Cost Controls Driving Margin Improvement At Compass

 

Namnews, 25th March 2021

Catering giant Compass is expecting to serve up better margins in its second quarter as it continues to trim costs to cope with the impact on revenues from the closure of schools, offices, and sporting venues.

The British firm had a tough 2020 as the pandemic-related lockdowns around the world curtailed demand for its services. The group’s pre-tax profits plummeted 75.5% to £427m over the year to 30 September, with revenue down 18.5% to £20.2bn.

To soften the blow, Compass has cut jobs and managed costs by reducing suppliers and the number of products it buys. The company said today: “We are controlling the controllable by managing our costs, adapting our operations and resizing our business.”

In a trading update ahead of its half-year results due in May, the group revealed that margins in its second quarter to 31 March were on track to increase to around 4%, compared with 2.7% in the previous quarter.

The revenue decline also eased slightly between the two periods, down 28% in the latest quarter against 33.7% previously. For the half as a whole, revenues are expected to drop 31%, with the UK-based company warning that foreign exchange translation could impact revenue by £456m and operating profit by £38m.

Compass flagged the vaccination efforts around the globe as the path to better times, but said the pace of volume recovery “remains uncertain”. It highlighted that its pipeline of new business and client retention had continued to be strong.

Compass expects to rebuild its underlying margin above 7% before it returns to pre-Covid volumes.

Looking further ahead, it said: “We are excited about the significant structural market opportunity globally, organic revenue growth, continued margin improvement and returns to shareholders over time.”

NAM Implications:

• A cut-to-fit policy that is reaching the bottom line.
• However, the key note is uncertainty…
• ….for consumers, retailers and suppliers.
• Which in turn goes back to risk appetite…
• …in terms of Risk seeking, Risk neutral and Risk averse, for all stakeholders.
• (Everyone: Time to regard Lockdown as [World] warfare without the blood…?)