Compass Group announces a share buyback following a strong half-year result

Compass Group announced that it would buy back £750 million worth of shares, following a strong year in trading. This is doubling the amount given to shareholders since last May.

The FTSE 100 cater giant said the buyback was a result of its strong balance sheet and confidence in its future.

Dominic Blakemore said Compass had raised its forecast for operating profit growth in the full year “towards 30 percent” on a constant-currency basis. Previously, it was “above 20%”.

Blakemore also predicted a underlying operating profit margin between 6.8 and 7.8 percent, which would lead to “profit growth over revenue growth”.

The group announced an interim dividend of 15.4p, up from 9.4p during the first half last year. They also promised to continue rewarding shareholders over the long-term with compounded returns.

Net charges of £153million were included in the statutory pre-tax profit, which was up from £632million. Compass suffered a loss of £70m from its strategic review, which led to the decision to leave six countries, including the Czech Republic, Hungary and Slovakia, as well as the sale of an operation in the UK.

Blakemore stated that the countries the company was leaving accounted for a very low contribution to the profitability of the group and “added to the distraction” to its management team.

Compass, he said, continued to benefit from the trend of outsourcing despite “pockets” of macroeconomic weakness. This was due to increasing operational complexity and changing client needs.

Blakemore stated that 45 percent of all new business was won through outsourcing for the first time. Blakemore also said about half of the market is still self-operated. Blakemore noted that Compass had, despite their size, only a global share of 8 per cent in the £250 billion catering industry.

Compass’ US business continues to be the main driver of growth. With three quarters of its underlying operating profit in the US, and only 10% in sterling, Compass announced that it will change the currency used to report to US dollars.

It was quick to deny any suggestions that it would move its stock listing to New York. Analysts pointed out that the company already has a US ADR and that its London quote was not at a discount or lacking liquidity.

Compass has reported that in the six-month period ending March 31, its underlying revenue grew by 24,7% to £1.8 billion. Operating profit jumped 41,1% to £1.05 Billion. The operating margin increased from 5.8 to 6.6%.

Blakemore was especially pleased that the group delivered balanced growth in all regions with a strong performance in Europe.

He stated that the trend of working from home continued to diminish and that “tone” is changing. He said that the working from home trend continued to dissipate and that “tone is changing”.

Compass shares, which spent £210m on acquisitions in the first six months, closed at £20.91, up 26p or 1.3%.