiencies and
pricing actions. Operating profit was £832m, which represents 38.4% growth on
a constant-currency basis.
The region invested in several bolt-on acquisitions to strengthen our
capabilities and broaden exposure within our existing sectors, including the
acquisition of Parks Coffee, a provider of workplace refreshments in the US.
Statutory
Statutory revenue increased by 39.1% to £10,643m reflecting the continued
recovery from the pandemic, net new business growth and favourable exchange
translation. There is no significant difference between statutory and
underlying revenue.
Statutory operating profit was £795m (2022: £509m), with the difference from
underlying operating profit being acquisition-related charges of £37m (2022:
£26m).
Business review (continued)
Europe - 22.5% of Group underlying revenue (2022: 23.8%)
Underlying Change(1) Statutory Change
results(1) results
Regional financial summary 2023 2022 Reported rates Constant currency Organic 2023 2022 Reported rates
Revenue £3,549m £2,766m 28.3% 26.8% 28.2% £3,420m £2,647m 29.2%
Operating profit £197m £125m 57.6% 55.1% 57.3% £68m £118m (42.4)%
Operating margin 5.6% 4.5% 110bps 2.0% 4.5% (250)bps
1. Reconciliation of statutory to underlying results can be found in notes
2 (segmental analysis) and 11 (non-GAAP measures) to the consolidated
financial statements.
Underlying
Organic revenue grew by 28.2% as our continued investment in people, brands
and processes delivered net new business growth of 5.4% and a significant
increase in like-for-like volumes due to lapping the impact of the pandemic in
the prior period and appropriate levels of pricing. Our Business &
Industry sector benefited from employees returning to the office and our
Sports & Leisure sector benefited from sites fully re-opening.
Margin increased by 110bps to 5.6% as volumes recovered, and by 10bps on the
second half of 2022, despite high mobilisation costs for new business. We
continued to work closely with clients to manage heightened levels of
inflation, both through operational efficiencies and appropriate pricing.
Operating profit increased by 55.1% on a constant-currency basis to £197m.
The region invested in bolt-on acquisitions, most notably to drive additional
procurement efficiencies and, as part of the Group's ongoing strategic
portfolio review, sold four businesses in Central and Eastern Europe (Czech
Republic, Hungary, Slovakia and Romania) in October 2022 to focus resources
and investment on core operations.
Statutory
Statutory revenue increased by 29.2% to £3,420m, with the difference from
underlying revenue being the presentation of the share of results of our joint
ventures operating in the Middle East.
Statutory operating profit was £68m (2022: £118m), with the difference from
underlying operating profit mainly reflecting charges related to the Group's
ongoing strategic portfolio review of £99m (2022: £nil), including site
closures and contract renegotiations and terminations in the UK, and a one-off
pension charge of £12m (2022: £nil) following a change in legislation in
Turkey eliminating the minimum retirement age requirement for certain
employees effective from March 2023.
Business review (continued)
Rest of World - 10.1% of Group underlying revenue (2022: 10.3%)
Underlying Change(1) Statutory Change
results(1) results
Regional financial summary 2023 2022 Reported rates Constant currency Organic 2023 2022 Reported rates
Revenue £1,595m £1,202m 32.7% 28.7% 27.9% £1,595m £1,202m 32.7%
Operating profit £71m £56m 26.8% 20.3% 20.7% £65m £54m 20.4%
Operating margin 4.5% 4.7% (20)bps 4.1% 4.5% (40)bps
1. Reconciliation of statutory to underlying results can be found in notes
2 (segmental analysis) and 11 (non-GAAP measures) to the consolidated
financial statements.
Underlying
Growth in organic revenue of 27.9% reflects net new business above historical
levels at 5.7%, together with double-digit like-for-like volume growth as we
lapped the impact of localised lockdowns and border closures in the prior
year, and good levels of pricing.
Organic revenue growth was strong across all sectors, with double-digit growth
in our Business & Industry sector across most markets, notably in India as
workplaces reopened, and our more defensive Defence, Offshore & Remote
sector, especially in Australia and Chile where like-for-like volumes
improved.
Operating profit increased by 20.3% on a constant-currency basis to £71m.
Operating margin was 4.5%, with the slight reduction on the prior period
reflecting the heightened levels of inflation and impact of labour shortages.
We continue to work hard with our clients to mitigate these factors going
forward.
Statutory
Statutory revenue increased by 32.7% to £1,595m. There is no difference
between statutory and underlying revenue.
Statutory operating profit was £65m (2022: £54m), with the difference from
underlying operating profit being acquisition-related charges of £6m (2022:
£2m).
Business review (continued)
Strategy
Our strategic focus is on food, with targeted support services. The addressable food services market is estimated to be worth at least £250bn. There remains a significant structural growth opportunity from first-time outsourcing, as around half of the market is still self-operated. As the operating environment becomes increasingly challenging due to a combination of inflationary pressures, increased client demands and other additional complexities, we have a clear strategy to capture the acceleration in first-time outsourcing based on our focus, scale and expertise.
As the largest global player, our scale in procurement and focus on cost efficiencies give us competitive advantages that translate into greater value for clients and consumers. Our sectorised and sub-sectorised approach enables us to provide a tailored offer to meet changing client requirements. We are continuing to invest in our market-leading propositions in digital and ESG which are clear growth enablers in the food services market.
Our strategic focus on People, Performance and Purpose continues to underpin all that we do in our ambition to deliver value to all our stakeholders.
People
Our people are at the heart of who we are and what we do. We are focused on building an open culture in which our people can thrive, feeling safe and valued for who they are and what they bring to Compass.
In North America, our diversity, equity and inclusion (DE&I) vision is
built on fostering a culture where all our associates feel seen, heard, valued
and welcomed. Our DE&I programme and supplier diversity partnerships are
igniting change in the communities we serve. For example, through our supplier
diversity strategy, we advocate mentoring Minority and Women-owned Business
Enterprises to create sustainable business opportunities for supplier
inclusion. By fostering relationships with diverse suppliers, we are nurturing
an inclusive business community and providing exciting variety for our clients
and consumers.
Last year, Compass UK & Ireland launched 'Our Social Promise', a
commitment to support one million people from less advantaged and
under-represented backgrounds. The business set a target to be representative
of society at all levels of the organisation, from a gender, ethnicity and
socio-economic perspective, by 2030. As part of this commitment, the median
gender pay gap has reduced, from 16.6% to 12.6%, lower than the UK national
average, and ethnic median pay was 7.9% higher than the Compass UK &
Ireland average reflecting a higher representation of ethnic minority
colleagues in higher paid roles.
The launch of the Compass Group Foundation demonstrates our commitment to
improve the lives of people through education and innovation by empowering
them to play a key role in the future of food for their communities. The
Foundation, which is a UK-registered charity, provides grants to non-profit
organisations in countries where Compass Group operates such as Spain, India
and Turkey which have already been awarded grants. Its priorities are to
create inclusive job opportunities, empower local suppliers and to provide
urgent support in the case of global emergencies.
Business review (continued)
Purpose
Our Planet Promise is Compass Group's global commitment to a sustainable future for all. It encompasses the Company's values as an ethical, sustainable and inclusive business, together with our ambition to positively impact the world. As well as being the right thing to do, this mission is also key to our growth aspirations as sustainability is a critical issue for many of Compass' clients.
We recognise that our chefs are the best ambassadors to champion our Planet Promise, using food to connect people and communities to one another and the environment. This year, we launched 'Chefs Creating Change', our very first Compass Group Global Culinary Forum. The forum is a global conversation focused on sustainability initiatives with the inaugural event focused on food waste reduction. The forum created an opportunity to hear from Compass chefs around the globe as they share their greatest food waste insights.
Our UK & Ireland business has the most ambitious climate goals across the Group, with a climate net zero target date of 2030 validated by the Science Based Targets initiative (SBTi). The business's first impact report was published this year, highlighting its progress with some standout achievements, most notably a 36% absolute reduction in emissions from animal proteins, which contributed to a 20% absolute reduction in Scope 3 food and drink emissions since 2019 (baseline year). Animal proteins are a key carbon hotspot across the Group and the positive outcome achieved in the UK & Ireland business provides great insights which will allow us to implement similar actions globally in support of our group-wide emissions reduction commitments.
Summary
Our results for the first half of the year were strong across all performance metrics. Organic revenue benefited from volume recovery, pricing and net new growth above our historical average. Operational complexities, persistent inflation, and evolving client and consumer requirements are continuing to drive our growth, with first-time outsourcing contributing c.45% of new business wins.
The balance of performance across the regions is particularly pleasing and reflects a significant step change in our Europe business which is benefiting from growth initiatives and consistency of best practice. All regions have significant, albeit different, growth potential and we have clear strategic priorities to capture these opportunities.
Despite some pockets of macroeconomic weakness, the food service market is
large and very attractive with a long structural runway of potential.
Increasing operating complexities and evolving client and consumer
requirements are driving exciting growth opportunities which we believe are
mostly structural. Our strategic priorities are focused on capitalising on
these opportunities and driving accelerated financial performance.
Our strong cash generation and disciplined capital allocation framework underpin our robust balance sheet. Shareholders will benefit from the interim ordinary dividend of 15.0p, together with a further share buyback of up to £750m to be completed this calendar year.
Looking further ahead, we remain excited about the significant global structural growth opportunities, leading to revenue and profit growth above historical rates. With our established value creation model intact, we will continue rewarding shareholders with compounding returns over the long term.
Financial results
Group performance
2023 2022 Change
£m £m
Revenue
Underlying - reported rates(1) 15,796 11,625 35.9%
Underlying - constant currency(1) 15,796 12,638 25.0%
Organic(1) 15,769 12,642 24.7%
Statutory 15,658 11,499 36.2%
Operating profit
Underlying - reported rates(1) 1,050 673 56.0%
Underlying - constant currency(1) 1,050 744 41.1%
Organic(1) 1,047 742 41.1%
Statutory 878 638 37.6%
Operating margin
Underlying - reported rates(1) 6.6% 5.8% 80bps
Basic earnings per share
Underlying - reported rates(1) 42.7p 26.9p 58.7%
Underlying - constant currency(1) 42.7p 29.9p 42.8%
Statutory 36.4p 26.7p 36.3%
Free cash flow
Underlying - reported rates(1) 590 360 63.9%
Dividend
Interim dividend per ordinary share 15.0p 9.4p 59.6%
1. The Group's APMs are defined in note 11 (non-GAAP measures) and reconciled to GAAP measures in notes 2 (segmental analysis) and 11 to the consolidated financial statements.
Segmental performance
Underlying revenue(1) Change(1)
2023 2022 Reported rates Constant currency Organic
£m £m
North America 10,652 7,657 39.1% 23.8% 23.2%
Europe 3,549 2,766 28.3% 26.8% 28.2%
Rest of World 1,595 1,202 32.7% 28.7% 27.9%
Total 15,796 11,625 35.9% 25.0% 24.7%
Underlying operating profit(1) Underlying operating margin(1)
2023 2022 2023 2022
£m £m £m £m
North America 832 535 7.8% 7.0%
Europe 197 125 5.6% 4.5%
Rest of World 71 56 4.5% 4.7%
Central activities (50) (43)
Total 1,050 673 6.6% 5.8%
1. The Group's APMs are defined in note 11 (non-GAAP measures) and
reconciled to GAAP measures in notes 2 (segmental analysis) and 11 to the
consolidated financial statements.
Financial results (continued)
Income statement
2023 2022
Statutory £m Adjustments £m Underlying(1)£m Statutory £m Adjustments £m Underlying(1) £m
Revenue 15,658 138 15,796 11,499 126 11,625
Operating profit 878 172 1,050 638 35 673
Net gain/(loss) on sale and closure of businesses 29 (29) - (6) 6 -
Finance costs (76) 10 (66) - (37) (37)
Profit before tax 831 153 984 632 4 636
Tax expense (189) (42) (231) (152) (1) (153)
Profit for the period 642 111 753 480 3 483
Non-controlling interests (4) - (4) (3) - (3)
Attributable profit 638 111 749 477 3 480
Average number of shares 1,753m - 1,753m 1,784m - 1,784m
Basic earnings per share 36.4p 6.3p 42.7p 26.7p 0.2p 26.9p
EBITDA 1,470 1,039
1. The Group's APMs are defined in note 11 (non-GAAP measures) and
reconciled to GAAP measures in notes 2 (segmental analysis) and 11 to the
consolidated financial statements.
Statutory income statement
Revenue
On a statutory basis, revenue was £15,658m (2022: £11,499m), an increase of 36.2%, reflecting the net new business growth, post-pandemic volume recovery and pricing benefits, together with favourable exchange translation.
Operating profit
On a statutory basis, operating profit was £878m (2022: £638m), an increase
of 37.6%, mainly reflecting the higher revenue and margin improvements,
together with favourable exchange translation. Statutory operating profit
includes non-underlying item charges of £172m (2022: £35m), including
acquisition-related charges of £61m (2022: £33m), charges related to the
strategic portfolio review of £99m (2022: £nil) reflecting the impact of
site closures and contract renegotiations and terminations in the UK, and a
one-off pension charge of £12m (2022: £nil) following a change in
legislation in Turkey eliminating the minimum retirement age requirement for
certain employees effective from March 2023. A full list of non-underlying
items is included in note 11 (non-GAAP measures).
Gains and losses on sale and closure of businesses
The Group has recognised a net gain of £29m on the sale and closure of
businesses (2022: net loss of £6m), including exit costs of £2m (2022:
£3m). As part of its ongoing strategic portfolio review, the Group exited six
countries, including Central and Eastern Europe (Czech Republic, Hungary,
Slovakia and Romania), and sold a business in the UK.
Finance costs
Finance costs increased to £76m (2022: £nil) mainly due to an increase in interest rates, the cost of the additional debt issued in September 2022 and a partial reversal of the fair value gains on derivatives held to minimise volatility in short-term underlying finance costs in the prior year.
Tax charge
Profit before tax was £831m (2022: £632m) giving rise to an income tax
expense of £189m (2022: £152m), which is equivalent to an effective tax rate
of 22.7% (2022: 24.1%). The decrease in rate primarily reflects the mix of
profits by country being taxed at different rates, reassessment of risk in
respect of prior year uncertain items and non-taxable divestments.
Earnings per share
Basic earnings per share was 36.4p (2022: 26.7p), an increase of 36.3%,
reflecting the higher profit for the period.
Financial results (continued)
Underlying income statement
Revenue
Organic growth of 25% reflects net new business growth above historical levels
at over 5%, continuing our post-pandemic recovery, with like-for-like volume
growth of approximately 13%, and pricing benefits of around 7%. Net new
business growth was broad based, with all the Group's regions growing in the
range of 5% to 6%.
Operating profit
Underlying operating profit increased by 41% on a constant-currency basis, to
£1,050m, and our underlying operating margin was 6.6% (2022: 5.8%). The
margin improvement reflects the benefits of operating leverage as volumes
returned post-pandemic, with operational efficiencies and pricing actions to
manage inflationary pressures, and is despite mobilisation costs associated
with higher new business growth.
Finance costs
Underlying finance costs increased to £66m (2022: £37m) mainly due to an increase in interest rates and the cost of the additional debt issued in September 2022.
Tax charge
On an underlying basis, the tax charge was £231m (2022: £153m), which is
equivalent to an effective tax rate of 23.5% (2022: 24.0%). The decrease in
rate primarily reflects the mix of profits by country being taxed at different
rates and reassessment of risk in respect of prior year uncertain items. The
tax environment continues to be uncertain, with more challenging tax authority
audits and enquiries globally.
Earnings per share
On a constant-currency basis, underlying basic earnings per share increased by
43% to 42.7p (2022: 29.9p) reflecting the higher profit for the period.
Balance sheet
Liquidity
The Group finances its operations through cash generated by the business and
borrowings from a number of sources, including banking institutions, the
public and the private placement markets. The Group has developed long-term
relationships with a number of financial counterparties with the balance sheet
strength and credit quality to provide credit facilities as required.
The Group seeks to avoid a concentration of debt maturities in any one period
to spread its refinancing risk. A €500m (£438m) Eurobond matured and was
repaid in January 2023. The maturity profile of the Group's principal
borrowings at 31 March 2023 shows that the average period to maturity is 3.8
years (30 September 2022: 3.9 years).
The Group's US Private Placement (USPP) notes contain leverage and interest
cover covenants which are tested semi-annually at 31 March and 30 September.
The leverage covenant test stipulates that consolidated net debt must be less
than or equal to 3.5 times consolidated EBITDA. The interest cover covenant
test stipulates that consolidated EBITDA must be more than or equal to 3 times
consolidated net finance costs. Consolidated EBITDA and net finance costs are
based on the preceding 12 months. The leverage and interest cover ratios were
1.0 times and 26.8 times, respectively, at 31 March 2023. Net debt,
consolidated EBITDA and net finance costs are subject to certain accounting
adjustments for the purposes of the covenant tests.
At 31 March 2023, the Group had access to £3,027m (30 September 2022:
£3,732m) of liquidity, including £2,000m (30 September 2022: £2,000m) of
undrawn bank facilities committed to August 2026 and £1,027m (30 September
2022: £1,732m) of cash, net of overdrafts. Our credit ratings remain strong
investment grade - Standard & Poor's A/A-1 Long-term and Short-term
(outlook Stable) and Moody's A3/P-2 Long-term and Short-term (outlook
Positive).
Net debt
Net debt has increased by £215m to £3,205m (30 September 2022: £2,990m).
The Group generated £565m of free cash flow, after investing £364m in
capital expenditure, which was more than offset by £202m spent on the
acquisition of subsidiaries, joint ventures and associates, net of disposal
proceeds, and returns to shareholders in dividends of £387m and the share
buyback of £323m. Favourable exchange translation was £182m.
At 31 March 2023, the ratio of net debt to underlying EBITDA was 1.1x (30
September 2022: 1.3x). Our leverage policy is to maintain strong
investment-grade credit ratings and to target net debt to underlying EBITDA in
the range of 1x-1.5x.
Financial results (continued)
Post-employment benefits
The accounting surplus in the Compass Group Pension Plan (UK Plan) reduced to £469m (30 September 2022: £581m) mainly reflecting a decrease in the discount rate, net of inflation, used to measure the liabilities and a decrease in the market value of plan assets. The deficit in the rest of the Group's defined benefit pension schemes has increased to £789m (30 September 2022: £759m). The net deficit in these schemes is £113m (30 September 2022: £108m) including investments of £676m (30 September 2022: £651m) held in respect of unfunded pension schemes and the US Rabbi Trust which do not meet the definition of pension assets under IAS 19 Employee Benefits.
Cash flow
Free cash flow
Free cash flow totalled £565m (2022: £324m). In the six months, we made cash
payments of £17m (2022: £33m) in relation to programmes aimed at resizing
the business. Adjusting for this, and acquisition transaction costs of £8m
(2022: £3m), underlying free cash flow was £590m (2022: £360m), with
underlying free cash flow conversion at 56.2% (2022: 53.5%).
Capital expenditure of £364m (2022: £306m) is equivalent to 2.3% (2022:
2.6%) of underlying revenue. The working capital outflow, excluding provisions
and pensions, was £169m (2022: £142m). The net interest outflow increased to
£61m (2022: £40m) consistent with the higher finance costs in the period.
The net tax paid was £199m (2022: £133m), which is equivalent to an
underlying cash tax rate of 20.2% (2022: 20.9%).
Acquisition and disposal of businesses
The total cash spent on business acquisitions during the six months ended 31 March 2023, net of cash acquired, was £222m (2022: £135m), including £196m of bolt-on acquisitions and interests in joint ventures and associates, £18m of deferred and contingent consideration and other payments relating to businesses acquired in previous years and £8m of acquisition transaction costs included in net cash flow from operating activities.
The Group received £12m (2022: £26m) in respect of disposal proceeds net of
exit costs, which includes the sale of four businesses in Central and Eastern
Europe, together with a further 28% shareholding in the Japanese Highways
business classified as an asset held for sale at 30 September 2022.
Shareholder returns
An interim dividend of 15.0p per share (2022: 9.4p per share) has been
declared, £262m in aggregate, which is payable on 27 July 2023 to
shareholders on the register at the close of business on 9 June 2023. The
interim dividend will be paid gross and a Dividend Reinvestment Plan (DRIP)
will be available. The last date for receipt of elections for the DRIP is 6
July 2023.
The £250m share buyback programme announced in November 2022 was completed in
March 2023. Today, we have announced a further share buyback of up to £750m
to be completed this calendar year, which takes the total buyback programme
announced since May 2022 to £1.5bn.
Related party transactions
Details of transactions with related parties are set out in note 9 to the
consolidated financial statements. These transactions have not had, and are
not expected to have, a material effect on the financial performance or
position of the Group.
Going concern
The factors considered by the directors in assessing the ability of the Group
to continue as a going concern are discussed on page 25.
The Group has access to considerable financial resources, together with
longer-term contracts with a number of clients and suppliers across different
geographic areas and industries. As a consequence, the directors believe that
the Group is well placed to manage its business risks successfully.
Based on the assessment, the directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for at least
the period to 30 September 2024. For this reason, they continue to adopt the
going concern basis in preparing the financial statements.
Financial results (continued)
External audit
The Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 requires the Company to put its statutory audit
services engagement out to tender not less frequently than every ten years.
KPMG LLP was appointed as the Company's external auditor in March 2014 and its
audit for the financial year ending 30 September 2023 is, therefore, its tenth
year. The Audit Committee has completed a formal audit tender process and,
following this, will recommend to shareholders at the 2024 Annual General
Meeting that KPMG LLP is appointed as the Group's external auditor for the
financial year ending 30 September 2024. Further details of the audit tender
process will be provided in the 2023 Annual Report.
Change in reporting currency
From 1 October 2023, the Group will change its reporting currency from
sterling to US dollars to align with its business exposure. The change in
presentation currency will provide investors and other stakeholders with
greater transparency of the Group's performance and reduce foreign exchange
volatility on earnings given that approximately three-quarters of the Group's
underlying operating profit originates in US dollars.
Risk management
Principal risks
The Board takes a proactive approach to risk management aimed at protecting
the Group's employees, clients and consumers and safeguarding the interests of
the Company and its shareholders in a constantly changing environment.
Risk management is an essential element of business governance. The Group has
risk management policies, processes and procedures in place to ensure that
risks are properly identified, evaluated and managed at the appropriate level.
The identification of risks and opportunities, the development of action plans
to manage those risks and maximise the opportunities, and the continual
monitoring of progress against agreed key performance indicators (KPIs) are
integral parts of the business process and core activities throughout the
Group.
Details of the principal risks facing the Group and mitigating actions are
included on pages 22 to 28 of the 2022 Annual Report. A description of those
risks and uncertainties is set out below.
RISK DESCRIPTION
CLIMATE CHANGE AND SUSTAINABILITY
Climate change The impact of climate change on the environment may lead to issues around food
sourcing and supply chain continuity in some of the Group's markets. Issues in
these areas could affect the availability of some food products, and
potentially may lead to food cost inflation.
Social and ethical standards Compass relies on its people to deliver great service to its clients and
consumers and recognises that the welfare of employees is the foundation of
its culture and business. Compass remains vigilant in upholding high standards
of business ethics with regard to human rights and social equality.
HEALTH AND SAFETY
Health and safety Compass feeds millions of consumers and Group companies employ hundreds of
thousands of people around the world every day. For that reason, setting the
highest standards for food hygiene and safety is paramount.
Health and safety breaches could cause serious business interruption and could
result in criminal and civil prosecution, increased costs and potential damage
to the Company's reputation.
Pandemic COVID-19 The Group's operations were significantly disrupted due to the global COVID-19
pandemic and associated containment measures, but Compass has recovered well
and learned from the pandemic. As a result, the risk has declined. Further
outbreaks of the virus, or another pandemic, could cause further business
risk.
PEOPLE
Recruitment Failure to attract and recruit people with the right skills at all levels
could limit the success of the Group.
The Group faces resourcing challenges in some of its businesses in some key
positions due to labour shortages and a lack of industry experience amongst
candidates, appropriately qualified people and the seasonal nature of some of
Compass' businesses.
Retention and motivation Retaining and motivating the best people with the right skills, at all levels
of the organisation, is key to the long-term success of the Group.
The current economic conditions may increase the risk of attrition at all
levels of the organisation.
Potential business closures resulting from further COVID-19 lock downs or
other social distancing controls may significantly impact the Group's
workforce in affected regions.
CLIENTS AND CONSUMERS
Sales and retention The Group's businesses rely on securing and retaining a diverse range of
clients.
The potential loss of material client contracts in an increasingly competitive
market is a risk to Compass' businesses.
Reduced office attendance, closure of client sites and fewer site visitors as
a result of the ongoing impact of COVID-19 and related variants may impact
revenues in affected sectors.
Risk management (continued)
Principal risks (continued)
RISK DESCRIPTION
CLIENTS AND CONSUMERS (CONTINUED)
Service delivery, contractual compliance and retention The Group's operating companies contract with a large number of clients.
Failure to comply with the terms of these contracts, including proper delivery
of services, could lead to the loss of business and/or claims.
Competition and disruption The Group operates in a highly competitive marketplace. The levels of
concentration and outsource penetration vary by country and by sector. Some
markets are relatively concentrated with two or three key players. Others are
highly fragmented and offer significant opportunities for consolidation and
penetration of the self-operated market.
Ongoing structural changes in working and education environments may reduce
the number of people in offices and educational establishments.
The emergence of new industry participants and traditional competition using
disruptive technology could adversely affect the Group's businesses.
ECONOMIC AND POLITICAL ENVIRONMENT
Geopolitical At the half-year, Compass recognised geopolitical tensions, including the
conflict between Russia and Ukraine as a new principal risk. The conflict has
heightened national security threats to countries, particularly in Europe and
NATO and its disruption to the global energy market has contributed to the
elevation of the existing cost inflation, economic and cyber security risks.
Economy Sectors of Compass' business could be susceptible to adverse changes in
economic conditions and employment levels.
Continued worsening of economic conditions has increased the risk to the
businesses in some jurisdictions.
Cost inflation At Compass, the objective is always to deliver the right level of service in
the most efficient way. An increase in the cost of labour, for example,
minimum wages in the US and UK, or the cost of food, could constitute a risk
to our ability to do this.
Increases in inflation continue to intensify cost pressures in some locations.
Political instability Compass is a global business operating in countries and regions with diverse
economic and political conditions. Operations and earnings may be adversely
affected by political or economic instability.
COMPLIANCE AND FRAUD
Compliance and fraud Ineffective compliance management with increasingly complex laws and
regulations, or evidence of fraud, bribery and corruption, anti-competitive
behaviour or other serious misconduct, could have an adverse effect on the
Group's reputation, its performance and/or a reduction in the Company's share
price and/or a loss of business. It could also lead to criminal action,
sanction or other litigation being brought against the Company, its directors
or Executive management.
Companies face increased risk of fraud, bribery and corruption,
anti-competitive behaviour and other serious misconduct both internally and
externally, due to financial and/or performance pressures and significant
changes to ways of working.
International tax The international corporate tax environment remains complex and the sustained
increase in audit activity from tax authorities means that the potential for
tax uncertainties and disputes remains high. The need to raise public finances
to meet the cost of the COVID-19 pandemic is likely to cause governments to
consider increases in tax rates and other potentially adverse changes in tax
legislation, and to renew focus on compliance for large corporates.
Information systems and technology The digital world creates increasing risk for global businesses including, but
not limited to, technology failures, loss of confidential data and damage to
brand reputation through, for example, the increased and instantaneous use of
social media.
Disruption caused by the failure of key software applications, security
controls or underlying infrastructure could delay day-to-day operations and
management decision making.
The incidence of sophisticated phishing and malware attacks on businesses is
rising with an increase in the number of companies suffering operational
disruption and loss of data.
The increase in remote working, and the Russia/Ukraine conflict has led to an
increase in the risk of malware and phishing attacks across all organisations.
Responsibility statement of the directors in respect of the half-yearly
financial report
The Interim Report complies with the Disclosure Guidance and Transparency
Rules (DTR) of the United Kingdom's Financial Conduct Authority in respect of
the requirement to produce a half-yearly financial report. The Interim
Management Report is the responsibility of, and has been approved by, the
directors.
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK and gives a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group; and
· the Interim Management Report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The directors have permitted the auditor to undertake whatever inspections it
considers to be appropriate for the purpose of enabling the auditor to conduct
its review.
On behalf of the Board
Dominic Blakemore Palmer Brown
Group Chief Executive Officer Group Chief Financial Officer
10 May 2023
Compass Group PLC
Independent review report to Compass Group PLC
Conclusion Directors' responsibilities
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2023 which The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards.
equity, the condensed consolidated balance sheet, the condensed consolidated cash flow statement and the related explanatory notes. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for In preparing the condensed set of financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
the six months ended 31 March 2023 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Our responsibility
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.
Basis for conclusion The purpose of our review work and to whom we owe our responsibilities
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial Zulfikar Walji
statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain for and on behalf of KPMG LLP
assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusions relating to going concern Chartered Accountants
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has
come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have 15 Canada Square
identified material uncertainties relating to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group to cease to London
continue as a going concern, and the above conclusions are not a guarantee that the Group will continue in operation.
E14 5GL
10 May 2023
Compass Group PLC
Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 MARCH 2023
Six months ended 31 March
2023 2022
Notes £m £m £m £m
Revenue 2 15,658 11,499
Operating costs (14,806) (10,883)
Operating profit before joint ventures and associates 852 616
Share of results of joint ventures and associates 26 22
Underlying operating profit(1) 1,050 673
Acquisition-related charges (61) (33)
Charges related to the strategic portfolio review (99) -
One-off pension charge (12) -
Tax on share of profit of joint ventures - (2)
Operating profit 2 878 638
Net gain/(loss) on sale and closure of businesses 8 29 (6)
Finance income 23 4
Finance expense (89) (41)
Other financing items (10) 37
Finance costs (76) -
Profit before tax 831 632
Income tax expense 3 (189) (152)
Profit for the period 642 480
ATTRIBUTABLE TO
Equity shareholders 638 477
Non-controlling interests 4 3
Profit for the period 642 480
BASIC EARNINGS PER SHARE 4 36.4p 26.7p
DILUTED EARNINGS PER SHARE 4 36.4p 26.7p
1. Operating profit excluding specific adjusting items (see note 11).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 MARCH 2023
Six months ended 31 March
2023 2022
£m £m
Profit for the period 642 480
Other comprehensive income
Items that will not be reclassified to the income statement
Remeasurement of post-employment benefit obligations (134) 316
Return on plan assets, excluding interest income (56) (98)
Change in asset ceiling, excluding interest income (1) 2
Change in fair value of financial assets at fair value through other 48 (1)
comprehensive income
Tax credit/(charge) on items relating to the components of other comprehensive 35 (55)
income
(108) 164
Items that may be reclassified to the income statement
Currency translation differences(1) (361) 55
Reclassification of cumulative currency translation differences on sale of (1) 7
businesses
(362) 62
Total other comprehensive (loss)/income (470) 226
Total comprehensive income for the period 172 706
ATTRIBUTABLE TO
Equity shareholders 168 703
Non-controlling interests 4 3
Total comprehensive income for the period 172 706
1. Includes a gain of £152m in relation to the effective portion of net
investment hedges (six months ended 31 March 2022: loss of £26m).
( )
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 MARCH 2023
Attributable to equity shareholders
Share Share Capital Own Retained earnings/ (losses) Non-controlling Total
capital premium redemption shares Other interests equity
reserve reserves
£m £m £m £m £m £m £m £m
At 1 October 2022 198 189 295 (519) 4,292 1,419 31 5,905
Profit for the period - - - - - 638 4 642
Other comprehensive income
Remeasurement of post-employment benefit obligations - - - - - (134) - (134)
Return on plan assets, excluding interest income - - - - - (56) - (56)
Change in asset ceiling, excluding interest income - - - - - (1) - (1)
Change in fair value of financial assets at fair value through other - - - - - 48 - 48
comprehensive income
Currency translation differences - - - - (361) - - (361)
Reclassification of cumulative currency translation differences on sale of - - - - (1) - - (1)
businesses
Tax credit on items relating to the components of other comprehensive income - - - - - 35 - 35
Total other comprehensive loss - - - - (362) (108) - (470)
Total comprehensive (loss)/income for the period - - - - (362) 530 4 172
Fair value of share-based payments - - - - - 23 - 23
Release of share awards settled in existing shares purchased in the market - - - - - (21) - (21)
Purchase of own shares - share buyback programme - - - (252) - - - (252)
Purchase of own shares - employee share-based payments - - - (5) - - - (5)
198 189 295 (776) 3,930 1,951 35 5,822
Dividends paid to equity shareholders (note 5) - - - - - (387) - (387)
Dividends paid to non-controlling interests - - - - - - (2) (2)
Cost of shares transferred to employees - - - 21 - - - 21
At 31 March 2023 198 189 295 (755) 3,930 1,564 33 5,454
Own shares
The own shares reserve comprises 40,478,053 (30 September 2022: 25,202,499)
shares in Compass Group PLC held in treasury and 270,253 (30 September 2022:
221,909) shares in Compass Group PLC held by the Compass Group PLC All Share
Schemes Trust (ASST).
The share buyback announced in November 2022 was completed in March 2023, with
13,127,521 shares repurchased during the period for a total price, including
transaction costs, of £251m. Transaction costs of £1m were incurred in
respect of the 3,447,549 shares repurchased during the period in respect of
the completion of the share buyback announced in May 2022.
The ASST is a discretionary trust for the benefit of employees and the shares
held are used to satisfy some of the Group's liabilities to employees for
long-term incentive plans. At 31 March 2023, the nominal value of the shares
in the ASST was £29,863 (30 September 2022: £24,521), with a market value
of £5.5m (30 September 2022: £4.0m).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 MARCH 2023
Attributable to equity shareholders
Share Share Capital Own Retained earnings/ (losses) Non-controlling Total
capital premium redemption shares Other interests equity
reserve reserves
£m £m £m £m £m £m £m £m
At 1 October 2021 198 189 295 (2) 3,969 242 28 4,919
Profit for the period - - - - - 477 3 480
Other comprehensive income
Remeasurement of post-employment benefit obligations - - - - - 316 - 316
Return on plan assets, excluding interest income - - - - - (98) - (98)
Change in asset ceiling, excluding interest income - - - - - 2 - 2
Change in fair value of financial assets at fair value through other - - - - - (1) - (1)
comprehensive income
Currency translation differences - - - - 55 - - 55
Reclassification of cumulative currency translation differences on sale of - - - - 7 - - 7
businesses
Tax charge on items relating to the components of other comprehensive income - - - - - (55) - (55)
Total other comprehensive income - - - - 62 164 - 226
Total comprehensive income for the period - - - - 62 641 3 706
Fair value of share-based payments - - - - 20 - - 20
Change in fair value of non-controlling interest put options - - - - (2) - - (2)
Reclassification of non-controlling interest put option reserve on exercise of - - - - 5 - (5) -
put options
Release of share awards settled in existing shares purchased in the market - - - - (4) - - (4)
Purchase of own shares - employee share-based payments - - - (5) - - - (5)
Transfer(1) - - - - (287) 287 - -
198 189 295 (7) 3,763 1,170 26 5,634
Dividends paid to equity shareholders (note 5) - - - - - (250) - (250)
Dividends paid to non-controlling interests - - - - - - (1) (1)
Cost of shares transferred to employees - - - 4 - - - 4
At 31 March 2022 198 189 295 (3) 3,763 920 25 5,387
1. The share-based payments reserve has been transferred to retained
earnings on the basis that it is more appropriately presented as a component
of retained earnings for equity-settled share-based payment schemes.
( )
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED BALANCE SHEET
AT 31 MARCH 2023
At 31 March At 30 September
2023 2022
(unaudited) (audited)
£m £m
NON-CURRENT ASSETS
Goodwill 5,004 5,119
Other intangible assets 1,896 1,960
Costs to obtain and fulfil contracts 963 1,106
Right-of-use assets 760 821
Property, plant and equipment 913 948
Interests in joint ventures and associates 264 270
Other investments 801 790
Post-employment benefit assets 469 581
Trade and other receivables 217 162
Deferred tax assets 239 230
Derivative financial instruments 35 76
Non-current assets 11,561 12,063
CURRENT ASSETS
Inventories 542 511
Trade and other receivables 3,891 3,988
Tax recoverable 64 106
Cash and cash equivalents 1,198 1,983
Derivative financial instruments 41 71
5,736 6,659
Assets held for sale 5 26
Current assets 5,741 6,685
Total assets 17,302 18,748
CURRENT LIABILITIES
Borrowings (453) (693)
Lease liabilities (187) (194)
Derivative financial instruments (7) (6)
Provisions (281) (269)
Current tax liabilities (217) (245)
Trade and other payables (5,299) (5,626)
Current liabilities (6,444) (7,033)
NON-CURRENT LIABILITIES
Borrowings (2,959) (3,271)
Lease liabilities (708) (719)
Derivative financial instruments (165) (237)
Post-employment benefit obligations (789) (759)
Provisions (289) (310)
Deferred tax liabilities (124) (160)
Trade and other payables (370) (354)
Non-current liabilities (5,404) (5,810)
Total liabilities (11,848) (12,843)
Net assets 5,454 5,905
EQUITY
Share capital 198 198
Share premium 189 189
Capital redemption reserve 295 295
Own shares (755) (519)
Other reserves 3,930 4,292
Retained earnings 1,564 1,419
Total equity shareholders' funds 5,421 5,874
Non-controlling interests 33 31
Total equity 5,454 5,905
( )
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 31 MARCH 2023
Six months ended 31 March
2023 2022
Notes £m £m
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 6 1,228 839
Interest paid (85) (43)
Tax received 14 12
Tax paid (213) (145)
Net cash flow from operating activities 944 663
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of subsidiary companies 8 (207) (112)
Purchase of interests in joint ventures and associates (7) (20)
Net proceeds from sale of subsidiary companies, joint ventures and associates 8 12 26
net of exit costs
Purchase of intangible assets (88) (65)
Purchase of contract fulfilment assets (87) (96)
Purchase of property, plant and equipment (179) (125)
Proceeds from sale of property, plant and equipment/intangible assets/contract 25 15
fulfilment assets
Purchase of other investments (1) (17)
Proceeds from sale of other investments 2 1
Dividends received from joint ventures and associates 10 19
Interest received 24 3
Net cash flow from investing activities (496) (371)
CASH FLOW FROM FINANCING ACTIVITIES
Purchase of own shares - share buyback programme(1) (323) -
Purchase of own shares - employee share-based payments (5) (5)
Increase in borrowings - 1
Repayment of borrowings (440) (297)
Net cash flow from derivative financial instruments 103 (20)
Repayment of principal under lease liabilities (83) (73)
Dividends paid to equity shareholders 5 (387) (250)
Dividends paid to non-controlling interests (2) (1)
Net cash flow from financing activities (1,137) (645)
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents (689) (353)
Cash and cash equivalents at 1 October 1,732 1,656
Currency translation (losses)/gains on cash and cash equivalents (16) 14
Cash and cash equivalents at 31 March 1,027 1,317
Cash and cash equivalents(2) 1,198 1,480
Bank overdrafts(2) (171) (163)
Cash and cash equivalents at 31 March 1,027 1,317
1. Includes £245m in respect of the share buyback announced in November
2022 and £78m in respect of the completion of the share buyback announced in
May 2022.
2. As per the consolidated balance sheet.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
1 PREPARATION
Basis of preparation and statement of compliance
The unaudited condensed consolidated financial statements for the six months
ended 31 March 2023 have been prepared in accordance with International
Accounting Standard (IAS) 34 Interim Financial Reporting as adopted for use in
the UK. As required by the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority, the condensed consolidated financial statements
have been prepared applying the accounting policies and presentation that were
applied in the preparation of the Company's published consolidated financial
statements for the year ended 30 September 2022.
The annual financial statements of the Group are prepared in accordance with
UK-adopted international accounting standards and in conformity with the
requirements of the Companies Act 2006.
The unaudited condensed consolidated financial statements for the six months
ended 31 March 2023, which were approved by the Board on 10 May 2023, and the
comparative information in relation to the six months ended 31 March 2022, do
not comprise statutory accounts for the purpose of Section 434 of the
Companies Act 2006 and should be read in conjunction with the Annual Report
for the year ended 30 September 2022. Those accounts have been reported on by
the Group's auditor and delivered to the Registrar of Companies. The report of
the auditor was unqualified, did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying its
report and did not contain statements under Section 498 (2) or (3) of the
Companies Act 2006.
Going concern
The financial statements are prepared on a going concern basis which the
directors believe to be appropriate for the reasons stated below.
At 31 March 2023, the Group's financing arrangements included sterling and
Euro bonds (£2,398m) and US dollar US Private Placement (USPP) notes
(£842m). In addition, the Group had Revolving Credit Facilities of £2,000m,
committed to August 2026, which were fully undrawn, and £1,027m of cash, net
of overdrafts. At the date of approving the consolidated financial statements,
the liquidity position of the Group has remained substantially unchanged.
For the purposes of the going concern assessment, the directors have prepared
monthly cash flow projections for the period to 30 September 2024 (the
assessment period) based on the latest forecast for 2023 and the second year
of the three-year strategic plan approved by the Board in November 2022. We
consider 18 months to be a reasonable period for the going concern assessment
as it enables us to consider the potential impact of macroeconomic and
geopolitical factors over an extended period.
In September 2022, the Group issued €500m (£439m) and £250m of sustainable
bonds maturing in 2030 and 2032, respectively. The new bonds effectively
pre-financed a €500m (£438m) Eurobond which matured in January 2023 and a
$352m (£285m) USPP note which will mature in October 2023. The only other
maturity in the assessment period is a €750m (£659m) Eurobond in July 2024.
The USPP debt is subject to leverage and interest cover covenants which are
tested on 31 March and 30 September each year. The Group met both covenants at
31 March 2023. The Group's other financing arrangements do not contain any
financial covenants.
The cash flow projections show that the Group has significant headroom against
its committed facilities and meets its financial covenant obligations under
the USPP note agreements without any refinancing.
A stress test against the base case has been performed to determine the
performance level that would result in a reduction in headroom against the
Group's committed facilities to nil or a breach of its covenants. The leverage
covenant would be reached in the event that underlying EBITDA reduced by more
than 60% of the base case. The directors do not consider this scenario to be
likely. The stress test assumes no share buybacks or new acquisitions and
disposals as mitigating actions. Other mitigating actions available to the
Group include reductions in discretionary capital expenditure and ceasing
dividend payments.
Consequently, the directors are confident that the Group will have sufficient
funds to continue to meet its liabilities as they fall due for at least the
period to 30 September 2024 and, therefore, have prepared the financial
statements on a going concern basis.
Changes in accounting policies
There are a number of changes to accounting standards, effective in future
periods, which are not expected to significantly impact the Group's
consolidated results or financial position.
Accounting judgements
There are no judgements that management considers to be critical in the
preparation of these financial statements.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
1 PREPARATION (CONTINUED)
There is a significant judgement in respect of the classification of cash
payments relating to contract fulfilment assets in the cash flow statement.
Contract fulfilment assets originate when payments are made, normally up front
at the start of the client contract, that provide enhanced resources to the
Group over the contract term. The Group classifies additions to contract
fulfilment assets as investing activities in accordance with IAS 7 Statement
of Cash Flows as they arise from cash payments in relation to assets that will
generate long-term economic benefits.
Estimation uncertainty
Major sources of estimation uncertainty
The Group's major sources of estimation uncertainty are in relation to
goodwill and post-employment benefits on the basis that a reasonably possible
change in key assumptions could have a material effect on the carrying amounts
of assets and liabilities in the next 12 months.
- Goodwill
The Group tests at least annually whether goodwill has suffered any impairment
in accordance with IAS 36 Impairment of Assets. The recoverable amounts of the
Group's cash-generating units (CGU) are determined based on value-in-use
calculations which require the use of estimates and assumptions consistent
with the most up-to-date budgets and plans that have been formally approved by
management. The key assumptions used for the value-in-use calculations and
sensitivity analysis are set out in note 8 of the 2022 Annual Report. An
impairment of goodwill of £5m (six months ended 31 March 2022: £nil) was
recognised during the period. No other indicators that the Group's goodwill
may be impaired were identified during the six months ended 31 March 2023.
- Post-employment benefits
The Group's defined benefit pension schemes and similar arrangements are
assessed half-yearly in accordance with IAS 19 Employee Benefits. The present
value of the defined benefit liabilities is based on assumptions determined
with independent actuarial advice. The size of the net surplus/deficit is
sensitive to the market value of the assets held by the schemes and to
actuarial assumptions, including discount rates, inflation, pension and salary
increases, and mortality and other demographic assumptions.
Other sources of estimation uncertainty
In addition to the major sources of estimation uncertainty, management has
identified other sources of estimation uncertainty which are summarised below.
Whilst these are not considered to be major sources of uncertainty as defined
by IAS 1 Presentation of Financial Statements, the recognition and measurement
of certain material assets and liabilities are based on assumptions and/or are
subject to longer-term uncertainties.
- Taxes
The Group has operations in around 38 countries that are subject to direct and
indirect taxes. The tax position is often not agreed with tax authorities
until sometime after the relevant period end and, if subject to a tax audit,
may be open for an extended period. In these circumstances, the recognition of
tax liabilities and assets requires management estimation to reflect a variety
of factors, including the status of any ongoing tax audits, historical
experience, interpretations of tax law and the likelihood of settlement.
In addition, calculation and recognition of temporary differences giving rise
to deferred tax assets requires estimates and judgements to be made on the
extent to which future taxable profits are available against which these
temporary differences can be utilised.
- Climate change
The potential impact of climate change and the Group's net zero commitments on
the reported amounts in the financial statements has been considered as
follows:
· the cash flow forecasts used in the impairment assessments of the
carrying value of non-current assets
· the cash flow forecasts used to determine the recoverability of
deferred tax assets
· the valuation of post-employment benefit assets and liabilities
· the going concern assessment during which the potential impact of
climate change is not expected to be significant
· the useful economic lives of tangible fixed assets and their
exposure to the physical risks posed by climate change which are not expected
to be significant due to the low capital intensity of the Group
There was no impact on the reported amounts in the financial statements as a
result of this review.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
2 SEGMENTAL ANALYSIS
The management of the Group's operations, excluding Central activities, is
organised within three segments: North America, Europe and Rest of World.
Geographical segments
REVENUE(1,2) North America Rest of World
£m Europe £m Total
£m £m
SIX MONTHS ENDED 31 MARCH 2023
Business & Industry 3,225 1,655 570 5,450
Education 2,538 566 102 3,206
Healthcare & Senior Living 3,096 557 215 3,868
Sports & Leisure 1,645 413 72 2,130
Defence, Offshore & Remote 148 358 636 1,142
Underlying revenue(3,4) 10,652 3,549 1,595 15,796
Less: Share of revenue of joint ventures (9) (129) - (138)
Revenue 10,643 3,420 1,595 15,658
SIX MONTHS ENDED 31 MARCH 2022
Business & Industry 1,953 1,209 402 3,564
Education 1,923 469 75 2,467
Healthcare & Senior Living 2,511 488 190 3,189
Sports & Leisure 1,157 276 37 1,470
Defence, Offshore & Remote 113 324 498 935
Underlying revenue(3,4) 7,657 2,766 1,202 11,625
Less: Share of revenue of joint ventures (7) (119) - (126)
Revenue 7,650 2,647 1,202 11,499
1. There is no inter-segment trading.
2. An analysis of revenue recognised over time and at a point in time is not
provided on the basis that the nature, amount, timing and uncertainty of
revenue and cash flows is considered to be similar.
3. Revenue plus share of revenue of joint ventures.
4. Underlying revenue arising in the UK, the Group's country of domicile, was
£1,157m (six months ended 31 March 2022: £905m). Underlying revenue arising
in the US region was £10,097m (six months ended 31 March 2022: £7,276m).
Underlying revenue arising in all countries outside the UK from which the
Group derives revenue was £14,639m (six months ended 31 March 2022:
£10,720m).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
2 SEGMENTAL ANALYSIS (CONTINUED)
Geographical segments
PROFIT North America Rest of World Central activities
£m Europe £m £m Total
£m £m
SIX MONTHS ENDED 31 MARCH 2023
Underlying operating profit/(loss) before results of joint ventures and 827 176 71 (50) 1,024
associates
Add: Share of profit before tax of joint ventures - 13 - - 13
Add: Share of results of associates 5 8 - - 13
Underlying operating profit/(loss)(1) 832 197 71 (50) 1,050
Less: Acquisition-related charges(2) (37) (18) (6) - (61)
Less: Charges related to the strategic portfolio review(2) - (99) - - (99)
Less: One-off pension charge(2) - (12) - - (12)
Operating profit/(loss) 795 68 65 (50) 878
Net gain on sale and closure of businesses(2) 29
Finance costs (76)
Profit before tax 831
Income tax expense (189)
Profit for the period 642
1. Operating profit excluding specific adjusting items (see note 11).
2. Specific adjusting item (see note 11).
Geographical segments
PROFIT North America Rest of World Central activities
£m Europe £m £m Total
£m £m
SIX MONTHS ENDED 31 MARCH 2022
Underlying operating profit/(loss) before results of joint ventures and 533 103 56 (43) 649
associates
Add: Share of profit before tax of joint ventures - 15 - - 15
Add: Share of results of associates 2 7 - - 9
Underlying operating profit/(loss)(1) 535 125 56 (43) 673
Less: Acquisition-related charges(2) (26) (5) (2) - (33)
Less: Tax on share of profit of joint ventures(2) - (2) - - (2)
Operating profit/(loss) 509 118 54 (43) 638
Net loss on sale and closure of businesses(2) (6)
Finance costs -
Profit before tax 632
Income tax expense (152)
Profit for the period 480
1. Operating profit excluding specific adjusting items (see note 11).
2. Specific adjusting item (see note 11).
Acquisition-related charges
Acquisition-related charges comprise the amortisation and impairment of
intangible assets acquired through business combinations of £52m (six months
ended 31 March 2022: £38m), direct costs incurred through business
combinations or other strategic asset acquisitions of £8m (six months ended
31 March 2022: £3m) and a net increase in consideration in relation to past
acquisition activity of £1m (six months ended 31 March 2022: net decrease of
£8m).
Charges related to the strategic portfolio review
Charges related to the strategic portfolio review during the six months ended
31 March 2023 include impairments of right-of-use assets (£44m) and property,
plant and equipment (£6m), recognition of provisions and accruals (£28m) and
the write-off of receivables (£21m) in respect of site closures and contract
renegotiations and terminations in the UK.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
3 TAX
INCOME TAX EXPENSE Six months ended 31 March
2023 2022
£m £m
CURRENT TAX
Current period 234 165
Adjustment in respect of prior years (22) (11)
Current tax expense 212 154
DEFERRED TAX
Current period (20) (2)
Adjustment in respect of prior years (3) -
Deferred tax credit (23) (2)
TOTAL
Income tax expense 189 152
The income tax expense for the period is based on the effective UK statutory
rate of corporation tax of 22% (six months ended 31 March 2022: 19%). Overseas
tax is calculated at the rates prevailing in the respective jurisdictions.
The Group is currently subject to a number of reviews and audits in
jurisdictions around the world that primarily relate to complex corporate tax
issues.
The Canadian Revenue Agency is continuing its enquiry into an intra-group
financing arrangement implemented in July 2015. Compass Group Canada Limited
and Canteen of Canada Limited have received assessments to additional federal
and provincial taxes totalling £88m (£60m of tax and £28m of interest). We
consider that we are close to resolving this issue with no change to the
provision.
In March 2022, the UK tax authority indicated that it may seek to challenge
aspects of an intra-group refinancing undertaken in 2013. The challenge
relates to the deductibility of interest for UK corporation tax purposes for
the period from June 2013 to December 2016 on certain loans which formed part
of that refinancing. We have continued discussions with the tax authority and
the provision, based on a range of possible outcomes, remains unchanged. Our
maximum potential liability is £62m of tax and £15m of interest.
The OECD Pillar Two framework and subsequent UK draft legislation to introduce
a global minimum tax rate for large multinationals will, as currently
proposed, apply to the Group for the year ending 30 September 2025. The impact
is not expected to be material and the Group is continuing to monitor
developments.
We continue to engage with tax authorities and other regulatory bodies on
payroll and sales tax reviews, and compliance with labour laws and
regulations. The federal tax authorities in Brazil have issued a number of
notices of deficiency relating primarily to the PIS/COFINS treatment of
certain food costs and the corporate income tax treatment of goodwill
deductions which we have formally objected to and which are now proceeding
through the appeals process. At 31 March 2023, the total amount assessed in
respect of these matters is £66m. The possibility of further assessments
cannot be ruled out and the judicial process is likely to take a number of
years to conclude. Based on the opinion of our local legal advisors, we do not
currently consider it likely that we will have to settle a liability with
respect to these matters and, on this basis, no provision has been recorded.
We therefore do not currently expect any of these issues to have a material
impact on the Group's financial position.
Most of the Group's tax losses and other temporary differences recognised as
deferred tax assets do not have an expiry date. The recognition of net
deferred tax assets is based on the most recent financial budgets and
forecasts approved by management.
Deferred tax assets have not been recognised in respect of tax losses of
£317m (30 September 2022: £323m) and other temporary differences of £21m
(30 September 2022: £21m). These deferred tax assets have not been recognised
as the timing of recovery is uncertain.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
4 EARNINGS PER SHARE
The calculation of earnings per share is based on profit for the period
attributable to equity shareholders and the weighted average number of shares
in issue during the period.
Six months ended 31 March
PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY SHAREHOLDERS 2023 2022
£m £m
Profit for the period attributable to equity shareholders 638 477
Six months ended 31 March
2023 2022
AVERAGE NUMBER OF SHARES Ordinary Ordinary
shares of shares of
11(1/20)p each 11(1/20)p each
millions millions
Average number of shares for basic earnings per share 1,753 1,784
Dilutive share options - -
Average number of shares for diluted earnings per share 1,753 1,784
EARNINGS PER SHARE Six months ended 31 March
2023 2022
Basic 36.4p 26.7p
Diluted 36.4p 26.7p
Underlying earnings per share for the six months ended 31 March 2023 was 42.7p
(six months ended 31 March 2022: 26.9p). Underlying earnings per share is
calculated based on earnings excluding the effect of acquisition-related
charges, charges related to the strategic portfolio review, one-off pension
charge, gains and losses on sale and closure of businesses and other financing
items, together with the tax attributable to these amounts (see note 11).
5 DIVIDENDS AND SHARE BUYBACK
Dividends
The interim dividend of 15.0p per share (2022: 9.4p per share), £262m in
aggregate(1), is payable on 27 July 2023 to shareholders on the register at
the close of business on 9 June 2023. The dividend was approved by the Board
after the balance sheet date and, therefore, it has not been reflected as a
liability in the interim financial statements.
Six months ended 31 March 2023 Six months ended 31 March 2022
DIVIDENDS ON ORDINARY SHARES Dividends £m Dividends £m
per share per share
Amounts recognised as distributions to equity shareholders during the period:
Final 2021 - - 14.0p 250
Final 2022 22.1p 387 - -
Total 22.1p 387 14.0p 250
1. Based on the number of ordinary shares, excluding treasury shares, in
issue at 31 March 2023 (1,745m shares).
Share buyback
In May 2023, a further share buyback of up to £750m was announced, to be
completed this calendar year, which takes the total buyback programme
announced since May 2022 to £1.5bn.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
6 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS
Six months ended 31 March
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS 2023 2022
£m £m
Operating profit before joint ventures and associates 852 616
Adjustments for:
Acquisition-related charges(1) 53 30
Charges related to the strategic portfolio review 99 -
One-off pension charge 12 -
Amortisation - other intangible assets(2) 53 44
Amortisation - contract fulfilment assets 122 99
Amortisation - contract prepayments 26 18
Depreciation - right-of-use assets 80 76
Depreciation - property, plant and equipment 136 129
Unwind of costs to obtain contracts 10 8
Impairment losses - contract-related non-current assets(3) 4 1
Impairment reversals - contract-related non-current assets (1) (1)
Gain on disposal of property, plant and equipment/intangible assets/contract (3) (5)
fulfilment assets
Other non-cash changes (1) (1)
Decrease in provisions (13) (2)
Investment in contract prepayments (35) (35)
Increase in costs to obtain contracts(4) (16) (12)
Post-employment benefit obligations net of service costs (4) (4)
Share-based payments - charged to profit 23 20
Operating cash flow before movements in working capital 1,397 981
Increase in inventories (69) (54)
Increase in receivables (207) (258)
Increase in payables 107 170
Cash generated from operations 1,228 839
1. Includes amortisation and impairment of intangible assets arising on
acquisition. Excludes acquisition transaction costs of £8m (six months ended
31 March 2022: £3m) as acquisition transaction costs are included in net cash
flow from operating activities.
2. Excludes amortisation of intangible assets arising on acquisition.
3. In 2023, excludes impairment losses of £50m included in charges related
to the strategic portfolio review.
4. Cash payments in respect of contract balances are classified as cash
flows from operating activities, with the exception of contract fulfilment
assets which are classified as cash flows from investing activities as they
arise from cash payments in relation to assets that will generate long-term
economic benefits. During the six months ended 31 March 2023, the purchase of
contract fulfilment assets in cash flows from investing activities is £87m
(six months ended 31 March 2022: £96m).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
7 FINANCIAL INSTRUMENTS
Financial instruments measured at amortised cost
The carrying amounts of the following financial instruments measured at
amortised cost approximate to their fair values: trade and other receivables;
cash and cash equivalents (excluding money market funds); lease liabilities;
provisions; and trade and other payables. Borrowings are measured at amortised
cost unless they are part of a fair value hedge, in which case amortised cost
is adjusted for the fair value attributable to the risk being hedged. The
carrying amount of borrowings at 31 March 2023 is £3,412m (30 September
2022: £3,964m). The fair value of borrowings at 31 March 2023, calculated by
discounting future cash flows to net present values at current market rates
for similar financial instruments, is £3,448m (30 September 2022: £3,920m).
Financial instruments measured at fair value
The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the balance sheet date.
The fair value measurement hierarchy is as follows:
· Level 1: Quoted prices (unadjusted) in active markets for identical assets
or liabilities
· Level 2: Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
· Level 3: Inputs for the asset or liability that are not based on observable
market data (i.e. unobservable inputs)
There were no transfers of financial instruments between levels of the fair
value hierarchy in either the six months ended 31 March 2023 or 2022. The
carrying amounts of financial instruments measured at fair value are shown in
the table below:
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE At 31 At 30 September 2022
March
2023
Level £'m £'m
NON-CURRENT
Rabbi Trust investments(1) 1 599 566
Mutual fund investments(1) 1 48 52
Other investments(1) 1 11 12
Life insurance policies(1) 2 29 33
Derivative financial instruments - assets 2 35 76
Derivative financial instruments - liabilities 2 (165) (237)
Trade investments(1) 3 114 127
Contingent consideration on business acquisitions(2) 3 (90) (39)
Non-controlling interest put options(2) 3 (37) (45)
CURRENT
Money market funds(3) 1 389 474
Derivative financial instruments - assets 2 41 71
Derivative financial instruments - liabilities 2 (7) (6)
Contingent consideration on business acquisitions(2) 3 (46) (30)
1. Classified as other investments in the consolidated balance sheet.
2. Classified as trade and other payables in the consolidated balance sheet.
3. Classified as cash and cash equivalents in the consolidated balance sheet
on the basis that they have a maturity of three months or less from the date
of acquisition.
Due to the variability of the valuation factors, the fair values presented at
31 March 2023 may not be indicative of the amounts the Group would expect to
realise in the current market environment. The fair values of financial
instruments at levels 2 and 3 of the fair value hierarchy have been determined
based on the valuation methodologies listed below:
- Level 2
Life insurance policies Cash surrender values provided by third-party
insurance providers.
Derivative financial instruments Present values determined from future cash
flows discounted at rates derived from market-sourced data. The fair values of
derivative financial instruments represent the maximum credit exposure.
- Level 3
Trade investments Estimated values using income and market value approaches.
Contingent consideration on business acquisitions Estimated amounts payable
based on the likelihood of specified conditions, such as earnings targets,
being met.
Non-controlling interest put options Estimated amounts payable based on the
likelihood of options being exercised by minority shareholders.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
7 FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate benchmark reform
The Group and all its derivative counterparties are party to the International
Swaps and Derivatives Association (ISDA) fallback protocols which
automatically convert derivatives from IBOR to the relevant alternative
reference rate when an IBOR rate ceases. As USD LIBOR ceases on 30 June 2023,
the Group is of the opinion that there is no longer any uncertainty around
derivatives which reference USD LIBOR and, therefore, it has adopted the IBOR
Reform Phase 2 amendments in respect of these derivatives and redocumented its
hedges to incorporate the change from USD LIBOR to USD SOFR. The Group's
interest rate benchmark reform process is now complete.
8 ACQUISITION, SALE AND CLOSURE OF BUSINESSES
Acquisition of businesses
The total cash spent on the acquisition of subsidiaries during the six months
ended 31 March 2023, net of cash acquired, was £215m (six months ended 31
March 2022: £115m), including £18m of deferred and contingent consideration
and other payments relating to businesses acquired in previous years and £8m
of acquisition transaction costs included in net cash flow from operating
activities.
On 20 March 2023, the Group acquired the trade and assets of Parks Coffee, a
provider of workplace refreshments in the US, for an initial consideration of
$108m (£90m). Total consideration includes $6m (£5m) payable in 2024 and an
estimated $23m (£20m) payable in 2025 contingent on the operation of an
earn-out. The preliminary goodwill in relation to the assets acquired is
£43m. This goodwill represents the premium the Group paid to acquire the
business that complements its existing businesses and creates significant
opportunities and other synergies.
The following table summarises the recognised amounts of assets acquired and
liabilities assumed at the date of acquisition of Parks Coffee:
Six months ended
31 March 2023
Book Fair
value
value
£m
£m
NET ASSETS ACQUIRED
Other intangible assets 1 64
Property, plant and equipment 5 5
Inventories 4 4
Trade and other payables (1) (1)
Fair value of net assets acquired 72
Goodwill 43
Total consideration 115
SATISFIED BY
Cash consideration paid 90
Deferred and contingent consideration payable 25
Total consideration 115
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
8 ACQUISITION, SALE AND CLOSURE OF BUSINESSES (CONTINUED)
In addition to the acquisition set out above, the Group also completed a
number of other acquisitions during the period. A summary of all acquisitions
completed during the period is presented in aggregate below:
Six months ended
31 March 2023
Book Fair
value
value
£m
£m
NET ASSETS ACQUIRED
Other intangible assets 2 92
Property, plant and equipment 6 6
Trade and other receivables 3 3
Inventories 6 6
Cash and cash equivalents 8 8
Trade and other payables (7) (7)
Deferred tax liabilities (1) (1)
Fair value of net assets acquired 107
Less: Book value of non-controlling interests acquired in previous years (12)
Goodwill 188
Total consideration 283
SATISFIED BY
Cash consideration paid 197
Deferred and contingent consideration payable 86
Total consideration 283
CASH FLOW
Cash consideration paid 197
Less: Cash and cash equivalents acquired (8)
Acquisition transaction costs(1) 8
Net cash outflow arising on acquisition 197
Deferred and contingent consideration and other payments relating to 18
businesses acquired in previous years
Total cash outflow from purchase of subsidiary companies 215
CONSOLIDATED CASH FLOW STATEMENT
Net cash flow from operating activities(1) 8
Net cash flow from investing activities 207
Total cash outflow from purchase of subsidiary companies 215
1. Acquisition transaction costs are included in net cash flow from
operating activities.
Goodwill decreased from £5,119m at 30 September 2022 to £5,004m at 31 March
2023 reflecting business disposals (£18m), impairments (£5m) and adverse
exchange translation (£280m), partially offset by business acquisitions
(£188m).
Contingent consideration is an estimate at the date of acquisition of the
amount of additional consideration that will be payable in the future. The
actual amount paid can vary from the estimate depending on the terms of the
transaction and, for example, the actual performance of the acquired business.
The fair value adjustments made in respect of acquisitions in the six months
ended 31 March 2023 are provisional and will be finalised within 12 months of
the acquisition date, principally in relation to the valuation of contracts
acquired.
The acquisitions did not have a material impact on the Group's revenue or
profit in the period.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
8 ACQUISITION, SALE AND CLOSURE OF BUSINESSES (CONTINUED)
Sale and closure of businesses
The Group has recognised a net gain of £29m on the sale and closure of
businesses (six months ended 31 March 2022: net loss of £6m), including exit
costs of £2m (six months ended 31 March 2022: £3m). Activity in the period
includes the exit from six countries, including Central and Eastern Europe
(Czech Republic, Hungary, Slovakia and Romania), together with the sale of a
business in the UK and a further 28% shareholding in Highways Royal Co.,
Limited (Japanese Highways).
A summary of the business disposals completed during the period is presented
in aggregate below:
Six months ended
31 March 2023
£m
NET ASSETS DISPOSED
Goodwill 18
Other intangible assets 9
Right-of-use assets 2
Property, plant and equipment 5
Deferred tax assets 1
Trade and other receivables 26
Inventories 4
Cash and cash equivalents 24
Assets held for sale 26
Lease liabilities (3)
Provisions (2)
Trade and other payables (42)
Net assets disposed 68
CONSOLIDATED INCOME STATEMENT
Cash consideration 37
Deferred consideration(1) 61
Less: Net assets disposed (68)
Less: Exit costs (2)
Add: Reclassification of cumulative currency translation differences on sale 1
of businesses
Net gain on sale and closure of businesses 29
CONSOLIDATED CASH FLOW STATEMENT
Cash consideration 37
Exit costs (1)
Cash and cash equivalents disposed (24)
Net proceeds from sale of subsidiary companies, joint ventures and associates 12
net of exit costs
1. Includes £60m in respect of the sale of four businesses in Central and
Eastern Europe receivable over four years.
9 RELATED PARTY TRANSACTIONS
Full details of the Group's related party relationships, transactions and
balances are provided in the Group's financial statements for the year ended
30 September 2022. There have been no material changes in these relationships
during the six months ended 31 March 2023 or up to the date of this
announcement. Transactions with related parties have not had, and are not
expected to have, a material effect on the financial performance or position
of the Group.
10 POST-BALANCE SHEET EVENTS
With the exception of the proposed dividend and share buyback (see note 5),
there are no material post-balance sheet events.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES
Introduction
The Executive Committee manages and assesses the performance of the Group
using various underlying and other Alternative Performance Measures (APMs).
These measures are not recognised under International Financial Reporting
Standards (IFRS) or other generally accepted accounting principles (GAAP) and
may not be directly comparable with APMs used by other companies. Underlying
measures reflect ongoing trading and, therefore, facilitate meaningful
year-on-year comparison. Management believes that the Group's underlying and
alternative performance measures, together with the results prepared in
accordance with IFRS, provide comprehensive analysis of the Group's results.
Certain of these measures are financial Key Performance Indicators (KPIs)
which measure progress against our strategy.
In determining the adjustments to arrive at underlying results, we use a set
of established principles relating to the nature and materiality of individual
items or groups of items, including, for example, events which: (i) are
outside the normal course of business; (ii) are incurred in a pattern that is
unrelated to the trends in the underlying financial performance of our ongoing
business; or (iii) are related to business acquisitions or disposals as they
are not part of the Group's ongoing trading business and the associated cost
impact arises from the transaction rather than from the continuing business.
Definitions
Measure Definition Purpose
INCOME STATEMENT
Underlying revenue Revenue plus share of revenue of joint ventures. Allows management to monitor the sales performance of the Group's subsidiaries
and joint ventures.
Underlying Operating profit excluding specific adjusting items(2). Provides a measure of operating profitability that is comparable over time.
operating profit
Underlying Underlying operating profit divided by underlying revenue. An important measure of the efficiency of our operations in delivering great
operating margin1 food and support services to our clients and consumers.
Organic revenue1 Current year: Underlying revenue excluding businesses acquired, sold and Embodies our success in growing and retaining our customer base, as well as
closed in the year. Prior year: Underlying revenue including a proforma 12 our ability to drive volumes in our existing business and maintain appropriate
months in respect of businesses acquired in the year and excluding businesses pricing levels in light of input cost inflation.
sold and closed in the year translated at current year exchange rates.
Where applicable, a 53rd week is excluded from the current or prior year.
Organic operating profit Current year: Underlying operating profit excluding businesses acquired, sold Provides a measure of operating profitability that is comparable over time.
and closed in the year. Prior year: Underlying operating profit including a
proforma 12 months in respect of businesses acquired in the year and excluding
businesses sold and closed in the year translated at current year exchange
rates.
Where applicable, a 53rd week is excluded from the current or prior year.
Underlying finance costs Finance costs excluding specific adjusting items(2). Provides a measure of the Group's cost of financing excluding items outside of
the control of management.
Underlying profit before tax Profit before tax excluding specific adjusting items(2). Provides a measure of Group profitability that is comparable over time.
Underlying income tax expense Income tax expense excluding tax attributable to specific adjusting items(2). Provides a measure of income tax expense that is comparable over time.
1. Key Performance Indicator.
2. See page 40 for definitions of the specific adjusting items and a
reconciliation from the statutory to the underlying income statement.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Definitions (continued)
Measure Definition Purpose
INCOME STATEMENT (CONTINUED)
Underlying effective tax rate Underlying income tax expense divided by underlying profit before tax. Provides a measure of the effective tax rate that is comparable over time.
Underlying profit for the year Profit for the year excluding specific adjusting items(2) and tax attributable Provides a measure of Group profitability that is comparable over time.
to those items.
Underlying profit attributable to equity shareholders (underlying earnings) Profit for the year attributable to equity shareholders excluding specific Provides a measure of Group profitability that is comparable over time.
adjusting items(2) and tax attributable to those items.
Underlying earnings Earnings per share excluding specific adjusting items(2) and tax attributable Measures the performance of the Group in delivering value to shareholders.
per share1 to those items.
Underlying EBITDA Underlying operating profit excluding underlying impairment, depreciation and Provides a measure of Group operating profitability that is comparable over
amortisation of intangible assets, tangible assets and contract-related time.
assets.
BALANCE SHEET
Net debt Bank overdrafts, bank and other borrowings, lease liabilities and derivative Allows management to monitor the indebtedness of the Group.
financial instruments, less cash and cash equivalents.
Net debt to EBITDA Net debt divided by underlying EBITDA. Provides a measure of the Group's ability to finance and repay its debt from
its operations.
CASH FLOW
Capital expenditure Purchase of intangible assets, purchase of contract fulfilment assets, Provides a measure of expenditure on long-term intangible, tangible and
purchase of property, plant and equipment and investment in contract contract-related assets, net of the proceeds from disposal of intangible,
prepayments, less proceeds from sale of property, plant and tangible and contract-related assets.
equipment/intangible assets/contract fulfilment assets.
Underlying operating cash flow Net cash flow from operating activities, including purchase of intangible Provides a measure of the success of the Group in turning profit into cash
assets, purchase of contract fulfilment assets, purchase of property, plant that is comparable over time.
and equipment, proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets, repayment of principal under lease
liabilities and share of results of joint ventures and associates, and
excluding interest and net tax paid, post-employment benefit obligations net
of service costs, cash payments related to the cost action programme and
COVID-19 resizing costs, and acquisition transaction costs.
Underlying operating cash flow conversion Underlying operating cash flow divided by underlying operating profit. Provides a measure of the success of the Group in turning profit into cash
that is comparable over time.
1. Key Performance Indicator.
2. See page 40 for definitions of the specific adjusting items and a
reconciliation from the statutory to the underlying income statement.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Definitions (continued)
Measure Definition Purpose
CASH FLOW (CONTINUED)
Free cash flow Net cash flow from operating activities, including purchase of intangible Provides a measure of the success of the Group in turning profit into cash
assets, purchase of contract fulfilment assets, purchase of property, plant that is comparable over time.
and equipment, proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets, purchase of other investments, proceeds
from sale of other investments, dividends received from joint ventures and
associates, interest received, repayment of principal under lease liabilities
and dividends paid to non-controlling interests.
Underlying free Free cash flow excluding cash payments related to the cost action programme Provides a measure of the success of the Group in turning profit into cash
cash flow1 and COVID-19 resizing costs, and acquisition transaction costs. that is comparable over time.
Underlying free cash flow conversion Underlying free cash flow divided by underlying operating profit. Provides a measure of the success of the Group in turning profit into cash
that is comparable over time.
Underlying cash Net tax paid included in net cash flow from operating activities divided by Provides a measure of the cash tax rate that is comparable over time.
tax rate underlying profit before tax.
business growth
New business Current year underlying revenue for the period in which no revenue had been The measure of incremental revenue in the current year from new business.
recognised in the prior year.
Lost business Prior year underlying revenue for the period in which no revenue has been The measure of lost revenue in the current year from ceased business.
recognised in the current year.
Net new business New business minus lost business as a percentage of prior year organic The measure of net incremental revenue in the current year from business wins
revenue. and losses.
Retention 100% minus lost business as a percentage of prior year organic revenue. The measure of our success in retaining business.
1. Key Performance Indicator.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Reconciliations
Income statement
Underlying revenue and operating profit are reconciled to GAAP measures in
note 2 (segmental analysis).
Geographical segments
ORGANIC REVENUE North America Rest of World Central activities
£m Europe £m £m Total
£m £m
SIX MONTHS ENDED 31 MARCH 2023
Underlying revenue 10,652 3,549 1,595 - 15,796
Organic adjustments (5) (16) (6) - (27)
Organic revenue 10,647 3,533 1,589 - 15,769
SIX MONTHS ENDED 31 MARCH 2022
Underlying revenue 7,657 2,766 1,202 - 11,625
Currency adjustments 944 32 37 - 1,013
Underlying revenue - constant currency 8,601 2,798 1,239 - 12,638
Organic adjustments 43 (42) 3 - 4
Organic revenue 8,644 2,756 1,242 - 12,642
39.1% 28.3% 32.7% 35.9%
Increase in underlying revenue at reported rates - %
Increase in underlying revenue at constant currency - % 23.8% 26.8% 28.7% 25.0%
Increase in organic revenue - % 23.2% 28.2% 27.9% 24.7%
Geographical segments
ORGANIC OPERATING PROFIT North America Rest of World Central activities
£m Europe £m £m Total
£m £m
SIX MONTHS ENDED 31 MARCH 2023
Underlying operating profit/(loss) 832 197 71 (50) 1,050
Underlying operating margin - % 7.8% 5.6% 4.5% 6.6%
Organic adjustments - (2) (1) - (3)
Organic operating profit/(loss) 832 195 70 (50) 1,047
SIX MONTHS ENDED 31 MARCH 2022
Underlying operating profit/(loss) 535 125 56 (43) 673
Underlying operating margin - % 7.0% 4.5% 4.7% 5.8%
Currency adjustments 66 2 3 - 71
Underlying operating profit/(loss) - constant currency 601 127 59 (43) 744
Organic adjustments 2 (3) (1) - (2)
Organic operating profit/(loss) 603 124 58 (43) 742
Increase in underlying operating profit at reported rates - % 55.5% 57.6% 26.8% 56.0%
Increase in underlying operating profit at constant currency - % 38.4% 55.1% 20.3% 41.1%
Increase in organic operating profit - % 38.0% 57.3% 20.7% 41.1%
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Reconciliations (continued)
Six months ended 31 March
Specific adjusting items
UNDERLYING INCOME STATEMENT 2023 1 2 3 4 5 2023
Statutory
Underlying
£m £m £m £m £m £m
£m
Operating profit 878 61 12 - 99 - 1,050
Net gain on sale and closure of businesses 29 - - - (29) - -
Finance costs (76) - - - - 10 (66)
Profit before tax 831 61 12 - 70 10 984
Income tax expense (189) (14) (3) - (22) (3) (231)
Profit for the period 642 47 9 - 48 7 753
Less: Non-controlling interests (4) - - - - - (4)
Profit attributable to equity shareholders 638 47 9 - 48 7 749
Earnings per share (p) 36.4p 2.7p 0.5p - 2.7p 0.4p 42.7p
Effective tax rate (%) 22.7% 23.5%
Six months ended 31 March
Specific adjusting items
UNDERLYING INCOME STATEMENT 2022 1 2 3 4 5 2022
Statutory £m
Underlying
£m £m £m £m £m
£m
Operating profit 638 33 - 2 - - 673
Net loss on sale and closure of businesses (6) - - - 6 - -
Finance costs - - - - - (37) (37)
Profit before tax 632 33 - 2 6 (37) 636
Income tax expense (152) (11) - (2) 3 9 (153)
Profit for the period 480 22 - - 9 (28) 483
Less: Non-controlling interests (3) - - - - - (3)
Profit attributable to equity shareholders 477 22 - - 9 (28) 480
Currency adjustments 54
Profit attributable to equity shareholders - constant currency 534
Earnings per share (p) 26.7p 1.3p - - 0.5p (1.6)p 26.9p
Earnings per share - constant currency (p) 29.9p
Effective tax rate (%) 24.1% 24.0%
Specific adjusting items are as follows:
1. Acquisition-related charges
Represent amortisation and impairment charges in respect of intangible assets
acquired through business combinations, direct costs incurred through business
combinations or other strategic asset acquisitions, business integration costs
and changes in consideration in relation to past acquisition activity.
2. One-off pension charge
A past service cost following a change in legislation in Turkey eliminating
the minimum retirement age requirement for certain employees effective from
March 2023.
3. Tax on share of profit of joint ventures
Reclassification of tax on share of profit of joint ventures to income tax
expense.
4. Gains and losses on sale and closure of businesses and charges related to
the strategic portfolio review
Profits and losses on the sale of subsidiaries, joint ventures and associates,
exit costs on closure of businesses (see note 8) and charges in respect of
site closures and contract renegotiations and terminations which, during 2023,
relate to an ongoing strategic review of the Group's portfolio of non-core
activities.
5. Other financing items
Financing items, including hedge accounting ineffectiveness, change in the
fair value of derivatives held for economic hedging purposes, change in the
fair value of investments and financing items relating to post-employment
benefits.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Reconciliations (continued)
Six months ended 31 March
UNDERLYING EBITDA 2023 2022
£m £m
Underlying operating profit 1,050 673
Add back/(deduct):
Depreciation of property, plant and equipment and right-of-use assets 216 205
Amortisation of other intangible assets, contract fulfilment assets and 201 161
contract prepayments(1)
Impairment losses - contract-related non-current assets(2) 4 1
Impairment reversals - contract-related non-current assets (1) (1)
Underlying EBITDA 1,470 1,039
1. Excludes amortisation of intangible assets arising on acquisition.
2. In 2023, excludes impairment losses of £50m included in charges related
to the strategic portfolio review.
Balance sheet
At 31 March
COMPONENTS OF NET DEBT 2023 2022
£m £m
Borrowings (3,412) (3,203)
Lease liabilities (895) (827)
Derivative financial instruments (96) 20
Gross debt (4,403) (4,010)
Cash and cash equivalents 1,198 1,480
Net debt (3,205) (2,530)
Six months ended 31 March
NET DEBT RECONCILIATION 2023 2022
£m £m
Net decrease in cash and cash equivalents (689) (353)
Add back/(deduct):
Increase in borrowings - (1)
Repayment of borrowings 440 297
Net cash flow from derivative financial instruments (103) 20
Repayment of principal under lease liabilities 83 73
(Increase)/decrease in net debt from cash flows (269) 36
New lease liabilities and amendments (118) (46)
Amortisation of fees and discounts on issue of debt (2) (2)
Changes in fair value of borrowings in a fair value hedge (56) 110
Lease liabilities acquired through business acquisitions - (6)
Lease liabilities derecognised on sale and closure of businesses 3 1
COVID-19 rent concessions - 1
Changes in fair value of derivative financial instruments 45 (68)
Reclassification - 3
Currency translation gains/(losses) 182 (21)
(Increase)/decrease in net debt (215) 8
Net debt at 1 October (2,990) (2,538)
Net debt at 31 March (3,205) (2,530)
At 31 March
NET DEBT TO EBITDA 2023 2022
£m £m
Net debt (3,205) (2,530)
Prior year 2,371 1,554
Less: Prior half-year (1,039) (670)
Add: Current half-year 1,470 1,039
Underlying EBITDA (last 12 months) 2,802 1,923
Net debt to EBITDA (times) 1.1 1.3
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Reconciliations (continued)
Cash flow
Six months ended 31 March
CAPITAL EXPENDITURE 2023 2022
£m £m
Purchase of intangible assets 88 65
Purchase of contract fulfilment assets 87 96
Purchase of property, plant and equipment 179 125
Investment in contract prepayments 35 35
Proceeds from sale of property, plant and equipment/intangible assets/contract (25) (15)
fulfilment assets
Capital expenditure 364 306
UNDERLYING OPERATING CASH FLOW Six months ended 31 March
2023 2022
£m £m
Net cash flow from operating activities 944 663
Purchase of intangible assets (88) (65)
Purchase of contract fulfilment assets (87) (96)
Purchase of property, plant and equipment (179) (125)
Proceeds from sale of property, plant and equipment/intangible assets/contract 25 15
fulfilment assets
Repayment of principal under lease liabilities (83) (73)
Share of results of joint ventures and associates 26 22
Add back:
Interest paid 85 43
Net tax paid 199 133
Post-employment benefit obligations net of service costs 4 4
Cash payments related to cost action programme and COVID-19 resizing costs 17 33
Acquisition transaction costs 8 3
Underlying operating cash flow 871 557
Six months ended 31 March
UNDERLYING OPERATING CASH FLOW CONVERSION 2023 2022
£m £m
Underlying operating cash flow 871 557
Underlying operating profit 1,050 673
Underlying operating cash flow conversion (%) 83.0% 82.8%
Six months ended 31 March
FREE CASH FLOW 2023 2022
£m £m
Net cash flow from operating activities 944 663
Purchase of intangible assets (88) (65)
Purchase of contract fulfilment assets (87) (96)
Purchase of property, plant and equipment (179) (125)
Proceeds from sale of property, plant and equipment/intangible assets/contract 25 15
fulfilment assets
Purchase of other investments (1) (17)
Proceeds from sale of other investments 2 1
Dividends received from joint ventures and associates 10 19
Interest received 24 3
Repayment of principal under lease liabilities (83) (73)
Dividends paid to non-controlling interests (2) (1)
Free cash flow 565 324
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
11 NON-GAAP MEASURES (CONTINUED)
Reconciliations (continued)
Six months ended 31 March
UNDERLYING FREE CASH FLOW 2023 2022
£m £m
Free cash flow 565 324
Add back:
Cash payments related to cost action programme and COVID-19 resizing costs 17 33
Acquisition transaction costs 8 3
Underlying free cash flow 590 360
Six months ended 31 March
UNDERLYING FREE CASH FLOW CONVERSION 2023 2022
£m £m
Underlying free cash flow 590 360
Underlying operating profit 1,050 673
Underlying free cash flow conversion (%) 56.2% 53.5%
Six months ended 31 March
UNDERLYING CASH TAX RATE 2023 2022
£m £m
Tax received 14 12
Tax paid (213) (145)
Net tax paid (199) (133)
Underlying profit before tax 984 636
Underlying cash tax rate (%) 20.2% 20.9%
Business growth
Six months ended 31 March
NET NEW BUSINESS 2023 2022
£m £m
New business less lost business 662 517
Prior period organic revenue 12,642 8,401
Net new business (%) 5.2% 6.1%
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 MARCH 2023
12 EXCHANGE RATES
Average rates are used to translate the income statement and cash flow
statement. Closing rates are used to translate the balance sheet. Only the
most significant currencies are shown.
Six months ended 31 March
2023 2022
AVERAGE EXCHANGE RATE FOR THE PERIOD
Australian Dollar 1.78 1.85
Brazilian Real 6.22 7.20
Canadian Dollar 1.62 1.70
Chilean Peso 1030.99 1091.06
Euro 1.14 1.18
Japanese Yen 163.88 154.55
Norwegian Krone 12.23 11.81
Swedish Krona 12.67 12.18
Turkish Lira 22.36 16.66
UAE Dirham 4.38 4.93
US Dollar 1.19 1.34
CLOSING EXCHANGE RATE AS AT THE END OF THE PERIOD
Australian Dollar 1.85 1.75
Brazilian Real 6.27 6.26
Canadian Dollar 1.67 1.64
Chilean Peso 977.55 1036.11
Euro 1.14 1.18
Japanese Yen 164.56 159.81
Norwegian Krone 12.95 11.51
Swedish Krona 12.82 12.27
Turkish Lira 23.73 19.31
UAE Dirham 4.54 4.84
US Dollar 1.24 1.32
Forward-looking statements
Certain information included in this Announcement is forward looking and
involves risks, assumptions and uncertainties that could cause actual results
to differ materially from those expressed or implied by forward-looking
statements. Forward-looking statements cover all matters which are not
historical facts and include, without limitation, the direct and indirect
future impacts and implications of public health crises such as the
coronavirus COVID-19 on the economy, nationally and internationally, and on
the Group, its operations and prospects; disruptions and inefficiencies in
supply chains (such as resulting from the war in Ukraine); future domestic and
global political, economic and business conditions (such as inflation or the
UK's exit from the EU); projections relating to results of operations and
financial conditions and the Company's plans and objectives for future
operations, including, without limitation, discussions of expected future
revenues, financing plans and expected expenditures and divestments; risks
associated with changes in economic conditions, levels of economic growth and
the strength of the food and support services markets in the jurisdictions in
which the Group operates; fluctuations in food and other product costs and
labour costs; and prices and changes in exchange and interest rates.
Forward-looking statements can be identified by the use of forward-looking
terminology, including terms such as 'believes', 'estimates', 'anticipates',
'expects', 'forecasts', 'intends', 'plans', 'projects', 'goal', 'target',
'aim', 'may', 'will', 'would', 'could' or 'should' or, in each case, their
negative or other variations or comparable terminology.
Forward-looking statements in this Announcement are not guarantees of future
performance. All forward-looking statements in this Announcement are based
upon information known to the Company on the date of this Announcement.
Accordingly, no assurance can be given that any particular expectation will be
met and readers are cautioned not to place undue reliance on forward-looking
statements when making their investment decisions. Additionally,
forward-looking statements regarding past trends or activities should not be
taken as a representation or warranty that such trends or activities will
continue in the future. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority), the Company
undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
Nothing in this Announcement shall exclude any liability under applicable laws
that cannot be excluded in accordance with such laws.
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