Shares in the world’s number one food service company Compass Group (CPG) gained 2% to £15.02 after the firm posted a second quarter trading update showing a slight pick-up in revenues and margins from the previous quarter.
However, the firm warned that sterling strength was having a material effect on revenues which was likely to continue if the exchange rate remained steady through the year-end.
IMPROVING TRENDS
In its key US market, the decline in like-for-like revenues slowed from nearly 37% in the first quarter to 30% in the period since 4 February, while in Europe the revenue decline also slowed from around 35% to 30%.
At the same time, operating margins inched higher in both regions, from 4% to 5.4% in the US and from 1.2% to 1.7% in Europe.
In terms of customers, the education sector saw a healthy increase from a 37% drop in turnover in the first quarter to a drop of 29%, while healthcare and seniors was the most resilient business with a 1% advance so far this quarter following a 0.8% increase last quarter.
Revenue and margin comparisons are likely to improve further as the firms comes to lap last year’s third quarter from April to June, when sales were down a thumping 44% on a like-for-like basis.
Chief executive Dominic Blakemore said the firm was ‘controlling the controllable by managing our costs, adapting our operations and resizing our business’.
CURRENCY IMPACT
The firm said it was ‘confident’ it would rebuild its underlying operating margin to above 7%, but while the pace of vaccination around the world remains uneven, the speed of the recovery is likely to stay uncertain for businesses like Compass.
Moreover, the strength of sterling has been a headwind to revenues and margins this financial year, with a likely negative impact of £456 million on first half turnover and £38 million on operating profits.
The firm warned that if spot rates remained at current levels for the rest of its financial year the revenue impact could be as much as £930 million.
