TIDMCPG
RNS Number : 2731N
Compass Group PLC
19 May 2020
Interim Results Announcement
Legal Entity Identifier (LEI) No. 2138008M6MH9OZ6U2T68
This announcement contains inside information
Update on the impact of COVID-19 and h alf year results for the
six months to 31 March 2020
Dominic Blakemore, Group Chief Executive, said:
'The COVID-19 pandemic has had a profound impact on Compass. We
can only exist with the commitment of our colleagues around the
world, many of whom have been on the front line of the battle
against the pandemic. I am extremely proud of how the organisation
has responded, and I'm humbled by the commitment and dedication our
people are showing, day in day out.
I want to extend my deepest sympathies to the families of those
colleagues that have lost their lives to COVID-19. Since the
beginning of the crisis, keeping our colleagues safe has been our
overriding focus. Colleague and consumer safety will continue to
guide everything we do as we move towards reopening more units over
the months ahead.
The first five months covered by the results we are announcing
today showed a continuation of the strong performance we reported
last year, but it goes without saying that COVID-19 has changed
everything. Compass is a resilient and adaptable organisation and
we have moved quickly to manage cash and costs and increase
liquidity. We are doing all we can to protect jobs by redeploying
colleagues into units that remain open and using government job
retention schemes where available.
The duration of the pandemic, and the pace at which containment
measures are relaxed in different countries is unknown, which makes
it a challenge to reliably assess the impact across our markets and
our business. We are therefore withdrawing our previous growth and
margin outlook for 2020. We remain, however, excited about the
significant structural market opportunity globally and the
potential for further organic revenue growth, margin improvement
and returns to shareholders over time.
Given the uncertainty in the short term outlook, today we have
launched a GBP2 billion equity raise to reduce leverage and
increase our liquidity. A strong balance sheet will allow us to
weather the crisis whilst continuing to invest in the business to
enhance our competitive advantages, support our long term growth
prospects and further consolidate our position as the industry
leader in food services. Alongside a placing to institutional
shareholders, I am pleased that we are giving our valued retail
investors an opportunity to participate in the fundraising through
a separate retail offer.
Although there are significant short term challenges, I firmly
believe that Compass is now well-placed to succeed in a post
COVID-19 world. The strengths which have delivered Compass success
in the past are the same ones which will deliver success in the
future. Our scale and focus on execution, our emphasis on trust and
safety, and our financial resilience will put us in a strong
position for the recovery and will allow us to generate sustainable
long term value for all of our stakeholders.'
Our response to COVID-19
-- We are managing the business in a balanced way to protect the
interests of all our stakeholders during this challenging
period
-- People: The safety and wellbeing of the front line staff that
are providing critical and essential services is our key priority,
and we are protecting jobs by redeploying or furloughing employees
where possible
-- Purpose: Our Healthcare teams are supporting governments and
Healthcare clients around the world. We are also preparing and
delivering food to critical workers, the elderly, vulnerable and
those in financial distress
-- Performance:
o In April, we have mitigated our cost base by around GBP500
million per month by taking a wide range of actions.
These include a temporary reduction of 30% in the Group Chief
Executive's salary, whilst the Group Board and Executive Committee
have temporarily reduced their fees and salaries by 25%
o We are managing cash tightly and have: reduced our capital
expenditure, paused M&A and will not recommend an interim or
final dividend for FY 2020
o We have increased our committed credit facilities from GBP2.0
billion to GBP2.8 billion
o We have obtained a waiver of the leverage covenant test in our
US Private Placement agreements for the 30 September 2020 and 31
March 2021 test dates. The interest cover covenant test has also
been waived for September 2020 and reset at more than or equal to
3x on a 6 months proforma basis for March 2021
o We have separately announced today a non-pre-emptive equity
placing of new ordinary shares targeting gross proceeds of
approximately GBP2.0 billion
COVID-19 impact on March and April trading
-- Organic revenue declined by 20.4% in March and 46.1% in April
-- The drop through(1) impact of lost revenues on operating
profit was 28.5% in March and 23% in April
(1) Drop through is defined as margin on lost revenue.
Half year results for the six months ended 31 March 2020
Underlying(1) results Statutory results
HY 2020 HY 2019 Change HY 2020 HY 2019 Change
GBP12.6 GBP12.4 GBP12.5 GBP12.3
Revenue billion billion(3) 1.6%(4) billion billion 1.2%
GBP949
Operating profit GBP854 million million(3) (10.0)%(3) GBP759 million GBP913 million (16.9)%
Operating profit (IAS GBP949
17 proforma) (2) GBP838 million million(3) (11.7)%(3)
Operating margin 6.7% 7.5% (80)bps
Operating margin (IAS
17 proforma) (2) 6.6% 7.5% (90)bps
Earnings per share 37.6 pence 42.8 pence(3) (12.1)%(3) 35.7 pence 40.7 pence (12.3)%
Earnings per share (IAS
17 proforma) (2) 37.7 pence 42.8 pence(3) (11.9)%(3)
GBP530
Free cash flow GBP186 million million (64.9)%
Interim dividend per - 13.1 pence - 13.1 pence
share
=============== ============== =========== =============== =============== ========
(1) Full details of the underlying results can be found on pages
43 - 45.
(2) The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior period comparatives. As a
result, the Group results for the six months ended 31 March 2020
are not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
(3) Measured on a constant currency basis.
(4) Organic revenue growth.
Strong results for the five months to the end of February
-- Organic revenue growth of around 6%, with North America up
8.1%, Europe up 0.8% and Rest of World up 5.2%
-- Operating profit margin had improved by around 20bps (10bps
excluding the impact of IFRS 16), helped by savings from the cost
action programme announced in November 2019
Performance for the six months to the end of March reflects the
impact of COVID-19 on March trading
-- Organic revenue increased by 1.6% in the first half
-- Operating margin declined by 80bps (90bps excluding the impact of IFRS 16)
-- Underlying free cash flow was GBP186 million
Statutory results
-- Revenue grew by 1.2% driven by organic growth, offset by the
negative impact of COVID-19. The decrease in operating profit
mainly reflects the impact of COVID-19 and higher acquisition
related costs, which were partially offset by the net savings
related to the cost action programme and a modest benefit from the
implementation of IFRS 16
Group Chief Executive's Statement
Results presentation today
The results presentation for investors and analysts will be
available on the Company's website at 7:00am. There will be a
question and answer session at 8:00am, and you will be able to
participate by dialling:
UK Toll Number: +44 (0) 330 336 9105
UK Toll Free Number: 0800 358 6377
US Toll Number: +1 323 794 2093
US Toll Free Number: +1 866 548 4713
Participant PIN Code: 1073780#
Please connect to the call at least 10-15 minutes prior to the
start time.
Enquiries
Investors Sandra Moura, Agatha Donnelly & Simon Bielecki +44
1932 573 000
Press Tim Danaher & Fiona Micallef-Eynaud, Brunswick +44
2074 045 959
Website www.compass-group.com
Group Chief Executive's Statement (continued)
Basis of preparation
Throughout the interim results announcement, and consistent with
prior years, underlying and other alternative performance measures
are used to describe the Group's performance. These are not
recognised under International Financial Reporting Standards (IFRS)
or other generally accepted accounting principles (GAAP).
The Executive Committee of the Group manages and assesses the
performance of the business on these measures and believes they are
more representative of ongoing trading, facilitate meaningful
period on period comparisons, and hence provide more useful
information to shareholders. Underlying measures are defined in the
glossary of terms on pages 47 and 48.
A summary of the adjustments from statutory results to
underlying results is shown in note 12 on pages 43 and 44 and
further detailed in the condensed consolidated income statement
(page 23), reconciliation of free cash flow (page 29), note 3
segmental reporting (page 36) and note 13 organic revenue and
organic profit (page 45).
Group overview
Organic revenue grew by around 6% for the five months to
February and declined by 20.4% in March, resulting in 1.6% organic
revenue growth for the six months to March. On a statutory basis
revenue increased by 1.2% due to organic growth, offset by the
negative impact of COVID-19. In April around 50% of our business
was closed due to country lock downs.
Underlying operating profit decreased by 10 .0% on a constant
currency basis (11.7% excluding the impact of IFRS 16). Operating
profit margin improved by around 20bps for the five months to
February (10bps excluding the impact of IFRS 16). For the six
months to March operating profit margin decreased by 80bps (90bps
excluding the impact of IFRS 16). On a statutory basis operating
profit decreased by 16.9% mainly due to the negative impact of
COVID-19, partially offset by organic growth and a modest benefit
from the adoption of IFRS 16. The cost action programme announced
in November 2019 has continued to progress and is delivering the
savings initially anticipated with residual costs extending into
2021.
We recognise the importance of a dividend to our shareholders.
However, we need to balance this with the impact that the COVID-19
pandemic has had on our business. As a result, as previously
reported on 23 April, the Board has decided not to recommend an
interim or a final dividend for the year ending 30 September 2020.
The Board will keep future dividends under review and will restart
payments when it is appropriate to do so.
Impact of COVID-19 on trading and management actions
In April, around 50% of our business was closed due to country
lock downs to contain the spread of COVID-19. The impact of
government containment measures varies by sector: Sports &
Leisure was fully closed, Education and Business & Industry
were mostly closed (c. 65%) whilst our Healthcare & Seniors and
Defence, Offshore & Remote businesses remained almost fully
open.
The duration of the pandemic, the possibility of further waves
of contagion and how the continued imposition of social distancing
measures will affect the Group's financial performance remain
unclear.
The severity of the impact COVID-19 has already had on the
organisation, combined with the uncertainty of the outlook meant
that we needed to take a series of measures to increase our
resilience, manage the business for the long term and protect the
interest of all our stakeholders.
Costs
In response to the dramatic reduction in revenue due to
closures, we have proactively mitigated our cost base by around
GBP500 million per month by taking a wide range of actions
including: (i) limiting the use of variable forms of (MAP 4)
in-unit labour such as over-time and redeploying or furloughing
much of the fixed element of our in-unit labour, (ii) reducing (MAP
4) in-unit overheads such as rent, rates and concession fees and
(iii) reducing salary, hours or furloughing (MAP 5) above-unit
overhead employees. The Group Chief Executive has temporarily
reduced his salary by 30%, whilst the Group Board and Executive
Committee have temporarily reduced their fees and salaries by 25%.
The drop through(1) impact of lost revenues on the half year
operating profit was 28.5%, within our anticipated range of
25%-30%. As expected, in April drop through(1) rate has improved to
23%.
(1) Drop through is defined as margin on lost revenue.
Group Chief Executive's Statement (continued)
Cash
We are managing our cash tightly. Net capital expenditure for
the first half of the year was GBP402 million and we expect second
half net capital expenditure to be reduced to circa GBP200 million
as we limit investment to projects that are associated with new
contract wins or have been previously committed. All M&A
activity for the second half of the year has been paused.
Balance sheet and liquidity
At 31 March 2020 net debt was GBP4,876 million, including
additional GBP926 million related to the impact of IFRS 16, and net
debt to EBITDA was 2.0x (excluding the impact of IFRS 16, net debt
to EBITDA would have been 0.3x lower).
We have taken a series of steps to strengthen the Group's
liquidity and increase the resilience of our balance sheet:
-- In March, the Group qualified for, and drew down, GBP600
million from the Bank of England's Covid Corporate Financing
Facility (CCFF)
-- On 24 March Standard & Poor's reaffirmed our long term
(A) and short term (A-1) credit ratings and Moody's A3/P-2 long and
short term credit ratings remain unchanged
-- In April we put in place an additional Revolving Credit
Facility(1) (RCF) of GBP800 million and now have total committed
credit facilities of GBP2,800 million
-- We have recently obtained waivers of the leverage covenant
test in our US Private Placement agreements for the September 2020
and March 2021 test dates. The interest cover covenant test has
also been waived for September 2020 and reset at more than or equal
to 3x on a 6 months proforma basis for March 2021
-- Today we have announced a non-pre-emptive equity placing of
new ordinary shares targeting gross proceeds of approximately
GBP2.0 billion. Including the raise our proforma net debt will be
GBP2.9bn(2) .
Together this package of measures will reduce our leverage and
strengthen our financial liquidity. By increasing our resilience
these measures allow us to weather the crisis whilst continuing to
invest in the business to enhance our competitive advantages and
support our long term growth prospects. This will put us in a
strong position in the recovery and further consolidate our
position as the industry leader in food services.
At this stage, we are targeting a strong investment grade rating
and net debt to EBITDA range of 1-1.5x. Beyond this, our priorities
for cash are: (i) invest capital expenditure to support organic
growth, (ii) bolt-on M&A opportunities that improve our
exposure or strengthen our capabilities. At the appropriate time,
after we reach our target leverage range, we will resume the
dividend and additional returns to shareholders.
The placing
We have consulted with a number of our major shareholders on the
rationale for, and the structure of, the placing prior to this
announcement. Our directors believe that the placing is in the best
interests of shareholders and will promote the success of the
Group, and this view has been strengthened by the shareholder
consultation we have undertaken.
Directors and members of our senior management team, including
the Chairman, the Group Chief Executive and the Group Chief
Financial Officer will be participating alongside the equity
placing and intend to contribute around GBP1 million in total.
The placing has been structured as a non-pre-emptive offer so as
to maximise the efficiency of the process. However, we recognise
the importance of pre-emption rights to all our shareholders and we
value our retail shareholders. To that end there will be a separate
retail offer, which will give retail investors the opportunity to
participate in the equity fundraising alongside the institutional
placing.
(1) Contains no financial covenants.
(2) On an IFRS 16 basis.
Group Chief Executive's Statement (continued)
Regional performances
North America - 64.0% Group revenue (2019: 61.7%)
Underlying Change
Regional financial summary 2020 2019(1) Reported Constant Organic
rates currency
===================================== ========== ========== ========= ========== ========
Revenue GBP8,080m GBP7,691m 5.1% 3.9% 3.6%
Regional operating profit (as
reported) GBP654m GBP664m (1.5)% (2.5)% (3.7)%
Regional operating profit (proforma
IAS 17)(1) GBP645m GBP664m (2.9)% (3.9)% (5.0)%
Regional operating margin (as
reported) 8.1% 8.6% (50)bps
Regional operating margin (proforma
IAS 17)(1) 8.0% 8.6% (60)bps
===================================== ========== ========== ========= ========== ========
(1) The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior period comparatives. As a
result, the Group results for the six months ended 31 March 2020
are not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
Our North American business delivered excellent growth across
all sectors until the end of February. Organic revenue growth was
8.1% driven by strong net new business in Business & Industry
(due to high levels of retention) and Healthcare & Seniors
(double digit new business wins in the senior living sub sectors)
and positive like for like growth (primarily driven by good volume
growth due to the events calendar) in Sports & Leisure. Margins
were stable, as pricing and like for like volume growth was offset
by mobilisation costs on new business.
During March, our business felt the impact of COVID-19, and
there was an organic revenue decrease of around 19% in the month,
with the sectors outside Healthcare & Seniors seeing double
digit organic revenue declines. In Sports & Leisure, stadia and
entertainment venues shut, whilst in Education all our university
and the majority of our school contracts closed. By the end of
March approximately 50% of our business in North America was
effectively closed. Despite this, organic revenue growth for the
half year was 3.6%.
The operating margin in the half year was 8.1%, 50bps lower than
the same period last year (60bps lower excluding the impact of IFRS
16) due to lower revenues in March. Underlying operating profit was
GBP654 million, a reduction of 2.5% on a constant currency basis
(3.9% excluding the benefit from IFRS 16). We have taken actions to
mitigate our costs, including furloughs and salary reductions. We
have not qualified for any material government support scheme,
however, labour laws in North America allow relatively flexible
cost actions.
Group Chief Executive's Statement (continued)
Europe - 24.3% Group revenue (2019(1) : 25.1%)
Underlying Change
Regional financial summary 2020 2019(1,2) Reported Constant Organic
rates currency
===================================== ========== ========== ========= ========== ========
Revenue GBP3,061m GBP3,130m (2.2)% (0.5)% (4.3)%
Regional operating profit (as
reported) GBP148m GBP205m (27.8)% (26.4)% (28.6)%
Regional operating profit (proforma
IAS 17)(2) GBP145m GBP205m (29.3)% (27.9)% (30.1)%
Regional operating margin (as
reported) 4.8% 6.5% (170)bps
Regional operating margin (proforma
IAS 17)(2) 4.7% 6.5% (180)bps
===================================== ========== ========== ========= ========== ========
(1) Prior year comparatives have reclassified Turkey from our
Rest of World region into our Europe region.
(2) The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior period comparatives. As a
result, the Group results for the six months ended 31 March 2020
are not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
As of the end of February organic revenue in our European
business was growing at 0.8% - towards the top end of our
anticipated 0%-1% range. Turkey and our business in Central Eastern
Europe were delivering double digit organic revenue growth. Whilst
the decline in Business & Industry volumes due to weak consumer
confidence continued, this was being offset by pricing and a
positive volume contribution from Sports & Leisure. During that
period, the region's operating margins improved due to the benefits
of the cost action programme announced in November 2019.
During March, COVID-19 impacted the region severely and as a
result organic revenue decreased by around 30% in the month.
Revenues in the UK decreased by around 24% (lower than the regional
average as the UK has a higher proportion of business in sectors
which have continued to operate such as Healthcare & Seniors
and Defence, Offshore & Remote) while Continental Europe
declined by around 32%. There were substantial organic revenue
declines in Italy, Spain, France and Germany, all countries with
large Business & Industry sectors. By the end of March,
approximately 55% to 60% of our business in the region was
effectively closed. This resulted in a half year organic revenue
decline of 4.3%.
As a result of the revenue decline, the underlying operating
profit for the half year was GBP148 million, a constant currency
decline of 26.4% (27.9% excluding the benefit from IFRS 16).
Operating margin was 4.8%, a 170bps reduction from last half year
(180bps excluding the impact of IFRS 16). We have taken actions to
mitigate our costs, including furloughs and salary reductions. We
have also applied to participate in several government support
schemes across the region, however, for the most part these
benefits did not come through until April.
Group Chief Executive's Statement (continued)
Rest of World - 11.7% Group revenue (2019(1) : 13.2%)
Underlying Change
Regional financial summary 2020 2019(1,2) Reported Constant Organic
rates currency
===================================== ========== ========== ========= ========== ========
Revenue GBP1,474m GBP1,647m (10.5)% (6.2)% 3.1%
Regional operating profit (as
reported) GBP91m GBP108m (15.7)% (11.7)% -
Regional operating profit (proforma
IAS 17)(2) GBP87m GBP108m (19.4)% (15.5)% (4.5)%
Regional operating margin (as
reported) 6.2% 6.6% (40)bps
Regional operating margin (proforma
IAS 17)(2) 5.9% 6.6% (70)bps
===================================== ========== ========== ========= ========== ========
(1) Prior year comparatives have reclassified Turkey from our
Rest of World region into our Europe region.
(2) The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior period comparatives. As a
result, the Group results for the six months ended 31 March 2020
are not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
In the five month period to the end of February, organic revenue
growth in our Rest of World region was 5.2% reflecting double digit
new business wins in LATAM and good like for like growth in APAC,
especially in our Australian Offshore & Remote business.
COVID-19 had a minimal impact as our business in China and Hong
Kong is relatively small.
March saw an increase in the impact of the COVID-19 containment
measures across our APAC region, while in LATAM containment
measures happened towards the end of the month. This resulted in an
organic revenue decrease in March of around 7%, primarily due to
double digit declines in China, Hong Kong and Japan. Some parts of
the region remained in growth reflecting the higher exposure to the
Defence, Offshore & Remote sector, which has been relatively
unaffected by COVID-19. By the end of March, approximately one
third of our business in the region was effectively closed. Organic
revenue growth for the half year was 3.1% with operating profit of
GBP91 million, a constant currency decline of 11.7% (15.5%
excluding the benefit of IFRS 16).
The operating margin was 6.2%, a 40bps reduction from last half
year (70bps excluding the impact of IFRS 16). Although we have
taken actions to mitigate our costs, including furloughs and salary
reductions, in some markets labour laws are relatively inflexible
and there is no government support (e.g. LATAM). However, we are
participating in government support schemes where available (e.g.
Australia and New Zealand).
We continued the execution of our strategic portfolio review and
disposed of 50% of our Japanese Highways business.
Group Chief Executive's Statement (continued)
Strategy
To create sustainable long-term value, we manage the business by
focusing on:
-- People: their safety and wellbeing are our absolute priority.
Our objective is to hire, develop and retain our people to ensure
we have an engaged, high performing, diverse and fulfilled
workforce
-- Performance: deliver consistent financial results with
excellent cash flow generation, a strong balance sheet and returns
to shareholders when appropriate
-- Purpose: safely caring for our people, consumers and the communities that we serve. We take responsibility for the environmental impact of our activities and for developing a sustainable supply chain by collaborating with our suppliers as well as our global non-governmental organisation (NGO) partners
The disruption brought about by COVID-19 creates short term
challenges and medium term opportunities. At all times, we will
continue to manage the business through the lens of People,
Performance and Purpose to ensure that we continue to protect the
interests of all our stakeholders.
Short term impact of COVID-19
The widespread disruption caused by the COVID-19 pandemic has
changed our operations and how we deliver our service to many of
our clients and consumers.
In the short term, our priority remains the health and safety of
our employees. About 50% of our business is closed, and the sites
that are open are all operating with enhanced Health and Safety
protocols and Personal Protective Equipment (PPE) requirements and
guidelines. We are recognising and rewarding our employees working
in critical and essential services with bonuses and other
benefits.
We are trying to protect as many jobs as possible. Employees
working in units that have been closed have, where possible, been
redeployed to other sites where critical work is still required
such as Healthcare, Education and Defence. In the event
redeployment has not been possible, employees have been furloughed
according to local government support schemes and labour
regulations. Most of our regions provide support through Employee
Assistance Programmes and have set up funds or other mechanisms to
support employees who might be facing financial difficulties as a
result of these actions.
As country lock downs are relaxed and lifted, our focus will
broaden on how to reopen units while enforcing social distancing.
We have developed a framework and new guidelines on how to reopen
units safely based on our experience in China and other Asian
countries. We have strengthened our Health and Safety protocols
which include recommendations on PPE, hygiene requirements and site
layout solutions. As units reopen, we will work with our clients to
adapt our offer and the way we deliver it, with features such as
pre-packaged meals, take away, delivery and contactless payment.
The menu is likely to be simplified to accommodate the changes in
the way we will provide service. Finally, we will review and agree
terms with our clients to reflect the cost structure of a more
labour intensive way of preparing and delivering food safely.
Medium term impact of COVID-19
Although COVID-19 has brought about significant short term
challenges, we believe it also presents us with medium term
opportunities.
Market
As the largest player in the global market we are in a strong
position to consolidate our position as the most trusted provider,
able to offer clients and consumers the safest and most innovative
solutions. With only about 50% of the market currently outsourced,
approximately half of which is in the hands of small and regional
players, we continue to see a large and exciting structural growth
opportunity. We see no reason why this would change, and indeed
would expect this trend to accelerate, post COVID-19. We believe
our scale will be a vital advantage over smaller players, while
corporates and other institutions will be more open to outsourcing
as they seek best in class Health and Safety protocols, resilient
food supply chains and financially strong suppliers.
Group Chief Executive's Statement (continued)
Consumer themes
We believe the pandemic is changing consumer perceptions in four
important ways, and consumers are beginning to ask a series of
fundamental questions about their relationships with food, work and
community:
-- Trust and safety: Who do I trust to keep me safe? What
measures are in place to enforce social distancing? Are there
robust Health and Safety protocols and high levels of hygiene? Are
there options that allow consumers not to have to go out and put
themselves at risk?
-- Work/life: what is work, education and leisure going to be
like after this? Extended lockdowns are changing consumers'
perception of work-life balance, relationships with family, friends
and co-workers. Will certain industries embrace technology such
that the experience of work will change more significantly?
Separately, will economic recession have an impact on employment
and disposable income levels?
-- Physical & mental wellbeing: how do I boost my immune
system? We expect increased interest in food and beverages that
build the immune system and resilience. Mental health is a concern
in the face of uncertainty and although some consumers will have
adopted new exercise habits, post lock down obesity is also an
increased risk.
-- Purpose & Sustainability: how do I support my community?
The crisis has created a new sense of altruism, with people
creating informal networks to help the vulnerable and businesses
switching core operations to help those in need. Lockdowns have
reduced pollution levels and there is heightened awareness of the
responsible use of resources. Issues around single use plastics
(and their increased role during the pandemic), carbon footprint,
sustainable sourcing and food waste are expected to be at the
forefront of consumers' minds.
Sector dynamics
The way we provide food and hygiene services in Healthcare and
Defence, Offshore and Remote already incorporates enhanced Health
and Safety protocols, a more resilient supply chain and socially
distanced ways of working. The closure of most of our Business
& Industry, Education and Sports & Leisure business,
combined with the way society has responded to lock downs with
increased working from home and online learning, may result in more
structural changes in what services we provide in those sectors and
how.
Our experience in China and Asia has shown that Business &
Industry is impacted in two different ways. In manufacturing, or
other businesses where employees cannot work from home, solutions
are required to allow employees to work and eat in a socially
distanced way. That may result in longer shifts because there are
fewer people on the floor at any point in time, which increases the
length of the working day and requires food to be served over a
longer period of time. In office based jobs where working from home
is an option, we may see permanently lower populations on site.
However, we expect higher on-site participation as consumers will
not want to leave the building.
The role of food in the workplace is likely to change. The main
priority will be how to make the food experience safe with social
distancing, resilient supply chains and increased hygiene.
Employees tend to associate access to a staff restaurant as an
important indication that their employer cares about its employees.
The experience of eating at work will seek to balance the role of
food in nutrition and wellbeing with the role food plays in helping
colleagues connect. Working from home may create new product lines
such as "take home tomorrow's lunch" or home delivery options.
In Education, we expect an increased focus on stronger Health
and Safety protocols and a secure supply chain. However, at this
stage we don't expect to see material changes in how we provide our
services in K-12 (kindergarten through to high school) because of
the dual role that schools play in providing education at the same
time as child care. It remains to be seen whether online education
will impact higher education and populations on campus in a more
structural way, or whether the campus experience will still be an
integral part of higher education, with online as an additional way
universities interact with their students.
Our Sports & Leisure sector is likely to be the last sector
to reopen, and when it does, there will also likely be challenges
around preparation of food and providing service in a socially
distanced manner. This may require increased use of digital options
to pre order, pre pay, click and collect as well as more labour to
deliver the food to the spectators' seat. In addition, the food and
drinks offer may need to be streamlined to enable the efficient
execution of this modified service model.
Group Chief Executive's Statement (continued)
Compass Response
People
Our people remain the core of our business and the main source
of our competitive advantage. Their safety and wellbeing continues
to be and is our absolute priority.
Going forward we are likely to manage our workforce more
flexibly across sectors, and training and development will be even
more important if employees are to operate efficiently in different
sites. We are also looking at ways to continue to train and reward
unit managers, given their key role within the organisation, as
well as provide them with more central administrative support to
allow them to focus on health and safety as well as delivering
excellent food and service.
Performance
We believe that our capabilities will allow us to unlock
opportunities brought about by these structural changes. We are
well placed given our:
-- Entrepreneurial culture focused on delivery of great food and
service to meet different clients' needs
-- Great people
-- Best in class Health and Safety protocols including the use of appropriate PPE
-- Scale combined with a transparent and resilient supply chain
-- Expertise in infectious disease hygiene developed in our Healthcare & Seniors sector
-- Financial discipline and strength to invest in new capabilities
Health and safety is likely to be a key differentiator with
clients and consumers wanting nutritious food that is hygienically
prepared with ingredients procured from safe supply chains. We are
exploring a wide range of opportunities within food, and beyond,
that encompass a wider notion of safety and wellbeing:
-- Safety and nutrition will be key attributes with a greater
focus on wellbeing to build and strengthen immunity
-- Increased use of digital tools across our operations: to
order, pay, book a delivery and manage the workforce
-- Incorporate delivery options into our model, whether it be on
site or off site, through third party or our own delivery
applications
-- Use of Compass' own central/dark kitchens or client sites in
conjunction with new delivery solutions
-- Leverage existing Healthcare cleaning capabilities to expand the offer into other sectors
-- Provision of testing services on site, combining our
expertise in hospitality with our procurement scale and
capability
We are already beginning to explore some of these options and
will continue to trial a wide range of solutions within these areas
in our operations around the world. At this stage the pilots are on
a small scale to allow us to learn quickly with minimal risk. As
new solutions prove to be successful, we are prepared to roll them
out quickly in other markets.
Purpose
We have a longstanding commitment to being a responsible
business, and this has come to the fore in the way Compass has
supported the communities in which it operates through the COVID-19
pandemic. We are determined to strengthen and deepen this
commitment further, and in fact the new operating environment will
require us to focus on our purpose to maximise its impact and
effectiveness. To that end we are focusing our efforts on:
-- Caring for and supporting the communities in which we operate
by continuing to support initiatives to prepare and provide food to
the elderly, vulnerable and those in financial distress
-- Increasing the role of food in the management of health and
wellbeing, ensuring maximum nutrition
-- Improving the resilience, transparency and traceability of
our supply chain, as well as using more regional suppliers to
support local communities
-- Contributing to a positive impact on climate change by
reducing food waste and promoting a plant forward diet
Through the crisis and in its aftermath our aim is to remain
open and flexible, so that we can adapt our model to meet evolving
client and consumer needs while continuing to create sustainable
long term value for all our stakeholders.
Group Chief Executive's Statement (continued)
Dividend
We recognise the importance of a dividend to our shareholders.
However, we need to balance this with the exceptional circumstances
that the COVID-19 pandemic represents. As a result, as previously
reported on 23 April, the Board has decided not to recommend an
interim or a final dividend for the year ending 30 September 2020.
The Board will keep future dividends under review and will restart
payments when it is appropriate to do so.
Summary and outlook
The COVID-19 pandemic has had a profound impact on Compass. We
can only exist with the commitment of our colleagues around the
world, many of whom have been on the front line of the battle
against the pandemic. I am extremely proud of how the organisation
has responded, and I'm humbled by the commitment and dedication our
people are showing, day in day out.
I want to extend my deepest sympathies to the families of those
colleagues that have lost their lives to COVID-19. Since the
beginning of the crisis, keeping our colleagues safe has been our
overriding focus. Colleague and consumer safety will continue to
guide everything we do as we move towards reopening more units over
the months ahead.
The first five months covered by the results we are announcing
today showed a continuation of the strong performance we reported
last year, but it goes without saying that COVID-19 has changed
everything. Compass is a resilient and adaptable organisation and
we have moved quickly to manage cash and costs and increase
liquidity. We are doing all we can to protect jobs by redeploying
colleagues into units that remain open and using government job
retention schemes where available.
The duration of the pandemic, and the pace at which containment
measures are relaxed in different countries is unknown, which makes
it a challenge to reliably assess the impact across our markets and
our business. We are therefore withdrawing our previous growth and
margin outlook for 2020. We remain, however, excited about the
significant structural market opportunity globally and the
potential for further organic revenue growth, margin improvement
and returns to shareholders over time.
Given the uncertainty in the short term outlook, today we have
launched a GBP2 billion equity raise to reduce leverage and
increase our liquidity. The management actions we have taken,
coupled with the strengthened balance sheet will allow us to
weather the crisis whilst continuing to invest in the business to
enhance our competitive advantages, support our long term growth
prospects and further consolidate our position as the industry
leader in food services.
Although there are significant short term challenges, I firmly
believe that Compass is now well-placed to succeed in a post
COVID-19 world. The strengths which have delivered Compass success
in the past are the same ones which will deliver success in the
future. Our scale and focus on execution, our emphasis on trust and
safety, and our financial resilience will put us in a strong
position for the recovery and will allow us to generate sustainable
long term value for all of our stakeholders.
Dominic Blakemore
Group Chief Executive
19 May 2020
Business Review
Segmental performance
Underlying revenue(1) Underlying revenue growth(2)
======================== ====================================
2020 2019(3) Reported Constant Organic
GBPm GBPm Rates Currency
============ ========== =========== ========== ===========
North America 8,080 7,691 5.1% 3.9% 3.6%
Europe 3,061 3,130 (2.2)% (0.5)% (4.3)%
Rest of World 1,474 1,647 (10.5)% (6.2)% 3.1%
========================== ============ ========== =========== ========== ===========
Total 12,615 12,468 1.2% 1.6% 1.6%
========================== ============ ========== =========== ========== ===========
Underlying operating profit(1) Underlying operating
margin(1)
===================================== ====================================
2020 2020(4) 2019(3,4) 2020 2020(4) 2019(3,4)
(proforma (proforma
(reported) IAS 17) (reported) (reported) IAS 17) (reported)
GBPm GBPm GBPm
============ ========== =========== =========== ========== ===========
North America 654 645 664 8.1% 8.0% 8.6%
Europe 148 145 205 4.8% 4.7% 6.5%
Rest of World 91 87 108 6.2% 5.9% 6.6%
Unallocated overheads (42) (42) (38)
========================== ============ ========== =========== =========== ========== ===========
Total before associates 851 835 939 6.7% 6.6% 7.5%
=========== ========== ===========
Associates 3 3 12
========================== ============ ========== ===========
Total 854 838 951
========================== ============ ========== ===========
Statutory and underlying results
2020 2019(4)
========== ============ =========== ========== ============ ===========
Statutory Adjustments Underlying Statutory Adjustments Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ========== ============ =========== ========== ============ ===========
Revenue 12,476 139 12,615 12,326 142 12,468
======================= ========== ============ =========== ========== ============ ===========
Operating profit 759 95 854 913 38 951
Net gain on sale
and closure of
businesses 80 (80) - 12 (12) -
Net finance costs (68) 3 (65) (73) 18 (55)
======================= ========== ============ =========== ========== ============ ===========
Profit before tax 771 18 789 852 44 896
Tax (201) 12 (189) (201) (9) (210)
======================= ========== ============ =========== ========== ============ ===========
Profit after tax 570 30 600 651 35 686
Non-controlling
interest (3) - (3) (5) - (5)
======================= ========== ============ =========== ========== ============ ===========
Attributable profit 567 30 597 646 35 681
======================= ========== ============ =========== ========== ============ ===========
Average number
of shares (millions) 1,588 - 1,588 1,586 - 1,586
Basic earnings
per share (pence) 35.7p 1.9p 37.6p 40.7p 2.2p 42.9p
======================= ========== ============ =========== ========== ============ ===========
EBITDA 1,227 1,234
Gross capex 420 415
Free cash flow 186 530
======================= ========== ============ =========== ========== ============ ===========
(1) Definitions of underlying measures of performance can be
found in the glossary on pages 47 and 48.
(2) Reconciliation between the different growth rates is
provided in the note 13 of the condensed financial statements.
(3) Prior year comparatives have reclassified Turkey from our
Rest of World region into our Europe region.
(4) The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior period comparatives. As a
result, the Group results for the six months ended 31 March 2020
are not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
Business Review (continued)
Adoption of new accounting standards
The Group has applied the new accounting standard IFRS 16
'Leases' using the modified retrospective transition approach,
therefore the comparative information has not been restated and
continues to be reported under IAS 17 'Leases' and IFRIC 4
'Determining whether an arrangement contains a lease'.
Statutory results
Revenue
On a statutory basis, revenue was GBP12,476 million (2019:
GBP12,326 million), growth of 1.2% driven by organic growth, offset
by the negative impact of COVID-19.
Operating profit
Operating profit was GBP759 million (2019: GBP913 million), a
decrease of 16.9% over the prior period, mainly reflecting the
negative impact of COVID-19 and higher acquisition related costs,
which were partially offset by the net savings related to cost
action programme and a modest benefit from the implementation of
IFRS 16.
Statutory operating profit includes non-underlying items of
GBP95 million (2019: GBP38 million). The most significant
non-underlying items relate to GBP41 million of acquisition related
costs (2019: GBP26 million) and GBP38 million of charges related to
the Group's cost action programme (2019: GBPnil), which was only
initiated in the second half of 2019. A full list of non-underlying
profit items is included in note 12.
Net gain on sale and closure of businesses
As a result of the strategic review of the business, the Group
has continued to sell or exit its operations in a number of
countries, sectors or businesses in order to simplify its
portfolio. Activity in the period has included the sale of 50% of
our Japanese Highways business. The Group has recognised a net gain
of GBP113 million on the sale and closure of businesses (2019:
GBP25 million gain), offset by GBP33 million of exit costs and
asset write downs relating to committed or completed business exits
(2019: GBP13 million).
As at the balance sheet date, the Group has assets and
liabilities classified as held for sale in relation to certain
businesses as these disposals are highly probable and expected to
be completed within 12 months.
Finance costs
Net finance costs decreased to GBP68 million (2019: GBP73
million) mainly due to a reduction in the Group's cost of hedging
and financing related losses compared to the prior period, offset
by GBP18 million additional interest from the adoption of IFRS
16.
Tax charge
Profit before tax was GBP771 million (2019: GBP852 million),
giving rise to an income tax expense of GBP201 million (2019:
GBP201 million), equivalent to an effective tax rate of 26.1%
(2019: 23.6%). The increase in rate primarily reflects the mix of
profits by country taxed at different rates and the additional tax
charge resulting from sale and closure of businesses.
Earnings per share
Basic earnings per share were 35.7 pence (2019: 40.7 pence), a
decrease of 12.3%, mainly as a result of the negative impact of
COVID-19.
Business Review (continued)
Underlying results
We track our performance against underlying and other
alternative performance measures, which we believe best reflect our
strategic priorities of growth, efficiency and shareholder
returns.
A summary of adjustments from statutory results to underlying
results is shown in note 12 on pages 43 and 44 and further detailed
in the condensed consolidated income statement (page 23 ),
reconciliation of free cash flow (page 29 ), note 3 segmental
reporting (page 36 ) and note 13 organic revenue and organic profit
(page 45 ).
Revenue
Organic revenue grew by around 6% for the five months to
February and declined by 20.4% in March, resulting in 1.6% organic
revenue growth for the six months to March. The organic revenue
growth decrease experienced in March 2020 reflects the fact that
around 55% of our business was closed towards the end of the month
as a result of COVID-19.
Operating profit
Underlying operating profit was GBP 854 million (2019: GBP 951
million), a decrease of 10.2 %. If we restate 2019's profit at the
2020 average exchange rates, it would decrease by GBP 2 million to
GBP 949 million. On a constant currency basis, underlying operating
profit has therefore decreased by GBP 95 million, or 10.0 %. The
impact of IFRS 16 in the first six months of 2020 was to increase
underlying operating profit by GBP 16 million.
Operating margin
Operating profit margin improved by 20bps for the five months to
February (10bps excluding the impact of IFRS 16) . On a reported
basis the operating profit margin was 6.7% (6.6% excluding the
impact of IFRS 16), reflecting the impact of COVID-19 (2019:
7.5%).
Finance costs
The underlying net finance cost increased to GBP65 million
(2019: GBP55 million) mainly due to the adoption of IFRS 16 which
resulted in an additional GBP18 million of net interest payable in
the first half of 2020, offset by lower interest rates.
Tax charge
On an underlying basis, the tax charge was GBP189 million (2019:
GBP210 million), equivalent to an effective tax rate of 24.0% (2019
FY: 23.3%). The increase in rate primarily reflects the mix of
profits by country taxed at different rates. The tax environment
continues to be very uncertain, with more challenging tax authority
positions and investigations globally.
Earnings per share
On a constant currency basis, the underlying basic earnings per
share decreased by 12.1% to 37.6 pence (2019: 42.8 pence). IFRS 16
adoption had a minor impact on u nderlying earnings per share.
Shareholder returns
Interim dividend
As a result of the impact of the COVID-19 pandemic, the Board
has decided not to recommend an interim or a final dividend for the
year ending 30 September 2020.
Share buyback programme
The Group did not buy back any shares during the period (2019:
GBPnil). The directors' authority to purchase the Company's shares
in the market was renewed by the shareholders at the Company's
Annual General Meeting held on 6 February 2020.
Business Review (continued)
Underlying free cash flow
Free cash flow totalled GBP186 million (2019: GBP530 million), a
decrease of 64.9%, as a result of the impact of COVID-19.
Underlying free cash flow conversion was 22% (2019: 56%).
Gross capital expenditure of GBP420 million (2019: GBP415
million) is equivalent to 3.3% (2019: 3.3%) of underlying
revenue.
The working capital outflow, excluding provisions and pensions,
of GBP303 million (2019: GBP83 million) reflects the impact of
COVID-19 and includes a GBP21 million outflow resulting from the
first time adoption of IFRS 16.
The outflow related to post employment benefit obligations net
of service costs was GBP6 million (2019: GBP9 million).
The net interest outflow was GBP61 million (2019: GBP53
million), of which GBP18 million relates to interest on lease
payments.
The underlying cash tax rate was 27.0% (2019: 17.3%). The
increase is largely due to the change in the UK's corporation tax
instalment regime.
Acquisitions
The total cash spent on acquisitions in the first half, net of
cash acquired, was GBP 446 million (2019: GBP370 million),
comprising GBP 470 million, which mainly relate to the acquisition
of Fazer Food Services, and other smaller bolt-on acquisitions and
investments in associates, GBP 9 million of contingent
consideration relating to prior years' acquisitions and offset by
GBP33 million of cash acquired net of acquisition transaction
costs.
The main acquisition during the period was the purchase of 100%
of the share capital of Fazer Food Services for an initial
consideration of GBP364 million (EUR415 million) net of cash
acquired. The remaining contingent consideration is payable within
seven years and dependent on the operation of an earn-out. The net
present value of the contingent consideration payable was GBP56
million (EUR66 million) at the date of acquisition. Fazer Food
Services is a leading food service business in the Nordic region
with operations in Finland, Sweden, Norway and Denmark, across
several sectors including Business & Industry, Education,
Healthcare & Seniors and Defence.
Disposals
As a result of the strategic review of the business, the Group
has continued to sell or exit its operations in a number of
countries, sectors or businesses in order to simplify its
portfolio. Activity in the period has included the sale of 50% of
our Japanese Highways business.
As at the balance sheet date, the Group has assets and
liabilities classified as held for sale in relation to certain
businesses as these disposals are highly probable and expected to
be completed within 12 months.
The Group received GBP39 million (2019: GBP68 million) in
respect of disposal proceeds net of exit costs.
Financial position
Liquidity
The Group finances its operations through cash generated by the
business and borrowings from a number of sources including the
bank, 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. The maturity profile of the Group's principal
borrowings at 31 March 2020 shows that the average period to
maturity is 4.1 years (2019: 5.4 years).
We have taken steps to strengthen the Group's financial
position. In March, the Group qualified for, and drew down GBP600
million from the Bank of England's Covid Corporate Financing
Facility (CCFF). In April, we put in place an additional Revolving
Credit Facility(1) (RCF) of GBP800 million and now have total
undrawn committed credit facilities of GBP2,800 million. We have
obtained a waiver of the leverage covenant test in our US Private
Placement agreements for the September 2020 and March 2021 test
dates. The interest cover covenant test has also been waived for
September 2020 and reset at more than or equal to 3x on a 6 months
proforma basis for March 2021. Finally, Standard & Poor's
reaffirmed our long term (A) and short term (A-1) credit ratings on
24 March and Moody's A3/P-2 long and short term credit ratings
remain unchanged.
(1) Contains no financial covenants.
Business Review (continued)
Net debt
During the first six months of the year, net debt increased to
GBP4,876 million (2019 FY: GBP3,272 million), including GBP926
million of debt added due to the adoption of IFRS 16. The Group
generated GBP186 million of free cash flow (2019: GBP530 million),
including investing GBP402 million in net capital expenditure
(2019: GBP395 million), and spent GBP407 million on acquisitions
net of disposal proceeds (2019: GBP302 million). GBP427 million was
paid in respect of the final dividend for 2019. The remaining GBP30
million movement in net debt related predominantly to currency
translation, cash spent in relation to the cost action programme
and other non-cash movements.
Post employment benefit obligations
The Group has continued to review and monitor its pension
obligations throughout the period working closely with the trustees
and members of all schemes around the Group to ensure appropriate
assumptions are used and adequate provision and contributions are
made.
The increase in the Compass Group Pension Plan (UK) surplus to
GBP625 million (2019 FY: GBP448 million) and the reduction in the
deficit in the rest of the Group's defined benefit pension schemes
to GBP238 million (2019 FY: GBP259 million), reflect the actuarial
gains and losses that occurred since the prior year IAS 19 actu
arial valuation . The Compass Group Pension Plan (UK) surplus
increased mainly due to an increase in the discount rate resulting
from an increase in corporate bond yields, partially offset by a
decrease in the fair value of the plan assets due to recent falls
in the value of index-linked gilts and corporate bonds held.
Due to the impact of the COVID-19 pandemic outbreak in the real
estate market, asset managers' valuations indicate that there is an
uncertainty regarding the value of the Compass Group Pension Plan
(UK) real estate investments. These investments only represent c.
7% of the UK plan assets at 31 March 2020. This short term
volatility is not considered a risk for the UK pension plan given
that the approximate duration of the UK Plan liabilities at 31
March 2020 is 17 years.
Related party transactions
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.
Risks and uncertainties
The Board takes a proactive approach to risk management with the
aim of protecting its employees and customers and safeguarding the
interests of the Group, its shareholders, employees, clients,
consumers and all other stakeholders.
A summary of the principal risks and uncertainties that face the
business is set out on pages 18 to 20.
Going concern
The uncertainty as to the future impact on the financial
performance and cash flows of the Group as a result of the recent
COVID-19 outbreak has been considered as part of the Group's
adoption of the going concern basis in the interim financial
statements. The factors considered by the directors in assessing
the ability of the Group to continue as going concern are included
in note 1.
The Group has access to considerable financial resources
together with longer term contracts with a number of customers 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.
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the 12 months from the date of approval
of the condensed financial statements. For this reason, they
continue to adopt the going concern basis in preparing the
condensed financial statements.
Karen Witts
Group Chief Financial Officer
19 May 2020
Focus on Risk
Identifying and managing risk
The Board continues to take a proactive approach to recognising
and mitigating risk with the aim of protecting its employees and
consumers and safeguarding the interests of the Group and its
shareholders in the constantly changing environment in which it
operates.
COVID-19 pandemic risk
The Group's operations have been significantly disrupted as a
result of the recent and rapid development of the COVID-19 pandemic
outbreak. The rapidity with which the COVID-19 pandemic has spread
is causing unprecedented uncertainty around the world for
businesses and communities alike.
Our priority remains the health and safety of our employees.
About 50% of our business is closed, and the sites that are open
are all operating with enhanced Health and Safety protocols and
Personal Protective Equipment (PPE) requirements and guidelines,
hygiene requirements and site layout solutions.
The acceleration of special containment measures which have been
adopted by governments and clients across the globe to protect as
many lives as possible, have required the Group to reduce or
suspend business operations in certain countries and sectors whilst
creating a very challenging environment for those areas of our
business that have been able to continue to operate during these
extraordinary times.
We have already implemented a wide range of mitigating actions
to adapt to a situation which continues to evolve on a daily basis.
These measures include:
-- Employees
Steps have been taken to ensure that we retain the skills and
experience of our colleagues to leave us well placed to gradually
mobilise resource as business returns to more normal levels. In
line with local Government and Public Health guidance, provisions
are in place to safeguard the health and safety of employees
globally, including travel restrictions and remote working where
possible to prevent the spread of the virus. All our regions
provide support through Employee Assistance Programmes and have set
up funds and other mechanisms to support employees who might be
facing financial difficulties as a result of these actions. Where
we are able to operate, we have stepped up health and safety
precautions to ensure that our employees, clients and consumers
remain safe.
-- Profitability and liquidity
Implemented action plans have mitigated a significant proportion
of our cost base and we continue to review our cost base for
additional savings. All non-business critical capital expenditure
and M&A activity has been significantly reduced or paused, we
have reduced our cost base by around GBP500 million per month by
taking a wide range of actions including: (i) limiting the use of
variable forms of in-unit labour (MAP 4) such as, over-time,
redeploying or furloughing much of the fixed element of our in-unit
labour; ( ii) reducing (MAP 4) in-unit overheads such as rent,
rates and concession fees and (iii) reducing salary, hours or
furloughing above-unit overhead (MAP 5) employees. The Group Chief
Executive has temporarily reduced his salary by 30%, whilst the
Group Board and Executive Committee have temporarily reduced their
fees and salaries by 25%.
The Board has decided not to recommend an interim or a final
dividend for the year ending 30 September 2020. The Company has a
strong capital base, but the Board considers it prudent to cancel
the 2020 interim and final dividend to preserve capital to ensure
that the medium to long term interests of the Company are protected
for the benefit of investors and other stakeholders. The Board will
keep future dividends under review and will restart payments when
it is appropriate to do so.
The Group has increased its committed bank credit facilities,
has obtained a waiver or reset covenant tests for the US Private
Placement agreements for the 30 September 2020 and 31 March 2021
test dates , is proactively managing its working capital and has
applied for government support packages such as temporary wage
subsidy schemes and tax payment deadline extensions where
possible.
Focus on Risk (continued)
-- Governance and operational effectiveness
Robust incident management and business continuity plans have
been implemented throughout our business. Regional and Country
Management meetings have been conducted remotely on a regular basis
throughout the crisis, the Executive Committee has been meeting
twice weekly and the frequency of Board meetings has also increased
to ensure that the Group is able to respond to any immediate or
emerging concerns and to closely monitor the effectiveness of
strategic measures. In recent months, special measures have been
put place to counter the severity of the Covid-19 outbreak,
including remote working. Some internal control mechanisms are
being adapted to ensure that our employees who are working remotely
continue to operate effectively during this period of social
distancing. Prior to the official government lock down, to ensure
our technology infrastructure could support mass working from home
we undertook several business continuity tests. This measure,
coupled with our significant investment in collaboration
technology, has ensured a smooth transition to remote working. We
continue to closely monitor our infrastructure and any reliance we
have on third parties to ensure business continuity of critical
systems and processes.
As a result of these special measures, business usage and
reliance on the internet has risen greatly and this has led to a
significant increase in the number of sophisticated malware and
phishing attacks that organisations are experiencing. To mitigate
the risk of these type of attacks, we have increased our awareness
campaigns to help end users identify these attacks.
Other principal risks
The impact of the UK's decision to exit the European Union
(Brexit) remains high on our agenda. The Board continues to view
the potential impact of Brexit as an integral part of our principal
risks rather than as a stand-alone risk.
The UK is currently in a period of transition leading up to its
withdrawal from the EU. We had already identified possible impacts
on our food supply chain in the UK through potential increased
import costs from weaker sterling, compounded by potential new
import duties and tariffs, and on our labour force in the way of
staff shortages and salary cost pressures and we have been taking
actions to assess and mitigate against any impact of Brexit. The
Board believes that whilst the efforts of all governments are
focussed on the containment and eradication of COVID-19, the
uncertainty about future arrangements between the UK and the EU,
and the period for which existing EU laws for member states
continue to apply to the UK, will persist. The Board will continue
to monitor the potential impact and the Company will take necessary
mitigating actions as appropriate.
Focus on Risk (continued)
Other than the impact of the COVID-19 pandemic outbreak, the
principal risks affecting the Group are not materially different
from those described on pages 42 to 45 of the 2019 Annual Report.
Because of the nature of the COVID-19 outbreak, we believe that the
pandemic presents a further principal standalone risk to the Group.
All other risks continue to be relevant for the remaining six
months of this financial year and are summarised below:
-- Health and safety - Compass Group feeds millions of consumers
and employs and engages hundreds of thousands of people around the
world every day. For that reason, setting the highest standards for
food hygiene and safety is paramount.
-- People
o Recruitment - failure to attract and recruit people with the
right skills at all levels could limit the success of the
Group.
o 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.
-- Clients and Consumers
o Sales and retention - our business relies on securing and
retaining a diverse range of clients.
o Bidding - each year, the Group bids for a large number of
opportunities.
o Service delivery and contractual compliance - 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 loss of business and/or
claims.
o Competition and disruption - we operate in a highly
competitive marketplace. Aggressive pricing from our competitors
could cause a reduction in our revenues and margins. The emergence
of new industry participants using disruptive technology could
adversely affect our business.
-- Economic and Political Environment
o Economy - some sectors of our business could be susceptible to
adverse changes in economic conditions and employment levels.
o Cost inflation - increases in labour or food costs could
hamper our ability to deliver the right level of service in the
most efficient way.
o Political stability - as a global business, our operations and
earnings may be adversely affected by political or economic
instability.
-- Compliance and Fraud
o Compliance and fraud - ineffective compliance management or
evidence of fraud, could have an adverse effect on the Group's
reputation and performance.
o International tax - as a Group we operate in an increasingly
complex international corporate tax environment. A degree of
uncertainty is inevitable, and we note in particular the policy
efforts being led by the EU and the OECD, which may have a material
impact on the taxation of all international businesses.
o Information systems and technology - the digital world creates
increasing risk for global businesses and brings risks such as
technology failures, loss of confidential data and damage to brand
reputation. The use of sophisticated phishing and malware attacks
on businesses continues to rise with companies suffering
operational disruption and loss of data.
The identification of risks and opportunities, the development
of action plans to manage the 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. In addition, the
geographic, sector and contract diversification of the Group helps
to minimise the impact of individual risks on its consolidated
results.
Compass Group PLC
Condensed Consolidated Financial Statements
Directors' responsibilities
The Interim Report complies with The directors are required to prepare
the Disclosure and Transparency financial statements for the Group
Rules (DTR) of the United Kingdom's in accordance with International
Financial Conduct Authority in Financial Reporting Standards (IFRS).
respect of the requirement to
produce a half-yearly financial International Accounting Standard
report. The Interim Management 34 (IAS 34), defines the minimum
Report is the responsibility of, content of an interim financial
and has been approved by, the report, including disclosures, and
directors. identifies the accounting recognition
and measurement principles that
We confirm that to the best of should be applied to an interim
our knowledge: financial report.
* the condensed set of financial statements has been Directors are also required to:
prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the EU and gives true and * select suitable accounting policies and then apply
fair view of assets, liabilities, financial position them consistently;
and profit or loss of the Group;
* present information, including accounting policies,
in a manner that provides relevant, reliable,
* the Interim Management Report includes a fair review comparable and understandable information; and
of the information required by:
* provide additional disclosures when compliance with
the specific requirements in IFRS is insufficient to
(a) DTR 4.2.7R of the Disclosure enable users to understand the impact of particular
Guidance and Transparency Rules, transactions, other events and conditions on the
being an indication of important entity's financial position and financial
events that have occurred during performance.
the first six months of the financial
year and their impact on the condensed
set of financial statements; and
a description of the principal The directors are responsible for
risks and uncertainties for the keeping adequate accounting records
remaining six months of the year; that are sufficient to show and
and explain the Company's transactions
and disclose with reasonable accuracy
(b) DTR 4.2.8R of the Disclosure at any time the financial position
Guidance and Transparency Rules, of the Company and enable them to
being related party transactions ensure that its financial statements
that have taken place in the first comply with the Companies Act 2006.
six months of the current financial They have a general responsibility
year and that have materially for taking such steps as are reasonably
affected the financial position open to them to safeguard the assets
or performance of the entity during of the Group and to prevent and
that period; and any changes in detect fraud and other irregularities.
the related party transactions
described in the last annual report The directors are also responsible
that could do so. for the maintenance and integrity
of the corporate and financial information
The directors have permitted the included on the Company's website.
auditor to undertake whatever
inspections it considers to be Legislation in the UK governing
appropriate for the purpose of the preparation and dissemination
enabling the auditor to conduct of financial statements may differ
its review. from legislation in other jurisdictions.
On behalf of the Board
Alison Yapp
Group General Counsel and Company
Secretary
19 May 2020
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
Independent review report to Compass Group PLC
Conclusion Directors' responsibilities
We have been engaged by the company The half-yearly financial report
to review the condensed set of financial is the responsibility of, and has
statements in the half-yearly financial been approved by, the directors.
report for the six months ended The directors are responsible for
31 March 2020 which comprises the preparing the half-yearly financial
condensed consolidated income statement, report in accordance with the DTR
the condensed consolidated statement of the UK FCA.
of comprehensive income, the condensed
consolidated statement of changes The annual financial statements
in equity, the condensed consolidated of the Group are prepared in accordance
balance sheet, the condensed consolidated with International Financial Reporting
cash flow statement and the related Standards as adopted by the EU.
explanatory notes. The directors are responsible for
preparing the condensed set of financial
Based on our review, nothing has statements included in the half-yearly
come to our attention that causes financial report in accordance with
us to believe that the condensed IAS 34 as adopted by the EU.
set of financial statements in the
half-yearly financial report for Our responsibility
the six months ended 31 March 2020 Our responsibility is to express
is not prepared, in all material to the company a conclusion on the
respects, in accordance with IAS condensed set of financial statements
34 Interim Financial Reporting as in the half-yearly financial report
adopted by the EU and the Disclosure based on our review.
Guidance and Transparency Rules
("the DTR") of the UK's Financial The purpose of our review work and
Conduct Authority ("the UK FCA"). to whom we owe our responsibilities
This report is made solely to the
Scope of review company in accordance with the terms
We conducted our review in accordance of our engagement to assist the
with International Standard on Review company in meeting the requirements
Engagements (UK and Ireland) 2410 of the DTR of the UK FCA. Our review
Review of Interim Financial Information has been undertaken so that we might
Performed by the Independent Auditor state to the company those matters
of the Entity issued by the Auditing we are required to state to it in
Practices Board for use in the UK. this report and for no other purpose.
A review of interim financial information To the fullest extent permitted
consists of making enquiries, primarily by law, we do not accept or assume
of persons responsible for financial responsibility to anyone other than
and accounting matters, and applying the company for our review work,
analytical and other review procedures. for this report, or for the conclusions
We read the other information contained we have reached.
in the half-yearly financial report
and consider whether it contains
any apparent misstatements or material Paul Korolkiewicz
inconsistencies with the information for and on behalf of KPMG LLP
in the condensed set of financial Chartered Accountants
statements. 15 Canada Square
London
A review is substantially less in E14 5GL
scope than an audit conducted in 19 May 2020
accordance with International Standards
on Auditing (UK) and consequently
does not enable us to obtain 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.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHSED 31 MARCH 2020
Six months to
31 March
======================
2020 2019(1)
Unaudited Unaudited
Notes GBPm GBPm
Combined sales of Group and share of equity accounted 3,
joint ventures 13 12,615 12,468
Less: share of sales of equity accounted joint ventures (139) (142)
============================================================ ====== ========== ==========
Revenue 12,476 12,326
Operating costs (11,721) (11,443)
============================================================ ====== ========== ==========
Operating profit before joint ventures and associates 755 883
Share of profit after tax of joint ventures and associates 4 30
============================================================ ====== ========== ==========
Operating profit 759 913
============================================================ ====== ========== ==========
3,
Underlying operating profit(2) 13 854 951
Acquisition related costs (41) (26)
One-off pension charge - (12)
Cost action programme charge (38) -
Share of profit of joint ventures and associates (16) -
held for sale
============================================================ ====== ========== ==========
Net gain on sale and closure of businesses 11 80 12
Finance income 2 3
Finance costs (67) (58)
Other financing items loss (3) (18)
Profit before tax 771 852
Income tax expense 5 (201) (201)
============================================================ ====== ========== ==========
Profit for the period 570 651
============================================================ ====== ========== ==========
ATTRIBUTABLE TO
Equity shareholders of the Company 567 646
Non-controlling interests 3 5
============================================================ ====== ========== ==========
Profit for the period 570 651
============================================================ ====== ========== ==========
BASIC EARNINGS PER SHARE (PENCE) 6 35.7p 40.7p
============================================================ ====== ========== ==========
DILUTED EARNINGS PER SHARE (PENCE) 6 35.7p 40.7p
============================================================ ====== ==========
(1) The comparative period results have not been restated for IFRS
16 'Leases'. Additional information about the impact of IFRS 16 is included
in note 2.
(2) Underlying operating profit excludes acquisition related costs,
one-off pension charge and cost action programme charge, but includes
share of profit after tax of associates and operating profit before
tax of joint ventures, including those classified as held for sale.
The reconciliation between statutory and underlying results is provided
in note 12.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 31 MARCH 2020
Six months to
31 March
======================
2020 2019(1)
Unaudited Unaudited
GBPm GBPm
Profit for the period 570 651
=========================================================== ========== ==========
Other comprehensive income
Items that are not subsequently reclassified to the
income statement
Remeasurement of post employment benefit obligations
- gain/(loss) 390 (230)
Return on plan assets, excluding interest income
- (loss)/gain (200) 159
Tax (charge)/credit on items relating to the components
of other comprehensive income (47) 12
143 (59)
========================================================== ========== ==========
Items that are or may be subsequently reclassified
to the income statement
Currency translation differences (85) (16)
Reclassification adjustment for movements in foreign
exchange on sale of businesses (13) 16
(98) -
========================================================== ========== ==========
Total other comprehensive income/(loss) for the period 45 (59)
=========================================================== ========== ==========
Total comprehensive income for the period 615 592
=========================================================== ========== ==========
ATTRIBUTABLE TO
Equity shareholders of the Company 612 587
Non-controlling interests 3 5
Total comprehensive income for the period 615 592
=========================================================== ==========
(1) The comparative period results have not been restated for IFRS
16 'Leases'. Additional information about the impact of IFRS 16 is included
in note 2.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX
MONTHSED
31 MARCH 2020
Attributable to equity shareholders
of the Company
Share Capital
Share premium redemption Own Other Retained Non-controlling
capital account reserve shares reserves earnings interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ========= ========== ============= ======== =========== ========== ================= ======
At 1 October
2019(1) 176 182 295 (4) 4,362 (1,676) 27 3,362
================== ========= ========== ============= ======== =========== ========== ================= ======
Profit for the
period - - - - - 567 3 570
================== ========= ========== ============= ======== =========== ========== ================= ======
Other
comprehensive
income
Currency
translation
differences - - - - (85) - - (85)
Remeasurement of
post employment
benefit
obligations -
gain - - - - - 390 - 390
Return on plan
assets,
excluding
interest income
- loss - - - - - (200) - (200)
Tax on items
relating to
the components
of other
comprehensive
income - - - - - (47) - (47)
Reclassification
adjustment
for movements in
foreign
exchange on sale
of businesses - - - - (13) - - (13)
================== ========= ========== ============= ======== =========== ========== ================= ======
Total other
comprehensive
(loss)/income - - - - (98) 143 - 45
================== ========= ========== ============= ======== =========== ========== ================= ======
Total
comprehensive
(loss)/income
for the period - - - - (98) 710 3 615
================== ========= ========== ============= ======== =========== ========== ================= ======
Fair value of
share-based
payments - - - - 14 - - 14
Tax on items
taken directly
to equity - - - - - (2) - (2)
Change in the
fair value
of
non-controlling
interest put
options - - - - 2 - - 2
Release of share
awards
settled in
existing shares
purchased in the
market - - - - (3) - - (3)
================== ========= ========== ============= ======== =========== ========== ================= ======
176 182 295 (4) 4,277 (968) 30 3,988
Dividends paid to
shareholders
(note 7) - - - - - (427) - (427)
Dividends paid to
non-controlling
interests - - - - - - (3) (3)
Own shares issued
under
share schemes - - - 3 - - - 3
================== ========= ========== ============= ======== =========== ========== ================= ======
At 31 March 2020 176 182 295 (1) 4,277 (1,395) 27 3,561
================== ========= ========== ============= ======== =========== ========== ================= ======
Adjustment
for
non-controlling
interest
Share-based put Total
payment Merger Revaluation Translation options other
reserve reserve reserve reserve reserve reserves
OTHER RESERVES GBPm GBPm GBPm GBPm GBPm GBPm
================================== ============ ========= ============ ============ ================= ==========
At 1 October 2019(1) 259 4,170 7 5 (79) 4,362
================================== ============ ========= ============ ============ ================= ==========
Other comprehensive income - - - - - -
Currency translation differences - - - (85) - (85)
Reclassification adjustment for
movements
in foreign exchange on sale of
businesses - - - (13) - (13)
================================== ============ ========= ============ ============ ================= ==========
Total other comprehensive loss - - - (98) - (98)
================================== ============ ========= ============ ============ ================= ==========
Fair value of share-based
payments 14 - - - - 14
Change in the fair value of
non-controlling
interest put options - - - - 2 2
Release of share awards settled
in
existing shares purchased in the
market (3) - - - - (3)
================================== ============ ========= ============ ============ ================= ==========
At 31 March 2020 270 4,170 7 (93) (77) 4,277
================================== ============ ========= ============ ============ ================= ==========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX
MONTHSED
31 MARCH 2020
Attributable to equity shareholders
of the Company
=======================================================================
Share Capital
Share premium redemption Own Other Retained Non-controlling
capital account reserve shares reserves earnings interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ========= ========== ============= ======== =========== ========== ================= ======
At 1 October
2018(1) 176 182 295 - 4,208 (2,234) 25 2,652
================== ========= ========== ============= ======== =========== ========== ================= ======
Profit for the
period - - - - - 646 5 651
================== ========= ========== ============= ======== =========== ========== ================= ======
Other
comprehensive
income
Currency
translation
differences - - - - (16) - - (16)
Remeasurement of
post employment
benefit
obligations -
loss - - - - - (230) - (230)
Return on plan
assets,
excluding
interest income
- gain - - - - - 159 - 159
Tax on items
relating to
the components
of other
comprehensive
income - - - - - 12 - 12
Reclassification
adjustment
for movements in
foreign
exchange on sale
of businesses - - - - 16 - - 16
================== ========= ========== ============= ======== =========== ========== ================= ======
Total other
comprehensive
loss - - - - - (59) - (59)
================== ========= ========== ============= ======== =========== ========== ================= ======
Total
comprehensive
income
for the period - - - - - 587 5 592
================== ========= ========== ============= ======== =========== ========== ================= ======
Fair value of
share-based
payments - - - - 11 - - 11
Changes to
non-controlling
interests due to
acquisitions
and disposals - - - - - - (1) (1)
Change in the
fair value
of
non-controlling
interest put
options - - - - (2) - - (2)
================== ========= ========== ============= ======== =========== ========== ================= ======
176 182 295 - 4,217 (1,647) 29 3,252
Dividends paid to
shareholders
(note 7) - - - - - (403) - (403)
Dividends paid to
non-controlling
interests - - - - - - (4) (4)
================== ========= ========== ============= ======== =========== ========== ================= ======
At 31 March 2019 176 182 295 - 4,217 (2,050) 25 2,845
================== ========= ========== ============= ======== =========== ========== ================= ======
Adjustment
for
non-controlling
interest
Share-based put Total
payment Merger Revaluation Translation options other
reserve reserve reserve reserve reserve reserves
OTHER RESERVES GBPm GBPm GBPm GBPm GBPm GBPm
================================== ============ ========= ============ ============ ================= ==========
At 1 October 2018(1) 232 4,170 7 (130) (71) 4,208
================================== ============ ========= ============ ============ ================= ==========
Other comprehensive income
Currency translation differences - - - (16) - (16)
Reclassification adjustment for
movements
in foreign exchange on sale of
businesses - - - 16 - 16
================================== ============ ========= ============ ============ ================= ==========
Total other comprehensive loss - - - - - -
================================== ============ ========= ============ ============ ================= ==========
Fair value of share-based
payments 11 - - - - 11
Change in the fair value of
non-controlling
interest put options - - - - (2) (2)
================================== ============ ========= ============ ============ ================= ==========
At 31 March 2019 243 4,170 7 (130) (73) 4,217
================================== ============ ========= ============ ============ ================= ==========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
Own shares held by the Group represent 30,111 ordinary shares in
Compass Group PLC (31 March 2019: nil ordinary shares, 30 September
2019: 187,455 ordinary shares) and are held by the Compass Group
All Share Schemes Trust (ASST). These shares are listed on a
recognised stock exchange and their market value at 31 March 2020
was GBP0.4 million (six months to 31 March 2019: GBPnil, year ended
30 September 2019: GBP3.9 million). The nominal value held at 31
March 2020 was GBP3,327 (six months to 31 March 2019: GBPnil, year
ended 30 September 2019: GBP20,714).
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.
The merger reserve arose in 2000 following the demerger from
Granada Compass plc.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED BALANCE SHEET
AT 31 MARCH 2020
At 31 March
At 30
September
2020 2019(1) 2019(1)
Unaudited Unaudited
=============================================== ========
Notes GBPm GBPm GBPm
=============================================== ======== ========== ========== ===========
NON-CURRENT ASSETS
Goodwill 4,751 4,420 4,576
Other intangible assets 1,705 1,333 1,426
Contract fulfilment assets and contract costs 1,018 889 976
Right of use assets 882 - -
Property, plant and equipment 1,049 1,002 1,052
Interests in joint ventures and associates 320 218 226
Other investments 84 78 96
Post employment benefit assets 625 281 448
Trade and other receivables 108 103 96
Deferred tax assets 58 62 76
9,
Derivative financial instruments(2) 10 211 108 207
=============================================== ======== ========== ========== ===========
Non-current assets 10,811 8,494 9,179
=============================================== ======== ========== ========== ===========
CURRENT ASSETS
Inventories 409 385 404
Trade and other receivables 2,845 2,873 3,051
Tax recoverable 80 76 88
Cash and cash equivalents(2) 9 732 609 398
9,
Derivative financial instruments(2) 10 25 2 -
=============================================== ======== ========== ========== ===========
4,091 3,945 3,941
Assets held for sale 11 127 177 190
=============================================== ======== ========== ========== ===========
Current assets 4,218 4,122 4,131
=============================================== ======== ========== ========== ===========
Total assets 15,029 12,616 13,310
=============================================== ======== ========== ========== ===========
CURRENT LIABILITIES
Short term borrowings(2) 9 (1,026) (56) (186)
Short term lease liabilities(2) 9 (191) - -
9,
Derivative financial instruments(2) 10 (16) (6) (6)
Provisions (202) (161) (223)
Current tax liabilities (209) (263) (247)
Trade and other payables (4,340) (4,321) (4,718)
=============================================== ======== ========== ========== ===========
(5,984) (4,807) (5,380)
Liabilities directly associated with assets
held for sale 11 (40) (17) (30)
=============================================== ======== ========== ========== ===========
Current liabilities (6,024) (4,824) (5,410)
=============================================== ======== ========== ========== ===========
NON-CURRENT LIABILITIES
Long term borrowings(2) 9 (3,870) (4,201) (3,679)
Long term lease liabilities(2) 9 (738) - -
9,
Derivative financial instruments(2) 10 (3) (12) (6)
Post employment benefit obligations (238) (229) (259)
Provisions (237) (217) (266)
Deferred tax liabilities (208) (77) (114)
Trade and other payables (150) (211) (214)
=============================================== ======== ========== ========== ===========
Non-current liabilities (5,444) (4,947) (4,538)
=============================================== ======== ========== ========== ===========
Total liabilities (11,468) (9,771) (9,948)
=============================================== ======== ========== ========== ===========
Net assets 3,561 2,845 3,362
=============================================== ======== ========== ========== ===========
EQUITY
Share capital 176 176 176
Share premium account 182 182 182
Capital redemption reserve 295 295 295
Own shares (1) - (4)
Other reserves 4,277 4,217 4,362
Retained earnings (1,395) (2,050) (1,676)
=============================================== ======== ========== ========== ===========
Total equity shareholders' funds 3,534 2,820 3,335
Non-controlling interests 27 25 27
=============================================== ======== ========== ========== ===========
Total equity 3,561 2,845 3,362
=============================================== ======== ========== ========== ===========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
(2) Component of net debt.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHSED 31 MARCH 2020
Six months to
31 March
======================
2020 2019(1)
Unaudited Unaudited
Notes GBPm GBPm
================================================================ ====== ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 8 821 1,101
Interest paid (63) (56)
Tax received - 16
Tax paid (213) (171)
================================================================ ====== ========== ==========
Net cash from operating activities 545 890
================================================================ ====== ========== ==========
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of subsidiary companies(2) 11 (431) (346)
Purchase of additional interest in joint ventures
and associates (15) (24)
Proceeds from sale of subsidiary companies, joint
ventures and associates net of exit costs(2) 11 39 68
Purchase of intangible assets (80) (102)
Purchase of contract fulfilment assets (146) (148)
Purchase of property, plant and equipment (171) (154)
Proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets 18 19
Proceeds from sale of other investments 12 -
Dividends received from joint ventures and associates(3) 45 26
Interest received 2 3
================================================================ ====== ========== ==========
Net cash from investing activities (727) (658)
================================================================ ====== ========== ==========
CASH FLOW FROM FINANCING ACTIVITIES
Increase in borrowings 9 2,133 1,002
Repayment of borrowings 9 (1,108) (1,213)
Repayment of principal under lease liabilities 9 (77) (2)
Equity dividends paid 7 (427) (403)
Dividends paid to non-controlling interests (3) (4)
================================================================ ====== ========== ==========
Net cash from financing activities 518 (620)
================================================================ ====== ========== ==========
CASH AND CASH EQUIVALENTS
Net increase/(decrease) in cash and cash equivalents 336 (388)
Cash and cash equivalents at beginning of the year(4) 399 991
Currency translation (losses)/gains on cash and cash
equivalents (3) 6
================================================================ ====== ========== ==========
Cash and cash equivalents at end of the period(4) 732 609
================================================================ ====== ========== ==========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
(2) Net of cash acquired or disposed and payments received or
made under warranties and indemnities.
(3) Includes dividends received from joint ventures and
associates classified as held for sale.
(4) Includes cash and cash equivalents as presented in the
condensed consolidated balance sheet of GBP732 million (31 March
2019: GBP609 million, 30 September 2019: GBP398 million) and cash
and cash equivalents presented in assets held for sale of GBPnil
(31 March 2019 GBPnil, 30 September 2019: GBP1 million).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
RECONCILIATION OF FREE CASH FLOW
FOR THE SIX MONTHSED 31 MARCH 2020
Six months to
31 March
======================
2020 2019(1)
Unaudited Unaudited
GBPm GBPm
================================================================ ========== ==========
Net cash from operating activities 545 890
Purchase of intangible assets (80) (102)
Purchase of contract fulfilment assets (146) (148)
Purchase of property, plant and equipment (171) (154)
Repayment of principal under lease liabilities(2) (77) -
Proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets 18 19
Proceeds from sale of other investments 12 -
Dividends received from joint ventures and associates 45 26
Interest received 2 3
Dividends paid to non-controlling interests (3) (4)
================================================================= ========== ==========
Free cash flow 145 530
Add back: Cash related to cost action programme in 41 -
the period
================================================================ ========== ==========
Underlying free cash flow 186 530
================================================================= ========== ==========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
(2) Free cash flow has been redefined on adoption of IFRS 16 to
include the payment of lease principal amounts. As a result, the
Group's reported free cash flow also includes repayments of
obligations under finance leases, which were excluded from free
cash flow in the prior period.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
1 BASIS OF PREPARATION
The unaudited condensed consolidated financial statements for
the six months ended 31 March 2020 have been prepared in accordance
with International Accounting Standard 34 'Interim Financial
Reporting' (IAS 34), and have been prepared on the basis of
International Financial Reporting Standards (IFRSs) and
International Financial Reporting Interpretations Committee (IFRIC)
interpretations as adopted by the European Union that are effective
for the year ending 30 September 2020.
The unaudited condensed consolidated financial statements for
the six months ended 31 March 2020, which were approved by the
Board on 19 May 2020, and the comparative information in relation
to the half year ended 31 March 2019, 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 2019. Those accounts have been reported
upon 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 auditors drew
attention by way of emphasis without qualifying their report and
did not contain statements under Section 498 (2) or (3) of the
Companies Act 2006.
Going concern
The uncertainty as to the future impact on the financial
performance and cash flows of the Group as a result of the recent
COVID-19 outbreak has been considered as part of the Group's
adoption of the going concern basis in the condensed consolidated
financial statements. The condensed consolidated financial
statements are prepared on a going concern basis which the
directors believe to be appropriate for the following reasons:
The Group is a well rated and established borrower which
operates with a low leverage and has a business model which is
expected to remain robust post crisis allowing deleveraging.
Standard & Poor's reaffirmed the Group's long term (A) and
short term (A-1) credit ratings on 24 March and Moody's A3/P-2 long
and short term credit ratings remain unchanged.
At 31 March 2020, the Group's financing arrangements amounted to
GBP4,495 million and consisted of USD, Sterling and Euro Bonds
(GBP2,348 million), US Private Placements (USPP) (GBP1,331 million)
and Commercial Paper (CP) (GBP816 million, including GBP600 million
from the Bank of England's Covid Corporate Financing Facility). In
addition, the Group had GBP732 million cash in bank and a committed
Revolving Credit Facility of GBP2,000 million expiring in 2024 with
an option to extend, subject to lenders consent, for a further 2
years, which had been drawn down by GBP202 million.
On 3 April 2020, the Group signed an additional GBP800 million
committed Revolving Credit Facility which matures in October 2021.
The only term debt maturing in the 18 months to 30 September 2021
is $200 million (GBP161 million) of USPP debt in September 2020. CP
of GBP816 million matures in the period from April 2020 to March
2021.
The USPP debt (GBP1,331 million) is subject to a leverage
covenant (net debt to EBITDA<=4x) and an interest cover covenant
(EBITDA/net interest expense>=2.5x). These financial covenants
are tested on 31 March and 30 September every year. As at 31 March
2020, the financial covenants were met. The Group's other financing
arrangements do not contain any financial covenants.
The directors have prepared projected cash flow scenarios for
eighteen months from the date of their approval of these condensed
consolidated financial statements. The directors have considered
various scenarios in assessing the impact of COVID-19 on future
financial performance and cash flows with the key judgement applied
being the likely time period of government enforced restrictions
and the extent to which performance would recover subsequent to
these restrictions being lifted. In these scenarios, the financial
performance of the Group's Healthcare & Seniors and Defence,
Offshore & Remote sectors which account for c. 30% of revenue
remain largely unaffected by COVID-19 while 75% of our Business
& Industry and Education sectors, and 100% of our Sports &
Leisure sectors are closed.
In the base case scenario, where the business that is closed
starts to reopen in a phased manner and gradually recovers towards
the end of this financial year, the directors consider that the
Group will continue to operate within its available committed
facilities with sufficient headroom.
In a severe but plausible downside scenario the directors have
assumed that there are widespread government restrictions lasting
for at least 6 months and that the Group continues to lose
approximately 55% of its expected revenue in the second half of the
financial year recovering gradually thereafter for 12 months to
September 2021 with every GBP1 billion of lost revenue resulting in
approximately GBP250 million - GBP280 million loss before tax after
taking into account cost containment measures. It has also been
assumed that discretionary capital expenditure would be reduced,
M&A activity is suspended, and temporary cessation of dividend
payments.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
1 BASIS OF PREPARATION (CONTINUED)
In the severe but plausible downside scenario modelled by the
directors, due to the significant loss in the next 6 months, whilst
the Group continues to retain sufficient committed headroom on
liquidity, the leverage covenant under the Group's USPP agreements
could be potentially breached over the next two testing dates
(September 2020 and March 2021) and would require mitigating
actions to be put in place. Consequently, the Group has obtained
waivers of the leverage covenant test in our USPP agreements for
the 30 September 2020 and 31 March 2021 test dates. The interest
cover covenant test has also been waived for September 2020 and
reset at more than or equal to 3x on a 6 months proforma basis for
March 2021.
Additionally, a combination of strong investment grade credit
ratings and a well-established presence in the debt capital markets
provides the directors with confidence that, if necessary, the
Group could raise additional debt finance as required. We will
continue to review the full range of funding options available to
us, to strengthen our liquidity and balance sheet position so as to
maximise our commercial opportunities over the medium term.
Based on the above analysis the directors believe that it
remains appropriate to prepare the condensed consolidated financial
statements on a going concern basis.
Judgements and estimates
The preparation of the condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. These
estimates, judgements and assumptions are based on historical
experience and other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates. The Group's accounting policies do not include any
critical judgements. The policies which require the most use of
management estimation were the same as those that applied to the
consolidated financial statements as at and for the year ended 30
September 2019, with the exception of the adoption of IFRS 16,
which requires the use of additional assumptions and estimates as
set out in note 2.
The accounting policies adopted in the preparation of these
unaudited condensed consolidated financial statements are
consistent with the policies applied by the Group in its
consolidated financial statements for the year ended 30 September
2019, with the exception of the adoption of new and amended
standards as set out below.
The unprecedented challenges caused by the COVID-19 outbreak,
and specifically the inherent uncertainty in forecasting the
Group's full year mix of profits, have made it difficult to
reliably estimate the Group's annual effective tax rate therefore
the year to date actual tax calculation has been used to represent
the best estimate of the annual effective tax rate.
New accounting pronouncements adopted
Accounting standards, interpretations and amendments that have
been adopted by the Group in the current period:
-- IFRS 16 'Leases'
-- IFRIC 23 'Uncertainty over income tax treatments'
-- Amendments to IFRS 9 'Prepayment features with negative
compensation'
-- Amendments to IAS 28 'Long term interests in associates and
joint ventures'
-- Amendments to IAS 19 'Plan amendment, curtailment or
settlement'
-- Annual improvements to IFRS standards 2015-2017 cycle
The Group has updated its accounting policies to reflect the
impact of IFRS 16 as described below. There is no significant
impact on this condensed consolidated financial statements as a
result of adopting other new IFRS standards.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
1 BASIS OF PREPARATION (CONTINUED)
IFRS 16 'Leases'
The Group has adopted IFRS 16 'Leases' on 1 October 2019 using
the modified retrospective transition approach and therefore the
comparative information has not been restated and continues to be
reported under IAS 17 'Leases' and IFRIC 4 'Determining whether an
arrangement contains a lease'. IFRS 16 eliminates the
classification of leases as either operating leases or finance
leases and, instead, introduces a single lessee accounting model.
Under IFRS 16, leases, other than short term leases and leases of
low value assets, give rise to the recognition of lease liabilities
for future lease payments and corresponding right of use assets,
representing the right to use the leased item.
On transition the lease liabilities have been measured at the
present value of the remaining lease payments, discounted using the
incremental borrowing rate on the date of transition for each
lease. The right of use assets have been measured at an amount
equal to the lease liability on adoption, adjusted for pre-existing
lease prepayments, accrued lease expenses and lease provisions. As
a result, on transition the Group has recognised lease liabilities
of GBP995 million and right of use assets of GBP956 million. As at
31 March 2020, the right of use assets were GBP882 million and the
lease liabilities were GBP929 million. Adoption of IFRS 16 has no
impact on the Group's ability to comply with the covenant
requirements of its borrowing facilities.
The Group's lease portfolio mainly consists of offices,
concessions and other assets such as catering equipment, vending
machines and motor vehicles.
The Group has applied the following expedients in relation to
the adoption of IFRS 16:
-- Reliance was placed on existing onerous lease assessments
under IAS 37 to impair right of use assets recognised on adoption
instead of performing a new impairment assessment for those assets
on adoption
-- Leases with a lease term end date within one year of the date
of initial application were not recognised on the balance sheet.
Rental payments for these leases are accounted on a straight line
basis in the consolidated income statement
-- No reassessment was performed as to whether existing
contracts are, or contain, a lease at the date of initial
application
Further details of the impact of the adoption of the new leasing
standard and the change in the Group's accounting policy are
disclosed in note 2.
New accounting pronouncements to be adopted
The following accounting standards, interpretations and
amendments that are applicable to the Group have been issued by the
IASB but had either not been adopted by the European Union or were
not yet effective in the European Union at 31 March 2020. The Group
is currently analysing the impact these standards would have on its
consolidated results and financial position.
-- Amendments to references to the conceptual framework in IFRS
standards
-- Amendments to IFRS 3 'Definition of a business'
-- Amendments to IAS 1 and IAS 8 'Definition of material'
-- Amendments to IFRS 9, IAS 39 and IFRS 7 'Interest rate
benchmark reform'
2 IMPACT OF THE ADOPTION OF IFRS 16
This note explains the impact of the adoption of IFRS 16
'Leases' on the Group's consolidated financial statements and
discloses the new accounting policies that have been applied from 1
October 2019, where they are different from those applied in
earlier periods.
IFRS 16 'Leases' - impact of the adoption
The Group adopted IFRS 16 'Leases' on 1 October 2019 using the
modified retrospective transition approach and therefore the
comparative information has not been restated and continues to be
reported under IAS 17 'Leases' and IFRIC 4 'Determining whether an
arrangement contains a lease'. The impact of the adoption of IFRS
16 'Leases' on the Group's consolidated financial statements is
included below.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
2 IMPACT OF THE ADOPTION OF IFRS 16 (CONTINUED)
Condensed consolidated balance sheet
The table below sets out the opening balance sheet adjustments
recognised at the date of initial application of IFRS 16. Where
practical, line items which are not impacted by the adoption have
been aggregated within the relevant sub-totals:
At 30
September IFRS 16 At 1 October
2019 transition 2019
(IAS 17 (IFRS
basis) adjustments 16 basis)
GBPm GBPm GBPm
=============================== =========== ============ =============
NON-CURRENT ASSETS
Right of use assets - 956 956
Property, plant and equipment 1,052 (4) 1,048
Deferred tax assets 76 - 76
Other non-current assets 8,051 - 8,051
=============================== =========== ============ =============
Non-current assets 9,179 952 10,131
=============================== =========== ============ =============
CURRENT ASSETS
Trade and other receivables 3,051 (7) 3,044
Other current assets 1,080 - 1,080
=============================== =========== ============ =============
Current assets 4,131 (7) 4,124
=============================== =========== ============ =============
Total assets 13,310 945 14,255
=============================== =========== ============ =============
CURRENT LIABILITIES
Short term borrowings (186) 1 (185)
Short term lease liabilities - (155) (155)
Provisions (223) 5 (218)
Trade and other payables (4,718) 28 (4,690)
Other current liabilities (283) - (283)
=============================== =========== ============ =============
Current liabilities (5,410) (121) (5,531)
=============================== =========== ============ =============
NON-CURRENT LIABILITIES
Long term borrowings (3,679) 2 (3,677)
Long term lease liabilities - (843) (843)
Provisions (266) 17 (249)
Deferred tax liabilities (114) - (114)
Other non-current liabilities (479) - (479)
=============================== =========== ============ =============
Non-current liabilities (4,538) (824) (5,362)
=============================== =========== ============ =============
Total liabilities (9,948) (945) (10,893)
=============================== =========== ============ =============
Net assets 3,362 - 3,362
=============================== =========== ============ =============
Upon transition on 1 October 2019, the Group recognised
additional lease liabilities of GBP995 million for the present
value of the lease payments due under the lease contracts. The
right of use asset of GBP956 million is recognised at an amount
equal to the lease liability and adjusted by property, plant and
equipment held under finance leases, existing prepaid or accrued
lease payments, lease incentives and onerous lease provisions
recognised in the consolidated balance sheet at the date of initial
application. The net impact on the consolidated balance sheet is
GBPnil.
The weighted average incremental borrowing rate applied to the
Group's lease liabilities recognised in the balance sheet at 1
October 2019 was 3.8%.
The table below presents a reconciliation of the minimum
operating lease commitments disclosed applying IAS 17 at 30
September 2019 to the lease liabilities recognised at 1 October
2019 under IFRS 16:
GBPm
====================================================================== ======
Total minimum lease payments reported at 30 September 2019 under
IAS 17 1,102
Impact of discounting (237)
Short term leases (35)
Low value leases (27)
Leases not yet commenced (27)
Extension and termination options reasonably certain to be exercised 219
====================================================================== ======
Additional lease liabilities recognised on transition to IFRS
16 at 1 October 2019 995
Existing finance leases 3
====================================================================== ======
Total lease liabilities recognised at 1 October 2019(1) 998
====================================================================== ======
(1) Of the amounts recognised as lease liabilities upon
transition, GBP87 million was subsequently reclassified to be
presented within the liabilities directly associated with assets
held for sale, which related to leases held by the Japanese
Highways and US laundries businesses held for sale at 30 September
2019.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
2 IMPACT OF THE ADOPTION OF IFRS 16 (CONTINUED)
The reconciling items included in the table above are as
follows:
-- Impact of discounting: previously disclosed lease commitments
were undiscounted and under the modified retrospective transition
method, lease payments were discounted on transition using an
incremental borrowing rate
-- Short term leases: the Group has applied the practical
expedient to classify leases with a lease term ending within 12
months of the date of initial application of IFRS 16 as short term
leases. The Group has also adopted the accounting policy
recognition exemption for short term leases
-- Low value leases: the Group has adopted the accounting policy
recognition exemption for leases of low value assets with an
initial fair value less than approximately GBP5,000
-- Leases not yet commenced: lease agreements where the
underlying asset is not available for use on the transition date
were not recognised as lease liabilities under IFRS 16
-- Extension and termination options reasonably certain to be
exercised: under IAS 17 lease commitments only included
non-cancellable periods in the lease agreements while under IFRS 16
the lease term includes periods covered by extension and
termination options. Extension and termination options are included
within a number of lease agreements and provide the Group with
operational flexibility. For lease contracts that include such
options, the Group has applied judgement to determine the lease
term, which can affect the amount of lease liabilities and right of
use assets recognised.
Condensed consolidated income statement
Under IFRS 16, the operating lease expense previously reported
in operating costs has been replaced by a depreciation of the right
of use asset, which is lower than the operating lease expense
recognised under IAS 17, and a separate interest expense on the
lease liabilities, recorded in finance costs. These changes result
in a higher operating profit, operating margin and finance costs
and in a lower profit before tax for the period. The Group
transitioned to IFRS 16 using the modified retrospective approach
without restating prior period comparatives, therefore prior period
comparatives reported under IAS 17 are not directly comparable.
The adoption of IFRS 16 in the six months ended 31 March 2020
has resulted in a GBP16 million increase in the Group's operating
profit compared to the operating profit had the Group continued to
apply IAS 17. This increase is offset by additional finance costs
of GBP18 million and GBP4 million lower gain on sale and closure of
businesses, resulting in a net decrease in the Group's profit
before tax of GBP6 million.
Condensed consolidated cash flow statement
There has been no overall cash flow impact arising from the
application of IFRS 16. Lease payments are now presented as
financing cash flows, representing payments of principal, and as
operating cash flows, representing payments of interest. Variable
lease payments that do not depend on an index or rate are not
included in the lease liability and continue to be presented as
operating cash flows. In prior years, operating lease payments were
presented within cash flows from operating activities. This change
in presentation has resulted in a GBP76 million increase in net
cash from operating activities, offset by a decline in net cash
from financing activities for the same amount.
Underlying and other alternative performance measures
Underlying and other alternative performance measures have been
amended where necessary to reflect the adoption of IFRS 16. The
impact of IFRS 16 on the Group's alternative performance measures
includes the following:
-- Underlying operating profit has increased by GBP16 million,
including GBP9 million in North America, GBP3 million in Europe and
GBP4 million in Rest of World
-- Underlying basic earnings per share has decreased by 0.1
pence, reflecting higher finance costs on lease liabilities of
GBP18 million offset by the increase in underlying operating
profit
-- The net debt definition has been updated to include the
additional lease liabilities resulting from IFRS 16. As a result,
net debt has increased by GBP926 million as at 31 March 2020
-- Free cash flow has been redefined to include the payment of
lease principal amounts. As a result, the Group's reported free
cash flow also includes repayments of obligations under finance
leases, which were excluded from free cash flow in the prior
year
To provide a meaningful comparison with prior period which is
reported under IAS 17 'Leases' the underlying operating profit and
growth rates for the six months ended 31 March 2020 have therefore
also been presented in accordance with IAS 17 as shown in note
13.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
2 IMPACT OF THE ADOPTION OF IFRS 16 (CONTINUED)
IFRS 16 'Leases' - accounting policies applied since 1 October
2019
Following the adoption of IFRS 16, the Group's accounting policy
in respect of leases is as follows:
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if it conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. Control
is conveyed where the Group has both the right to direct the
identified asset's use and to obtain substantially all the economic
benefits from that use. The Group allocates the consideration in
the contract to each lease and non-lease component. The non-lease
component, where it is separately identifiable, is not included in
the right of use asset.
When a lease is recognised in a contract the Group recognises a
right of use asset and a lease liability at the lease commencement
date. The Group recognises a right of use asset and a corresponding
lease liability with respect to all lease arrangements in which it
is the lessee, except for leases of low value assets with an
initial fair value less than approximately GBP5,000 and short term
leases of 12 months or less. For these leases, the lease payments
are charged to the income statement as an operating expense on a
straight line basis over the period of the lease.
The right of use asset is initially measured at cost, comprising
the initial lease liability adjusted for any lease payments already
made, plus any initial direct costs incurred and an estimate of
restoration costs, less any lease incentives received. The right of
use asset is subsequently depreciated on a straight line basis over
the shorter of the lease term or the useful life of the underlying
asset. The estimated useful lives of right of use assets are
determined on the same basis as those of property, plant and
equipment. The right of use asset is tested for impairment if there
are any indicators of impairment.
The lease liability is measured at the present value of the
lease payments that are reasonably certain and not paid at the
commencement date, discounted at the lessee's incremental borrowing
rate specific to the term, country and start date of the lease. The
lease liability is subsequently measured at amortised cost using
the effective interest rate method. The lease liability is
remeasured, with a corresponding adjustment to the right of use
asset, by discounting the revised lease payments as follows:
-- Using the initial discount rate at the inception of the lease
when lease payments change as a result of changes to residual value
guarantees and changes in an index other than a floating interest
rate
-- Using a revised discount rate when lease payments change as a
result of the Group's reassessment of whether it is reasonably
certain to exercise a purchase, extension or termination option,
changes in the lease term or as a result of a change in floating
interest rates
The lease term is the non cancellable period beginning at the
contract commencement date plus periods covered by an option to
extend the lease, if it is reasonably certain that the Group will
exercise the option, and periods covered by an option to terminate
the lease, if it is reasonably certain that the Group will not
exercise this option.
Variable lease payments that are not included in the measurement
of the lease liability are recognised in the consolidated income
statement in the period in which the event or condition that
triggers payment occurs.
Critical accounting estimates, assumptions and judgements in
applying IFRS 16
The policies that require the most use of management estimation
and judgement relate to the determination of the lease term and the
calculation of the discount rate for future lease payments. The
application of IFRS 16 does not require any critical
judgements.
-- Lease terms may be different to the minimum lease period and
include optional lease periods where it is reasonably certain that
an extension option will be exercised or that a termination option
will not be exercised by the Group. Termination and extension
options are negotiated to provide operational flexibility in
managing the leased asset portfolio and align it with the Group's
business needs. Judgement is required in assessing whether these
optional periods should be included when determining the lease
term. The assessment of whether the Group is reasonably certain to
exercise such options is made at the lease commencement date and
subsequently reassessed if there are significant events or changes
in circumstances within the control of the Group. Lease terms are
assessed based on the Group's business plans and historical
experience.
-- The lease payments are discounted using the lessee's
incremental borrowing rate, being the rate that the individual
lessee would have to pay to borrow the funds necessary to obtain an
asset of similar value to the right of use asset in a similar
economic environment with similar terms and conditions. The
calculation of the incremental borrowing rate for each lease
contract requires judgement. The incremental borrowing rate is
determined using a series of inputs including a risk free rate
based on government bond rates, a credit risk adjustment based on
corporate bonds in order to incorporate the credit worthiness of
the lessee and adjustments specific to the lease, such as term,
country and currency.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
3 SEGMENTAL REPORTING
The management of the Group's operations, excluding Central
activities, is organised within three segments: North America,
Europe and our Rest of World markets. The following table presents
Group revenues disaggregated by geographical segment and
sector:
Geographical segments
================================
North Rest
America Europe of World Total
REVENUE(1) GBPm GBPm GBPm GBPm
============================================= ========= ========= ========== ========
SIX MONTHSED 31 MARCH 2020
Business & Industry 2,573 1,607 602 4,782
Education 1,968 455 79 2,502
Healthcare & Seniors 2,319 466 224 3,009
Sports & Leisure 1,096 298 62 1,456
Defence, Offshore & Remote 124 235 507 866
=============================================== ========= ========= ==========
Combined sales of Group and share of equity
accounted joint ventures (2,3,4) 8,080 3,061 1,474 12,615
=============================================== ========= ========= ========== ========
SIX MONTHSED 31 MARCH 2019(5)
Business & Industry 2,372 1,690 641 4,703
Education 1,900 475 98 2,473
Healthcare & Seniors 2,153 469 256 2,878
Sports & Leisure 1,150 262 141 1,553
Defence, Offshore & Remote 116 234 511 861
=============================================== ========= ========= ========== ========
Combined sales of Group and share of equity
accounted joint ventures (2,3) 7,691 3,130 1,647 12,468
=============================================== ========= ========= ========== ========
(1) There is no inter-segmental trading.
(2) This is the underlying revenue measure considered by the
chief operating decision maker.
(3) Underlying revenue from external customers arising in the
UK, the Group's country of domicile, was GBP1,024 million (six
months to 31 March 2019: GBP1,066 million). Underlying revenue from
external customers arising in the US region was GBP7,586 million
(six months to 31 March 2019: GBP7,211 million). Underlying revenue
from external customers arising in all foreign countries from which
the Group derives revenue was GBP11,591 million (six months to 31
March 2019: GBP11,402 million).
(4) Includes revenue of joint ventures classified as held for
sale.
(5) The revenue relating to the Group's geographical segments of
Europe and Rest of World has been reclassified to reflect a change
in the way those segments are managed by the chief operating
decision maker: Turkey is now part of the Europe segment. Revenue
of GBP154 million has been reclassified from Rest of World to
Europe for the six months ended 31 March 2019.
Geographical
segments
==============================
Rest
North of Central
America Europe World activities Total
OPERATING PROFIT GBPm GBPm GBPm GBPm GBPm
SIX MONTHSED 31 MARCH 2020
Underlying operating profit before joint ventures
and associates 654 148 74 (42) 834
Add: Share of profit before tax of joint ventures(1) - - 17 - 17
====================================================== ========== ========= ======= ============ ========
Regional underlying operating profit(2) 654 148 91 (42) 851
Add: Share of profit of associates - 3 - - 3
====================================================== ========== ========= ======= ============ ========
Group underlying operating profit(2) 654 151 91 (42) 854
Geographical
segments
Rest
North of Central
America Europe World activities Total
OPERATING PROFIT GBPm GBPm GBPm GBPm GBPm
=================================================== ========== ========= ======= ============ ========
SIX MONTHSED 31 MARCH 2019(3)
Underlying operating profit before joint ventures
and associates 663 205 91 (38) 921
Add: Share of profit before tax of joint ventures 1 - 17 - 18
=================================================== ========== ========= ======= ============ ========
Regional underlying operating profit(2) 664 205 108 (38) 939
Add: Share of profit of associates 6 6 - - 12
=================================================== ========== ========= ======= ============ ========
Group underlying operating profit(2) 670 211 108 (38) 951
=================================================== ========== ========= ======= ============ ========
(1) Includes share of profit of joint ventures and associates
classified as held for sale.
(2) Underlying operating profit is the profit measure considered
by the chief operating decision maker.
(3) The underlying operating profit relating to the Group's
geographical segments of Europe and Rest of World has been
reclassified to reflect a change in the way those segments are
managed by the chief operating decision maker: Turkey is now part
of the Europe segment. Regional underlying operating profit of
GBP13 million has been reclassified from Rest of World to Europe
for the six months ended 31 March 2019.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH
2020
4 IMPAIRMENT REVIEW
In the light of the uncertainty caused by the COVID-19 outbreak,
the Group has tested goodwill for impairment as at 31 March
2020.
As a result of the uncertainty caused by the COVID-19 outbreak,
there is a wide range of potential outcomes regarding the possible
future performance in each of the countries in which the Group
operates. The directors, however, do not consider that any
reasonably possible changes in the key assumptions would cause the
value in use of the net operating assets of the Group's
cash-generating units to fall below their carrying values.
5 TAX
Six months to
31 March
2020 2019
RECOGNISED IN THE CONDENSED CONSOLIDATED INCOME STATEMENT:
INCOME TAX EXPENSE GBPm GBPm
=======
CURRENT TAX
Current year 193 214
Adjustment in respect of prior years 1 (11)
========================================================================= ======= =========
Current tax expense 194 203
========================================================================= ======= =========
DEFERRED TAX
Current year 13 (2)
Impact of changes in statutory tax (6) -
rates
============================================================ ==== ==== ======= =========
Deferred tax expense/(credit) 7 (2)
========================================================================= ======= =========
TOTAL INCOME TAX
Income tax expense 201 201
========================================================================= ======= =========
The tax charge for the period has been calculated as described in note
1.
In April 2019, the European Commission published its final decision
on the Group Financing Exemption in the UK's Controlled Foreign Company
legislation concluding that part of the legislation is in breach of
EU State Aid rules. The UK Government and UK-based multinational companies,
including Compass, have appealed to the General Court of the European
Union against the decision. The UK Government is required to start collection
proceedings in advance of the appeal results but at present it is not
possible to determine the amount that they will seek to collect. If
the decision of the European Commission is upheld, we have calculated
our maximum potential liability to be GBP113 million at 31 March 2020.
However, our ultimate liability may be lower as the computation will
depend on the facts of each individual case. The final impact on the
Group remains uncertain and our current assessment is that no provision
is required.
The increasingly complex international corporate tax environment and
an increase in audit activity from tax authorities means that the potential
for tax uncertainties has increased. 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. None of these
audits is currently expected to have a material impact on the Group's
financial position and there have been no significant developments in
respect of any of these since 30 September 2019.
In addition, 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 2020, the
total amount assessed in respect of these matters is GBP52 million.
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 advisers, 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.
Deferred tax assets have not been recognised in respect of tax losses
of GBP232 million (31 March 2019: GBP30 million) and other temporary
differences of GBP24 million (31 March 2019: GBP17 million). 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 MONTHSED 31 MARCH 2020
6 EARNINGS PER SHARE
The calculation of earnings per share is based on earnings after tax
and the weighted average number of shares in issue during the period.
The underlying earnings per share figures have been calculated based
on earnings excluding the effect of the acquisition related costs, one-off
pension charge, cost action programme charge, gains and losses on sale
and closure of businesses, hedge accounting ineffectiveness, change
in fair value of investments and the tax attributable to these amounts,
but including share of profit of joint ventures and associates classified
as held for sale. These items are excluded in order to show the underlying
trading performance of the Group.
Six months to
31 March
2020 2019
===============================================
ATTRIBUTABLE PROFIT GBPm GBPm
=============================================== ========== ========== =========== ===========
Profit for the period attributable to
equity shareholders of the Company 567 646
Adjustments stated net of tax:
Acquisition related costs 33 19
One-off pension charge - 10
Cost action programme charge 28 -
Share of profit of joint ventures and 16 -
associates held for sale
Net gain on sale and closure of businesses (49) (10)
Other financing items including hedge
accounting ineffectiveness and change
in the fair value of investments 2 16
=============================================== ========== ========== =========== ===========
Underlying attributable profit for the
period from operations 597 681
=============================================== ========== ========== =========== ===========
Six months to
31 March
========================
2020 2019
Ordinary Ordinary
shares shares
of of
11(1/20) 11(1/20)
p each p each
AVERAGE NUMBER OF ORDINARY SHARES millions millions
=============================================== ========== ========== =========== ===========
Average number of shares for basic earnings
per share 1,588 1,586
Dilutive share options 1 1
=============================================== ========== ========== =========== ===========
Average number of shares for diluted earnings
per share 1,589 1,587
=============================================== ========== ========== =========== ===========
Basic earnings Diluted earnings
per share per share
========================
2020 2019 2020 2019
Earnings Earnings Earnings Earnings
===============================================
per share per share per share per share
BASIC EARNINGS PER SHARE (PENCE) pence pence pence pence
=============================================== ========== ========== =========== ===========
From operations 35.7 40.7 35.7 40.7
Adjustments stated net of tax:
Acquisition related costs 2.1 1.2 2.1 1.2
One-off pension charge - 0.6 - 0.6
Cost action programme charge 1.8 - 1.8 -
Share of profit of joint ventures and
associates held for sale 1.0 - 1.0 -
Net gain on sale and closure of businesses (3.1) (0.6) (3.1) (0.6)
Other financing items including hedge
accounting ineffectiveness and change
in the fair value of investments 0.1 1.0 0.1 1.0
=============================================== ========== ========== =========== ===========
From underlying operations 37.6 42.9 37.6 42.9
=============================================== ========== ========== =========== ===========
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
7 DIVIDS
The Board has decided not to recommend an interim dividend for the six
months ended 31 March 2020 (2019: 13.1 pence per share).
Six months Six months
to 31 March to 31 March
2020 2019
================= =================
Dividends Dividends
per per
share share
DIVIDS ON ORDINARY SHARES pence GBPm pence GBPm
=============================================== ========== ===== ========== =====
Amounts recognised as distributions to equity
shareholders during the period:
Final 2018 - - 25.4 403
Final 2019 26.9 427 - -
=============================================== ========== ===== ========== =====
Total dividends 26.9 427 25.4 403
=============================================== ========== ===== ========== =====
8 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS
Six months to
31 March
================
2020 2019
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED
FROM OPERATIONS GBPm GBPm
===================================================================== ======= =======
Operating profit before joint ventures and associates 755 883
Adjustments for:
Acquisition related costs 41 26
One-off pension charge - 12
Cost action programme charge 38 -
Amortisation of intangible assets 43 44
Amortisation of contract fulfilment assets 97 89
Amortisation of contract prepayments 12 10
Depreciation of property, plant and equipment 143 140
Depreciation of right of use assets 78 -
Unwind of costs to obtain contracts 7 6
(Gain)/loss on disposal of property, plant and equipment/intangible
assets/contract fulfilment assets (3) 2
Other non-cash changes - (2)
Decrease in provisions (58) (10)
Investment in contract prepayments (23) (10)
Increase in costs to obtain contracts (14) (8)
Post employment benefit obligations net of service costs (6) (9)
Share-based payments - charged to profits 14 11
===================================================================== ======= =======
Operating cash flows before movement in working capital 1,124 1,184
Increase in inventories (7) (26)
Decrease/(increase) in receivables 158 (56)
Decrease in payables (454) (1)
===================================================================== ======= =======
Cash generated from operations 821 1,101
===================================================================== ======= =======
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH
2020
9 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
This table is presented as additional information to show movement in
net debt, defined as overdrafts, bank and other borrowings, lease liabilities
and derivative financial instruments, net of cash and cash equivalents.
Six months to 31 March
For the
year
Bank Total Derivative Cash ended
and and Net Net 30
Bank other overdrafts Lease financial cash debt debt September
=====================
and
overdrafts borrowings borrowings liabilities instruments equivalents 2020 2019 2019
NET DEBT GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== =========== =========== =========== ============ ============ ============ ======== ======== ==========
At 1 October (17) (3,845) (3,862) (3) 195 398 (3,272) (3,383) (3,383)
Implementation of
IFRS 16(1) - - - (995) - - (995) - -
===================== =========== =========== =========== ============ ============ ============ ======== ======== ==========
At 1 October, as
adjusted(1) (17) (3,845) (3,862) (998) 195 398 (4,267) (3,383) (3,383)
Net
increase/(decrease)
in cash and cash
equivalents - - - - - 337 337 (366) (579)
Cash outflow from
repayment of bank
loans - 1,038 1,038 - - - 1,038 443 1,830
Cash inflow from
borrowing bank
loans - (1,228) (1,228) - - - (1,228) (1,002) (1,830)
Cash outflow from
repayment of loan
notes - - - - - - - 193 195
Cash outflow from
repayment of bonds - - - - - - - 527 530
Cash inflow from
issuance of
commercial
paper - (875) (875) - - - (875) - -
Cash outflow from
repayment of
commercial
paper - 70 70 - - - 70 - -
Cash
(inflow)/outflow
from other changes
in gross debt (31) - (31) - 1 - (30) 50 76
Cash outflow from
repayment of
obligations
under lease
liabilities - - - 77 - - 77 2 4
Increase in net
debt as a result
of new lease
liabilities - - - (85) - - (85) (1) (1)
Reclassified to
held for sale - - - 87 - - 87 - (1)
Currency translation
(losses)/gains (2) (5) (7) 14 20 (3) 24 (3) (86)
Other non-cash
movements - (1) (1) (24) 1 - (24) (16) (27)
===================== =========== =========== =========== ============ ============ ============ ======== ======== ==========
Carried forward (50) (4,846) (4,896) (929) 217 732 (4,876) (3,556) (3,272)
===================== =========== =========== =========== ============ ============ ============ ======== ======== ==========
(1) The comparative period results have not been restated for
IFRS 16 'Leases'. Additional information about the impact of IFRS
16 is included in note 2.
Six months to
31 March
================
For the
year ended
30 September
2020 2019 2019
==========================================================
OTHER NON-CASH MOVEMENTS IN NET DEBT GBPm GBPm GBPm
========================================================== ======= ======= ==============
Amortisation of fees and discount on issuance (1) (3) (6)
Changes in the fair value of bank and other borrowings
in a designated fair value hedge - (79) (160)
========================================================== ======= ======= ==============
Bank and other borrowings (1) (82) (166)
========================================================== ======= ======= ==============
Leases acquired through business acquisition (24) - -
========================================================== ======= ======= ==============
Lease liabilities (24) - -
========================================================== ======= ======= ==============
Changes in the value of derivative financial instruments
including accrued income 1 66 139
========================================================== ======= ======= ==============
Other non-cash movements (24) (16) (27)
========================================================== ======= ======= ==============
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH
2020
9 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (CONTINUED)
At 31 March 2020, the Group's financing arrangements amounted to GBP4,495
million and consisted of USD, Sterling and Euro Bonds (GBP2,348 million),
US Private Placements (USPP) (GBP1,331 million) and Commercial Paper
(CP) (GBP816 million, including GBP600 million from the Bank of England's
Covid Corporate Financing Facility). In addition, the Group had GBP732
million cash in bank and a committed Revolving Credit Facility of GBP2,000
million expiring in 2024 with an option to extend, subject to lenders
consent for a further 2 years, which had been drawn down by GBP202 million.
On 3 April 2020, the Group signed an additional GBP800 million committed
Revolving Credit Facility which matures in October 2021. The total available
committed credit facilities including this additional credit facility
is now GBP2,800 million. The only term debt maturing in the 18 months
to 30 September 2021 is $200 million (GBP161 million) of USPP debt in
September 2020. CP of GBP816 million mature in the period from April
2020 to March 2021. The maturity profile of the Group's principal borrowings
at 31 March 2020 shows that the average period to maturity is 4.1 years
(2019: 5.4 years).
10 FINANCIAL INSTRUMENTS
The Group held certain financial instruments at fair value at 31 March
2020.
The fair values have been determined by reference to Level 2 inputs
as defined by the fair values hierarchy of IFRS 13 'Fair value measurements'.
There were no transfers between levels in the current and comparative
periods.
All derivative financial instruments are shown at fair value on the
balance sheet and are present values determined from future cashflows
discounted at rates derived from market sourced data. The fair values
of derivative financial instruments represent the maximum credit exposure.
Six months ended 31 March 2020
Current Non-current Current Non-current
DERIVATIVE FINANCIAL INSTRUMENTS assets assets liabilities liabilities
================================== ======== ============ ============= =============
Interest rate swaps
Fair value hedges(1) - 121 - -
Not in a hedging relationship(2) - 2 (9) (3)
Cross currency swaps
Fair value hedges(1) - 88 - -
Forward currency contracts
Net investment hedges(3) 4 - - -
Not in a hedging relationship(2) 21 - (7) -
================================== ======== ============ ============= =============
Total 25 211 (16) (3)
================================== ======== ============ ============= =============
Six months ended 31 March 2019
====================================================
Current Non-current Current Non-current
DERIVATIVE FINANCIAL INSTRUMENTS assets assets liabilities liabilities
================================== ======== ============ ============= =============
Interest rate swaps
Fair value hedges(1) - 51 - -
Not in a hedging relationship(2) 2 1 - (7)
Cross currency swaps
Fair value hedges(1) - 56 - (5)
Forward currency contracts
Net investment hedges(3) - - (2) -
Not in a hedging relationship(2) - - (4) -
================================== ======== ============ ============= =============
Total 2 108 (6) (12)
================================== ======== ============ ============= =============
(1) Derivatives that are designated and effective as hedging
instruments carried at fair value (IFRS 9).
(2) Derivatives carried at 'fair value through profit or loss'
(IFRS 9).
(3) Derivatives that are designated and effective in net
investment hedges carried at fair value (IFRS 9).
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31
MARCH
2020
10 FINANCIAL INSTRUMENTS (CONTINUED)
Year ended 30 September 2019
DERIVATIVE FINANCIAL Current Non-current Current Non-current
INSTRUMENTS assets assets liabilities liabilities
============================= =================================== ============ ============= =============
Interest rate swaps
Fair value hedges(1) - 99 - -
Not in a hedging
relationship(2) - 1 (3) (6)
Cross currency swaps
Fair value hedges(1) - 107 - -
Forward currency contracts
Fair value hedges(1) - - (2) -
Not in a hedging - - (1) -
relationship(2)
============================= =================================== ============ ============= =============
Total - 207 (6) (6)
============================= =================================== ============ ============= =============
(1) Derivatives that are designated and effective as hedging
instruments carried at fair value (IFRS 9).
(2) Derivatives carried at 'fair value through profit or loss'
(IFRS 9).
11 ACQUISITIONS AND SALE AND CLOSURE OF BUSINESSES
ACQUISITIONS
The total cash spent on acquisitions in the first half, net of cash
acquired, was GBP431 million (2019: GBP346 million). The most significant
acquisition during the period relates to Fazer Food Services.
On 31 January 2020, the Group acquired 100% of the share capital of
Fazer Food Services for an initial consideration of GBP364 million (EUR415
million) net of cash acquired. The remaining contingent consideration
is payable within seven years and dependent on the operation of an earn-out.
The net present value of the contingent consideration payable was GBP56
million (EUR66 million) at the date of acquisition. Fazer Food Services
is a leading food service business in the Nordic region with operations
in Finland, Sweden, Norway and Denmark, across several sectors including
Business & Industry, Education, Healthcare & Seniors and Defence. The
main assets acquired include client contract related intangible assets
of GBP250 million and brand names of GBP22 million. The preliminary
goodwill in relation to the assets acquired is GBP196 million. This
goodwill represents the premium the Group paid to acquire a company
that complements its existing businesses and creates significant opportunities
and other synergies.
This goodwill is provisional and will be finalised within 12 months
of the acquisition date. Changes are expected to principally relate
to the valuation of intangible assets and the final adjustments to the
purchase price, which are based on completion accounts to be finalised
in the second half of the financial year.
Fazer Food Services contributed to the Group's results for the six months
ended 31 March 2020 revenue of GBP77 million and operating loss of GBP1
million, mainly due to the negative impact of COVID-19. If the acquisition
had occurred on 1 October 2019, it is estimated that the combined sales
of Group and equity accounted joint ventures for the six months ended
31 March 2020 would have been GBP12,768 million and total Group operating
profit (including associates) would have been GBP868 million.
SALE AND CLOSURE OF BUSINESSES
As a result of the strategic review of the business, the Group has continued
to sell or exit its operations in a number of countries, sectors or
businesses in order to simplify its portfolio.
During the period ended 31 March 2020, the Group has successfully completed
the disposal of several businesses which were held for sale at 30 September
2019, including 50% of its Japanese Highways business. The Group's condensed
consolidated income statement includes a GBP113 million net gain on
sale and closure of businesses (six months to 31 March 2019: GBP25 million),
offset by GBP33 million of asset write downs and exit costs relating
to committed or completed business exits (six months to 31 March 2019:
GBP13 million).
As at 31 March 2020, the Group has assets and liabilities classified
as held for sale in relation to certain businesses, including the remaining
US laundries and some businesses in our Rest of the World region, as
these disposals are highly probable and expected to be completed within
12 months. The Group's condensed consolidated balance sheet includes
assets of GBP127 million (31 March 2019: GBP177 million) and liabilities
of GBP40 million (31 March 2019: GBP17 million) in respect of these
businesses.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
12 STATUTORY AND UNDERLYING RESULTS
Six months to 31 March 2020
================================================
Adjustments
===================================
2020 2020
Statutory Underlying
Notes GBPm 1 2 3 4 5 6 GBPm
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Operating profit 3 759 41 - 38 16 - - 854
Net gain on sale and closure
of businesses 80 - - - - (80) - -
Net finance cost (68) - - - - - 3 (65)
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Finance income 2 - - - - - - 2
Finance costs (67) - - - - - - (67)
Other financing items (3) - - - - - 3 -
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Profit before tax 771 41 - 38 16 (80) 3 789
Income tax expense (201) (8) - (10) - 31 (1) (189)
Tax rate 26.1% 24.0%
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Profit for the period 570 33 - 28 16 (49) 2 600
Non-controlling interests (3) - - - - - - (3)
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Profit attributable to equity
shareholders of the Company 567 33 - 28 16 (49) 2 597
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Average number of shares 1,588 1,588
BASIC EARNINGS PER SHARE
(PENCE) 6 35.7 2.1 - 1.8 1.0 (3.1) 0.1 37.6
=============================== ======== =========== ==== ===== ==== ====== ==== ============
Six months to 31 March 2019
Adjustments
2019 2019
Statutory Underlying
Notes GBPm 1 2 3 4 5 6 GBPm
=============================== ======== =========== ==== ==== ====== ==== ============
Operating profit 3 913 26 12 - - - - 951
Net gain on sale and closure
of businesses 12 - - - - (12) - -
Net finance cost (73) - - - - - 18 (55)
=============================== ======== =========== ==== ==== ====== ==== ============
Finance income 3 - - - - - - 3
Finance costs (58) - - - - - - (58)
Other financing items (18) - - - - - 18 -
=============================== ======== =========== ==== ==== ====== ==== ============
Profit before tax 852 26 12 - - (12) 18 896
Income tax expense (201) (7) (2) - - 2 (2) (210)
Tax rate 23.6% 23.5%
=============================== ======== =========== ==== ==== ====== ==== ============
Profit for the period 651 19 10 - - (10) 16 686
Non-controlling interests (5) - - - - - - (5)
=============================== ======== =========== ==== ==== ====== ==== ============
Profit attributable to equity
shareholders of the Company 646 19 10 - - (10) 16 681
=============================== ======== =========== ==== ==== ====== ==== ============
Average number of shares 1,586 1,586
BASIC EARNINGS PER SHARE
(PENCE)(1) 6 40.7 1.2 0.6 - - (0.6) 1.0 42.9
=============================== ======== =========== ==== ==== ====== ==== ============
(1) Underlying constant currency earnings per share is based on
a Group constant currency profit attributable to equity
shareholders of the Company and includes negative constant currency
adjustment of GBP2 million.
The Executive Committee manages and assesses the performance of
the Group using various underlying and other alternative
performance measures. These measures are not recognised under
EU-adopted IFRS and may not be directly comparable with adjusted
measures used by other companies. Underlying and other alternative
performance measures are defined in the glossary of terms on pages
47 and 48. Underlying operating profit is considered to better
reflect ongoing trading, facilitate meaningful period on period
comparison and hence provides financial measures that, together
with the results prepared in accordance with adopted IFRS, provide
better analysis of the results of the Group. 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 group 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. Adjustments from statutory to underlying
results are explained further below.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
12 STATUTORY AND UNDERLYING RESULTS (CONTINUED)
1. Acquisition related costs
Represent charges in respect of intangible assets acquired
through business combinations, direct costs incurred as part of a
business combination or other strategic asset acquisitions and
changes in consideration in relation to past acquisition
activity
2. One-off pension charge
One-off pension charge in relation to GMP equalisation
3. Cost action programme charge
Charges related to actions taken to adjust our cost base, see
page 4 and 14 for additional details
4. Share of profit of joint ventures and associates held for sale
The Group's share of profit of joint ventures and associates
after these were classified as held for sale
5. (Loss)/gain on sale and closure of businesses
These represent profits and losses on the sale of subsidiaries,
joint ventures, associates and other financial assets. See note 11
for additional details
6. Other financing items including hedge accounting ineffectiveness
Represent financing items including hedge accounting
ineffectiveness and change in the fair value of investments.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
13 ORGANIC REVENUE AND ORGANIC PROFIT
Geographical segments
North Rest
America Europe of World Other Group
GBPm GBPm GBPm GBPm GBPm
==================================================== ========= ======== ========== ====== ========
SIX MONTHS TO 31 MARCH 2020 (as reported)
Combined sales of Group and share of equity
accounted joint ventures(1) 8,080 3,061 1,474 - 12,615
% growth/(decrease) reported rates 5.1% (2.2)% (10.5)% - 1.2%
% growth/(decrease) constant currency 3.9% (0.5)% (6.2)% - 1.6%
Organic adjustments - (105) (28) - (133)
Organic revenue 8,080 2,956 1,446 - 12,482
% growth organic 3.6% (4.3)% 3.1% - 1.6%
SIX MONTHS TO 31 MARCH 2019(2) (as reported)
Combined sales of Group and share of equity
accounted joint ventures 7,691 3,130 1,647 - 12,468
Currency adjustments 82 (53) (76) - (47)
Constant currency underlying revenue 7,773 3,077 1,571 - 12,421
Organic adjustments 23 11 (169) - (135)
Organic revenue 7,796 3,088 1,402 - 12,286
SIX MONTHS TO 31 MARCH 2020(3) (as reported)
Regional underlying operating profit(1) 654 148 91 (42) 851
Share of profit of associates(1) - 3 - - 3
Group underlying operating profit(1) 654 151 91 (42) 854
Underlying operating margin (excluding associates) 8.1% 4.8% 6.2% - 6.7%
% decrease reported rates (1.5)% (27.8)% (15.7)% - (10.2)%
% decrease constant currency (2.5)% (26.4)% (11.7)% - (10.0)%
Organic adjustments - (1) (2) - (3)
Regional underlying organic operating profit
(excluding associates) 654 147 89 (42) 848
Group underlying organic operating profit
(including associates)(1) 654 150 89 (42) 851
% growth organic (3.7)% (28.6%) - - (10.2)%
SIX MONTHS TO 31 MARCH 2020(3) (IAS 17 proforma)
Regional underlying operating profit(1) 645 145 87 (42) 835
Share of profit of associates(1) - 3 - - 3
Group underlying operating profit(1) 645 148 87 (42) 838
Underlying operating margin (excluding associates) 8.0% 4.7% 5.9% - 6.6%
% decrease reported rates (2.9)% (29.3%) (19.4%) - (11.9)%
% decrease constant currency (3.9)% (27.9%) (15.5)% - (11.7)%
Organic adjustments - (1) (2) - (3)
Regional underlying organic operating profit
(excluding associates) 645 144 85 (42) 832
Group underlying organic operating profit
(including associates)(1) 645 147 85 (42) 835
% growth organic (5.0)% (30.1%) (4.5)% - (11.9)%
SIX MONTHS TO 31 MARCH 2019(2) (as reported)
Regional underlying operating profit 664 205 108 (38) 939
Share of profit of associates 6 6 - - 12
Group underlying operating profit 670 211 108 (38) 951
Underlying operating margin (excluding associates) 8.6% 6.5% 6.6% - 7.5%
Currency adjustments - profit 7 (4) (5) - (2)
Currency adjustments - associates - - - - -
Regional constant currency underlying operating
profit (excluding associates) 671 201 103 (38) 937
Group constant currency underlying operating
profit (including associates) 677 207 103 (38) 949
Organic adjustments 8 5 (14) - (1)
Regional underlying organic operating profit
(excluding associates) 679 206 89 (38) 936
Share of profit from associates - constant
currency 6 6 - - 12
Group underlying organic operating profit
(including associates) 685 212 89 (38) 948
(1) Underlying revenue and underlying operating profit include
share of profit of joint ventures and associates classified as held
for sale.
(2) Prior period comparatives have reclassified Turkey from Rest
of World region into Europe region.
(3) Underlying operating results and growth rates reported under
IFRS 16 'Leases' from 1 October 2019. The Group has adopted IFRS 16
using the modified retrospective approach to transition and has
accordingly not restated prior periods, therefore the results for
the six months ended 31 March 2020 prepared on an IFRS 16 basis are
not directly comparable with those reported in the prior period
under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the six months ended 31 March 2020 have therefore also
been presented under IAS 17. Additional information about the
impact of IFRS 16 included in note 2.
Compass Group PLC
Condensed Consolidated Financial Statements (continued)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 31 MARCH 2020
14 POST BALANCE SHEET EVENTS
The COVID-19 pandemic outbreak has continued to impact the operations
of the Group after 31 March 2020. The containment measures adopted by
governments and clients in Continental Europe and North America, resulted
in the closure of the vast majority of our Sports & Leisure and Education
business in these regions, with our Business & Industry volumes being
severely impacted.
On 3 April 2020, Compass Group PLC signed an additional GBP800 million
committed Revolving Credit Facility. This facility has no financial
covenants and matures in October 2021.
The Group has obtained waivers of the leverage covenant test in our
USPP agreements for the 30 September 2020 and 31 March 2021 test dates.
The interest cover covenant test has also been waived for September
2020 and reset at more than or equal to 3x on a 6 months proforma basis
for March 2021.
Today we have announced a non-pre-emptive equity placing of new ordinary
shares targeting gross proceeds of approximately GBP2.0 billion.
15 EXCHANGE RATES
Six months to
31 March
2020 2019
========= ======
AVERAGE EXCHANGE RATE FOR THE PERIOD(1)
Australian Dollar 1.93 1.81
Brazilian Real 5.56 4.96
Canadian Dollar 1.71 1.72
Chilean Peso 1,008.04 872.76
Euro 1.16 1.14
Japanese Yen 139.03 144.63
New Zealand Dollar 2.02 1.92
Norwegian Krone 11.99 11.00
Turkish Lira 7.67 7.10
UAE Dirham 4.71 4.76
US Dollar 1.28 1.30
CLOSING EXCHANGE RATE AS AT THE OF THE PERIOD(1)
Australian Dollar 2.03 1.83
Brazilian Real 6.43 5.07
Canadian Dollar 1.76 1.74
Chilean Peso 1,056.84 886.69
Euro 1.13 1.16
Japanese Yen 133.86 144.23
New Zealand Dollar 2.09 1.91
Norwegian Krone 13.02 11.22
Turkish Lira 8.17 7.36
UAE Dirham 4.55 4.79
US Dollar 1.24 1.30
(1) 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.
Glossary of terms
Capital employed Total equity shareholders' funds adjusted for net
debt, post employment benefit obligations net of
associated deferred tax, amortised intangibles arising
on acquisition, impaired goodwill and excluding
the Group's non-controlling partners' share of net
assets and net assets of discontinued operations.
Constant currency Restates the prior year results to the current year's
average exchange rates.
EM & OR restructuring Emerging Markets and Offshore & Remote restructuring.
Free cash flow(1) Calculated by adjusting operating profit for non-cash
items in profit, cash movements in provisions, contract
prepayments and costs to obtain client contracts,
post employment benefit obligations and working
capital, cash purchases and proceeds from disposal
of non-current assets, net cash interest, net cash
tax, payment of lease principal amounts, dividends
received from joint ventures and associated undertakings
and dividends paid to non-controlling interests.
Free cash flow conversion Underlying free cash flow expressed as a percentage
of underlying operating profit.
Gross capital expenditure Includes the purchase of intangible assets, contract
fulfilment assets, property, plant and equipment
and investment in contract prepayments. Assets purchased
under finance leases were included in gross capital
expenditure until 2019.
Like for like revenue Calculated by adjusting organic revenue growth for
growth new business wins and lost business.
Net capital expenditure Gross capital expenditure less proceeds from sale
of property, plant and equipment, intangible assets
and cash proceeds from derecognition of contract
fulfilment assets and contract prepayments.
Net debt(1) Bank overdrafts, bank and other borrowings, lease
liabilities and derivative financial instruments,
net of cash and cash equivalents.
Net debt to EBITDA Net debt divided by underlying EBITDA.
NOPAT Net operating profit after tax (NOPAT) is calculated
as underlying operating profit from continuing operations
less operating profit of non-controlling interests
before tax, net of income tax at the underlying
rate of the year.
Organic profit growth Calculated by adjusting underlying operating profit
for acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate movements
(translating the prior period at current year exchange
rates) and compares the current year results against
the prior year. In addition, where applicable, a
53rd week has been excluded from the prior year's
underlying operating profit.
Organic profit Calculated by adjusting underlying operating profit
for acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate movements
(translating the prior period at current year exchange
rates).
Organic revenue Calculated by adjusting underlying revenue for acquisitions
(excluding current year acquisitions and including
a full period in respect of prior year acquisitions),
sale and closure of businesses (excluded from both
periods) and exchange rate movements (translating
the prior period at current year exchange rates).
Organic revenue growth Calculated by adjusting underlying revenue for acquisitions
(excluding current year acquisitions and including
a full period in respect of prior year acquisitions),
sale and closure of businesses (excluded from both
periods) and exchange rate movements (translating
the prior period at current year exchange rates)
and compares the current year results against the
prior year. In addition, where applicable, a 53rd
week has been excluded from the prior year's underlying
revenue.
ROCE Return on capital employed (ROCE) divides NOPAT
by the 12 month average capital employed.
Specific adjusting o acquisition related costs;
items o one-off pension charge;
o cost action programme charge;
o share of profit of joint ventures and associates
held for sale;
o tax on share of profit of joint ventures;
o gain/(loss) on sale and closure of businesses;
o change in the fair value of investments;
o other financing items including hedge accounting
ineffectiveness.
Underlying basic earnings Excludes/includes specific adjusting items and the
per share tax attributable to those items.
Underlying cash tax Based on underlying cash tax and underlying profit
rate before tax.
Underlying depreciation Excludes specific adjusting items.
and amortisation
Underlying EBITDA Based on underlying operating profit, adding back
underlying depreciation and amortisation of intangible
assets and contract prepayments.
Underlying effective Based on underlying tax charge and underlying profit
tax rate before tax.
Underlying free cash Free cash flow adjusted for costs in the year relating
flow to the 2019 cost action programme.
Glossary of terms (continued)
Underlying net finance Excludes specific adjusting items.
cost
Underlying operating Based on underlying revenue and underlying operating
margin - Group profit excluding share of profit after tax of associates.
Underlying operating Based on underlying revenue and underlying operating
margin - Region profit excluding share of profit after tax of associates
and EM & OR restructuring.
Underlying operating Includes share of profit after tax of associates
profit - Group and profit before tax of joint ventures, including
those classified as held for sale, but excludes
the specific adjusting items.
Underlying operating Includes share of profit before tax of joint ventures,
profit - Region including those classified as held for sale, but
excludes the specific adjusting items, profit after
tax of associates and EM & OR restructuring.
Underlying profit before Excludes /includes specific adjusting items.
tax
Underlying revenue The combined sales of Group and share of joint ventures.
Underlying tax charge Excludes tax attributable to specific adjusting
items.
(1) Following the adoption of IFRS 16 on a modified
retrospective basis on 1 October 2019 the definitions of these
alternative performance measures have been updated. Additional
information about the impact of IFRS 16 is included in note 2.
Important Notices
This announcement includes inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014 and is being
released on behalf of Compass Group PLC by Alison Yapp, Group
General Counsel and Company Secretary.
The materials do not constitute or form a part of any offer or
solicitation to purchase or subscribe for securities in the United
States, Australia, Canada, Japan or South Africa or in any
jurisdiction in which such offers or sales are unlawful (the
"Restricted Jurisdictions"). Any securities issued in connection
with an offering have not been and will not be registered under the
U.S. Securities Act of 1933, as amended, or under any applicable
securities laws of any state, province, territory, county or
jurisdiction of the United States. Accordingly, unless an exemption
under relevant securities laws is applicable, any such securities
may not be offered, sold, resold, transferred, delivered or
distributed, directly or indirectly, in or into the Restricted
Jurisdictions if to do so would constitute a violation of the
relevant laws of, or require registration of such securities in,
the relevant jurisdiction. There will be no public offer of
Securities in the United States.
Certain statements contained in this Announcement constitute
"forward-looking statements" with respect to the financial
condition, performance, strategic initiatives, objectives, results
of operations and business of the Company. All statements other
than statements of historical facts included in this Announcement
are, or may be deemed to be, forward-looking statements. Without
limitation, any statements preceded or followed by or that include
the words "targets", "plans", "believes", "expects", "aims",
"intends", "anticipates", "estimates", "projects", "will", "may",
"would", "could" or "should", or words or terms of similar
substance or the negative thereof, are forward-looking statements.
Forward-looking statements include statements relating to the
following: (i) future capital expenditures, expenses, revenues,
earnings, synergies, economic performance, indebtedness, financial
condition, dividend policy, losses and future prospects; and (ii)
business and management strategies and the expansion and growth of
the Company's operations. Such forward-looking statements involve
risks and uncertainties that could significantly affect expected
results and are based on certain key assumptions. Many factors
could cause actual results, performance or achievements to differ
materially from those projected or implied in any forward-looking
statements. The important factors that could cause the Company's
actual results, performance or achievements to differ materially
from those in the forward-looking statements include, among others,
the macroeconomic and other impacts of COVID-19, economic and
business cycles, the terms and conditions of the Company's
financing arrangements, foreign currency rate fluctuations,
competition in the Company's principal markets, acquisitions or
disposals of businesses or assets and trends in the Company's
principal industries. Due to such uncertainties and risks, readers
are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date hereof. In light of
these risks, uncertainties and assumptions, the events described in
the forward-looking statements in this Announcement may not occur.
The forward-looking statements contained in this Announcement speak
only as of the date of this Announcement. The Company and its
directors expressly disclaim any obligation or undertaking to
update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise, unless
required to do so by applicable law or regulation, the Listing
Rules, the Market Abuse Regulation, the Disclosure Guidance and
Transparency Rules, the rules of the London Stock Exchange or the
FCA.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GZGMKZRKGGZZ
(END) Dow Jones Newswires
May 19, 2020 02:00 ET (06:00 GMT)
Compass (LSE:CPG)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Compass (LSE:CPG)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
