Compass Group on Monday 21 November forecast a 2023 margin below analysts' estimates as inflation bites, after the world's largest catering group reported financial results that beat market expectations.
Details
Shares in the British firm were down 2% in early trade on Monday 21 November after the weaker-than-expected margin forecast despite Compass more than doubling its dividend and expanding its share buyback programme.
"We can restore the pre-pandemic margin, but the pace of that will really depend on the level of new business wins... and also when we see inflation start to come off a little," CEO Dominic Blakemore said in an interview with Reuters.
Compass has been grappling with higher costs of food and labour, and has been tackling soaring inflation by changing ingredients such switching from sunflower oil to rapeseed oil in the UK and reducing the number of options its menu offers.
The economic environment also means more companies are outsourcing their canteen needs, helping Compass gain new business and retain clients at a record rate.
Compass, which serves office workers, university students, patients and seniors in old age homes across 40 countries, said new business wins increased to £2.5 billion, and first-time outsourcers accounted for about 45% of that, while the rest moved from competitors or smaller players.
Blakemore said conversations with clients include ways to reduce costs by cutting menu options, reducing portion sizes and limiting food waste, apart from price increases.
Compass forecast underlying operating margins of above 6.5% in 2023, compared with analysts average estimate of 6.9%.
"Compass needs to take a pragmatic view to this, because if it raises its prices too high then some of the benefits its customers enjoy start to evaporate," said Hargreaves analyst Derren Nathan.
Compass said it expected underlying operating profit growth on a constant-currency basis of more than 20% this year, surpassing pre-pandemic levels.
Revenue and volumes have already topped 2019 levels at the company, which operates food service brands such as Levy, Chartwell, and Flik.
Compass more than doubled its dividend to 31.5 pence for the year ended 30 September and announced a share buyback of £250 million.
It reported adjusted operating profit up nearly 88% to £1.59 billion, beating the £1.54 billion company-compiled analysts' estimate.
Underlying revenue rose about 38% to £25.8 billion, surpassing pre-pandemic levels and beating an analysts forecast of 25.1 billion.
Compass Offers Pay Advance, Grants For UK Staff In Dire Straits
Inflation in Britain has soared to a 41-year-high, driven by the rising cost of everything from food to energy, leaving poorer households in a precarious position and prompting some employers to offer extra help to retain staff.
Compass, which employs 50,000 people in Britain and Ireland, said the advance option gives monthly salaried employees the ability to withdraw up to 50% of their earned pay before payday.
The world's largest catering group said it was too early to give numbers on the advance pay scheme, which was officially launched last Wednesday (16 November).
Those employees can make up to three withdrawals per pay cycle in addition to their normal pay, it added.
For staff in financial hardship, Compass said it has also formally launched a 'Helping Hands' fund at the start of this month and provides debt consolidation at a lower cost of interest than they would face on the market.
There have been 63 applicants to the new fund over the past month, it said, without giving details on its size.
Tesco TSCO.L, one of Britain's largest private-sector employers, is also offering its staff advances on their pay.
Cleaning and property management company Mitie has also offered some staff a "winter support package", which includes an option to borrow against future pay.
In the United States, Compass said its 'same day pay' initiative, which is more established, is used by around 15,000 employees.
CEO Dominic Blakemore said that fair pay is Compass' main focus, with 60% of its British workforce on the real living wage.
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