Compass Group Annual Review 2006

Summary operating review

United Kingdom

The stabilisation of the UK business is progressing well under a new leadership team. The introduction of a simplified and more focused business model will underpin the delivery of improved financial performance.

Market position and trends

We are the leader in contract foodservice in the United Kingdom and have market leading positions in many of the sectors in which we operate.

Across all the sectors there is increasing demand from customers for options that promote healthy eating. In the Education sector we have been at the forefront of helping schools meet the Government’s new standards for school meals. Over 60% of the contracts we operate already meet the 2008 nutrient standards and exceed the guidelines on fresh fruit and vegetables and meat and portion sizes. We have also launched a ‘Putting the Fun into Food’ Programme to raise the profile of healthy eating in primary and secondary schools.

In Business & Industry the trend away from client subsidy to profit & loss and fixed price contracts is continuing. Meal times are shortening, with the average lunch break now less than 30 minutes. There is also a marked trend towards all-day snacking and this is increasing the demand for ‘grab and go’ products.

Overview of the year

Our priority has been to start stabilising the business and build a firm foundation for future growth. We have made good progress in creating a more robust contract base by renegotiating or exiting poorer performing ones. The impact of these actions has been offset by new contract gains enabling us to achieve a similar level of financial performance to last year.

The Education sector has again been challenging as we have responded to the Government’s drive to improve school meals. There are now clear signs that this sector is beginning to stabilise and during the summer we won new contracts in Reading, Sheffield, Kent and West Sussex.

In May we appointed Ian El-Mokadem, previously Managing Director of Onetel, to run the UK business. He has a wealth of experience in business strategy and in consumer and retail markets, which will be invaluable as the business responds to the trends in the marketplace.

Product and service development

As contract structures move onto a more commercial basis and client subsidies reduce, we are continuing to invest in developments that extend our product portfolio to meet customer needs and drive efficiencies.

Using innovative steam pressure technology to cook appetising and fresh food quickly while preserving the nutritional content, is generating new growth opportunities in the Education, Healthcare and Business & Industry sectors.

Though not a substitute for traditional production kitchens it provides a high-quality and cost-effective alternative for schools with no hot meals service. In West Sussex Scolarest has won a contract with the County Council to provide meals for 238 primary schools as they transition from a packed lunch to hot meals service. When fully mobilised we will provide over four million meals a year.

In Healthcare one of the challenges for NHS Trusts is to provide high-quality nutritious meals that increase patient satisfaction and aid recovery. Utilising steam technology Medirest is able to offer clients and patients a more extensive choice of hot meals cooked to order at ward level. We are currently supplying over 10,000 such meals a day across 30 hospitals. To meet demand we have developed a ‘Cuisine Centre’ in St Albans capable of producing 35,000 meals a day.

In Business & Industry steam technology is a cost-effective option at client locations where the number of on-site staff would not commercially justify a traditional meal service.

Outlook

We expect business to remain challenging in the UK in 2007, particularly in the Education sector. We will, however, continue to simplify the business to generate cost efficiencies and focus on improving the margin, particularly on poorer performing contracts.