Catering giant Compass Group suffers sales slide amid pandemic but margins remain healthy

Sales at the world’s largest catering company, Compass Group, fell by nearly third in the first half of the financial year, it has revealed.

The business said revenues are expected to have contracted by 31 per cent in the six months ending March 31, with its sports arm worst hit.

Compared with a 33.7 per cent fall in revenue in the last quarter of 2020, the first three months of this year have been better, with a 28 per cent drop between January and March.

Despite these hits, the company’s operating margin rose 3.4 per cent.

Chef and culinary ambassador Tom Kitchin with Compass Scotland managing director David Hay. The catering firm recently pledged to create 100 apprenticeship opportunities in Scotland over the next year. Picture: @Schnappsphoto

“The recurring theme from the last nine months – weaker revenue trajectory but a better than expected earnings before interest, tax and amortisation (Ebita) margin – is repeated again today,” said analysts at Jefferies, adding that market expectations for the company are likely to remain unchanged.

“We still believe Compass is the best-in-class industry operator but the share price assumes rapid recovery, and consensus margin recovery assumptions look optimistic,” they added.

The company’s sports and leisure business, which runs the catering at Chelsea Football Club, took the biggest hit, suffering a 73 per cent revenue drop in the first half.

Its education business, including school and university canteen operator Chartwells, saw a 33 per cent hit, while the business and industry segment dropped 42 per cent.

Only Compass’s healthcare and seniors unit, which works with 150 care homes in the UK, saw positive movement, with revenue increasing 1 per cent across the six months.

The group noted: “We are controlling the controllable by managing our costs, adapting our operations and resizing our business. We remain confident in our ability to rebuild our group underlying margin above 7 per cent, before we return to pre-Covid volumes.

“While the vaccination efforts around the globe are advancing, the pace of volume recovery remains uncertain. Encouragingly, the pipeline of new business and client retention continues to be strong.”

The catering giant recently pledged to create 100 apprenticeship opportunities in Scotland over the next year.

The firm, which last year signed up Michelin-starred chef Tom Kitchin as a “culinary ambassador”, said its apprenticeship programmes create a “career progression roadmap” for an individual to work toward, from a foundation, modern or graduate apprenticeship, dependent on their current situation.

Part of Compass Group UK & Ireland, Compass Scotland launched as a distinct business in November. The firm has been operating within the country for about 70 years.

Greg Johnson, an analyst at brokerage Shore Capital, noted: “Compass has issued a trading update covering the three and six month periods to end March. Trading conditions remain consistent with that reported in the first quarter, although the continued improvement in operating margins remains encouraging and ahead of track.

“Although the margin development is encouraging, the pace of recovery in revenues remains uncertain so we retain our forecasts at this stage. We continue to upside to our fair value of circa 1,570p and potential for further progress from accelerating organic revenue growth and margin development,” he added.

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