Compass profitability improves as volumes stay subdued

(Sharecast News) - Compass Group said profitability improved in the second quarter while volumes stayed subdued because of the Covid-19 crisis.
The world's biggest contract caterer's organic revenue fell 28% in the three months to the end of March from a year earlier compared with a 33.7% drop the previous quarter. In both the first and the second quarter organic revenue was 71% of 2019 levels, Compass said in a trading update.

Revenue fell less sharply in the second quarter as it began to lap the Covid-19 impact on the previous year's income. Operating margin is expected to strengthen to about 4% in the second quarter from 2.7% in the first quarter and the company said it expected the underlying margin to exceed 7% before volumes recover.

The FTSE 100 company's business has been hammered during the pandemic as corporate clients have cut spending with many offices, schools and other sites closed or operating with few people. The biggest impact in the second quarter was a 69% income drop in the sports and leisure sector followed by a 41% decline in business and industry.

Compass also said it was affected by the pound's rise against other currencies. If current exchange rates continue until the end of March revenue would be reduced by £456m and operating profit by £38m in the first half.

"While the vaccination efforts around the globe are advancing, the pace of volume recovery remains uncertain. Encouragingly, the pipeline of new business and client retention continue to be strong," Compass said.

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