Compass profits head north but it warns of food price costs

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Compass, the world's larg-est catering company, warn-ed that the rise in food prices would cost it an extra 35m this year, even as it posted a better-than-expected 16 per cent rise in profits for the past year.

The company said its management and performance programme, a productivity initiative, had so far helped it beat food-price inflation.

The highlight of the results, which come less than a fortnight after its French rival Sodexho revealed a lower-than-forecast operating profit of 640m, was Compass's free cash flow, which jumped 68 per cent in the past year, climbing 145m to 357m. Compass's chief executive Richard Cousins, who took over last summer, predicted the group would continue to weather rising food prices. "Over the last 18 months, we have simplified the business to focus on our core food and support services offer by selling non-core businesses and we have considerably red-uced our risk profile by exiting high-risk or volatile businesses," he said.

Karl Green, an analyst at Credit Suisse, said the results would help to dispel concerns about food-price inflation. "Sodexho had worried a lot of people looking at this market," he said, "But this shows that, if you looked deeper, food-price inflation was not the only reason behind their problems. Compass has managed the issue well and this is a very good performance ...a lot of people are relieved.

"Looking forward, there are some concerns about a slowing economic environment. I think people are counting on Richard Cousins, who has really delivered here. He has a very clear-cut management style and it is really working for the company," Mr Green added.

The caterer made an operating profit of 529m in the 12 months to the end of September, up 16 per cent on the same period in 2006. Despite seeing a 1 percentage-point rise in food-price inflation, the company managed to raise margins 70 basis points, taking them to 5.1 per cent.

North America contrib-uted a little over 40 per cent to the total group revenue of 10.3bn, slightly lower than last year when the region brought in almost 42 per cent of group revenue. Europe and the UK increased their share of the figure, bringing in almost 44 per cent of the revenue this year, compared with around 42 per cent in 2006.

The chairman of Compass, Sir Roy Gardner, said the company would inc-rease the total dividend to shareholders by 7 per cent, taking it to 10.8p per share, on the back of a 92.5 per cent rise in basic earnings per share.

The company's share price rose 27p to 316.25p.