Summary notes to the financial statements
for the year ended 30 September 2006
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| 1 Segmental reporting | North America £m |
Continental Europe £m |
United Kingdom £m |
Rest of the World £m |
Central activities £m |
Total £m |
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| Year ended 30 September 2006 | ||||||||||||
| Revenue | ||||||||||||
| Total revenue | 4,437 | 3,283 | 2,805 | 1,777 | – | 12,302 | ||||||
| Less: inter-segment revenue | – | (21 | ) | – | (17 | ) | – | (38 | ) | |||
| Revenue from external clients | 4,437 | 3,262 | 2,805 | 1,760 | – | 12,264 | ||||||
| Less: discontinued | (147 | ) | (399 | ) | (848 | ) | (55 | ) | – | (1,449 | ) | |
| Revenue from external clients – continuing operations | 4,290 | 2,863 | 1,957 | 1,705 | – | 10,815 | ||||||
| Result | ||||||||||||
| Total operating profit | 247 | 181 | 129 | 49 | (77 | ) | 529 | |||||
| Less: discontinued | (2 | ) | (12 | ) | (15 | ) | 6 | – | (23 | ) | ||
| 245 | 169 | 114 | 55 | (77 | ) | 506 | ||||||
| Share of profit of associates | 1 | – | 1 | – | – | 2 | ||||||
| Segment result – continuing operations | 246 | 169 | 115 | 55 | (77 | ) | 508 | |||||
| Finance income | 15 | |||||||||||
| Finance costs | (160 | ) | ||||||||||
| Hedge accounting ineffectiveness | 11 | |||||||||||
| Profit before tax | 374 | |||||||||||
| Income tax expense | (69 | ) | ||||||||||
| Profit for the year from continuing operations | 305 | |||||||||||
| Year ended 30 September 2005 | ||||||||||||
| Revenue | ||||||||||||
| Total revenue | 3,937 | 3,554 | 3,254 | 1,680 | – | 12,425 | ||||||
| Less: inter-segment revenue | – | (26 | ) | – | (5 | ) | – | (31 | ) | |||
| Revenue from external clients | 3,937 | 3,528 | 3,254 | 1,675 | – | 12,394 | ||||||
| Less: discontinued | (176 | ) | (698 | ) | (1,272 | ) | (175 | ) | – | (2,321 | ) | |
| Revenue from external clients – continuing operations | 3,761 | 2,830 | 1,982 | 1,500 | – | 10,073 | ||||||
| Result | ||||||||||||
| Total operating profit | 221 | 211 | 193 | 87 | (58 | ) | 654 | |||||
| Less: discontinued | (3 | ) | (42 | ) | (79 | ) | (34 | ) | – | (158 | ) | |
| 218 | 169 | 114 | 53 | (58 | ) | 496 | ||||||
| Share of profit of associates | – | – | – | – | – | – | ||||||
| Segment result – continuing operations before exceptional items | 218 | 169 | 114 | 53 | (58 | ) | 496 | |||||
| Exceptional items (note 2) | 2 | (107 | ) | (1 | ) | – | (2 | ) | (108 | ) | ||
| Segment result – continuing operations after exceptional items | 220 | 62 | 113 | 53 | (60 | ) | 388 | |||||
| Finance income | 4 | |||||||||||
| Finance costs | (156 | ) | ||||||||||
| Hedge accounting ineffectiveness | (3 | ) | ||||||||||
| Profit before tax | 233 | |||||||||||
| Income tax expense | (97 | ) | ||||||||||
| Profit for the year from continuing operations | 136 | |||||||||||
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| 2 Exceptional items | 2006 £m |
2005 £m |
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| Continuing operations: | ||||
| Charged within operating profit: | ||||
| Impairment of goodwill – Italy | – | (107 | ) | |
| Loss on disposal of businesses | – | (1 | ) | |
| – | (108 | ) | ||
| Credited/(charged) within income tax expense | 44 | (1 | ) | |
| Continuing operations | 44 | (109 | ) | |
| Charged within discontinued activities: | ||||
| Profit after tax on disposal of businesses | 20 | – | ||
| Settlement of UN contract claims and related expenses | (39 | ) | – | |
| Middle East military catering business | (8 | ) | (45 | ) |
| Tax credit on discontinued activities | – | 4 | ||
| Discontinued activities | (27 | ) | (41 | ) |
| Total | 17 | (150 | ) | |
The exceptional tax credits arise in respect of previously unrecognised tax losses and tax deductions in respect of pension prepayments in the UK tax group that originated in previous years. In 2006, £39 million has been charged to complete investigations and to settle lawsuits for lost profits brought by two competitors of the Group, ES-KO International Inc and Supreme Foodservice AG in relation to contracts awarded to Eurest Support Services by the UN. The Group has discontinued its military catering operations in the Middle East, which were formerly part of the Rest of the World geographical segment. In 2006 £8 million has been provided to settle claims arising in 2005. Related asset write-downs and provisions resulted in an exceptional charge of £45 million in 2005. |
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| 3 Discontinued operations | ||||||||
Following the decision to focus on its core contract catering business the Group disposed of its Inflight catering operations, which operated principally in Continental Europe on 19 December 2005 and its travel concession catering business, Select Service Partner, including Creative Host Services in the US (together, ‘SSP’) on 15 June 2006. Gross proceeds were £1,865 million and costs incurred were £67 million. In addition, the Group has discontinued its Middle East military catering operations and withdrawn from or disposed of various other businesses, shown as ‘other’ below. Details of net assets disposed of and disposal proceeds are as follows: |
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| SSP £m |
Other £m |
2006 £m |
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| Goodwill | 798 | 51 | 849 | |||||
| Intangible assets | 10 | – | 10 | |||||
| Property, plant and equipment | 755 | 125 | 880 | |||||
| Investments | 5 | 3 | 8 | |||||
| Inventories | 29 | 9 | 38 | |||||
| Trade and other receivables | 74 | 49 | 123 | |||||
| Cash at bank | 94 | 24 | 118 | |||||
| Gross assets disposed of | 1,765 | 261 | 2,026 | |||||
| Trade and other payables | (208 | ) | (51 | ) | (259 | ) | ||
| Post-employment benefit obligations | (10 | ) | (4 | ) | (14 | ) | ||
| Tax | (6 | ) | (6 | ) | (12 | ) | ||
| Minority interest | (1 | ) | (5 | ) | (6 | ) | ||
| Other liabilities | – | (5 | ) | (5 | ) | |||
| Gross liabilities disposed of | (225 | ) | (71 | ) | (296 | ) | ||
| Net assets disposed of | 1,540 | 190 | 1,730 | |||||
| Liabilities retained | 88 | 21 | 109 | |||||
| Cumulative translation exchange loss recycled on disposals | 2 | – | 2 | |||||
| Profit/(loss) on disposal | 168 | (54 | ) | 114 | ||||
| Consideration, net of costs | 1,798 | 157 | 1,955 | |||||
| Consideration deferred to future periods | (37 | ) | (8) | (45 | ) | |||
| Cash disposed of | (94 | ) | (24) | (118 | ) | |||
| Cash inflow from current year disposals | 1,667 | 125 | 1,792 | |||||
| Deferred consideration relating to previous disposals | – | 15 | 15 | |||||
| Cash inflow from disposals | 1,667 | 140 | 1,807 | |||||
| SSP £m |
Other £m |
2006 £m |
2005 £m |
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| Financial performance of discontinued operations | ||||||||
| External revenue | 1,238 | 211 | 1,449 | 2,321 | ||||
| Operating costs | (1,209 | ) | (217 | ) | (1,426 | ) | (2,163 | ) |
| Exceptional operating costs (note 2) | – | (47 | ) | (47 | ) | (45 | ) | |
| Profit before tax | 29 | (53 | ) | (24 | ) | 113 | ||
| Income tax expense | (7 | ) | 1 | (6 | ) | (40 | ) | |
| Profit after income tax from discontinued operations | 22 | (52 | ) | (30 | ) | 73 | ||
| Reported as exceptional (note 2): | ||||||||
| Profit on disposal of net assets of discontinued operations | 170 | (54 | ) | 116 | – | |||
| Cumulative translation exchange loss | (2 | ) | – | (2 | ) | – | ||
| Profit on disposal before tax | 168 | (54 | ) | 114 | – | |||
| Tax | (99 | ) | 5 | (94 | ) | – | ||
| Total profit after income tax on disposal of net assets of discontinued operations | 69 | (49 | ) | 20 | – | |||
| Profit/(loss) for the year of discontinued operations | 91 | (101 | ) | (10 | ) | 73 | ||
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| 4 Earnings per share | Attributable profit 2006 £m |
Attributable profit 2005 £m |
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| Profit for the year attributable to equity shareholders of the Company | 285 | 195 | ||
| Add back: loss/(profit) for the year from discontinued operations | 10 | (73 | ) | |
| Attributable profit for the year from continuing operations | 295 | 122 | ||
| Exceptional items net of tax (note 2) | (44 | ) | 109 | |
| Attributable profit for the year from continuing operations before exceptional items | 251 | 231 | ||
| Hedge accounting ineffectiveness net of tax | (7 | ) | 4 | |
| Attributable underlying profit for the year from continuing operations before exceptional items | 244 | 235 | ||
| Ordinary shares of 10p each 2006 millions |
Ordinary shares of 10p each 2005 millions |
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| Average number of shares for basic earnings per share | 2,147 | 2,156 | ||
| Dilutive share options | 3 | 2 | ||
| Average number of shares for diluted earnings per share | 2,150 | 2,158 | ||
| Earnings per share 2006 pence |
Ordinary per share 2005 pence |
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| Basic earnings per share | ||||
| From continuing and discontinued operations | 13.3 | 9 | ||
| From discontinued operations | 0.4 | (3 | ) | |
| From continuing operations | 13.7 | 5.7 | ||
| Exceptional items (net of tax) | (2 | ) | 5 | |
| From continuing operations before exceptional items | 11.7 | 10.7 | ||
| Hedge accounting ineffectiveness | (0 | ) | 0.2 | |
| From underlying continuing operations before exceptional items | 11.4 | 10.9 | ||
| Diluted earnings per share | ||||
| From continuing and discontinued operations | 13.3 | 9 | ||
| From discontinued operations | 0.4 | (3 | ) | |
| From continuing operations | 13.7 | 5.7 | ||
| Exceptional items (net of tax) | (2 | ) | 5 | |
| From continuing operations before exceptional items | 11.7 | 10.7 | ||
| Hedge accounting ineffectiveness | (0 | ) | 0.2 | |
| From underlying continuing operations before exceptional items | 11.4 | 10.9 | ||
| The calculation of earnings per share is based on earnings after tax and the weighted average number of shares in issue during the year. The adjusted underlying earnings per share figures have been calculated to show the underlying trading performance of the Group and are based on earnings excluding the effect of goodwill impairment charges, other exceptional items, hedge accounting ineffectiveness and discontinued activities. |
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| 5 Dividends | 2006 pence per share |
2006 £m |
2005 pence per share |
2005 £m |
| Amounts recognised as distributions to equity shareholders during the year: | ||||
| Final dividend for the prior year | 6.5 | 140 | 6.2 | 134 |
| Interim dividend for the current year | 3.4 | 73 | 3.3 | 71 |
| 9.9 | 213 | 9.5 | 205 | |
A final dividend in respect of 2006 of 6.7 pence per share is to be proposed at the Annual General Meeting on 16 February 2007 giving a total dividend in respect of 2006 of 10.1 pence per share. These financial statements do not include the accrual for this dividend. |
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| Attributable to equity shareholders of the Company | ||||||||||||||
| 6 Reconciliation of movements in equity | Share capital £m |
Share premium account £m |
Capital redemption reserve £m |
Own shares £m |
Other reserves £m |
Retained earnings £m |
Minority interests £m |
Total £m |
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| At 1 October 2005 | 216 | 94 | 9 | (1 | ) | 4,137 | (2,204 | ) | 27 | 2,278 | ||||
| Total recognised income and expense | – | – | – | – | (12 | ) | 260 | 6 | 254 | |||||
| Issue of shares | – | 2 | – | – | – | – | – | 2 | ||||||
| Fair value of share-based payments | – | – | – | – | 25 | – | – | 25 | ||||||
| Share buy-back | (6 | ) | – | 6 | – | – | (149 | ) | – | (149 | ) | |||
| Transfer on exercise of put options | – | – | – | – | 138 | 3 | (10 | ) | 131 | |||||
| Other changes | – | – | – | 1 | – | – | (6 | ) | (5 | ) | ||||
| 210 | 96 | 15 | – | 4,288 | (2,090 | ) | 17 | 2,536 | ||||||
| Dividends paid to Compass shareholders | – | – | – | – | – | (213 | ) | – | (213 | ) | ||||
| Dividends paid to minority interest | – | – | – | – | – | – | (11 | ) | (11 | ) | ||||
| At 30 September 2006 | 210 | 96 | 15 | – | 4,288 | (2,303 | ) | 6 | 2,312 | |||||
| 7 Contingent liabilities |
On 21 October 2005 the Company announced that it had instructed Freshfields Bruckhaus Deringer to conduct an investigation into the relationships between Eurest Support Services (‘ESS’) (a member of the Group), IHC Services Inc. (‘IHC’) and the United Nations. Ernst & Young assisted Freshfields Bruckhaus Deringer in this investigation. On 1 February 2006 it was announced that the investigation had concluded. The investigation established serious irregularities in connection with contracts awarded to ESS by the UN. The work undertaken by Freshfields Bruckhaus Deringer and Ernst & Young gave no reason to believe that these issues extended beyond a few individuals within ESS to other parts of ESS or the wider Compass Group of companies. IHC’s relationship with the UN and ESS is part of a wider and on-going investigation into UN procurement activity being conducted by the United States Attorney’s Office for the Southern District of New York, and with which the Group is co-operating fully. These investigators have access to sources unavailable to the Group, Freshfields Bruckhaus Deringer and Ernst & Young, and further information may emerge which is inconsistent with or additional to the findings of the Freshfields Bruckhaus Deringer investigation, which could have an adverse impact on the Group. The Group has however not been contacted by or received further requests for information from the United States Attorney’s Office for the Southern District of New York or the UN in connection with these matters since January 2006. No provision has been made in the financial statements in respect of these matters and it is not currently possible to quantify any potential liability which may arise. The directors currently have no reason to believe that any potential liability that may arise would be material to the financial position of the Group. |
The Annual Review 2006 does not contain sufficient information to allow a full understanding of the results of the Group. The separate Annual Report 2006 constitutes the full Annual Financial Statements and can be downloaded in PDF format (3.2Mb) from this site.