Good morning, ladies and gentlemen, and welcome to The Compass Group Plc First Quarter Trading Update Call hosted by Dominic Blakemore, Chief Executive Officer and Karen Wits, Chief Financial Officer. You will have the opportunity to ask questions following the prepared remarks by management. I would now like to hand the call over to Dominic Blakemore. Sir, you may begin.
Thank you. Good morning, ladies and gentlemen, and thank you for dialing in. As usual, I'm joined by Karen Wits, our CFO. I'm sure you've read this morning's statement. And before opening the call to questions, I'd like to say a few words on our performance and outlook.
We've had an encouraging start to the year. We continue to perform well and to deliver industry leading growth and margins, whilst at the same time, we continue to invest in the business to drive long term sustainable profitable growth. The cost action program we announced in November is progressing as planned and delivering the savings to offset the anticipated volume declines in our European business. For the full year, our guidance is unchanged. We expect to deliver organic growth around the midpoint of our 4% to 6% range with stable margins.
Now looking at our regions. Our strong momentum in North America has continued. The business delivered 7.5% organic growth in quarter 1. This was thanks in particular to good growth in B and I, health care and education. Our European performance was in line with our expectations.
Organic growth was flat due to the anticipated softness in B and I volumes and a less favorable Sports and Leisure calendar. If we normalize for the Sports and Leisure effect, our underlying growth is just above 1%. We also saw a good performance in Turkey and Central Europe. The impact from the strikes in France wasn't material, reducing organic growth in Europe in the Q1 by around 20 bps. Our businesses in Rest of World grew 4.7% with good performances in Australia and LatAm.
I'm pleased to announce that the acquisition of FAFSA Food Services was completed at the end of January. This results in the payment of initial consideration of approximately €420,000,000 We're excited that the Fanta colleagues are joining our business. I'd like to take this opportunity to publicly welcome them to the Compass family. We also made some small bolt on acquisitions in the quarter for a consideration of £40,000,000 further strengthening our position as the global leader in food services. So in summary, Compass continues to perform strongly with the excellent growth in North America and improving Rest of World, more than offsetting the expected difficult volume environment in our European B and I business.
We continue to be excited about the significant structural market opportunity globally and the potential for further revenue and profit growth combined with further returns to shareholders over time. Thank you. And now we're very happy to take any questions.
Thank you. We will now take our first question from Jamie Rollo from Morgan Stanley. Please go ahead.
Thanks. Good morning, everyone. Three questions, please. First, it would be very helpful to get the split of the 5.3 percent between like for likes and net contract gains just broadly given the sort of slowdown we saw in net contract gains in H2 last year? Secondly, clearly, it's very good performance overall versus competitors that have reported so far in Q1.
I'm just wondering, is there any sort of change in the competitive environment you've seen, particularly in U. S. Healthcare and Education? There's some sort of weak spots called out by a couple of bigger peers there. And then finally, it'd be helpful to get a bit more color in Europe, maybe breaking out the main geographies and perhaps some of the verticals.
Thank you.
Good morning, Jamie, and thank you for the questions. If I take the first two, I'll pass the third to Karen on Europe. First of all, with regard to the 5.3%, at a quarter, we don't give the split in any more detail. But what I would say is the trends of both new and like for like continue in the Q1 as we saw in 2019. And the one thing I would say is that you just have to remember that our new business was flattered in 2018 and the first half of twenty nineteen by the very strong sorry, forgive me, the very strong Hessia growth.
So I think that, that such a slowdown in new in the second half of last year can largely be attributed to that. 2nd, in terms of comparison to competitors, I think we're seeing no real change either by markets or sector. So conditions remain very much the same. And then on the third question on Europe, just handing over to Karen.
Okay. Good morning, Jamie. We don't really break down into the individual countries or sectors. So just to reiterate what Dominic has said about the overall group, what we're seeing is really the trends that we said we would see from the year end. So from a sector perspective, at the end of last year, we called out the volume weakness in the B and I sector, and that's what we're continuing to see in the way that we described at the end of the year.
From country by country perspective, we've got Turkey doing well, the Nordics doing well, Central and Eastern Europe. And then as we had pointed out that softness related to B and I, which is primarily around France, Germany and UK.
Okay. Thanks.
We will now take our next question from Vicki Stern from Barclays. Please go ahead.
Good morning. Just firstly, your comps are going to progressively ease across the next few quarters. And I guess you'll also get a little bit of help from the leap here in Q2. Just is there anything coming up in the calendar or any other reasons like coronavirus or anything else why you'd expect at this stage you can't at least hold similar levels of organic growth as we go out through the rest of the year? Secondly, on margins, so I guess both the fats deal and the disposal just disposal is slightly dilutive to margins this year.
So you're still confident you can mitigate both of those and achieve flat? And if so, aside from the European restructuring program, can you just remind us of the other key areas of cost improvements that are helping you to support margins? And then just finally back on Europe, obviously you gave that helpful kind of anecdotal commentary back in November about some of your key clients, some of the restructuring programs that they were seeing that time. Any other sort of anecdotal commentary as we think about what the outlook might be for volumes in Europe? Thanks.
Yes. I'll take the first and third questions and then pass the margin on M and A over to Karen. Firstly, just in terms of whether comp sees and leap year. I mean, first, I think it's fair to say, look, it's a very encouraging start to the year, but it is only a quarter. As we know, there's lots of things going on with the strikes we've seen in Chile and Paris and the potential impact of the coronavirus.
But in the round, we don't see those particularly having a material impact. We're holding guidance today, but it's been an encouraging start. So we're pleased with where we are. And one of the things I would just call out is specifically on the European performance. Again, I said in the as I spoke upfront, if we normalize for that Sports and Measure calendar, we think the growth in Europe was closer to 1%, so towards the higher end of our guidance on an underlying basis.
On the third point on Europe and what we're seeing, I mean, it's very, very much in line with what we told you at the end of last year. The volume trends in the Q1 are similar to those that we saw in quarter 4. The impacts are within the sectors and subsectors of B and I that we anticipated. We feel confident at this point that what we're seeing is very much in line with our expectations, that the restructuring actions that we're taking are allowing us to offset the profit impact. And we're very, very focused on where our opportunity is for future growth within the region.
I think a combination of Dominic and Vicki have picked up most of that. Yes, Vicki, as we said, faster slightly dilutes the margins in the first instance, but we've taken that into consideration in our full year guidance just as we've taken into consideration any weakness in B and I volumes, that's what the cost actions are there to offset. And then just in terms of what else have we got that might be supporting margins, we invest in what we call our 3 little piece. So we're doing work on purchasing, productivity and price.
Okay. Thanks very much.
We will now take our next question from James Ainley from Citi. Please go ahead.
Thank you. Three questions for me as well, please. First one is, can you just comment more broadly on some of these geopolitical headwinds? I'm thinking some fires in Australia, coronavirus and so on. And what, if any, impacts you're seeing on business on the ground in those locations?
Secondly, what food cost headwinds have you been seeing from, again, the more recent developments like African swine flu and again, the Australian bushfires? And then third, the like for like volume environment was very strong last year, particularly in North America. Has that continued into the current year?
Okay. Again, let me take the first and third, and then I'll pass the second on to Karen. Thank you, James. With regard to the geopolitical headwinds, I just sort of take each in turn, we've obviously we have a reasonably small business in Chile, and we've seen the demonstrations there. Those have now subsided and at least for the time being and all of the impact we've dealt with within the quarter.
The strikes in Paris is again within our quarterly guidance and within the 20 bps of impact on Europe that I talked to today. And again, at least for the time being, that appears to have subsided. We've seen little impact from the bushfires fortunately on the business as of now. So the bigger issue is obviously the impact of coronavirus. And I think it's fair to say, 1st and foremost, our number one priority in any situation like this is with the health and safety of our employees and our consumers.
So we're working very, very hard right now with a dedicated steering group that are managing the situation on a daily basis. I think it's really important also to size it for you. So our China and Hong Kong business in combination is less than 0.5 points of group revenues. So it is a very, very small part of our global portfolio. So for now, any impact we anticipate would be immaterial and has no impact on our guidance for the full year.
However, again, we do remain cautious in the event that we see a secondary impact in other markets at some point in the future. So we're very careful around that. But in the round, we don't see any of those as we see them today having an impact on our guidance, which remains unchanged for the full year. With regard to like for like volumes in North America, yes, we saw a good performance last year, and we continue to see that in the first
quarter. And then your question about food cost headwinds, well, I think at this stage, it would be too early to predict what the impact of any of these geopolitical related issues might be. But we are used to dealing with food cost inflation. And indeed, we have been dealing with the impact of the Asian swine flu for some time now. That's actually one of the reasons why we have these productivity initiatives in place.
Okay, very good. Thank you.
We will now take our next question from Jarrod Castle from UBS London. Please go ahead.
Thanks. Good morning. 3 as well. It seems like the restructuring program is going to plan. I just want to kind of check-in terms of the time line for its completion, are you still on track there as well as the cost of completing the restructuring program?
Secondly, it seems like in North America, BNI is doing well. That across all industry groups? Or is there some in particular which are doing well compared to others? And then just lastly, M and A, you've done a little bit during the current quarter. How should we think about the pipeline for that going forward?
Thanks.
Okay. So, I'll let Karen come back on the restructuring program when I've answered the other two questions there, Jared, if I may. So first of all, North American B and I, I mean, I think it's a similar trend to what we've seen over recent years. Our B and I success is broad based. It's across the multiple of our B and I sector and subsector brands as well as our Canteen Vending business.
In terms of particular industry sectors that we're benefiting from, I don't think it would surprise you that we continue to see good growth in our tech business in particular. With regard to M and A, we've done a few small deals in the Q1, principally in North America. Right now, there remains an attractive pipeline across the group, and we will continue to pursue attractive foodservice opportunities where we see them. As we've always said, it's a lumpy pipeline. It's difficult to predict.
So I think we just have to leave it at that. But we remain very focused on bolt on opportunities and of the size and order that you would be used to.
And the restructuring is going to plan. We started it last year. We'll be broadly finished. It's certainly on track, both in terms of the time and indeed in the costs. And it's something that I monitor on a very regular basis.
Okay. Thanks very much.
We will now take our next question from Richard Clarke from Bernstein.
Three questions, if I may. Earlier this week, we had Aramark calling out some weakness in university enrollment, sort of level of employment. Is that something you're also seeing, some weakness in the volumes in universities? And then just a couple of questions on labor. We have the news that your Google employees are unionizing, I think about 1.5% of your U.
S. Workforce. Is that a wider trend and impact on cost inflation there? And equally some of the predictive scheduling legislation in the U. S.
As well sort of removing the equivalent of 0 hour contracts. Is that having any impact on your business? You obviously kind of moved to more flexible workforce. Is there anything you need to roll back on that?
Thank you, Richard. I mean, first of all, we're not seeing any weakness in the volumes in our higher ed sector. I presume the question was specifically directed to North America. So it isn't something we recognize. It isn't something we recognize.
And then secondly, with regard to the unionization of workers, we've been working on the particular situation that you referenced with our client, with the unions and with our employees for some time now. We've come to a successful outcome and as part of a cost plus contract, something which is funded. So it's something which we're pleased with the resolution. With regard to any trend towards unionization, I think it's actually slightly the reverse. If you look at the trends over time, we see a slight reduction in the levels of unionization of our workforce across North America.
So again, it isn't something which we would recognize as a particular headwind. And then with regard to flexibility of labor, yes, there is changes to legislation there are in many of our markets. I think it's incumbent on us to try and find innovative solutions, one of which is that we're developing our own internal employment agency, which gives us greater flexibility with temporary labor and in a manner which I think is very appealing to our employees. So again, I think it's about how do you find those innovative solutions.
Very clear. Thank you very much.
We'll now take our next question from Jaafar Mestari from Exane BNP Paribas. Please go ahead.
Hi, good morning. I've got just one question please in terms of your B and I volumes in Europe. Other than just a general macro environment, last year you made some client specific comments. You mentioned large layoff plans at some of your large sites. I was just curious how you see those plans progressing at your clients?
And in other words, does the Q1 2020 performance reflect the totality of those layoffs? Is it done or do you expect to see those client layoffs increase in the next quarters?
Thank you, Chifar. I mean, as you would expect, we built our plans on the basis of the information that we had to hand. As we've said today, the volumes are trending in line with our expectations. Our restructuring is on track. So there are no surprises there.
And the guidance we've given for the full year would encompass our expectations on a full year basis.
It appears there are no further questions. So I'd like to hand the call back to our host for any additional or closing remarks.
I'd just like to say thank you very much for dialing in today and thank you for your questions. And we look forward to seeing you at the half year results.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.