Compass is now pointing in the right direction

Compass, the world's biggest catering company, has burst through the £1 billion annual profits barrier for the first time, shrugging off weaker revenues in the depressed UK and Irish economies.

The performance was cheered by the City, with shares in the company topping the FTSE 100 risers' board yesterday as they closed up 7 per cent, or 38.5p, at 566p.

The group, which provides catering at famous venues such as Chelsea football club and the Wimbledon tennis championships as well servicing schools and businesses, revealed the year to end-September had benefited from strong growth in North America.

Compass's revenues across the Atlantic climbed 9.7 per cent to 6.37bn and profits rose 11 per cent to 491 million.

New contract wins included the Gates Foundation's new campus site and Amazon.com's headquarters, both located in Seattle, and Sun Microsystems, which is part of the company's larger Oracle contract.

Richard Cousins, chief executive of Surrey-based Compass, said public austerity measures also created business opportunities.

"We are not assuming the economies in the UK, western Europe and Japan will help us, but austerity measures give us an opportunity as many institutions look to outsource," Cousins said.

Revenues in the UK and Ireland fell 2.6 per cent to 1.78bn, with profits flat at 114m, but some improvement was now being seen, the group said. Compass's group underlying operating profits rose 13 per cent to just over 1bn from 884m, while the total dividend is hoisted a third to 17.5p from 13.2p.

Compass added that UK economic conditions continued to hit volumes in the sport, leisure, business and industry sectors, but other new contracts included one to cater for 10,000 Virgin Media staff in 17 locations.

There was also good growth in the UK healthcare sector, while the turnaround of its school catering arm has continued after winning a new contract with Rugby public school.

Group revenues rose by 7.6 per cent to 14.5bn, with 3.2 per cent of this improvement coming from organic growth, the rest due to acquisitions.

About 17 per cent of Compass's business is in fast-growing and emerging economies and the company said these markets offered the opportunity of double-digit revenue growth.

Analysts highlighted the bigger-than-expected dividend and positive outlook as the main factors behind the strong share price movement yesterday.

Nick Raynor, investment adviser at The Share Centre, which offers broking services to private investors, said: "As a company, Compass is looking strong. Over the year, retention of contracts has improved slightly to 93.2 per cent, reflecting fewer bankruptcies and corporate failures.

"The company could benefit further from the trend by companies to outsource catering in order to cut costs."