Compass Group Annual Review 2006

Summary operating review

North America

Our business in North America has had another excellent year as we continue to leverage the leading positions we have established in each of our chosen market sectors.

Market position and trends

Through our portfolio of specialist operating companies we are the largest contract foodservice company in the USA and Canada.

The largest market in the world, North America remains a significant opportunity with around 50% contractor penetration. The most attractive future growth opportunities are in Healthcare and Education, where less than 40% of the market is outsourced.

In Business & Industry despite the relative maturity of the market there are still significant opportunities to drive volumes and spend per head through product innovation.

Healthy eating is the dominant consumer trend. Concerns over obesity and the composition and provenance of foods are continuing to drive consumer purchasing habits. Balanced Choices is our global healthy eating programme designed to help consumers make the right choices for their chosen lifestyles. Using iconography on menu cards and packaging, allied to healthy cooking techniques such as grilling as opposed to frying, consumers can select from a range of options low in salt, fats and sugar. Over 700 of our accounts in North America are now implementing the Balanced Choices Programme and we have trained over 2,800 of our chefs and unit managers to the required operating standards.

Overview of the year

Organic growth was 12% fuelled by significant new business gains across all the sectors. Contract retention for the year was 96% with major renewals including a five-year extension to Morrison’s contract with BJC Health System worth $47 million in annual revenues and a 10-year extension to Chartwells’ contract with Florida Atlantic University worth $9 million in annual revenues.

We continued to focus on profitability and working capital management to drive improvements in return on capital employed.

We also completed the acquisition of the remaining 51% of Levy Restaurants for $250 million.

Canteen, the world’s largest route vending company, completed the rollout of its I-vend route accountability and cash control system which is reducing shrinkage and improving labour efficiency.

Product and service development

During the year 203 senior executives have been through an intensive two-day training programme, Managing for Value, designed to develop their strategic thinking and improve cash management and return on capital employed in their businesses.

As part of our commitment to tackling childhood obesity we have developed a nutritional awareness programme, ‘Eat, Learn, Live’, specifically for our Education sector. It encourages healthy eating through helping students gain a better understanding of what foods to eat, the health benefits and the link between good nutrition and academic attainment.

We have signed an exclusive 10-year agreement with the Dieticians of Canada as sponsor of the National Nutrition Month which has as its focus tackling childhood obesity.

As part of our commitment to sustainable sourcing, in March we announced a change to our seafood purchasing policy with a commitment to buying one million pounds of sustainable seafood annually (this accounts for around 20-25% of our total seafood purchases).

Outlook

In 2007, we expect to see continuing good revenue growth but at lower levels than those seen in 2006.