Interactive Investor

Compass serves £1 billion payout to investors

14th May 2014 11:15

Ceri Jones from interactive investor

FTSE-100 catering giant Compass Group has unveiled a £1 billion shareholder payout, shrugging off the currency drag to post operating profit up 5.5% to £647 million in the six months ended March.

The shares are trading at an all-time high, and rose a further 4.3% by mid-morning on Wednesday to 1,023p.

The windfall reflects the vast cash the company is throwing off following the improvement in its performance, but also speaks to its difficulty in identifying suitable acquisition targets.

The new special dividend will come on top of an ongoing £500 million share buyback announced last November, which took the aggregate stock repurchases by Compass during the last two-and-a-half years to £1.4 billion, and brings the total amount returned to investors over the past seven years to £6 billion.

The interim dividend was also raised by 10% to 8.8p.

Bank of America Merrill Lynch said last week in a note that up to £1.5 billion of surplus cash could be available for an acquisition by the end of the year.

It reiterated its 'buy' rating on the shares with a now-superseded 1,110p price target.

Organic revenue growth was 4.2%, driven by strong new business growth, and excellent performances in North America, its largest market worth almost half of group turnover, where it signed new deals with universities, hospitals and companies such as DreamWorks, Nomura and L'Oreal.

There was also a strong performance in its so-called emerging regions, with demand in Brazil, China and Turkey offsetting slowing sales in Australia's resources sector. Both Europe and Japan also started to recover.

Operating profit margin increased by 10 basis points to 7.4%.

There has been speculation that Richard Cousins, group chief executive, who has been in the post since 2006, plans to step down.

On Wednesday he said full-year expectations remained unchanged and that an encouraging pipeline of new contracts provided confidence in a good second half, adding: "Looking forward, the outsourcing proposition remains compelling and I'm positive about the opportunities for further revenue and margin progression."

Compass operates in more than 50 countries, with more than 470,000 staff and in the UK is best known for its food-service operations at the Wimbledon tennis championships and Chelsea Football Club.