TIDMCPG
RNS Number : 2373G
Compass Group PLC
24 November 2020
Annual Results Announcement
Legal Entity Identifier (LEI) No. 2138008M6MH9OZ6U2T68
Full year results announcement for the year ended 30 September
2020
Underlying(1) results Statutory results
2020 2019 Change 2020 2019(2) Change
GBP24.8
GBP20.2 billion GBP19.9 GBP24.9
Revenue billion (3) (18.8)%(4) billion billion (19.8)%
GBP1,852
million GBP294 GBP1,626
Operating profit GBP561 million (3) (69.7)%(3) million million (81.9)%
GBP1,852
Operating profit (IAS million
17 proforma) (5) GBP533 million (3) (71.2)%(3)
Operating margin 2.9% 7.4% (450)bps
Operating margin (IAS
17 proforma) (5) 2.8% 7.4% (460)bps
83.8 pence
Earnings per share 18.6 pence (3) (77.8)%(3) 8.0 pence 71.6 pence (88.8)%
Earnings per share (IAS 83.8 pence
17 proforma) (5) 19.1 pence (3) (77.2)%(3)
GBP1,247
Free cash flow GBP213 million million (82.9)%
Annual dividend per share - 40.0 pence - 40.0 pence
=============== =========== =========== ========== =========== ========
1. Reconciliation of statutory to underlying results can be
found on pages 49 to 50 .
2. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
3. Measured on a constant currency basis.
4. Organic revenue growth.
5. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
Compass is well positioned for the future as it addresses the
challenges of COVID-19
Dominic Blakemore, Group Chief Executive, said:
"2020 was a challenging year for Compass. I am extremely proud
of how the organisation responded to the pandemic. I have been
humbled by the commitment of our people in the face of
unprecedented adversity and want to thank them for their continued
dedication and hard work.
We began the year on track to deliver our strongest performance
ever, and over the course of a fortnight in March, we saw the
containment measures to stop the spread of COVID-19 close half of
the business. We rapidly enhanced our health and safety protocols,
mitigated our costs, increased our liquidity and strengthened our
balance sheet. Through the summer, our performance began to improve
slowly as we helped clients in Education and Business &
Industry return to schools and offices safely.
Importantly, in the fourth quarter we returned the business to
profitability and are now cash neutral. This was achieved mainly
through contract renegotiations to reflect the difficult trading
environment, continued discipline in terms of costs and some
improvement in volumes. We are executing at pace and expect the
underlying operating margin in the first quarter of 2021 will be
around 2.5%.
Although the prospects of a vaccine are encouraging, the
resumption of lockdowns in some of our major markets shows that we
have to continue to take proactive actions to control the
controllable and ensure the business can thrive despite the ongoing
pandemic. We are innovating and evolving our operating model to be
more flexible and to provide our clients and consumers with an
exciting offer that is delivered safely and provides great value.
This combined with our existing scale, ability to flex costs and
focus on operational execution, will allow us to return to a Group
underlying margin above 7% before we return to pre-COVID
volumes.
The scope for growth from first time outsourcing and share gains
is significant. In addition, we have a strong pipeline of new
business in Healthcare & Seniors, Education and Defence,
Offshore & Remote that will diversify and broaden our revenue
base. We are investing in the business organically and
inorganically to support our long term growth prospects, enhance
our competitive advantages, and further consolidate our position as
the industry leader in food services.
We are improving the quality of the business and will emerge
from the pandemic stronger than we've ever been. We recognise the
importance of the dividend to our shareholders and the Board looks
forward to reinstating it when considered appropriate. Finally, we
remain as excited as ever about the significant structural growth
opportunities globally, the potential for further revenue and
profit growth, and returns to shareholders over time. "
Chief Executive's Statement
Although COVID-19 severely impacted the business from late Q2,
new business wins remained robust, and retention was high
-- Organic revenue down 18.8% year on year as COVID-19 related
restrictions reduced volumes in Business & Industry, Education
and Sports & Leisure in all three regions
-- In North America, new business wins of 6.9% and strong 96.4%
retention, despite significant disruption due to the pandemic
-- In Europe, good results in Healthcare & Seniors offset by
the significant impact of COVID-19 on Sports & Leisure and
Business & Industry
-- Greater exposure to Defence, Offshore & Remote in Rest of
World mitigated the impact of the pandemic on Business &
Industry throughout the region
-- Underlying operating margin of 2.9% or 3.5% (excluding
contract related non-current asset impairment and onerous contract
charges) with a return to profitability in Q4
-- Expect Q1 2021 margin to be around 2.5% and committed to
rebuilding the Group underlying margin to above 7% before we return
to pre COVID-19 volumes
COVID-19 response
-- Prioritised the safety of colleagues and customers and
enhanced operating protocols throughout the crisis
-- Moved rapidly to support clients in Healthcare & Seniors
and Education on the frontline of the pandemic
-- Adapted our cost base and renegotiated contracts to reflect the new trading environment
Strong and resilient balance sheet
-- GBP2 billion equity raise to reduce leverage - liquidity increased to around GBP5 billion
-- Free cash flow of GBP213 million and net debt to EBITDA ratio of 2.1x
Strategy - positioning for the future
-- Managing the business through the lens of People,
Performance, Purpose in the interests of all stakeholders
-- Adapting our operations to improve the offer, increase flexibility and manage costs
-- Significant structural growth opportunity in terms of first time outsourcing and share gains
-- Investing in digital, organic and inorganic growth opportunities to support future growth
Statutory results
-- Statutory revenue decreased by 19.8% due to the impact of
COVID-19 on volumes. Operating profit decreased by 81.9% as a
result of the impact of COVID-19, the resizing programme to adjust
our cost base, contract related non-current asset impairment and
onerous contract charges, as well as the negative impact of foreign
exchange.
Chief Executive's Statement (continued)
Results presentation today
A recording of the results presentation for investors and
analysts will be available on the Company's website today, Tuesday
24 November 2020, at 7.00 a.m.. There will be a question and answer
session at 9:00 a.m., accessible via the Company's website,
www.compass-group.com , and you will be able to participate by
dialing :
UK Toll Number: +44 330 336 9411
UK Toll-Free Number: 0800 279 7204
US Toll Number: +1 929 477 0324
US Toll-Free Number: +1 800 289 0571
Participant PIN Code: 7837121#
Please connect to the call at least 10-15 minutes prior to the
start time.
Financial calendar
Q1 Trading Update / Annual General 4 February 2021
Meeting
Half year results 12 May 2021
Enquiries
Sandra Moura, Agatha Donnelly & Helen
Investors Javanshiri +44 1932 573 000
Tim Danaher & Fiona Micallef-Eynaud,
Press Brunswick +44 2074 045 959
Website www.compass-group.com
Chief Executive's Statement (continued)
Basis of preparation
Throughout this preliminary results announcement, and consistent
with prior years, underlying and other alternative performance
measures are used to describe the Group's performance. These are
not recognised under International Financial Reporting Standards
(IFRS) or other generally accepted accounting principles (GAAP).
The Executive Committee of the Group manages and assesses the
performance of the business on these measures and believes they are
more representative of ongoing trading, facilitate meaningful year
on year comparisons, and hence provide more useful information to
shareholders. Underlying and other alternative performance measures
are defined in the glossary of terms on pages 53 and 54 . A summary
of the adjustments from statutory results to underlying results is
shown in note 12 on pages 49 and 50 and further detailed in the
consolidated income statement (page 30 ), reconciliation of free
cash flow (page 36), note 3 segmental reporting (page 42 ) and note
13 organic revenue and organic profit (page 51 ).
FY 2020 overview
The COVID-19 pandemic has had a profound impact on Compass. We
can only exist with the commitment of our colleagues around the
world, many of whom have been on the front line of the battle
against the pandemic. I am extremely proud of how the organisation
has responded, and I'm humbled by the commitment and dedication our
people are showing, day in day out.
I want to extend my deepest sympathies to the families of those
colleagues that have lost their lives to COVID-19. We continue to
be committed to doing all we can to support them.
2020 was a year of two halves. We began the year on track to
deliver our strongest performance ever when, in March, over the
course of a fortnight we saw the containment measures to control
the spread of COVID-19 close half of the business. The health and
safety of our employees and consumers has been, and remains, our
absolute priority. As the pandemic unfolded, sites that remained
open were operating with enhanced health and safety protocols and
Personal Protective Equipment (PPE). As restrictions were lifted
and clients returned to schools and offices, we have helped them
reopen and ensure they bring consumers back safely. Nevertheless,
throughout the year, in the face of unprecedented volatility, we
have continued to manage the business through the lens of People,
Performance and Purpose to ensure that we continue to protect the
interests of all our stakeholders.
Performance
Our 2020 results reflect the dramatic impact COVID-19 has had on
our business. Our revenue in FY2020 declined by 18.8% on an organic
basis as a result of the pandemic .
Organic revenue
Change % Q1 Q2 Q3 Q4 FY
============================ ===== ======== ======== ======== ========
Business & Industry 4.4% (3.8)% (50.7)% (44.1)% (23.9)%
Education 4.4% (5.1)% (60.2)% (35.1)% (21.7)%
Healthcare & Seniors 5.4% 5.5% (5.1)% 0.2% 1.5%
Sports & Leisure 9.0% (10.9)% (89.9)% (78.9)% (45.1)%
Defence, Offshore & Remote 4.3% 1.0% (8.8)% (7.6)% (2.9)%
============================ ===== ======== ======== ======== ========
Group 5.3% (2.1%) (44.3)% (34.1)% (18.8)%
============================ ===== ======== ======== ======== ========
After an excellent first five months, the business received a
shock when all our Sports & Leisure business and most of our
Education and Business & Industry sectors were closed in March.
In June, July and August we saw a gradual reopening of parts of the
business. By September, all sectors except Sports & Leisure
were partially or fully open representing about 65% of the
business. At that time, we also began to see the reintroduction of
local lockdowns as many markets started to experience a second wave
of infections.
New business (MAP 1) was up 5.7% reflecting the strong momentum
pre-pandemic. After a slowdown in the third quarter, in the fourth
quarter we saw an increase in new wins in Healthcare & Seniors
and Education in North America. This reflects a 'flight to trust'
as clients sought food service providers with best in class health
and safety protocols, robust supply chains and strong balance
sheets.
Retention was 95.1% as clients maintained their trusted food
service provider during the pandemic. Like for like revenue
declined by 19.6% due to the impact of site closures as well as
lower populations on site due to social distancing requirements. On
a statutory basis, revenue decreased by 19.8%, including the
negative impact of foreign currency translation.
Chief Executive's Statement (continued)
Costs
We have taken a series of measures to reduce our food (MAP 3)
costs, in unit labour and in unit overheads (MAP 4) and our
above-unit (MAP 5) costs to offset the impact of lower volumes. In
markets where little or no government support was available, we
acted quickly to adjust our cost base and are already seeing the
savings come through.
In markets where government support was available, we used it to
limit job losses. This year we received GBP437 million of
government support. However, whenever government support has ended,
we have evaluated our staffing needs and taken the necessary steps
to ensure that we avoid carrying excess costs.
Although resizing will be an ongoing task, actions taken thus
far will avoid annual in unit labour (MAP 4) costs of around GBP280
million and annual savings of above unit (MAP 5) costs of GBP70
million, both of which will be essential for us to rebuild our
margins back to above 7%.
Resizing action in the year totalled GBP122 million. In
addition, the cost action programme announced in November 2019 has
incurred GBP75 million of costs in the year and is delivering the
savings initially anticipated. Together, these initiatives will
allow us to rebuild our margins in 2021 and beyond. The costs
associated with both programmes have been excluded from the Group's
underlying results.
Operating profit and operating margin
Although margins were up 20 bps (10 bps excluding the impact of
IFRS 16) for the five months to March, the significant volume
impact of the lockdowns resulted in a negative third quarter
margin. Significant cost actions and contract renegotiations to
reflect the changes in the trading environment, combined with a
slight improvement in volumes, allowed us to return to
profitability in the fourth quarter (before any contract related
non-current asset impairment and onerous contract charges).
In light of the disruption to the business, we have reviewed our
contract portfolio and impaired GBP88 million of contract related
non-current assets and recognised GBP31 million of onerous contract
losses - together these represent around 3% of our GBP4 billion
contract related non-current assets (contract fulfilment assets and
contract costs, right of use assets, property, plant and equipment
and intangible assets).
Underlying operating profit decreased by 69.7% to GBP561 million
on a constant currency basis (or by 71.2% to GBP533 million
excluding the impact of IFRS 16) . Our underlying operating profit
margin was 2.9% or 3.5% after excluding contract related
non-current asset impairment and onerous contract charges (2.8% or
3.4% excluding the impact of IFRS 16) with a return to
profitability in the fourth quarter.
Strategy
The food services market remains very attractive. We estimate it
is around GBP220 billion, with about two thirds currently operated
by small regional players or operated in house. This means there is
a significant structural growth opportunity from first time
outsourcing as well as share gains. We are particularly attracted
to the more defensive sectors of Healthcare & Seniors ,
Education and Defence, Offshore & Remote where there are
meaningful first time outsourcing opportunities.
We have reviewed our strategy and remain confident about our
focus on food, and our pragmatic approach to providing support
services in the markets where we have the right capabilities. As
the industry leader, we have the greatest scale, which gives us an
advantage in terms of food procurement and our ability to leverage
our overheads. In addition, we go to market with a sector and sub
sector approach that allows us to get close to our clients and
create a bespoke food service solution that truly meets their
needs.
In response to the pandemic, we are innovating and evolving our
operating model. By innovating and adapting our offer and
operations to the 'new normal', this will allow us to reduce costs
and increase our flexibility, so that we can provide our clients
and consumers an exciting offer that is delivered safely and
provides great value. The three main areas of strategic focus
are:
-- digital: consumer facing use of apps and kiosks to pre-order,
pre-pay, click and collect as well as back of house apps for labour
management and food procurement
-- labour: increase labour flexibility, leverage our scale and
pool our workforce across sectors to better accommodate volume
volatility on site
-- central production units: hubs for development, training and
production to rationalise labour costs and reduce food waste
These three areas of focus combined with our existing scale and
competitive strengths, will allow us to return to industry leading
levels of performance.
Chief Executive's Statement (continued)
Regional performances
North America - 63.1% Group revenue (2019: 62.4%)
Underlying Change
Reported Constant Organic
Regional financial summary 2020 2019(1) rates currency
===================================== =========== =========== ========= ========== ========
Revenue GBP12,746m GBP15,694m (18.8)% (18.4)% (18.5)%
Regional operating profit (as
reported) GBP606m GBP1,290m (53.0)% (52.8)% (53.1)%
Regional operating profit (proforma
IAS 17)(1) GBP588m GBP1,290m (54.4)% (54.2)% (54.5)%
Regional operating margin (as
reported) 4.8% 8.2% (340)bps
Regional operating margin (proforma
IAS 17)(1) 4.6% 8.2% (360)bps
===================================== =========== =========== ========= ========== ========
1. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
Organic revenues in our North American business declined by
18.5%, reflecting the volume impact of COVID-19 in the second half
of the year, which saw revenues decline by over 40%. Encouragingly,
new business for the full year was 6.9%, with significant levels of
growth from first time outsourcing and wins from smaller regional
players. Retention rates were high at 96.4%.
Our Sports & Leisure business - mainly stadia and
entertainment venues - remained closed throughout the second half
of the year. Our Education sector was significantly impacted by the
lockdown in March. As the new academic year began in August and
September we saw a mixed approach to reopening, especially within
our Higher Education sub sector where many clients are offering a
hybrid curriculum with online as well as live classes. Our Business
& Industry portfolio is more weighted towards 'Business' and
serving office based consumers where the return to work has been
slow. Our Healthcare & Seniors business grew by 4.5%, driven by
double digit new business wins. Most Defence, Offshore & Remote
locations have remained open during the year, however, changes to
working patterns have driven modest volume declines.
We have taken significant actions to mitigate the impact of
volume declines on our operating margin. We have renegotiated
contracts, furloughed employees and rightsized both in unit (MAP 4)
and above unit (MAP 5) costs. Underlying operating profit of GBP606
million, including GBP64 million of contract related non-current
asset impairment and onerous contract charges, decreased by 52.8%
on a constant currency basis. The full year underlying operating
margin was 4.8% ( 4.6% excluding the impact of IFRS 16 ), or 5.3%
before the impact of contract related non-current asset impairment
and onerous contract charges . The Q4 underlying margin, before the
impact of contract related non-current asset impairment and onerous
contract charges, was around 3%. With uncertainty around volume
recovery, the cost base remains under constant review to ensure
margin improvement in 2021.
Chief Executive's Statement (continued)
Europe - 25.0% Group revenue (2019(1,2) : 25.4%)
Underlying Change
Reported Constant Organic
Regional financial summary 2020 2019(1,2) rates currency
===================================== ========== ========== ========= ========== =========
Revenue GBP5,048m GBP6,391m (21.0)% (19.9)% (24.0)%
Regional operating (loss)/profit
(as reported) GBP(29)m GBP421m (106.9)% (107.0)% (104.8)%
Regional operating (loss)/profit
(proforma IAS 17)(1) GBP(35)m GBP421m (108.3)% (108.4)% (106.2)%
Regional operating margin (as
reported) (0.6)% 6.6% (720)bps
Regional operating margin (proforma
IAS 17)(1) (0.7)% 6.6% (730)bps
===================================== ========== ========== ========= ========== =========
1. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
2. Prior year comparatives have reclassified Turkey and Middle
East from our Rest of World region into our Europe region.
Organic revenue declined by 24% for the full year. Revenues
declined by 44% in the second half given that 71% of Europe's
revenues are in Business & Industry (51%), Education (12%) and
Sports & Leisure (8%), the three sectors that have been most
impacted by the pandemic. Through the summer we saw a recovery in
Business & Industry as consumers returned to the office,
especially in continental Europe. In Education, the beginning of
the academic year in September has been positive especially in the
K-12 sub sector. Reopening of our clients in Higher Education has
been more mixed. Our Sports & Leisure business, which is
largely in the UK, remains closed.
Although new business wins were 2.8% and have been subdued
especially in the UK, France and Germany, we saw a higher
proportion of new business from small and regional players.
Retention has been broadly in line with previous years at
92.6%.
Across Europe, government schemes are supporting employees
during the pandemic. As these schemes end, we are having to take
resizing actions to adjust our cost base to reflect the current
trading environment.
The integration of Fazer, acquired in February, has proceeded at
a slightly slower pace than anticipated due to the pandemic.
Nevertheless, Fazer returned to profitability in September and is
on track to deliver the expected synergies.
As a result of the significant volume decline, the underlying
operating loss was GBP29 million. This includes GBP48 million of
contract related non-current asset impairment and onerous contract
charges . The underlying operating margin was 0.4% before the
contract related non-current asset impairment and onerous contract
charges, and negative 0.6% (negative 0.7% excluding the impact of
IFRS 16) including these impairments and charges. Encouragingly,
since the initial impact of lockdowns in March, the underlying
operating margin improved from negative 13% in Q3 to negative 4% in
Q4. We have taken the necessary actions to rebuild our margin in
the UK to offset the impact of lower reopening rates in Business
& Industry and the sustained closure of our Sports &
Leisure business with the benefits expected to come through in
2021.
Chief Executive's Statement (continued)
Rest of World - 11.9% Group revenue (2019(1,2) : 12.2%)
Underlying Change
Reported Constant Organic
Regional financial summary 2020 2019(1,2) rates currency
===================================== ========== ========== ========= ========== ========
Revenue GBP2,404m GBP3,067m (21.6)% (15.5)% (7.9)%
Regional operating profit (as
reported) GBP94m GBP232m (59.5)% (56.1)% (51.1)%
Regional operating profit (proforma
IAS 17)(1) GBP90m GBP232m (61.2)% (57.9)% (53.3)%
Regional operating margin (as
reported) 3.9% 7.6% (370)bps
Regional operating margin (proforma
IAS 17)(1) 3.7% 7.6% (390)bps
===================================== ========== ========== ========= ========== ========
1. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
2. Prior year comparatives have reclassified Turkey and Middle
East from our Rest of World region into our Europe region.
Organic revenue declined by 7.9% as the volume impact of the
pandemic offset modest growth in Australia and in some countries
with Offshore and Remote businesses. The region was not as impacted
by the pandemic given that 54% of its revenues are in the Defence,
Offshore & Remote and Healthcare & Senior sectors.
New business wins in the year were 5.8%, with strong growth
rates in Brazil, Chile and India. Retention for the year was 93.4%,
however, we saw a significant improvement in the second half with
retention at around 95%.
We took swift actions to adjust our cost base to the new trading
environment, especially in Latin America.
Underlying operating profit was GBP94 million, including GBP7
million in contract related non-current asset impairment and
onerous contract charges. The impact of disposals, mainly the
Highway business in Japan, accounted for around GBP30 million of
the underlying operating profit decline. The full year underlying
operating margin was 3.9% (3.7% excluding the impact of IFRS 16),
or 4.2% before the impact of contract related non-current asset
impairment and onerous contract charges. The underlying operating
margin in the fourth quarter before the impact of contract related
non-current asset impairment and onerous contract charges was
2.8%.
Chief Executive's Statement (continued)
Earnings per share and the dividend
Underlying earnings per share was 18.6 pence, down 77.8% (19.1
pence down 77.2% excluding the impact of IFRS 16) on a constant
currency basis due to the impact of the pandemic. Although we
recognise the importance of the dividend to our shareholders, we
need to balance this with the impact that COVID-19 has had on our
business. As a result, as previously reported on 23 April, the
Board has decided not to pay a final dividend in respect of the
financial year ended 30 September 2020. The Board will keep future
dividends under review and will restart payments when it is
considered appropriate to do so.
On a statutory basis, operating profit for the year decreased by
81.9% to GBP294 million due to our lower underlying operating
profit, resizing costs, the cost action programme and GBP24 million
negative impact of foreign currency translation, partially offset
by a GBP28 million benefit from the adoption of IFRS 16. Statutory
earnings per share was 8.0p, down 88.8%.
Cash
Underlying free cash flow was GBP213 million. This is
significantly lower than last year mainly due to the impact of
COVID-19 on profits. Gross capital expenditure for the year was
GBP749 million, 3.7% of revenues. This was spent primarily on
contractually committed investment including GBP70 million on new
wins and retention in North America in the fourth quarter. Working
capital was a GBP143 million outflow. This is slightly higher than
in previous years as sales and payroll tax deferrals and excellent
collections were offset by the impact of having most of our cash
business in Sports & Leisure, and Business & Industry
closed. Net M&A totalled GBP450 million. The largest
acquisition was Fazer Food Services in the Nordics for GBP363
million net of cash acquired, offset by GBP29 million of disposals
net of exit costs, with the largest disposal being our highways
service business in Japan.
Balance sheet
At 30 September 2020 net debt was GBP3,006 million, including an
additional GBP939 million due to the implementation of IFRS 16
'Leases'. Net debt to EBITDA was 2.1x (excluding the impact of IFRS
16, net debt to EBITDA would have been 0.4x lower). During the
year, we took a series of steps to increase the resilience of our
balance sheet. We increased the Group's liquidity from GBP2,381
million to GBP4,787 million through a GBP1,972 million equity raise
and GBP800 million of additional committed and undrawn credit
facilities.
We obtained waivers of the leverage covenant test in our US
Private Placement agreements for the September 2020 and March 2021
test dates. The interest cover covenant test was also waived for
September 2020 and reset at more than or equal to 3x on a six
months proforma basis for March 2021.
These measures have increased our resilience and will allow us
to weather the crisis, whilst continuing to invest in the business
to support our long term growth prospects and enhance our
competitive advantages so we can continue to create long term value
for all our stakeholders.
In March, we qualified for and drew down GBP600 million from the
Bank of England's Covid Corporate Financing Facility (CCFF). This
was repaid in June with proceeds from the equity raise. The GBP600
million limit remains available whilst the CCFF remains in
place.
We are targeting strong investment grade credit ratings and net
debt to EBITDA in the range of 1x -1.5x. Beyond this, our
priorities for cash are: (i) invest capital expenditure to support
organic growth, (ii) bolt-on M&A opportunities that improve our
sector exposure or strengthen our capabilities. At the appropriate
time, we will resume the dividend and other returns to
shareholders.
People
People are the foundation of our business. The global impact of
COVID-19 has tested the strength, resilience and adaptability of
our teams more than ever. Our overriding focus has been the safety
and wellbeing of our colleagues during these difficult times.
There have been a range of initiatives developed locally to
support our People through the crisis. Markets as varied as the UK,
Canada, India and Argentina are providing colleagues with support
and assistance programmes to help them cope with uncertainty, fear
and anxiety.
The pandemic has impacted some of our sectors more than others.
We have tried to protect as many jobs as possible. Employees
working in units that have been closed have, where possible, been
redeployed to other sites where critical work is still required
such as Healthcare & Seniors , Education and Defence. Where
redeployment has not been possible, support has been provided
locally through mechanisms such as employee assistance programmes
and hardship funds.
Chief Executive's Statement (continued)
We are committed to hiring, developing and retaining our diverse
talent to ensure we have a truly engaged, high performing and
fulfilled workforce so we can drive our business forward. This
year, we have signed the Race at Work Charter, which has been
designed to foster a commitment to improving outcomes for ethnic
minority employees in the workplace. Although we continue to
progress the levels of representation of women in our senior ranks,
there is more we need to do to fully reflect the rich diversity of
the communities in which we operate.
Purpose
Our purpose is mainly a social purpose: to keep our people and
our consumers safe and healthy, provide healthy food and nutrition,
while making the world a better place by protecting the environment
and supporting local communities.
We have introduced new protocols to help protect our people and
consumers from COVID-19. Working in partnership with our clients,
we have transformed thousands of sites around the world to be
COVID-19 secure, facilitating social distancing and introducing
enhanced hygiene measures. We continue to take measures to protect
our employees. Our global Lost Time Incident Frequency Rate has
dropped by 42% since 2016.
While the pandemic has resulted in some delays in climate change
action in some of our markets, we remain committed to reducing our
CO(2) footprint and getting ready to set Science Based Targets to
play our part in limiting global warming to below 1.5 (--) C.
During the pandemic our teams around the world have mobilised
resources at scale and with pace to allow us to support governments
and Healthcare clients. We have also prepared and delivered food to
critical and essential workers, the elderly, vulnerable and those
in financial distress, often working in partnership with grassroots
support organisations.
As we look ahead, we will focus our efforts further on three
priorities: food waste, environmental impact - including climate
change - and responsible and resilient sourcing.
Summary and outlook
The Group has responded admirably to unprecedented
circumstances. We supported the front line without compromising on
the health and safety of our people, clients and consumers. We
acted quickly to mitigate costs, increase our liquidity and
strengthen our balance sheet. We have renegotiated contracts to
reflect the difficult trading environment while continuing to
remain disciplined in terms of costs. These actions, combined with
some improvement in volumes, allowed us to return to profitability
in the fourth quarter and we are now cash neutral. We continue to
execute at pace and expect the underlying operating margin in the
first quarter of 2021 to be around 2.5%.
We are taking proactive actions to adapt our operations and
control the controllable to ensure the business can thrive despite
the pandemic and is well placed for the recovery. We are innovating
and evolving our operating model to be more flexible and to provide
our clients and consumers with an exciting offer that is delivered
safely and provides great value. This, combined with our existing
scale, ability to flex costs and focus on operational execution,
will allow us to return to a Group underlying margin of above 7%
before we return to pre-COVID volumes.
Although much has changed, the Compass model of value creation
remains the same. We leverage our scale and focus on best in class
operational execution to drive organic revenue growth and margins.
This is combined with a disciplined approach to capital allocation
that rewards shareholders while supporting reinvestment in the
business.
Whilst this crisis has placed significant pressure on the Group
in the short term, we are very confident in our medium and long
term growth prospects. We remain excited about the significant
structural growth opportunities globally, the potential for further
revenue and profit growth, and returns to shareholders over
time.
Dominic Blakemore
Group Chief Executive Officer
24 November 2020
Business Review
Compass is well positioned for the future as it addresses the
challenges of COVID-19.
Financial summary 2020 2019(1,2)
GBPm GBPm Decrease
Revenue
Underlying at constant currency 20,198 24,769 (18.5)%
Underlying at reported rates 20,198 25,152 (19.7)%
Statutory 19,940 24,878 (19.8)%
Organic change (18.8)% 6.4%
====================================================== ======== ========== =========
Total operating profit
Underlying at constant currency 561 1,852 (69.7)%
Underlying at constant currency (IAS 17 proforma)(1) 533 1,852 (71.2)%
Underlying at reported rates 561 1,882 (70.2)%
Statutory 294 1,626 (81.9)%
====================================================== ======== ========== =========
Operating margin
Underlying at reported rates 2.9% 7.4% (450)bps
Underlying at reported rates (IAS 17 proforma)(1) 2.8% 7.4% (460)bps
Profit before tax
Underlying at constant currency 427 1,743 (75.5)%
Underlying at reported rates 427 1,772 (75.9)%
Statutory 210 1,494 (85.9)%
====================================================== ======== ========== =========
Basic earnings per share
Underlying at constant currency 18.6p 83.8p (77.8)%
Underlying at constant currency (IAS 17 proforma)(1) 19.1p 83.8p (77.2)%
Underlying at reported rates 18.6p 85.2p (78.2)%
Statutory 8.0p 71.6p (88.8)%
====================================================== ======== ========== =========
Free cash flow
Underlying 213 1,247 (82.9)%
Reported 105 1,218 (91.4)%
====================================================== ======== ========== =========
Full year dividend per ordinary share - 40.0p
====================================================== ======== ========== =========
1. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
2. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
Definitions of underlying measures of performance can be found
in the glossary on pages 5 3 and 54 .
Business Review (continued)
Segmental performance
Underlying revenue(1) Underlying revenue change(2)
======================== =================================
2020 2019(3) Reported Constant
GBPm GBPm rates currency Organic
=============== =========== =========== =========== ========== ========
North America 12,746 15,694 (18.8)% (18.4)% (18.5)%
Europe 5,048 6,391 (21.0)% (19.9)% (24.0)%
Rest of World 2,404 3,067 (21.6)% (15.5)% (7.9)%
=============== =========== =========== =========== ========== ========
Total 20,198 25,152 (19.7)% (18.5)% (18.8)%
=============== =========== =========== =========== ========== ========
Underlying operating profit(1) Underlying operating margin(1)
===================================
2020 2020(4) 2019(3,4) 2020 2020(4) 2019(3,4)
(proforma (proforma
IAS 17) IAS 17)
GBPm GBPm GBPm
========================= ====== ============== =========== ======== ============ ===========
North America 606 588 1,290 4.8% 4.6% 8.2%
Europe (29) (35) 421 (0.6)% (0.7)% 6.6%
Rest of World 94 90 232 3.9% 3.7% 7.6%
Unallocated overheads (85) (85) (80)
========================= ====== ============== =========== ======== ============ ===========
Total before associates 586 558 1,863 2.9% 2.8% 7.4%
======== ============ ===========
Associates (25) (25) 19
========================= ====== ============== ===========
Total 561 533 1,882
========================= ====== ============== ===========
Statutory and underlying results
2020 2019(4,5)
Statutory Adjustments Underlying Statutory Adjustments Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
========== ============ =========== ========== ============ ===========
Revenue 19,940 258 20,198 24,878 274 25,152
====================== ========== ============ =========== ========== ============ ===========
Operating profit 294 267 561 1,626 256 1,882
Net gain/(loss)
on sale and closure
of businesses 59 (59) - (7) 7 -
Net finance costs (143) 9 (134) (125) 15 (110)
Profit before tax 210 217 427 1,494 278 1,772
Tax (75) (41) (116) (351) (62) (413)
====================== ========== ============ =========== ========== ============ ===========
Profit after tax 135 176 311 1,143 216 1,359
Non-controlling
interest (2) - (2) (8) - (8)
Attributable profit 133 176 309 1,135 216 1,351
====================== ========== ============ =========== ========== ============ ===========
Average number of
shares (millions) 1,658 - 1,658 1,586 - 1,586
Basic earnings per
share (pence) 8.0p 10.6p 18.6p 71.6p 13.6p 85.2p
====================== ========== ============ =========== ========== ============ ===========
EBITDA 1,418 2,459
Gross capex 749 853
Free cash flow 213 1,247
====================== ========== ============ =========== ========== ============ ===========
1. Definitions of underlying measures of performance can be
found in the glossary on pages 5 3 and 54 .
2. Reconciliation between the different growth rates is provided
in note 13 .
3. Prior year comparatives have reclassified Turkey and Middle
East from our Rest of World region into our Europe region.
4. The Group has adopted IFRS 16 'Leases' with effect from 1
October 2019 without restating prior year comparatives. As a
result, the Group results for the year ended 30 September 2020 are
not directly comparable with those reported in the prior year under
IAS 17 'Leases'. To provide meaningful comparatives, the results
for the year ended 30 September 2020 have therefore also been
presented on a proforma IAS 17 basis, see notes 2 and 13 for
additional information.
5. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
Further details of the adjustments can be found in the
consolidated income statement, note 3 segmental reporting and note
12 statutory and underlying results.
Business Review (continued)
Adoption of new accounting standards
The Group has applied the new accounting standard IFRS 16
'Leases' using the modified retrospective transition approach,
therefore the comparative information has not been restated and
continues to be reported under IAS 17 'Leases' and IFRIC 4
'Determining whether an arrangement contains a lease'.
Statutory results
Revenue
On a statutory basis, revenue was GBP19,940 million (2019:
GBP24,878 million), a decline of 19.8% due to the negative impact
of COVID-19.
Operating profit
Operating profit was GBP294 million (2019(1) : GBP1,626
million), a decrease of 81.9%, mainly reflecting the negative
impact of COVID-19, including a GBP119 million one off non-cash
charge in relation to contract related non-current asset impairment
and onerous contract charges . The reduction in operating profit
was also driven by the costs associated with the programmes aimed
at right sizing the business, partially offset by the savings
related to these programmes and a modest benefit from the
implementation of IFRS 16.
Statutory operating profit includes non-underlying items of
GBP267 million (2019(1) : GBP256 million), including a GBP75
million charge in relation to the continuation of the cost action
programme announced in November 2019 (2019: GBP190 million),
COVID-19 resizing costs of GBP122 million (2019: GBPnil) and
acquisition related costs of GBP70 million (2019: GBP54 million). A
full list of non-underlying items is included in note 12.
Net gain on sale and closure of businesses
As a result of the strategic review of the business, the Group
has continued to sell or exit its operations in a number of
countries, sectors or businesses in order to simplify its
portfolio. Activity in the period has included the sale of 50% of
the Japanese Highways business. The Group has recognised a net gain
of GBP115 million on the sale and closure of businesses (2019:
GBP50 million gain), offset by GBP56 million of exit costs and
asset write downs relating to committed or completed business exits
(2019: GBP57 million).
The Group's consolidated balance sheet includes assets of GBP13
million (2019(1) : GBP135 million) and liabilities of GBP7 million
(2019: GBP30 million) in respect of businesses held for sale. This
decrease is driven by the Group's decision to pause the disposal of
the remaining US laundries and some businesses in Rest of World due
to the market volatility caused by COVID-19. As a result,
management no longer considers these disposals are highly probable
and likely to be completed within 12 months and therefore these
businesses are no longer classified as held for sale.
Finance costs
Net finance costs increased to GBP143 million (2019: GBP125
million), mainly due to the adoption of IFRS 16 which resulted in
an additional GBP36 million of net interest payable, partially
offset by lower interest rates compared to the prior year and a
reduction in net debt following the equity raise.
Tax charge
Profit before tax was GBP 210 million (2019(1) : GBP1,494
million), giving rise to an income tax expense of GBP75 million
(2019: GBP351 million), equivalent to an effective tax rate of 35.7
% (2019(1) : 23.5%). The increase in rate primarily reflects the
mix of profits by country taxed at different rates and the higher
effective tax rate on sale and closure of businesses.
Earnings per share
Basic earnings per share were 8.0 pence (2019(1) : 71.6 pence),
a decrease of 88.8%, mainly as a result of the negative impact of
COVID-19 and an increase in the number of ordinary shares in issue
following the placing of shares in May 2020 .
1. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
Business Review (continued)
Underlying results
We track our performance against underlying and other
alternative performance measures, which we believe better reflect
our strategic priorities of growth, efficiency and shareholder
returns.
A summary of adjustments from statutory results to underlying
results is shown in note 12 on pages 49 and 50 and further detailed
in the consolidated income statement (page 30 ), reconciliation of
free cash flow (page 36 ), note 3 segmental reporting (page 42 )
and note 13 organic revenue and organic profit (page 51 ).
Revenue
On an organic basis, revenue decreased by 18.8%, reflecting the
negative impact of COVID-19. The steps taken to contain the spread
of the virus impacted our sectors in different ways. Revenues in
Healthcare & Seniors and Defence, Offshore & Remote were
good. Our Education and Business & Industry sectors were mostly
closed in April and May, and started to cautiously reopen in June,
while Sports & Leisure remained fully closed. In the last
quarter of the year, the Group's organic revenue performance
improved as clients in Education and Business & Industry began
to return to schools and offices in our main markets. By September,
all sectors except Sports & Leisure were partially or fully
open, representing about 65% of the business. Retention was robust
at 95.1% and we have started to see attractive new first time
outsourcing opportunities. New business wins were 5.7 % and
like for like revenue decline was 1 9.6 %.
Operating profit
Underlying operating profit was GBP561 million (2019: GBP1,882
million), a decrease of 70.2%, reflecting the impact from COVID-19
and the resulting lower volumes. Operating profit for the year has
been negatively impacted by a non-cash charge of GBP119 million
comprising contract related non-current asset impairment (GBP88
million) and onerous contract charges (GBP31 million) for contracts
impacted by COVID-19 and that are now considered to be structurally
loss making.
If we restate 2019's profit at the 2020 average exchange rates,
it would decrease by GBP30 million to GBP1,852 million. On a
constant currency basis, underlying operating profit has therefore
decreased by GBP1,291 million, or 69.7%.
The impact of IFRS 16 for the twelve months of 2020 was to
increase underlying operating profit by GBP28 million.
Operating margin
The operating profit margin was 2.9% (2.8% excluding the impact
of IFRS 16), reflecting the impact of COVID-19 (2019: 7.4%). As our
business started to reopen and after strong mitigating actions to
compensate for lower volumes and relentless focus on cost
efficiencies, the business returned to profitability in the fourth
quarter.
Finance costs
The underlying net finance cost increased to GBP134 million
(2019: GBP110 million), mainly due to the adoption of IFRS 16 which
resulted in an additional GBP36 million of net interest payable,
partially offset by lower interest rates compared to the prior year
and a reduction in net debt following the equity raise.
Tax charge
On an underlying basis, the tax charge was GBP 116 million
(2019: GBP413 million), equivalent to an effective tax rate of
27.2% (2019: 23.3%). The increase in rate primarily reflects the
mix of profits by country taxed at different rates. The tax
environment continues to be uncertain, with more challenging tax
authority audits and enquiries globally.
Earnings per share
On a constant cu rrency basis, the underlying basic earnings per
share fell by 77.8% to 18.6 pence (2019: 83.8 pence). The decrease
is mainly driven by the negative impact of COVID-19 and an increase
in the number of ordinary shares in issue following the placing of
shares in May 2020 .
Business Review (continued)
Shareholder returns
Dividends
As a result of the impact of the COVID-19 pandemic, in April
2020, the Board decided not to recommend an interim or final
dividend. The Board understands the importance of the dividend to
our shareholders and will keep future dividends under review and
will restart payments when it is appropriate to do so.
In determining the level of dividend in any year, the Board
considers a number of factors, which include but are not limited
to:
-- the level of available distributable reserves in the Parent
Company
-- future cash commitments and investment requirements to
sustain the long term growth prospects of the business
-- potential strategic opportunities
-- the level of dividend cover
Further surpluses, after considering the matters set out above,
may be distributed to shareholders over time by way of special
dividend payments, share repurchases or a combination of both.
Compass Group PLC, the Parent Company of the Group, is a
non-trading investment holding company which derives its
distributable reserves from dividends paid by subsidiary companies.
The level of distributable reserves in the Parent Company is
reviewed annually and the Group aims to maintain distributable
reserves that provide adequate cover for dividend payments. The
distributable reserves of the Parent Company include the balance on
the profit and loss account reserve, which at 30 September 2020
increased to GBP2,935 million (2019: GBP1,252
million) mainly due to the placing of new equity on 21 May 2020.
The ability of the Board to maintain its future dividend policy
will be influenced by a number of the principal risks identified on
pages 21 to 29 that could adversely impact the performance of the
Group, although we believe we have the ability to mitigate those
risks as outlined on pages 25 to 29.
The Group continues to have substantial available liquidity and
it is our ambition to resume dividend payments. While the current
uncertainty caused by the COVID-19 situation makes it difficult to
accurately forecast the timing and extent of profit recovery, we
continue to see good long term opportunities for the business.
Placing of shares
The Group raised net proceeds of GBP1,972 million through a
placing of new ordinary shares on 21 May 2020. The placing
comprised 195,667,352 new ordinary shares at a price of GBP10.25
per share, representing a discount of 3.3% to the middle market
price at the time at which the placing price was agreed. The total
number of new shares issued represented approximately 12.3% of
Compass' existing issued ordinary share capital prior to the
capital raise. The proceeds from the placing have strengthened the
Group's balance sheet and liquidity position, reducing leverage to
deal with the challenging environment and ensure Compass remains
resilient in the event of further negative developments in the
pandemic. These measures will enable Compass to continue to invest
in the business to support long term growth, ensuring it is well
positioned for the eventual recovery.
Share buyback programme
The Group did not buy any shares during the period under the
share buyback programme (2019: GBPnil). The directors' authority to
purchase the Company's shares in the market was renewed by the
shareholders at the Company's Annual General Meeting held on 6
February 2020.
Share price
The market price of the Group's ordinary shares at 30 September
2020 was GBP11.69 per share (2019: GBP20.93 per share).
Business Review (continued)
Free cash flow
Free cash flow totalled GBP105 million (2019: GBP1,218 million).
During the year, we made cash payments of GBP108 million in
relation to the programmes aimed at right sizing the business
(2019: GBP29 million). Adjusting for this, underlying free cash
flow was GBP213 million, an 82.9% decrease as a result of the
impact of COVID-19 on profitability and cash generation. Underlying
free cash flow conversion was 38 % (2019: 66%).
Gross capital expenditure of GBP749 million (2019: GBP853
million) is equivalent to 3.7% (2019: 3.4%) of underlying
revenue.
The working capital outflow, excluding provisions and pensions,
was GBP143 million (2019: GBP59 million inflow) and includes a
GBP234 million benefit from COVID-19 indirect and payroll tax
payment deferral schemes available in different countries .
The outflow related to post employment benefit obligations net
of service costs was GBP9 million (2019: GBP15 million).
The net interest outflow was GBP137 million (2019: GBP107
million), of which GBP 36 million relates to interest on lease
obligations.
The net tax paid was GBP228 million (2019: GBP328 million),
equivalent to an underlying cash tax rate of 53 % (2019: 19%). The
percentage increase is due to changes in the UK's corporation tax
instalment regime and tax payments made based on higher profits
arising before the COVID-19 outbreak, partially offset by corporate
income tax payments deferred as a result of COVID-19.
Acquisitions
The total cash spent on acquisitions in the year, net of cash
acquired, was GBP479 million (2019: GBP478 million), comprising
GBP480 million of bolt-on acquisitions and investments in
associates and GBP24 million of contingent consideration relating
to prior years' acquisitions, offset by GBP25 million of cash
acquired net of transaction costs.
The main acquisition during the year was the purchase of 100% of
the issued share capital of Fazer Food Services for an initial
consideration of GBP363 million (EUR414 million) net of cash
acquired. The remaining contingent consideration is payable within
seven years and is dependent on the operation of an earn-out. The
net present value of the contingent consideration was GBP56 million
(EUR66 million) at the date of acquisition. Fazer Food Services is
a leading food service business in the Nordic region with
operations in Finland, Sweden, Norway and Denmark across several
sectors including Business & Industry, Education, Healthcare
& Seniors and Defence.
Disposals
The Group has continued to simplify its portfolio and has sold
50% of its interest in the Japanese Highways business during the
year. The Group received GBP 29 million (2019: GBP101 million) in
respect of disposal proceeds net of exit costs.
At 30 September 2020, the Group has net assets and liabilities
totalling GBP6 million classified as held for sale in relation to
certain businesses as these disposals are highly probable and
expected to be completed within 12 months.
Financial position
Liquidity
The Group finances its operations through cash generated by the
business and borrowings from a number of sources including the
bank, the public and the private placement markets. The Group has
developed long term relationships with a number of financial
counterparties with the balance sheet strength and credit quality
to provide credit facilities as required. The Group seeks to avoid
a concentration of debt maturities in any one period to spread its
refinancing risk. The maturity profile of the Group's principal
borrowings at 30 September 2020 shows that the average period to
maturity is 4.6 years (2019: 5.4 years).
We have taken steps to strengthen the Group's financial
position. In March 2020, the Group qualified for and drew down
GBP600 million from the Bank of England's Covid Corporate Financing
Facility (CCFF) which was repaid in June. In April, we put in place
an additional Revolving Credit Facility(1) (RCF) of GBP800 million
and as at 30 September 2020 had total undrawn committed credit
facilities of GBP2,800 million. The GBP600 million CCFF limit
remains available whilst the CCFF is open.
We have obtained a waiver of the leverage covenant test in our
US Private Placement agreements for the September 2020 and March
2021 test dates. The interest cover covenant test has also been
waived for September 2020 and reset at more than or equal to 3x on
a six months proforma basis for March 2021. Finally, Standard &
Poor reaffirmed our long term (A) and short term (A-1) credit
ratings on 24 March (the outlook was changed to Negative) and
Moody's A3/P-2 long and short term credit ratings and Stable
Outlook remain unchanged.
1. Contains no financial covenants.
Business Review (continued)
In May 2020, the Group completed a GBP 1,972 million equity
raise to strengthen the balance sheet and liquidity position,
reducing leverage to deal with the challenging environment and
ensure Compass remains resilient in the event of further negative
developments in the pandemic. These measures will enable Compass to
continue to invest in the business to support long term growth,
ensuring it is well positioned for the eventual recovery.
Proceeds from the equity raised were used to repay: GBP600
million of CCFF, GBP350 million of drawn credit facilities and
GBP214 million maturing Commercial Paper.
As of 30 September 2020, the Group had access to GBP4,787
million in total liquidity, including GBP2,800 million in undrawn
committed bank facilities (2019: GBP2,000 million), GBP600 million
available in CCFF and GBP1,387 million in cash net of overdrafts.
Our solid financial position will allow us to weather the crisis
whilst continuing to invest in the business to strengthen our
competitive advantages and support our long term growth
prospects.
Net debt
The ratio of net debt to market capitalisation of GBP20,871
million at 30 September 2020 was 14.4% (2019: 9.8%).
Net debt decreased to GBP3,006 million (2019: GBP3,272 million)
despite GBP995 million of net debt added on the adoption of IFRS
16, offset by GBP1,972 million from the equity raise. The ratio of
net debt to EBITDA was 2.1x. Our leverage policy is to maintain
strong investment grade credit ratings and to target net debt to
EBITDA in the range of 1x to 1.5x.
The Group generated GBP213 million of underlying free cash flow
(2019: GBP1,247 million), including investing GBP706 million in net
capital expenditure, and spent GBP450 million on acquisitions net
of disposal proceeds. GBP427 million was paid in respect of the
final dividend for the 2019 financial year. The remaining GBP47
million increase in net debt related predominantly to cash spent in
relation to the cost action programme and resizing costs (GBP108
million) partially offset by other non-cash movements and currency
translation (GBP61 million).
Return on capital employed
Return on capital employed was 4.7% (2019: 19.5%) based on net
underlying operating profit after tax at the underlying effective
tax rate of 27.2% (2019: 23.3%). This decrease mainly reflects the
impact of COVID-19 and a
30 bps decrease due to the implementation of IFRS 16. The
average capital employed was GBP8,683 million (2019: GBP7,380
million).
Post employment benefit obligations
The Group has continued to review and monitor its pension
obligations throughout the period, working closely with the
trustees and actuaries of all schemes around the Group to ensure
appropriate assumptions are used and adequate provision and
contributions are made.
The Compass Group Pension Plan (UK) surplus of GBP441 million
(2019: GBP448 million) and the deficit in the rest of the Group's
defined benefit pension schemes of GBP251 million (2019: GBP259
million) have remained relatively unchanged year on year.
The total pensions charge for defined contribution schemes in
the year was GBP118 million (2019: GBP126 million) and GBP21
million (2019: GBP33 million) for defined benefit schemes.
Financial management
The Group manages its liquidity, foreign currency exposure and
interest rate in accordance with the policies set out below.
The Group's financial instruments comprise cash, borrowings,
receivables and payables that are used to finance the Group's
operations. The Group also uses derivatives, principally interest
rate swaps, forward currency contracts and cross currency swaps, to
manage interest rate and currency risks arising from the Group's
operations. The Group does not trade in financial instruments. The
Group's treasury policies are designed to mitigate the impact of
fluctuations in interest rates and exchange rates and to manage the
Group's financial risks. The Board approves any changes to the
policies.
Foreign currency risk
The Group's policy is to balance its principal projected cash
flows by currency to actual or effective borrowings in the same
currency. As currency cash flows are generated, they are used to
service and repay debt in the same currency. Where necessary, to
implement this policy, forward currency contracts and cross
currency swaps are taken out which, when applied to the actual
currency borrowings, convert these to the required currency.
Business Review (continued)
The borrowings in each currency can give rise to foreign
exchange differences on translation into sterling. Where the
borrowings are either less than, or equal to, the net investment in
overseas operations, these exchange rate movements are treated as
movements on reserves and recorded in the consolidated statement of
comprehensive income rather than in the consolidated income
statement.
Non-sterling earnings streams are translated at the average rate
of exchange for the year. Fluctuations in exchange rates have
given, and will continue to give, rise to translation differences.
The Group is only partially protected from the impact of such
differences through the matching of cash flows to currency
borrowings.
Interest rate risk
As set out above, the Group has effective borrowings in a number
of currencies and its policy is to ensure that, in the short term,
it is not materially exposed to fluctuations in interest rates in
its principal currencies. The Group implements this policy either
by borrowing fixed rate debt or by using interest rate swaps so
that the interest rates on
at least 80% of the Group's projected debt are fixed for one
year. For the second and third year, interest rates are fixed
within ranges of 30%-70% and 0%-40% respectively.
Group tax policy
As a Group, we are committed to creating long term shareholder
value through the responsible, sustainable and efficient delivery
of our key business objectives. This will enable us to grow the
business and make significant investments in the Group and its
operations.
We therefore adopt an approach to tax that supports this
strategy and also balances the various interests of our
stakeholders including shareholders, governments, employees and the
communities in which we operate. Our aim is to pursue a principled
and sustainable tax strategy that has strong commercial merit and
is aligned with our business strategy. We believe this will enhance
shareholder value whilst protecting Compass' reputation.
In doing so, we act in compliance with the relevant local and
international laws and disclosure requirements, and we conduct an
open and transparent relationship with the relevant tax authorities
that fully complies with the Group's Code of Business Conduct and
Code of Ethics.
After many years of operations, the Group has numerous legacy
subsidiaries across the world. Whilst some of these entities are
incorporated in low tax territories, Compass does not seek to avoid
tax through the use of tax havens. Details of the Group's related
undertakings are listed in note 36 of the Annual Report.
In an increasingly complex international corporate tax
environment, a degree of tax risk and uncertainty is, however,
inevitable. Tax risk can arise from differences in interpretation
of regulations, but most significantly where governments apply
diverging standards in assessing intragroup cross border
transactions. This is the situation for many multinational
organisations. We manage and control these risks in a proactive
manner and, in doing so, exercise our judgement and seek
appropriate advice from relevant professional firms. Tax risks are
assessed as part of the Group's formal governance process and are
reviewed by the Board and the Audit Committee on a regular
basis.
Risks and uncertainties
The Board takes a proactive approach to risk management with the
aim of protecting its employees and customers and safeguarding the
interests of the Group, its shareholders, employees, clients,
consumers and other stakeholders.
The principal risks and uncertainties that face the business and
the activities the Group undertakes to mitigate these are set out
on pages 21 to 29.
Related party transactions
Details of transactions with related parties are set out in note
31 of the consolidated financial statements in the 2020 Annual
Report. These transactions have not had, and are not expected to
have, a material effect on the financial performance or position of
the Group.
Business Review (continued)
Going concern
The uncertainty as to the future impact on the financial
performance and cash flows of the Group as a result of the recent
COVID-19 outbreak has been considered as part of the Group's
adoption of the going concern basis in its financial statements.
The factors considered by the directors in assessing the ability of
the Group to continue as a going concern are included in note
1.
The Group has access to considerable financial resources
together with longer term contracts with a number of customers and
suppliers across different geographic areas and industries. As a
consequence, the directors believe that the Group is well placed to
manage its business risks successfully during this period of
uncertainty.
Based on the assessment discussed in note 1, the directors have
a reasonable expectation that the Group has adequate resources to
continue in operational existence for the 12 months from the date
of approval of the financial statements. For this reason, they
continue to adopt the going concern basis in preparing the
financial statements.
Viability statement
In accordance with provision 31 of the UK Corporate Governance
Code 2018, the directors have assessed the viability of the Group,
taking into account the Group's current position, the latest three
year strategic plan, and the potential impact of the principal
risks documented on pages 21 to 29. Based on this assessment, the
directors confirm that they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the period to 30 September
2023.
Group's strategic planning process
The Board considers annually and on a rolling basis a three
year, bottom up strategic plan. Current year business performance
is reforecast during the year and a more detailed budget is
prepared for the following year. The most recent financial plan was
approved by the Board in September 2020 and subsequently updated in
November 2020 in the light of the recent resumption of lockdowns in
some of our major markets. The directors acknowledge the heightened
uncertainty of the Group's strategic plans in the current
environment and as a result have considered a range of different
scenarios. The plan is reviewed and approved by the Board, with
involvement throughout from the Group CEO, Group CFO and the
management team. Part of the Board's role is to consider the
appropriateness of key assumptions, considering the external
environment, business strategy and model including the impact of
COVID-19.
Period of assessment
The directors have determined that a three year period to 30
September 2023 is an appropriate period over which to provide its
viability statement. Having considered whether the assessment
period of three years should be extended in light of COVID-19, it
is the directors' view that three years is an appropriate period
given this is the period reviewed by the Board in its strategic
planning process and is also aligned to the Group's typical
contract length (three to five years). The directors believe that
this presents the Board and readers of the Annual Report with a
reasonable degree of confidence over this longer term outlook.
Viability assessment and COVID-19
In making this assessment, the Board carried out a robust
evaluation of the principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity. The output of the strategic plan is used to
perform a central debt and headroom profile analysis, which
includes a review of sensitivity to 'business as usual' risks and
severe but plausible events. It also considers the ability of the
Group to raise finance and deploy capital. The results consider the
availability and likely effectiveness of the mitigating actions
that could be taken to avoid or reduce the impact or occurrence of
the identified underlying risks.
While the review has considered all the principal risks
identified by the Group, there was a focus on how the COVID-19
pandemic risk could impact the Group's future financial performance
and cash flows under different scenarios. As a result, COVID-19
severe yet plausible downside sensitivities have been applied to
the three year plan approved by the Board. These were based on the
potential financial impact of the Group's principal risks and
uncertainties and the specific risks associated with the COVID-19
pandemic.
The COVID-19 downside sensitivities have been assumed to occur
over the same three year period in order to assess the Group's
ability to withstand multiple challenges.
In the three year plan approved by the Board, consistent with
current trading patterns, the business that is closed is assumed to
continue reopening in a phased manner and gradually recover. Given
the three year plan is most sensitive to changes in the duration
and severity of the impact of the pandemic, a prudent approach has
been taken to stress test this three year plan with downside
scenarios as explained below:
Business Review (continued)
-- 'additional global wave' scenario : assumption that a further
global wave of infections and government enforced restrictions
occurs in financial year 2021 and lasts for a full quarter, with
trading patterns and subsequent recovery mirroring that experienced
during the first global wave. This scenario mirrors the experience
of the first global wave experienced in all major markets at the
same time
-- 'prolonged downturn' scenario: assumes that, after an
additional global wave scenario, the number of sites open,
occupation levels and volumes do not recover above 75% for the rest
of the three year period
The impact of the COVID-19 downside scenarios has been reviewed
against the Group's projected liquidity headroom, credit ratings
and financial covenants over the three year viability period.
Should these scenarios occur, the Group continues to retain
sufficient committed headroom on liquidity with mitigating actions
it can deploy.
Mitigating actions were identified as the COVID-19 pandemic
emerged as part of the contingency planning that the Group has been
undertaking, which considered both feasibility and timeframe to
execute. Mitigating actions available include, but are not limited
to, reducing planned capital spend, resizing the cost base of the
Group, reducing or pausing M&A activity, securing additional
committed funding and reducing or pausing shareholder returns.
During the current financial year, all such actions have been
deployed as part of the Group's response to COVID-19, along with
the GBP1,972 million equity raise.
As the pandemic emerged, in order to strengthen the Group's
financial position in March 2020, the Group put in place an
additional RCF of GBP800 million and obtained a GBP600 million
limit under the CCFF. As at 30 September 2020 the Group had total
undrawn committed credit facilities of GBP2,800 million, an
unutilised GBP600 million CCFF limit, and GBP1,387 million cash net
of overdrafts.
In May 2020, the Group completed a GBP1,972 million equity raise
to strengthen the balance sheet and reduce leverage to deal with
the challenging environment and ensure the Group remains resilient
in the event of further negative developments in the pandemic.
In the event that any of the downside scenarios modelled
materialise and financial covenants on the Group's US Private
Placement (USPP) debt come under pressure, various alternatives
exist to manage this risk including repaying the loan notes from
available liquidity in advance of their maturity, negotiating
further covenant waivers or refinancing the debt. The Group was
successful in obtaining a waiver of the leverage covenant test in
the USPP agreements for the September 2020 and March 2021 test
dates. The interest cover covenant was also waived for September
2020 and reset for March 2021.
Standard & Poor reaffirmed the Group's long term (A) and
short term (A-1) credit ratings on 24 March (the outlook was
changed to Negative) and Moody's A3/P-2 long and short term credit
ratings and Stable Outlook remain unchanged.
The combination of strong investment grade credit ratings and a
well established presence in the debt capital markets provide the
directors with confidence that the Group could raise additional
debt finance if required.
The geographical and sector diversification of the Group's
operations helps minimise the risk of serious business interruption
or catastrophic damage to our reputation. Furthermore, the Group's
business model is structured so that the Group is not reliant on
one particular group of clients or sector. The Group's larges t
client constitutes only 2.7% of Group revenue and the Group's top
10 clients account for less than 11% of Group revenue.
The Audit Committee reviews the output of the viability
assessment in advance of final evaluation by the Board. Having
reviewed the current performance, forecasts, debt servicing
requirements, total facilities and risks, the Board has a
reasonable expectation that the Group has adequate resources to
continue in operation, meet its liabilities as they fall due and
retain sufficient available cash across all three years of the
assessment period.
The Board therefore has a reasonable expectation that the Group
will remain viable over the three year period of assessment.
Karen Witts
Group Chief Financial Officer
24 November 2020
Risk Management
Identifying and managing risk
The Board continues to take a proactive approach to risk
management, with the aim of protecting the Group's employees and
consumers and safeguarding the interests of the Company and its
shareholders in what is a constantly changing environment.
Risk management is an essential element of business governance
and, as set out in the Corporate Governance section, the Group has
risk management processes in place, supported by policies and
procedures to ensure that risks are properly identified, evaluated
and managed at the appropriate level within the business.
The identification of risks and opportunities, the development
of action plans to manage the risks and maximise the opportunities,
and the continual monitoring of progress against agreed key
performance indicators (KPIs) are integral parts of the business
process and core activities throughout the Group.
In compliance with provision 28 of the UK Corporate Governance
Code 2018, the Board has carried out a robust assessment of the
Company's emerging and principal risks. The paragraphs below set
out the Board's approach to assessing risk, the principal risks of
the Company and the procedures in place to identify emerging
risks.
Risk governance framework
The Group runs a formal risk management process, as part of
which the Group's principal risks (highlighted on pages 25 to 29)
are assessed and prioritised, with the Board having overall
responsibility for risk management.
Risks are reviewed by country and regional leadership teams on
an ongoing basis and are assessed to identify and document
corresponding mitigating actions. Risk updates form an integral
part of periodic management reviews and are also reviewed by other
members of the Group's senior leadership, the Group's Risk
Committee and the Regional/ Group Governance Committees. Additional
reviews are performed by Group Internal Audit. This bottom up and
top down approach provides awareness and agreement on key risks
facing the Group.
A critical component of the risk review process is the dynamic
identification of developing and emerging risks at a country,
regional and global level. The findings of the risk reviews,
including the principal risks and any developing trends, are
reported to and considered by the Board twice a year.
Risk appetite
The Board interprets appetite for risk as the level of risk that
the Company is willing to take in order to meet its strategic
goals. The Board communicates its approach to and appetite for risk
to the business through the strategy planning process and the
internal risk governance and control frameworks. Through this
process there is a robust approach to risk assessment and
mitigation, whilst maintaining sufficient flexibility to continue
to promote the entrepreneurial spirit which supports the Company's
strategic priorities, including positioning the business for
growth. Risk appetite, principal operational risks and risk
assurance are discussed in further detail in the Audit Committee
Report on pages 92 to 103 of the 2020 Annual Report.
Emerging risks
The Board has established processes for identifying emerging
risks, and horizon scanning for risks that may arise over the
medium to long term. Emerging and potential changes to the Group's
risk profile are identified through the Group's risk governance
frameworks and processes, and through direct feedback from
management including changing operating conditions, market and
consumer trends.
In respect of emerging risk, the Board is cognisant of
structural changes in many of our markets, particularly in business
and industry, where working practices are changing, which include
an increase in working from home. This trend has been greatly
accelerated by the COVID-19 pandemic, and working habits and trends
may not fully revert to their pre-COVID-19 position. In addition,
office and other work sites may become smaller and more numerous.
Furthermore, competition from online food vendors offering delivery
services is an increasing trend, which may compete with our
established premises in Business & Industry, Healthcare &
Seniors and Education.
To mitigate the risk to the business of changes in consumer
habits, we are adapting our service offering and evolving our
strategy to meet the needs of our clients and consumers while
continuing to create long term value. We are focused on innovation
and have invested in technology, our supply chain and our ability
to scale solutions that take advantage of emerging trends in the
food service sector and ensure we continue to delight our existing
and future clients and consumers.
Risk Management (continued)
We perceive climate change as an emerging risk and foresee that
it may have an impact on the Group's operations, food sourcing and
our supply chain in some of our markets. In turn, this could affect
the availability of some food products, and potentially may lead to
food cost inflation. To mitigate this risk, we will focus on
evaluating our exposure to climate change, and will seek to
identify potential future issues early so that our sourcing and
operations can be adjusted, and our menus adapted appropriately.
Climate change is important to us as a business and to our clients,
and we will continue to work with our clients to propose, execute
and measure solutions to support their efforts and ours in reducing
greenhouse gas emissions.
Our principal risks
On pages 25 to 29 we set out the principal risks and
uncertainties facing the business at the date of this announcement
and any changes to the status of these risks since 2019. These have
been subject to robust assessment and review.
They do not comprise all of the risks that the Group may face
and are not listed in any order of priority. Additional risks and
uncertainties not presently known to management, or which are
considered to be remote or are deemed to be less material at the
date of this announcement, may also have an adverse effect on the
Group.
COVID-19 pandemic risk
Throughout the COVID-19 pandemic, our priority has remained the
health and safety of our employees and consumers and we continue to
manage the business to protect the interests of all our
stakeholders, including our shareholders, our people, clients,
consumers and the communities in which we operate.
The Group's operations have been significantly disrupted as a
result of the rapid development and global impact of the pandemic.
During the pandemic, much of our business has been closed, and
sites that are open are operating with enhanced health and safety
protocols and Personal Protective Equipment (PPE) requirements. The
performance of our Business & Industry, Education and Sports
& Leisure sectors has been particularly affected by containment
and social distancing measures. Excluding Sports & Leisure we
have seen improvement, but we anticipate that changes to the market
and consumer trends may require us to adapt some of our service
offerings.
We moved quickly to mitigate the disruption and our ability to
adapt helped us to adjust our operations to the changed
environment, implementing a wide range of actions to mitigate a
risk to the business which continues to evolve.
Employees
To try to protect as many jobs as possible and to facilitate
mobilisation of the business at the appropriate time, steps have
been taken to retain the skills and experience of our colleagues.
Employees working in units that remain closed have, where possible,
been redeployed to other sites where critical work is required e.g.
in Healthcare and Education, and where this has not been possible,
by the use of furlough according to local government support
schemes and labour regulations. Our regions provide a variety of
support mechanisms through employee assistance programmes and many
have established funds and other mechanisms to support employees
who face financial difficulties as a result of these actions.
In line with local government and public health guidance,
provisions are in place throughout our operations to safeguard the
health and safety of employees globally, including travel
restrictions, remote working and ensuring our operations are
COVID-19 secure, to help prevent the spread of the virus. Where we
are able to operate on site, we have stepped up our health and
safety protocols to ensure our employees, clients and consumers
remain safe. Additional measures to combat the spread of the virus
will continue to operate in line with local government and public
health guidance.
Locally, there has been an increased focus on providing mental
health awareness, stress management and resilience toolkits, whilst
individual support has been provided through employee assistance
programmes and our local People teams. We have also implemented a
small number of employee retention arrangements for critical
employees.
Profitability and liquidity
We have implemented action plans to mitigate a significant
proportion of our cost base in order to preserve the profitability
and liquidity of the Group and we continue to review our cost base
for additional savings. All non-business critical capital
expenditure and M&A activity has been significantly reduced or
paused.
We reduced our cost base by taking a wide range of actions
including: (i) limiting the use of variable forms of in unit labour
(MAP 4) such as overtime, redeploying or furloughing much of the
fixed element of our in unit labour; (ii) reducing in unit
overheads (MAP 4) such as rent, rates and concession fees and (iii)
reducing salary, hours or furloughing above-unit overhead (MAP 5)
employees.
Risk Management (continued)
The Board decided not to recommend an interim or a final
dividend for the year ended 30 September 2020 to preserve capital
to ensure that the medium to long term interests of the Company are
protected for the benefit of investors and other stakeholders.
The Group proactively managed its working capital, applying for
government support packages such as temporary wage subsidy schemes
and tax payment deadline extensions where possible.
In addition, a number of steps were taken to strengthen the
Group's liquidity and increase the resilience of our balance
sheet:
-- in March, the Group obtained a GBP600 million limit under the
Bank of England's Covid Corporate Financing Facility (CCFF). This
was drawn down in March and repaid in June
-- in April, we put in place an additional Revolving Credit
Facility (RCF) of GBP800 million and, as at the date of this
announcement, we have total undrawn committed credit facilities of
GBP2,800 million
-- in May, we obtained waivers of the leverage covenant test in
our US Private Placement agreements for the September 2020 and
March 2021 test dates. The interest cover covenant test has also
been waived for September 2020 and reset at more than or equal to
3x on a six months proforma basis for March 2021
-- as announced on 19 May 2020, the Company raised GBP1,972
million by way of an equity placing, subscription and retail
offer
The Company has further strengthened its position by undertaking
the following actions:
-- extending the maturity date on the Group's GBP2,000 million
RCF (GBP1,860 million expires in 2025 and GBP140 million expires in
2024)
-- increasing the Company's Commercial Paper programme from
$2,000 million to $4,000 million and its Euro Medium Term Note
programme from GBP4,000 million to GBP6,000 million.
Together, these measures will ensure that we remain resilient in
the event of further negative developments in the pandemic. The
Board will continue to monitor the situation and to adjust the
Company's capital and liquidity strategy as appropriate to deal
with the situation as it evolves.
Governance and operational effectiveness
Robust incident management and business continuity plans were
quickly implemented throughout our business to safeguard governance
processes and operational effectiveness. Regional and country
management and Group Executive Committee and Board meetings have
been, and continue to be, conducted remotely (where necessary) on a
more regular basis, to ensure that the Group is able to respond to
any immediate or emerging concerns and to closely monitor the
effectiveness of strategic measures. Special measures that were put
in place as a short term response to counter the initial severity
of the COVID-19 outbreak, including remote working, are still in
operation where necessary and are working effectively.
Before lockdown, we performed business continuity tests to
ensure that our technology infrastructure could support the shift
to mass working from home. We have accelerated the adoption of
digital diagnostics and monitoring to reduce the possibility of an
attack on our technology estate and we continue to closely monitor
our infrastructure and any reliance we have on third parties to
ensure continuity of business critical systems and processes.
Our people have been instrumental in the smooth transition to
remote working. With support from our IT colleagues, we have
quickly adapted to using videoconferencing and other forms of
digital technology and, in the process, have demonstrated that we
are able to work efficiently away from the office.
As a result of these special measures, business usage of and
reliance on the internet has risen, leading to a significant
increase in the number of sophisticated malware and phishing
attacks across all organisations. To mitigate the risk of these
types of attacks, we have increased our awareness campaigns to help
our employees be better equipped to identify these attacks. We are
using the lessons learned from those exercises to target areas for
improvement in our awareness campaigns.
Planning for the unknown
The speed with which countries and their governments have
responded to the threat of COVID-19 and the severity of the
containment measures imposed arise from the complexity of the
factors involved, which include devolved decision making at country
and local government level, cultural issues and financial
considerations. This has meant the rate at which communities and
businesses are able to return to a level of normality is different
not only at country, but also at local level. Because of this, it
is difficult to predict when we will return to a pre-COVID
normality. Experience has demonstrated that the full threat of the
virus is not yet completely understood and that further outbreaks
are leading to the re-introduction of the stricter measures that
were in force in many of our markets in April and May. As a
precautionary measure, to test our resilience and safeguard our
resource, we are modelling on this basis and will continue to plan
and evolve our strategy accordingly.
Risk Management (continued)
Due to the unpredictable nature of the virus and the complexity
of factors involved, we believe that the COVID-19 pandemic
represents a principal risk to the Group. We have taken the lessons
learned from our business response and have incorporated them into
our risk management processes and procedures to mitigate the impact
of this risk as far as possible in the event of further outbreaks
of COVID-19, or another pandemic. With respect to managing the
COVID-19 risk, we will continue to monitor recurrence of the virus,
and will retain the ability to adapt our service offering, employ
relevant health and safety precautions and deploy resources as
necessary. Our prudent financial controls and robust modelling
scenarios will assist us in accounting for this risk.
Brexit
The impact of the UK's decision to exit the European Union
(Brexit) remains high on our agenda. The Board continues to view
the potential impact of Brexit as an integral part of our principal
risks rather than as a standalone risk.
The UK has left the EU and remains in a period of transition
until 31 December 2020. The UK Government has made a number of
announcements that could impact food and beverage costs from 1
January 2021 including customs checks, tariffs and new immigration
policies. We perceive the main risks as a potentially reduced range
of fresh produce, increased costs and tariffs, and price increases
in locally sourced produce in line with increased demand. In our
risk mitigation planning we have sought to ensure that our key
suppliers have the correct customs documentation in place for 1
January 2021, and have planned for increased stock holding and
possible menu changes in case of delays in supply through UK ports.
We retain our ability to adapt our menu planning and sourcing to
mitigate the risk of supply chain issues arising from the impact of
Brexit. The Board will continue to monitor the potential impact and
the Company will take necessary mitigating actions as
appropriate.
Other principal risks
The Group faces a number of operational risks on an ongoing
basis such as litigation and financial (including liquidity and
credit) risk and some wider risks, for example, environmental and
reputational. Other than the impact of the COVID-19 pandemic, the
principal risks affecting the Group during the year were consistent
with those reported in the 2019 Annual Report and in the 2020 half
year results announcement. All risks disclosed in previous years
can be found in the annual reports available on our website
www.compass-group.com. We recognise that these risks remain
important to the business and they are kept under regular review.
However, we have focused the disclosures on pages 25 to 29 on those
risks that are currently considered to be more significant to the
Group.
Principal Risks
Key Link to
People Client sales and marketing
Performance Consumer sales and marketing
Purpose Cost of food
Increased risk In unit costs
Static risk Above unit overheads
RISK AND TR DESCRIPTION MITIGATION
HEALTH AND SAFETY
Pandemic COVID-19 The Group's operations have Operations and working practices
been significantly disrupted have been adjusted to retain
as a result of the rapid global the skills and experience of
development of the COVID-19 our colleagues and provide flexibility
pandemic and associated containment in the event of a resumption
initiatives. Further outbreaks of social containment measures.
of the virus, or another pandemic
could cause further business
risk.
2020 Where there is a COVID-19 impact To protect our employees, clients
on the other principal risks and consumers, enhanced health
contained within this table, and safety protocols and Personal
we have provided an explanation Protective Equipment (PPE) requirements
of what the impact is and the and guidelines, hygiene requirements
mitigations. and site layout solutions have
been adopted.
2019 Careful management of the Group's
cost base and robust measures
to protect the Group's liquidity
position have ensured that we
remain resilient and well placed
to take advantage of appropriate
opportunities as they arise.
Robust incident management and
business continuity plans are
in place and are being monitored
for effectiveness and reviewed
to reflect best practice.
-------------------- ---------------------------------------- --------------------------------------------
Health and safety Compass feeds millions of consumers Management meetings throughout
and employs hundreds of thousands the Group feature a health and
of people around the world every safety update as one of their
day. For that reason, setting first substantive agenda items.
the highest standards for food
hygiene and safety is paramount.
2020 Health and safety breaches could Health and safety improvement
cause serious business interruption KPIs are included in the annual
and could result in criminal bonus plans for each of the business'
and civil prosecution, increased management teams. The Group has
costs and potential damage to policies, procedures and standards
our reputation. in place to ensure compliance
with legal obligations and industry
standards.
2019 The safety and quality of our
global supply chain are assured
through compliance against a
robust set of standards which
are regularly reviewed, audited
and upgraded as necessary to
improve supply chain visibility
and product integrity.
In 2020, we launched refreshed
versions of the Group's Global
Safety Standards, Global Supply
Chain Integrity standards and
a new Global Allergen Management
Plan.
-------------------- ---------------------------------------- --------------------------------------------
COVID-19 impacts Appropriate measures must be In response to COVID-19, we have
adopted by societies and businesses adopted enhanced health and safety
to help prevent the spread of protocols and hygiene measures
the virus. in our sites and operations,
which have been developed in
consultation with expert advisors
and with our clients.
PEOPLE
Recruitment Failure to attract and recruit The Group aims to mitigate this
people with the right skills risk by efficient, time critical
at all levels could limit the resource management, mobilisation
success of the Group. of existing, experienced employees
within the organisation, improved
use of technology such as apps
and social media, and by targeted
recruitment, training and development
programmes.
2020 The Group faces resourcing challenges
in some of its businesses in
some key positions due to a
lack of industry experience
amongst candidates and appropriately
qualified people, and the seasonal
nature of some of our business.
2019
-------------------- ---------------------------------------- --------------------------------------------
Principal Risks (continued)
Key Link to
People Client sales and marketing
Performance Consumer sales and marketing
Purpose Cost of food
Increased risk In unit costs
Static risk Above unit overheads
RISK AND TR DESCRIPTION MITIGATION
PEOPL E (continued)
Retention and Retaining and motivating the The Group has established tools,
motivation best people with the right skills, training, development, performance
at all levels of the organisation, management and reward programmes
is key to the long term success to help retain, develop, motivate
of the Group. and support our best people.
2020 The current economic conditions The Group has a number of well
may increase the risk of attrition established initiatives which
in critical senior management help us to monitor the level
positions. of engagement and to respond
to our people's needs. Specifically,
we have increased our local focus
and employee support on mental
health awareness, stress management
and resilience, to better equip
our people in times of uncertainty
and change.
2019
COVID-19 impacts The closure of substantial parts We employed a number of measures
of the business during the year available to us to retain as
had a significant impact on many of our skilled workforce
the Company's workforce. as possible, including redeployment
and use of government furlough
schemes.
CLIENTS AND CONSUMERS
Sales and retention Our business relies on securing We have strategies that strengthen
and retaining a diverse range our long term relationships with
of clients. our clients and consumers based
on quality, value and innovation.
2020 The potential loss of material Our business model is structured
client contracts in an increasingly so that we are not reliant on
competitive market is a risk one particular sector or group
to the business. of clients.
2019 We are using technology to support
the delivery of efficiencies
and to contribute to growth through,
for example, cashierless and
cashless payment systems and
the use of artificial intelligence.
This benefits our clients and
consumers and positively impacts
retention and new business wins.
Compass continues to focus on
financial security and safety.
In today's environment these
are key strengths for our clients.
---------------------- ---------------------------------------- -------------------------------------------
COVID-19 impacts Lower revenues may result from Contracts may be renegotiated.
COVID-19 restrictions due to We continue to focus on retention
reduced office attendance, closure and new sales opportunities as
of client sites and fewer site clients move to outsource in-house
visitors. catering and increasing the use
of technology and innovative
client solutions such as cashless
and cashierless payment systems
and food delivery applications.
---------------------- ---------------------------------------- -------------------------------------------
Bidding Each year, the Group bids for A rigorous tender review process
a large number of opportunities. is in place, which includes a
critical assessment of contracts
to identify potential risks (including
social and ethical) and rewards,
prior to approval at an appropriate
level in the organisation.
2020
2019
---------------------- ---------------------------------------- -------------------------------------------
Service delivery The Group's operating companies Processes are in place to ensure
and contractual contract with a large number that the services delivered to
compliance of clients. Failure to comply clients are of an appropriate
2020 with the terms of these contracts, standard and comply with the
2019 including proper delivery of required contract terms and conditions.
services, could lead to the
loss of business and/or claims.
---------------------- ---------------------------------------- -------------------------------------------
Principal Risks (continued)
Key Link to
People Client sales and marketing
Performance Consumer sales and marketing
Purpose Cost of food
Increased risk In unit costs
Static risk Above unit overheads
RISK AND TR DESCRIPTION MITIGATION
CLIENTS AND CONSUMERS (continued)
Competition and We operate in a highly competitive We aim to minimise this and to
disruption marketplace. The levels of concentration respond to new market and consumer
and outsource penetration vary food services trends by continuing
by country and by sector. Some to promote our differentiated
markets are relatively concentrated propositions and by focusing
with two or three key players. on our strengths, such as flexibility
Others are highly fragmented in our cost base, quality, value
and offer significant opportunities of service and innovation.
for consolidation and penetration
of the self-operated market.
2020 Structural changes in working We are using our knowledge and
and education environments may experience and continue to invest
reduce the number of people in technology which will help
in offices. us to counter any potential risk
and to capitalise on the opportunities
created.
2019 The emergence of new industry Compass continues to evolve its
participants using disruptive offer to increase participation
technology could adversely affect rates and service sites of different
our business. sizes.
------------------ -------------------------------------------- -------------------------------------------
COVID-19 impacts Numerous clients have been significantly The business is able to adapt
impacted by COVID-19. Long term to changes in the service provision
changes in working practices environment, and leverage expertise
could affect service provision and technology to mitigate the
in some sectors. risk and where possible take
advantage of changes in the market.
------------------ -------------------------------------------- -------------------------------------------
ECONOMIC AND POLITICAL ENVIRONMENT
-------------------------------------------------------------------------------------------------------------
Economy Some sectors of our business As part of our strategy, we are
could be susceptible to adverse focused on productivity and purchasing
changes in economic conditions initiatives which help us to
and employment levels. manage our cost base.
2020 Continued worsening of economic During adverse conditions we
conditions has increased the can, if necessary, take actions
risk to the business in some to reduce labour costs.
jurisdictions.
2019
------------------ -------------------------------------------- -------------------------------------------
COVID-19 impacts The full extent of the financial We have implemented action plans
impacts of COVID-19 on economies to protect the profitability
worldwide is as yet unknown. and liquidity of the Group and
mitigate a significant proportion
of our cost base. We continue
to review our cost base for additional
savings.
------------------ -------------------------------------------- -------------------------------------------
Cost inflation Our objective is always to deliver As part of our MAP framework
the right level of service in and by sharing best practice
the most efficient way. An increase across the Group, we seek to
in the cost of labour, for example, manage inflation by continuing
minimum wages in the USA and to drive greater efficiencies
UK, or food, could constitute through menu management, supplier
a risk to our ability to do rationalisation, labour scheduling
this. and productivity, and with the
increased use of technology.
Cost indexation in our contracts
also gives us the contractual
right to review pricing with
our clients.
2020 Increases in inflation continue
to intensify cost pressures
in some locations.
2019
------------------ -------------------------------------------- -------------------------------------------
COVID-19 impacts COVID-19 has disrupted inflation We anticipate that our cost action
trends requiring inflation cost programmes and continued oversight
indexing to react to food supply over supply chain costs will
chain and country labour changes. assist us in taking appropriate
Near term inflation may be higher action to mitigate the risks
than historical averages. in this area.
------------------ -------------------------------------------- -------------------------------------------
Principal Risks (continued)
Key Link to
People Client sales and marketing
Performance Consumer sales and marketing
Purpose Cost of food
Increased risk In unit costs
Static risk Above unit overheads
RISK AND TR DESCRIPTION MITIGATION
ECONOMIC AND POLITICAL ENVIRONMENT (continued)
Political stability We are a global business operating The Group remains vigilant to
in countries and regions with future changes presented by emerging
diverse economic and political markets or fledgling administrations
conditions. Our operations and and we try to anticipate and
earnings may be adversely affected contribute to important changes
by political or economic instability in public policy.
caused, for example, by the
UK's decision to leave the EU.
2020 We have identified a potential We are monitoring the change
impact on our food supply chain in the political landscape in
in the UK relating to Brexit the USA. We are taking actions
through potential increased to assess and mitigate against
import costs from weaker sterling, any impact of Brexit, including
compounded by potential new engaging with key suppliers and
import duties and tariffs, and wholesalers to identify Brexit
on our labour force from labour readiness, stock levels, labour
shortages and salary cost pressures. strategies and remediation plans.
2019 Political instability around Where possible, we seek to absorb
the world remains a risk as price increases through operational
a result of continuing geopolitical efficiencies, and cost indexation
tensions. in our contracts also gives us
the contractual right to review
pricing with our clients.
We have in place recruitment
and retention strategies to mitigate
any impact on our labour supply.
---------------------- ------------------------------------------- --------------------------------------------
COVID-19 impacts The stress placed on political We remain vigilant to changes
systems to combat the social in local jurisdictions and retain
and economic impacts of COVID-19 the flexibility to take appropriate
may result in increased political mitigating action as necessary.
instability in some regions.
COMPLIANCE AND FRAUD
Compliance and Ineffective compliance management The Group's zero tolerance based
fraud with increasingly complex laws Codes of Business Conduct and
and regulations, or evidence Ethics continue to govern all
of fraud, bribery and corruption aspects of our relationships
could have an adverse effect with our stakeholders. We operate
on the Group's reputation. It a continuous improvement process
could also result in an adverse as part of our Group's Ethics
impact on the Group's performance, and Compliance programme to enhance
and a reduction in the Company's and strengthen our culture of
share price and/or a loss of compliance sharing lessons learned
business. with our regional and country
management teams.
2020 A failure to manage these risks The Group undertakes a robust
could adversely impact the Group's risk management assessment that
performance if significant financial helps properly identify major
penalties are levied or a criminal risks and ensures the internal
action or other litigation is control framework remains effective
brought against the Company through regular monitoring, testing
or its directors. and review. Emerging regulatory
and compliance risks are included
in this process to enable visibility
and planning to address them.
2019 A strong culture of integrity
is promoted through our Ethics
and Compliance programme and
our independently operated Speak
Up helpline. All alleged breaches
of the Codes, including any allegations
of fraud, are investigated and
dealt with appropriately.
Regulation and compliance risk
is also considered as part of
our annual business planning
process.
------------------------ ----------------------------------------- --------------------------------------------
COVID-19 impacts Companies face increased risk As part of our ongoing process
of fraud and corruption, both of continuous improvement, we
internally and externally, due have implemented a new Ethics
to financial pressures and changes and Compliance e-learning platform
to ways of working. to provide increased engagement
on key regulatory and compliance
topics for our employees and
to communicate our standards
and expectations clearly. Internal
Audit regularly reviews internal
controls and analyses financial
transactions to mitigate the
risk of error or fraud.
------------------------ ----------------------------------------- --------------------------------------------
Principal Risks (continued)
Key Link to
People Client sales and marketing
Performance Consumer sales and marketing
Purpose Cost of food
Increased risk In unit costs
Static risk Above unit overheads
RISK AND TR DESCRIPTION MITIGATION
====================== ========================================= ===============================================
COMPLIANCE AND FRAUD (continued)
==================================================================================================================
International The international corporate As a Group, we seek to plan and
tax tax environment remains complex manage our tax affairs efficiently
and an increase in audit activity in the jurisdictions in which
from tax authorities means that we operate. In doing so, we act
the potential for tax uncertainties in compliance with relevant laws
and disputes remains high. We and disclosure requirements.
note in particular the policy
efforts being led by the EU
and the OECD which may have
a material impact on the taxation
of all international businesses.
2020 We manage and control these risks
in a proactive manner and in
doing so exercise our judgement
and seek appropriate advice from
reputable professional firms.
Tax risks are assessed as part
of the Group's formal governance
process and are reviewed by the
Board and the Audit Committee
on a regular basis.
2019
====================== ========================================= ===============================================
COVID-19 impacts Multiple initiatives to assist We are proactively managing our
businesses have been introduced tax arrangements in accordance
across tax jurisdictions in with these various government
response to the COVID-19 pandemic. led initiatives and ensure compliance
is achieved by putting robust
processes and controls in place,
including third party support
and review.
====================== ========================================= ===============================================
INFORMATION SYSTEMS AND TECHNOLOGY
==================================================================================================================
Information systems The digital world creates increasing We continually assess our cyber
and technology risk for global businesses including, risk and manage the maturity
but not limited to, technology of our enterprise infrastructure,
failures, loss of confidential platforms and security controls
data and damage to brand reputation to ensure we can effectively
through, for example, the increased defend against any current or
and instantaneous use of social future cyber attacks.
media.
2020 Disruption caused by the failure We also have in place appropriate
of key software applications, crisis management procedures
security controls or underlying to handle issues in the event
infrastructure could delay day of our defences being breached.
to day operations and management This is supported by using industry
decision making. standard tooling, experienced
professionals and partners and
regular compliance monitoring
to evaluate and mitigate potential
impacts.
2019 The use of sophisticated phishing The Group relies on a variety
and malware attacks on businesses of digital and technology platforms
is rising with an increase in to manage and deliver services
the number of companies suffering and communicate with our people,
operational disruption and loss clients, consumers and suppliers.
of data. Our decentralised model and infrastructure
help to mitigate propagation
of attacks across the Group's
technology estate.
We continue to be focused on
the need to maximise the effectiveness
of our information systems and
technology as a business enabler
and have increased our investment
in technology and people to strengthen
our platforms and enhance our
cyber security defences to mitigate
the risk of technology failure
and data loss.
---------------------- ----------------------------------------- -----------------------------------------------
COVID-19 impacts The increase in remote working We have implemented configuration
has led to an increase in the changes to block phishing emails,
risk of malware and phishing increased awareness campaigns
attacks across all organisations. to help our people identify these
types of attacks and are targeting
areas for further improvement
in the development of our awareness
campaigns.
====================== ========================================= ===============================================
Compass Group PLC
Consolidated Financial Statements
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 30 SEPTEMBER 2020
2020 2019(1,2)
(restated)
Notes GBPm GBPm
Combined sales of Group and share of equity accounted 3,
joint ventures 13 20,198 25,152
Less: share of sales of equity accounted joint ventures (258) (274)
========================================================= ====== ========= ============
Revenue 19,940 24,878
Operating costs 7 (19,650) (23,308)
========================================================= ====== ========= ============
Operating profit before joint ventures and associates 290 1,570
Share of profit after tax of joint ventures and
associates 4 56
========================================================= ====== ========= ============
Operating profit 294 1,626
========================================================= ====== ========= ============
3,
12,
Underlying operating profit(3) 13 561 1,882
Acquisition related costs 12 (70) (54)
One-off pension charge 12 - (12)
7,
Cost action programme and COVID-19 resizing costs 12 (197) (190)
Net gain/(loss) on sale and closure of businesses 11 59 (7)
Finance income 10 12
Finance costs (144) (122)
Other financing items loss (9) (15)
Profit before tax 210 1,494
Income tax expense 4 (75) (351)
========================================================= ====== ========= ============
Profit for the year 135 1,143
========================================================= ====== ========= ============
ATTRIBUTABLE TO
Equity shareholders of the Company 133 1,135
Non-controlling interests 2 8
========================================================= ====== ========= ============
Profit for the year 135 1,143
========================================================= ====== ========= ============
BASIC EARNINGS PER SHARE (PENCE) 5 8.0p 71.6p
========================================================= ====== ========= ============
DILUTED EARNINGS PER SHARE (PENCE) 5 8.0p 71.5p
========================================================= ====== ========= ============
1. Prior year comparatives have not been restated for IFRS 16 'Leases'.
Additional information about the impact of IFRS 16 is included in note
2.
2. Prior year comparatives have been restated as required by IFRS 5
'Non-current assets held for sale and discontinued operations' to account
for joint ventures and associates using the equity method retrospectively
when they cease to be classified as held for sale. Additional information
is included in note 11.
3. Underlying operating profit excludes acquisition related costs, one-off
pension charge, cost action programme and COVID-19 resizing costs, but
includes share of profit after tax of associates and operating profit
before tax of joint ventures. The reconciliation between statutory and
underlying results is provided in note 12.
Compass Group PLC
Consolidated Financial Statements (continued)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 SEPTEMBER 2020
2020 2019 (1,2)
(restated)
========================================================= ====
GBPm GBPm
========================================================= ==== ====== ==============
Profit for the year 135 1,143
=============================================================== ====== ==============
Other comprehensive income
Items that are not reclassified subsequently to the
income statement
Remeasurement of post employment benefit obligations
- loss (96) (357)
Return on plan assets, excluding interest income
- gain 78 425
Tax on items relating to the components of other
comprehensive income (4) (10)
Change in fair value of financial assets at fair (9) -
value through other comprehensive income
========================================================= ==== ====== ==============
(31) 58
============================================================== ====== ==============
Items that are or may be subsequently reclassified
to the income statement
Currency translation differences(3) (204) 131
Reclassification adjustment for movements in foreign
exchange on sale of businesses (14) 6
Tax on items relating to the components of other
comprehensive income (2) (2)
(220) 135
============================================================== ====== ==============
Total other comprehensive (loss)/income for the year (251) 193
=============================================================== ====== ==============
Total comprehensive (loss)/income for the year (116) 1,336
=============================================================== ====== ==============
ATTRIBUTABLE TO
Equity shareholders of the Company (118) 1,328
Non-controlling interests 2 8
=============================================================== ====== ==============
Total comprehensive (loss)/income for the year (116) 1,336
=============================================================== ====== ==============
1. Prior year comparatives have not been restated for IFRS 16 'Leases'.
Additional information about the impact of IFRS 16 is included in note
2.
2. Prior year comparatives have been restated as required by IFRS 5
'Non-current assets held for sale and discontinued operations' to account
for joint ventures and associates using the equity method retrospectively
when they cease to be classified as held for sale. Additional information
is included in note 11.
3. Includes gain of GBP47 million in relation to the effective portion
of the net investment hedge (2019: loss of GBP133 million).
Compass Group PLC
Consolidated Financial Statements (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 SEPTEMBER 2020
Attributable to equity shareholders
of the Company
=======================================================================
Share Capital
Share premium redemption Own Other Retained Non-controlling
capital account reserve shares(1) reserves earnings interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ========= ========= ============ =========== ========== ========== ================ ======
At 30 September
2019, as
reported(2,3) 176 182 295 (4) 4,362 (1,676) 27 3,362
Restate equity
accounting(3) - - - - - 25 - 25
At 1 October 2019,
restated(2,3) 176 182 295 (4) 4,362 (1,651) 27 3,387
Profit for the
year - - - - - 133 2 135
=================== ========= ========= ============ =========== ========== ========== ================ ======
Other
comprehensive
income
Currency
translation
differences - - - - (204) - - (204)
Remeasurement of
post employment
benefit
obligations -
loss - - - - - (96) - (96)
Return on plan
assets, excluding
interest income -
gain - - - - - 78 - 78
Tax on items
relating to
the components of
other
comprehensive
income - - - - (2) (4) - (6)
Reclassification
adjustment
for movements in
foreign
exchange on sale
of businesses - - - - (14) - - (14)
Change in fair
value of
financial
assets at fair
value through
other
comprehensive
income - - - - - (9) - (9)
=================== ========= ========= ============ =========== ========== ========== ================ ======
Total other
comprehensive
loss - - - - (220) (31) - (251)
=================== ========= ========= ============ =========== ========== ========== ================ ======
Total
comprehensive
(loss)/income
for the year - - - - (220) 102 2 (116)
=================== ========= ========= ============ =========== ========== ========== ================ ======
Fair value of
share-based
payments - - - - (2) - - (2)
Tax on items taken
directly
to equity - - - - - (2) - (2)
Change in the fair
value
of
non-controlling
interests
put options - - - - 8 - - 8
Purchase of own
shares to
satisfy employee
share-based
payments - - - (1) - - - (1)
Release of share
awards settled
in existing
shares purchased
in the market - - - - (3) - - (3)
Shares issued, net
of expenses(4) 22 7 - - 1,943 - - 1,972
Transfer of merger
reserve
to retained
earnings(4) - - - - (1,943) 1,943 - -
=================== ========= ========= ============ =========== ========== ========== ================ ======
198 189 295 (5) 4,145 392 29 5,243
Dividends paid to
shareholders
(note 6) - - - - - (427) - (427)
Dividends paid to
non-controlling
interests - - - - - - (6) (6)
Own shares issued
under share
schemes - - - 3 - - - 3
=================== ========= ========= ============ =========== ========== ========== ================ ======
At 30 September
2020 198 189 295 (2) 4,145 (35) 23 4,813
=================== ========= ========= ============ =========== ========== ========== ================ ======
Non-controlling
interest
Share-based put Total
payment Merger Revaluation Translation options other
reserve reserve reserve reserve(5) reserve reserves
OTHER RESERVES GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ============= ======== ============ ============ ================ =========
At 1 October 2019(2) 259 4,170 7 5 (79) 4,362
==================================== ============= ======== ============ ============ ================ =========
Other comprehensive income
Currency translation differences - - - (204) - (204)
Reclassification adjustment for
movements in foreign exchange on
sale of businesses - - - (14) - (14)
Tax on items relating to the
components
of other comprehensive income - - - (2) - (2)
==================================== ============= ======== ============ ============ ================ =========
Total other comprehensive loss - - - (220) - (220)
==================================== ============= ======== ============ ============ ================ =========
Fair value of share-based payments (2) - - - - (2)
Change in the fair value of
non-controlling
interests put options - - - - 8 8
Release of share awards settled
in existing shares purchased in
the market (3) - - - - (3)
Shares issued, net of expenses(4) - 1,943 - - - 1,943
Transfer of merger reserve to
retained
earnings(4) - (1,943) - - - (1,943)
At 30 September 2020 254 4,170 7 (215) (71) 4,145
==================================== ============= ======== ============ ============ ================ =========
1. Own shares held by the Group represent 147,058 ordinary
shares in Compass Group PLC (2019: 187,455 ordinary shares) and are
held by the Compass Group PLC All Share Schemes Trust (ASST). These
shares are listed on a recognised stock exchange and their market
value at 30 September 2020 was GBP1.7 million (2019: GBP3.9
million). The nominal value held at 30 September 2020 was GBP16,250
(2019: GBP20,714).
2. Prior year comparatives have not been restated for IFRS 16
'Leases'. Additional information about the impact of IFRS 16 is
included in note 2.
3. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
4. In May 2020, the Company issued 195,667,352 new ordinary
shares of 11(1) /(20) pence each, comprising the 'Placing shares',
the 'Subscription shares' and the 'Retail offer shares'. No share
premium was recorded in relation to the Placing shares and the
premium over the nominal value of these shares was credited to
merger reserve and subsequently recognised in retained earnings as
the Company was able to rely on Section 612 of the Companies Act
2006.
5. Includes loss of GBP621 million (2019: loss of GBP668
million) in relation to the balance remaining in the foreign
currency translation reserve from net investment hedging
relationships for which hedge accounting continues to apply.
Compass Group PLC
Consolidated Financial Statements (continued)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 SEPTEMBER 2020
Attributable to equity shareholders
of the Company
====================================================================
Share Capital
Share premium redemption Own Other Retained Non-controlling
capital account reserve shares reserves earnings interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ========= ========= ============ ======== ========== ========== ================ ======
At 1 October 2018(1) 176 182 295 - 4,208 (2,234) 25 2,652
Profit for the
year(2) - - - - - 1,135 8 1,143
====================== ========= ========= ============ ======== ========== ========== ================ ======
Other comprehensive
income
Currency translation
differences - - - - 131 - - 131
Remeasurement of post
employment
benefit obligations
- loss - - - - - (357) - (357)
Return on plan
assets, excluding
interest income -
gain - - - - - 425 - 425
Tax on items relating
to
the components of
other comprehensive
income - - - - (2) (10) - (12)
Reclassification
adjustment
for movements in
foreign
exchange on sale of
businesses - - - - 6 - - 6
====================== ========= ========= ============ ======== ========== ========== ================ ======
Total other
comprehensive
income - - - - 135 58 - 193
====================== ========= ========= ============ ======== ========== ========== ================ ======
Total comprehensive
income
for the year(2) - - - - 135 1,193 8 1,336
====================== ========= ========= ============ ======== ========== ========== ================ ======
Fair value of
share-based
payments - - - - 27 - - 27
Changes to
non-controlling
interests due to
acquisitions
and disposals - - - - - - (1) (1)
Tax on items taken
directly
to equity - - - - - 4 - 4
Change in the fair
value
of non-controlling
interest put options - - - - (8) - - (8)
Purchase of own
shares to
satisfy employee
share-based
payments - - - (4) - - - (4)
Other changes - - - - - (3) - (3)
====================== ========= ========= ============ ======== ========== ========== ================ ======
176 182 295 (4) 4,362 (1,040) 32 4,003
Dividends paid to
shareholders
(note 6) - - - - - (611) - (611)
Dividends paid to
non-controlling
interests - - - - - - (5) (5)
====================== ========= ========= ============ ======== ========== ========== ================ ======
At 30 September
2019(2) 176 182 295 (4) 4,362 (1,651) 27 3,387
====================== ========= ========= ============ ======== ========== ========== ================ ======
Non-controlling
interest
Share-based put Total
payment Merger Revaluation Translation options other
reserve reserve reserve reserve(3) reserve reserves
OTHER RESERVES GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ============= ======== ============ ============ ================ =========
At 1 October 2018(1) 232 4,170 7 (130) (71) 4,208
==================================== ============= ======== ============ ============ ================ =========
Other comprehensive income
Currency translation differences - - - 131 - 131
Reclassification adjustment for
movements in foreign exchange on
sale of businesses - - - 6 - 6
Tax on items relating to the
components
of other comprehensive income - - - (2) - (2)
==================================== ============= ======== ============ ============ ================ =========
Total other comprehensive income - - - 135 - 135
==================================== ============= ======== ============ ============ ================ =========
Fair value of share-based payments 27 - - - - 27
Change in the fair value of
non-controlling
interests put options - - - - (8) (8)
At 30 September 2019 259 4,170 7 5 (79) 4,362
==================================== ============= ======== ============ ============ ================ =========
1. Prior year comparatives have not been restated for IFRS 16
'Leases'. Additional information about the impact of IFRS 16 is
included in note 2.
2. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
3. Includes loss of GBP668 million (2018: GBP529 million) in
relation to the balance remaining in the foreign currency
translation reserve from net investment hedging relationships for
which hedge accounting continues to apply.
Compass Group PLC
Consolidated Financial Statements (continued)
CONSOLIDATED BALANCE SHEET
AT 30 SEPTEMBER 2020
30 September
30 September 2019(1,2)
2020 (restated)
Notes GBPm GBPm
================================================== ====== ============= =============
NON-CURRENT ASSETS
Goodwill 8 4,669 4,576
Other intangible assets 1,678 1,426
Contract fulfilment assets and contract costs 972 976
Right of use assets 860 -
Property, plant and equipment 970 1,052
Interests in joint ventures and associates 345 306
Other investments 75 96
Post employment benefit assets 441 448
Trade and other receivables 99 96
Deferred tax assets 146 76
Derivative financial instruments(3) 237 207
================================================== ====== ============= =============
Non-current assets 10,492 9,259
================================================== ====== ============= =============
CURRENT ASSETS
Inventories 310 404
Trade and other receivables 2,319 3,051
Tax recoverable 111 88
Cash and cash equivalents(3) 1,484 398
Derivative financial instruments(3) 5 -
================================================== ====== ============= =============
4,229 3,941
Assets held for sale 11 13 135
================================================== ====== ============= =============
Current assets 4,242 4,076
================================================== ====== ============= =============
Total assets 14,734 13,335
================================================== ====== ============= =============
CURRENT LIABILITIES
Short term borrowings(3) (106) (186)
Short term lease liabilities(3) (197) -
Derivative financial instruments(3) (9) (6)
Provisions (337) (223)
Current tax liabilities (228) (247)
Trade and other payables (3,615) (4,718)
================================================== ====== ============= =============
(4,492) (5,380)
Liabilities directly associated with assets held
for sale 11 (7) (30)
================================================== ====== ============= =============
Current liabilities (4,499) (5,410)
================================================== ====== ============= =============
NON-CURRENT LIABILITIES
Long term borrowings(3) (3,673) (3,679)
Long term lease liabilities(3) (745) -
Derivative financial instruments(3) (2) (6)
Post employment benefit obligations (251) (259)
Provisions (300) (266)
Deferred tax liabilities (120) (114)
Trade and other payables (331) (214)
================================================== ====== ============= =============
Non-current liabilities (5,422) (4,538)
================================================== ====== ============= =============
Total liabilities (9,921) (9,948)
================================================== ====== ============= =============
Net assets 4,813 3,387
================================================== ====== ============= =============
EQUITY
Share capital 198 176
Share premium account 189 182
Capital redemption reserve 295 295
Own shares (2) (4)
Other reserves 4,145 4,362
Retained earnings (35) (1,651)
Total equity shareholders' funds 4,790 3,360
Non-controlling interests 23 27
================================================== ====== ============= =============
Total equity 4,813 3,387
================================================== ====== ============= =============
1. Prior year comparatives have not been restated for IFRS 16
'Leases'. Additional information about the impact of IFRS 16 is
included in note 2.
2. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
3. Component of net debt.
Approved by the Board of Directors on 24 November 2020 and
signed on its behalf by
Dominic Blakemore, Director
Karen Witts, Director
Compass Group PLC
Consolidated Financial Statements (continued)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 30 SEPTEMBER 2020
2020 2019(1)
Notes GBPm GBPm
================================================================ ====== ======== ========
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 9 1,218 2,396
Interest paid (145) (116)
Tax received 40 26
Tax paid (268) (354)
================================================================ ====== ======== ========
Net cash from operating activities 845 1,952
================================================================ ====== ======== ========
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of subsidiary companies(2) 11 (464) (451)
Purchase of additional interest in joint ventures
and associates (15) (27)
Proceeds from sale of subsidiary companies, joint
ventures and associates net of exit costs(2) 29 101
Purchase of intangible assets (166) (185)
Purchase of contract fulfilment assets (272) (286)
Purchase of property, plant and equipment (271) (352)
Proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets 43 47
Purchase of other investments (1) (13)
Proceeds from sale of other investments 16 3
Dividends received from joint ventures and associates 61 48
Interest received 8 9
================================================================ ====== ======== ========
Net cash from investing activities (1,032) (1,106)
================================================================ ====== ======== ========
CASH FLOW FROM FINANCING ACTIVITIES
Issue of ordinary share capital, net of expenses(3) 1,972 -
Purchase of own shares to satisfy employee share-based
payments(4) (1) (4)
In crease in borrowings 10 2,441 1,830
Repayment of borrowings 10 (2,549) (2,631)
Repayment of principal under lease liabilities 10 (152) (4)
Equity dividends paid 6 (427) (611)
Dividends paid to non-controlling interests (6) (5)
================================================================ ====== ======== ========
Net cash from financing activities 1,278 (1,425)
================================================================ ====== ======== ========
CASH AND CASH EQUIVALENTS
Net increase/(decrease) in cash and cash equivalents 10 1,091 (579)
Cash and cash equivalents at beginning of the year 10 398 969
Currency translation (losses)/gains on cash and cash
equivalents 10 (4) 9
================================================================ ====== ======== ========
Total cash and cash equivalents 1,485 399
================================================================ ====== ======== ========
Cash reclassified as held for sale (1) (1)
================================================================ ====== ======== ========
Cash and cash equivalents at end of the year 10 1,484 398
================================================================ ====== ======== ========
1. Prior year comparatives have not been restated for IFRS 16 'Leases'.
Additional information about the impact of IFRS 16 is included in note
2.
2. Net of cash acquired or disposed and payments received or made under
warranties and indemnities.
3. Proceeds from issue of share capital of GBP1,972 million are shown
net of issue costs of GBP34 million.
4. Including stamp duty and brokers' commission.
Compass Group PLC
Consolidated Financial Statements (continued)
RECONCILIATION OF FREE CASH FLOW
FOR THE YEARED 30 SEPTEMBER 2020
2020 2019 (1)
GBPm GBPm
Net cash from operating activities 845 1,952
Purchase of intangible assets (166) (185)
Purchase of contract fulfilment assets (272) (286)
Purchase of property, plant and equipment (271) (352)
Repayment of principal under lease liabilities(2) (152) -
Proceeds from sale of property, plant and equipment/intangible
assets/contract fulfilment assets 43 47
Purchase of other investments (1) (13)
Proceeds from sale of other investments 16 3
Dividends received from joint ventures and associates 61 48
Interest received 8 9
Dividends paid to non-controlling interests (6) (5)
Free cash flow 105 1,218
================================================================= ====== =========
Add back: cash payments related to cost action programme
and COVID-19 resizing costs 108 29
================================================================= ====== =========
Underlying free cash flow 213 1,247
================================================================= ====== =========
1. Prior year comparatives have not been restated for IFRS 16
'Leases'. Additional information about the impact of IFRS 16 is
included in note 1.
2. Free cash flow has been redefined on adoption of IFRS 16 to
include the payment of lease principal amounts, which were excluded
from free cash flow in the prior year.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
1 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information included within this announcement has
been prepared using accounting policies in accordance with
International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB) and adopted for
use in the European Union (EU), and in accordance with the
Disclosure Guidance and Transparency Rules (DTR) of the Financial
Conduct Authority.
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 30 September 2020
or 2019, but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies and those
for 2020 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; its Reports
were unqualified, did not draw attention to any matters by way of
emphasis without qualifying its Report and did not contain
statements under s498(2) or (3) of the Companies Act 2006.
Going concern
The uncertainty as to the future impact on the financial
performance and cash flows of the Group as a result of the recent
COVID-19 pandemic has been considered as part of the Group's
adoption of the going concern basis in the preparation of the
consolidated financial statements. The consolidated financial
statements are prepared on a going concern basis which the
directors believe to be appropriate for the reasons stated
below.
At 30 September 2020, the Group's financing arrangements
consisted of sterling and Euro bonds (GBP2,501 million) and USD US
Private Placements (USPP) (GBP1,172 million). In addition, the
Group has Revolving Credit Facilities of GBP2,800 million ( GBP140
million committed to June 2024, GBP1,860 million committed to June
2025 and GBP800 million committed to October 2021), which were
fully undrawn, an unutilised GBP600 million limit under the Bank of
England Covid Corporate Financing Facility and GBP1,387 million
cash net of overdrafts. At the date of approving these consolidated
financial statements the funding position of the Group has remained
unchanged and the cash position is not materially different.
The next term debt maturity is a USPP of $398 million on 1
October 2021 and there are no other debt maturities in the 18
months to 31 March 2022.
The USPPs are subject to certain financial covenants, which are
usually tested on 31 March and 30 September every year. In May
2020, USPP noteholders agreed to waive the leverage covenant test
as at 30 September 2020 and March 2021. The interest cover covenant
test was also waived at 30 September 2020 and rebased on a six
month proforma basis as at March 2021. The Group's other financing
arrangements do not contain any financial covenants.
The directors have prepared projected cash flow information for
18 months from 30 September 2020. The directors have prepared
various scenarios in assessing the impact of COVID-19 on future
financial performance and cash flows with the key judgements
applied being the likely time period of a further global wave of
infections, the extent to which government enforced restrictions
would impact volumes and the extent to which performance would
recover subsequent to these restrictions being lifted.
In the base case scenario, consistent with current trading
patterns, the business that is closed is assumed to continue
reopening in a phased manner with a gradual recovery. In this base
case scenario, the directors consider that the Group will continue
to operate within its available committed facilities with
sufficient headroom and meet its financial covenant obligations
under its USPP debt agreements.
In a severe but plausible downside scenario, the directors have
assumed that a further global wave of infections and government
enforced restrictions occur in the financial year 2021 and will
last for a full quarter, with trading patterns and subsequent
recovery mirroring that experienced during the first global wave.
The scenario mirrors the experience of the first severe global wave
experienced in all major markets at the same time. It has also been
assumed that no additional debt is raised during the assessment
period. This scenario also assumes a temporary cessation of M&A
activity, reduction in discretionary capital expenditure and no
dividend payments as mitigating actions.
In this severe but plausible downside scenario modelled by the
directors, due to the significant loss of revenue, whilst the Group
continues to retain sufficient committed headroom on liquidity, the
financial covenants under the Group's USPP agreements could be
potentially breached over the next two testing dates (interest
cover in March 2021 and leverage ratio in September 2021).
In the event that financial covenants under the Group's USPP
agreements could be breached, various alternatives exist to manage
this risk including repaying the loan notes from available headroom
in advance of their maturity or negotiating further covenant
waivers.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
1 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Additionally, a combination of strong investment grade credit
ratings and a well established presence in the debt capital markets
provides the directors with confidence that, if necessary, the
Group could raise additional debt finance as required. The Group
also has multi-year contracts with a number of clients and
suppliers across different geographic areas and industries. This
diversification provides the directors with the confidence that the
business has long term sustainable commercial relationships that
will ensure that the business will continue to generate sufficient
cash flow.
Consequently, the directors are confident that the Group and
Company will have sufficient funds to continue to meet their
liabilities as they fall due for at least 12 months from the date
of approval of the financial statements and therefore have prepared
the financial statements on a going concern basis.
Critical accounting judgements
As at 30 September 2020 the Group noted one critical judgement
relating to the uncertainty that the COVID-19 pandemic has caused
on the future financial performance of the Group as part of the
Group's adoption of the going concern basis in the preparation of
the consolidated financial statements. The consolidated financial
statements are prepared on a going concern basis and management
have determined that there are no material uncertainties relating
to events or conditions that may cast significant doubt upon the
Group's ability to continue as a going concern over the period
assessed. Additional information on the judgement management has
applied in adopting the going concern assumption is included on
page 37.
There are no other judgements that management consider to be
critical in the preparation of these financial statements.
Key sources of estimation uncertainty
The major sources of estimation uncertainty are in relation to
goodwill and post employment benefits as noted in previous years.
In addition, management has considered the impact of COVID-19 on
the consolidated financial statements as at 30 September 2020 and
identified a number of COVID-19 specific related estimates. These,
together with taxes, are not considered to be major sources of
uncertainty as defined by IAS 1 'Presentation of financial
statements' as a reasonably possible change in key assumptions is
not considered likely to have a material effect on the estimate in
the next 12 months.
Major sources of estimation uncertainty (goodwill and post
employment benefits) and other areas of uncertainty including those
arising from COVID-19 are described in more detail below:
COVID-19 specific related estimates
-- Recoverability of contract related non-current assets
(contract fulfilment assets and contract costs, right of use
assets, property, plant and equipment and intangible assets)
The Group has tested for impairment all of its contract related
non-current assets where there are indicators of impairment.
Impairment indicators were considered to be present when client
contracts had low profitability or were loss making due to a
reduction in volumes as a result of COVID-19. In these instances,
management has estimated the recoverable value of these assets and
compared it to their carrying value in order to estimate any
impairment to be recorded. The estimate of the recoverable amount
was derived from the most recent management forecasts in relation
to the likely trading performance over the remaining life of the
contracts, taking into account the impact of COVID-19 and
likelihood of a second wave, the time period of government enforced
restrictions and the extent to which performance would recover in
the following year. Due to the significant uncertainty regarding
the ultimate impact of COVID-19, the assumptions used in these
estimates include an increased level of inherent uncertainty.
Further details in relation to impairment of contract related
non-current assets are provided in note 7
-- Impairment of trade receivables
The Group considers that, given the widespread impact that the
COVID-19 pandemic is having globally with the resulting economic
downturn, there is additional uncertainty when determining the
assumptions used in calculating expected future credit losses. The
Group has no significant credit concentration risk. The largest
client constitutes only 2.7% of Group revenue and the top 10
clients account for less than 11% of Group revenue
-- Provisions
The Group has made provisions for unavoidable costs arising from
certain contracts. These provisions are estimates based on expected
costs and the timing of future cash flows which are dependent on
future events and market conditions, which now have become more
uncertain due to COVID-19. Any difference between expectations and
the actual future liability will be accounted for in the period
when such determination is made
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
1 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Taxes
The Group has operations in around 45 countries that are subject
to direct and indirect taxes. The tax position is often not agreed
with tax authorities until sometime after the relevant period end
and, if subject to a tax audit, may be open for an extended period.
In these circumstances, the recognition of tax liabilities and
assets requires management estimation to reflect a variety of
factors; these include the status of any ongoing tax audits,
historical experience, interpretations of tax law and the
likelihood of settlement.
The changing regulatory environment affecting all
multi-nationals increases the estimation uncertainty associated
with calculating the Group's tax position. This is as a result of
amendments to tax law at the national level, increased cooperation
between tax authorities and greater cross border transparency.
The Group estimates and recognises additional tax liabilities as
appropriate based on management's interpretation of country
specific tax law, external advice and the likelihood of settlement.
Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact
the results in the year in which such determination is made.
In addition, calculation and recognition of temporary
differences giving rise to deferred tax assets requires estimates
and judgements to be made on the extent to which future taxable
profits are available against which these temporary differences can
be utilised.
Further details of this are provided in note 4.
Goodwill
The Group tests at least annually whether goodwill has suffered
any impairment. The recoverable amounts of the Group's
cash-generating units (CGU) have been determined based on value in
use calculations, which this year involve a higher inherent level
of estimation due to the uncertainty caused by COVID-19. These
calculations require the use of estimates and assumptions
consistent with the most up to date budgets and plans that have
been formally approved by management. Although the impact of
COVID-19 is not expected to significantly impact the long term
prospects of the business, the size of the short term shock of the
pandemic combined with higher discount rates and lower long term
growth rates have reduced the level of headroom in certain CGUs.
The key assumptions used for the value in use calculations and
sensitivity analysis are set out in note 8.
Post employment benefits
The Group's defined benefit pension schemes and similar
arrangements are assessed annually in accordance with IAS 19. The
present value of the defined benefit liabilities is based on
assumptions determined with independent actuarial advice. The size
of the net surplus/deficit is sensitive to the market value of the
assets held by the schemes and to actuarial assumptions, which
include price inflation, pension and salary increases, the discount
rate used in assessing actuarial liabilities, mortality and other
demographic assumptions.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
2 IMPACT OF THE ADOPTION OF IFRS 16
The Group has adopted IFRS 16 'Leases' on 1 October 2019 using
the modified retrospective transition approach and therefore the
comparative information has not been restated and continues to be
reported under IAS 17 'Leases' and IFRIC 4 'Determining whether an
arrangement contains a lease'. The impact of the adoption of IFRS
16 'Leases' on the Group's consolidated financial statements is
included below.
Consolidated balance sheet (extract)
The table below sets out the opening balance sheet adjustments
recognised at the date of initial application of IFRS 16. Where
practical, line items which are not impacted by the adoption have
been aggregated within the relevant sub-totals:
At 30 IFRS 16 At 1 Oct
Sep 2019(1) transition 2019
(IAS 17 (IFRS
basis) adjustments 16 basis)
GBPm GBPm GBPm
=============================== ============= ============ ===========
NON-CURRENT ASSETS
Right of use assets - 956 956
Property, plant and equipment 1,052 (4) 1,048
Other non-current assets 8,207 - 8,207
=============================== ============= ============ ===========
Non-current assets 9,259 952 10,211
=============================== ============= ============ ===========
CURRENT ASSETS
Trade and other receivables 3,051 (7) 3,044
Other current assets 1,025 - 1,025
=============================== ============= ============ ===========
Current assets 4,076 (7) 4,069
=============================== ============= ============ ===========
Total assets 13,335 945 14,280
=============================== ============= ============ ===========
CURRENT LIABILITIES
Short term borrowings (186) 1 (185)
Short term lease liabilities - (155) (155)
Provisions (223) 5 (218)
Trade and other payables (4,718) 28 (4,690)
Other current liabilities (283) - (283)
=============================== ============= ============ ===========
Current liabilities (5,410) (121) (5,531)
=============================== ============= ============ ===========
NON-CURRENT LIABILITIES
Long term borrowings (3,679) 2 (3,677)
Long term lease liabilities - (843) (843)
Provisions (266) 17 (249)
Other non-current liabilities (593) - (593)
=============================== ============= ============ ===========
Non-current liabilities (4,538) (824) (5,362)
=============================== ============= ============ ===========
Total liabilities (9,948) (945) (10,893)
=============================== ============= ============ ===========
Net assets 3,387 - 3,387
=============================== ============= ============ ===========
1. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
Upon transition on 1 October 2019, the Group recognised
additional lease liabilities of GBP995 million for the present
value of the lease payments due under the lease contracts. The
right of use asset of GBP956 million is recognised at an amount
equal to the lease liability and adjusted by property, plant and
equipment held under finance leases, existing prepaid or accrued
lease payments, lease incentives and onerous lease provisions
recognised in the consolidated balance sheet at the date of initial
application. The net impact on the consolidated balance sheet is
GBPnil. The weighted average incremental borrowing rate applied to
the Group's lease liabilities recognised in the balance sheet at 1
October 2019 was 3.8%.
The table below presents a reconciliation of the minimum
operating lease commitments disclosed applying IAS 17 at 30
September 2019 to the lease liabilities recognised at 1 October
2019 under IFRS 16:
GBPm
====================================================================== ======
Total minimum lease payments reported at 30 September 2019 under
IAS 17 1,102
Impact of discounting (237)
Short term leases (35)
Low value leases (27)
Leases not yet commenced (27)
Extension and termination options reasonably certain to be exercised 219
====================================================================== ======
Additional lease liabilities recognised on transition to IFRS
16 at 1 October 2019 995
Existing finance leases 3
====================================================================== ======
Total lease liabilities recognised at 1 October 2019(1) 998
====================================================================== ======
1. Of the amounts recognised as lease liabilities upon
transition, GBP80 million was subsequently reclassified to be
presented within the liabilities directly associated with assets
held for sale, which related to leases held by the Japanese
Highways business held for sale at 30 September 2019.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
2 IMPACT OF THE ADOPTION OF IFRS 16 (CONTINUED)
The reconciling items included in the table above are as
follows:
-- impact of discounting: previously disclosed lease commitments
were undiscounted and under the modified retrospective transition
method, lease payments were discounted on transition using an
incremental borrowing rate
-- short term leases: the Group has applied the practical
expedient to classify leases with a lease term ending within 12
months of the date of initial application of IFRS 16 as short term
leases. The Group has also adopted the accounting policy
recognition exemption for short term leases
-- low value leases: the Group has adopted the accounting policy
recognition exemption for leases of low value assets with an
initial fair value less than approximately GBP5,000
-- leases not yet commenced: lease agreements where the
underlying asset is not available for use on the transition date
were not recognised as lease liabilities under IFRS 16
-- extension and termination options reasonably certain to be
exercised: under IAS 17 lease commitments only included non
cancellable periods in the lease agreements while under IFRS 16 the
lease term includes periods covered by extension and termination
options. Extension and termination options are included within a
number of lease agreements and provide the Group with operational
flexibility. For lease contracts that include such options, the
Group has applied judgement to determine the lease term, which can
affect the amount of lease liabilities and right of use assets
recognised.
Consolidated income statement
Under IFRS 16, the operating lease expense previously reported
in operating costs has been replaced by a depreciation of the right
of use asset, which is lower than the operating lease expense
recognised under IAS 17, and a separate interest expense on the
lease liabilities, recorded in finance costs. These changes result
in a higher operating profit, operating margin and finance costs
and in a lower profit before tax for the period. The Group
transitioned to IFRS 16 using the modified retrospective approach
without restating prior period comparatives, therefore prior period
comparatives reported under IAS 17 are not directly comparable.
The adoption of IFRS 16 for the year ended 30 September 2020 has
resulted in a GBP28 million increase in the Group's operating
profit compared to the operating profit had the Group continued to
apply IAS 17. This increase is offset by additional finance costs
of GBP36 million and GBP4 million lower gain on sale and closure of
businesses, resulting in a net decrease in the Group's profit
before tax of GBP12 million.
Consolidated cash flow statement
There has been no overall cash flow impact arising from the
application of IFRS 16. Lease payments are now presented as
financing cash flows, representing payments of principal, and as
operating cash flows, representing payments of interest. Variable
lease payments that do not depend on an index or rate are not
included in the lease liability and continue to be presented as
operating cash flows. In prior years, operating lease payments were
presented within cash flows from operating activities. This change
in presentation has resulted in a GBP151 million increase in net
cash from operating activities (excluding GBP1 million in relation
to repayments of obligations under finance leases which existed
before the transition to IFRS 16), offset by a decline in net cash
from financing activities for the same amount.
Underlying and other alternative performance measures
Underlying and other alternative performance measures have been
amended, where necessary, to reflect the adoption of IFRS 16. The
impact of IFRS 16 on the Group's alternative performance measures
includes the following:
-- underlying operating profit has increased by GBP28 million,
including GBP18 million in North America, GBP6 million in Europe
and GBP4 million in Rest of World
-- underlying basic earnings per share has decreased by 0.5
pence, reflecting higher finance costs on lease liabilities of
GBP36 million offset by the increase in underlying operating
profit
-- the net debt definition has been updated to include the
additional lease liabilities resulting from IFRS 16. As a result,
net debt has increased by GBP939 million as at 30 September 2020
(excluding GBP3 million in relation to finance lease liabilities
which existed before the transition to IFRS 16)
-- free cash flow has been redefined to include the payment of
lease principal amounts, which were excluded from free cash flow in
the prior year
To provide a meaningful comparison with prior year which is
reported under IAS 17 'Leases' the underlying operating profit and
growth rates for the year ended 30 September 2020 have therefore
also been presented in accordance with IAS 17 as shown in note
13.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
3 SEGMENTAL REPORTING
Geographical segments
====================================
North Rest
America Europe of World Total
REVENUE(1) GBPm GBPm GBPm GBPm
====================================== ======== ========== ========= ========== ============= ========
YEARED 30 SEPTEMBER 2020
Business & Industry 3,901 2,559 921 7,381
Education 2,819 609 116 3,544
Healthcare & Seniors 4,536 922 394 5,852
Sports & Leisure 1,272 393 69 1,734
Defence, Offshore & Remote 218 565 904 1,687
================================================ ========== ========= ========== ============= ========
Combined sales of Group and share of equity accounted
joint ventures (2,3) 12,746 5,048 2,404 20,198
============================================================ ========= ========== ============= ========
YEARED 30 SEPTEMBER 2019(4)
Business & Industry 5,077 3,383 1,211 9,671
Education 3,495 838 191 4,524
Healthcare & Seniors 4,422 976 448 5,846
Sports & Leisure 2,454 589 283 3,326
Defence, Offshore & Remote 246 605 934 1,785
================================================ ========== ========= ========== ============= ========
Combined sales of Group and share of equity accounted
joint ventures (2,3) 15,694 6,391 3,067 25,152
1. There is no inter-segmental trading.
2. This is the revenue measure considered by the chief operating decision
maker.
3. Underlying revenue from external customers arising in the UK, the
Group's country of domicile, was GBP1,520 million (2019: GBP2,143 million).
Underlying revenue from external customers arising in the US region
was GBP12,005 million (2019: GBP14,747 million). Underlying revenue
from external customers arising in all countries outside the UK from
which the Group derives revenue was GBP18,678 million (2019: GBP23,009
million).
4. The revenue relating to the Group's geographical segments of Europe
and Rest of World has been reclassified to reflect a change in the way
those segments are managed by the chief operating decision maker: Turkey
and Middle East are now part of the Europe segment. Revenue of GBP537
million has been reclassified from Rest of World to Europe for the year
ended 30 September 2019.
Geographical segments
North Rest Central
America Europe of World Activities Total
OPERATING PROFIT GBPm GBPm GBPm GBPm GBPm
====================================== ======== ========== ========= ========== ============= ========
YEARED 30 SEPTEMBER 2020
Underlying operating profit/(loss) before
joint ventures and associates 605 (57) 94 (85) 557
Add: Share of profit before tax
of joint ventures 1 28 - - 29
================================================ ========== ========= ========== =============
Regional underlying operating profit/(loss)(1) 606 (29) 94 (85) 586
Add: Share of (loss)/profit of associates (28) 5 (2) - (25)
================================================ ========== ========= ========== ============= ========
Group underlying operating profit(1) 578 (24) 92 (85) 561
================================================ ========== ========= ========== ============= ========
Geographical segments
North Rest Central
America Europe of World Activities Total
OPERATING PROFIT GBPm GBPm GBPm GBPm GBPm
======================================= ======= ========= ========== ========== ============ =========
YEARED 30 SEPTEMBER 2019(2)
Underlying operating profit before joint
ventures and associates 1,289 389 228 (80) 1,826
Add: Share of profit before tax
of joint ventures 1 32 4 - 37
======================================= ======= ========= ========== ========== ============ =========
Regional underlying operating profit (1) 1,290 421 232 (80) 1,863
Add: Share of profit of associates 10 9 - - 19
======================================= ======= ========= ========== ========== ============ =========
Group underlying operating profit(1) 1,300 430 232 (80) 1,882
======================================= ======= ========= ========== ========== ============ =========
1. Underlying operating profit is the profit measure considered by the
chief operating decision maker.
2. The underlying operating profit relating to the Group's geographical
segments of Europe and Rest of World has been reclassified to reflect
a change in the way those segments are managed by the chief operating
decision maker: Turkey and Middle East are now part of the Europe segment.
Regional underlying operating profit of GBP53 million has been reclassified
from Rest of World to Europe for the year ended 30 September 2019.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
4 TAX
2020 2019
RECOGNISED IN THE INCOME STATEMENT: INCOME TAX EXPENSE GBPm GBPm
====== ======
CURRENT TAX
Current year 232 387
Adjustment in respect of prior
years (38) (29)
================================================================== ====== ======
Current tax expense 194 358
DEFERRED TAX
Current year (124) (8)
Impact of changes in statutory
tax rates (3) (1)
Adjustment in respect of prior
years 8 2
================================================================== ====== ======
Deferred tax expense (119) (7)
================================================================== ====== ======
TOTAL INCOME TAX
Income tax expense 75 351
================================================================== ====== ======
In April 2019, the European Commission published its final
decision on the Group Financing Exemption in the UK's Controlled
Foreign Company legislation concluding that part of the legislation
is in breach of EU State Aid rules. The UK government and UK-based
multinational companies, including Compass, have appealed to the
General Court of the European Union against the decision. The UK
government is required to start collection proceedings in advance
of the appeal results but at present it is not possible to
determine the amount that the UK government will seek to collect.
If the decision of the European Commission is upheld, we have
calculated our maximum potential liability to be GBP113 million at
30 September 2020. The final impact on the Group remains uncertain
and our current assessment is that no provision is required.
The increasingly complex international corporate tax environment
and an increase in audit activity from tax authorities means that
the potential for tax uncertainties has increased. The Group is
currently subject to a number of reviews and audits in
jurisdictions around the world that primarily relate to complex
corporate tax issues. None of these audits is currently expected to
have a material impact on the Group's financial position.
In addition, we continue to engage with tax authorities and
other regulatory bodies on payroll and sales tax reviews, and
compliance with labour laws and regulations. The federal tax
authorities in Brazil have issued a number of notices of deficiency
relating primarily to the PIS / COFINS treatment of certain food
costs and the corporate income tax treatment of goodwill deductions
which we have formally objected to and which are now proceeding
through the appeals process. At 30 September 2020, the total amount
assessed in respect of these matters is GBP36 million. The
possibility of further assessments cannot be ruled out and the
judicial process is likely to take a number of years to conclude.
Based on the opinion of our local legal advisers, we do not
currently consider it likely that we will have to settle a
liability with respect to these matters, and on this basis, no
provision has been recorded. We therefore do not currently expect
any of these issues to have a material impact on the Group's
financial position.
Most of the Group's tax losses and other temporary differences
recognised as deferred tax assets do not have an expiry date. The
recognition of net deferred tax assets is based on the most recent
financial budgets and forecasts approved by management.
Deferred tax assets have not been recognised in respect of tax
losses of GBP263 million (2019: GBP232 million) and other temporary
differences of GBP28 million (2019: GBP24 million). Of the
unrecognised tax losses, GBP236 million (2019: GBP212 million) will
expire at various dates between 2021 and 2028. These deferred tax
assets have not been recognised as the timing of recovery is
uncertain.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
5 EARNINGS PER SHARE
The calculation of earnings per share is based on earnings after tax
and the weighted average number of shares in issue during the period.
The underlying earnings per share figures have been calculated based
on earnings excluding the effect of acquisition related costs, one-off
pension charge, cost action programme charge and COVID-19 resizing costs,
gains and losses on sale and closure of businesses, hedge accounting
ineffectiveness, change in fair value of investments and the tax attributable
to these amounts. These items are excluded in order to show the underlying
trading performance of the Group.
2020 2019(1)
==================================================================
ATTRIBUTABLE PROFIT GBPm GBPm
================================================================== ====== ========
Profit for the period attributable to equity shareholders
of the Company 133 1,135
Adjustments stated net of tax:
Acquisition related costs 50 41
One-off pension charge - 10
Cost action programme and COVID-19 resizing costs 147 149
Net (gain)/loss on sale and closure of businesses (28) 4
Other financing items including hedge accounting ineffectiveness
and change in the fair value of investments 7 12
Underlying profit for the year from operations 309 1,351
================================================================== ====== ========
1. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
2020 2019
Ordinary Ordinary
shares shares
of of
11(1/20) 11(1/20)
p each p each
AVERAGE NUMBER OF ORDINARY SHARES millions millions
========================================================= =========== ===========
Average number of shares for basic earnings per share 1,658 1,586
Dilutive share options 1 1
========================================================= =========== ===========
Average number of shares for diluted earnings per share 1,659 1,587
========================================================= =========== ===========
Basic earnings Diluted earnings
per share per share
====================== ======================
2020 2019(1) 2020 2019(1)
Earnings Earnings Earnings Earnings
=============================================
per share per share per share per share
EARNINGS PER SHARE pence pence pence pence
============================================= ========== ========== ========== ==========
From operations 8.0 71.6 8.0 71.5
Adjustments stated net of tax:
Acquisition related costs 3.0 2.6 3.0 2.6
One-off pension charge - 0.6 - 0.6
Cost action programme and COVID-19 resizing
costs 8.9 9.4 8.9 9.4
Net (gain)/loss on sale and closure of
businesses (1.7) 0.2 (1.7) 0.2
Other financing items including hedge
accounting ineffectiveness and change
in the fair value of investments 0.4 0.8 0.4 0.8
From underlying operations 18.6 85.2 18.6 85.1
============================================= ========== ========== ========== ==========
1. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
6 DIVIDS
The Company announced on 23 April 2020 that the Board had
decided not to pay an interim dividend (2019: 13.1 pence per share)
or to recommend the payment of a final dividend (2019: 26.9 pence
per share) in respect of the year ended 30 September 2020.
2020 2019
================= =================
Dividends Dividends
per per
share share
DIVIDS ON ORDINARY SHARES pence GBPm pence GBPm
=============================================== ========== ===== ========== =====
Amounts recognised as distributions to equity
shareholders during the year:
Final 2018 - - 25.4 403
Interim 2019 - - 13.1 208
Final 2019 26.9 427 - -
Total dividends 26.9 427 38.5 611
=============================================== ========== ===== ========== =====
The Board recognises the importance of dividends to the
Company's shareholders and will keep future dividends under review
and will restart payments when it is appropriate to do so.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
7 OPERATING COSTS
Cost action programme
The cost action programme, which was announced in November 2019,
includes a series of actions aimed to manage the Group's cost base
in light of the deteriorating economic outlook, volume weakness and
decline in consumer spending observed at that time. Charges have
continued to be incurred in the current year where the cost actions
of the original plan had not been fully implemented in the prior
year.
The Group's consolidated income statement includes a cost action
programme charge of GBP75 million (2019: GBP190 million). The cost
action programme charge in the current year mainly relates to
redundancy costs while the 2019 charge includes GBP120 million in
respect of losses on onerous contracts and impairment of
non-current assets.
A total of GBP66 million (2019: GBP29 million) has been paid
during the year in relation to this programme.
COVID-19 resizing costs
Given the trading backdrop from the impact of COVID-19, the
Group is taking prompt actions to ensure there is a right sized
labour model for the future and has incurred GBP122 million of
costs. The programme will continue into 2021.
A total of GBP42 million (2019: GBPnil) has been paid during the
year in relation to this programme.
Impairment losses
The Group has tested for impairment all of its contract related
non-current assets (contract fulfilment assets and contract costs
right of use assets, property, plant and equipment and intangible
assets) where there are indicators of impairment. Impairment
indicators were considered to be present when client contracts had
low profitability or were loss making due to a reduction in volumes
as a result of COVID-19. In these instances, management has
estimated the recoverable value of these assets and compared it to
their carrying value in order to estimate any impairment to be
recorded. As a result, the Group recorded impairment charges of
GBP88 million.
Management has considered the impact of reasonable changes in
assumptions used, including a further sustained impact of COVID-19
and a slower recovery than forecast. The Group's client base
spreads across numerous countries and sectors comprising a large
portfolio of client contracts individually of relative low value.
As a result, a reasonable change in assumptions would not lead to a
material change in the next 12 months to the impairment charge
recorded.
Prior year contract related non-current asset impairment charges
were included within the overall cost action programme charge,
these costs were excluded from the Group's underlying results as
they related to contracts that were being restructured and the
overall effect of these charges would have been distortive to
margins both at Group and regional level. The Group's measure of
underlying performance identified the cost action programme as a
specific adjusting item.
In the current year, given the pervasive impact that COVID-19
has had on the Group's business, the Group has considered that
separating contract asset impairments and onerous contract
provisions from the Group's underlying performance would be
inappropriate as the Group's overall profitability has been
materially impacted by COVID-19 and these charges are the direct
consequences of lower volumes arising from COVID-19.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
8 GOODWILL
2020 2019
GOODWILL GBPm GBPm
========================================== ====== ======
Cost
At 1 October 5,092 4,786
Additions 249 198
Reclassification to assets held for sale (23) (25)
Disposals - (13)
Currency adjustment (129) 146
========================================== ====== ======
At 30 September 5,189 5,092
========================================== ====== ======
Impairment
At 1 October 516 516
Currency adjustment 4 -
========================================== ====== ======
At 30 September 520 516
========================================== ====== ======
Net carrying value
========================================== ====== ======
At 30 September 4,669 4,576
========================================== ====== ======
2020 2019
GOODWILL BY BUSINESS SEGMENT GBPm GBPm
============================== ====== ======
USA 2,071 2,160
Canada 184 189
Total North America 2,255 2,349
============================== ====== ======
UK 1,456 1,446
Finland 125 2
Rest of Europe(1) 543 446
============================== ====== ======
Total Europe 2,124 1,894
============================== ====== ======
Japan 127 142
Rest of World(1) 163 191
============================== ====== ======
Total Rest of World 290 333
============================== ====== ======
Total 4,669 4,576
============================== ====== ======
1. Goodwill relating to the Group's geographical segments of
Europe and Rest of World has been reclassified to reflect a change
in the way those segments are managed by the chief operating
decision maker: Turkey is now part of the Europe segment. Goodwill
of GBP47 million has been reclassified from Rest of World to Europe
for the year ended 30 September 2019.
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired. The recoverable amount of a cash-generating unit (CGU) is
determined from value in use calculations. The key assumptions for
these calculations are externally derived long term growth rates,
pre-tax discount rates and operating cash flow forecasts (revenue
and operating margins) derived from the most recent financial
budgets and forecasts approved by management covering a five year
period. Budgets and forecasts are based on expectations of future
outcomes taking into account past experience, adjusted for
anticipated revenue growth, from both new business and like for
like growth and taking into consideration external economic
factors, including the impact of COVID-19. Cash flows beyond the
five year period are extrapolated using estimated growth rates
based on local expected economic conditions and do not exceed the
long term average growth rate for that country. The pre-tax
discount rates are based on the Group's weighted average cost of
capital adjusted for specific risks relating to the country in
which the CGU operates.
2020 2019
=========================== ===========================
Pre-tax Pre-tax
Residual discount Residual discount
GROWTH AND DISCOUNT RATES growth rates rates growth rates rates
=========================== ============== =========== ============== ===========
USA 1.9% 8.3% 1.9% 6.8%
Canada 1.8% 8.8% 2.1% 7.3%
UK 1.7% 7.3% 2.0% 6.7%
Finland 1.6% 7.9% 1.7% 6.5%
Rest of Europe(1) 0.7%-10.6% 7.5%-25.8% 1.1%-9.6% 6.1%-19.8%
Japan 0.8% 9.8% 1.2% 7.2%
Rest of World(1) 1.1%-4.1% 7.3%-16.7% 0.9%-4.0% 5.6%-13.0%
=========================== ============== =========== ============== ===========
1. Growth and discount rates relating to the Group's
geographical segments of Europe and Rest of World has been
reclassified to reflect a change in the way those segments are
managed by the chief operating decision maker: Turkey is now part
of the Europe segment. Residual growth rates in Europe range from
0.7% to 3.8%, with the exception to Turkey which has a 10.6% growth
rate.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
8 GOODWILL (CONTINUED)
Although the impact of COVID-19 is not expected to significantly
impact the long term prospects of the different CGUs within the
business, the size of the short term shock of the pandemic combined
with higher discount rates and lower long term growth rates due to
continued global economic uncertainty have reduced the level of
headroom in certain CGUs in comparison to prior year. The Group has
performed a sensitivity analysis based on changes in key
assumptions considered to be reasonably possible by management
leaving all other assumptions unchanged. Sensitivity analysis for
the year ended 30 September 2020 has identified the UK CGU as being
sensitive to reasonably possible changes in key assumptions. The
Group has also considered the instability caused by the UK's
decision to exit the European Union (Brexit) when assessing the
future performance of the UK business. The UK goodwill principally
relates to the Granada transaction in 2001. The estimated
recoverable amount of the Group's operations in the UK exceed its
carrying value by GBP285 million.
The associated impact of changes in key assumptions on the
impairment assessment is presented in the table below. The
sensitivity analysis presented is prepared on the basis that a
change in each key assumption would not have a consequential impact
on other assumptions used in the impairment review.
UK
DECREASE IN RECOVERABLE AMOUNT LESS CARRYING VALUE GBPm
======================================================= ======
Increase in pre-tax discount
rate by 0.1% (51)
Decrease in projected operating
profit by 3% (77)
Decrease in the long term
growth rate by 0.1% (44)
======================================================== ======
In order for the recoverable amount to be equal to the carrying
value, the discount rate would have to be increased by 0.6% or
operating cash flow decreased by 11% or the long term growth rate
decreased to 1%. The directors consider that changes in key
assumptions of this magnitude are reasonably possible in the
current environment.
Other than as disclosed above, the directors do not consider
that any reasonably possible changes in the key assumptions would
cause the value in use of the net operating assets of the
individually significant CGUs disclosed above to fall below their
carrying values.
9 RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED FROM OPERATIONS
RECONCILIATION OF OPERATING PROFIT TO CASH GENERATED 2020 2019
FROM OPERATIONS GBPm GBPm
============================================================== ====== ======
Operating profit before joint ventures and associates 290 1,570
Adjustments for:
Acquisition related costs 70 54
One-off pension charge - 12
Cost action programme and COVID-19 resizing costs 197 190
Amortisation of intangible assets 93 88
Amortisation of contract fulfilment assets 195 184
Amortisation of contract prepayments 26 23
Depreciation of property, plant and equipment 287 282
Depreciation of right of use assets 164 -
Unwind of costs to obtain contracts 15 14
Impairment losses - contract related assets(1) 88 -
Impairment losses - other 4 -
Gain on disposal of property, plant and equipment/intangible 31 -
assets/contract fulfilment assets
Other non-cash changes (3) (2)
De crease in provisions (17) (41)
Investment in contract prepayments (40) (30)
Increase in costs to obtain contracts (28) (19)
De crease in post employment benefit obligations (9) (15)
Share-based payments - (credited)/charged to profits (2) 27
============================================================== ====== ======
Operating cash flows before movement in working capital 1,361 2,337
Decrease/(in crease) in inventories 102 (30)
Decrease/(in crease) in receivables 676 (121)
(Decrease)/in crease in payables (921) 210
============================================================== ====== ======
Cash generated from operations 1,218 2,396
============================================================== ====== ======
1. Cost action programme charge includes impairment losses of
GBP2 million (2019: GBP54 million).
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
10 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
This table is presented as additional information to show movement in
net debt, defined as overdrafts, bank and other borrowings,
lease liabilities and derivative financial instruments, net of cash
and cash equivalents.
Gross debt
Bank Total Cash
and overdrafts Derivative and
Total
Bank other and Lease financial gross cash
Net
overdrafts borrowings borrowings liabilities instruments debt equivalents debt
NET DEBT GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ =========== =========== ============ ============ ============ ======== ============ ========
At 1 October
2018 (76) (4,342) (4,418) (6) 72 (4,352) 969 (3,383)
Net decrease in
cash and
cash
equivalents - - - - - - (579) (579)
Cash outflow
from repayment
of bank loans - 1,830 1,830 - - 1,830 - 1,830
Cash inflow
from borrowing
of bank loans - (1,830) (1,830) - - (1,830) - (1,830)
Cash outflow
from repayment
of loan notes - 195 195 - - 195 - 195
Cash outflow
from repayment
of bonds - 530 530 - - 530 - 530
Cash outflow
from other
changes in
gross debt 60 2 62 - 14 76 - 76
Cash outflow
from
repayments
of obligations
under finance
leases - - - 4 - 4 - 4
New finance
leases - - - (1) - (1) - (1)
Reclassified as
held for
sale - - - - - - (1) (1)
Currency
translation
(losses)/gains (1) (64) (65) - (30) (95) 9 (86)
Other non-cash
movements - (166) (166) - 139 (27) - (27)
================ =========== =========== ============ ============ ============ ======== ============ ========
At 30 September
2019 (17) (3,845) (3,862) (3) 195 (3,670) 398 (3,272)
================ =========== =========== ============ ============ ============ ======== ============ ========
Implementation
of IFRS
16(1) - - - (995) - (995) - (995)
================ =========== =========== ============ ============ ============ ======== ============ ========
At 1 October
2019, as
adjusted(1) (17) (3,845) (3,862) (998) 195 (4,665) 398 (4,267)
Net increase in
cash and
cash
equivalents - - - - - - 1,091 1,091
Cash outflow
from repayment
of bank loans - 1,578 1,578 - - 1,578 - 1,578
Cash inflow
from borrowing
of bank loans - (1,578) (1,578) - - (1,578) - (1,578)
Cash outflow
from repayment
of loan notes - 156 156 - - 156 - 156
Cash inflow
from issuance
of commercial
paper - (815) (815) - - (815) - (815)
Cash outflow
from repayment
of commercial
paper - 815 815 - - 815 - 815
Cash inflow
from other
changes in
gross debt (79) 1 (78) - 30 (48) - (48)
Cash outflow
from repayment
of obligations
under lease
liabilities - - - 152 - 152 - 152
New lease
liabilities
and
amendments - - - (174) - (174) - (174)
Reclassified as
held for
sale - - - - - - (1) (1)
Currency
translation
(losses)/gains (1) 23 22 22 - 44 (4) 40
Other non-cash
movements - (17) (17) 56 6 45 - 45
================ =========== =========== ============ ============ ============ ======== ============ ========
At 30 September
2020 (97) (3,682) (3,779) (942) 231 (4,490) 1,484 (3,006)
================ =========== =========== ============ ============ ============ ======== ============ ========
1. Prior year comparatives have not been restated for IFRS 16
'Leases'. Additional information about the impact of IFRS 16 is
included in note 1. Finance lease liabilities were reclassified to
lease liabilities on adoption of IFRS 16.
2020 2019
OTHER NON-CASH MOVEMENTS IN NET DEBT GBPm GBPm
========================================================== ====== ======
Amortisation of fees and discount on issuance (5) (6)
Changes in the fair value of bank and other borrowings
in a designated fair value hedge (12) (160)
========================================================== ====== ======
Bank and other borrowings (17) (166)
========================================================== ====== ======
Leases acquired through business acquisition (22) -
Leases derecognised on sale and closure of businesses 75 -
COVID-19 lease payment reductions 3 -
========================================================== ====== ======
Lease liabilities 56 -
========================================================== ====== ======
Changes in the value of derivative financial instruments
including accrued income 6 139
========================================================== ====== ======
Other non-cash movements 45 (27)
========================================================== ====== ======
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
11 ACQUISITIONS AND SALE AND CLOSURE OF BUSINESSES
ACQUISITIONS
The total cash spent on acquisitions during the year, net of cash acquired,
was GBP464 million (2019: GBP451 million). The most significant acquisition
during the period relates to Fazer Food Services.
On 31 January 2020, the Group acquired 100% of the issued share capital
of Fazer Food Services for an initial consideration of GBP363 million
(EUR414 million) net of cash acquired. The remaining contingent consideration
is payable within seven years and dependent on the operation of an earn-out.
The net present value of the contingent consideration payable was GBP56
million (EUR66 million) at the date of acquisition. Fazer Food Services
is a leading food service business in the Nordic region with operations
in Finland, Sweden, Norway and Denmark, across several sectors including
Business & Industry, Education, Healthcare & Seniors and Defence. The
preliminary goodwill in relation to the assets acquired is GBP198 million.
This goodwill represents the premium the Group paid to acquire a company
that complements its existing businesses and creates significant opportunities
and other synergies.
SALE AND CLOSURE OF BUSINESSES
As a result of the strategic review of the business, the Group has continued
to sell or exit its operations in a number of countries, sectors or
businesses in order to simplify its portfolio. Activity in the period
has included the sale of 50% of the Japanese Highways business. The
Group has recognised a net gain of GBP115 million on the sale and closure
of businesses (2019: GBP50 million gain), offset by GBP56 million of
exit costs and asset write downs relating to committed or completed
business exits (2019: GBP57 million).
The Group's consolidated balance sheet includes assets of GBP13 million
(2019: GBP135 million) and liabilities of GBP7 million (2019: GBP30
million) in respect of businesses held for sale. This decrease is driven
by the Group's decision to pause the disposal of the remaining US laundries
and some businesses in Rest of World due to the market volatility caused
by COVID-19. As a result, management no longer considers these disposals
are highly probable and likely to be completed within 12 months, therefore
these businesses are no longer classified as held for sale.
Prior year comparatives have been restated as required by IFRS 5 'Non-current
assets held for sale and discontinued operations' to account for joint
ventures and associates using the equity method retrospectively as they
cease to be classified as held for sale. As a result, the Group has
restated prior year comparatives as follows:
* to reclassify the GBP55 million carrying value of
interest in joint ventures and associates included
within assets held for sale to the Group's interest
in joint ventures and associates
* to recognise a GBP25 million share of profit of joint
ventures and associates with the corresponding
increase in the Group's interest in joint ventures
and associates. This change has not impacted the
Group's underlying results, which already included
these profits.
As a result, prior year interest in joint ventures and associates has
increased to GBP306 million (GBP226 million previously reported), share
of profit of joint ventures and associates has increased to GBP56 million
(GBP31 million previously reported) and assets held for sale has decreased
to GBP135 million (GBP190 million previously reported).
12 STATUTORY AND UNDERLYING RESULTS
Adjustments
==============================
2020 2020
Statutory Underlying
Notes GBPm 1 2 3 4 5 GBPm
============================================ ====== =========== ===== ===== ====== ==== ============
Operating profit 3 294 70 - 197 - - 561
Net gain on sale and closure of
businesses 59 - - - (59) - -
Net finance cost (143) - - - - 9 (134)
============================================ ====== =========== ===== ===== ====== ==== ============
Finance income 10 - - - - - 10
Finance costs (144) - - - - - (144)
Other financing items (9) - - - - 9 -
============================================ ====== =========== ===== ===== ====== ==== ============
Profit before tax 210 70 - 197 (59) 9 427
Income tax expense (75) (20) - (50) 31 (2) (116)
Tax rate 35.7% 27.2%
============================================ ====== =========== ===== ===== ====== ==== ============
Profit for the year 135 50 - 147 (28) 7 311
Non-controlling interests (2) - - - - - (2)
============================================ ====== =========== ===== ===== ====== ==== ============
Profit attributable to equity shareholders
of the Company 133 50 - 147 (28) 7 309
============================================ ====== =========== ===== ===== ====== ==== ============
Average number of shares (million) 1,658 1,658
BASIC EARNINGS PER SHARE (PENCE) 5 8.0 3.0 - 8.9 (1.7) 0.4 18.6
============================================ ====== =========== ===== ===== ====== ==== ============
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
12 STATUTORY AND UNDERLYING RESULTS (CONTINUED)
Adjustments
==============================
2019(1) 2019
Statutory Underlying
Notes GBPm 1 2 3 4 5 GBPm
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Operating profit 3 1,626 54 12 190 - - 1,882
Net loss on sale and closure of
businesses (7) - - - 7 - -
Net finance cost (125) - - - - 15 (110)
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Finance income 12 - - - - - 12
Finance costs (122) - - - - - (122)
Other financing items (15) - - - - 15 -
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Profit before tax 1,494 54 12 190 7 15 1,772
Income tax expense (351) (13) (2) (41) (3) (3) (413)
Tax rate 23.5% 23.3%
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Profit for the year 1,143 41 10 149 4 12 1,359
Non-controlling interests (8) - - - - - (8)
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Profit attributable to equity shareholders
of the Company 1,135 41 10 149 4 12 1,351
============================================ ====== =========== ===== ==== ===== ==== ==== ============
Average number of shares (million) 1,586 1,586
BASIC EARNINGS PER SHARE (PENCE)(2) 5 71.6 2.6 0.6 9.4 0.2 0.8 85.2
============================================ ====== =========== ===== ==== ===== ==== ==== ============
1. Prior year comparatives have been restated as required by
IFRS 5 'Non-current assets held for sale and discontinued
operations' to account for joint ventures and associates using the
equity method retrospectively when they cease to be classified as
held for sale. Additional information is included in note 11.
2. Underlying constant currency earnings per share is based on a
Group constant currency profit attributable to equity shareholders
of the Company and includes a negative constant currency adjustment
of GBP22 million net of GBP7 million positive constant currency
adjustment to income tax expense.
The Executive Committee manages and assesses the performance of
the Group using various underlying and other alternative
performance measures. These measures are not recognised under
EU-adopted IFRS and may not be directly comparable with alternative
performance measures used by other companies. Underlying and other
alternative performance measures are defined in the glossary of
terms on pages 53 and 54. Underlying operating profit is considered
to better reflect ongoing trading, facilitate meaningful year on
year comparison and hence provides financial measures that,
together with the results prepared in accordance with adopted IFRS,
provide better analysis of the results of the Group. In determining
the adjustments to arrive at underlying result, we use a set of
established principles relating to the nature and materiality of
individual items or group of items, including, for example, events
which (i) are outside the normal course of business, (ii) are
incurred in a pattern that is unrelated to the trends in the
underlying financial performance of our ongoing business, or (iii)
are related to business acquisitions or disposals as they are not
part of the Group's ongoing trading business, and the associated
cost impact arises from the transaction rather than from the
continuing business. Adjustments from statutory to underlying
results are explained further below.
1. Acquisition related costs
Represent charges in respect of intangible assets acquired
through business combinations, direct costs incurred as part of a
business combination or other strategic asset acquisitions,
business integration costs and changes in consideration in relation
to past acquisition activity.
2. One-off pension charge
One-off pension charge in relation to GMP equalisation.
3. Cost action programme and COVID-19 resizing costs
Charges related to actions taken to adjust our cost base and
further cost actions taken to adjust our business to the new
trading environment in light of the COVID-19 pandemic. See note 7
for additional details.
4. Net gain/(loss) on sale and closure of businesses
These represent profits and losses on the sale of subsidiaries,
joint ventures, associates and other financial assets. See note 11
for additional details.
5. Other financing items
Represent financing items including hedge accounting
ineffectiveness and change in the fair value of investments.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
13 ORGANIC REVENUE AND ORGANIC PROFIT
Geographical segments
North Rest
America Europe of World Other Group
GBPm GBPm GBPm GBPm GBPm
2020 (as reported)
Combined sales of Group and share of equity
accounted joint ventures 12,746 5,048 2,404 - 20,198
% decrease reported rates (18.8)% (21.0)% (21.6)% - (19.7)%
% decrease constant currency (18.4)% (19.9)% (15.5)% - (18.5)%
Organic adjustments - (233) (36) - (269)
Organic revenue 12,746 4,815 2,368 - 19,929
% organic change (18.5)% (24.0)% (7.9)% - (18.8)%
===================================================== ========= ========= ========== ====== ===========
2019(1) (as reported)
Combined sales of Group and share of equity
accounted joint ventures 15,694 6,391 3,067 - 25,152
Currency adjustments (74) (87) (222) - (383)
Constant currency underlying revenue 15,620 6,304 2,845 - 24,769
Organic adjustments 16 32 (275) - (227)
Organic revenue 15,636 6,336 2,570 - 24,542
===================================================== ========= ========= ========== ====== ===========
2020(2) (as reported)
Regional underlying operating profit/(loss)(1) 606 (29) 94 (85) 586
S hare of (loss)/profit of associates(1) (28) 5 (2) - (25)
Group underlying operating profit(1) 578 (24) 92 (85) 561
Underlying operating margin (excluding associates) 4.8% (0.6)% 3.9% - 2.9%
% decrease reported rates (53.0)% (106.9)% (59.5)% - (70.2)%
% decrease constant currency (52.8)% (107.0)% (56.1)% - (69.7)%
Organic adjustments - 9 (5) - 4
Regional underlying organic operating profit/(loss)
(excluding associates) 606 (20) 89 (85) 590
Group underlying organic operating profit
(including associates) 578 (15) 87 (85) 565
% organic change (53.1)% (104.8)% (51.1)% - (69.2)%
===================================================== ========= ========= ========== ====== ===========
2020(2) (IAS 17 proforma)
Regional underlying operating profit/(loss)(1) 588 (35) 90 (85) 558
S hare of (loss)/profit of associates(1) (28) 5 (2) - (25)
Group underlying operating profit(1) 560 (30) 88 (85) 533
Underlying operating margin (excluding associates) 4.6% (0.7)% 3.7% - 2.8%
% decrease reported rates (54.4)% (108.3)% (61.2)% - (71.7)%
% decrease constant currency (54.2)% (108.4)% (57.9)% - (71.2)%
Organic adjustments - 9 (5) - 4
Regional underlying organic operating profit/(loss)
(excluding associates) 588 (26) 85 (85) 562
Group underlying organic operating profit
(including associates) 560 (21) 83 (85) 537
% organic change (54.5)% (106.2)% (53.3)% - (70.7)%
===================================================== ========= ========= ========== ====== ===========
2019(1) (as reported)
Regional underlying operating profit(3) 1,290 421 232 (80) 1,863
Share of profit of associates(3) 10 9 - - 19
Group underlying operating profit(3) 1,300 430 232 (80) 1,882
Underlying operating margin (excluding associates) 8.2% 6.6% 7.6% - 7.4%
Currency adjustments - profit (6) (6) (18) - (30)
Regional constant currency underlying profit
(excluding associates) 1,284 415 214 (80) 1,833
Group constant currency underlying operating
profit (including associates)(3) 1,294 424 214 (80) 1,852
Organic adjustments 9 4 (32) - (19)
Regional underlying organic operating profit
(excluding associates) 1,293 419 182 (80) 1,814
Share of profit from associates - constant
currency 10 9 - - 19
Group underlying organic operating profit
(including associates)(3) 1,303 428 182 (80) 1,833
===================================================== ========= ========= ========== ====== ===========
1. Prior year comparatives have reclassified Turkey and Middle
East from Rest of World region into Europe region.
2. Underlying operating results and growth rates reported under
IFRS 16 'Leases' from 1 October 2019. The Group has adopted IFRS 16
using the modified retrospective approach to transition and has
accordingly not restated prior year comparatives, therefore the
results for the year ended 30 September 2020 prepared on an IFRS 16
basis are not directly comparable with those reported in the prior
year under IAS 17 'Leases'. To provide meaningful comparatives, the
results for the year ended 30 September 2020 have therefore also
been presented under IAS 17. Additional information about the
impact of IFRS 16 included in note 1.
3. Underlying revenue and underlying operating profit include
share of profit of joint ventures and associates classified as held
for sale during the year.
Compass Group PLC
Consolidated Financial Statements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2020
14 POST BALANCE SHEET EVENTS
There are no material post balance sheet events.
15 EXCHANGE RATES
2020 2019
======================================================= ========= ===========
AVERAGE EXCHANGE RATE FOR THE YEAR(1)
Australian Dollar 1.89 1.81
Brazilian Real 6.21 4.96
Canadian Dollar 1.72 1.69
Chilean Peso 1,013.12 875.59
Euro 1.14 1.13
Japanese Yen 137.83 140.53
New Zealand Dollar 2.00 1.92
Norwegian Krone 12.03 11.02
Turkish Lira 8.34 7.16
UAE Dirham 4.71 4.69
US Dollar 1.28 1.28
CLOSING EXCHANGE RATE AS AT 30 SEPTEMBER(1)
Australian Dollar 1.80 1.83
Brazilian Real 7.29 5.13
Canadian Dollar 1.73 1.63
Chilean Peso 1,018.50 897.37
Euro 1.10 1.13
Japanese Yen 136.43 133.18
New Zealand Dollar 1.96 1.97
Norwegian Krone 12.10 11.20
Turkish Lira 9.96 6.96
UAE Dirham 4.75 4.53
US Dollar 1.29 1.23
======================================================= ========= ===========
1. Average rates are used to translate the income statement and cash
flow statement. Closing rates are used to translate the balance sheet.
Only the most significant currencies are shown.
Glossary of terms
Capital employed Total equity shareholders' funds adjusted for net
debt, post employment benefit obligations net of
associated deferred tax, amortised intangibles
arising on acquisition, impaired goodwill and excluding
the Group's non-controlling partners' share of
net assets and net assets of discontinued operations.
Constant currency Restates the prior year results to the current
year's average exchange rates.
===========================================================
EM & OR restructuring Emerging Markets and Offshore & Remote restructuring.
===========================================================
Free cash flow(1) Calculated by adjusting operating profit for non-cash
items in profit, cash movements in provisions,
contract prepayments and costs to obtain client
contracts, post employment benefit obligations
and working capital, cash purchases and proceeds
from disposal of noncurrent assets, net cash interest,
net cash tax, payment of lease principal amounts,
dividends received from joint ventures and associated
undertakings and dividends paid to non-controlling
interests.
===========================================================
Free cash flow conversion Underlying free cash flow expressed as a percentage
of underlying operating profit.
===========================================================
Gross capital expenditure Includes the purchase of intangible assets, contract
fulfilment assets, property, plant and equipment
and investment in contract prepayments. Assets
purchased under finance leases were included in
gross capital expenditure until 2019.
===========================================================
Like for like revenue Calculated by adjusting organic revenue growth
growth for new business wins and lost business.
===========================================================
Net capital expenditure Gross capital expenditure less proceeds from sale
of property, plant and equipment, intangible assets
and cash proceeds from derecognition of contract
fulfilment assets and contract prepayments.
===========================================================
Net debt(1) Bank overdrafts, bank and other borrowings, lease
liabilities and derivative financial instruments,
net of cash and cash equivalents.
===========================================================
Net debt to EBITDA Net debt divided by underlying EBITDA.
===========================================================
NOPAT Net operating profit after tax (NOPAT) is calculated
as underlying operating profit from continuing
operations less operating profit of non-controlling
interests before tax, net of income tax at the
underlying rate of the year.
===========================================================
Organic profit growth Calculated by adjusting underlying operating profit
for acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate
movements (translating the prior period at current
year exchange rates) and compares the current year
results against the prior year. In addition, where
applicable, a 53rd week has been excluded from
the prior year's underlying operating profit.
===========================================================
Organic profit Calculated by adjusting underlying operating profit
for acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate
movements (translating the prior period at current
year exchange rates).
===========================================================
Organic revenue Calculated by adjusting underlying revenue for
acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate
movements (translating the prior period at current
year exchange rates).
===========================================================
Organic revenue growth Calculated by adjusting underlying revenue for
acquisitions (excluding current year acquisitions
and including a full period in respect of prior
year acquisitions), sale and closure of businesses
(excluded from both periods) and exchange rate
movements (translating the prior period at current
year exchange rates) and compares the current year
results against the prior year. In addition, where
applicable, a 53rd week has been excluded from
the prior year's underlying revenue.
===========================================================
ROCE Return on capital employed (ROCE) divides NOPAT
by the 12 month average capital employed.
===========================================================
Specific adjusting o acquisition related costs
items o one-off pension charge
o cost action programme and COVID-19 resizing costs
o tax on share of profit of joint ventures
o gain/(loss) on sale and closure of businesses
o other financing items including hedge accounting
ineffectiveness and change in the fair value of
investments
===========================================================
Underlying basic earnings Excludes specific adjusting items and the tax attributable
per share to those items.
===========================================================
Underlying cash tax Based on underlying cash tax and underlying profit
rate before tax.
===========================================================
Underlying depreciation Excludes specific adjusting items.
and amortisation
===========================================================
Underlying EBITDA Based on underlying operating profit, adding back
underlying impairment, depreciation and amortisation
of intangible assets and contract prepayments.
===========================================================
Underlying effective Based on underlying tax charge and underlying profit
tax rate before tax.
===========================================================
Underlying free cash Free cash flow adjusted for costs in the year relating
flow to the cost action programme and COVID-19 resizing
costs.
===========================================================
Glossary of terms (continued)
Underlying net finance Excludes specific adjusting items.
cost
Underlying operating Based on underlying revenue and underlying operating
margin - Group profit excluding share of profit after tax of associates.
===========================================================
Underlying operating Based on underlying revenue and underlying operating
margin - Region profit excluding share of profit after tax of associates
and EM & OR restructuring.
===========================================================
Underlying operating Includes share of profit after tax of associates
profit - Group and profit before tax of joint ventures but excludes
the specific adjusting items.
===========================================================
Underlying operating Includes share of profit before tax of joint ventures
profit - Region but excludes the specific adjusting items, profit
after tax of associates and EM & OR restructuring.
===========================================================
Underlying profit before Excludes specific adjusting items.
tax
===========================================================
Underlying revenue Combined sales of Group and share of joint ventures.
===========================================================
Underlying tax charge Excludes tax attributable to specific adjusting
items.
===========================================================
1. Following the adoption of IFRS 16 on a modified retrospective
basis on 1 October 2019 the definitions of these alternative
performance measures have been updated. Additional information
about the impact of IFRS 16 is included in note 1.
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END
FR ZZMZMNFGGGZM
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