Compass Group plc Hikes Final Dividend Despite Negative Currency Impact

Catering services provider Compass Group plc (LON: CPG) releases a tasty update featuring growing revenues, margins and dividend.

Zach Coffell

Zach’s investment career began on his 20th birthday when his father gave him a copy of The Intelligent Investor, by Benjamin Graham, and the Fool.co.uk website address! He believes in buying quality companies with durable competitive advantages and his ideal holding period is forever. Zach owns shares in: boohoo.com (LSE: BOO), Craneware (LSE: CRW), GlaxoSmithKline (LSE: GSK), Judges Scienfitic (LSE: JDG), PZ Cussons (LSE: PZC), Somero (LSE: SOM)

Published 26 November, 2014 11:07 am GMT

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Shares in contract catering business Compass (LSE: CPG) were level in early trading after it reported a 5.4% jump in full-year profit before tax.

An organic 4.1% growth in group revenue was driven by good performances in North America and the “Fast Growing & Emerging” regions and supported with a 93% contract retention rate. Negative currency impact resulted in a2.8% decline in reported revenue, but investors saw past these temporary problems to the progress being made in the underlying business.

Compass grew operating margins by 20 basis points across Europe & Japan after making solid progress on efficiencies and cost reductions. Operating profit still fell 2.6% in the region however, as Eurozone trading conditions continued to prove difficult. Management noted that revenues in the UK, Germany, Netherlands and Southern Europe declined at a slower rate than previously, pointing towards improving conditions in the regions.

Management expect the majority of growth in the medium term to come from its market-leading North American business, which brings in 48% of group revenues.

The group continues to focus on the “structural opportunity in the outsourced food service market,” which is estimated to be worth more than £200bn. Only 50% of the current market is outsourced, offering a significant opportunity for Compass to grow. Group CEO Richard Cousins said: “Looking ahead to next year, the pipeline of new contracts is healthy and we expect to see further good performances in all of our regions.”

Compass also proposed a final dividend of 17.7p, resulting in a final dividend of 26.5p, or a full year increase of 10.5%. Management remain committed to growing the dividend in line with constant currency earnings.