Compass attributes drop in UK margins to ‘challenging environment'

Contract catering company Compass has attributed a drop in UK margins in the nine months to 30 June to "a more challenging volume and cost environment".

The 70 basis point drop in the UK has been reported in the company's third quarter update despite strong rates of new business delivering a slight increase in revenue.

The company has taken cost actions to offset above average inflation in the UK, which it has said are beginning to deliver an improved run rate.

Worldwide, compass said its full-year expectations remain unchanged with organic revenue having grown by 5.7%, thanks to new business gains in North America and an acceleration of growth in Europe.

Operating margins in the period showed a slight dip year-on-year, but Compass has said efficiencies in its management and performance programme are expected to see a modest progression over the full year.

The largest growth in revenue in the nine-month period was seen in North America, increasing 7.2%, with B&I, vending and healthcare leading the gains.

Europe saw revenue grow by 1.4% in the period, largely thanks to new business from the UK.

Rest of the World saw organic revenue grow by 3.3%.

In a statement within the update Compass said: "Compass continues to have a good year. Revenue growth in North America is strong, Europe is accelerating as expected and Rest of World is progressing well.

"Better than planned margin improvement in Rest of World, is offsetting a more difficult volume and cost environment in Europe. As a result, our full year expectations are unchanged, with organic growth above the middle of our 4-6% range, and modest margin progression.

"Looking to the longer term, we continue to be excited about the significant structural market opportunity globally and the potential for further revenue growth, margin improvement and continued returns to shareholders."

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