ANNUAL REPORT 2019 Compass Group PLC Annual Report 2019 Strategic report 2 2019 performance at a glance 4 Our business at a glance 6 Our market position 7 Our sectors 8 Chairman’s statement 12 Our business model and strategy 14 How we create value 16 Our stakeholders 18 Chief Executive’s review 22 Executive Committee 26 Key performance indicators 28 Regional review 28 North America 30 Europe 32 Rest of World 34 Business review 41 Risk management 42 Principal risks 46 People report 54 Corporate Responsibility report Corporate governance 64 Governance and Directors’ report 66 Chairman’s letter 68 Board of Directors 72 Corporate Governance 82 Audit Committee report 90 Corporate Responsibility Committee report 94 Nomination Committee report 98 Directors’ Remuneration report 122 Other statutory disclosures Financial statements 130 Directors’ responsibilities 131 Independent auditor’s report 138 Consolidated financial statements 144 Group accounting policies 154 Notes to the consolidated financial statements 225 Parent Company financial statements 227 Parent Company accounting policies 229 Notes to the Parent Company financial statements Shareholder information 232 Shareholder information 235 Notice of Annual General Meeting Glossary 246 Glossary of terms Visit our website for related information www.compass-group.com Our 2019 Sustainability Report will be available online in early 2020 At Compass we are passionate about food. This passion drives us to ensure we are at the forefront of our industry. Our global scale allows us to identify market trends and to innovate accordingly – ensuring we provide great quality food services to millions of people around the world. Through our Performance, People and Purpose strategy we are focused on delivering value to all our stakeholders. 2019 PERFORMANCE AT A GLANCE Consistent performance UNDERLYING UNDERLYING UNDERLYING REVENUE OPERATING PROFIT OPERATING MARGIN £25,152m £1,882m 7.4% 1,882 30000 2000 8 7.4 7.4 7.4 7.2 7.2 1,744 1,705 25,152 7 23,147 25000 22,852 1500 1,445 6 19,871 1,296 20000 17,843 5 15000 1000 4 3 10000 500 2 5000 1 0 0 0 2015 2016 2017 20181 2019 2015 2016 2017 20181 2019 2015 2016 2017 20181 2019 UNDERLYING BASIC DIVIDEND EARNINGS PER SHARE PER SHARE 85.2p 40.0p 85.2 40.0 85.20 40 37.7 77.9 72.3 35 33.5 31.7 68.16 29.4 61.1 30 53.7 51.12 25 20 34.08 15 10 17.04 5 0.00 0 2015 2016 2017 20181 2019 2015 2016 2017 2018 2019 Throughout the Strategic Report, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group’s performance. These are not recognised under IFRS or other generally accepted accounting principles (GAAP). The Executive Committee of the Group manages and assesses the performance of the business on these measures and believes they are more representative of ongoing trading, facilitate meaningful year on year comparisons and hence provide more useful information to shareholders. Underlying and other alternative performance measures are defined in the glossary of terms on pages 246 and 247. A summary of the adjustments from statutory to underlying results is shown in note 34 on page 208 and further detailed in the consolidated income statement (page 138), reconciliation of free cash flow (page 143), note 2 segmental reporting (pages 161 to 164) and note 35 organic revenue and organic profit (page 210). 1. Restated upon adoption of IFRS 15. 2 Compass Group PLC Annual Report 2019 Strategic Report STATUTORY STATUTORY STATUTORY BASIC REVENUE OPERATING PROFIT EARNINGS PER SHARE £24,878m £1,601m 70.0p 24,878 24878 2000 80 22,872 22,568 71.3 71.3 70.0 1,693 1,665 70 1,601 19,605 60.4 1,409 17,590 1500 60 52.3 1,261 50 1000 40 30 500 20 10 0 0 0 2015 2016 2017 20181 2019 2015 2016 2017 20181 2019 2015 2016 2017 20181 2019 GLOBAL LOST TIME INCIDENT GLOBAL FOOD SAFETY GREENHOUSE GAS FREQUENCY RATE INCIDENT RATE INTENSITY RATIO2 -38% -35% 9.1 (since 2015) (since 2015) 5 0.40 10 9.1 0.35 4 8 0.30 6.7 6.7 6.3 6.0 3 0.25 6 0.20 2 0.15 4 0.10 1 2 0.05 0 0.00 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2. The scope and methodology of our reporting has changed this year; therefore data is not comparable on a like for like basis. For more information about our disclosure on global GHG emissions for the financial year ended 30 September 2019, see page 60. Compass Group PLC Annual Report 2019 3 OUR BUSINESS AT A GLANCE We are the industry leader with a strategic focus on food Food service is our core competence. Our scale and focus on execution mean that we can provide our We are the industry leader and create value clients and consumers with the best value in terms of quality and cost as well as the most exciting and innovative solutions. for our clients and consumers by providing them with a range of dining solutions that are We have a global footprint and manage the business in three geographic regions. This gives us balanced exposure innovative, healthy and sustainable. to developed markets in North America and Europe as well as emerging markets with exciting long term growth prospects. 4 Compass Group PLC Annual Report 2019 Strategic Report 45 55,000 600,000 5.5 billion Number of countries Number of client Number of colleagues Number of meals we operate in locations we work in served per year NORTH AMERICA Underlying revenue £15,694m 62.4% (20181: £13,718m) of Group total EUROPE Underlying revenue £5,854m 23.3% (20181: £5,762m) of Group total REST OF WORLD Underlying revenue £3,604m 14.3% (20181: £3,667m) of Group total 1. Restated upon adoption of IFRS 15. Compass Group PLC Annual Report 2019 5 OUR MARKET POSITION Significant structural growth opportunity remains We estimate that the addressable global food services market is currently worth in excess of £200 billion. We are the leading global food provider with around a 10% market share by sales. Approximately 75% of the market is serviced by regional players or in-house providers, which means there is a significant structural growth opportunity for us. Large players GLOBAL FOOD SERVICES MARKET C. £200BN Compass Self Group operated Numbers relating to market size and penetration rates are based on management estimates and a range of external data. T h e s t r u c t u Regional r a l g players ro w th o pp or tun ity The market for food services continues to offer significant growth experiences and outcomes. At the same time, our hospital retail potential as we deliver a strong proposition across our core proposition makes life more comfortable for visitors. sectors and regions. Sports & Leisure is a highly outsourced sector in which we Compass provides outsourced food services around the world benefit from our strong reputation across key markets. in a market worth over £200 billion. The five sectors in which we operate continue to offer substantial opportunities for growth. The Defence, Offshore & Remote sector offers opportunities to build lasting strategic relationships with large local and Food service remains at the core of the Compass offer. international operators. Creating strong client relationships Business & Industry accounts for around 40% of this value, allows us to respond better to the complex needs of supporting and this important sector continues to offer attractive growth their people. In addition to nutrition and physical wellbeing, our opportunities. In more developed markets, where outsourcing solutions focus on the social, emotional and environmental rates are routinely in excess of 60%, our combination of scale, needs of people working away from home. efficiencies and best-in-class service delivery supports continued revenue growth. In emerging markets, outsourcing Supplementing our core food offer with targeted support rates are still only around 10%, providing a significant services is attractive in certain markets and sectors, such as opportunity for future growth. Healthcare & Seniors and Defence, Offshore & Remote. In these sectors, we are recognised for fulfilling the needs of clients who The Healthcare & Seniors and Education sectors also continue require services with uncompromising quality. to grow, with less than half of the addressable global market currently outsourced. In Education, our expertise in nutrition In the markets and regions in which Compass operates, we means we are able to provide delicious food which supports continue to build our business and reputation by focusing on our learning at every stage of the education journey. In Healthcare, key strategic pillars of Performance, People and Purpose. we work directly with healthcare providers to improve patient 6 Compass Group PLC Annual Report 2019 OUR SECTORS Specialist sector knowledge Strategic Report is key to meeting clients’ needs The global food services market is large and disparate. That is why we structure our business to match the sectors in which our clients operate so that we get a deep understanding of their challenges. In this way, we can create innovative, bespoke offers that meet their specific requirements and, in doing so, truly differentiate ourselves. DEFENCE, OFFSHORE & REMOTE BUSINESS & INDUSTRY Through our established health and safety culture, We help our clients drive productivity and we are a market leader in providing food and some engagement in the workplace by providing support services to major companies in the oil, nutritious, well balanced food during the working gas, mining and construction industries.