Full year results announcement for the year ended 30 September 2016

 

 

Compass reports another strong set of results.  Organic revenue growth of 5% was converted into profit and cash which was reinvested in the business or returned to shareholders. 

 

 

	Underlying1 results			Statutory results
	2016	2015	Change	2016	2015	Change
Revenue	£19.9 billion	£18.7 billion2	+5.0%3	£19.6 billion	£17.6 billion	+11.5%
Operating profit	£1,445 million	£1,368 million2	+5.6%2	£1,409 million	£1,261 million	+11.7%
Operating margin	7.2%	7.2%	-	7.1%	7.1%	-
Earnings per share	61.1 pence	56.7 pence2	+7.8%2	60.4 pence	52.3 pence	+15.5%
Free cash flow	£908 million	£722 million	+25.8%	£899 million	£686 million	+31.0%
Full year dividend per share	31.7 pence	29.4 pence	+7.8%	31.7 pence	29.4 pence	+7.8%

 

¹ Underlying measures are defined in the glossary of terms on page 44 and explained on page 3.

² Measured on a constant currency basis.

³ Organic revenue growth.

 

Strong organic revenue growth of 5%

·      Another excellent year in North America with growth of 8.1%

·      Continued progress in Europe, with organic revenue up 2.8%

·      Rest of World grew 3.6%, excluding Offshore & Remote

 

Underlying operating margin flat

·      Our Management and Performance (MAP) programme continues to drive operating efficiencies

·      Investment to support growth and the creation of nine sub-regional business units in Europe

·      Restructuring plan announced in July 2015, is now complete and delivering the expected savings

 

Growth, execution and returns to shareholders: a proven and sustainable model

·      Underlying free cash flow of £908 million, up 26%

·      Proposed full year dividend up 7.8%, in line with constant currency EPS growth

 

Statutory results

·     On a statutory basis, revenue, operating profit and earnings per share benefitted by around 6% from the translational effect of weaker sterling

 

 

Chief Executive's Statement 

 

 

Richard Cousins, Group Chief Executive, said:

 

"Compass has had another strong year. Performance in North America continues to be excellent, and we are pleased with our progress in Europe. In the Rest of World, the performance is mixed, with the impact of the cyclical downturn in our commodity related business offsetting reasonable progress elsewhere.

 

Our expectations for 2017 are positive, with growth weighted to the second half of the year. The pipeline of new contracts is good and our focus on organic growth, efficiencies and cash gives us confidence in another year of delivery.

 

In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, and continued returns."

 

Results presentation today

 

The results presentation for investors and analysts is being held today at 9.30 a.m. at Bank of America Merrill Lynch, 2 King Edward Street, London EC1A 1HQ. A live webcast of the results presentation will be broadcast today at 9.30 a.m., accessible via the Company's website, www.compass-group.com. At the end of the presentation you will be able to participate in a question and answer session by dialling:

 

UK Toll Number:                                                            +44 (0) 203 139 4830

UK Toll-Free Number:                                                     +44 (0) 808 237 0030

 

US Toll Number:                                                            +1 718 873 9077

US Toll-Free Number:                                                     +1 866 928 7517

 

Participant PIN Code:                                                     17775331#

 

Financial calendar

 

Ex-dividend date for 2016 final dividend                           19 January 2017                       

Record date for 2016 final dividend                                  20 January 2017                       

Annual General Meeting/Q1 Trading Update                     2 February 2017

2016 final dividend payment                                            20 February 2017                      

 

Enquiries

 

Analysts/Investors          Sandra Moura/Agatha Donnelly   +44 1932 573 000

Press                            Clare Hunt                                 +44 1932 573 116

 

Website                        www.compass-group.com

 

 

 

 

Chief Executive's Statement (continued)

 

Basis of preparation

 

Throughout the Annual Results Announcement, and consistent with prior years, underlying measures are used to describe the Group's performance. These are not recognised under IFRS or other generally accepted accounting practice principles (GAAP).

 

The Executive Board of the Group manage and assess the performance of the business on these measures and believe they are more representative of ongoing trading, facilitate meaningful year on year comparisons and hence provide more useful information to shareholders. All underlying measures are defined in the glossary of terms on page 44.

 

A summary of the adjustments from statutory results to underlying results is shown on page 10 and further detailed in the consolidated income statement (page 17), reconciliation of free cash flow (page 23), and note 1 segmental reporting (pages 24 to 25).

 

Group overview

 

Revenue for the Group increased by 5.0% on an organic basis. New business wins were 8.8% driven by strong MAP 1 (client sales and marketing) performance in most countries.  Our retention rate was 94.1% as a result of our ongoing focus and investment.  We aim to increase participation and spend through MAP 2 (consumer sales and marketing) initiatives.  Like for like revenue growth of 2.1% reflected sensible price increases and modest volume improvement in North America offset by negative volumes in Rest of World.

 

The restructuring programme announced in July 2015 to reduce the cost base in our Offshore & Remote business and in some emerging markets is now complete and delivering the expected savings.  Restructuring costs totalled £51 million (£25 million and £26 million charged in 2016 and 2015 respectively). These costs have been included in underlying Group operating profit.

 

Underlying operating profit increased by 5.6% on a constant currency basis. The underlying operating margin was flat, as we continue to drive efficiencies across the business using our Management and Performance (MAP) framework.  We have maintained our focus on MAP 3 (cost of food) with initiatives such as menu planning and supplier rationalisation, as well as continually optimising MAP 4 (labour and in unit costs) and MAP 5 (above unit overheads).  These efficiencies enabled us to invest to support the exciting growth opportunities we see around the world.

 

Returns to shareholders continue to be an integral part of our business model.  The Group returned £596 million to shareholders in the year, £496 million by way of dividends and £100 million in share buybacks. Our leverage policy is to maintain strong investment grade credit ratings, returning any surplus cash to shareholders to target net debt to underlying EBITDA of around 1.5x.

 

 

 

 

 

Chief Executive's Statement (continued)

 

Regional performances

 

North America - 56% of underlying Group revenue (2015: 52%)

 

	Underlying		Change
Regional financial summary	2016	2015	Reported rates	Constant currency	Organic
Revenue	£11,198m	£9,361m	19.6%	10.5%	8.1%
Operating profit	£908m	£760m	19.5%	10.3%	9.1%
Operating margin	8.1%	8.1%	-

 

Our business in North America has had another strong year, with organic revenue growth of 8.1%, driven by new business wins and high retention rates. We have seen good like for like revenue improvement across the region as we drive MAP 2 participation, with the exception of the Offshore & Remote sector where we are experiencing ongoing volume pressure.

 

In the Business & Industry sector, our sub-sectorisation provides high end/premium offers (for example Bon Appetit and Restaurant Associates), value offers (for example Canteen's vending business), and our core Eurest business. We have seen good levels of new business and positive like for like volumes in some of the sub-sectors. New contract wins include Coach, Inc and Oracle as well as adding new locations and services at LinkedIn.

 

Excellent organic revenue growth in the Healthcare & Seniors business was delivered through new contract wins where we are benefitting from accelerating rates of outsourcing and consolidation in the sector. Examples include Mountain States Health Alliance, where we have added additional business, Maricopa Integrated Health System and the McLaren Health Care Corporation.

 

The Education sector has seen increased levels of participation along with new business wins, including Furman University, Babson College and the DeSoto Independent Schools District.

 

We have delivered double digit organic revenue growth in our Sports & Leisure business with excellent retention and strong like for like revenues coming from additional playoff matches and increased spend per head. New business wins include the University of Notre Dame and Greater Columbus Convention Center and we have expanded our service offering at the Target Center.

 

Low commodity prices continue to impact our Offshore & Remote business. Organic revenue declines of 16% result from business closures and lower volumes on site. However, we continue to win new business, including contracts with CH2M Hill and ExxonMobil.

 

Underlying operating profit of £908 million increased by 10.3% (£85 million) on a constant currency basis.  We incurred high levels of mobilisation costs with the top line growth, above average labour inflation and the dilutive impact of the first year of the CulinArt acquisition. These headwinds were offset by overhead leverage and ongoing efficiency initiatives across MAPs 3 and 4, resulting in a flat underlying operating margin.

 

  

 

Chief Executive's Statement (continued)

 

 

Europe - 28% of underlying Group revenue (2015: 29%)          

 

	Underlying		Change
Regional financial summary	2016	2015	Reported rates	Constant currency	Organic
Revenue	£5,458m	£5,192m	5.1%	2.7%	2.8%
Operating profit	£394m	£374m	5.3%	2.6%	2.6%
Operating margin	7.2%	7.2%	-

 

Europe grew organic revenue by 2.8%, the highest growth rate we have seen since 2008. This was driven by good levels of new business wins. Like for like revenue was slightly positive due to some pricing and flat volumes.  Our fourth quarter growth rate was impacted by the closure of some contracts and strong Sports & Leisure comparatives in the UK.

 

New business wins were strong in the UK, Nordics, BeNeLux, Iberia and Turkey. Some examples of wins include the Politieacademie in the Netherlands, AXA in Spain, Darussafaka in Turkey and the Aeroports de Paris and Macif in France. Contract extensions include Arcelor Mittal in Germany and BT and HSBC in the UK.

 

Like for like volumes were impacted by the timing of a number of sports events in the UK in the fourth quarter of 2015 and by weakness in the oil and gas business, where we have seen revenue declines of 25% in the year, and France which is still challenging.

 

Underlying operating profit grew by 2.6% (£10 million) on a constant currency basis, delivering a flat underlying operating margin at 7.2%.  Our ongoing focus on pricing and operational efficiencies allowed us to reinvest in the business to support the higher levels of growth, absorb the impact of lower like for like volumes in the oil and gas business, offset minimum wage pressures across the region and cover the cost of creating nine sub-regional business units.  This new structure will allow us to maximise our scale in procurement, leverage our overheads and speed up the sharing and implementation of best practices. 

 

 

 

Chief Executive's Statement (continued)

 

 

Rest of World - 16% of underlying Group revenue (2015: 19%)

 

	Underlying			Change
Regional financial summary		2016	2015	Reported rates	Constant currency	Organic
Revenue	£3,215m		£3,290m	(2.3)%	(1.9)%	(1.2)%
Operating profit	£218m		£241m	(9.5)%	(8.8)%	(7.9)%
Operating margin	6.8%		7.3%	(50)bps

 

In the Rest of World region, organic revenue declined by 1.2%.  Excluding the Offshore & Remote business, organic revenue grew by 3.6% while in the Offshore & Remote business, organic revenue declined by 10%.

 

In the non-Offshore & Remote business, good new business wins in Brazil, which include Centre Norte, Carrefour and Hospital Novo Metropolitano, have been offset by further negative like for like volumes as a result of a challenging macroeconomic environment. Across the rest of Latin America, we continue to see strong organic growth driven by contract wins including Hospital Britanico in Argentina, Jabil Chihuahua and Banco Santander in Mexico and San Vicente de Paul in Colombia.

 

We delivered modest growth in Japan with new contract wins including Yame City Health Promotion Facility and the Canon Headquarters. India and China continue to perform well with growth driven by contract wins such as TCS Mumbai and Flipkart in India, plus Ant Financial and Yew Wah International School in China.

 

Across the Middle East, we saw good levels of new business including contracts with Abu Dhabi Water and Electricity Authority and Zakum Development Company in the UAE, Sidra Medical and Research Centre in Qatar and the Children's Cancer Hospital Foundation in Egypt.

 

In Australia we have won business across all sectors including Riverview College, a prestigious school in Sydney, Melbourne Museum's cafes and special event catering, and a number of Seniors' contracts including Aurrum and Baptist Care.

 

In the Offshore & Remote business, Australia saw organic revenue declines of 17%, as expected.   Many construction contracts moved into their production phases and there are ongoing pricing pressures, site closures and lower volumes. We expect the current revenue decline to accelerate through 2017. Our other Offshore & Remote businesses in Latin America, Africa and Asia are facing similar pressures.

 

Underlying operating margins excluding Australia were flat. The savings from the restructuring programme announced in 2015, along with pricing and ongoing efficiencies, offset the impact of weak volumes in Brazil and our Offshore & Remote business. However, pricing pressures and site closures have reduced the profitability of our Australian business by £26 million. Underlying operating profit therefore declined by 8.8% (£21 million) on a constant currency basis, with the underlying operating margin down 50 basis points to 6.8%, in line with expectations.

 

 

 

 

Chief Executive's Statement (continued)

 

Strategy

 

Focused on food

 

Food is our focus and our core competence.  The addressable food service market is estimated to be more than £200 billion.  With only around 50% of the market currently outsourced, there is a significant structural growth opportunity.  We believe the benefits of outsourcing become increasingly apparent as economic conditions and regulatory changes put pressure on organisations' budgets.  As one of the largest providers in all of our sectors, we are well placed to benefit from these trends.

 

Our approach to support and multi services is low risk and incremental, with strategies developed on a country by country basis.  This is a complex segment and there are significant differences in client buying behaviour across countries, sectors and sub-sectors. Our largest sector in this market is Defence, Offshore & Remote, where the model is almost universally multi service.  In addition, we have an excellent support services business in North America and other selected countries. 

 

Geographic spread

 

We have a truly international business, with operations in over 50 countries.  We manage the business in three geographic regions. 

 

North America (56% of underlying Group revenue) is the principal growth engine for the Group.  The outsourcing culture is vibrant and the addressable market is significant.  We have a market leading business, which delivers high levels of growth by combining a sectorised client facing approach with the cost advantage of our scale. 

 

The fundamentals of our businesses in Europe (28% of underlying Group revenue) are good and we see many opportunities to drive revenue growth and margin improvement. We have invested in MAP 1 sales and retention to return the region to growth. This year we have created nine new business units to leverage our scale in procurement, lower costs and speed up the sharing and implementation of best practices.

 

Rest of World (16% of underlying Group revenue) offers very good long term growth potential.  Our largest markets are Australia, Japan and Brazil, and we are growing in India and China.  Lower commodity prices and weak volumes have impacted our Offshore & Remote business. We have restructured our business to adapt to the changing market environment, and remain excited about the attractive long term growth prospects of the region.

 

Sectorised approach

 

We segment the market and create sectors and sub-sectors to develop customised solutions that meet the requirements of a wide and growing range of clients and consumers. Our portfolio of B2B brands enables us to differentiate these propositions and maximise our market coverage.

 

Scale

 

As we continue to grow, our increasing scale allows us to achieve our goal of being the lowest cost, most efficient provider of food and support services.  Scale is a benefit in terms of food procurement, labour management and back office costs.  It underpins our competitiveness and enables us to deliver sustainable growth over time.

 

Management and Performance (MAP) culture

 

We speak one common 'MAP' language.  All our employees use this simple framework to drive performance across the business.  It helps us focus on a common set of business drivers, whether it is winning new business in the right sector on the right terms (MAP 1), increasing our consumer participation and spend (MAP 2), reducing our food costs (MAP 3), or labour costs (MAP 4 and 5). 

 

  

 

Chief Executive's Statement (continued)

 

 

Uses of cash and balance sheet priorities

 

The Group's cash flow generation remains excellent and it will continue to be a key part of the business model. Our priorities for how we use our cash remain unchanged.  We will continue to: (i) invest in the business to support organic growth where we see opportunities with good returns; (ii) pursue M&A opportunities, our preference is for small to medium sized infill acquisitions, where we look for returns greater than our cost of capital by the end of year two; (iii) grow the dividend in line with constant currency earnings per share; and (iv) maintain strong investment grade credit ratings by returning any surplus cash to shareholders to target net debt to underlying EBITDA of around 1.5x. 

 

Non-executive Board changes

 

The Company announces changes to the composition of its Non-Executive Directors as part of its ongoing review of the Board membership which is designed to ensure that an appropriate number of independent Non-Executive Directors is maintained through orderly succession and without compromising the effectiveness of the Board and its committees.

 

Mrs Susan Murray's 9-year term of appointment came to an end on 11 October 2016.  Mrs Murray has agreed to remain on the Board until the conclusion of the Annual General Meeting of the Company which will be held on 2 February 2017, at which meeting she will not seek re-election and will retire.  Nelson Silva will succeed Mrs Murray as Chairman of the Corporate Responsibility Committee from 2 February 2017.

 

Summary and outlook

 

Compass has had another strong year. Performance in North America continues to be excellent, and we are pleased with our progress in Europe. In the Rest of World, the performance is mixed, with the impact of the cyclical downturn in our commodity related business offsetting reasonable progress elsewhere.

 

Our expectations for 2017 are positive, with growth weighted to the second half of the year. The pipeline of new contracts is good and our focus on organic growth, efficiencies and cash gives us confidence in another year of delivery.

 

In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, and continued returns.

 

 

 

 

Richard Cousins

Group Chief Executive

22 November 2016

           

 

 

 

 

Business Review

 

2016 has been another strong year with good organic revenue growth of 5.0%, underlying margin delivery of 7.2% and an increase in free cash flow of 26%.

 

Financial summary

		2016		2015		Increase
Revenue
Underlying at constant currency		£19,871m		£18,725m		6.1%
Underlying at reported rates		£19,871m		£17,843m		11.4%
Statutory		£19,605m		£17,590m		11.5%
Organic growth		5.0%		5.8%
Total operating profit
Underlying at constant currency		£1,445m		£1,368m		5.6%
Underlying at reported rates		£1,445m		£1,296m		11.5%
Statutory		£1,409m		£1,261m		11.7%
Operating margin
Underlying at reported rates		7.2%		7.2%		-
Statutory		7.1%		7.1%		-
Profit before tax
Underlying at constant currency		£1,344m		£1,260m		6.7%
Underlying at reported rates		£1,344m		£1,192m		12.8%
Statutory		£1,321m		£1,159m		14.0%
Basic earnings per share
Underlying at constant currency		61.1p		56.7p		7.8%
Underlying at reported rates		61.1p		53.7p		13.8%
Statutory		60.4p		52.3p		15.5%
Free cash flow
Underlying at reported rates		£908m		£722m		25.8%
Statutory		£899m		£686m		31.0%
Full year dividend per ordinary share		31.7p		29.4p		7.8%

 

 

 

 

Business Review (continued)

 

Segmental performance

		Underlying revenue			Underlying revenue growth
		2016 £m	20151 £m		Reported Rates	Constant Currency	Organic
North America		11,198	9,361		19.6%	10.5%	8.1%
Europe		5,458	5,192		5.1%	2.7%	2.8%
Rest of World		3,215	3,290		(2.3)%	(1.9)%	(1.2)%
Total		19,871	17,843		11.4%	6.1%	5.0%
		Underlying operating profit			Underlying operating margin
		2016	20151		2016	20151
		£m	£m		%	%
North America		908	760		8.1%	8.1%
Europe		394	374		7.2%	7.2%
Rest of World		218	241		6.8%	7.3%
Unallocated overheads		(65)	(66)
Total before associates and EM & OR restructuring		1,455	1,309		7.3%	7.3%
EM & OR restructuring		(25)	(26)
Total before associates		1,430	1,283		7.2%	7.2%
Associates		15	13
Total		1,445	1,296

 

^{1 Europe and Rest of World segments have been restated to reflect a change in the way these are managed.}

 

Statutory and underlying results

 

				2016			2015
				Statutory	Adjustments	Underlying	Statutory	Adjustments	Underlying	Constant Currency
				£m	£m	£m	£m	£m	£m	£m
Revenue				19,605	266	19,871	17,590	253	17,843	18,725
Operating profit				1,409	36	1,445	1,261	35	1,296	1,368
Other gains/(losses)				1	(1)	-	(1)	1	-	-
Net finance costs				(89)	(12)	(101)	(101)	(3)	(104)	(108)
Profit before tax				1,321	23	1,344	1,159	33	1,192	1,260
Tax				(319)	(11)	(330)	(282)	(10)	(292)	(309)
Profit after tax				1,002	12	1,014	877	23	900	951
Non-controlling interest				(10)	-	(10)	(8)	-	(8)	(8)
Attributable profit				992	12	1,004	869	23	892	943
Average number of shares (millions)				1,643	-	1,643	1,662	-	1,662	1,662
Basic earnings per share (pence)				60.4p	0.7p	61.1p	52.3p	1.4p	53.7p	56.7p
EBITDA				1,835	5	1,840	1,627	9	1,636	n/a
Gross capex				580	-	580	506	1	507	n/a
Free cash flow				899	9	908	686	36	722	n/a

^{Further details of the adjustments can be found in the Consolidated income statement and Consolidated cash flow statement.}

 

 

 

 

 

Business Review (continued)

 

Statutory results

 

Statutory revenue was £19,605 million (2015: £17,590 million), with growth of 11.5%. Statutory operating profit was £1,409 million (2015: £1,261 million), an increase of 11.7% over the prior year. Statutory profit before tax of £1,321 million (2015: £1,159 million) delivered basic earnings per share of 60.4 pence (2015: 52.3 pence), an increase of 15.5% over the prior year. The weakening of sterling against the majority of the Group's key currencies has given rise to approximately 6% positive impact in each of these measures.

 

Underlying revenue

 

Underlying revenue was £19,871 million (2015: £ 17,843 million), an increase of 11.4%. If we restate 2015's revenue at the 2016 average exchange rates for the year, it would increase by £882 million. On a constant currency basis, underlying revenue has therefore increased by £1,146 million, or 6.1%. Organic revenue growth for the year was 5.0%, comprising new business of 8.8%, a retention rate of 94.1% and like for like growth of 2.1%.

 

Underlying operating profit

 

Underlying operating profit was £1,445 million (2015: £1,296 million), an increase of 11.5%. If we restate 2015's profit at the 2016 average exchange rates for the year, it would increase by £72 million. On a constant currency basis, underlying operating profit has therefore increased by £77 million, or 5.6%.

 

Underlying finance costs

 

The underlying net finance cost was £101 million (2015: £104 million), with the decrease a result of lower pension interest costs given the increased surplus on the UK scheme. For 2017, we expect an underlying net finance cost of around £110 million, reflecting the weakness of sterling on foreign denominated debt. This equates to an effective interest rate of around 3% on gross debt.

 

Underlying income tax expense

 

On an underlying basis, the tax charge was £330 million (2015: £292 million), equivalent to an effective tax rate of 24.5% (2015: 24.5%).

In 2017 we expect to see upward pressure on the tax rate. This is a consequence of both the changing regulatory environment affecting all multinationals and the impact of exchange rates. Our current expectations are for the 2017 tax rate to be around 1% higher than 2016, but we note that we are likely to see a continuing period of significant uncertainty in the international corporate tax environment as we look forward.

 

Underlying basic earnings per share

 

On an underlying basis, the basic earnings per share grew by 13.8% to 61.1 pence (2015: 53.7 pence). If we restate 2015's basic earnings per share at the 2016's average rates for the year, it would be 56.7 pence. On a constant currency basis, basic earnings per share therefore increased by 7.8%.

 

Dividends

 

Our dividend policy is to grow the dividend in line with growth in underlying constant currency earnings per share. It is therefore proposed that a final dividend of 21.1 pence per share be paid on 20 February 2017 to shareholders on the register on 20 January 2017. This will result in a total dividend for the year of 31.7 pence per share (2015: 29.4 pence per share), a year on year increase of 7.8%. The dividend is covered 1.9 times on an underlying earnings basis and 1.8 times on a cash basis. We remain committed to growing the dividend in line with constant currency earnings.

 

 

 

 

Business Review (continued)

 

 

Underlying Free cash flow

 

Underlying free cash flow grew by 26% to £908 million (2015: £722 million), in part due to foreign exchange. Free cash flow conversion has increased to 63% (2015: 56%).

 

Underlying gross capital expenditure of £580 million (2015: £507 million) is equivalent to 2.9% of underlying revenues (2015: 2.8% of underlying revenues), and we expect that capex in 2017 will be at a similar percentage of underlying revenues. We continue to deliver strong returns on our capital expenditure across all regions.

 

Excluding pensions and provisions, trade working capital has decreased by £12 million (2015: £17 million increase). Some underlying improvements and some timing differences offset the negative impact of around £70 million from the timing of our payroll run in September in the USA and UK. We continue to focus on improving working capital and expect a small outflow in 2017.

 

The cash outflow of £39 million (2015: £59 million) on post-employment benefit obligations largely reflects payments agreed with trustees to reduce deficits on the defined benefit pension scheme in the UK. Following the completion of the tri-annual valuation of the Compass Group Pension Plan in the UK, which now has a funding surplus, we have agreed with the trustees that we will stop our deficit reduction payments. We therefore expect our cash outflow on post-employment benefit obligations to reduce to around £20 million in 2017.

 

The underlying cash tax rate for the year was 18% (2015: 20%) which is slightly lower than the expected level. This is largely a result of certain legislation changes during the year in North America. In 2017 we expect the cash tax rate to be in the range of 20 to 23%.

 

The net interest outflow for the year was £94 million (2015: £93 million).

 

Post-employment benefit obligations

 

The Group has continued to review and monitor its pension obligations throughout the year, working closely with the trustees and members of schemes around the Group to ensure proper and prudent assumptions are used and adequate provision and contributions are made.

 

The Group has a net pension deficit of £21 million at 30 September 2016, calculated in accordance with IAS 19, for all Group defined benefit schemes (2015: £9 million deficit). The total pensions charge for defined contribution schemes in the year was £100 million (2015: £84 million) and £17 million (2015: £21 million) for defined benefit schemes. Included in the defined benefit scheme costs was a £1 million charge to net finance cost (2015: £5 million), which has reduced due to the increase in the UK accounting surplus in 2015 compared to 2014.

 

Acquisition payments

 

The total cash spend on acquisitions in the year, net of cash acquired, was £180 million (2015: £89 million), comprising £148 million of infill acquisitions, £2 million of acquisition transaction costs and £30 million of deferred consideration relating to prior years' acquisitions.

 

Return on capital employed

 

Return on capital employed was 19.4% (2015: 19.1%) based on underlying operations, net of tax at the effective underlying rate of 24.5% (2014: 24.5%), and excluding the Group's non-controlling partners' share of total operating profit. The average capital employed was £5,565 million (2015: £5,093 million). On a constant currency basis, the increase in return on capital employed would have been 10 basis points, with the remainder a result of currency movements.

 

 

 

 

Business Review (continued)

 

 

Purchase of own shares

 

During the year, the Group purchased shares for a consideration of £100 million (2015: £328 million).

 

Related party transactions

 

We have not had, or expect to have, any transactions with related parties that have a material effect on the financial performance or position of the Group.

 

Financial position

 

The ratio of net debt to market capitalisation of £24,737 million as at 30 September 2016 was 12% (2015: 15%).

 

At the end of the year, net debt was £2,874 million (2015: £2,603 million). The ratio of net debt to underlying EBITDA was 1.6x, higher than usual due to movements in currency in the final quarter of the year. Our leverage policy is to maintain strong investment grade credit ratings, returning any surplus cash to shareholders to target net debt to underlying EBITDA of around 1.5x.

 

Shareholder return

 

The market price of the Group's ordinary shares at the close of the financial year was 1,495.00 pence per share (2015: 1,053.00 pence per share).

 

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.

 

The principal risks and uncertainties that face the business and the activities the Group undertakes to mitigate these are set out on pages 14 to 16.

 

Going concern

 

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review, as is the financial position of the Group, its cash flows, liquidity position, and borrowing facilities.

 

The Group has considerable financial resources together with longer term contracts with a number of clients and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully.

 

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 this Results Announcement. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

 

 

 

 

 

 

Johnny Thomson

Group Finance Director

22 November 2016

 

 

 

 

Focus on Risk        

 

Identifying and managing risk

 

The Board continues to take a proactive approach to recognising, assessing and mitigating risk with the aim of protecting its employees and consumers and safeguarding the interests of the Company and its shareholders in the constantly changing environment in which it operates.

 

As set out in the Corporate Governance section within the Annual Report, the Group has policies and procedures in place to ensure that risks are properly identified, evaluated and managed at the appropriate level within the business.

 

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.

 

The table below sets out the principal risks and uncertainties facing the business at the date of this Announcement. These have been subject to robust assessment and review. They do not comprise all of the risks that the Group may face and are not listed in any order of priority. Additional risks and uncertainties not presently known to management, or deemed to be less material at the date of this Report, may also have an adverse effect on the Group. These include risks resulting from the recent Brexit Referendum which could adversely affect the risks noted under the 'economic and political environment' noted in the table below as well as affecting financial risks such as liquidity and credit.

 

Although the risks related to the Brexit Referendum have been discussed by the Board, it is too early to properly understand the impact on the business. In accordance with the provisions of the UK Corporate Governance Code, the Board has taken into consideration the principal risks in the context of determining whether to adopt the going concern basis of accounting and when assessing the prospects of the Company for the purpose of preparing the Viability Statement. The Going Concern and Viability Statement can be found in the Strategic Report in the Annual Report.

 

The Group faces a number of operational risks on an ongoing basis such as litigation and financial (including liquidity and credit) risk and some wider risks, for example, environmental and reputational. Additionally, there are risks (such as those relating to the eurozone economy, pensions, and acquisitions and investments) which vary in importance depending on changing conditions. All risks disclosed in previous years can be found in the annual reports available on our website at www.compass-group.com. We recognise that these risks remain important to the business and they are kept under review. However, we have focused the disclosures on pages 14 to 16 on those risks that are currently considered to be more significant to the Group.

 

 

 

 

Compass Group PLC

Consolidated Financial Statements

 

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2016
				Total 2016	Total  2015
			Notes	£m	£m
Combined sales of Group and share of equity accounted joint ventures			1	19,871	17,843
Less: share of sales of equity accounted joint ventures			10	(266)	(253)
Revenue				19,605	17,590
Operating costs			2	(18,235)	(16,368)
Operating costs, excluding Emerging Markets and Offshore & Remote restructuring				(18,210)	(16,342)
Emerging Markets and Offshore & Remote restructuring				(25)	(26)
Operating profit before joint ventures and associates				1,370	1,222
Share of profit after tax of joint ventures and associates			1,10	39	39
Operating profit				1,409	1,261
Underlying operating profit1			1	1,445	1,296
Amortisation of intangibles arising on acquisition			8	(31)	(26)
Acquisition transaction costs			19	(2)	(2)
Adjustment to contingent consideration on acquisition				-	(5)
Share-based payments expense - non-controlling interest call option				(1)	-
Tax on share of profit of joint ventures				(2)	(2)
Profit/(loss) on disposal of US businesses				1	(1)
Finance income			3	4	3
Finance costs			3	(105)	(107)
Other financing items				12	3
Profit before tax				1,321	1,159
Income tax expense			4	(319)	(282)
Profit for the year				1,002	877
ATTRIBUTABLE TO
Equity shareholders of the Company				992	869
Non-controlling interests				10	8
Profit for the year				1,002	877
BASIC EARNINGS PER SHARE (PENCE)			5	60.4p	52.3p
DILUTED EARNINGS PER SHARE (PENCE)			5	60.3p	52.2p
								5
1 Underlying operating profit excludes amortisation of intangibles arising on acquisition, acquisition transaction costs, adjustment to contingent consideration on acquisition and share-based payments expense relating to non-controlling interest call options, but includes share of profit after tax of associates and operating profit of joint ventures.

 

  

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 SEPTEMBER 2016
		2016	2015
		£m	£m
Profit for the year		1,002	877
Other comprehensive income
Items that are not reclassified subsequently to profit or loss
Remeasurement of post-employment benefit obligations - loss		(500)	(37)
Return on plan assets, excluding interest income - gain		480	145
Tax on items relating to the components of other comprehensive income		6	(20)
		(14)	88
Items that may be reclassified subsequently to profit or loss
Currency translation differences		158	(92)
		158	(92)
Total other comprehensive income/(loss) for the year		144	(4)
Total comprehensive income for the year		1,146	873
ATTRIBUTABLE TO
Equity shareholders of the Company		1,136	865
Non-controlling interests		10	8
Total comprehensive income for the year		1,146	873

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2016
		Attributable to equity shareholders of the Company
		Share capital	Share premium account	Capital redemption reserve		Own shares	Other reserves		Retained earnings		Non-controlling interests		Total
		£m	£m	£m		£m	£m		£m		£m		£m
At 1 October 2015		176	182	295		(1)	4,189		(2,904)		13		1,950
Profit for the year		-	-	-		-	-		992		10		1,002
Other comprehensive income
Currency translation differences		-	-	-		-	158		-		-		158
Remeasurement of post-employment benefit obligations - loss		-	-	-		-	-		(500)		-		(500)
Return on plan assets, excluding interest income - gain		-	-	-		-	-		480		-		480
Tax on items relating to the components of other comprehensive income		-	-	-		-	(2)		8		-		6
Total other comprehensive income/(loss)		-	-	-		-	156		(12)		-		144
Total comprehensive income for the year		-	-	-		-	156		980		10		1,146
Employee share options		-	-	-		-	-		-		-		-
Fair value of share-based payments		-	-	-		1	16		1		-		18
Release of LTIP award settled by issue of shares		-	-	-		-	(2)		-		-		(2)
Tax on items taken directly to equity		-	-	-		-	-		9		-		9
Share buyback1		-	-	-		-	-		(100)		-		(100)
Issue of treasury shares to satisfy employee share scheme awards exercised		-	-	-		-	-		3		-		3
Other changes		-	-	-		-	-		-		1		1
		176	182	295		-	4,359		(2,011)		24		3,025
Dividends paid to Compass shareholders (note 6)		-	-	-		-	-		(496)		-		(496)
Dividends paid to non-controlling interests		-	-	-		-	-		-		(9)		(9)
At 30 September 2016		176	182	295		-	4,359		(2,507)		15		2,520
1 Including stamp duty and brokers' commission.
		Share-based payment			Merger	Revaluation		Translation		Adjustment for non-controlling interest put options		Total other
		reserve			reserve	reserve		reserve		reserve		reserves
OTHER RESERVES		£m			£m	£m		£m		£m		£m
At 1 October 2015		179			4,170	7		(161)		(6)		4,189
Other comprehensive income
Currency translation differences		-			-	-		158		-		158
Tax on items relating to the components of other comprehensive income (note 4)		-			-	-		(2)		-		(2)
Total other comprehensive income		-			-	-		156		-		156
Fair value of share-based payments		16			-	-		-		-		16
Release of LTIP award settled by issue of shares		(2)			-	-		-		-		(2)
At 30 September 2016		193			4,170	7		(5)		(6)		4,359

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Own shares held by the Group represent 16,198 ordinary shares in Compass Group PLC (2015: 27,799 ordinary shares). No shares (2015: 11,601) are held by the Compass Group Employee Share Trust (ESOP) and 16,198 (2015: 16,198) shares are held by the Compass Group Long Term Incentive Plan Trust (LTIPT). These shares are listed on a recognised stock exchange and their market value at 30 September 2016 was £0.2 million (2015: £0.3 million). The nominal value held at 30 September 2016 was £1,721 (2015: £2,954).   ESOP and LTIPT are discretionary trusts for the benefit of employees and the shares held are used to satisfy some of the Group's liabilities to employees for share options, share bonus and long term incentive plans. All of the shares held by the ESOP and LTIPT are required to be made available in this way.
Up to 31 March 2016, repurchased ordinary shares were transferred and held in treasury for the purpose of satisfying the Company's obligations under employee equity incentive schemes.  From 1 April 2016 onwards, all repurchased ordinary shares were cancelled rather than being placed in treasury.
The merger reserve arose in 2000 following the demerger from Granada Compass plc.

 

		Attributable to equity shareholders of the Company
		Share capital	Share premium account	Capital redemption reserve		Own shares	Other reserves		Retained earnings		Non-controlling interests	Total
		£m	£m	£m		£m	£m		£m		£m	£m
At 1 October 2014		178	174	293		(1)	4,277		(3,082)		9	1,848
Profit for the year		-	-	-		-	-		869		8	877
Other comprehensive income
Currency translation differences		-	-	-		-	(92)		-		-	(92)
Remeasurement of post-employment benefit obligations - loss		-	-	-		-	-		(37)		-	(37)
Return on plan assets, excluding interest income - gain		-	-	-		-	-		145		-	145
Tax on items relating to the components of other comprehensive income		-	-	-		-	(1)		(19)		-	(20)
Total other comprehensive (loss)/income		-	-	-		-	(93)		89		-	(4)
Total comprehensive (loss)/income for the year		-	-	-		-	(93)		958		8	873
Issue of shares (for cash)		-	2	-		-	-		-		-	2
Fair value of share-based payments		-	-	-		-	15		-		-	15
Tax on items taken directly to equity		-	-	-		-	-		2		-	2
Share buyback1		(2)	-	2		-	-		(328)		-	(328)
Issue of treasury shares to satisfy employee share scheme awards exercised		-	-	-		-	-		1		-	1
Release of LTIP award settled by issue of new shares		-	6	-		-	(6)		-		-	-
Other changes		-	-	-		-	(4)		2		2	-
		176	182	295		(1)	4,189		(2,447)		19	2,413
Dividends paid to Compass shareholders (note 6)		-	-	-		-	-		(457)		-	(457)
Dividends paid to non-controlling interests		-	-	-		-	-		-		(6)	(6)
At 30 September 2015		176	182	295		(1)	4,189		(2,904)		13	1,950
OTHER RESERVES			Share-based payment reserve		Merger reserve	Revaluation reserve		Translation reserve		Adjustment for non-controlling interest put options reserve		Total other reserves
			£m		£m	£m		£m		£m		£m
At 1 October 2014			170		4,170	7		(70)		-		4,277
Other comprehensive income
Currency translation differences			-		-	-		(92)		-		(92)
Tax on items relating to the components of other comprehensive income			-		-	-		(1)		-		(1)
Total other comprehensive loss			-		-	-		(93)		-		(93)
Fair value of share-based payments			15		-	-		-		-		15
Release of LTIP award settled by issue of new shares			(6)		-	-		-		-		(6)
Other changes			-		-	-		2		(6)		(4)
At 30 September 2015			179		4,170	7		(161)		(6)		4,189

Compass Group PLC

Consolidated Financial Statements (continued)

 

CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2016
		2016	2015
	Notes	£m	£m
NON-CURRENT ASSETS
Goodwill	7	4,050	3,538
Other intangible assets	8	1,469	1,130
Property, plant and equipment	9	953	764
Interests in joint ventures and associates	10	222	203
Other investments		50	38
Trade and other receivables	11	97	71
Deferred tax assets*		149	182
Derivative financial instruments**		184	58
Non-current assets		7,174	5,984
CURRENT ASSETS
Inventories		347	282
Trade and other receivables	11	2,596	2,115
Tax recoverable*		77	64
Cash and cash equivalents**	12	346	283
Derivative financial instruments**		2	19
Current assets		3,368	2,763
Total assets		10,542	8,747
CURRENT LIABILITIES
Short term borrowings**	13	(321)	(247)
Derivative financial instruments**		(9)	(7)
Provisions	15	(143)	(136)
Current tax liabilities*		(195)	(169)
Trade and other payables	14	(3,851)	(3,157)
Current liabilities		(4,519)	(3,716)
NON-CURRENT LIABILITIES
Long term borrowings**	13	(3,075)	(2,684)
Derivative financial instruments**		(1)	(25)
Post-employment benefit obligations	16	(21)	(9)
Provisions	15	(280)	(251)
Deferred tax liabilities*		(40)	(28)
Trade and other payables	14	(86)	(84)
Non-current liabilities		(3,503)	(3,081)
Total liabilities		(8,022)	(6,797)
Net assets		2,520	1,950
EQUITY
Share capital	17	176	176
Share premium account		182	182
Capital redemption reserve		295	295
Less: Own shares		-	(1)
Other reserves		4,359	4,189
Retained earnings		(2,507)	(2,904)
Total equity shareholders' funds		2,505	1,937
Non-controlling interests		15	13
Total equity		2,520	1,950
* Component of current and deferred taxes.
** Component of net debt.
Approved by the Board of Directors on 22 November 2016 and signed on their behalf by
RICHARD COUSINS, Director
JOHNNY THOMSON, Director

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2016
		2016	2015
	Notes	£m	£m
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations	20	1,768	1,476
Interest paid		(98)	(96)
Tax received		17	19
Tax paid		(263)	(261)
Net cash from operating activities		1,424	1,138
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of subsidiary companies and investments in associated undertakings1		(180)	(89)
Proceeds from sale of subsidiary companies and associated undertakings1		2	3
Purchase of intangible assets	8	(267)	(222)
Purchase of property, plant and equipment2		(311)	(282)
Proceeds from sale of property, plant and equipment/intangible assets		29	28
Purchase of other investments		(6)	(1)
Proceeds from sale of other investments		2	1
Dividends received from joint ventures and associates		33	27
Interest received		4	3
Net cash used in investing activities		(694)	(532)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of ordinary share capital		-	2
Purchase of own shares3		(100)	(328)
Receipts from issue of treasury shares to satisfy employee share scheme awards exercised		3	1
Increase in borrowings	21	194	334
Repayment of borrowings	21	(309)	(250)
Repayment of obligations under finance leases	21	(3)	(5)
Equity dividends paid	6	(496)	(457)
Dividends paid to non-controlling interests		(9)	(6)
Net cash used in financing activities		(720)	(709)
CASH AND CASH EQUIVALENTS
Net increase/(decrease) in cash and cash equivalents	21	10	(103)
Cash and cash equivalents at beginning of the year	21	283	408
Currency translation gains/(losses) on cash and cash equivalents	21	53	(22)
Cash and cash equivalents at end of the year	21	346	283
1 Net of cash acquired or disposed and payments received or made under warranties and indemnities.
2 Includes property, plant and equipment purchased under client commitments.
3 Includes stamp duty and brokers' commission.

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

RECONCILIATION OF FREE CASH FLOW
FOR YEAR ENDED 30 SEPTEMBER 2016
		2016	2015
		£m	£m
Net cash from operating activities		1,424	1,138
Purchase of intangible assets		(267)	(222)
Purchase of property, plant and equipment		(311)	(282)
Proceeds from sale of property, plant and equipment/intangible assets		29	28
Purchase of other investments		(6)	(1)
Proceeds from sale of other investments		2	1
Dividends received from joint ventures and associates		33	27
Interest received		4	3
Dividends paid to non-controlling interests		(9)	(6)
Free cash flow		899	686
Add back: Europe & Japan cash restructuring costs in the year		9	36
Underlying free cash flow		908	722

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2016
The financial information included within this announcement has been prepared using accounting policies in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted for use in the European Union (EU), and in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority. The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2016 or 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting. The Auditor has reported on those accounts; its Reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying its Report and did not contain statements under s498(2) or (3) Companies Act 2006.
1 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. These, together with Central activities, comprise the Group's reportable segments. Each segment derives revenue from delivery of food and support services.   Our geographical segments have been restated in 2015 to reflect a change in the way these are managed: Europe now includes Turkey and Russia and Rest of World includes Japan.

 

 

			Geographical segments
			North America	Europe	Rest of World	Total
REVENUE1			£m	£m	£m	£m
YEAR ENDED 30 SEPTEMBER 2016
Combined sales of Group and share of equity accounted joint ventures2,3			11,198	5,458	3,215	19,871
YEAR ENDED 30 SEPTEMBER 20154
Combined sales of Group and share of equity accounted joint ventures2,3			9,361	5,192	3,290	17,843

 

 

 

	Sectors
REVENUE¹	Business & Industry	Education	Healthcare & Seniors	Sports & Leisure	Defence, Offshore & Remote	Total
	£m	£m	£m	£m	£m	£m
YEAR ENDED 30 SEPTEMBER 2016
Combined sales of Group and share of equity accounted joint ventures2	7,602	3,621	4,472	2,416	1,760	19,871
YEAR ENDED 30 SEPTEMBER 2015
Combined sales of Group and share of equity accounted joint ventures2	6,743	3,139	3,847	2,138	1,976	17,843
1 There is no inter-segmental trading.
2 This is the revenue measure considered by the chief operating decision maker.
3 Continuing underlying revenue from external customers arising in the UK, the Group's country of domicile, was £1,981 million (2015: £1,912 million).  Continuing underlying revenue from external customers arising in the US was £10,350 million (2015: £8,557 million).  Continuing underlying revenue from external customers arising in all foreign countries from which the Group derives revenue was £17,890 million (2015: £15,931 million).
4 2015 Europe and Rest of World segments have been restated to reflect a change in the way these are managed.

 

  

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

1 SEGMENTAL REPORTING CONTINUED
		Geographical segments
		North America	Europe	Rest of  World	Central activities	Total
RESULT		£m	£m	£m	£m	£m
YEAR ENDED 30 SEPTEMBER 2016
Underlying operating profit before joint ventures and associates and Emerging Markets and Offshore & Remote restructuring		906	394	194	(65)	1,429
Add: Share of profit before tax of joint ventures		2	-	24	-	26
Underlying operating profit before associates and Emerging Markets and Offshore & Remote restructuring2		908	394	218	(65)	1,455
Add: Share of profit of associates		10	5	-	-	15
Underlying operating profit before Emerging Markets and Offshore & Remote restructuring		918	399	218	(65)	1,470
Less: Emerging Markets and Offshore & Remote restructuring1		-	(6)	(19)	-	(25)
Underlying operating profit2		918	393	199	(65)	1,445

 

 

		Geographical segments
		North America	Europe	Rest of World	Central activities	Total
RESULT		£m	£m	£m	£m	£m
YEAR ENDED 30 SEPTEMBER 20153
Underlying operating profit before joint ventures and associates and Emerging Markets and Offshore & Remote restructuring		759	372	216	(66)	1,281
Add: Share of profit of joint ventures		1	2	25	-	28
Underlying operating profit before associates and Emerging Markets and Offshore & Remote restructuring2		760	374	241	(66)	1,309
Add: Share of profit of associates		8	5	-	-	13
Underlying operating profit before Emerging Markets and Offshore & Remote restructuring		768	379	241	(66)	1,322
Less: Emerging Markets and Offshore & Remote restructuring1		-	(3)	(18)	(5)	(26)
Underlying operating profit2		768	376	223	(71)	1,296
1 The Group has incurred charges resulting from the restructuring in response to the downturn in the trading conditions of its Emerging Markets and Offshore & Remote activities which include headcount reductions £22 million (2015: £17 million), other expenses £3 million (2015: £6 million), depreciation of owned property, plant and equipment £nil (2015: £2 million) and property lease rentals £nil (2015 £1 million).
2 Underlying operating profit is the profit measure considered by the chief operating decision maker.
3 2015 Europe and Rest of World segments have been restated to reflect a change in the way these are managed.

  

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

2 OPERATING COSTS
			Total	Total
OPERATING COSTS			2016	2015
			£m	£m
Cost of food and materials:
Cost of inventories consumed			5,742	5,219
Labour costs:
Employee remuneration			8,909	7,959
Overheads:
Depreciation - owned property, plant and equipment			213	190
Depreciation -leased property, plant and equipment			3	3
Amortisation - owned intangible assets			179	147
Property lease rentals			81	74
Other occupancy rentals - minimum guaranteed rent			53	64
Other occupancy rentals - rent in excess of minimum guaranteed rent			9	11
Other asset rentals			79	72
Audit and non-audit services			5	5
Emerging Markets and Offshore & Remote restructuring1			25	26
Other expenses			2,903	2,565
Operating costs before costs relating to acquisitions			18,201	16,335
Amortisation - intangible assets arising on acquisition			31	26
Acquisition transaction costs			2	2
Adjustment to contingent consideration on acquisition			-	5
Share-based payments expense - non-controlling interest call option			1	-
Total			18,235	16,368
1 Emerging Markets and Offshore & Remote restructuring comprises £22 million employee remuneration (2015: £17 million), £nil depreciation owned property, plant and equipment (2015: £2 million), £nil property lease rentals (2015: £1 million) and £3 million other expenses (2015: £6 million).

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

3 FINANCE INCOME, COSTS AND RELATED (GAINS)/LOSSES
Finance income and costs are recognised in the income statement in the period in which they are earned or incurred.
FINANCE INCOME AND COSTS	2016	2015
	£m	£m
FINANCE INCOME
Bank interest	4	3
Total finance income	4	3
FINANCE COST
Interest on bank loans and overdrafts	16	13
Interest on other loans	82	82
Finance lease interest	1	1
Interest on bank loans, overdrafts, other loans and finance leases	99	96
Unwinding of discount on provisions	5	6
Interest on net post-employment benefit obligations	1	5
Total finance costs	105	107
ANALYSIS OF FINANCE COSTS BY DEFINED IAS 39¹ CATEGORY
Fair value through profit or loss (unhedged derivatives)	4	5
Derivatives in a fair value hedge relationship	(19)	(23)
Derivatives in a net investment hedge relationship	3	5
Other financial liabilities	111	109
Interest on bank loans, overdrafts, other loans and finance leases	99	96
Fair value through profit or loss (unwinding of discount on provisions)	5	6
Outside of the scope of IAS 39 (net pension scheme charge)	1	5
Total finance costs	105	107
1 IAS 39 'Financial Instruments: Recognition and Measurement'.

 

The Group uses derivative financial instruments such as forward currency contracts, cross currency swaps and interest rate swaps to hedge the risks associated with changes in foreign currency exchange rates and interest rates. In accordance with the Group's accounting policies, such derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. For derivative financial instruments that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement in the period.

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

4 TAX
RECOGNISED IN THE INCOME STATEMENT:						2016	2015
INCOME TAX EXPENSE ON OPERATIONS						£m	£m
CURRENT TAX
Current year						315	284
Adjustment in respect of prior years						(38)	(24)
Current tax expense						277	260
DEFERRED TAX
Current year						27	12
Impact of changes in statutory tax rates						6	1
Adjustment in respect of prior years						9	9
Deferred tax expense						42	22
TOTAL INCOME TAX
Income tax expense on operations						319	282

 

The income tax expense for the year is based on the effective UK statutory rate of corporation tax for the period of 20% (2015: 20.5%). The impact of changes in statutory rates relates principally to the reduction of the UK corporation tax rate from 20% to 19% from 1 April 2017 and to 17% from 1 April 2020. These changes have resulted in a deferred tax charge arising from the reduction in the balance sheet carrying value of deferred tax assets to reflect the anticipated rate of tax at which those assets are expected to reverse.  Overseas tax is calculated at the rates prevailing in the respective jurisdictions.

 

5 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 year. The adjusted earnings per share figures have been calculated based on earnings excluding the effect of the amortisation of intangible assets arising on acquisition, acquisition transaction costs, adjustment to contingent consideration on acquisition, non-controlling interest put options, profits and losses on disposal of businesses, hedge accounting ineffectiveness and the tax attributable to these amounts. These items are excluded in order to show the underlying trading performance of the Group.

 

	2016	2015
	Attributable	Attributable
ATTRIBUTABLE PROFIT	profit	profit
	£m	£m
Profit for the year attributable to equity shareholders of the Company	992	869
Amortisation of intangible assets arising on acquisition (net of tax)	21	20
Acquisition transaction costs (net of tax)	1	1
Adjustment to contingent consideration on acquisition (net of tax)	-	3
Non-controlling interest put options (net of tax)	1	-
(Profit)/loss on disposal of US businesses (net of tax)	(1)	1
Hedge accounting ineffectiveness (net of tax)	(10)	(2)
Underlying attributable profit for the year from operations	1,004	892

 

	2016	2015
	Ordinary shares	Ordinary shares
AVERAGE NUMBER OF SHARES (MILLIONS OF ORDINARY SHARES)	of 10 5/8p each	of 10 5/8p each
	millions	millions
Average number of shares for basic earnings per share	1,643	1,662
Dilutive share options	3	4
Average number of shares for diluted earnings per share	1,646	1,666

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

5 EARNINGS PER SHARE CONTINUED

	2016	2015
	Earnings	Earnings
	per share	per share
	pence	pence
BASIC EARNINGS PER SHARE
From operations	60.4	52.3
Amortisation of intangible assets arising on acquisition (net of tax)	1.2	1.2
Acquisition transaction costs (net of tax)	0.1	0.1
Adjustment to contingent consideration on acquisition (net of tax)	-	0.2
Non-controlling interest put options (net of tax)	0.1	-
(Profit)/loss on disposal of US businesses (net of tax)	(0.1)	0.1
Hedge accounting ineffectiveness (net of tax)	(0.6)	(0.2)
From underlying operations	61.1	53.7
DILUTED EARNINGS PER SHARE
From operations	60.3	52.2
Amortisation of intangible assets arising on acquisition (net of tax)	1.2	1.2
Acquisition transaction costs (net of tax)	0.1	0.1
Adjustment to contingent consideration on acquisition (net of tax)	-	0.2
Non-controlling interest put options (net of tax)	0.1	-
(Profit)/loss on disposal of US businesses (net of tax)	(0.1)	0.1
Hedge accounting ineffectiveness (net of tax)	(0.6)	(0.2)
From underlying operations	61.0	53.6

 

6 DIVIDENDS
A final dividend in respect of 2016 of 21.1 pence per share, £347 million in aggregate1, has been proposed, giving a total dividend in respect of 2016 of 31.7 pence per share (2015: 29.4 pence per share). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 2 February 2017 and has not been included as a liability in these financial statements.

 

	2016		2015
	Dividends		Dividends
DIVIDENDS ON ORDINARY SHARES	per share		per share
	pence	£m	pence	£m
Amounts recognised as distributions to equity shareholders during the year:
Final 2014 - 17.7p per share	-	-	17.7p	295
Interim 2015 - 9.8p per share	-	-	9.8p	162
Final 2015 - 19.6p per share	19.6p	322	-	-
Interim 2016 - 10.6p per share	10.6p	174	-	-
Total dividends	30.2p	496	27.5p	457
1 Based on the number of ordinary shares, excluding treasury shares, in issue at 30 September 2016: 1,643 million shares.

 

  

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

7 GOODWILL
During the year the Group made a number of acquisitions.

 

GOODWILL
				£m
COST
At 1 October 2014				4,010
Additions				25
Currency adjustment				(13)
At 30 September 2015				4,022
At 1 October 2015				4,022
Additions				105
Currency adjustment				448
At 30 September 2016				4,575
IMPAIRMENT
At 1 October 2014				482
Disposals				2
At 30 September 2015				484
At 1 October 2015				484
Currency adjustment				41
At 30 September 2016				525
At 30 September 2015				3,538
At 30 September 2016				4,050

 

GOODWILL BY BUSINESS SEGMENT			2016	20151
			£m	£m
USA			1,619	1,316
Canada			156	125
Total North America			1,775	1,441
UK			1,440	1,433
Rest of Europe			420	358
Total Europe			1,860	1,791
Japan			172	124
Rest of Rest of World			243	182
Total Rest of World			415	306
Total			4,050	3,538
1 Europe and Rest of World segments have been restated to reflect a change in the way these are managed.

 

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of a CGU is determined from value in use calculations. The key assumptions for these calculations are long term growth rates and pre-tax discount rates and use cash flow forecasts derived from the most recent financial budgets and forecasts approved by management covering a five year period. Budgets and forecasts are based on expectations of future outcomes taking into account past experience, adjusted for anticipated revenue growth, from both new business and like for like growth and taking into consideration external economic factors. Cash flows beyond the five year period are extrapolated using estimated growth rates based on local expected economic conditions and do not exceed the long term average growth rate for that country. The pre-tax discount rates are based on the Group's weighted average cost of capital adjusted for specific risks relating to the country in which the CGU operates.

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

8 OTHER INTANGIBLE ASSETS
		Contract and other intangibles1
	Computer software	Arising on
		acquisition	Other	Total
	£m	£m	£m	£m
COST
At 1 October 2014	232	473	973	1,678
Additions	31	-	191	222
Disposals	(3)	-	(85)	(88)
Business acquisitions	-	62	-	62
Business disposals	-	(1)	-	(1)
Reclassified	-	(1)	2	1
Currency adjustment	(6)	(12)	47	29
At 30 September 2015	254	521	1,128	1,903
At 1 October 2015	254	521	1,128	1,903
Additions	27	-	240	267
Disposals	(10)	(3)	(82)	(95)
Business acquisitions	-	101	1	102
Reclassified	2	-	(4)	(2)
Currency adjustment	41	86	190	317
At 30 September 2016	314	705	1,473	2,492
AMORTISATION
At 1 October 2014	167	84	417	668
Charge for the year	21	26	126	173
Disposals	(2)	-	(75)	(77)
Reclassified	-	(1)	-	(1)
Currency adjustment	(2)	(6)	18	10
At 30 September 2015	184	103	486	773
At 1 October 2015	184	103	486	773
Charge for the year	24	31	155	210
Disposals	(10)	(3)	(76)	(89)
Reclassified	-	-	(4)	(4)
Currency adjustment	28	21	84	133
At 30 September 2016	226	152	645	1,023
NET BOOK VALUE
At 30 September 2015	70	418	642	1,130
At 30 September 2016	88	553	828	1,469
1 Contract related intangible assets, other than those arising on acquisition, result from payments made by the Group in respect of client contracts and generally arise where it is economically more efficient for a client to purchase assets used in the performance of the contract and the Group funds these purchases.  The intangible assets arising on acquisition are all contract related.

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

9 PROPERTY, PLANT AND EQUIPMENT
	Land and	Plant and	Fixtures and
PROPERTY, PLANT AND EQUIPMENT	buildings	machinery	fittings	Total
	£m	£m	£m	£m
COST
At 1 October 2014	356	1,038	544	1,938
Additions1	13	171	89	273
Disposals	(21)	(104)	(40)	(165)
Business disposals - other activities	-	(1)	-	(1)
Business acquisitions	2	2	2	6
Reclassified	(1)	9	(1)	7
Currency adjustment	(10)	(15)	(29)	(54)
At 30 September 2015	339	1,100	565	2,004
At 1 October 2015	339	1,100	565	2,004
Additions1	26	178	92	296
Disposals	(19)	(87)	(41)	(147)
Business disposals - other activities	-	(3)	-	(3)
Business acquisitions	-	3	1	4
Reclassified	4	8	1	13
Currency adjustment	72	186	81	339
At 30 September 2016	422	1,385	699	2,506
DEPRECIATION
At 1 October 2014	175	682	357	1,214
Charge for the year	21	118	54	193
Disposals	(18)	(92)	(35)	(145)
Business disposals - other activities	-	(1)	-	(1)
Reclassified	-	4	-	4
Currency adjustment	(1)	(7)	(17)	(25)
At 30 September 2015	177	704	359	1,240
At 1 October 2015	177	704	359	1,240
Charge for the year	21	135	60	216
Disposals	(13)	(74)	(37)	(124)
Business disposals - other activities	-	(2)	-	(2)
Reclassified	-	15	(1)	14
Currency adjustment	35	121	53	209
At 30 September 2016	220	899	434	1,553
NET BOOK VALUE
At 30 September 2015	162	396	206	764
At 30 September 2016	202	486	265	953
The net book amount of the Group's property, plant and equipment includes assets held under finance leases as follows:
	Land and	Plant and	Fixtures and
PROPERTY, PLANT AND EQUIPMENT HELD UNDER FINANCE LEASES	buildings	machinery	fittings	Total
	£m	£m	£m	£m
At 30 September 2015	6	6	1	13
At 30 September 2016	6	7	1	14
1 Includes leased assets at a net book value of £2 million (2015: £2 million).

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

10 EQUITY ACCOUNTED INVESTMENTS
Significant interests in associates are:
			Country of  incorporation									2016 ownership1	2015 ownership1
Twickenham Experience Limited2			England & Wales									16%	16%
Oval Events Limited3			England & Wales									25%	25%
AEG Facilities, LLC4				USA								49%	49%
Thompson Hospitality Services, LLC4			USA									49%	49%
1 % ownership is of the ordinary share capital.
2 Financial statements applied using the equity method relate to the year ended 30 June, rolled forward to 30 September.
3 Financial statements applied using the equity method relate to the year ended 31 January, rolled forward to 30 September.
4 Financial statements applied using the equity method relate to the year ended 31 December of the prior year, rolled forward to 30 September.
Significant interests in joint ventures are:
			Country of  incorporation									2016 ownership1	2015 ownership1
Quadrant Catering Ltd2			England & Wales									49%	49%
ADNH-Compass Middle East LLC			United Arab Emirates									50%	50%
Express Support Services Limitada2			Angola									49%	49%
1 % ownership is of the ordinary share capital.
2 49% ownership entitles Compass Group to 50% of voting rights.
None of these investments is held directly by the ultimate Parent Company. All joint ventures provide food and/or support services in their respective countries of incorporation and make their accounts up to 30 September.  All holdings are in the ordinary shares of the respective joint venture company.
These investments are structured through separate vehicles and the Group has a residual interest in their respective net assets. Accordingly, the Group has classified its interests as joint ventures which are equity accounted.  The tables below reconcile the summarised financial information to the carrying amount of the Group's interests in its associates and joint ventures.
INTERESTS IN ASSOCIATES AND JOINT VENTURES												2016		2015
												£m		£m
NET BOOK VALUE
Interests in associates												137		122
Interests in joint ventures												85		81
At 30 September												222		203
At 1 October												203		189
Additions												2		2
Share of profits less losses (net of tax)												39		39
Dividends declared												(34)		(33)
Currency and other adjustments												12		6
At 30 September												222		203

 

The Group's share of revenues and profits is included below:
ASSOCIATES AND JOINT VENTURES	2016			2015
	Associates	Joint Ventures	Total	Associates	Joint Ventures	Total
	£m	£m	£m	£m	£m	£m
SHARE OF REVENUE AND PROFITS
Revenue	52	266	318	57	253	310
Expenses/taxation1	(37)	(242)	(279)	(42)	(229)	(271)
Profit after tax for the year	15	24	39	15	24	39
Share of net assets
Non-current assets	132	44	176	121	44	165
Current assets	69	134	203	49	108	157
Non-current liabilities	(7)	(10)	(17)	(5)	(8)	(13)
Current liabilities	(57)	(83)	(140)	(42)	(64)	(106)
Net assets	137	85	222	123	80	203
SHARE OF CONTINGENT LIABILITIES
Contingent liabilities	-	(26)	(26)	-	(22)	(22)
1 Expenses include the relevant portion of income tax recorded by associates and joint ventures.

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

11 TRADE AND OTHER RECEIVABLES
	2016			2015
TRADE AND OTHER RECEIVABLES	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
NET BOOK VALUE
At 1 October	2,115	71	2,186	2,069	70	2,139
Net movement	124	12	136	142	2	144
Currency adjustment	357	14	371	(96)	(1)	(97)
At 30 September	2,596	97	2,693	2,115	71	2,186
COMPRISED OF
Trade receivables	1,994	-	1,994	1,627	-	1,627
Less: Provision for impairment of trade receivables	(60)	-	(60)	(57)	-	(57)
Net trade receivables1	1,934	-	1,934	1,570	-	1,570
Other receivables	330	111	441	254	80	334
Less: Provision for impairment of other receivables	(6)	(22)	(28)	(9)	(15)	(24)
Net other receivables	324	89	413	245	65	310
Accrued income	168	4	172	177	-	177
Prepayments	153	4	157	117	6	123
Amounts owed by associates, joint ventures and related parties1	17	-	17	6	-	6
Trade and other receivables	2,596	97	2,693	2,115	71	2,186
1 Categorised as 'loans and receivables' financial assets (IAS 39).

 

TRADE RECEIVABLES
The book value of trade and other receivables approximates to their fair value due to the short term nature of the majority of the receivables.
Credit sales are only made after credit approval procedures have been completed satisfactorily. The policy for making provisions for bad and doubtful debts varies from country to country as different countries and markets have different payment practices, but various factors are considered, including how overdue the debt is, the type of receivable and its past history, and current market and trading conditions. Full provision is made for debts that are not considered to be recoverable.
There is limited concentration of credit risk with respect to trade receivables due to the diverse and unrelated nature of the Group's client base. Accordingly, the directors believe that there is no further credit provision required in excess of the provision for the impairment of receivables. The book value of trade and other receivables represents the Group's maximum exposure to credit risk.
Trade receivable days at 30 September 2016 were 41 days (2015: 42 days) on a constant currency basis.

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

12 CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS			2016		2015
			£m		£m
Cash at bank and in hand			291		224
Short term bank deposits			55		59
Cash and cash equivalents1			346		283
1 Categorised as 'loans and receivables' financial assets (IAS 39).
CASH AND CASH EQUIVALENTS BY CURRENCY				2016		2015
				£m		£m
Sterling				87		72
US Dollar				53		33
Euro				35		44
Japanese Yen				7		14
Other				164		120
Cash and cash equivalents				346		283

 

MASTER NETTING OR SIMILAR AGREEMENTS
The Group has master netting agreements for its cash and bank overdrafts and the following balances are offset within the consolidated balance sheet:
	2016
	Gross	Offset	Net
	£m	£m	£m
Cash and cash equivalents	444	(98)	346
Bank overdrafts	(125)	98	(27)
	2015
	Gross	Offset	Net
	£m	£m	£m
Cash and cash equivalents	328	(45)	283
Bank overdrafts	(104)	45	(59)

 

 

13 SHORT TERM AND LONG TERM BORROWINGS
	2016			2015
SHORT TERM AND LONG TERM BORROWINGS	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
Bank overdrafts	27	-	27	59	-	59
Bank loans	255	287	542	78	251	329
Loan notes	35	1,525	1,560	107	1,330	1,437
Bonds	-	1,253	1,253	-	1,093	1,093
Borrowings (excluding finance leases)	317	3,065	3,382	244	2,674	2,918
Finance leases	4	10	14	3	10	13
Borrowings (including finance leases)1	321	3,075	3,396	247	2,684	2,931
1 Categorised as 'other financial liabilities' (IAS 39).

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

13 SHORT TERM AND LONG TERM BORROWINGS CONTINUED

 

Bank overdrafts principally arise as a result of uncleared transactions. Interest on bank overdrafts is at the relevant money market rates.
All amounts due under bonds, loan notes and bank facilities are shown net of unamortised issue costs. Additionally, the Group adjusts the carrying values of the bonds and loan notes that are designated in effective fair value hedge relationships, for fair value gains and losses (based on observable market inputs) attributable to the risk being hedged.
The Group has fixed term, fixed interest private placements denominated in US dollar and sterling.
												2016		2015
												Carrying value		Carrying value
LOAN NOTES			Nominal value						Redeemable		Interest	£m		£m
US$ private placement			$162m						Oct 2015		6.72%	-		107
Sterling private placement			£35m						Oct 2016		7.55%	35		36
US$ private placement			$250m						Oct 2018		3.31%	196		170
US$ private placement			$200m						Sep 2020		3.09%	154		132
US$ private placement			$398m						Oct 2021		3.98%	306		262
US$ private placement			$352m						Oct 2023		4.12%	301		250
US$ private placement			$100m						Dec 2024		3.54%	107		66
US$ private placement			$300m						Sep 2025		3.81%	231		216
US$ private placement			$300m						Dec 2026		3.64%	230		198
												1,560		1,437
													2016		2015
BONDS													Carrying value		Carrying value
				Nominal value					Redeemable		Interest		£m		£m
Euro Eurobond				€600m					Feb 2019		3.13%		537		458
Euro Eurobond				€500m					Jan 2023		1.88%		469		386
Sterling Eurobond				£250m					Jun 2026		3.85%		247		249
													1,253		1,093

 

The maturity profile of borrowings (excluding finance leases) is as follows:
MATURITY PROFILE OF BORROWINGS (EXCLUDING FINANCE LEASES)					2016	2015
					£m	£m
Within 1 year, or on demand					317	244
Between 1 and 2 years					287	287
Between 2 and 3 years					733	-
Between 3 and 4 years					154	628
Between 4 and 5 years					-	132
In more than 5 years					1,891	1,627
Borrowings (excluding finance leases)					3,382	2,918

 

The fair value of the Group's borrowings is calculated by discounting future cash flows to net present values at current market rates for similar financial instruments.  The fair values have been determined by reference to Level 2 inputs as defined by the fair value hierarchy of IFRS 13 'Fair value measurements'. The table below shows the fair value of borrowings excluding accrued interest:

				2016		2015
CARRYING VALUE AND FAIR VALUE OF BORROWINGS (EXCLUDING FINANCE LEASES)				Carrying value	Fair value	Carrying value	Fair value
				£m	£m	£m	£m
Bank overdrafts				27	27	59	59
Bank loans				542	542	329	329
Loan notes				1,560	1,601	1,437	1,456
€600m Eurobond Feb 2019				537	557	458	478
€500m Eurobond Jan 2023				469	475	386	379
£250m Eurobond Jun 2026				247	300	249	269
Bonds				1,253	1,332	1,093	1,126
Borrowings (excluding finance leases)				3,382	3,502	2,918	2,970

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

13 SHORT TERM AND LONG TERM BORROWINGS CONTINUED

 

			2016		2015
GROSS AND PRESENT VALUE OF FINANCE LEASE LIABILITIES			Gross	Present value	Gross	Present value
			£m	£m	£m	£m
Finance lease payments falling due:
Within 1 year			5	4	4	3
In 2 to 5 years			9	9	7	7
In more than 5 years			1	1	3	3
			15	14	14	13
Less: Future finance charges			(1)	-	(1)	-
Gross and present value of finance lease liabilities			14	14	13	13

 

	2016			2015
	Borrowings	Finance leases	Total	Borrowings	Finance leases	Total
BORROWINGS BY CURRENCY	£m	£m	£m	£m	£m	£m
Sterling	534	-	534	584	-	584
US Dollar	1,813	-	1,813	1,441	-	1,441
Euro	1,013	10	1,023	853	11	864
Other	22	4	26	40	2	42
Total	3,382	14	3,396	2,918	13	2,931

 

The Group had the following undrawn committed facilities available at 30 September, in respect of which all conditions precedent had then been met:

Undrawn committed facilities					2016	2015
					£m	£m
Expiring between 1 and 5 years					1,000	1,000

 

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

14 TRADE AND OTHER PAYABLES
	2016			2015
TRADE AND OTHER PAYABLES	Current	Non-current	Total	Current	Non-current	Total
	£m	£m	£m	£m	£m	£m
NET BOOK VALUE
At 1 October	3,157	84	3,241	3,077	78	3,155
Net movement	185	(13)	172	149	12	161
Reclassification	-	-	-	1	(2)	(1)
Currency adjustment	509	15	524	(70)	(4)	(74)
At 30 September	3,851	86	3,937	3,157	84	3,241
COMPRISED OF
Trade payables	1,707	-	1,707	1,400	-	1,400
Social security and other taxes	343	-	343	273	-	273
Other payables	172	32	204	155	28	183
Deferred consideration on acquisitions1	29	17	46	16	28	44
Accruals2	1,214	37	1,251	1,027	28	1,055
Deferred income	380	-	380	286	-	286
Capital creditors	6	-	6	-	-	-
Trade and other payables	3,851	86	3,937	3,157	84	3,241
1 Categorised as 'other financial liabilities' (IAS 39).
2 Of this balance £577 million (2015: £415 million) is categorised as 'other financial liabilities' (IAS 39).

 

The directors consider that the carrying amount of trade and other payables approximates to their fair value. The current trade and other payables are payable on demand.

Trade payable days at 30 September 2016 were 75 days (2015: 74 days) on a constant currency basis.

 

  

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

15 PROVISIONS
PROVISIONS	Workers' compensation and similar obligations		Provisions in respect of discontinued and disposed businesses		Onerous contracts		Legal and other claims		Reorganisation		Other		Total
	£m		£m		£m		£m		£m		£m		£m
At 1 October 2014	232		46		29		64		36		31		438
Reclassified 1	-		-		(1)		1		(1)		-		(1)
Expenditure in the year 2	(54)		(1)		(11)		(15)		(20)		(6)		(107)
Charged to income statement 2	58		-		9		17		7		2		93
Credited to income statement	(12)		-		(6)		(16)		(4)		(4)		(42)
Business disposals	-		-		-		-		(2)		-		(2)
Unwinding of discount on provisions	5		-		1		-		-		-		6
Currency adjustment	13		-		(1)		(7)		(2)		(1)		2
At 30 September 2015	242		45		20		44		14		22		387
At 1 October 2015	242		45		20		44		14		22		387
Expenditure in the year	(48)		(1)		(9)		(9)		(5)		(7)		(79)
Charged to income statement	53		3		4		2		9		5		76
Credited to income statement	(8)		-		(2)		(2)		(4)		-		(16)
Business acquisitions	-		-		-		2		-		-		2
Business disposals	-		-		-		-		(1)		-		(1)
Unwinding of discount on provisions	4		-		1		-		-		-		5
Currency adjustment	35		-		1		7		3		3		49
At 30 September 2016	278		47		15		44		16		23		423
1 Including items reclassified between accrued liabilities and other balance sheet captions. 2 2015 has been restated reflecting a split in workers' compensation charged and paid.
PROVISIONS												2016		2015
												£m		£m
Current												143		136
Non-current												280		251
Total provisions												423		387

 

The provision for workers' compensation and similar obligations relates mainly to the potential settlement of claims by employees in the US for medical benefits and lost wages associated with injuries incurred in the course of their employment, and is essentially long term in nature.

 

Provisions in respect of discontinued and disposed of businesses relate to estimated amounts payable in connection with onerous contracts and claims arising from disposals. The final amount payable remains uncertain as, at the date of approval of these financial statements, there remains a further period during which claims may be received. The timing of any settlement will depend upon the nature and extent of claims received.

 

Provisions for onerous contracts represent the liabilities in respect of short and long term leases on unoccupied properties and other contracts lasting under five years.

 

Provisions for legal and other claims relate principally to provisions for the estimated cost of litigation and other sundry claims. The timing of the settlement of these claims is uncertain.

 

Provisions for reorganisation include provision for redundancy costs and these are expected to be utilised over the next year.                                                                                                                                                                                                                                                                

 

Other provisions include environmental provisions. These are in respect of potential liabilities relating to the Group's responsibility for maintaining its operating sites in accordance with statutory requirements and the Group's aim to have a low impact on the environment. These provisions are expected to be utilised as operating sites are disposed of or as environmental matters are resolved.

 

 

Provisions are discounted to present value where the effect is material using the discount rate applicable to the liability.

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

16 POST-EMPLOYMENT BENEFIT OBLIGATIONS

 

The Group operates a number of pension arrangements throughout the world which have been developed in accordance with statutory requirements and local customs and practices. The majority of schemes are self-administered and the schemes' assets are held independently of the Group's assets. Pension costs are assessed in accordance with the advice of independent, professionally qualified actuaries. The Group makes employer contributions to the various schemes in existence within the range of 2% to 39% of pensionable salaries.

The contributions payable for defined contribution schemes of £100 million (2015: £84 million) have been fully expensed against profits in the current year.

 

Disclosures showing the assets and liabilities of the schemes are set out below.

 

						2016
POST-EMPLOYMENT BENEFIT OBLIGATIONS RECOGNISED IN THE BALANCE SHEET						UK	USA	Other	Total
						£m	£m	£m	£m
Present value of defined benefit obligations						2,431	504	198	3,133
Fair value of plan assets						(2,623)	(392)	(97)	(3,112)
Post-employment benefit obligations recognised in the balance sheet						(192)	112	101	21

 

						2015
POST-EMPLOYMENT BENEFIT OBLIGATIONS RECOGNISED IN THE BALANCE SHEET						UK	USA	Other	Total
						£m	£m	£m	£m
Present value of defined benefit obligations						1,966	404	161	2,531
Fair value of plan assets						(2,137)	(300)	(85)	(2,522)
Post-employment benefit obligations recognised in the balance sheet						(171)	104	76	9

 

17 SHARE CAPITAL

 

			2016		2015
ALLOTTED SHARE CAPITAL			Number of shares		Number of shares
				£m		£m
Allotted and fully paid:
New Ordinary shares of 105/8p each 4			1,654,666,459	176	1,656,777,382	176
At 1 October				176		178
Ordinary and New Ordinary shares allotted during the year				-		-
Repurchase of Ordinary and New Ordinary shares				-		(2)
At 30 September				176		176

 

 

18 SHARE-BASED PAYMENTS

 

SHARE OPTIONS
Full details of The Compass Group Share Option Plan 2010 (CSOP 2010), the Compass Group Share Option Plan (CSOP 2000), the Compass Group Management Share Option Plan (Management Plan) (collectively the Executive and Management Share Option Plans) and the UK Sharesave Plan are set out in prior years' annual reports which are available on the Company's website.

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

19 BUSINESS COMBINATIONS
The Group has completed a number of infill acquisitions in several countries for a total consideration of £186 million, of which £155 million was paid in the year.  In addition, the Group paid a further £30 million deferred consideration relating to prior years.   Acquisition transaction costs expensed in the year to 30 September 2016 were £2 million (2015: £2 million).   In the period from acquisition to 30 September 2016, the acquisitions contributed revenue of £129 million and operating profit of £8 million to the Group's results.   If the acquisitions had occurred on 1 October 2015, it is estimated that the combined sales of Group and equity accounted joint ventures for the period would have been £19,947 million and total Group operating profit (including associates) would have been £1,410 million.
20 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED BY OPERATIONS
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED BY OPERATIONS		2016	2015
		£m	£m
Operating profit from operations		1,370	1,222
Adjustments for:
Acquisition transaction costs		2	2
Amortisation of intangible assets		179	147
Amortisation of intangible assets arising on acquisition		31	26
Share-based payments expense - non-controlling interest call option		1	-
Depreciation of property, plant and equipment		216	193
(Profit)/loss on disposal of property, plant and equipment/intangible assets		(1)	3
Decrease in provisions		(19)	(56)
Decrease in post-employment benefit obligations		(39)	(59)
Share-based payments - charged to profits		16	15
Operating cash flows before movement in working capital		1,756	1,493
Increase in inventories		(13)	(17)
Increase in receivables		(93)	(128)
Increase in payables		118	128
Cash generated by operations		1,768	1,476

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

21 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, finance leases and derivative financial instruments, net of cash and cash equivalents.
		Gross debt
				Total
	Cash and cash	Bank	Bank and other	overdrafts and	Finance	Derivative financial	Total gross	Net
NET DEBT	equivalents	overdrafts	borrowings	borrowings	leases	instruments	debt	debt
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 October 2014	408	(37)	(2,786)	(2,823)	(17)	61	(2,779)	(2,371)
Net decrease in cash and cash equivalents	(103)	-	-	-	-	-	-	(103)
Cash inflow from issue of bonds	-	-	(259)	(259)	-	-	(259)	(259)
Cash outflow from repayment of loan notes	-	-	250	250	-	-	250	250
Cash inflow from other changes in gross debt	-	(21)	(15)	(36)	-	(39)	(75)	(75)
Cash outflow from repayment of obligations under finance leases	-	-	-	-	5	-	5	5
Increase in net debt as a result of new finance leases taken out	-	-	-	-	(2)	-	(2)	(2)
Currency translation (losses)/gains	(22)	(1)	(22)	(23)	1	(2)	(24)	(46)
Reclassification	-	-	-	-	-	-	-	-
Other non-cash movements	-	-	(27)	(27)	-	25	(2)	(2)
At 30 September 2015	283	(59)	(2,859)	(2,918)	(13)	45	(2,886)	(2,603)
At 1 October 2015	283	(59)	(2,859)	(2,918)	(13)	45	(2,886)	(2,603)
Net increase in cash and cash equivalents	10	-	-	-	-	-	-	10
Cash outflow from repayment of bank loans	-	-	195	195	-	-	195	195
Cash outflow from repayment of loan notes	-	-	114	114	-	-	114	114
Cash inflow/(outflow) from other changes in gross debt	-	42	(378)	(336)	-	142	(194)	(194)
Cash outflow from repayment of obligations under finance leases	-	-	-	-	3	-	3	3
Increase in net debt as a result of new finance leases taken out	-	-	-	-	(2)	-	(2)	(2)
Currency translation gains/(losses)	53	(10)	(402)	(412)	(2)	(34)	(448)	(395)
Other non-cash movements	-	-	(25)	(25)	-	23	(2)	(2)
At 30 September 2016	346	(27)	(3,355)	(3,382)	(14)	176	(3,220)	(2,874)

 

Other non-cash movements are comprised as follows:
OTHER NON-CASH MOVEMENTS IN NET DEBT							2016	2015
							£m	£m
Amortisation of fees and discount on issuance							(1)	(1)
Changes in the fair value of bank and other borrowings in a designated fair value hedge							(24)	(26)
Bank and other borrowings							(25)	(27)
Changes in the value of derivative financial instruments including accrued income							23	25
Other non-cash movements							(2)	(2)

 

 

22 CONTINGENT LIABILITIES
PERFORMANCE BONDS, GUARANTEES AND INDEMNITIES	2016	2015
	£m	£m
Performance bonds, guarantees and indemnities (including those of associated undertakings) 1	366	349

 

^{1 Excludes bonds, guarantees and indemnities in respect of self-insure liabilities, post-employment obligations and borrowings (including finance and operating leases) recorded on the balance sheet or disclosed in note 23.}

 

 

 

Compass Group PLC

Consolidated Financial Statements (continued)

 

23 OPERATING LEASE AND CONCESSIONS COMMITMENTS
The Group leases offices and other premises under non-cancellable operating leases. The leases have varying terms, purchase options, escalation clauses and renewal rights. The Group has some leases that include revenue-related rental payments that are contingent on future levels of revenue. Future minimum rentals payable under non-cancellable operating leases and concessions agreements are as follows:

 

	2016			2015
	Operating leases		Other occupancy rentals	Operating leases		Other occupancy rentals
	Land and	Other		Land and	Other
OPERATING LEASE AND CONCESSIONS COMMITMENTS	buildings	assets		buildings	assets
	£m	£m	£m	£m	£m	£m
Falling due within 1 year	59	68	74	51	52	51
Falling due between 2 and 5 years	154	114	117	136	75	84
Falling due in more than 5 years	108	14	69	72	9	55
Total	321	196	260	259	136	190

 

 

24 POST BALANCE SHEET EVENTS

There are no material post balance sheet events.

 

25 EXCHANGE RATES
	2016	2015
AVERAGE EXCHANGE RATE FOR THE YEAR1
Australian Dollar	1.94	1.98
Brazilian Real	5.19	4.66
Canadian Dollar	1.88	1.90
Euro	1.28	1.35
Japanese Yen	159.94	184.31
Norwegian Krone	12.01	11.82
South African Rand	20.88	18.60
Swedish Krona	12.00	12.58
Swiss Franc	1.40	1.48
Turkish Lira	4.16	3.96
UAE Dirham	5.22	5.69
US Dollar	1.42	1.55
CLOSING EXCHANGE RATE AS AT 30 SEPTEMBER1
Australian Dollar	1.70	2.16
Brazilian Real	4.22	6.03
Canadian Dollar	1.71	2.03
Euro	1.16	1.36
Japanese Yen	131.54	181.42
Norwegian Krone	10.38	12.92
South African Rand	17.86	20.94
Swedish Krona	11.13	12.70
Swiss Franc	1.26	1.48
Turkish Lira	3.90	4.59
UAE Dirham	4.77	5.56
US Dollar	1.30	1.51
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

 

Constant currency	Restates the prior year results to current year's average exchange rates.
Underlying revenue	The combined sales of Group and share of equity accounted joint ventures.
Underlying operating profit - Group	Includes share of profit after tax of associates and profit before tax of joint ventures but excludes the specific adjusting items, as listed below.
Underlying operating profit - Region	Includes share of profit before tax of joint ventures but excludes the specific adjusting items, as listed below, profit after tax of associates and EM & OR restructuring.
Underlying operating margin - Group	Based on underlying revenue and underlying operating profit excluding share of profit after tax of associates.
Underlying operating margin - Region	Based on underlying revenue and underlying operating profit excluding share of profit after tax of associates and EM & OR restructuring.
Underlying net finance cost	Excludes specific adjusting items.
Underlying profit before tax	Excludes specific adjusting items.
Underlying basic earnings per share	Excludes specific adjusting items and the tax attributable to those items.
Underlying depreciation and amortisation	Excludes specific adjusting items.
Underlying EBITDA	Based on underlying operating profit, adding back depreciation and amortisation.
Underlying effective tax rate	Based on underlying tax charge and underlying profit before tax.
Underlying tax	Excludes tax attributable to specific adjusting items.
Underlying cash tax	Tax payments made in respect of underlying tax.
Underlying cash tax rate	Based on underlying tax charge and underlying profit before tax.
Underlying free cash flow	Adjusted for cash restructuring costs in the year relating to the 2012 and 2013 European exceptional programme.
Underlying gross capex	Includes Group and share of equity account joint ventures' capex spend.
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), disposals (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 current year's underlying revenue.
Organic operating 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), disposals (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 current year's underlying operating profit.
Like for like revenue growth	Calculated by adjusting organic revenue growth for new business wins and lost business.
Specific adjusting items	amortisation of intangibles arising on acquisition; acquisition transaction costs; adjustment to contingent consideration on acquisition; share-based payments expense - non-controlling interest call option; tax on share of joint ventures; profit/(loss) on disposal of US businesses; other financing items.
EM & OR restructuring	Emerging Markets and Offshore & Remote restructuring.
ROCE	ROCE divides the net operating profit after tax (NOPAT) by the 12 month average capital employed.
NOPAT	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.
Capital employed	Based on the 12 month average net assets 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.
Net debt	Overdrafts, bank and other borrowings, finance leases and derivative financial instruments, net of cash and cash equivalents.