By Victoria Masterson

Busier office canteens are helping to drive growth for catering giant Compass Group, which has raised its annual profit and revenue forecasts after stronger-than-expected third quarter results.

The company, which employs around 550,000 people across 35 countries – including around 300 sites in Scotland – said in a trading update it had seen good growth across all its regions in the three months to 30 June 2024.

Compass’s “value gap compared to the high street” and the quality of its offer was continuing to benefit revenue volumes, said the Surrey-based company, which is the world's biggest catering group.

New business wins had also improved in line with the group’s expectations.

At its full year results due in November 2024, Compass said it was now expecting growth in operating profits to be above 15%, with organic revenue growth – growth from existing operations – above 10%. This is more robust than the company’s previous guidance, which forecast profit and revenue would rise ‘towards’ 15% and 10% respectively.

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Workers returning to office working after the pandemic and looking to save money in the cost-of-living crisis were helping to fuel the company’s fortunes, analysts said.

“We’re seeing a trend of people drifting back to the office after working from home, so that’s a positive,” said Greg Johnson, an analyst at investment group Shore Capital. “When the cost of living is an issue, people might also be looking to buy things a bit more cheaply, so might look to eat more on site rather than head out of the office. Companies often subsidise their in-house catering, which means it’s cheaper compared to the high street.”

Businesses battling food and labour inflation were also increasingly opting to outsource their catering, Mr Johnson added.

“We’ve seen an increase in the proportion of first-time outsourcers for Compass,” he said. “So that’s companies, hospitals or education providers, for example, looking to outsource their in-house catering for the first time. The drivers of that, no doubt, include the challenges of opening during the pandemic, along with subsequent inflationary pressures and labour shortages.”

In another research note, analysts at investment bank RBC Capital Markets said expensive high street prices had weighed on parts of the broader restaurant sector – but that Compass had benefited from its lower-cost products compared to this.

At financial services company Hargreaves Lansdown, Derren Nathan, head of equity research, said: “Contract caterer Compass has been feeding more mouths in all its regions in the third quarter. There are underlying structural drivers feeding demand for outsourcing and that’s playing into the group’s hands.”

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These underlying structural drivers include increasing regulation in food service industries and the value organisations can gain through bulk buying.

Mr Nathan added that the group’s new business growth painted “an encouraging picture” for the longer-term – but warned that investors would see an impact on revenues from the almost $1bn Compass has spent on snapping up competitors so far this year.

Compass has also exited markets including Brazil, China, Argentina, the United Arab Emirates and Angola over the last eight months. At its half-year results in May, Compass said it was continuing to refine its portfolio and increase its focus on “core markets where we see significant growth opportunities.”

The company estimates its market share is less than 15% of the reachable $300 billion food services market.

In North America, Europe and the rest of the world, revenues from existing operations grew 9.9%, 12% and 8.5% respectively in the third quarter, Compass said.

The group launched a distinct Scottish operation, Compass Scotland, in November 2020, led by managing director, David Hay. This built on 70 years of operation in Scotland, with clients including Edinburgh Zoo and Edinburgh International Conference Centre.

Compass is returning money to shareholders through a $500m share buyback programme and said it would complete the remaining $200m of this before the end of the calendar year.