It is no exaggeration to say that Compass and its chief executive Richard Cousins has elevated the term low-key into something of an art form.
A modest three-storey red brick building in Chertsey, Surrey, is home to the biggest caterer in the world. Cousins, a 51-year-old father of two who rarely gives interviews, is the antithesis of the celebrity CEO: unassuming and quick to praise his team – and you get the impression he really means it, too.
Yet there is nothing modest about the size of the business. It serves a large chunk of the world at work and at play. Compass operates in 50 countries and has 35,000 clients that range from the Bank of England and Visa to the US Open and the Wimbledon tennis championships. It spends £3.5bn on food a year, which includes 8m cans of coke. It employs 386,000 people worldwide, close to the size of China’s standing army. And all of this adds up to 4bn meals served each year.
Investors will also have been pleased by the firm’s progress. Compass posted half-year pre-tax profits up 14 per cent to £462m last month, on sales up 2.6 per cent to £7.1bn. Over the last four years it has raised its operating margin –?thanks to what Cousins describes as a “relentless focus on efficiency” – from 4.5 per cent to seven per cent. And in May it raised its half-year dividend 14 per cent to 5p, which Cousins points out means that for the last two-and-a-half years it has consistently raised its payouts by double-digit figures.
A soft-spoken Cousins, who is sitting at the head of the firm’s oval 20-seat meeting table in its third-floor boardroom, says he is pleased with growth in the first half of the year, and expects the second half and beyond to be even better.
He says: “We are happy with the shape of the businesses as we emerge from recession. Global growth will be modest in the short to medium term, but we are increasingly excited about our growth prospects. We have fixed the fundamentals during the last four years. We have earned the right to grow.”
Cousins sees plenty of room for organic growth that the FTSE 100 business, with a market capitalisation of £10bn, can take advantage of to keep it ahead of rivals like France’s Sodexo or Germany’s Supreme Foodservice.
He argues that only half of the world’s foodservice industry is outsourced, with many organisations still providing their own. He adds: “We expect that to grow, particularly in the healthcare and education sectors, as governments around the world take costs out of their budgets after the financial crisis. Outsourcers like us can do it cheaper.”
He says this is the lesson he takes from chancellor George Osborne’s emergency budget last week, or US President Barack Obama’s healthcare reforms that were passed in March.
He adds: “We will not see an increased level of business tomorrow, it will take some time for these policies to feed through. But we are already seeing an increased level of enquires about our services from US hospitals.”
The firm sees education and healthcare as fertile ground because in this market only 30 per cent of the catering is outsourced, while in its core business and industry market 70 per cent of foodservices are handled by outside caterers.
Cousins still expects a lot of growth to come from the US, which accounts for 43 per cent of the firm’s sales. He says: “The US is still a vibrant economy which is capable of great structural growth.”
Cousins adds “apart from the Bric countries [Brazil, Russia, India and China]” he is also looking to grow in Turkey, Mexico and the Middle East. “We are excited about double digit growth we see in those countries,” he adds. The UK accounts for only 13 per cent of the group’s sales.
Compass also wants to grow its support services unit, which accounts for 12 per cent of revenues. This is a little known aspect of the business, but on some Royal Dutch Shell oil rigs or in some BHP Billiton mining camps Compass staff not only cook the food but undertake a range of other ancillary services.
Cousins says: “We also clean, do the laundry and carry out light maintenance. We are at a size where it makes sense for us to do more in this area.”
Cousins says the firm is ready to return to mergers and acquisitions after expanding too quickly in the early part of the decade and running into trouble.
He says: “From 2004 to 2007 the old Compass perhaps did too much M&A. But now we are very focused. We are looking at small to medium sized deals, though we will not rule out a big one if it comes along. We are looking at food and support services firms, and only in the countries we are already in.”
When Cousins took the helm at Compass in March 2006 the business was taking punches at every turn. It had sacked three senior executives in a bribery scandal over contracts to feed UN peacekeepers in Liberia. It cost £40m to settle the resulting lawsuits without admitting liability.
The business took the brunt of criticism from the campaign led by celebrity chef Jamie Oliver over the quality of school meals in the UK. The firm’s merger with Granada in 2000 had brought it a number of units and contracts that were not making money. All this led to three profit warnings in 2005 and the departure of its chief executive Mike Bailey.
Cousins joined from British plasterboard firm BPB where the year before as chief executive he had got French rival Saint Gobain to raise its offer four times before recommending a £3.9bn sale to shareholders. This deal had enhanced Cousins’ reputation in the City, but some thought agreeing to take the Compass job was a good way to ruin it.
He says: “From looking at the company I got a sense that the fundamentals of the business had potential. It was a challenge, but it was doable.” He was right.
Careful analysis has been what Cousins’ career has been built on. After a maths degree at Sheffield University he began work in 1981 at Cadbury as a market researcher. Three years later he joined British industrial conglomerate BTR as a strategy planner, and in 1990 he took up a corporate planner’s post at BPB and worked his way up to chief executive a decade later.
After studying Compass, Cousins thought the best course of action was to take an axe and then a scalpel to the business. He pulled out of 50 countries where its contracts were low margin and it did not have the scale to compete effectively. Between 2006 and 2007 it sold a number of businesses, including European vending unit Selecta and its SSP and Moto travel concessions at the top of the market for £3bn. “We were lucky with our timing,” adds Cousins. The new chief executive then began to look hard at his costs, but not long after this came the recession.
He says: “In hindsight it was good for us. It led us to push even harder to drive down our costs.” In the full year to 2009 the business cut costs by £161m. Staffing fell from 407,000 workers four years ago to 386,000 today. The business also boosted the amount of fruit, salads and fresh vegetables it used, while trimming the size of school menus to control costs.
Over the last three years the firm has raised operating margin by 200 basis points. Cousins says he plans to do this again over the medium term though he will not give a precise timeframe. “We are determined, through a disciplined approach to keep on taking costs out of the business,” he says.
Investors are impressed. When he joined the firm’s share price was 235p, now it is 538p, earning those shareholders who trusted him a massive return. Cousins says: “When I joined, Compass had come in for a lot of criticism, some of it deserved. The heads of people in the company were down. But now, without being cocky, we have got our confidence back.”
Compass seems intent on putting clear blue water between itself and its rivals ?– but one thing won’t change. The firm will remain ultra low-key – which means that, regrettably, many commentators will continue to fail to notice one of Britain Plc’s true success stories. Investors are unlikely to make that mistake.