Compass Group(US:CMPGY)2021-05-12 15:29Financial Data and Key Metrics Changes - The company reported trading at 71% of 2019 revenues at the end of March, with performance across both quarters remaining broadly unchanged [3] - Operating margin in Q2 recovered to 4.2%, which is 20 basis points ahead of the Q2 pre-close trading update and 150 basis points improvement on Q1, compared to a low of minus 6% [5][9] - New business wins increased by nearly 20% over 2019, with first-time outsourcing now accounting for 50% of the value, up from the historic 30% [6] Business Line Data and Key Metrics Changes - Higher Education in North America improved in Q2 as university campuses reopened, while the Healthcare & Senior Living sector showed strong performance [4] - The B&I sector is seeing a gradual recovery, with volumes expected to improve as sites reopen [26] - Sports & Leisure activities remain muted, currently at about a third of pre-pandemic levels, with expectations for gradual improvement as restrictions ease [25] Market Data and Key Metrics Changes - In the Healthcare and Defense Offshore & Remote sectors, volumes are up 5% to 9% compared to 2019 [21] - Education sector volumes were reported at just over 70% in Q2, with expectations for a stronger return in September [23] - The company is experiencing low volumes in B&I, with current activity levels around 20% to 30% [26] Company Strategy and Development Direction - The company is focused on innovation and evolving its operating model, with a disciplined approach to bolt-on M&A for sector exposure [7] - There is a strong emphasis on digital capabilities, diversity, and sustainability as key priorities for clients [72] - The company aims to return to a group margin above 7% before reaching pre-COVID volumes, with a focus on sustainable growth [8][67] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the pace of recovery, particularly in the context of new business wins and retention rates [15][40] - The company anticipates Q3 revenues to recover slightly over Q2, with margins expected between 4.5% and 5% due to reopening costs [8] - Management highlighted the importance of health and wellness in the workplace as a growing concern for clients [96] Other Important Information - The company is actively looking for M&A opportunities, particularly in digital capabilities and healthcare sectors, while maintaining a disciplined approach to capital allocation [71][74] - The current net debt-to-EBITDA ratio is at three times, with a target gearing ratio of one to 1.5 times, indicating a focus on financial recovery [70] Q&A Session Summary Question: What is the sustainability of the new business wins trend? - Management noted that new business wins have increased from £850 million in 2019 to £1.1 billion in the first half of the current year, with a positive outlook for the medium term [15][16] Question: What is the guidance for revenue volumes in April or early May? - Management indicated that volumes in healthcare and defense sectors are showing positive trends, while education is expected to improve significantly in September [21][23] Question: What are the expectations for CapEx in the second half? - The company plans to deploy £400 million in CapEx, maintaining a focus on growth opportunities while managing capital intensity [14][30] Question: How are margins being affected by cost pressures? - Management acknowledged inflationary pressures on food and labor, with food inflation at approximately 3.4% and labor inflation around 4% [50][51] Question: What is the current status of the GPO? - The company is consolidating suppliers and maximizing benefits from a narrower food range, while maintaining strong relationships with suppliers [118][120]