Compass Group Annual Review 2006

Summary operating review

Rest of the World

Organic revenue growth was driven by strong performances in Australia and Latin America as a result of the buoyant offshore oil and gas and remote site mining sectors. We completed the planned exit from our Middle East military catering operations and continued to exit the high street retail restaurant market in Japan.

Market position and trends

The contract foodservice market in the Rest of the World has an approximate value of £47 billion with outsourcing a little over 50% but with significant opportunities remaining in the Education, Healthcare and Defence, Offshore & Remote sites sectors.

Over the last 10 years we have established a presence in those countries that offer attractive current and future growth prospects. During this time we have established leading positions in Australia, Japan, Asia and Latin America and have clients in over 40 countries.

In the more developed markets, such as Australia, we have begun to sectorise our offer to respond to the specific requirements of clients in the Healthcare and Education sectors. In markets such as China and India we are continuing to ensure that our business is well placed to respond and benefit from the projected growth of these emerging economies.

The trend towards healthy living is continuing and we are adapting our global healthy eating programme, ‘Balanced Choices’, to meet the different cultural and culinary requirements of our consumers.

Overview of the year

We saw organic growth across all sectors up 13% overall. The Defence, Offshore & Remote sites sector grew by 24%, as a result of strong performances in Australia and Latin America, and now represents 35% of the Rest of the World business. In Japan we are continuing our planned exit from the high street retail restaurant market and this held back organic growth to 4%.

We have seen good profit growth in Australia and other countries with remote site operations reflecting the buoyancy of the oil, gas and extractive industries. Overall operating profit for the Rest of the World has been held back in part by the impact of the nationalisation of the extractive industry in Venezuela following a change of government.

China offers significant future growth prospects and we are very pleased with the development of our business in this important market. During the year we won contracts with Nokia, Bayer Polymers, Tianjin Denso Electronics and Foxxcon International. As planned we have now completed our exit from military catering operations in the Middle East.

Product and service development

Health and safety is the number one priority for us and our clients in the Defence, Offshore & Remote sites sector. In Australia, we have launched the ‘Compass Care’ initiative to promote excellence in health and safety management and to facilitate the rehabilitation and return to work of ill or injured employees.

In Japan, we are responding to our clients’ increasing focus on the management of their environmental impacts by increasing the number of our units with ISO14001 (Environmental Quality Standards) Accreditation. We now have 360 of our units achieving the required standards.

Also in Japan our ‘Dessert Forest’ menu development trial designed to boost sales by encouraging customers to select an additional item has resulted in a 3% increase in sales. The programme will now be rolled out across all our Business & Industry operations.

Outlook

In 2007 we would expect to see more moderate revenue growth but would now expect to begin to see some margin progression.