Compass Group PLC (LON:CPG) said the pipeline of new business has accelerated and retention remains strong as restrictions ease across its markets.
The catering group said it has delivered continued margin progression despite limited volume recovery by renegotiating temporary client contracts, managing costs and resizing the business.
READ: Compass Group confident of rebuilding margins before it returns to pre-COVID-19 volumes
Revenue is expected to gradually improve in the third quarter, when margin is estimated to be 4.5-5%, though the FTSE 100 firm said it will rise to 7% before it returns to pre-pandemic levels.
In the six months to 31 March, revenue tumbled 32% to £8.4bn, while profit before tax plunged 83% to £133mln. Net debt at period-end was £2.6bn.
“Compass Group has an overreliance on corporate demand for food services, which has been decimated by a newfound appetite for homeworking in the UK and the US. Corporate foodservice demand is forecast to recover more slowly compared to other segments such as healthcare and education,” said Harry Barnick, senior analyst at Third Bridge.
“Our experts expect corporate demand for food service to be structurally smaller post-covid whilst businesses reorganise themselves around employee demand for home and hybrid working.”
“Compass Group's ability to expand into new categories, such as delivery, will be fundamental to its survival. However, it faces stiff competition from aggregators in both the UK and the US, which threaten its evolution in this area. Whilst the short-term remains challenging, Compass Group could pick up market share in the medium-term due to Covid, as smaller competitors go bust and outsourcing trends accelerate.”
Shares were flat at 1,529p on Wednesday morning.