INTERVIEW: Compass CEO: Focus Turns To Sales Growth

7th Jul 2010 15:49

By Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Compass Group PLC (CPG.LN) will accelerate its sales growth in the second half of its financial year as the U.K.-based caterer moves towards its two-year target of growing annual sales above 5% despite the "dullish" global economy, Chief Executive Richard Cousins told Dow Jones Newswires. "I think we are going to see an acceleration in our top line in the second half, no question," Cousins said in an interview, "but I'm not going to get cocky about the economy." Cousins expects a "dull, patchy" recovery. "Not bad but we're certainly not assuming great," he said. Despite this, he's confident about the group's growth prospects. "Over the next couple of years, maybe a bit less, we can get this business back to trend revenue growth of 5% to 7%," he said. Cousins is well regarded, having rejuvenated the business in his four years at the helm. Cousins joined the 400,000-employee group in summer 2006 after the beleaguered supplier of food services to schools, hospitals, offices and leisure centers in 50 countries company posted a string of profit warnings as its bottom line struggled to keep pace with its rapid expansion. "We'd grown far too quickly, made too may acquisitions, the margins were poor and the revenue growth was out of control," said Cousins. "There was a lot of work to do." Since taking the helm, Cousins has withdrawn the company from around 50 countries and sold a number of non-core businesses. He also replaced two thirds of the company's top 400 managers. "We're a very different business today." Compass posted flat revenue in the year to September 20009 as demand from existing contracts dropped. Revenue would have fallen but for Compass's ability to continue winning new business, said Cousins. The company's ongoing cost cutting program, meanwhile, meant net profit actually grew 32%. Cousins said the company had enjoyed a good recession, without compromising on price. "I don't think we took share but we emerged stronger and with lower costs," he said. "Taking market share by macho pricing is not what we're interested in." Cousins' confidence in this year's performance is partly due to the resilience of emerging markets such as Brazil, India and Russia. "We're really comfortable with where we are and we're now seeing double-digit growth," he said of the emerging markets. Even in mature markets such as the U.K.--which has lagged the group's overall performance for a number of years--things are looking better, he said. "I think the U.K.'s already hit the bottom," said Cousins. Revenue in the U.K. dropped 5.5% in the first half of the current year. "We would expect the second half to be much better than that," he said. Cousins said the company's revenue targets don't assume any great improvement in the global economy but were rather based on the company's ability to secure new contracts. "I think there are early signs that our pipeline of winning and retention is getting better," he said. Compass will also benefit from a move by governments around the world to outsource catering as they trim budgets. "The outsourcing trend is inevitable," said Cousins. "It's either going to go fast or very fast." He said there was evidence that the U.S. healthcare reforms will result in U.S. hospitals taking out costs through outsourcing their catering. "We are seeing an increase in enquiries about outsourcing in U.S. hospitals," he said, "but I would like six months more data before I shout too loudly." A relentless focus on efficiency and costs has seen Compass's operating margin grow to 7% from 4.5% during Cousins' time in charge. "We do think there's loads more to go on margin but the rate of expansion will inevitably slow," he said. He aims to grow margin to about 8.5% but hasn't set a timeframe. "I think it will take quite a few years to get there, its a long term goal," he said. Margin growth will not necessarily stop once the target is reached however. "Margins we hope will carry on expanding forever and ever." Cousins focus now is turning to revenue. "We've grabbed some of the low hanging fruit, we need to invest some of our efficiencies in growth," he said. This growth will come partly through acquisition. While a large acquisition can't be ruled out, Cousins said the group was "not really looking at them." Instead, the acquisition strategy will be focused on small and medium sized businesses--those with annual revenue between $50 million and $100 million--in markets where Compass already operates. There are likely to be a lot of them. "Our cash-flow suggests we can afford a significant amount per year," he said. After acquisitions, the company plans to continue raising its dividend rather than buying back shares. "At the moment that's not our preference," said Cousins. "If in a couple of years time, the balance sheet is looking lazy then we'll have another look at it." -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires July 07, 2010 10:49 ET (14:49 GMT)