Compass Group confident after solid full-year growth

(Sharecast News) - Food service giant Compass Group reported a robust full-year performance on Tuesday, with a 10.6% increase in revenue to $42.2bn. The FTSE 100 company said underlying operating profit rose 16.4% for the 12 months ended 30 September, to $2.998 billion, supported by a 30 basis point improvement in operating margin to 7.1%.

Earnings per share climbed 14.6% to 119.5 cents, reflecting strong profitability.

Operating cash flow grew 18.6% to $2.64bn, while free cash flow rose 14.8% to $1.74bn, enabling the firm to maintain a flexible investment strategy.

The annual dividend per share was lifted 13.7% to 59.8 cents.

Compass put its growth down to organic revenue gains of 10.6%, bolstered by net new business growth of 4.2%, which accelerated in the second half of the year.

Investments of $2.6bn in capital expenditures and acquisitions, including the purchase of Hofmanns, CH&CO, Dupont Restauration, and 4Service, underlined its strategy to expand in core markets while exiting nine non-core geographies.

The group said it returned $1.5bn to shareholders through dividends and share buybacks, ending the year with a strong balance sheet and a net debt-to-EBITDA ratio of 1.3x.

Looking ahead, Compass said it expected high single-digit underlying operating profit growth in 2025, driven by organic revenue growth above 7.5% and further margin expansion.

Over the longer term, the company said it was confident in sustaining mid-to-high single-digit organic revenue growth and profit growth outpacing revenue.

On a statutory basis, operating profit rose 11.7% to $2.584bn, although basic earnings per share fell 10.7% to 82.3 cents due to non-underlying charges, higher finance costs, and tax impacts.

"2024 has been a year of strong operational and financial performance, with net new business growth accelerating in the second half as expected," said group chief executive officer Dominic Blakemore.

"The business continues to successfully capitalise on the dynamic market trends, using its proven competitive advantages to drive higher revenue and profit growth.

"We have exited, or agreed to exit, nine non-core countries, further improving the quality of our portfolio and enabling us to better focus on our core markets with the greatest growth opportunities."

Blakemore said that to support that growth Compass was investing in capital spend to drive net new business, and was currently prioritising strategic acquisitions to further enhance its sectorised approach to clients.

"We have a proven track record of successful M&A in North America and are using that blueprint to unlock growth in other regions.

"The integration of recent high-quality acquisitions in Europe is progressing well, and we're excited by the capabilities they bring to the group.

"In 2025, we expect high single-digit underlying operating profit growth, driven by organic revenue growth above 7.5% and ongoing margin progression."

Longer term, Dominic Blakemore said Compass was confident in sustaining mid-to-high single-digit organic revenue growth with ongoing margin progression, leading to profit growth ahead of revenue growth.

"Our priority is to invest in the business through capex and M&A to support future growth, with surplus capital being returned to shareholders as we maintain our strong track record of delivering long-term, compounding shareholder returns."

Reporting by Josh White for Sharecast.com.