Strong showing in North America helps boost Compass Group profit

A strong performance in North America and returning growth in Europe and Japan helped Compass, the world's largest catering company by sales, report a 4.9 per cent increase in underlying pre-tax profit.

The FTSE 100 group that feeds staff at Google, Amazon and other blue-chip companies said on Wednesday that underlying profit before tax rose to £637m in the first half, from £621m a year earlier. Underlying revenue rose 5.7 per cent to £9.1bn.

Richard Cousins, chief executive, said North America, where sales increased 8.2 per cent, would continue to be Compass's principal source of growth. He also pointed to the positive trend in Europe and Japan as a sign of "healthy momentum" going into the second half of the year and 2016

But the shares fell 3.7 per cent to £11.20 after the group highlighted the "uncertain" environment in some of its emerging markets and said lower commodity prices were affecting its businesses that serve offshore and remote locations.

North America sales now account for 52 per cent of total revenue. Organic revenue growth in the region rose 8.2 per cent on the back of new business wins and high retention rates. In Europe and Japan, which account for 31 per cent of revenues, organic revenue was up 0.9 per cent, though like-for-like volumes remain negative.

The overall operating margin climbed 10 basis points to 7.5 per cent. .

Stephen Rawlinson, an analyst at Whitman Howard, said the results were ahead of expectations, adding: "As the economies recover we should probably expect further improvement."

"Compass remains high on the list for investors seeking defensive growth," said Keith Bowman of Hargreaves Lansdown. He said the company's targeting of the non-outsourced catering market, its cash generation and its progressive dividend policy were positives for investors.

Mr Cousins said economic challenges in emerging markets, which account for 17 per cent of revenue, made for a "patchy" picture there.

The company's business in Australia, where it is heavily exposed to the mining and oil and gas sectors, had been hit because of weak commodity prices. Its Brazil and Turkey operations also faced challenges because of economic environments, he said.

Against that, Mr Cousins highlighted growth of 16 per cent in Latin America and an accelerating trend towards outsourcing in South Africa, the Middle East and China.

The interim dividend rises 11.4 per cent from last year to 9.8p, payable from earnings per share that rose 12.3 per cent to 28.4p. Underlying free cash flow was down 4.2 per cent to £323m.

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