Compass Group margins to be hit by £50M plan

By Laurence Gibbons

- Last updated on GMT

Compass Group will invest about £50M over the next two years
Compass Group will invest about £50M over the next two years

Related tags Revenue growth Better Remainder Investment

Foodservice firm Compass Group has warned its full-year operating margins will be hit by a £50M restructuring plan over the next two years.

The restructuring plan, which will cost around £20–25M per year in 2015 and 2016, will be included in operating profit and follows a “good”​ third quarter, the firm claimed.

“We are delivering good levels of operating efficiencies, which have enabled us to invest in the growth opportunities we see and improve the operating margin for the nine months to June 30 2015,”​ it said in a statement.

“In addition to our ongoing restructuring activities, which partly help us deliver yearly efficiencies, we are proactively reducing the cost base in our offshore and remote business globally and in some emerging markets.” 

Revenue growth

Compass has experienced organic revenue growth of 5.5% for the nine months to June 30 2015, the firm revealed. 

With Compass’ continued focus on costs and efficiencies, it expected 2015 full-year operating margin for the group to be flat. 

Organic revenue growth in the third quarter was up by 5.1%, reflecting strong net new business in North America, an acceleration of growth in Europe and Japan, and a more subdued environment in both fast growing and emerging and offshore and remote business, Compass said.

“Our ongoing commitment to generating efficiencies in the business continues to be supported by our management and performance programme,” ​it added.

“We are using these efficiencies to invest in the exciting growth opportunities around the group and are taking cost actions to offset the impact of challenging market conditions in certain countries.

“Overall margins have improved by around 5 basis points in the quarter and around 10 basis points for the nine months to June 30 2015.”

Pricing pressures

Next year, the savings, together with margin improvement in the rest of the group, should offset the impact of lower volumes and pricing pressures in its fast growing and emerging region of Brazil and Turkey.

If current price valuations continue for the remainder of the year, foreign exchange translation is expected to negatively impact the 2014 reported revenue by £154M and 2014 underlying operating profit by £6M, the firm warned. 

The Compass Group’s £500M share buyback programme announced in November 2013 is almost complete with around £475M spent as at July 28 2015.

Compass results region by region

Europe & Japan

  • Organic revenue growth 1.2% for nine months to June 30 2015
  • Organic revenue growth 1.8% in the third quarter

North America

  • Organic revenue growth of 7.8% for the nine months to June 30 2015
  • Organic revenue growth of 7.0% in the third quarter

Emerging markets

  • Organic revenue up by 7.4% in the nine months to June 30 2015
  • Organic revenue up by 6.8% in the third quarter

 

 

 

 

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