Bloomberg News

Compass Plans 500 Million-Pound Buyback as Cash Swells

November 23, 2011

(Updates with closing share price in fifth paragraph.)

Nov. 23 (Bloomberg) -- Compass Group Plc, the world’s largest catering company, said it plans a 500 million-pound ($776 million) buyback program and will make more acquisitions after generating 1.4 billion pounds of cash in two years.

The stock will be repurchased over the next 12 months, the Chertsey, England-based company said today, the first time it’s bought back shares in about three years. Compass also reported a 9 percent gain in full-year earnings and raised its dividend.

Cash reserves were 1.1 billion pounds on Sept. 30 after the company generated 693 million pounds of free cash flow during its fiscal year. Compass, which has spent 600 million pounds on acquisitions over the past two years, said it will invest in food and support services as opportunities arise in both developed and emerging markets.

“The group can finance the buyback out of existing resources with little impact on profit,” Shore Capital analysts including Greg Johnson said in a note to investors today. He reiterated his “buy” recommendation on the stock.

Compass fell 2.9 percent to 544 pence at the close of London trading. The shares have dropped 3.6 percent this year, compared with a 4.1 percent decline for its nearest rival, France’s Sodexo.

Growth Opportunities

Chief Executive Officer Richard Cousins said a larger buyback would have been possible, “but we want to retain flexibility to grow the business.”

Compass will look at “all options for small-to-medium bolt-on acquisitions,” the CEO said on a conference call when asked whether Compass may be interested in ISS A/S, the world’s biggest cleaning-service company. G4S Plc this month abandoned a 5.2 billion-pound pursuit of the Danish company.

Compass said it’s “very positive” about opportunities for growth and is encouraged by a stream of new contracts that have included providing security services for Thomson Reuters in the U.K. The current global economic difficulties may put pressure on volume in parts of the business, the company said.

“The outlook statement is as good as you can get with a very difficult macro backdrop,” Numis Securities analyst Wyn Ellis said by telephone. “Business is doing well with a good rate of new business wins and retention.”

The company, whose clients include Microsoft Corp. in the U.S., also said today that it plans to use cash resources to repay 614 million pounds of bonds and debt during the 2012 financial year.

Japan Earthquake

Operating profit in the year through September rose 8.8 percent to 1.09 billion pounds on a so-called underlying basis, Compass said, matching the average estimate of 10 analysts in a Bloomberg survey. March’s earthquake and Tsunami in Japan cut profit by about 15 million pounds, which the company said was less than initial estimates.

Compass proposed a final dividend of 12.8 pence a share, boosting the total for the year by 10 percent to 19.3 pence.

Also today, the company named Andrew Martin, group finance director, as chief operating officer responsible for Europe and Japan from April 2. Gary Green, managing director for North America, will take the COO position for that region.

--Editors: Paul Jarvis, Jerrold Colten

To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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