Compass Group PLC - Business, Dividend Policy, Financial Performance, and Position of the Hospitality Company - Case Study Example

Compass Group PLC Name: Course: Institution: Date: Compass Group PLC Introduction Compass Group Plc. is a British multinational company which specializes in the delivery of food items and support services in different countries on the global platform. The company operates on a clear and consistent strategy which allows it to create value for its shareholders (Zambon et al 2007, p. 100). Through the company’s sustainable business model that endeavours to ensure continued growth and expansion in the food and service industry, the company ensures that it derives its organic revenue from its ability to operate effectively and efficiently (Compass Group PLC 2013, p. 14). In addition, through numerous strategies that endeavour to improve its positioning the market the company has been able to establish its presence in North America, Europe and Japan and in the fast growing and emerging regions around the world (Compass Group PLC 2013, p. 14). The main objective of this report is to provide a detailed analysis and evaluation of Compass Group Plc. in terms of business, dividend policy, financial performance and position. Business Being a food catering and hospitality company, Compass Group Plc. provides its services to customers in different sectors of the economy such as those in education, healthcare, constriction, sports and entertainment (Hoover 2011, p.107). The company operates in about 90 countries globally with a high percentage of its market in North America and in Continental Europe. In an attempt to satisfy the interests of its customers the company operates in seven market areas and these include business and industry, healthcare, education fine dining, sports, defence and offshore sites. The revenue that the company generates from these sectors of the market are divided between contracts and vending which are the major business divisions of the company (Hoover 2011, p.109). Being a Multi-national company, the organization has been able to realize successful penetration of different markets especially those that are trending and emerging markets through a combination of organic growth and strategic acquisition of markets (Zambon et al 2007, p. 105). The company’s acquisition strategy is based on the assumption that the growth of the business is not realizable through organic growth strategy alone. This enabled Compass Group to acquire and merge its services with companies that could ensure significant growth and improve the company’s profit margins (Compass Group PLC 2013, p. 30). Since 2001 strategic acquisitions have been helpful in leveraging the position of the company as the world’s leading caterer. It has also affected the cash flow of the business therefore pressuring its margins and returns (Zambon et al 2007, p. 105). Despite these challenges, the company has been able to realize its 6% annual growth through the combination of the acquisition strategy with the organic growth strategy. The expansion of the business into different markets around the world are ways through which the company ensures that it remains focussed on the delivery of food and increase its ability to ensure the delivery of effective services (Hoover 2011, p.110). In the short term, strategic acquisition model and organic growth model are bound to impact of the company’s organic revenue growth due to the fluctuating nature of the economic environment (Zambon et al 2007, p. 100). However, in the medium term the company through the strategic acquisition is bound to enjoy benefits of outsourcing its services as this will ensure structural growth considering the possibility that the weak economies will begin the process of recovering. The creation of value infill acquisition enables the company to reward its shareholders appropriately (Hoover 2011, p.111). Dividend policy The role of dividends in any corporation is o ensure effective and efficient distribution of the company’s profits to its shareholders according to their contributions. At Compass Group, dividends are paid twice every year and the level of dividends that is to be paid to the shareholders is determined by the company’s board of directors (Compass Group PLC 2014, p. 1). The role of the directors is to determine the amount of money that is to be paid per share. This means that total amount of dividends received by every shareholders will be dependent on the number of shares that such a holder has as the date of payment (Compass Group PLC 2013, p. 48). While maintaining the desire of growing in terms of its shares the company provides its shareholders with options on the best ways to use their dividends. These include the decision of whether to get paid in cash or use the dividends accrued in purchasing more company cash (Hoover 2011, p.105). The process of paying the dividends at Compass Group Company is dependent on the record data and ex-dividend date. The former refers to the payment of dividends on the basis of the number of shares held by any shareholder on the register on the day that the company announces its intentions to pay its shareholders (Compass Group PLC 2014, p. 1). Ex-dividend date is often a specific data which refers to the day following the declaration of the dividend. This is the day after which the buyers no longer have the rights of receiving the last declared dividend. Through the dividend policy at Compass Group, the company regulates payments by ensuring that it is only those who buy shares prior to the ex-dividend date are entitled to be paid the declared dividends (Compass Group PLC 2014, p. 1). If any individual purchases shares after the ex-dividend date then the previous owner of the shares is entitled to the dividends. This not only controls dividend distribution but also protects the shareholders against the opportunistic market of shares (Compass Group PLC 2013, p. 50). The total amount of money accrued from the dividends can be said to be exempt from taxation considering that they are arrived at after the payment of basic tax rate. This is money that is paid by the company and it is often 10% of the gross dividends (Compass Group PLC 2014, p. 1). Financial performance The company has been relatively consistent in terms of financial performance considering that in 2013 the company experienced a 4.3% increase in the growth of its organic revenue. For the first time since the establishment of the company in 1941, it had an operating margin of 7% (Compass Group PLC 2013, p. 43). The overall growth in organic revenue was attributed to 8.8% increase in new business locations while at the same time ensuring a retention rate of 93.7%. The company’s underlying profits from continuing operations rose from £ 1.1 million in 2012 to £ 1.2 in 2013 which was a 7.4% increase (Compass Group PLC 2013, p. 43). The desire to address every challenging condition in the market led to the announcement by the company’s executives in 2012 that it would seek to enhance operational efficiency in the businesses within the European market. The company engaged £295 million exceptional cost of which 195 million was non-cash while £100 million was principally cash (Compass Group PLC 2012, p. 40). In 2013, the company continued to use this approach as part of its action plan ad this explains the £59 million for European exceptional cost. The reduction of the cost is an indication that the company is in the process of realizing its goal of improving in efficiency hence the need to spend less amount of monetary resources (Compass Group PLC 2013, p. 43). In terms of the company’s profits before tax, Compass Group recorded £721 million in 2013 (Compass Group PLC 2013, p. 43). For the perspective of continuing accounting operations, profits before tax were recorded at £1,188 million while that of 2012 was recorded at £1,093 million. This is an 8.7% increase in the company’s profits (Compass Group PLC 2013, p. 43). The increase in the profit levels of the company can be attributed to the introduction of new businesses, the development of competitive advantages by the company over its competitors and the desire by the company to expand its operations in emerging and trending markets (Compass Group PLC 2013, p. 43). Position Being a company that operates in the food catering and hospitality industry, Compass Group is considerd as one of the leading organization in ensuring the delivery of quality services to their customers in different regions of the world (Zambon et al 2007, p. 105). The high ranking position of this company in the market is based on the knowledge that the provision of food and support services as an outsourcing and as self-operated agency will not only increase the company’s market share but also its improve on its profits margins (Compass Group PLC 2013, p. 26). Its international presence is also strengthened by its ability to work with organizations which the quality and cost benefit attributes that are associated with the services and products of the company (Compass Group PLC 2012, p. 30). Majority of the company’s businesses are derived from first time outsourcing organizations, the regional players and limited competition from larger organizations. In addition, the development of middle class economies especially in the fast growing and emerging regions are an indication of economic growth and a perfect opportunity for Compass Group to introduce its services (Compass Group PLC 2013, p. 27). These markets provide perfect opportunities for expansion since they allow the business and industrial sectors to outsource the services of Compass Group. This means that the company is a potentially viable force in the markets of any emerging economy (Compass Group PLC 2013, p. 20). Conclusion Compass Group operates as an outsourcing and self-operating company that provides food and vending services in the premises of its customers. Being a multinational company the business operates in North America, Japan, and Europe and in the edging markets. This has allowed the company to gain more shareholders and acquire a relatively larger customer base in its target markets. Through its operation in these markets the company has been able to witness improvements in its profit margins and shareholder satisfaction in terms of dividends. References Compass Group PLC, 2012. Annual Report 2012. Compass Group. http://www.compass-group.com/images/CompassAnnualReport2012.pdf Compass Group PLC, 2013. Annual Report 2013. Compass Group. http://www.compass-group.com/images/CompassAnnualReport2013.pdf Compass Group PLC, 2014. Dividends. Compass Group PLC. http://www.compass-group.com/dividends.htm Hoover, Gary. 2011. Hoover's handbook of world business. Austin, TX: Reference Press. Zambon, Stefano, and Giuseppe Marzo. 2007. Visualising intangibles measuring and reporting in the knowledge economy. Aldershot, England: Ashgate. http://public.eblib.com/choice/publicfullrecord.aspx?p=438443 Read More