Compass Group Annual Review 2006

Summary operating review

Continental Europe

Trading remains challenging, reflecting the on-going weakness of a number of Continental European economies. We are focused on improving the performance of poorer performing contracts and on restructuring country management teams to create a robust platform for sustainable growth in the future.

Market position and trends

The contract foodservice market in Europe has an approximate value of £43 billion and with outsourcing at below 30% represents an exciting opportunity. We have established strong positions in all the major Continental European markets. Where there is sufficient market density we are sectorising the business to better tailor our offer to the specific needs of clients.

In the most developed markets, as in the UK and North America, the trend, particularly in Business & Industry, is moving away from client subsidy to profit & loss and fixed price contracts. In response we are adopting a more retail oriented approach to drive consumer volumes and spend per head.

There is growing consumer interest in healthy eating. Our global programme, Balanced Choices, is being introduced across Europe and is being well received by both clients and consumers.

Overview of the year

Organic growth was 2% with flat operating profit in line with our expectations and reflecting the continuing weakness of a number of major economies. We saw strong growth in the Nordic countries as a result of the continuing strength of the offshore oil and gas sector and in Spain with double-digit growth in both the Education and Healthcare sectors as well as significant growth in the senior living market.

In Germany we saw some modest organic growth but a significant improvement in the operating margin, particularly in the Business & Industry sector. In France, Switzerland and the Netherlands the actions taken by the new leadership teams to simplify the management structure and the adoption of a shared services approach has stabilised the business and resulted in improved performances. In Italy and Portugal we have put in place new management teams who are restructuring the business to reduce operating costs.

Product and service development

In France, working in partnership with renowned Michelin starred chef, Yannick Alleno, we have launched a new brand, ‘Millessence’, targeted at corporate boardrooms and the Fine Dining sector.

In Healthcare, Medirest has introduced two new concepts in the Nordic countries. ‘Meals for Life’ has been developed specifically for the residential and long-term care markets to respond to the demand for healthy, nutritious and high quality food prepared to the very highest food hygiene and traceability standards. ‘Your Private Chef’ is targeted at meals-on-wheels customers to offer a wider choice of appetising and nutritious meals. We have also introduced steam technology in Sweden and the Noorlands University Hospital contract, which is being mobilised during January, will be the largest to utilise this revolutionary steam technology in Continental Europe.

In Germany and the Netherlands we have introduced programmes to reduce absenteeism and labour turnover through increasing employee loyalty and satisfaction.

In sports stadiums and arenas in Germany we have begun using biodegradable corn cups as opposed to plastic. These environmentally friendly cups use 35% less fossil fuel to produce and are completely compostable.

Outlook

In 2007, we expect to see similar levels of overall revenue growth as we continue to be selective on new business. With the significant reorganisation activity undertaken in 2006 we would expect to begin to see some margin progression.