Despite the difficult economic conditions we have achieved good organic revenue growth of 2.6%.
Our focus on managing the largely variable cost base and driving cost efficiencies has increased operating margins by 60 basis points to 6.5%. As a result, operating profit at constant currency is up by £55 million to £455 million, a 14% increase on last year.
With the benefit of the favourable move in exchange rates, underlying earnings per share has increased by 43%.
Overall, organic revenue growth was 2.6%, comprising new business of 8.5%, retention of 93% and like for like growth of 1.1%.
The chart shows revenues at actual exchange rates.
The significant weakening of Sterling increased reported revenues by 20.3% and acquisitions added a further 1.0%, resulting in reported revenue growth of 23.9%.
Underlying operating profit from continuing operations, including associates but excluding the amortisation of intangibles arising on acquisition, was £455 million (2008: £322 million, adjusting this to 2009 average exchange rates would increase the profit by £78 million to £400 million), an increase of 41% on a reported basis over the prior period.
The chart shows underlying operating profit at actual exchange rates.
Operating profit after the amortisation of intangibles arising on acquisition of £2 million (2008: £nil) was £453 million (2008: £322 million).
Underlying operating profit increased by £55 million, or 14%, on a constant currency basis. This represents a 60 basis points improvement in margin to 6.5% (2008: 5.9% on a constant currency basis).
The chart shows underlying operating margin at actual exchange rates.
Additional information on the performance of each region can be found in the regional reviews (North America, Continental Europe, UK & Ireland, Rest of the World).
Unallocated overheads were £28 million (2008: £31 million on a constant currency basis), reflecting good control over costs.
Underlying net finance cost, excluding hedge accounting ineffectiveness and the impact of revaluing investments and minority interest put options, was £50 million (2008: £33 million). The increase from last year largely reflects the impact of exchange rates on the US Dollar and Euro denominated debt and lower interest income from cash deposits this year. We currently expect the underlying net finance cost for the full year to be around £100 million at current exchange rates.
Other gains and losses include an £11 million (2008: £8 million) cost of hedge accounting ineffectiveness and a £5 million (2008: £nil) cost of revaluing investments and minority interest put options.
Profit before tax from continuing operations was £387 million (2008: £281 million).
On an underlying basis, excluding the amortisation of intangibles arising on acquisition, hedge accounting ineffectiveness and the impact of revaluing investments and minority interest put options, profit before tax from continuing operations increased by 40% to £405 million (2008: £289 million).
Income tax expense from continuing operations was £112 million (2008: £81 million).
On an underlying basis, excluding the amortisation of intangibles arising on acquisition, hedge accounting ineffectiveness and the impact of revaluing investments and minority interest put options, the tax charge on continuing operations was £117 million (2008: £83 million), equivalent to an effective tax rate of 29% (2008: 29%). Based on current corporate tax rates applicable to our major countries of operation, we expect a similar rate for the full year.
The profit after tax from discontinued operations was £12 million (2008: £16 million).
Basic earnings per share, including discontinued operations, were 15.4 pence (2008: 11.3 pence).
On an underlying basis, excluding discontinued operations, the amortisation of intangibles arising on acquisition, hedge accounting ineffectiveness, the impact of revaluing investments and minority interest put options and the tax attributable to these amounts, the basic earnings per share from continuing operations were 15.4 pence (2008: 10.8 pence).
| Six months ended 31 March | Attributable profit |
Basic earnings per share |
|||
|---|---|---|---|---|---|
| 2009 £m |
2008 £m |
2009 pence |
2008 pence |
Change % |
|
| Reported | 284 | 213 | 15.4 | 11.3 | 36.3% |
| Discontinued operations | (12) | (16) | (0.7) | (0.9) | |
| Other adjustments | 13 | 6 | 0.7 | 0.4 | |
| Underlying | 285 | 203 | 15.4 | 10.8 | 42.6% |
An interim dividend of 4.4 pence per share will be paid on 3 August 2009 to shareholders on the register on 3 July 2009. This represents a year on year increase of 10%.
Free cash flow from continuing operations totalled £240 million (2008: £180 million). The major factors contributing to the increase were: £131 million increase in underlying operating profit before associates offset by £17 million higher net tax payments and £58 million higher net capital expenditure.
Gross capital expenditure of £133 million (2008: £84 million), including amounts purchased under finance leases of £1 million (2008: £3 million), is equivalent to 1.9% of revenues (2008: 1.5% of revenues). Around half of the increase in net capital expenditure is due to lower disposal proceeds this year and exchange rate movements. The other half is largely phasing. We currently expect the level of gross capital expenditure for the full year to be around 2% of revenues.
There has been a continued focus on all areas of working capital management, limiting the overall seasonal working capital outflow (including provisions and post-employment benefit obligations) to £65 million (2008: £61 million outflow). We believe that there remains further scope for improvement.
The cash tax rate was 21% (2008: 24%), based on underlying profit before tax for continuing operations. For the full year we expect a cash tax rate around the mid 20s level mainly because of the timing of some of the larger payments. We continue to expect the annual cash tax rate to average out over the medium term at the mid to high 20s level.
The net interest outflow was £44 million (2008: £32 million).
We have considerably strengthened our ability to offer support services in two key markets, the USA and Germany, through the acquisitions of Kimco and Plural, with a net cash outflow in the period of £51 million and £17 million respectively. In the UK we have agreed to acquire from McColl’s a number of food and retail outlets within hospitals. We have spent £4 million up to 31 March 2009, with a further £15 million expected in the second half of the year. With £6 million of other small acquisitions, the total cash spend on infill acquisitions was £78 million. £12 million was spent on the buy out of minority interests (including £11 million on the remaining 5% shareholding in Seiyo Foods, our Japanese business) and £4 million of deferred consideration relating to previous year acquisitions. The total cash spend on acquisitions was therefore £94 million.
Payments made in respect of businesses disposed of or discontinued in prior years totalled £33 million in the period (2008: £15 million).
The Group spent cash of £11 million (2008: £290 million) on the purchase of its shares in the period.
The Group has continued to review and monitor its pension obligations throughout the year working closely with the Trustees and members of schemes around the Group to ensure proper and prudent assumptions are used and adequate provision and contributions are made.
The Group’s pension deficit at 31 March 2009 was £257 million (2008: £177 million), principally reflecting the decrease in the value of pension scheme assets in the current market conditions.
During the first six months of the year net debt increased to £1,258 million (2008: £1,210 million).
On 30 October 2008, the Group raised £187 million in the private placement market and will be repaying the £380 million of Eurobonds and US Private Placements maturing in May 2009 out of surplus cash. In addition, the Group has an undrawn bank facility of circa £800 million committed through to 2012.
Looking forward, £230 million of debt is due for repayment in 2010 and £90 million in 2011. With strong ongoing free cash generation the Group believes that it is in a very strong financial position.
The Group finances its borrowings from a number of sources including banks, the public markets and the private placement markets. Borrowings are stated at their nominal value except for the bond redeemable in December 2014 which is recorded at its fair value to the Group on acquisition.
Maturity profile of principal borrowings
as at 31 March 2009
Borrowings are stated at their nominal value except for the bond redeemable in December 2014 which is recorded at its fair value to the Group on acquisition.
The Group’s undrawn committed bank facilities at 31 March 2009 were £793 million (2008: £664 million).
The Group continues to manage its foreign currency and interest rate exposure in accordance with the policies set out below. The Group’s financial instruments comprise cash, borrowings, receivables and payables that are used to finance the Group’s operations. The Group also uses derivatives, principally interest rate, currency swaps and forward currency contracts, to manage interest rate and currency risks arising from the Group’s operations. The Group does not trade in financial instruments. The Group’s treasury policies are designed to mitigate the impact of fluctuations in interest rates and exchange rates and to manage the Group’s financial risks. The Board approves any changes to the policies.
The Group’s policy is to match as far as possible its principal projected cash flows by currency to actual or effective borrowings in the same currency. As currency cash flows are generated, they are used to service and repay debt in the same currency. To implement this policy, forward currency contracts or currency swaps are taken out which, when applied to the actual currency liabilities, convert these to the required currency.
The borrowings in each currency give rise to foreign exchange differences on translation into Sterling. Where the borrowings are either less than, or equate to, the net investment in overseas operations, these exchange rate movements are treated as movements on reserves and recorded in the statement of recognised income and expense rather than in the income statement. Non-Sterling earnings streams are translated at the average rate of exchange for the year. This results in differences in the Sterling value of currency earnings from year to year.
The table in note 21 to the condensed financial statements sets out the exchange rates used to translate the income statements, balance sheets and cash flows of non-Sterling denominated entities.
As detailed above, the Group has effective borrowings in a number of currencies and its policy is to ensure that, in the short term, it is not materially exposed to fluctuations in interest rates in its principal currencies. The Group implements this policy either by borrowing fixed rate debt or by using interest rate swaps or options so that at least 80% of its projected net debt is fixed or capped for one year, reducing to 60% fixed for the second year and 40% fixed for the third year.
The Board takes a proactive approach to risk management with the aim of protecting its employees and customers and safeguarding the interests of the Company and its shareholders.
The principal risks and uncertainties facing the business and the activities the Group undertakes to mitigate these are set out in ‘Managing Risk’.
Details of transactions with related parties are set out in note 19. These transactions have not, and are not expected to have, a material effect on the financial performance or position of the Group.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, we continue to adopt the going concern basis in preparing the financial statements.
Compass has had a positive first half with consistent levels of new business and retention, and solid growth in like for like volume in the Healthcare, Education and Defence, Offshore & Remote sectors. We have been successful in managing the effect on profit of weakening like for like volume in the Business & Industry and Sports & Leisure sectors.
Looking forward, the trends in revenue seen in the first half of the year are expected to continue into the second half of the year. The acceleration in the rate of cost efficiencies should enable us to deliver further progress in the second half of the year.
Andrew Martin
Group Finance Director
13 May 2009
Despite the economic challenges, our North American business has made very good progress in the first half with organic revenue growth of 4.4%. Operating profit increased by £29 million, or 14%, on a constant currency basis to £234 million (2008: £205 million on a constant currency basis). The margin improvement seen in 2008 has continued throughout the first half, with a 50 basis points improvement on a constant currency basis. Including the £2 million benefit of the one-off profit on the prior year disposal of a minority stake in Au Bon Pain, the margin was 7.6%.
In the context of a difficult economic backdrop, Continental Europe has delivered a good performance. Across the region we delivered organic revenue growth of 1.2% and operating profit was £131 million (2008: £124 million on a constant currency basis), an increase of 6%. This represents a further 30 basis points of margin improvement, delivering an overall margin of 7.4%.
The extensive restructuring of the UK over the past two years has enabled us to significantly improve the efficiency of our operations and, despite the difficult economic conditions, we have delivered a margin improvement of 40 basis points, with operating profit increasing to £54 million (2008: £53 million on a constant currency basis).
The Rest of the World has delivered good organic revenue growth of 5.4%. Operating profit has increased by £14 million, or 30%, on a constant currency basis, to £60 million (2008: £46 million on a constant currency basis), in part through the acquisition of the remaining 50% of the shares of GR SA in Brazil completed in March 2008. The margin has increased by 80 basis points on a constant currency basis to 5.3%.
