2568.11 kb - Compass Group

DeliveringprofitablegrowthAnnual Report 2007

Our vision is to be a world-class providerof contract foodservice and support services,renowned for our great people, our great serviceand our great results. To achieve this everyonein Compass Group is committed to consistentlydelivering superior service in the most efficientway for the shared benefit of our customers,shareholders and employees.Contents01 2007 highlights02 Group at a glance04 Chairman’s statementDelivering on our commitments06 Chief Executive’s statementDriving performance13 Business review17 Board of directors18 Acting responsibly24 Directors’ report24 Report of the directors27 Corporate governance33 Directors’ remuneration report40 Consolidated financial statements84 Parent Company financial statements91 Shareholder information93 Index to the consolidated financial statements93 Index to the Parent Company financial statements

01 Compass Group PLC Annual Report 2007Our strong operating performanceis being driven by concentrating onthe five key profit drivers of MAP,our Group-wide Management andPerformance framework, which isnow embedded within our business.Clientsales andmarketingDelivering profitablegrowth from existingand new clients,and developing ourpenetration in ourchosen markets.Consumersales andmarketingDriving growth inconsumer volumeand spendingthrough innovationin our offer, theright pricing andthe right retail skills.Cost of foodBuying the optimalquality and rangeof food to meetthe needs of ourcustomers at thelowest cost, withthe most efficientdistribution andin-unit production.Unit costsDelivering the rightlevel of service inthe most efficientway, focusing onlabour productivityand controllinglabour and otherin-unit costs.Above unitoverheadsCreating a simplerorganisationalmodel, withfewer layers ofmanagement andless bureaucracy.2007 highlightsThrough the MAP process we havetransformed the performance of the businesswith good quality organic revenue growth,greater focus on like for like growth and costefficiencies together delivering £101 millionof operating profit growth at constantcurrency and driving the operating marginforward by 70 basis points. Our focus oncapital expenditure and working capital hasresulted in a step change in the delivery offree cash flow, up 68% to £357 million.Group revenue5% organic revenue growth on a constantcurrency basis. 1,5£9,768m£10,268mTotal operating profitA 24% increase in operating profit on a constantcurrency basis. 1,2£428m£529m2006 20072006 2007MarginA margin increase of 70 basis points. 1,6Basic earnings per shareAn underlying earnings per share increase of 62%. 4Free cash flowA step change in the delivery of free cash flow, up 68%.4.4%5.1%15.2p£357m9.4p£212m2006 20072006 20072006 2007The three main drivers of our £101 million ofoperating profit growth this year have been:Net new business achieved through newclients, new services to existing clients andmanaging retention of existing businesshas delivered £30 million of profit.Base estate growth resulting from like forlike price and volume growth and themanagement of cost inflation has delivered£35 million of profit.Reducing above unit costs by a net£36 million.Organic revenue growth 52006: 7%5%Capital expenditure as a % of revenue2006: 1.9%1.9%Return on capital employed2006: 11.3%12.5%Full year dividend2006: 10.1p10.8pAll figures shown relate to continuing operations.1. Constant currency restates the prior year results to 2007average exchange rates.2. Includes share of profit of associates. UK £3 million (2006:£1 million) and North America £1 million (2006: £1 million).3. Excludes share of profit of associates.4. Underlying profit before tax excludes revaluation gains andlosses on swaps and hedging instruments (hedge accountingineffectiveness) of £(6) million (2006: £11 million). Underlyingbasic earnings per share excludes these items net of tax.5. Organic growth is calculated by adjusting for acquisitions(excluding current year acquisitions and including a full year inrespect of prior year acquisitions), disposals (excluded fromboth years) and exchange rate movements (translating theprior years at current year exchange rates) and compares theresults against 2006.6. Operating margin is based on revenue and operating profitexcluding share of profit of associates.Find out more onlineMore information on Compass Group can be found onour website: www.compass-group.com.For our Annual Review, go to our Investor Centre atwww.compass-group.com.You can also go to our website to register to receivefuture Annual Reports and Reviews and othershareholder information electronically.

02 Compass Group PLC Annual Report 2007Group at a glanceOur marketplaceOur strategy focuses on theoutsourced foodservice andsupport services markets,building on the existingexpertise and strengths wehave as a Group.We estimate that outsourcing growth in the foodservicemarket (which we estimate is £150 billion) is at least 5%per annum. As market leader, we will strive for more andfaster penetration of the foodservice market that is still selfoperated. The support services market is significantlylarger than the foodservice market and growing at afaster rate.Our aim is to achieve market leadership in the sectorsand countries that we have identified as having realprospects for strong long-term organic growth andprovide the global capability necessary to grow ourinternational client base.Our guiding principles form the basis of our approachto delivering this strategy:Health, safety and environment firstNever to compromise on the health and safety of ourcustomers and our people, and to manage responsiblythe impact that our business has on the environment.Delivering for clients and consumersTo earn the continued loyalty of our customers byconsistently demonstrating why we are the first choicefor quality, service, value and innovation.Developing our people and valuing diversityTo value and recognise the diversity and contributionof our people. We create a work environment that ischallenging and provides the opportunities and supportfor everyone to develop, learn and succeed.Profitable growthTo deliver shareholder value through disciplined,sustainable growth, underpinned by strong governance,that contributes to and leverages the benefits of ourglobal scale.Constant focus on performance and efficiencyTo deliver the highest quality and performance,whilst relentlessly driving to be the lowest cost, mostefficient provider.Leading sector expertiseWe are a world leading providerof food and support services.Every day we serve literallymillions of people around theworld, whether it is to providethem with a meal, a cup of coffee,a clean office or helping to keepthe entire workspace aroundthem working at its best.Market sectors and operating companiesWe have unparalleled experience in providing theseservices to people in a whole range of environments –at work, at school or university, in hospital, at sportingor cultural events, or in remote environments. Ourproven capability in each of these markets resultsfrom our sector focus, with dedicated operatingbusinesses in each sector in our main geographies.This in-depth understanding of the demands of thesemarkets and the needs of our customers drives ourmarket-leading innovation, our operating efficiencyand ultimately the quality of the service ourcustomers experience.North America Continental Europe United Kingdom Rest of the WorldBusiness & IndustryNo-one understands food at work quite like we do,whether it is in offices, distribution, factories or anyother work environment. Our consumer focus drivesthe development and innovation in our food offers,brands and service to deliver the optimum solution fromrestaurants and café style outlets to coffee bars andvending. We also provide a selected range of supportservices that complement our foodservice offer. Thisincludes cleaning, grounds maintenance, hospitalityand reception services.Fine DiningFood is at the heart of what we do and, often workingwith world-renowned chefs, we bring exceptionalgastronomic creativity and flair, style and hospitality toexecutive dining rooms, prestigious social and culturalevents and world famous venues.Healthcare & SeniorsOne of the most demanding markets in which weoperate. The very highest standards of food safety andhygiene, working with clinical staff and having a detailedunderstanding of the nutritional needs of those we care forhave made us a leader in this market. Our offer is broaderthan simply foodservice for patients, staff and visitors,and includes a range of complementary support servicesincluding services such as cleaning and housekeeping.EducationFrom primary schools to some of the world’s most renowneduniversities, we provide a nutritious, well-balanced diet tofuel the development of young minds and bodies.Sports & LeisureWe have unparalleled experience in providing highquality foodservice for some of the world’s mostprestigious sporting and leisure venues, visitor attractionsand social events. In addition we have the specialist inhouseexpertise and resources to provide a single sourcefor the complete marketing and management of corporatehospitality packages.Business & IndustryFine DiningHealthcare & SeniorsEducationSports & LeisureDefence, OffshoreVendingNorth AmericaContinental EuropeUnited KingdomRest of the WorldIn a number of countries we have a single operating company providingmulti-sector solutions. For example, Onama in Italy and Seiyo in Japan.Defence, Offshore & Remote SitesWe provide vital workplace support for people workingin some of the most hostile and demanding terrains inthe world from oil and gas to major construction sitesand remote mining locations. Our technical and logisticalcompetence, commitment to health and safety and abilityto effectively mobilise contracts have earned us an enviablereputation for providing fully integrated food and supportservices for global clients with workers around the world.VendingVending is an integral part of our foodservice offer and weare able to deliver high quality, innovative solutions to ourcustomers. In North America this is through Canteen, ourspecialist vending operation.

03 Compass Group PLC Annual Report 2007Regional review at a glanceNorth AmericaFor the 13th consecutive year Master Chef WolfgangPuck was selected to create the menu for The Academyof Motion Picture Arts and Sciences post-Oscar event,the Governor’s Ball. In the same month Compass’foodservice excellence was on show at the 49thAnnual Grammy Awards and for the Players’ Partyand Super Bowl Host Committee VIP Party at thisyear’s Super Bowl.Continental EuropeOur business in Spain is capitalising on the rapidexpansion of the senior-living market. Building on ourexperience of providing foodservice in the residentialcare homes market, we have developed a deliveredmeals service for senior and handicapped peopleat home; a model for other countries with ageingpopulations looking for an alternative to movingpeople into rest homes. In the last year we havedelivered over 1.2 million meals to people in-homeproviding a varied, healthy diet.Revenue2006: £4,290m£4,162mPercentage ofGroup revenue40%2006: 42%Revenue2006: £2,484m£2,553mPercentage ofGroup revenue25%2006: 24%Operating profit 32006: £245m£261mRegional highlightsContinued excellent progressdelivering 6% organic revenue growth.Operating profit from continuingoperations increased by £39 millionon a constant currency basis to£261 million (2006: £222 million),a 60 basis point margin improvement.The Business & Industry sector hasbeen driven by innovation in our offer,delivering 4% like for like revenuegrowth.In Healthcare, 7% organic growthfrom increased cross-selling betweenMorrison, our foodservice business,and Crothall, our support servicesbusiness.Healthy eating programmes andthe strength of the Chartwells brandcontributed to 9% organic revenuegrowth in the Education sector.Good growth in Levy, our Sports& Leisure business.Continued good progress withour business in Canada.Our pipeline for 2008 looks healthy.Operating profit 32006: £122m£151mRegional highlightsOrganic revenue growth has doubledto 4%, with good growth opportunitiesfor the future.On a constant currency basis, growthof £31 million operating profit fromcontinuing operations to £151 million(2006: £120 million) represents a marginimprovement of 100 basis points.In Spain, like for like growth, drivenby new offerings and an increase inconsumer numbers, together withnew business in the Healthcare andEducation sectors, have drivenorganic revenue growth of 13%.Continued high activity in the oiland gas industry in the Nordic regioncontributed to 14% organic revenuegrowth, while the focus on healthyeating continues to drive volumesthrough much of the region.Good turnaround in previouslyunderperforming countries suchas France and the Netherlands.We are becoming more establishedin the Eastern European market,which is growing well.United KingdomRest of the WorldThe newly branded Restaurant Associates was launchedin May 2007 to respond to a growing demand for aleading provider of executive hospitality, dining andbusiness support services to its prestigious blue-chipclients; including 17 out of the top 20 investment banks inLondon, law firms and leading organisations. The moveconsolidated our previous brand operations under onestrong identity and management structure. Our newbusiness goals reflect a commitment to innovation,service, lifestyle and simplicity.Tengizchevroil (TCO), a Chevron managed joint venturein Kazakhstan, renewed their contract for supportservices at their Atyrau and Tengiz facilities after acompetitive re-tendering process. This is one of ourlargest remote site contracts, with over 3,200 of ourpeople providing a range of services, including fulldaily catering services and the full maintenance ofoffices, accommodation rooms and town homes.Revenue2006: £1,882m£1,931mPercentage ofGroup revenue19%2006: 18%Revenue2006: £1,611m£1,622mPercentage ofGroup revenue16%2006: 16%Operating profit 32006: £107m£107mRegional highlightsRevenue in the UK was £1,931 million(2006: £1,882 million), growth of2% on an organic basis.A solid result with, as expected,operating profits in line with last year.Largely completed the turnaround orexit of poor performing contracts.The Education sector has stabilisedfollowing a difficult period.We have continued to reorganise thebusiness to drive further efficiencies.We expect a broadly similarperformance in 2008.Operating profit 32006: £47m£64mRegional highlightsAnother very strong year, delivering£64 million operating profit fromcontinuing operations (2006:£43 million on a constant currencybasis), an increase of £21 million.Australia continues to deliver strongorganic revenue growth driven by theongoing buoyancy of the extractionindustries.Encouraging progress in Japan, wherethe focus on driving efficiency andrestructuring the business has resultedin good margin improvement.Our businesses in Abu Dhabi andDubai have seen good revenue andmargin growth.Good revenue growth with somemargin improvement in Latin America.Looking forward there remainssignificant opportunity to furtherdevelop our businesses in theRest of the World both in size andoperating performance.See footnotes on page 1.

04 Compass Group PLC Annual Report 2007Chairman’s statementDelivering on our commitmentsOur performance reflects a clear,well-executed strategy, which isstarting to deliver increased valueto our shareholders.The introduction of MAP, ourManagement and Performanceframework, has given us a commonlanguage and agenda resulting ingreater focus and visibility across thewhole business. We have delivered astep change in profit and free cashflow generation as new processesbegin to embed throughout theorganisation. Looking ahead, webelieve we are entering a new phaseof sustainable value creation, withexciting opportunities to growrevenues, improve margins andgenerate significant cash flow.I am delighted to report a year of outstandingprogress against the commitments we havegiven to improve returns to shareholders.The objective of the strategy we communicatedlast year is to grow our business in a disciplinedway to deliver sustainable profit and growth.This year represents an important first step indelivering this strategy.We remain firmly focused on developingour core foodservice business, in which wesee continued strong long-term growthopportunities in our chosen market sectors.Alongside this we are developing a range ofcomplementary support services, which we areprogressively bringing to market, prioritisingthose sectors and countries where our abilityto provide both food and support services willhelp us to develop our market. In particular,we see a growing number of internationalclients who are looking for a service partnersuch as us who can deliver these services toconsistently high standards, globally.The successful implementation of MAP hasgiven us the framework to manage thebusiness with the intensity necessary to driveimproved performance. MAP is now wellestablishedin the businesses. In the comingyear we will be taking further steps to embedMAP even deeper into the organisation.Our Group Chief Executive, RichardCousins, in his first full year in the role,has put in place a strong leadership teamto lead the continued development andimplementation of our strategy, bringing incompetencies in areas such as marketing andinternational clients to support the deliveryof our objectives and to help drive value fromthe combined strength of our global Group.I have continued the programme I initiatedto improve corporate governance andcontrols. Building on the progress we havealready made, our aim this year has beenreviewing and re-communicating Grouppolicies and practices, with processes andtraining to ensure that these are receivedand understood.Over the last year we have further reviewedour corporate social responsibility strategy(‘CSR’) to ensure that we are addressing thebroader social and environmental issues inthe way that we run our business. Thiscommitment is very much in evidence inour day-to-day operations, forming a firmfoundation to build on as we strive tocontinuously improve our CSR journey.We have made good progress in the last yearand, going forward, I will continue to takethe necessary steps to ensure that we set thehighest standards for corporate governanceand responsible business practice.Full year dividend10.8p(+7%)Sir Roy GardnerChairmanCompass Groupshare price performancevs FTSE 100 Index 2007Pence400375Compass GroupFTSE 100 Index35032530027525029/09200629/11200629/01200729/03200729/05200730/07200728/092007The FTSE 100 Index has been rebased to theCompass Group share price on 29 September 2006(268.25 pence)

05 Compass Group PLC Annual Report 2007Returns to shareholdersThe Board is proposing a final dividendof 7.2 pence per share for payment inMarch 2008. This brings our full yeardividend to 10.8 pence, a year on yearincrease of 7%.In July this year we completed the sale ofSelecta, the European vending business,for £772 million before transaction costs.Of these proceeds we are using £500 millionto extend our share buy-back programme.This is in addition to the return of£500 million to shareholders followingthe sale of SSP in 2006, taking the total sharebuy-back programme to £1 billion. As of30 September 2007 we had bought backshares for cancellation to the value of£720 million.A further £45 million of the Selecta proceedshave been contributed to Compass’ UKclosed defined benefit pension plans, takingthe total amount of special contributionsto these plans over the past 15 months to£325 million, significantly reducing thepension deficit in these schemes.The balance of the proceeds has been usedto further reduce net debt.ManagementOn becoming Chairman I began the processof reinvigorating the Board to achieve theright blend of expertise, experience andstrong independent scrutiny to guide thedecisions of the Board over managing andgrowing the business in the best interests ofour shareholders.This has been achieved through an orderlysuccession plan and without compromisingthe effectiveness of the Board and itscommittees.Peter Blackburn, Peter Cawdron and ValGooding have all stepped down from theBoard in the last year and I would like tothank each of them for the contributionthey have made to the Group.I am delighted that Sir Ian Robinson, TimParker, Sir James Crosby and Susan Murrayjoined the Board as non-executive directorsduring the last 12 months, with Sir JamesCrosby becoming the senior independentnon-executive director. Together with myother colleagues on the Board, I look forwardto our new directors’ continued contributionto the deliberations of the Board.In June we appointed Mark White as theGroup’s General Counsel and CompanySecretary, a new role within the Group.Mark, a qualified solicitor, has extensiveinternational legal and business experienceand joined us from Wolseley plc.Our peopleOn behalf of the Board, I would like to thankall of our people around the world for theircommitment and efforts in achieving theseresults and for the excellent service theydeliver daily; service that continues to earnthe loyalty of our clients and consumers andreinforces our position as a leader in ourchosen markets.OutlookThe results that we have reported for 2007demonstrate that we have the right strategy,the right leadership and, through MAP, theright focus to capitalise on the considerableopportunities that exist in our chosen markets.I believe that these results and the actionswe are taking give us a solid foundation onwhich to base sustainable performanceimprovements and deliver increasing valueto our shareholders.Sir Roy GardnerChairman28 November 2007Our strategyWe have a very clear and focused strategy,a significant market opportunity and a tightoperating model with much improvedcontrols and governance.Focus on our contractfoodservice businessGrow our supportservices businessCommitted to givingour customerssuperior levelsof serviceFocus on drivingcost efficiencies

06 Compass Group PLC Annual Report 2007Chief Executive’s statementDriving performanceThrough the MAP process we havedelivered good quality organicrevenue growth, driven the operatingmargin forward and significantlyincreased operating profit. We haveachieved this through better qualitynew business and retention, a greaterfocus on like for like growth andimproved cost efficiencies. Our focuson capital expenditure and workingcapital has resulted in a step changein the delivery of free cash flow.Over the last 18 months we have tightenedour strategy, simplified the business to focuson our core food and support services offerby selling non-core businesses and haveconsiderably reduced our risk profile byexiting high risk or volatile businesses.Our strong operating performance is beingdriven by concentrating on the five key profitdrivers of MAP, our operating framework,which is now embedded within our business.Each MAP component has its own set of keyperformance indicators. Performance isreviewed with country management teamsboth monthly and in our detailed businessreviews. Together these give greater visibilityof country performance, enable us to respondmore quickly to opportunities and changes inour markets and ensure that our businessesare constantly focused on profitable organicgrowth.MAP has enabled us to deliver £101 millionof constant currency operating profit growththrough:£30 million of net new businessgrowth driven by better quality newbusiness and retentionMAP 1 – Client sales and marketing:achieved through better targeted businesses,tighter contracts and sharper contractevaluation. Included among our new businesswins: Asda in the UK; The House ofRepresentatives, Dell and DreamWorks inthe US; Continental in Germany; and Shellacross Europe.Richard CousinsGroup Chief Executive£35 million of base estate profitgrowth driven by like for like revenuegrowth and cost efficienciesDriving like for like revenue growth:MAP 1 – Client sales and marketing:addresses driving like for like revenue throughclient pricing strategies and growing clientvolumes, for example: through additionalservices, such as: cleaning, portering, receptionand concierge.MAP 2 – Consumer sales and marketing:focuses on developing our retail philosophy inorder to increase participation and spend perhead, for example: extending our offer toinclude breakfast and ‘Grab & Go’ concepts.Driving cost efficiencies:MAP 3 – Cost of food: addresses costefficiencies through a systematic approach tomenu planning, purchasing and supply chain,and unit processes.MAP 4 – Unit costs: we spend nearly £5.5billion per year on unit costs and we have beenmanaging this through: labour productivityand scheduling; control of labour costs; andin-unit overhead opportunities.£36 million of above unit overheadsavings after allowing for inflationMAP 5 – Above unit overheads: we spend£0.8 billion on above unit overheads per year.The savings have been achieved through:management reorganisation; consolidatedback office functions; change managementprocesses; and tightened control ofdiscretionary spend.

07 Compass Group PLC Annual Report 2007Food cost inflationWe spend around £3.5 billion a year on food.We estimate that for last year we have seenabout a one percentage point increase in therate of inflation. To put this into context eachone percentage point of food cost inflationadds about £35 million to the total cost baseof £9.7 billion. This is before taking intoaccount that around one third of ourcontracts are cost plus. We believe that ourbasket of goods is currently experiencingmarket increases of some 4% to 5%.In terms of its impact, most of thegeographies in which we operate and mostfood categories have seen some inflation.However, the larger double digit inflationaryincreases have been in dairy, rice and pasta.Together these categories account for onlyabout 10% of the Group’s spend on food.Food price inflation is not a new phenomenon.We have managed it well for many years andcontinue to do so, but now, through the MAPframework, with greater intensity. The specificactions we are taking to address food inflationfall into three categories: purchasing andsupply chain efficiencies; unit cost efficienciesincluding menu re-engineering; client andconsumer price increases.So, in conclusion, food price inflation is wellunderstood and being acted upon. Crucially,despite the inflation we have seen this year,we have been able to hold our gross marginssteady through the combination of costefficiencies and price increases.Processes and peopleOur new monthly reporting processes andregular business reviews with countrymanagement teams ensure that we are allconstantly focused on the management andperformance of the five MAP value drivers.Our country managing directors are now fullyempowered to run their businesses, operatingwithin a clearly defined MAP operatingframework.The new measures have also led to tighterdiscipline and sounder governance. Approvalprocesses have been strengthened andremuneration policies reviewed. TheCorporate Responsibility Committee, asubcommittee of the Board, continuesto oversee all aspects of health and foodsafety, environmental impacts, governanceand its reporting.Over the past 18 months we have madesignificant management changes at a Board,Executive Committee, Group head office andcountry leadership level. We have put in placesuccession planning and are focusing onmanagement development to ensure thatwe are developing our leadership strengthfor the future.The introduction of MAP and the removalof divisional management structures haveresulted in greater transparency acrossthe organisation. We now have greatermanagement strength at both countryand head office level and this new globalleadership team has been central to drivingthe improved performance.Strategy and the futureLooking back over the achievements of thelast 18 months, strategically, we have defineda clearer focused strategy and launched MAP.We have made good progress in developingour support services business and we havesimplified the business by exiting non-corebusinesses such as SSP, Selecta, Hotels andother non-core assets. We have also reducedthe number of countries in which we operateand considerably reduced our risk profile.We believe we now have a focused andtransparent business model which willgenerate significant opportunities to growthe top line organically, improve marginsand grow profitability and generate significantcash flow. We believe we are entering a newphase of sustainable value creation.There will be no change in our corestrategy as we enter the next phase of ourdevelopment. We remain very excited bythe prospects for growth with significantoutsourcing potential in our core food andsupport service markets. We estimate thatoutsourcing growth in the foodservice market(valued at £150 billion) is at least 5% perannum. The support services market is largerthan the foodservices market and growingat a faster rate. Operationally we will stayfocused on MAP and embed it deeper intothe organisation. The drive for like for likegrowth and increased operational efficiencieswill also continue. From this we will expectfurther significant cash flow generation.Map – Driving profitable growthRichard CousinsGroup Chief Executive28 November 2007Client salesand marketingMarket development, good qualitynew businessNew businessConsumersales andmarketingCost of foodUnit costsAbove unitoverheadsLike for like price and volume growth – moreservices, retention, and innovative offersCost efficiencies – purchasing, menu planning,supply chain and in-unit processesLabour productivity, labour and in-unitcost controlSimplified organisation, control ofdiscretionary spendBase estateAbove unitoverheads

08 Compass Group PLC Annual Report 2007Chief Executive’s statementcontinuedIn response to our clients’needs we have developed astrong capability in a selectedrange of support servicesthat complement our corefoodservice offer.International clients managementThrough our international clients programme weare developing closer relationships with multinationalorganisations. They recognise that we have thegeographical coverage and capability to deliveroutsourced food and support services to the sameworld-class standards, globally and enable them toachieve their own global objectives.Steamplicity – market-leading innovationMarket-leading innovations like ‘Steamplicity’ arehelping us to open up new segments of our coremarket sectors. Already being enjoyed by consumersin the UK and Europe, ‘Steamplicity’, uses patentedvalve technology to healthily steam-cook meals withinminutes, retaining nutritional content and promotingwellness and vitality. Ideal for providing hot meals‘cooked to order’ for hospital patients, schoolsand environments where traditional kitchen spaceis often restricted.MAP 1 – Client sales and marketingMAP 1 focuses on deliveringprofitable growth from existingand new clients and developingour penetration in our chosenmarkets.Growing our marketsWe continue to see growth in our corecontract foodservice market. We see excitinggrowth in every sector, especially Healthcareand Education, driven by innovations suchas ‘Steamplicity’, and in a growing Sports& Leisure market where we have hadgreat success in winning contracts forprestigious events and major venues, suchas The O2 in London, the largest sports andentertainment complex in Europe, KrugerNational Park in South Africa and theAbu Dhabi National Exhibition Centre(ADNEC) in the United Arab Emirates.Our country MAP plans detail our approachto developing each market. Our globalsector forums, supported by our new marketdevelopment function, provide the meansto identify and respond to emerging markettrends, facilitate the rapid transfer ofbest practices from one part of the Groupto another and drive innovation in ourclient offer.Last year we identified the support servicesmarket as an attractive opportunity for anumber of reasons:We have an existing capability to buildon, with some industry leading expertisein certain services and sectors;It enables us to respond to an increasingnumber of clients who are looking tobundle services, including foodservice; andIt complements the service and healthand safety ethos that has gained usour reputation for excellence in thefoodservice market.Our strategy is to develop the support servicesmarket in a disciplined way by focusing onselected services, sectors and countries.To give us real competitive advantage in thismarket we have developed the CompassService Framework, using the very bestknowledge that we can find in the world toensure that we can deliver the world-class,consistent capability that clients demand.Driving like for like revenueThe size and depth of our client base and theloyalty of our clients reflect the quality andscope of the services we provide, and we areproud to count organisations that are leadersin their markets as our clients.The focus over the last 12 months and goingforward is to improve the discipline withwhich we manage our existing clientrelationships and improve the performanceof our contract base. To achieve this we havefocused on the following areas:Ensuring that we have the right contractterms in place that accurately reflect theservices we are being paid to provide andthat we have the appropriate reviewprocesses and controls in place to monitorservice levels, client satisfaction and priceindexation, the latter being vitallyimportant in managing throughinflationary cost increases;Extending the services we provide,for example, adding vending or cleaningto a foodservice-only site, or increasing thenumber of sites we support, and drivinglike for like volume and average spendincreases in our existing operations; andProactively reviewing contracts where thefinancial and operational performancedoes not meet expectations and taking theopportunity to renegotiate these to putthem on the right basis going forward.More disciplined new businessAs we develop our core markets it is vital thatwe maintain a healthy new business pipeline,supported by the necessary disciplines toensure that we take on the right businesson the right terms. We have been putting inplace across all our businesses clear guidelinesand training for our sales teams on our keycontract terms. This is supported by a robustapprovals process for new business bids at acountry level and, dependent on the scaleof the opportunity or the level of capitalinvestment required, review and approvalat a Group level.

09 Compass Group PLC Annual Report 2007Our consumer focusis driving continuedinnovation in our brandsand foodservice offers.Selling more beveragesIn the Czech Republic we have doubled like forlike beverage sales in our 350 Business & Industryunits. Through understanding consumer behaviourswe identified a significant opportunity to captureincremental beverage sales by focusing on ‘hydrating’people better in the workplace. Key initiatives werebased around expanding day-parts, increasing varietyand choice and educating the consumer on theimportance of hydration. Solutions were to increaserange and package types, introduce larger packsizes, install incremental equipment (coolers andracks), improve merchandising and place hydrationmessages at point of sale.Improved pricing through ‘Value Planning’2,000 of our operating units in the USA are usingthe ‘Value Plan’, a simple but highly effective pricemanagement and benchmarking tool whichprovides the framework for setting pricing strategies.Through the ‘Value Plan’ we compare unit pricinginformation against national and local ‘market basket’benchmarks and inflation forecasts, to set our targetprice points for each of our major categories. Thisprovides our Unit Managers with credible data todevelop their own unit pricing plan and set regularpricing reviews with our clients. Performance isnow being tracked through weekly ‘owners reports’from each unit, comparing the actual price achievedagainst our target price for the top selling categories.Recently developed supporting tools such as‘mapping the servery’ and ‘station profitability’enable managers to analyse the performance ofindividual areas of the restaurant. The impact of the‘Value Plan’ is evidenced in like for like sales growthof 5% and an increase of up to 10% in averagespend per transaction.MAP 2 – Consumer sales and marketingMAP 2 reflects the importance ofhaving the right offers and retailskills to drive growth in consumervolume and spending.Understanding consumer trendsto drive innovationWhilst we may be feeding people either intheir workplace, at college or in a hospitalrestaurant, their demand for quality, choiceand value are equally as discerning as youwould find on the high street. Our focus onunderstanding consumer needs and futuretrends is driving the development andinnovation in our food offers, brands andservices. In Healthcare, for example, we haveled the market with the introduction ofpersonalised patient meal ordering, such asour ‘Catering to You’ service, which providesgreater flexibility, choice and individualdietary control. Developed in the USA,‘Catering to You’ has already successfullytransferred to other countries.Health, wellbeing and sustainability areimportant topics that matter to ourconsumers in every sector. As a globalfoodservice company we fully understandthe responsibility we have in helpingconsumers make informed choices aboutdiet and nutrition. Our in-house dieticianswork with our culinary, product developmentand purchasing teams to create menuprogrammes that combine menu planning,labelling and promotion, and educationaltraining for our people to deliver food choicesthat are safe, nutritious and balanced, andsuit the lifestyle and tastes of our consumers.For example, in our US Education business,‘Eat, Learn, Live’ is a market leadingcommitment to the health and wellbeingof children and students from primaryschools to college. This holistic approachdrives innovations such as ‘Brake forBreakfast’ and ‘Morning Editions’ providinga healthier start to the day. In addition wehelp educate students to recognise andchoose healthier options, provide a nutritionand physical activity for the curriculum‘Healthsmart’ and support health relatedin-classroom and outreach programmes.Improved pricing managementIn an increasingly ‘retail’ market we aretaking a more thorough approach to pricingand are deploying pricing tools and processesto enable our managers to undertake‘local market basket’ benchmarking which,combined with national benchmarking,enables a regular, fact-based pricing reviewwith our clients. For example, in our UKbusiness our units receive a regular ‘PriceWatch’ update providing information, basedon ‘high-street’ benchmarking research.Driving volume and spendA greater understanding of our consumersenables us to more effectively target offersthat entice consumers into more repeat visitsand encourage them to spend more per visit.To achieve this we are developing a moreretail-focused approach to promotions, sellingskills and merchandising. In our Business &Industry sector this might mean extending theuse of the restaurant through different daypartoffers, for example, broadening out froma lunch time only service to include breakfast.In Germany, in response to consumerresearch we have developed a ‘Grab and Go’offer as an additional service which is nowgenerating a like for like volume increaseof 4%.Controlling the cashLearning from the retail sector, at the sametime as driving increased sales, we havefocused on ensuring that we are not losing thiscash to poor cash handling disciplines, stockshrinkage or even theft. The experience ofa considerable number of trial sites forour ‘Profit Protection’ programme in theUK has shown that a focus on this area(putting training and processes in place,supported by the right technology) canlead to sales increases of up to 7%, cashreconciliation improvements of up to 3%and a significant reduction in cash ‘loss’.

10 Compass Group PLC Annual Report 2007Chief Executive’s statementcontinuedWe are addressing foodcost efficiencies througha systematic approach tomenu planning, purchasingand in-unit processes.Trim Trax – reducing wastageThe ‘Trim Trax’ programme has been developed inthe US Business & Industry sector to help reducein-unit food wastage, focusing on the most frequentreasons we have identified for production loss –overproduction, out-of-date inventory and wastagein the food preparation itself. The programmeprovides some very simple, very visible ways toreinforce the message about reducing waste for ourin-unit teams. One simple, but effective way is givingeach member of the food production team theirown individual ‘Trim Trax’ food waste bin, which hasthe volume recorded, categorised and assigned avalue each day. Results are then tracked, with theteam identifying actions to reduce wastage andrecognition going to the best performers.MAP 3 – Cost of foodWe spend over £3.5 billion ayear on food alone. Our MAP 3objective is to buy the optimalquality and range of food andproducts to meet the needs ofour customers at the lowestcost, whilst having the mostefficient distribution andin-unit production.Managing food cost inflationWe have held our cost of sales flat throughouta year in which we have seen food costinflation affect most food categories in mostof the countries in which we operate. Thedrivers of inflationary pressures stem fromgrowth in demand, such as population andeconomic growth, changes in eating habitsand the increased use of staple crops forbio-fuels, combined with pressure on thesupply side brought about by reducedharvests, often caused by extreme weather,or the impact of food scares.Our ability to manage these inflationarypressures is a result of:The work we have done to include foodcost indexation in our contracts, givingus the contractual right to review pricingwith our clients;Re-engineering our menus to switch fooditems in response to forecast shortagesand cost increases; andContinuing to drive greater purchasingefficiencies through supplier rationalisationand compliance.Leveraging our scaleOur approach to purchasing reflects the needto have the right supplier relationships andpartnerships in place at a local, regional,national and international level. We nowhave country purchasing teams in place todrive purchasing efficiencies in support ofindividual country business plans. Forexample, in the UK we have a programmecalled ‘85:10:5’, the purpose of which hasbeen to move all of our purchasing spendinto the following categories:85% spend or greater through approvedsuppliers;10% spend or less through suppliers ofunique products or services; and5% spend or less through suppliers whomeet specific, local contract requirements.‘85:10:5’ provides the right levels of controland compliance combined with the flexibilityto meet individual contract or service specificneeds. At the same time we are betterleveraging our purchasing volumes bymoving to a smaller group of suppliers anda narrower product range, as we have donein countries like Germany where we haveconsolidated 80% of our purchasing volumewith 11 suppliers and decreased the numberof products from 40,000 to 7,000.We are also seeing significant benefits incompliance, cost control and forecastingthrough more effective menu planning.In Brazil, for example, our units haveonline access to a centralised menu planningdatabase and have reduced average mealcosts by up to 10%.Reducing in-unit production costsAnother focus area under MAP 3 is reducingthe cost of in-unit meal production. A keycomponent of this is reducing food waste,targeting wastage in the production processitself, overproduction or incorrectly orderedor out-of-date stock. Programmes such as‘Trim Trax’, which has been trialled in theUS Business & Industry and Educationsectors, are providing simple, high impacttools to raise awareness of the issue ofwastage with our in-unit teams and embedthe disciplines necessary to reduce it.Reducing supply chain costsOur newly created European Consolidation Centrein Southern Spain has reduced supply chain costsby having fresh produce delivered directly to thisfacility from our own nominated growers, which wethen quality assure and consolidate for dispatchto our distributors in 12 European countries. Byconsolidating our spend and buying at source wehave significantly improved our buying price, qualityand traceability, reduced distribution costs, andreduced the number of lorries on the road. Wereceived the UK Institute of Grocery Distribution’s2007 Food Industry Award for Supply ChainExcellence in recognition of our fresh producebuying strategy.

11 Compass Group PLC Annual Report 2007Improving efficiency andcosts in our units is a realopportunity that we arestarting to address.Improving efficiencyGood progress is being made to further reduce costsin the UK business. Unit labour scheduling is nowreceiving intensive focus, following the creation ofa dedicated business efficiency team. This teamis directly supporting our operations in embeddingprocesses and disciplines to more effectivelymanage labour scheduling, temporary labour, themanagement of payroll, sickness and holiday in ourunits and the better usage of reporting tools. Integralto this is the roll-out of a communication and trainingprogramme for all our Unit Managers focusingattention on getting the right people in the rightplace at the right time in order to maximise salesand improve customer service and productivity.MAP 4 – Unit costsMAP 4 focuses on drivingcost efficiencies from our£5.5 billion of unit labour andother in-unit, non-food costs.Improving labour productivityOur objective is always to deliver the rightlevel of service in the most efficient waypossible, by ensuring that we have the rightnumber of trained people, performing theright activities in the right place at the righttime, and have the flexibility to absorbincreases in volume.With the focus on labour productivitythrough MAP we have been deploying toolsand processes across our business to improveour labour optimisation. These are scalableto suit the differing sizes of our operationsand range from simple unit-based labourscheduling tools that track and forecast labourhours against sales, through to intensiveon-site reviews by productivity specialistsin our major sites. These programmes, suchas ‘Performance Plus’ in our US Healthcarebusiness, involve detailed time and motionstudies to analyse labour scheduling andefficiency in all areas of the operation, fromfood production to mapping front of houseservice needs against consumer footfall. Thisgives a clear picture of the optimal labourhour requirements on a unit level, allowing usto adjust rostering and employee hoursaccordingly.With the work that we have been doingin this area we continue to deepen ourunderstanding of the key drivers ofproductivity and how to measure, reportand manage it more effectively.Effectively managing labour andancillary costsThrough MAP we are also exercising bettercontrol over other labour costs such asabsenteeism, overtime and third partyagency spend.We have put in place processes and disciplinesto improve our management of salary andbenefit costs and control labour cost inflation.These include local sector benchmarking,a robust process for managing national orsector wage agreements and reviewingbenefits to ensure that those we provideare competitive with local market practices,are valued by our people and that, wherewe use external providers for benefits suchas health insurance, we are leveraging ourscale effectively.Along with food costs, we are now includinglabour costs as part of our pricing indexationmodels, which drive our pricing strategy,product tariffs and which we use in ourcontract pricing review process.Reducing unit overheadsUnit overheads are all the remaining nonfoodand non-labour costs associated withmanaging our units such as uniforms, linen,crockery, laundry/cleaning, utilities andoccupancy costs where we have them.Through good local initiatives and morethorough analysis and measurement wehave made solid progress in the last year,resulting in a reduction in unit overheadsas a percentage of revenue, which we aimto continue.Effective labour cost managementBased on the work done in Australia we havedeveloped tools which are now being used as aglobal template to more effectively measure andcost labour turnover and the use of agency staff at acountry and operating unit level, identifying previoushidden labour costs. In Australia we have seen a1.6% reduction in direct labour costs as a result ofaccurate KPI measurement and the implementationof tailored retention strategies, improved absencemanagement and reduction in agency spend.

12 Compass Group PLC Annual Report 2007Chief Executive’s statementcontinuedWe are improving overheadefficiency by simplifying theway we run the businessand tighter control ofdiscretionary spend.HR shared servicesTo reduce overlap and duplication in its HR supportfunctions our US business has created a centralHuman Resources Service Centre, as a singlepoint of contact on HR related issues for over 85,000employees. This has reduced HR overhead costsby 5% and led to speedier and more effective issueresolution, reduced management intervention andimproved employee satisfaction.MAP 5 – Above unit overheadsAs a Group we have £800million of above unit costsassociated with managingthe business. MAP 5 focuseson how we create a simplerorganisational model withfewer layers of managementand less bureaucracy.Simplifying management structuresWe have made significant inroads in reducingduplicate layers of management and puttingin place simpler, affordable structuresthat give greater transparency throughthe business and improve the speed ofdecision making.To achieve this we have dismantled theprevious divisional structure creating a clearline of sight between the businesses andthe Group. This is supported by our newGroup financial and non-financial reportingframework which, combined with regularbusiness reviews of country MAP plans,gives us greater visibility and understandingof the underlying performance of eachbusiness and makes us better placed torespond to opportunities and risks.The management teams in our countriesare empowered to run and develop theirbusinesses within a ‘light’, non-bureaucraticGroup framework. This relies on a cultureof openness, honesty and transparency,supported by good communication and thedisciplines and good governance expectedof a major international group.We have taken a similar approach withinthe countries themselves, focusing firston businesses like France, Japan and theNetherlands, and reorganised how wemanage the business to create much leaner,more effective structures.In developing countries or those wherewe don’t have density we have developedsuccessful zone management structures,with a single management team overseeinga cluster of countries within a specific region,for example, Central and Eastern Europe,our Central Asia, Middle East and Africa(CAMEA) remote site businesses and theNordic region.Consolidated back office functionsAs part of reducing overlap and duplicationwe have consolidated common back officefunctions, retaining separate functions onlywhere they are genuinely sector specific.The UK and the USA are good examples ofwhere we have created a more streamlined,shared services model for HR, reducing costand improving service to our front-line teams.

13 Compass Group PLC Annual Report 2007Business reviewThe Group achieved 5% organicrevenue growth in 2007 withexcellent performances in the NorthAmerica and the Rest of the Worldregions, a stronger performance inContinental Europe and continuingdifficult trading in the UK. The MAPprogramme and resulting actionshave led to improvements in financialperformance, in particular, strongfree cash flow generation, and goodprogress has been made in the yeartowards the achievement of theGroup’s 2006 – 2008 targets toincrease ROCE by 100 basis pointsand to deliver £800 – £850 millionof free cash flow over the period.Group trading reviewThe Group’s financial summary for the yearended 30 September 2007 is set out below.Financial summaryFor the year ended30 September 2007 2006 IncreaseContinuing operationsRevenue– constant currency 1 £10,268m £9,768m 5.1%– reported £10,268m £10,267m –Operating profit 2– constant currency 1 £529m £428m 23.6%– reported £529m £457m 15.8%Operating margin 6 5.1% 4.4% 70bpsProfit before tax– underlying 4 £442m £312m 41.7%– reported £436m £323m 35.0%Free cash flow £357m £212m 68.4%Basic earnings per share– underlying 4 15.2p 9.4p 61.7%– reported 5 15.0p 9.7p 54.6%Total Group including discontinued operationsBasic earnings per share 25.6p 13.3p 92.5%Total dividend per ordinary share 10.8p 10.1p 6.9%1. Constant currency restates the prior year results to 2007average exchange rates.2. Includes share of profit of associates.3. Excludes share of profit of associates.4. Underlying profit before tax excludes revaluation gains andlosses on swaps and hedging instruments (hedge accountingineffectiveness) of £(6) million (2006: £11 million). Underlyingbasic earnings per share excludes these items net of tax.5. Reported basic earnings per share before exceptional items.6. Operating margin is based on revenue and operating profitexcluding share of profit of associates.RevenueOverall, organic revenue growth was 5%,comprising new business of 8%, retentionof around 94%, about one percentage pointlower than in previous years due to the workwe have been doing to address loss-makingcontracts, and like for like growth of justunder 3%. The significant strengtheningof Sterling, in particular against the USDollar, impacted revenues by 5%, resultingin reported revenues remaining flat.Organic growth is calculated by adjustingfor acquisitions (excluding current yearacquisitions and including a full year inrespect of prior year acquisitions), disposals(excluded from both years) and exchangerate movements (translating the prior year atcurrent year exchange rates), and comparesthe results against 2006.The table above right summarises theperformance of the Group’s continuingoperations by geographic segment.Andrew MartinGroup Finance DirectorSegmental performanceFor the year endedConstant30 September Reported currency Organicchange change change2007 2006 % % %Continuing operationsRevenue (£m)North America 4,162 4,290 (3) 6 6ContinentalEurope 2,553 2,484 3 4 4UnitedKingdom 1,931 1,882 3 3 2Rest ofthe World 1,622 1,611 1 8 9Total 10,268 10,267 – 5 5Operating profit 1 (£m)North America 261 245ContinentalEurope 151 122UnitedKingdom 107 107Rest ofthe World 64 47Unallocatedoverheads (58) (66)Associates 4 2Total 529 457Operating margin 2 (%)North America 6.3 5.7ContinentalEurope 5.9 4.9UnitedKingdom 5.5 5.7Rest ofthe World 3.9 2.9Total 5.1 4.41. Operating profit includes share of profit of associates UK£3 million (2006: £1 million) and North America £1 million(2006: £1 million).2. Operating margin is based on revenue and operating profitexcluding share of profit of associates.

14 Compass Group PLC Annual Report 2007Business reviewcontinuedNorth America40.5% Group revenue (2006: 41.8%)North America continues to make excellentprogress across a broad and well balancedportfolio. We have seen good organic revenuegrowth, with a much better balance betweennew contracts and like for like growth. TheBusiness & Industry sector has been driventhrough innovation, delivering 4% like for likerevenue growth. We have had considerablesuccess in creating a multi-service business inthe Healthcare sector through cross-sellingbetween Morrison, our foodservice business,and Crothall, our support services business. Tosupport this we completed an infill acquisition,on 1 October 2007, of a company with£37 million of revenues called Propoco Inc(‘Professional Services’) whose services andbusiness model align very closely to Crothall.Healthy eating programmes and the strengthof the Chartwells brand contributed to 9%organic revenue growth in the Educationsector. Combined with good progress inLevy, our Sports & Leisure business, and inthe Canadian business, North Americadelivered 6% organic revenue growth overall.The pipeline into 2008 looks healthy.Operating profit increased by £39 million,or 18%, on a constant currency basis to£261 million (2006: £222 million on aconstant currency basis), and we have seena step change in the margin of 60 basispoints to 6.3%. Around half of the margingrowth has come from a significant one-offreduction in overheads. The remainder ofthe improvement is the result of better like forlike growth and ongoing operating efficienciesacross the businesses, both in in-unit andabove unit overheads. We have seen animprovement in margin of 40 basis points,from 6.1% in the first half to 6.5% in thesecond half.Continental Europe24.9% Group revenue (2006: 24.2%)Organic revenue growth in ContinentalEurope has doubled to 4%, with good growthopportunities for the future. In Spain, goodlike for like growth, driven by new offeringsand an increase in consumer numbers,together with strong new business in theHealthcare and Education sectors resultedin organic revenue growth of 13%. Thecontinued high activity in the oil and gasindustry in the Nordic region has contributedto 14% organic revenue growth, while thefocus on healthy eating continues to driveincreasing volumes through much of theregion. We are becoming more establishedin the Eastern European market with ourbusinesses there growing well.On a constant currency basis, growth of£31 million, or 26%, in operating profitfrom continuing operations to £151 million(2006: £120 million on a constant currencybasis) represents a margin improvementof 100 basis points. Just over half ofthis improvement is attributable to thecompletion of the turnaround of previouslyunderperforming countries such as Franceand the Netherlands. The remaining margingrowth has come from improved like forlike revenue growth, which is at a highdrop through to margin, and focus on costcontrol across all countries. It is importantto remember that the seasonality of thisbusiness, with the reduction in headcountsin the Business & Industry sector over thesummer period and the closure of schools,means that we record stronger profits andmargin in the first half, 6.5%, compared tothe second half, 5.3%. The underlying trendsin the first and second half margin in 2007are similar to 2006.UK18.8% Group revenue (2006: 18.3%)The UK business has delivered a solid resultwith, as expected, operating profits in linewith last year.Fundamentally we have a very strong businessin the UK. We have continued to work hardto fix the basics and build a solid foundationfor the future. Good progress has been madeby the new senior management team: thework to improve or exit loss-making contractsis now largely complete; we have continuedto reorganise across the business to drivefurther efficiencies; and Education, aftera difficult period, is now stabilised.Although the organisation of the business ismuch improved there is still more work to do.As such, we expect the performance of thebusiness to be broadly similar in 2008.Rest of the World15.8% Group revenue (2006: 15.7%)In the Rest of the World our two largestbusinesses, Australia and Japan, togetheraccount for 52% of revenue. Australia hascontinued to deliver strong organic revenuegrowth driven by the continued buoyancyof the extraction industries. In addition tothis, with the help of the MAP programme,Australia has made good progress indeveloping its margin.In Japan, the focus has been on drivingefficiency. By restructuring the business andincreasing the focus on cost efficiency wehave seen good improvement in the margin.There is still more to do and we need towork harder to drive revenue growth, butwe are very encouraged by the progress inthe business over the last year.Good progress has been made in LatinAmerica and the UAE with a healthy mixof revenue and profit growth.Overall, the Rest of the World has hadanother very strong year, delivering £64million operating profit from continuingoperations (2006: £43 million on a constantcurrency basis), an increase of £21 million,or 49%, on a constant currency basis. Thisrepresents margin growth of 100 basis points,approximately half of which has come fromthe step change in lower margin countriessuch as Japan and the mobilisation of strongnew business, particularly in Australia andLatin America. In August, the Group sold asignificant part of its remaining high streetretail restaurants business in Japan for£26 million. The business recorded annualoperating profits of around £4 million inthe year.There remains significant opportunity tofurther develop our businesses in the Restof the World both in size and operatingperformance.Unallocated overheadsUnallocated overheads for the year were£58 million (2006: £66 million). The decreaseis largely due to the absence of non-recurringrestructuring costs last year and overheadefficiencies, partly offset by the strengtheningof central functions.Operating profitOperating profit from continuing operations,including associates, was £529 million(2006: £457 million), an increase of 16%on a reported basis. The operating profitincreased by £101 million on a constantcurrency basis, up 24%. This represents a70 basis point improvement in margin.Finance costUnderlying net finance cost, excludingrevaluation gains and losses on swaps andhedging instruments (hedge accountingineffectiveness), was £87 million(2006: £145 million). With the full yearbenefit of the Selecta disposal proceedsgoing forward, we expect the 2008 underlyingfinance charge to be around £70 million.Profit before taxProfit before tax from continuing operationswas £436 million (2006: £323 million).On an underlying basis, excludingrevaluation gains and losses on swaps andhedging instruments (hedge accountingineffectiveness), profit before tax fromcontinuing operations increased by 42%to £442 million (2006: £312 million).Income tax expenseOn an underlying basis, excluding revaluationgains and losses on swaps and hedginginstruments (hedge accounting ineffectiveness),the tax charge from continuing operations andbefore exceptional items was £126 million(2006: £101 million), an effective tax rate of29% (2006: 32%). Against the backgroundof reducing corporate tax rates in a numberof territories, we now expect the Group’seffective tax rate to average out at aroundthe 29% level for the short-term.Discontinued operationsOn 2 July 2007, the Group completed the saleof its European vending business, Selecta, fora consideration of £772 million on a debt andcash free basis. The Group has also completed

15 Compass Group PLC Annual Report 2007the sale and closure of a number of othersmall businesses during the year as part ofits exit from the travel concessions business.The 2006 revenue and operating profits ofall of these businesses closed in the year were£548 million and £51 million respectively.The results of these businesses are treated asdiscontinued operations and are thereforeexcluded from the results of continuingoperations in 2007. The 2006 results havebeen restated on a consistent basis.The profit after tax from discontinued operationswas £212 million (2006: £33 million).Basic earnings per shareBasic earnings per share were 25.6 pence(2006: 13.3 pence). Excluding the results ofdiscontinued operations and exceptionalitems, basic earnings per share on anunderlying basis, excluding revaluation gainsand losses on swaps and hedging instruments(hedge accounting ineffectiveness), were15.2 pence (2006: 9.4 pence).Attributable Basic earningsProfitper share2007 2006 2007 2006 Change£m £m Pence Pence %Reported 515 285 25.6 13.3 92.5Discontinuedoperations andexceptional items (212) (77) (10.6) (3.6)Hedge accountingineffectiveness(net of tax) 4 (7) 0.2 (0.3)Underlying 307 201 15.2 9.4 61.7DividendsA final dividend of 7.2 pence per share willbe proposed (to be paid on 3 March 2008to shareholders on the register on1 February 2008) and will result in a totaldividend for the year of 10.8 pence per share(2006: 10.1 pence per share), a year on yearincrease of 7%. Dividend cover for 2007was 2.5 times reported earnings. On anunderlying basis the dividend was covered1.5 times on an earnings basis and 1.7 timeson a free cash basis.Free cash flowFree cash flow from the continuing businesstotalled £357 million (2006: £212 million).The major factors contributing to theincrease were: £70 million increase inoperating profit before associates, £56 millionimprovement in working capital and £47million lower net interest payments, offset inpart by £24 million higher net tax payments.Gross capital expenditure of £192 million(2006: £198 million), including amountspurchased by finance lease of £15 million(2006: £15 million), represents 1.9% ofrevenue (2006: 1.9% of revenue). Wecontinue to expect the level of gross capitalexpenditure to remain at around 2% ofrevenue going forward. Proceeds from thesale of assets were £22 million and we wouldexpect this to be around £12 million lowerin 2008.We have seen a step change in themanagement of working capital. There hasbeen a focus in all areas of working capitaland we have achieved an overall £38 millionworking capital inflow in the year. We believethere are further improvements possible andexpect to achieve an average sustainableworking capital inflow of £20 to £30 milliona year for the foreseeable future, but withbetter improvement in the next coupleof years.The cash tax rate for the year was 26%(2006: 30%), based on underlying profitbefore tax for the continuing operations, andwe continue to expect the cash tax rate toaverage out at the mid to high 20s level overthe short-term.The net interest outflow of £127 million(2006: £174 million) continues to reflect theimpact of the 2004 swap monetisation, whichwill be substantially unwound by the endof 2009.Acquisition paymentsThe acquisition of the remaining 5%interest in Onama, our Italian business, wascompleted in December 2006 for £7 million.A further £17 million was spent on deferredconsideration relating to prior year acquisitionsand £7 million on new acquisitions.Disposal proceedsThe sale of the European vending business,Selecta, was completed in July 2007 forgross consideration of £772 million,£725 million net of transaction costsand completion accounting adjustments.A further £37 million of deferredconsideration relating to prior year disposalswas received in the year and £56 million wasreceived from the disposal of other operationsin the year.Return on capital employedReturn on capital employed (ROCE) was12.5% (2006: 11.3%) based on the continuingbusiness before exceptional items, excludingthe Group’s minority partner’s share of totaloperating profit, net of tax at 30% and usingan average capital employed for the year of£2,914 million (2006: £2,751 million)calculated from the IFRS balance sheet.Under UK GAAP, included within averagecapital employed was goodwill previouslywritten off to reserves, now extinguishedunder IFRS, and goodwill amortised prior to30 September 2004, the date at which the netbook value of goodwill was frozen underIFRS. Including these adjustments, averagecapital employed for the year (for thecontinuing businesses) would have been£5,899 million (2006: £5,736 million) andreturn on capital employed for the continuingbusiness would have been 6.5% (2006: 5.8%).Financial targetsThe Group’s three year targets for thecontinuing business for 2006 to 2008 remainunchanged at:100 basis points improvement in ROCE; andfree cash flow from continuing operationsof £800 million to £850 million.PensionsThe Group has continued to review andmonitor its pension obligations throughoutthe year working closely with the Trustees andmembers of schemes around the Group toensure proper prudent assumptions are usedand adequate provision is made.Particularly good progress has been made inrespect of the Group’s UK defined benefitpension schemes where a further £45 millionspecial contribution was paid in during theyear following completion of the sale of theSelecta vending operation. This followsspecial contributions in 2006 totalling£280 million to the UK defined benefitpension schemes following the sale of theSSP travel concessions business and theStrand Palace Hotel.In the UK defined benefit pension schemes wehave again increased our longevity assumptionsso that, for example, a female non-pensioner isnow assumed to survive 24.7 years followingretirement (2006: 23.7 years). The Group’s totalpension deficit was reduced significantly inthe year, despite the adoption of the moreprudent assumptions, to £162 million(2006: £282 million). The deficit would havereduced to only £70 million if the surplus oncertain schemes had been fully recognised.IFRIC 14 only permits the recognition of apension fund surplus where a company canclearly demonstrate that it can access thesurplus through, for example, reduced futurecontributions. The Group has taken theprudent view that it will not be able to accessthese surpluses, totalling £92 million, in theforeseeable future.The total pensions charge for definedcontribution schemes in the year was£36 million (2006: £33 million) and £22 million(2006: £35 million) for defined benefitschemes. Of the defined benefit scheme costs,£2 million (2006: £11 million) was charged tonet finance cost.GearingThe ratio of net debt to market capitalisationof £5,820 million as at 30 September 2007was 13% (2006: 19%).

16 Compass Group PLC Annual Report 2007Business reviewcontinuedFinancial instrumentsThe Group continues to manage its interestrate and foreign currency exposure inaccordance with the policies set out below.The Group’s financial instruments comprisecash, borrowings, receivables and payables thatare used to finance the Group’s operations.The Group also uses derivatives, principallyinterest rate and cross currency swaps andforward currency contracts, to manage interestrate and currency risks arising from theGroup’s operations. The Group does not tradein financial instruments. The Group’s treasurypolicies are designed to mitigate the impact offluctuations in interest rates and exchange ratesand to manage the Group’s financial risks. TheBoard approves any changes to the policies.Principal risks and uncertaintiesThe Board has a proactive approach to riskmanagement with the aim of protecting itsemployees and customers and safeguardingthe interests of the Company and itsshareholders.Compass Group has specific policies in placeto ensure that risks are properly evaluatedand managed at the appropriate level withinthe business. A risk assessment exercise iscarried out across the Group each year and theoutcome is reviewed by the Board bi-annually.Outlined below is a summary of what theBoard considers to be the key risks anduncertainties to successful delivery of itscorporate objectives and the activities theGroup undertakes to mitigate against thesekey risks and uncertainties:DescriptionFood safetyClient retentionPeople retentionand motivationHealth, safetyand environmentPurchasingLitigationReputationMitigating activitiesThe Group has in place policies,processes and training proceduresto ensure compliance with its legalobligations in relation to food hygieneand safety.Our business model is structured so thatwe are not reliant on one particularsector, geography or client.Training and development programmes,succession planning and performancemanagement are designed to alignrewards with our corporate objectivesand to retain and motivate ourbest people.Our Health, Safety and EnvironmentForum promotes policy, sets standardsand monitors best practice and reportsto the Corporate Social ResponsibilityCommittee.To reduce risk we are focusing ontraceability, clear specification of ourrequirements to nominated suppliersand the improvement of purchasingcompliance by Unit Managers.Though we do not operate in a litigiousindustry we have in place policies andprocesses in our major countries tomitigate against third-party litigation.The Group’s zero tolerance basedCode of Ethics governs all aspects ofour relationship with our stakeholders.The Corporate Social ResponsibilityCommittee investigates any allegedbreaches.Liquidity riskThe Group finances its borrowings from anumber of sources including banks, thepublic markets and the US private placementmarkets.The maturity profile of the Group’s principalborrowings at 30 September 2007 shows theaverage period to maturity is 4.1 years. TheGroup’s undrawn committed bank facilitiesat 30 September 2007 were £630 million.Maturity profile of principal borrowings£m60050040030020010002008£ Bonds2009201020112012201320142015€ Bonds US$ Private Placement BankForeign currency riskThe Group’s policy is to match as far aspossible its principal projected cash flows bycurrency to actual or effective borrowings inthe same currency. As currency earnings aregenerated, they are used to service and repaydebt in the same currency. To implement thispolicy, forward currency contracts or crosscurrency swaps are taken out which, whenapplied to the actual currency liabilities,convert these to the required currency. Areconciliation of the 30 September 2007 actualcurrency liabilities to the effective currencyborrowed is set out below.Forwardsand cross EffectiveGross currency currency ofborrowings swaps borrowingsCurrency £m £m £mSterling 837 (318) 519US Dollar 476 247 723Euro 258 (98) 160Japanese Yen 16 59 75Other currencies 21 105 126Total 1,608 (5) 1,603Analysed as:Non-Current currentliabilities liabilities TotalLiability £m £m £mFinance leases 14 36 50Bank overdrafts 118 – 118Bank loans 19 17 36Loan notes – 380 380Bonds – 1,019 1,019Total 151 1,452 1,603The borrowings in each currency give rise toforeign exchange differences on translationinto Sterling. Where the borrowings are eitherless than, or equate to, the net investment inoverseas operations, these exchange ratemovements are treated as movements onreserves and recorded in the statement ofrecognised income and expense rather thanin the income statement.Non-Sterling earnings streams are translatedat the average rate of exchange for the year.This results in differences in the Sterlingvalue of currency earnings from year to year.The table below sets out the exchange ratesused for major currencies for translating the2007 and 2006 income statements andbalance sheets.Average rate Closing rateCurrency 2007 2006 2007 2006Australian Dollar 2.44 2.41 2.30 2.53Brazilian Real 4.02 3.97 3.75 4.22Canadian Dollar 2.19 2.06 2.02 2.13Euro 1.48 1.46 1.43 1.48Japanese Yen 234.05 209.07 234.33 220.54Norwegian Krone 11.98 11.66 11.05 12.47South African Rand 14.18 11.95 14.05 14.52Swedish Krona 13.63 13.67 13.18 13.80Swiss Franc 2.40 2.29 2.38 2.34US Dollar 1.97 1.80 2.04 1.87Interest rate riskAs detailed above, the Group has effectiveborrowings in a number of currencies andits policy is to ensure that, in the short-term,it is not materially exposed to fluctuationsin interest rates in its principal currencies.The Group implements this policy eitherby borrowing fixed rate debt or by usinginterest rate swaps so that at least 80% ofits projected net debt is fixed for one year,reducing to 60% fixed for the second yearand 40% fixed for the third year.Shareholder returnThe market price of the Group’s ordinaryshares at the close of the financial year was302 pence per share (2006: 268 pence).Going concernAfter making enquiries, the directors have areasonable expectation that the Group hasadequate resources to continue in operationalexistence for the foreseeable future. For thisreason, they continue to adopt the goingconcern basis in preparing the financialstatements.ConclusionThe successful disposal of the Europeanvending business, Selecta, and the exit fromother remaining non-core assets has resultedin a focused Group with a strong financialposition. In the coming year the focus willcontinue to be on embedding MAP deeperinto the organisation and on improvingbusiness performance.Andrew MartinGroup Finance Director28 November 2007

17 Compass Group PLC Annual Report 2007Board of directors01 Sir Roy Gardner 1Chairman Age 62Appointed Chairman in July 2006 having beenappointed to the Board as senior independent nonexecutivedirector in October 2005. He is a senioradvisor to Credit Suisse, a non-executive directorof Willis Group Holdings Limited, President of theEnergy Institute, Chairman of the Advisory Board ofthe Energy Futures Lab of Imperial College London,a member of the International Advisory Board of theIESE Business School at the University of Navarra,President of Carers UK, Chairman of the BritishOlympics Appeal Committee for the Beijing Gamesand Chairman of the Apprenticeship AmbassadorsNetwork. He is a former Chief Executive of Centricaplc, Chairman of Manchester United plc, FinanceDirector of British Gas plc, Managing Director ofGEC-Marconi Ltd and a Director of GEC plc anda former non-executive director of Laporte plc.Sir Roy received his Knighthood in 2002 for servicesto the gas and electricity industries.02 Richard Cousins 2, 8Group Chief Executive Age 48Appointed to the Board in May 2006 and appointedGroup Chief Executive in June 2006. He is anon-executive director of HBOS plc. Richard wasuntil December 2005 Chief Executive Officer ofBPB plc, having held a number of positions withthat company since joining it in1990 and is a formernon-executive director of P&O. His earlier careerwas with Cadbury Schweppes plc and BTR plc.03 Andrew Martin 2, 8Group Finance Director Age 47Appointed to the Board in March 2004. He waspreviously a partner with Arthur Andersen andheld senior financial positions with Forte Plc andGranada Group PLC. Following the disposal ofthe Hotels Division in 2001, Andrew joined FirstChoice Holidays PLC as Finance Director. He is anAssociate of the Institute of Chartered Accountantsin England and Wales and an Associate of theChartered Institute of Taxation.04 Gary Green 8Group Managing Director – USA,Canada and Mexico Age 50Appointed to the Board in January 2007. Joinedthe Group in 1986 in a senior finance role in theUK and became a UK director in 1992. Garyrelocated to the USA in 1994 as Chief FinanceOfficer of the Group’s North American business andin 1999 became Chief Executive Officer. He is achartered accountant and in 2001 received anhonorary doctorate from Johnson & WalesUniversity in the USA.05 Sir James Crosby 3, 5Senior independent non-executivedirector Age 51Appointed to the Board in February 2007. He isa non-executive director of ITV plc and is DeputyChairman of the Financial Services Authority andis a former Chief Executive of HBOS plc. He is aFellow of the Faculty of Actuaries.06 Sven Kado 4, 6Non-executive director Age 63Appointed to the Board in April 2002. He isChairman of Marsh & McLennan Holdings GmbHand was previously Chief Financial Officer of NixdorfComputer AG, Chief Financial Officer of DyckerhoffAG and senior advisor of Principal FinanceGroup/Nomura International.2, 6, 707 Steve LucasNon-executive director Age 53Appointed to the Board in July 2004. He is FinanceDirector of National Grid plc having been previouslyExecutive Director, Finance of Lattice Group plc.He is a chartered accountant and has held a numberof senior finance positions with Shell InternationalPetroleum Company and British Gas. More recentlyhe was Treasurer at BG Group.08 Susan MurrayNon-executive director Age 50Appointed to the Board in October 2007. She isnon-executive Chairman of Farrow & Ball and anon-executive director of Enterprise Inns Plc, SSLInternational PLC, Wm Morrison SupermarketsPLC and Imperial Tobacco PLC. She is a formernon-executive director of Aberdeen AssetManagement PLC, a former Chief Executive ofLittlewoods Stores Limited and former WorldwidePresident and Chief Executive of The Pierre SmirnoffCompany, part of Diageo plc. Susan is a Fellow ofthe Royal Society of Arts and a council member ofthe Advertising Standards Authority.09 Tim Parker 4, 6Non-executive director Age 52Appointed to the Board in February 2007. He isa former Chief Executive of the AA and a formernon-executive director of Alliance Boots Plc.10 Sir Ian Robinson 3, 4Non-executive director Age 65Appointed to the Board in December 2006.He is Chairman of Ladbrokes plc (formerly HiltonGroup plc), a non-executive director of Scottish &Newcastle plc and Siemens Holdings plc. He is aformer Chairman of Amey plc, Chief Executive ofScottish Power plc and non-executive director ofASDA plc and RMC plc. He is a Fellow of the RoyalAcademy of Engineers, a Fellow of the Institution ofChemical Engineers and a member of the TakeoverPanel. Sir Ian received his Knighthood in 2000 forservices to the electricity industry.2, 8, 911 Mark WhiteGeneral Counsel and Company SecretaryAge 47A solicitor who joined Compass Group on 1June 2007.He is secretary to the Audit, Disclosure, GeneralBusiness, Nomination and RemunerationCommittees. Mark was previously Group CompanySecretary and Counsel of Wolseley plc and CompanySecretary of Enterprise Oil plc and Rotork plc.1. Chairman of the Nomination and CorporateResponsibility Committees2. Member of the Corporate Responsibility Committee3. Member of the Nomination Committee4. Member of the Audit Committee5. Chairman of the Remuneration Committee6. Member of the Remuneration Committee7. Chairman of the Audit Committee8. Member of the Executive Committee9. Trustee of the Compass Pension Scheme0102030405060708091011

18 Compass Group PLC Annual Report 2007Acting responsiblyOver the past year, we have further reviewedand continued to build on our CorporateSocial Responsibility (‘CSR’) strategy againstthe increasingly complex environment inwhich we operate. As a result, we haverenewed and strengthened our determinationthat Compass should continue to improve itsCSR journey.We regard CSR as a sustainable approachto business that seeks benefits for all ourstakeholders, be they customers, employees,communities, the environment or theCompany and its shareholders. We supportsound CSR policies and practices for goodbusiness reasons. Our commitment toCSR is not simply a response to increasedmarket attention to this area, but acts as areinforcement of the way that our businessoperates on a daily basis. The Board believesthat the progressive integration of CSR acrossthe Group and the inclusion of broader socialand environmental issues into our decisionmaking will help us achieve our business goalsand act as an essential building block forgrowth in shareholder value.Corporate cultureOur valuesOur vision is detailed on the inside front coverof the Annual Report. Our strong set ofvalues is key to achieving this; defining what,collectively, we believe in and the basis ofeverything we do:Openness, trust and integrityWe have a commitment to open dialogue andtransparency with all of our stakeholders.We set the highest ethical and professionalstandards at all times. We want all ourrelationships to be based on honesty, respectand fairness.Speak UpOur ‘whistle-blowing’ programme is now available to99% of our employees globally.Passion for qualityWe are passionate about delivering superiorfood and service to our customers and takepride in achieving this. We look to replicatesuccess, learn from mistakes and developideas, innovation and practices that will helpus improve and be leaders in our marketplace.Win through teamworkWe encourage individual ownership butwork as a team. We value the expertise,individuality and contribution of all ouremployees, working in support of each otherand sharing good practice, in pursuit ofshared goals.Can-doWe take a positive and commerciallyaware ‘can-do’ approach to the day-to-dayopportunities and challenges we face.ResponsibilityWe take responsibility for our actions,individually and as a Group. Everyday,everywhere we look to make a positivecontribution to the health and wellbeingof our customers, the communities we workin and the world we live in.Code of EthicsThe Compass Code of Ethics sets out oursocial, ethical and environmental commitmenttowards each of our stakeholders and thecommunities in which we operate. The Codeunderpins our CSR programme and supportsour business integrity. During 2007, welaunched a specific ethical business trainingprogramme for our European buying teamwhich supports an ethical approach tobusiness practice, the protection of humanrights and clearly sets out the behaviourwe expect from buyers when dealing withour supply partners across Europe.This successful programme will be furtherextended to include our buying colleaguesin North America early in 2008.We operate a ‘Speak Up’ programme so thatour employees can raise, on a confidentialbasis, any concerns about how we conduct ourbusiness. Our ‘whistle-blowing’ programmeis available to 99% of our employees and wewill complete the roll-out to the balance of ouremployees in the remaining countries duringthe course of 2008. Ongoing work continuesto be undertaken throughout the business toraise employee awareness and regular reportsare also provided to the Audit Committeeof the Board.Corporate Responsibility CommitteeWe have established a CorporateResponsibility Committee of the Board, toprovide direction and guidance on all aspectsof business practice and responsibility ensuringconsistent application everywhere we operate.The committee’s primary responsibilitiesinclude: overseeing health, safety andenvironmental practices, business conduct, thepositive promotion of employee engagementas well as diversity and communityinvestment. The committee comprisesSir Roy Gardner (Chairman), RichardCousins, Andrew Martin, Steve Lucas,Jane Kingston (Group Human ResourcesDirector), and Mark White.A commitment to developperformance indicatorsWe want to track our progress along our CSRjourney and to update our stakeholders on theprogress we are making. We are developing andrefining a common set of key performanceindicators (‘KPIs’) and targets to measure ourCSR success. These will provide us with ameans to monitor and manage performanceat a Group level, complementing existingmeasures at a business level. For example,we are working to assess our environmentalperformance using the model recommendedby the UK Government Agency DEFRA, andare selecting future KPIs that are relevant toour sector. We have identified greenhousegases, particularly CO 2 emissions and waste,as our key environmental impacts. FromOctober 2007, we implemented a web-basedtracking tool across our ‘Top Ten’ countries(representing more than 80% of total Grouprevenue), to collect the necessary environmentalperformance data that we require, the resultsof which will form the basis of our reportingfor our 2007/08 CSR review.

19 Compass Group PLC Annual Report 2007Top Ten countriesThe Top Ten countries representing more than80% of total Group revenue.USAUKFranceJapanCanadaGermanyItalySpainNetherlandsSwitzerlandFine DiningBusiness & IndustryHealthcare & SeniorsEducationSports & LeisureDefence, OffshoreVendingOur peopleWe employ over 360,000 people in around64 countries. Our success is dependent on thecontribution of our employees. They remainour most important asset and represent theface that Compass presents to the world.A key objective is to ensure that we providea workplace environment that encouragesand supports our employees in achieving theirbest personal performance. An engaged andmotivated workforce will enable our peopleto achieve their performance goals.Over the last five years, we have conducteda number of employee surveys across thebusiness. In line with our new HR andbusiness strategies, we recently evolved theway we conduct these surveys to help us betterunderstand how we can maximise employeecommitment, retention and discretionaryeffort, in other words ‘engagement’.In April 2007, over 150,000 people from20 of our largest businesses (representingover 90% of total Group revenue) had theopportunity to participate in our new ‘YourVoice’ People Survey. This year we extendedour use of web surveys while also giving manyof our employees the opportunity to sharetheir views using the telephone.Overall, the results from our 2007 survey arevery encouraging and our response rate of61% was slightly ahead of that seen in our2005 survey. Employees have a clear line ofsight with our new mission and understandhow they contribute to success. Managers feelthe Group is making the right changes to besuccessful, has a clear sense of direction andis successfully focusing on both long-termstrategies and short-term results.Employee surveyIn 2007, over 150,000 employees had the opportunityto participate in our global employee survey.Our positive ‘can-do’ attitude meanspeople are motivated to go the extra mileand the results show that our new GuidingPrinciples are fast becoming part of everydaylife at Compass.Our Guiding Principles– Health, Safety and Environment First– Delivering for Clients and Consumers– Developing our People and Valuing Diversity– Profitable Growth– Constant Focus on Performance and EfficiencyIn addition, three-quarters of employees whoresponded agree that we are focused ondelivering excellent service.We are able to compare some of our 2007results with those achieved in our 2005 survey.Very positively, we see solid improvement inratings for health and safety, embracingdiversity and people being treated fairlyregardless of their gender, age, race,background or beliefs. Moreover, internalperceptions of the Group being a goodcorporate citizen also show improvement.Health and safety is at the heart of everythingwe do. The survey results support this aspeople continue to agree that we place ahigh priority in this area and around 8 in10 people feel they are equipped to do theirjob safely and well.At the unit/site level, people are deliveringimproved service and performance byworking together. Our Unit Managers are areal strength and highly regarded by theirteams. They are respectful towards colleaguesand make clear what’s expected in theworkplace. Our employees believe managersare good communicators – keeping peopleinformed of changes that may affect them,while also providing constructive performancefeedback.We have also been able to compare our resultswith those of other multinational, multi-siteservice-oriented businesses. It is pleasing tonote that in certain areas we rank above othermajor employers. How our managers givehelpful feedback and how the Company valuesideas and opinions are just two examples.While the survey gives us the ability to targetour efforts and resources in those areas thathave the greatest influence on engagement,one of the real successes has been making theresults accessible to all employees, especiallythose in our units/sites. People believe in thesurvey, and globally more than 6 in 10 expectpositive action to be taken on the results.Our next global People Survey is plannedfor early 2009 and will include additionalcountries to those participating in the 2007survey such that we will aim to reach some160,000 employees.Developing our peopleWe know from the results of our survey thatwe need to do more to help our peopledevelop their skills and further their careerswithin the Company. This is something wewill continue to focus on in 2008 throughour global employment brand, talentmanagement and various learning anddevelopment programmes.Training and development programmes forall employees are important both for ouremployees to fulfil their potential and to theability of the business to achieve its goals.The development of leadership skills ofsenior managers is also a key objective andCompass has enabled an increasing numberof participants to attend in-house or externalprogrammes. Since its inception in 2003, ourcurrent Compass Group Masters Programmehas seen over 60 members of our globalsenior management graduate and achievean MSc in Business Leadership. Throughthe programme each ‘student’ applies theirexperience and skills to a business challengethat directly relates to the business prioritiesin their job role and has measurable impact.The structured programme involves extensiveinternal and external research, drawing oninternal and external best practice and theory,as well as practical issues such as resources,budgeting and project planning.

20 Compass Group PLC Annual Report 2007Acting responsiblycontinuedWe continue to devote significant attentionand resources to the training of ouremployees. Over 81,500 days of staff trainingwere provided during the year in our largestbusinesses representing more than 80% ofGroup revenue.Equal opportunitiesWe regard the promotion of equalopportunities as a long-term commitment. Weexpect all of our employees to be treated withrespect and dignity. Our equal opportunitypolicy is designed to ensure that both currentand potential employees are offered the sameopportunity to do a job regardless of sex,race, colour, religion, nationality, ethnicorigin, age, sexual orientation, marital statusor disability. We value the diversity of ourpeople and strongly believe that a morediverse workforce is a more creativeworkforce, and one better able to adapt tochange. The more our employees reflect thediversity of our clients and customers, thebetter equipped we will be to service theirneeds. We believe we have the right policies inplace to meet or exceed legal requirements inthis area, although we continue to undertakefurther work to explore the factors that arecritical to achieving greater diversity.RewardOur remuneration policy seeks to deliverimproved performance throughout thebusiness, balancing short-term success withthe attainment of our longer-term businessgoals and shareholder return. We work toattract and retain people of proven ability,experience and skills. Under our pay andreward programme, in the year to30 September 2007, the Group paid grossemployee pay of £4,518 million. Within thisfigure, social security contributions andpayroll taxes together with pensions and otheremployee costs amounted to £638 millionand £76 million respectively.A safe and healthy workplaceOur number one operational priority remainshealth, safety and the environment for the20 million daily consumers who eat and drinkwith us.All management and Board meetingsthroughout the Group feature a Health andSafety update as one of their first agendaitems. The Board reviews the Health and Safetyand Food Safety policies annually to ensurethat they each continue to reflect our aimsand aspirations with a continued alignmentwith legislation. Supporting the Board is ourinternal Health, Safety and Environment Forummade up of technical specialists from aroundthe Compass globe. It has become the keybody responsible for promoting policy, settingstandards, measuring compliance and sharingbest practice in these areas across the Group.We believe that each of us at Compass has amoral obligation to safeguard each other, ourcustomers and the environment by operatinga safe, injury free and healthy workplace,serving food that is always safe to eat andwhich minimises our impact on theenvironment. To ensure best practice, we havedeveloped a set of policies, minimumoperating standards and behaviours to berolled out across our ‘Top Ten’ as a minimum,by December 2008. These standards arebased on the strictest regulatory requirementsand industry best practice. Indeed, world-classperformance continues to be our aim, seekingover the next five years to set the benchmarkfor our industry.We strive to continuously improve ourperformance and from October 2007 startedto measure our performance against a set ofclear KPIs and targets to assure our customersand others who work with us that we areoperating the safest environment possible.Specifically, we:seek to prevent injury to any employee,customer or contractor;consider the safety implications of ourprocurement decisions;initiate a full risk assessment programmeupon commencement of a new contract;ensure that every employee is properlytrained to safely perform their work; andhave in place appropriate consultationarrangements to enable our employees andtheir representatives to communicate andraise concerns about health and safetymanagement.We also expect similarly high standards fromour suppliers and business partners.Safety firstOur ESS support services team on the South ArnePlatform in the North Sea achieved five years of serviceto the client with no lost-time incidents.Health and safety have always had a specialfocus for our offshore and remote siteworkplaces, where our customers demand thevery highest operational standards. A goodexample of our success is in Denmark,where our ESS support services team on theSouth Arne platform in the North Sea havecompleted five years of providing services toour customer with no lost-time incidents.We received further recognition of our successin this area when our ESS support servicesteam in Kazakhstan were proud to haveachieved the significant milestone of reaching2,000,000 man-hours worked without a ‘DayAway From Work Case’ at the TengizchevroilVillage. We are responsible for the safe andefficient running of this remote site servingapproximately 3,000 meals per day, withdifficult working conditions and extremetemperatures.Our UK business reached a health andsafety milestone this year, with the 50,000thCompass employee gaining the QualityThrough Hygiene and Quality ThroughSafety qualifications from the Institution ofOccupational Safety & Health (‘IOSH’). Wehave enjoyed a successful partnership withIOSH for several years, with the trainingbody providing food safety and health andsafety training via distance learning to ourcustomer-facing employees.From October 2007, we began to measureand report on the number of days lost acrossour ‘Top Ten’, as a result of health and safetyincidents. We will include the results of ‘lostday injuries’ in our 2008 CSR report and ouraim will be to expand the reporting of dayslost across the Group and to consistentlyimprove and reduce such numbers.

21 Compass Group PLC Annual Report 2007Diet and nutritionAs a global foodservice company, werecognise that we have an enormous impacton what our 20 million daily consumerschoose to eat and drink. Our contributionto their diet and nutrition is our mostsignificant impact. Our primary concernis that the food we serve is prepared to thevery highest standards using quality productsand ingredients and, at the very minimum,we comply with all relevant legislation andapproved codes of practice.Initially developed in our UK and USbusinesses, we are progressively implementingduring 2008, a healthy eating frameworkcalled ‘Balanced Choices’, which willform the basis in a minimum standardfor implementation in our ‘Top Ten’.The framework is based on sound science,regulatory requirements and industry bestpractice. To become a registered ‘BalancedChoices’ outlet, the staff must undertake adetailed training programme. In the UK,over 600 units are already qualified to operate‘Balanced Choices’ and in Belgium, ‘BalancedChoices’ has recently been officially endorsedby the Belgian Government. In our USbusiness, almost 1,500 units offer ‘BalancedChoices’ to their customers every day.We are working closely with our customers(and through them with our consumers) aswell as our suppliers, governments andregulators across the globe to respond topublic health issues such as those associatedwith obesity and diet. We aim to provide awide choice of menu items so that consumersseeking healthier options are well served.In the UK, our Education businesses(Scolarest in state schools and Chartwells forthe independent sector) recognise thatteaching children, and increasingly theirparents, about food and getting thementhused about healthy eating is key. Wepromote a whole school approach, supportedby information for parents, extra training forour teams and also encourage pupils to eathealthily with a range of initiatives, includingcooking workshops in schools. All Scolarestschool meals meet the UK Government’sfood-based standards and 60% of primaryschools also meet the more strict nutrientstandards which will be introduced in 2008.Another innovative example of ourcommitment to improving the wellbeing ofchildren, is the ‘BackPack’ programme inAtlantic City, USA which helps ensure thatsome of the neediest children have enoughnutritious food to eat over the weekend.Each Friday, our Chartwells team providebackpacks filled with healthy, non-perishablefood that are collected by the children in theprogramme, providing them with sufficientfood to last the weekend. The children returnthe empty backpacks on Monday morning,so that they can be filled again.Healthy eatingWe support schools, parents and pupils to choosea healthy, balanced diet.Around the world, our consumers arebecoming increasingly mindful andknowledgeable about the nutritional aspectsof what they choose to eat. We are, therefore,using frameworks like ‘Balanced Choices’ toenhance nutritional labelling across our foodproduct range, providing customers withthe information that they need to makeinformed choices.Responsible supply chainThe provenance and origin of the foodwe purchase is a key consideration for us.We require that food is only purchased fromauthorised suppliers and is always preparedunder conditions that do not expose itto the risk of contamination. We expect oursuppliers to comply with the social, ethicaland environmental standards specified inour Vendor Assurance Programme. Acrossour ‘Top Ten’, our suppliers are assessedaccording to risk assessment criteria, to ensurethat they too adhere to our own exactingapproach. We also recognise the benefitsof working closely with them, especially indeveloping markets, to share knowledge andexpertise that will help both organisationsmaintain the standards that our clients andcustomers have come to expect.Increasingly, we work with local producers toimprove their skills and capabilities to helpthem develop new markets and supportthe local community. Our ground-breaking‘Farm to Fork’ programme is one suchexample of working with local producers.This programme, started in 1999 by our BonAppétit team in the USA, set a new standardfor how a foodservice company could supportlocal communities. The Bon Appétit initiativeto purchase from within 150 miles of eachcafé has grown at an unprecedented rate withlocal purchases exceeding US$55 million in 2007.In 2007, we have seen the amount ofFairtrade coffee that we buy increase to 3.4million cups per year across Europe, whichrepresents a 10% increase on last year.EnvironmentA key driver towards our success is the degreeof autonomy which is afforded to localmanagement teams, allowing them to servelocal markets in the most appropriate manner.To support their activities, we have developedan environmental policy supported by aminimum operating standard and a set ofbehaviours that are being introduced into allour operations. The underlying principlesrelating to the environment cover: theintegration of environmental managementinto our business operations to reduce ourknown impacts; the commitment tocompliance with all relevant environmentallegislation and best practice; a commitment tostrive for continual improvement; and acommitment to ensure proper communicationwith, and training for, employees to enablethem to meet our standards. We are aiming,over time, for our behavioural policy to set thebenchmark for our industry.We have set clear environmental objectives inthe following areas to:reduce the water and energy used in ourprincipal office and production units;reduce the CO 2 emissions of ourvehicle fleets;reduce the waste packaging of our supplychain; andseek to reduce food miles by increasing theuse of seasonally available products sourcedfrom the relevant domestic markets.

22 Compass Group PLC Annual Report 2007Acting responsiblycontinuedIn October 2007, we introduced a web-basedreporting tool to track and report globally, ina consistent manner, on our CO 2 emissions.We have initially launched the tool with our‘Top Ten’ countries and will extend theprogramme to more countries in 2008.The tool will help us to measure such areas as:petrol and diesel used by company carsand fleet vehicles;directly purchased electricity, whichgenerates greenhouse gases (including CO 2emissions) relating to our main officelocations and significant production unitsacross our ‘Top Ten’ countries; andvolume of general office waste generatedper annum relating to our main officelocations and significant production unitsacross our ‘Top Ten’ countries.These results will act as the baseline data for2007/08 and form the platform for ourenvironmental reporting in future years.In our 2008 CSR Report, we will publishour performance and clearly state ourimprovement targets for 2009.As in all other areas, Compass requiressimilarly high standards from its suppliers andcontractors. Additionally, in the majority ofour locations where we are not directlyresponsible for the procurement of utilities,equipment, fuel etc., we are working closelywith our clients to consider how best toimprove the environmental performance ofour operations.During the year, we have made good progressin logistics efficiencies, such as where ourFrench colleagues have worked closely withtheir nominated logistics partners toconsolidate the range of products requiredby our business to fewer logistics providers.Outlets consequently require fewer deliveriesbut without negatively impacting on the wayin which they operate. During the last threeyears, the streamlining of logistics providersand the increase in the average weight perdelivery has helped to reduce the totalnumber of deliveries into our French businessby 350,000 deliveries over the period, thusreducing the CO 2 emissions.Our UK business is mindful of running alarge fleet of vehicles with relatively highmileage and the subsequent effect this mayhave on the environment. Consequently, thosedrivers who choose company vehicles withlow CO 2 emissions are acknowledged with anincentive payment for every one unit of CO 2emission below 170 that their chosen vehicleemits. This scheme is being evaluated forpotential implementation to our othercountries.At unit level, our UK business has for the lasttwo years organised the collection of usedcooking oil from our units for conversionto bio-fuel, with over 80% of used cooking oilcurrently diverted to this use. Furthermore,our logistics partners in the UK have begunswitching their commercial fuel use tobio-diesel.Leith’s café at the British Library was oneof the first establishments in London to signup to the Climate Care programme, whichoffsets customers’ carbon footprints. The‘Last Word’ was conceived as an enhancementto the services already provided at theBritish Library and as a response to thegrowing trend for ethical and responsiblemanagement. Leith’s pays to offset all itscarbon emissions including the travel costsof the staff and supply of food from depotto unit, and all on-site energy costs. Wherepossible, energy efficient lighting has beenused and all appliances are minimum A ratedfor energy efficiency.Within our European supply chain, we arecurrently trialling the use of re-usable plasticcrates for the transport of our fresh producewith the aim of maintaining hygiene butsignificantly reducing the amount of2007 Compass In The CommunityWinners of the 2007 Compass In The CommunityAwards, recognised for their community investmentin health, nutrition and health and safety programmes.cardboard packaging which is currently usedto transport fresh produce to our units.Already in use in our business in Switzerlandand the Netherlands, we are now trialling thisinitiative in our UK business where, once fullyimplemented, we can expect to save at least2.5m kg of packaging waste per annum.We are developing Group-wide guidelineson the management of recycling and wasteseparation. Our French colleagues have madegood headway already with an initiativelaunched in 2006 to segregate their waste forrecycling purposes. In 2007, over 70% of ourFrench outlets participated in the programmewhich represents a 5% increase on the 2006participation rates.Compass In The CommunityWe have a strong track record in communityengagement and investment. Compass In TheCommunity, now in its 10th year, recognisesthe best community-based initiatives fromacross the Compass world. Each year, wehold an award ceremony to recognise,reward and celebrate our global communityengagement programmes and the teams thatmake them happen. Projects promote healthylifestyles, tackle social exclusion, improveemployment chances and promote sustainabilityand diversity. Whilst it is not possible to listhere all the worthy projects with whichCompass In The Community has beeninvolved, the following are just a few ofthe many good news stories.We value our membership of Business inthe Community (‘BITC’), an organisationwhich seeks to inspire, engage, supportand challenge companies to continuallyimprove the impact they have on societyand the environment.

23 Compass Group PLC Annual Report 2007As a major player in our industry, werecognise our responsibility to bring on andchampion culinary talent and expertise.The UK and Ireland business’ work withHoxton Apprentice, a highly successfulsocial enterprise restaurant in London,demonstrates our continued commitment.The venture provides in-work support andmentoring and is operated by Training forLife. Their aim is to provide training andsupport to individuals from the localcommunity who have been unemployed ona long-term basis and to provide them witha chance to re-enter society. We are proudto have received a re-accreditation of theprevious ‘Big Tick’ awarded for the restaurantat the 2007 BITC awards.In July 2007, our UK and Ireland ESS teaminitiative for the rehabilitation of femaleprisoners also won a BITC ‘Example ofExcellence’ award. The programme providestraining and support, including the chanceto gain National Vocational Qualificationcatering qualifications, training in customerservice, health and safety and basic foodpreparation. Barriers to employment areeffectively removed, helping ex-offendersfrom HM Prison Drake Hall find work andmake a fresh start following their release.Since 1994, our Chartwells team in theUS has been in partnership with PioneerHouse in Peabody, providing an advocacyand support network to members of thecommunity with mental health illnesses.The programme provides assistance withemployment, housing and education, withthe transitional and supported employmentprogrammes offered by Chartwells, helpingto give these members of the community astable and productive work experience.An innovative approach from our ESS teamin Bogota, Colombia, resulted in a significantand sustainable improvement to the lives ofthe inhabitants of the economically depressedsmall town of Pueblo Viejo, Colombia.By teaching best practice safety standardsand handling procedures, our team helpedmake the town’s fish-breeding programmemore productive, resulting in increased fishproduction and better overall fish quality forcommunity consumption and external sale.DonationsDuring the year to 30 September 2007charitable donations were £1,162,000.We are members of the PerCent Club andthrough our Compass In The Communityprogramme and the fund raising efforts ofour employees, we have donated a total of£1.25 million in monetary resource anddonations in kind.In addition, a payroll giving initiative in ourUK business has generated more than£140,000, supporting over 87 differentcharities during the last year.AchievementsLike many listed companies, Compass’CSR performance is rated by independentorganisations that assess the extent towhich companies effectively managesocial, environmental and ethical matters.In 2005, we became a member of the UK’sFTSE4Good Index Series following its PolicyCommittee’s decision that we had met thecriteria for inclusion in the Index. TheFTSE4Good Index aims to measure theperformance of companies that meet globallyrecognised CSR standards and to facilitateinvestment in those companies where suchissues are a deciding factor for investors.As a signatory to the United Nations GlobalCompact, we are also committed to takingaction to support and uphold each of theprinciples it describes in relation to businessintegrity, human rights and the environment.A further index, the Dow Jones SustainabilityIndex, assesses companies’ corporateresponsibility strategies in terms of corporategovernance, economic performance andimpact on the environment. In 2007, wescored a creditable 71% overall score forour approach to community investment(2006: 65%) against a sector maximum scoreaverage of 75%.Charitable donationsin the year to 30 September 2007:£1.16mPerCent Clubthrough Compass In The Community and thefund raising efforts of our employees, total donationsin monetary resource and donations in kind:£1.25mPayroll giving initiativeby the UK business in the last year to:87 charities20072007

24 Compass Group PLC Annual Report 2007Directors’ ReportReport of the directorsThe directors submit theirannual report and the auditedconsolidated accounts of theCompany and its subsidiariesfor the year ended 30 September2007Principal activities and business reviewCompass Group PLC is a holding company,its subsidiaries are organised into fourgeographic areas and these are set out onpage 3. The principal activities of the Groupare the provision of contract foodserviceand support services to clients in around 64countries around the world. Details of thedevelopment and performance of the Group’sbusinesses during the year and an indicationof likely future key performance indicatorsand information regarding principal risks anduncertainties are set out together with theinformation that fulfils the requirements ofthe Business Review on pages 13 to 16 andis incorporated into this report by reference.Results and dividendsThe Group’s consolidated income statement,set out on page 41 shows an increase of 16%in Group operating profit from £457 millionto £529 million. An analysis of revenueand operating profit is set out on pages 49and 50 in note 1 to the consolidated financialstatements. There have been no significantpost balance sheet events.The 2007 interim dividend of 3.6 penceper share (2006: 3.4 pence) was paid toshareholders on 6 August 2007. The directorsrecommend a final dividend of 7.2 penceper share (2006: 6.7 pence) making a totaldividend for the year of 10.8 pence perordinary share, an increase of 7% on the10.1 pence paid in respect of last year.Payment of the recommended final dividend,if approved at the Annual General Meeting,will be made on 3 March 2008 to shareholdersregistered at the close of business on 1 February2008. The shares will be quoted ex-dividendfrom 30 January 2008.The Company’s dividend reinvestmentplan will continue to be available to eligibleshareholders. Shareholders who do notcurrently participate in the plan and wishto do so can obtain an application form andexplanatory booklet from the Company’sregistrars, Capita Registrars (contact detailsfor the Registrars are given on page 91) orfrom the Company’s website at www.compassgroup.com.The latest date for receipt of newapplications to participate in respect of the2007 final dividend is 2 February 2008.Disposal of assetsOn 29 November 2006, the Companyannounced its decision to sell Selecta, itsEuropean vending business. The salecompleted on 2 July 2007 for a considerationof £772 million on a debt and cash free basis.Future developmentThe Group’s strategic focus continues to beon the organic development of its existingcore businesses.Share capitalGeneralAt the date of this report, 1,894,687,283ordinary shares of 10 pence each have beenissued, are fully paid up and are quoted onthe London Stock Exchange. In addition, theCompany has entered into a level I AmericanDepository Receipt programme with theBank of New York Mellon, under which theCompany’s shares are traded on the over-thecountermarket in the form of AmericanDepository shares.During the year ended 30 September 2007,options were exercised pursuant to theCompany’s share option schemes, resultingin the allotment of 9,679,856 new ordinaryshares. A further 1,352,327 new ordinaryshares have been allotted under these schemessince the end of the financial year to the dateof this report.Rights attaching to sharesThe rights attaching to the ordinary sharesare defined in the Company’s Articlesof Association. The Articles of Associationmay be changed with the agreement ofshareholders. A shareholder whose nameappears on the Company’s register ofmembers can choose whether his sharesare evidenced by share certificates(i.e. in certificated form) or held in electronic(i.e. uncertificated) form in CREST (theelectronic settlement system in the UK).Subject to any restrictions below, shareholdersmay attend any general meeting of theCompany and, on a show of hands, everyshareholder (or his representative) who ispresent at a general meeting has one voteon each resolution and, on a poll, everyshareholder (or his representative) who ispresent has one vote on each resolution forevery ordinary share of which they are theregistered shareholder. A resolution put tothe vote of a general meeting is decided ona show of hands unless before, or on thedeclaration of the result of, a vote on a showof hands, a poll is demanded by the chairmanof the meeting, or by at least five shareholders(or their representatives) present in personand having the right to vote, or by anyshareholders (or their representatives) presentin person having at least 10% of the totalvoting rights of all shareholders, or by anyshareholders (or their representatives) presentin person holding ordinary shares on whichan aggregate sum has been paid up of at leastone-tenth of the total sum paid up on allordinary shares.Shareholders can declare final dividends bypassing an ordinary resolution but the amountof the dividends cannot exceed the amountrecommended by the Board. The Board canpay interim dividends on any class of sharesof the amounts and on the dates and for theperiods they decide provided the distributableprofits of the Company justify such payment.The Board may, if authorised by an ordinaryresolution of the shareholders, offer anyshareholder the right to elect to receive newordinary shares, which will be credited as fullypaid, instead of their cash dividend.Any dividend which has not been claimedfor 12 years after it became due for paymentwill be forfeited and will then belong to theCompany, unless the directors decide otherwise.If the Company is wound up, the liquidatorcan, with the sanction of an extraordinaryresolution passed by the shareholders, divideamong the shareholders all or any part of theassets of the Company and he can value anyassets and determine how the division shall becarried out as between the members ordifferent classes of members. The liquidatorcan also transfer the whole or any part of theassets to trustees upon any trusts for thebenefit of the members. No shareholders canbe compelled to accept any asset which wouldgive them a liability.

25 Compass Group PLC Annual Report 2007Voting at general meetingsAny form of proxy sent by the Company toshareholders in relation to any generalmeeting must be delivered to the Company,whether in written form or in electronic form,not less than 48 hours before the timeappointed for holding the meeting oradjourned meeting at which the personnamed in the appointment proposes to vote.No shareholder is, unless the Board decideotherwise, entitled to attend or vote eitherpersonally or by proxy at a general meeting orto exercise any other right conferred by beinga shareholder if he or any person with aninterest in shares has been sent a notice undersection 793 of the Companies Act 2006(which confers upon public companies thepower to require information with respect tointerests in their voting shares) and he or anyinterested person failed to supply theCompany with the information requestedwithin 14 days after delivery of that notice.The Board may also decide that no dividendis payable in respect of those default sharesand that no transfer of any default shares shallbe registered.These restrictions end seven days after receiptby the Company of a notice of an approvedtransfer of the shares or all the informationrequired by the relevant section 793 notice,whichever is the earlier.Transfers of sharesThe Board may refuse to register a transferof a certificated share which is not fully paid,provided that the refusal does not preventdealings in shares in the Company fromtaking place on an open and proper basis.The Board may also refuse to register atransfer of a certificated share unless (i) theinstrument of transfer is lodged, duly stamped(if stampable), at the registered office of theCompany or any other place decided by theBoard accompanied by the certificate for theshare to which it relates and such otherevidence as the Board may reasonably requireto show the right of the transferor to make thetransfer, (ii) is in respect of only one class ofshares, and (iii) is in favour of not more thanfour transferees.Transfers of uncertificated shares must becarried out using CREST and the Board canrefuse to register a transfer of an uncertificatedshare in accordance with the regulationsgoverning the operation of CREST.The Board may decide to suspend theregistration of transfers, for up to 30 days ayear, by closing the register of shareholders.The Board cannot suspend the registration oftransfers of any uncertificated shares withoutgaining consent from CREST. There are noother limitations on the holding of ordinaryshares in the Company.Variation of rightsIf at any time the capital of the Company isdivided into different classes of shares, thespecial rights attaching to any class may bevaried or revoked either:(i) with the written consent of the holders ofat least 75% in nominal value of the issuedshares of the class; or(ii)with the sanction of an extraordinaryresolution passed at a separate generalmeeting of the holders of the sharesof the class.The Company can issue new shares andattach any rights to them. If there is norestriction by special rights attaching toexisting shares, rights attaching to new sharescan take priority over the rights of existingshares, or the new shares and the existingshares can rank equally, or the existing sharescan take priority, but the rights of existingshares are deemed to be varied (unless therights expressly allow it) by a reduction ofpaid up capital or if another share of thatsame class is issued and ranks in priority forpayment of dividend or in respect of capitalor more favourable voting rights.Repurchase of sharesOn 12 May 2007, the Company announcedthat its £500 million on-market share buybackprogramme, begun in June 2006, wouldbe extended by a further £500 millionutilising some of the proceeds arising fromthe sale of the Selecta vending business. It isanticipated that the programme will completeover the next six months. During the yearended 30 September 2007 181,407,434ordinary shares of 10 pence each of theCompany (representing 8.64% of theordinary shares in issue on 1 October 2006)were purchased and cancelled for aconsideration of £575 million (includingexpenses). A further 34 million ordinaryshares of 10 pence each (representing1.75% of the ordinary shares in issue on1 October 2007) have been purchased fora consideration of £105 million (beforeexpenses) and cancelled since the end ofthe financial year to the date of this report.Resolution 13 set out in the Notice ofMeeting will be proposed as a SpecialResolution to renew the directors’ limitedauthority last granted in 2007 to repurchaseordinary shares in the market. The authoritysets the minimum and maximum prices whichmay be paid and it will be limited to amaximum of 10% of the Company’s issuedordinary share capital at the date of thisreport. This authority will enable yourdirectors to continue with the £500 millionshare buy-back programme announced on9 April 2006 and which was subsequentlyextended on 12 May 2007 to £1 billion.Furthermore, this authority will enable yourdirectors to continue to respond promptlyshould circumstances arise in which theyconsider such a purchase would result in anincrease in earnings per share and would bein the best interests of the Company.Any purchases of ordinary shares will beby means of market purchases through theLondon Stock Exchange and any sharesso purchased may be cancelled or may beplaced into treasury in accordance with theCompanies (Acquisition of Own Shares)(Treasury Shares) Regulations 2003. TheCompany currently holds no shares intreasury but the Regulations allow sharesrepurchased by the Company to be held astreasury shares that may be subsequentlycancelled, sold for cash or used for thepurpose of employee share schemes.The directors consider it desirable for thesegeneral authorisations to be available toprovide flexibility in the management ofthe Company’s capital resources.Issue of sharesThe directors propose in Resolution 11 setout in the Notice of Meeting to renew theauthority granted to them at the AnnualGeneral Meeting held in 2007 to allot equityshares up to an aggregate nominal value of£63,100,000 (representing approximatelyone-third of the ordinary shares issued at thedate of this report) (the ‘section 80 authority’).If approved at the forthcoming AnnualGeneral Meeting, the authority will expire nolater than 15 months from the date on whichthe resolution is passed, or at the conclusionof the Annual General Meeting to be held in2009, whichever is the sooner.

26 Compass Group PLC Annual Report 2007Directors’ ReportReport of the directorscontinuedThe limited power granted to the directorsat last year’s Annual General Meeting to allotequity shares for cash other than pro ratato existing shareholders expires no later than15 May 2008. Subject to the terms of thesection 80 authority, your directorsrecommend that this authority should berenewed. Resolution 12 set out in the Noticeof Meeting will be proposed as a SpecialResolution to give your directors the ability(until the Annual General Meeting to be heldin 2009) to issue ordinary shares for cash,other than pro rata to existing shareholders,in connection with a rights issue or up to alimit of 5% of the ordinary share capitalissued at the date of this report. In addition,and in line with best practice, the Companyhas not issued more than 7.5% of its issuedshare capital on a non pro-rated basis overthe last three years. Your directors have nopresent intention to issue ordinary shares,other than pursuant to the Company’semployee share schemes. The directorsrecommend that shareholders vote in favourof Resolutions 11 and 12 to maintain theCompany’s flexibility in relation to futureshare issues, including any issues to financebusiness opportunities should appropriatecircumstances arise.Details of cancellations of existing shares andissues of new shares are set out in note 24 tothe accounts on page 74, which also containsdetails of options granted over unissuedcapital.Major shareholdingsThe following major shareholdings have beennotified to the Company.% of issued capitalFranklin Resources, Inc. and its affiliates 9.32Legal & General Group Plc 6.00Harris Associates L.P. 3.01DirectorsBrief particulars of the directors in office atthe date of this Report are listed on page 17and further details of the Board compositionare disclosed in the Corporate governancereport. Sir James Crosby and Tim Parkerwere appointed to the Board as non-executivedirectors on 17 February 2007 and SusanMurray was appointed to the Board as a nonexecutivedirector on 11 October 2007. Eachof them will stand for election at the AnnualGeneral Meeting. The directors standing forre-election at the Annual General Meetingare Sir Roy Gardner and Steve Lucas. Eachdirector, being eligible, offers himself forelection or re-election and each, followinga performance evaluation during the year(save for Susan Murray), continues to beeffective and demonstrates commitment tohis respective role. It is the view of the Boardthat each of the non-executive directors bringconsiderable management experience andindependent perspective to the Board’sdiscussions and they are considered to beindependent of management and free fromany relationship or circumstance that couldaffect, or appear to affect, the exercise of theirindependent judgement.Directors’ interests in sharesThe directors who have held office duringthe year ended 30 September 2007 had thefollowing interests in the ordinary shares ofthe Company.30 September 2007 1 October 2006(or date of retirement) (or on appointment)Peter Blackburn 1 5,000 5,000Peter Cawdron 2 24,200 24,200Richard Cousins 200,000 100,000Sir James Crosby 34,000 –Sir Roy Gardner 175,000 100,000Val Gooding 2 5,502 5,502Gary Green 624,270 624,270Sven Kado 33,000 12,500Steve Lucas 1,000 –Andrew Martin 158,559 110,027Tim Parker 20,219 –Sir Ian Robinson 6,289 1,2891. Peter Blackburn retired as a director on 31 October 2007.2. Val Gooding and Peter Cawdron retired as directors on31 December 2006 and 16 February 2007 respectively.There were no changes to the shareholdingsof those directors in office at the date ofthis Report between 1 October 2007 and28 November 2007.

27 Compass Group PLC Annual Report 2007Directors’ ReportCorporate governanceincluding the report of the Audit CommitteeCompliance with the Combined CodeThe Board is committed to the higheststandards of corporate governance set out inthe Combined Code on corporate governancepublished by the Financial Reporting Councilin June 2006 (the ‘Code’). The Board isaccountable to the Company’s shareholdersfor good governance and this report describeshow the Board applied the principles of goodgovernance set out in the Code during theyear under review.The BoardAs at 30 September 2007 and at the date ofthis report, the Board of directors was madeup of 10 members comprising the Chairman,three executive directors and six non-executivedirectors. On 11 October 2007 Susan Murraywas appointed as a non-executive directorand Peter Blackburn retired from the Boardon 31 October 2007. The non-executivedirectors are considered by the Board to beindependent of management and free of anyrelationship which could materially interferewith the exercise of their independentjudgement. The Board considers that eachof the non-executive directors brings his ownsenior level of experience, gained in his ownfield mainly in international operations.Biographical details of the directors currentlyin office are shown on page 17. TheCompany’s policy relating to the terms ofappointment and the remuneration of bothexecutive and non-executive directors isdetailed in the directors’ remuneration reporton pages 33 to 39.The Board meets regularly during the yearas well as on an ad hoc basis, as required bybusiness need. The Board manages thebusiness of the Company and may, subjectto the Articles of Association and applicablelegislation, borrow money, guarantee,indemnify, mortgage or charge the business,property, assets (present and future) and issuedebentures and other securities and givesecurity, whether outright or as a collateralsecurity, for any debt, liability or obligationof the Company or of any third party. TheBoard has a formal schedule of mattersreserved for its decision, although itsprimary role is to provide entrepreneurialleadership and to review the overall strategicdevelopment of the Group as a whole. Inaddition the Board sets the Group’s valuesand standards and ensures that it acts ethicallyand that its obligations to its shareholders areunderstood and met. The Board may delegateany of its powers to any committee consistingof one or more directors. The Company hasdelegated day-to-day operational decisions tothe Executive Committee referred to on page29. The Board met nine times during the yearand director attendance for each meeting isshown in the table on page 29. The Boardhas established a procedure for directors,if deemed necessary, to take independentprofessional advice at the Company’s expensein the furtherance of their duties. This is inaddition to the access that every director hasto the General Counsel and CompanySecretary, who is charged with ensuring thatBoard procedures are followed and that goodcorporate governance and compliance isimplemented within the Group. Togetherwith the Group Chief Executive and theGeneral Counsel and Company Secretary,the Chairman ensures that the Board is keptproperly informed and is consulted on allissues reserved to it. Board papers and otherinformation are distributed at times to allowdirectors to be properly briefed in advance ofmeetings. In accordance with the Company’sArticles of Association, directors have beengranted an indemnity issued by the Companyto the extent permitted by law in respect ofliabilities incurred as a result of their office.The indemnity would not provide anycoverage to the extent that a director is provedto have acted fraudulently or dishonestly.The Company has also arranged appropriateinsurance cover in respect of legal actionagainst its directors and officers. The rolesof Chairman and Group Chief Executive areseparate and clearly defined with the divisionof responsibilities set out in writing andagreed by the Board.The Chairman has addressed thedevelopmental needs of the Board as a whole,with a view to developing its effectivenessas a team and assists in the development ofindividual skills, knowledge and expertise.During the year, the Board took forwardthe results of previous evaluation processesto assess its performance and that of itscommittees and to identify areas in which itseffectiveness, policies and processes might beenhanced, which utilised both a questionnaireand discussions with all Board members.Performance evaluations, including the skillsbrought to the Board and the contributionseach director made to it, were carried outfor each director. Executive directors’performance has been assessed by theChairman and the Group Chief Executive.The Group Chief Executive’s performancewas evaluated by the Chairman and the nonexecutivedirectors. The senior independentnon-executive director led the review of theChairman’s performance in consultation withthe executive and non-executive directors.The non-executive directors’ performancewas considered by the Chairman and by theGroup Chief Executive, as well as by theBoard as a whole, which reviewed the resultsof the questionnaires referred to above.Meetings between the non-executivedirectors, both with and without the presenceof the Group Chief Executive, are scheduledin the Board’s annual programme. TheBoard has also arranged to hold at least twoBoard meetings each year at Group businesslocations to help all Board members gaina deeper understanding of the business.This also provides senior managers fromacross the Group the opportunity to presentto the Board as well as to meet the directorson more informal occasions.As part of their ongoing development, theexecutive directors are encouraged to seekan external non-executive role on a noncompetitorboard, for which they may retainthe remuneration in respect of theappointment. In order to avoid any conflictof interest, all appointments are subject to theBoard’s approval and the Board monitors theextent of directors’ other interests to ensurethat the effectiveness of the Board is notcompromised. Succession planning is a matterfor the whole Board rather than for acommittee. The Company’s Articles ofAssociation provide that one-third of thedirectors retire by rotation each year andthat each director will seek re-election at theAnnual General Meeting every three years.Additionally, new directors may be appointedby the Board but are subject to election byshareholders at the first opportunity aftertheir appointment. The Articles ofAssociation limit the number of directors tonot less than two and not more than 20 savewhere shareholders decide otherwise. It isBoard policy that non-executive directorsare appointed normally for an initial termof three years which is then reviewed andextended for a further three-year period. It isalso Board policy that non-executive directorsshould not generally serve on the Board formore than nine years. Following theirappointment, formal comprehensive andtailored induction is offered to all nonexecutivedirectors, supplemented by visits tokey locations within the Group and meetingswith members of the Executive Committeeand other key senior executives. With theexception of Susan Murray, all of the directorsbeing proposed for election or re-election atthe Annual General Meeting have beensubject to a performance evaluation duringthe year ended 30 September 2007 and theBoard is content that each has continued tobe effective and has demonstrated hiscommitment to his respective role.Although the non-executive directors are notasked to meet the shareholders of the Company,their attendance at presentations of theannual and interim results is encouraged. TheChairman ensures that the Board maintainsan appropriate dialogue with shareholders.Sir James Crosby is the Company’s seniorindependent non-executive director.The formal terms of reference for the mainBoard committees, approved by the Boardand complying with the Code to assist in thedischarge of its duties, are available from theGeneral Counsel and Company Secretaryand can also be found on the Company’swebsite at www.compass-group.com.Membership of the various committees isshown on page 29. The General Counseland Company Secretary acts as secretaryto all Board committees.

28 Compass Group PLC Annual Report 2007Directors’ ReportCorporate governancecontinuedAudit CommitteeThe Audit Committee comprises Steve Lucas(Chairman), Sven Kado, Sir Ian Robinsonand Tim Parker. Val Gooding and PeterCawdron stepped down as members of thiscommittee upon their retirement as directorsof the Company on 31 December 2006 and16 February 2007 respectively as did PeterBlackburn upon his retirement from theBoard on 31 October 2007. The committee’smembership is reviewed by the NominationCommittee and as part of the annual Boardperformance evaluation. Members of thecommittee are appointed by the Boardfollowing recommendations by theNomination Committee.Each member of the committee bringsrelevant financial experience from seniorexecutive levels. The expertise and experienceof the members of the committee aresummarised on page 17. The Board considersthat each member of the committee isindependent within the definition set out inthe Code. Steve Lucas is considered by theBoard to have significant, recent and relevantfinancial experience, as he is currentlyFinance Director of National Grid plc.All members of the committee receiveappropriate induction, which is in addition tothe induction which all new directors receiveand includes an overview of the business, itsfinancial dynamics and risks. Audit Committeemembers are expected to have anunderstanding of the principles of, anddevelopments in, financial reporting,including the applicable accounting standardsand statements of recommended practice, keyaspects of the Company’s policies, financing,internal control mechanisms, and matters thatrequire the use of judgement in thepresentation of accounts and key figures aswell as the role of internal and externalauditors. Members of the committeeundertake ongoing training as required.The committee meets regularly throughoutthe year and its agenda is linked to events inthe Company’s financial calendar. Eachmember of the committee may requirereports on matters of interest in addition tothe regular items. Members’ attendance at themeetings held during the year is set out in thetable on page 29.The committee invites Sir Roy Gardner, theGroup Chief Executive, the Group FinanceDirector, the Group Financial Controller andthe Director of Internal Audit together withsenior representatives of the external auditorsto attend each meeting although it reservespart of each meeting for discussions withoutinvitees being present. Other seniormanagement are invited to present suchreports as are required for the committee todischarge its duties.The Chairman of the Audit Committeeattends the Annual General Meeting torespond to any shareholder questions thatmight be raised on the committee’s activities.The remuneration of the members of thecommittee is set out on page 35 and the policywith regard to the remuneration of the nonexecutivedirectors is set out on page 38.The committee assists the Board to fulfil itsresponsibilities related to external financialreporting and associated announcements.During the year, the committee reviewed:the interim and annual financial statements;the interim and preliminary announcementsmade to the London Stock Exchange;significant accounting issues including theconsideration of any goodwill impairmentassessments; operation of the ‘whistle-blowing’policy; litigation and contingent liabilities andtax matters, including compliance withstatutory tax reporting obligations.The committee is also responsible for thedevelopment, implementation and monitoringof the Company’s policy on external audit.The committee reserves oversightresponsibility for monitoring the auditors’independence, objectivity and compliancewith ethical, professional and regulatoryrequirements. The committee recommendsthe appointment, reappointment and removalof the Company’s external auditors. Thecommittee also reviews the terms, areas ofresponsibility and scope of the audit as set outin the external auditors’ engagement letter;the overall work plan for the forthcomingyear, together with the associated fee proposaland cost-effectiveness of the audit; any majorissues which arise during the course of theaudit and their resolution; key accounting andaudit judgements; the level of errors identifiedduring the audit; the recommendations madeto management by the auditors andmanagement’s response; and the auditors’overall performance. The committee alsoensures that key partners within the externalauditors are rotated from time to time inaccordance with applicable UK rules. Thecommittee also monitors the extent of nonauditwork which the external auditors canperform, to ensure that the provision of thosenon-audit services that can be undertaken bythe external auditors falls within the agreedpolicy and does not impair their objectivity orindependence. In this respect the committeehas agreed that, unless there is no othercompetent and available provider, theexternal auditors should be excluded fromproviding the Company with generalconsultancy and all other non-audit and nontax-relatedservices.Within the constraints of applicable UK rules,the external auditors undertake some duediligence reviews and provide assistance ontax matters given their in-depth knowledge ofthe Group’s business although assistance ontax matters is also obtained from other firms.The provision of non-audit services withinsuch constraints and the agreed policy isassessed on a case-by-case basis so that thebest-placed advisor is retained. During theyear, the committee reviewed the effectivenessof the external auditors and consideredwhether the agreed plan had been fulfilledand the reasons for any variation from theplan. The committee also considered theexternal auditors’ robustness and the degreeto which the external auditors were able toassess key accounting and audit judgementsand the content of the management letter.The total fees paid to Deloitte & Touche LLPin the year ended 30 September 2007 were£5.1 million (2006: £7.6 million 1 ) of which£2.1 million (2006: £4.0 million) related tonon-audit work. Further disclosure of thenon-audit fees paid during the year ended30 September 2007 can be found in note 2to the consolidated financial statements onpages 52 and 53.The committee also reviews the effectivenessof the Group’s internal audit function and itsrelationship with the external auditors,including internal audit resources, plans andperformance as well as the degree to which thefunction is free of management restrictions.Throughout the year, the committee reviewedthe internal audit function’s plans and itsachievements against plans. The committeeconsidered the results of the audits undertakenby the internal audit function and consideredthe adequacy of management’s response tomatters raised, including the time taken toresolve any such matters.The committee also reviews, wherepracticable, all proposed announcements tobe made by the Company to the extent thatthey contain material financial information.The committee monitors and reviews theeffectiveness of the Group’s internal controlsystems, accounting policies and practices andcompliance controls as well as the Company’sstatements on internal control before they areagreed by the Board for each year’s annualreport. The Board retains overall responsibilityfor internal control and the identification andmanagement of business risk.The Company’s ‘whistle-blowing’ or ‘Speak Up’policy (which is an extension of the Code ofEthics) sets out arrangements for the receipt,in confidence, of complaints on accounting,risk issues, internal controls, auditing issues andrelated matters which would, as appropriate,be reported to the committee. A copy of theCode of Ethics is available on the Company’swebsite at www.compass-group.com.Each year the committee reviews criticallyits own performance and considers whereimprovements can be made.1. £7.3 million of which relates to the continuing business.

29 Compass Group PLC Annual Report 2007Nomination CommitteeThe Nomination Committee meets on an asneeded basis and at the date of this report iscomprised of Sir Roy Gardner (Chairman),Sir James Crosby and Sir Ian Robinson.Val Gooding and Peter Cawdron steppeddown as members of this committee upontheir retirement as directors of the Companyon 31 December 2006 and 16 February 2007respectively as did Peter Blackburn upon hisretirement from the Board on 31 October2007. The committee reviews the structure,size and composition of the Board and itscommittees and makes recommendations withregard to any changes that are considerednecessary, both in the identification andnomination of new directors and appointmentof members to the Board committees, and thecontinuation of existing directors in office toensure that there is a balanced Board in termsof skills, knowledge and experience. Thecommittee retains external search consultantsas appropriate and reviews the leadershipneeds of the Group to enable it to competeeffectively in the marketplace. The committeealso advises the Board on succession planningfor executive Board appointments althoughthe Board itself is responsible for successiongenerally. The committee met four timesduring the year and director attendance forsuch meetings is shown in the table below.Remuneration CommitteeThe committee comprises; Sir James Crosby(Chairman), Steve Lucas, Sven Kado andTim Parker all of whom are independentwithin the definition set out in the Code. ValGooding stepped down as a member of thecommittee upon her retirement as a directorof the Company on 31 December 2006. SirJames Crosby succeeded Peter Cawdron asChairman of the committee on 17 February2007. The committee met six times during theyear and director attendance for each meetingis shown in the table below. The committee isresponsible for making recommendations onremuneration to the Board. The Director’sremuneration report is set out on pages33 to 39.The Chairman of the RemunerationCommittee attends the Annual GeneralMeeting to respond to any shareholderquestions that might be raised on thecommittee’s activities.General Business CommitteeThe General Business Committee comprisesall the executive directors and meets asrequired to conduct the Company’s businesswithin the clearly defined limits delegated bythe Board and subject to those mattersreserved to the Board.Corporate Responsibility CommitteeThe Corporate Responsibility Committeecomprises Sir Roy Gardner (Chairman),Richard Cousins, Andrew Martin, SteveLucas, Mark White and the Group HumanResources Director. The committee’s primaryresponsibilities include; health, safety andenvironmental practices, business conduct,the promotion of employee engagement anddiversity and community investment.Disclosure CommitteeThe Disclosure Committee comprises AndrewMartin, Mark White, the Group FinancialController and the Director of CorporateStrategy, Media and Investor Relations. Thecommittee meets as required to deal with allmatters relating to public announcements ofthe Company and the Company’s obligationsunder the Listing Rules and Disclosure Rulesof the UK Listing Authority.Executive CommitteeThe Executive Committee comprises, theexecutive directors of the Company, theGeneral Counsel and Company Secretary,Group Human Resources Director andthe Group Managing Directors. Thecommittee normally meets monthly and it isresponsible for implementing Group policy,day-to-day management, monitoring businessperformance and reporting on these areas tothe Board.Meetings attendanceThe table below shows the attendance ofdirectors at meetings of the Board, Audit,Remuneration and Nomination Committeesduring the year.Directors’ attendanceInternal auditThe internal audit function is involved in theassessment of the quality of risk managementand internal control and helps to promote andfurther develop effective risk managementwithin the businesses. Certain internal auditassignments (such as those requiring specialistexpertise) continue to be outsourced by theDirector of Internal Audit to KPMG LLPas required. A policy has been establishedregarding the recruitment of staff fromDeloitte & Touche LLP. The Audit Committeereviews internal audit reports and considersthe effectiveness of the function.Internal controlIn a highly decentralised Group, where localmanagements have considerable autonomy torun and develop their businesses, a welldesigned system of internal control isnecessary to safeguard shareholders’investments and the Company’s assets. Thedirectors acknowledge that they have overallresponsibility for the Group’s systems ofinternal control and for reviewing theeffectiveness of those controls. In accordancewith the guidance set out in the TurnbullReport, ‘Internal Control: Guidance forDirectors on the Combined Code’, anongoing process had been established foridentifying, managing and evaluating the risksfaced by the Group. This process has been inplace for the full financial year and up to thedate on which the financial statements wereapproved.The systems are designed to manage ratherthan eliminate the risk of failure to achievethe Group’s objectives, safeguard the Group’sassets against material loss, fairly report theAudit Remuneration NominationBoard meetings Committee meetings Committee meetings Committee meetingsEligible Eligible Eligible EligibleName of director Attended to attend Attended to attend Attended to attend Attended to attendPeter Blackburn 8 9 3 4 – – 3 4Peter Cawdron 1 3 3 – – 3 3 3 3Richard Cousins 9 9 – – – – – –Sir James Crosby 2 4 5 – – 3 3 1 1Sir Roy Gardner 9 9 – – 4 4 4 4Val Gooding 1 2 2 – – 2 2 2 2Gary Green 2 7 7 – – – – – –Sven Kado 8 9 3 4 6 6 – –Steve Lucas 8 9 4 4 6 6 – –Andrew Martin 9 9 – – – – – –Tim Parker 2 4 5 2 2 2 2 – –Sir Ian Robinson 2 7 8 2 2 – – 1 1This table shows only those meetings which each director attended as a member rather than as an invitee.1. Val Gooding and Peter Cawdron retired as directors on 31 December 2006 and 16 February 2007 respectively.2. Sir Ian Robinson and Gary Green were appointed directors on 1 December 2006 and 1 January 2007 respectively.Sir James Crosby and Tim Parker were appointed directors on 17 February 2007.

30 Compass Group PLC Annual Report 2007Directors’ ReportCorporate governancecontinuedGroup’s performance and position and toensure compliance with relevant legislation,regulation and best practice including thatrelated to social, environmental and ethicalmatters. The systems provide reasonable, notabsolute, assurance against materialmisstatement or loss. Such systems arereviewed by the Board to deal with changingcircumstances.A summary of the key financial risks inherentin the Group’s business is given on page 16.Risk assessment and evaluation is an integralpart of the annual planning cycle. Eachbusiness documents the strategic objectivesand the effectiveness of the Group’s systemsof internal control. As part of the review, eachsignificant business and function has beenrequired to identify and document eachsignificant risk, together with the mitigatingactions implemented to manage, monitor andreport to the management on the effectivenessof these controls. Senior managers are alsorequired to sign bi-annual confirmations ofcompliance with key procedures and to reportany breakdowns in, or exceptions to, theseprocedures. Summarised results have beenpresented to senior management (includingto the Executive Committee) and to the AuditCommittee. These processes have been inplace throughout the financial year ended30 September 2007 and have continued to thedate of this report. The Board has reviewedthe effectiveness of the Group’s system ofinternal control for the year under review anda summary of the principal control structuresand processes in place across the Group is setout below.Control environmentWhilst the Board has overall responsibility forthe Group’s system of internal control and forreviewing its effectiveness, it has delegatedresponsibility for the operation of the internalcontrol and risk management programme tothe Executive Committee. The detailedreview of internal control has been delegatedto the Audit Committee. The management ofeach business is responsible for internalcontrol and risk management within its ownbusiness and for ensuring compliance with theGroup’s policies and procedures. Eachbusiness has appointed a risk champion whoseprimary role in such capacity is to ensurecompliance by local management with theGroup’s risk management and internalcontrol programme. The internal and theexternal auditors have reviewed the overallapproach adopted by the Group towards itsrisk management activities so as to reinforcethese internal control requirements.Control proceduresThe Board reviews its strategic plans andobjectives on an annual basis and approvesGroup company budgets and strategies inlight of these. Control is exercised at Groupand business level through the Group’s MAPprocess and monthly monitoring ofperformance by comparison with budgets,forecasts and cash targets and by regular visitsto Group companies by the Group ChiefExecutive and the Group Finance Director.Group businesses approve and submit riskreports for the Board on a bi-annual basis,summarising the key risks facing theirbusinesses and the controls in place to managethose risks. These reports, together withreports on internal control and departures, ifany, from established Group proceduresprepared by the internal and externalauditors, are reviewed by the Group FinanceDirector and the Audit Committee. The Groupcompanies also submit bi-annual risk andinternal control assurance letters to the GroupFinance Director on internal control and riskmanagement issues, with comments on thecontrol environment within their operations.The Group Finance Director summarisesthese submissions for the Audit Committeeand the Chairman of the Audit Committeereports to the Board on any matters that havearisen from the committee’s review of the wayin which risk management and internalcontrol processes have been applied.The Board has formal procedures in place forapproval of investment and acquisitionprojects, with designated levels of authority,supported by post investment review processesfor selected acquisitions and major capitalexpenditure. The Board considers social,environmental and ethical matters in relationto the Group’s business and assesses thesewhen reviewing the risks faced by the Group.The Board is conscious of the effect suchmatters may have on the short- and long-termvalue of the Company. The external auditorsof the Company and the Director of InternalAudit attend Audit Committee meetings andreceive its papers. The report of the AuditCommittee is set out on page 28 and theAudit Committee members meet regularlywith the Director of Internal Audit and theexternal auditors without the presence ofexecutive management.There were no changes to the Company’sinternal control over financial reporting thatoccurred during the year ended 30 September2007 that have affected materially, or arereasonably likely to affect materially, theCompany’s internal control over financialreporting.Compliance statementThe Company applied all of the principles setout in section 1 of the Code for the periodunder review and has throughout the yearcomplied with the detailed provisions set outtherein.The Company’s auditors, Deloitte & ToucheLLP, are required to review whether the abovestatement reflects the Company’s compliancewith the nine provisions of the Code specifiedfor its review by the Listing Rules of the UKListing Authority and to report if it does notreflect such compliance. No such report hasbeen made.Communications with shareholdersThe Company places considerableimportance on communication with itsshareholders, including its employeeshareholders. The Group Chief Executiveand the Group Finance Director are closelyinvolved in investor relations and a seniorexecutive has day-to-day responsibility forsuch matters. The views of the Company’smajor shareholders are reported to the Boardby the Group Chief Executive and the GroupFinance Director as well as by Sir RoyGardner (who remains in contact with the10 largest shareholders) and discussed at itsmeetings. The Annual Report and Accountsare available to all shareholders either inpaper form or electronically and can beaccessed via the Company’s website atwww.compass-group.com.There is regular dialogue with institutionalshareholders and this has been extended toinclude private shareholders through theAnnual General Meeting and meetingswith the United Kingdom ShareholdersAssociation. Contact with institutionalshareholders (and with financial analysts,brokers and the media) is controlled bywritten guidelines to ensure the protection ofshare price sensitive information that has notalready been made generally available to theCompany’s shareholders. Contact is alsomaintained, when appropriate, withshareholders to discuss overall remunerationplans and policies. The Group’s preliminaryand interim results, as well as allannouncements issued to the London StockExchange, are published on the Company’swebsite at www.compass-group.com. TheCompany issues regular trading updates andwill issue interim management statements tothe market and these, together with copies ofpresentations and interviews with the GroupChief Executive and Group Finance Directorare, and will be, posted on the Company’swebsite. The Notice of Meeting is circulated

31 Compass Group PLC Annual Report 2007to all shareholders at least 20 working daysbefore such meeting and it is Company policynot to combine resolutions to be proposed atgeneral meetings. All shareholders are invitedto the Company’s Annual General Meetingat which they have the opportunity to putquestions to the Board and it is standardpractice to have the Chairmen of the Audit,Nomination and Remuneration Committeesavailable to answer questions. The proxy votesfor and against each resolution, as well asabstentions (which may be recorded on theform of proxy accompanying the Notice ofMeeting), are counted before the AnnualGeneral Meeting and the results will be madeavailable at the meeting after shareholdershave voted on each resolution on a showof hands. The results are also announcedto the London Stock Exchange and arepublished on the Company’s website shortlyafter the meeting.DonationsThe Company’s corporate responsibilityreport is set out on pages 18 to 23. TheGroup’s charitable donations in 2007totalled £1,162,000 (2006: £1,556,000).At each Annual General Meeting held since2004, shareholders have passed a resolution,on a precautionary basis, to approvedonations to political organisations and toincur political expenditure (as such termswere defined under the Companies Act 1985)not exceeding £125,000 per annum. TheBoard has consistently confirmed that itoperates a policy of not giving any cashcontribution to any political party in theordinary meaning of those words and that ithas no intention of changing that policy. Thedirectors, however, propose to seek renewedauthority for the Group to make politicaldonations and incur political expenditure(as such terms are defined in sections 362 to365 of the Companies Act 2006 (the ‘Act’))of not more that £125,000 in total until theCompany’s next Annual General Meeting,which they might otherwise be prohibitedfrom making or incurring under the termsof the Act and which would not amountto ‘donations’ in the ordinary sense of theword. The authority sought by Resolution14 in the Notice of Meeting will last until theCompany’s next Annual General Meeting.Awards under employee shareschemesIn March 2007 options were granted underthe Compass Group Management ShareOption Plan over 4,198,525 ordinary shares(2006: 7,813,300) to senior employees of theGroup at an option price of 335.75 pence pershare. In September 2007 further optionswere granted under the Compass GroupManagement Share Option Plan over265,354 ordinary shares to a further 15 senioremployees of the Group at an option price of310.75 pence per share. The Company alsooperates the Compass Group Share OptionPlan for senior employees and there are rulesin place for all-employee share plans in theUK and overseas. No grants were madeunder any of these plans during the yearended 30 September 2007 (2006: nil). Furtherdetails regarding the plans, including the totalnumber of options outstanding, are set out innotes 24 and 26 to the financial statementson pages 74 to 79. Details of awards made todirectors of the Company under the CompassGroup Long-Term Incentive Plan (‘LTIP’)are set out on page 36. The Plan is describedin more detail in the directors’ remunerationreport on pages 35 and 36 which shows thetotal number of LTIP awards outstanding asat 30 September 2007.Employee policies and involvementThe Group places particular importance onthe involvement of its employees, keepingthem regularly informed through informalbulletins and other in-house publications,meetings and the Company’s internal website,on matters affecting them as employees andon the issues affecting their performance.Each EU country’s business operates adomestic works council of workforcerepresentatives and delegates from thesebodies are selected by the representativesto attend the Compass European Councilwhich has been in operation since 1996 andwhich provides a forum for dialogue andconsultation with employees on significantdevelopments in the Group’s operations,management’s plans and expectations,organisational changes within the Groupand for employee representatives to consultmanagement about concerns over any aspectof the Group’s operations. At the date ofthis Report, there are 23 member countrybusinesses represented from the EU and EFTA,comprising 33 employee representatives.Permanent UK employees are usuallyinvited to join either the Company’s definedcontribution scheme (‘CRISP’) or theCompany’s stakeholder arrangement.However, those UK employees who transferfrom the public sector under the Transfer ofUndertakings (Protection of Employment)Regulations 2006 will be eligible to join theCompass Group Pension Plan (the ‘Plan’),a defined benefit arrangement which isotherwise closed to new entrants. CRISP has acorporate trustee. The Chairman, Tony Allen,is independent. The other five trustee directorsare UK-based employees of the Group, two ofwhom have been nominated by CRISPmembers. The Plan has a corporate trusteewith two independent directors, including theChairman Peter Morriss. There are a furtherseven trustee directors and they are UK-basedemployees or former employees of the Group,four of whom have been nominated by Planmembers. The other main UK pensionarrangement, the Compass Pension Scheme(the ‘Scheme’) is a closed defined benefitscheme. As with the Plan and CRISP, theScheme has a corporate trustee. TheChairman, David Bishop, is independent.The remaining seven trustee directors areUK-based employees or former employeesof the Group, three of whom have beennominated by Scheme members. Permanentemployees outside of the UK are usuallyoffered membership of local pensionarrangements if and where they exist andwhere it is appropriate to have companysponsored arrangements.Employees are offered a range of benefitsdepending on the local environment, such asprivate medical cover. Priority is given to thetraining of employees and the development oftheir skills is of prime importance. Employmentof disabled people is considered on merit withregard only to the ability of any applicant tocarry out the function required. Arrangementsto enable disabled people to carry out thefunction required will be made if it isreasonable to do so. An employee becomingdisabled would, where appropriate, be offeredretraining. The Group continues to operateon a highly decentralised basis. This providesthe maximum encouragement for thedevelopment of entrepreneurial flair,balanced by a rigorous control frameworkexercised by a small head office team. Localmanagements are responsible for maintaininghigh standards of health and safety and forensuring that there is appropriate employeeinvolvement in decision-making.Creditor payment policyAll Group companies are responsible forestablishing terms and conditions with theirsuppliers and it is Group policy that paymentsare made within such agreed terms andconditions. The amount of trade creditorsfor the Group as at 30 September 2007 wasequivalent to 48 days (2006: 48 days for thecontinuing business) of trade purchases.Shareholder servicesThe Share Portal is a service offered by ourregistrars, Capita Registrars, which allowsshareholders online access to a range ofshareholder information. The Share Portalprovides access to details of shareholdingsin the Company and practical help ontransferring shares and updating personaldetails. It enables shareholders to receiveshareholder communications electronically,rather than by post and it also enablesshareholders to appoint proxies to attend andvote at general meetings of the Company.To register, shareholders simply need to logon to www.capitashareportal.com and followthe instructions to register. Shareholdersregistering for the Share Portal will need tohave their investor code to hand which isshown on share certificates and on the formof proxy sent with this report.

32 Compass Group PLC Annual Report 2007Directors’ ReportCorporate governancecontinuedThe Company’s ordinary shares can betraded through most banks, building societies,stockbrokers or ‘share shops’ in the UK and,in addition, Capita Registrars provide ashare dealing service (maximum deal size£25,000) which is available to shareholderswho live in the UK. This is a simple andconvenient way to buy and sell shares overthe telephone and on the Internet without theneed to pre-register and complete applicationforms. To use this service either log on towww.capitadeal.com or call 0871 664 0445(Monday to Friday between 8.00a.m. and4.30p.m.). Calls cost 10 pence per minute plusnetwork extras.Further shareholder information is set outon page 91.CRESTThe Company’s ordinary shares and SterlingEurobonds are in CREST, the settlementsystem for stocks and shares.AuditorsDeloitte & Touche LLP are willing to continueas auditors of the Company and Resolution 9in the Notice of Meeting concerning theirreappointment and Resolution 10 in theNotice of Meeting concerning thedetermination of their remuneration are tobe proposed at the Annual General Meeting.The directors confirm that, so far as theyare each aware, there is no relevant auditinformation of which Deloitte & Touche LLPare unaware and each director has taken allthe steps that ought to have been taken as adirector to be aware of any relevant auditinformation and to establish that Deloitte &Touche LLP are aware of that information.On behalf of the BoardMark J WhiteGeneral Counsel and Company Secretary28 November 2007Directors’ responsibilitiesThe directors are responsible for preparingthe annual report and the financialstatements. The directors are required toprepare financial statements for the Groupin accordance with International FinancialReporting Standards (‘IFRS’). Companylaw requires the directors to prepare suchfinancial statements in accordance with IFRS,the Companies Act 1985 and Article 4 of theIAS Regulation.International Accounting Standard 1 requiresthat financial statements present fairly foreach financial year the Group’s financialposition, financial performance and cashflows. This requires the faithful representationof the effects of transactions, other eventsand conditions in accordance with thedefinitions and recognition criteria for assets,liabilities, income and expenses set out inthe International Accounting StandardsBoard’s ‘Framework for the Preparation andPresentation of Financial Statements’. Invirtually all circumstances, a fair presentationwill be achieved by compliance with allapplicable International Financial ReportingStandards. Directors are also required to:properly select and apply accountingpolicies;present information, including accountingpolicies, in a manner that provides relevant,reliable, comparable and understandableinformation;provide additional disclosures whencompliance with the specific requirementsin IFRS is insufficient to enable users tounderstand the impact of particulartransactions, other events and conditions onthe entity’s financial position and financialperformance; andprepare the accounts on a going concernbasis unless, having assessed the ability ofthe Group to continue as a going concern,management either intends to liquidate theentity or to cease trading, or have norealistic alternative but to do so.The directors are responsible for keepingproper accounting records which disclose withreasonable accuracy at any time the financialposition of the Company, for safeguarding theassets, for taking reasonable steps for theprevention and detection of fraud and otherirregularities and for the preparation of adirectors’ report and directors’ remunerationreport which comply with the requirementsof the Companies Act 1985. The directors,having prepared the financial statements,have permitted the auditors to take whateversteps and undertake whatever inspections theyconsider to be appropriate for the purpose ofenabling them to give their audit opinion.The directors are responsible for themaintenance and integrity of the CompassGroup PLC website. Legislation in the UnitedKingdom governing the preparation anddissemination of financial statements maydiffer from legislation in other jurisdictions.

33 Compass Group PLC Annual Report 2007Directors’ ReportDirectors’ remuneration reportincluding the statement of remunerationpolicy for the year ended 30 September 2007The Board presents its remunerationreport, which has been prepared on therecommendation of the RemunerationCommittee (‘the committee’) and inaccordance with the requirements of theCompanies Act 1985. Shareholders will beinvited to approve the report at the AnnualGeneral Meeting on 8 February 2008.The report covers the following matters:executive remuneration policy for theyear ended 30 September 2007 and theintended policy for the year ending30 September 2008; anddirectors’ remuneration, incentive planparticipation and pension provision.With the exception of the annualperformance-related award, serviceagreement details, the first shareholderreturn graph on page 36, disclosure ofremuneration to other senior executives andexternal directorships, the information set outon pages 33 to 39 of this report representsthe auditable disclosures referred to in theAuditors’ report on page 40 as specifiedby the UK Listing Authority and underSchedule 7A of the Companies Act 1985.Role of Remuneration CommitteeThe Board sets the Company’s remunerationpolicy and the committee is responsible,within the authority delegated by the Board,for determining specific remunerationpackages and the terms and conditions ofemployment for the members of theExecutive Committee, which comprises theexecutive directors and other seniorexecutives. The committee ensures that themembers of the Executive Committee areprovided with the appropriate incentives toenhance the Group’s performance and toreward them for their personal contributionto the success of the business. The committeereviews the remuneration arrangements forGroup employees whose salaries exceed aspecified level and administers the Company’sshare incentive plans. The committee alsodetermines the Chairman’s remunerationalthough the Board itself determines the levelof fees paid to the non-executive directors.No directors are involved in deciding theirown remuneration.The committee also maintains an activedialogue with shareholder representatives andits full terms of reference are set out on theCompany’s website www.compass-group.com.Membership of the committeeThe committee consists entirely ofindependent non-executive directors (asdefined in the Code). The committee has beenchaired by Sir James Crosby, seniorindependent non-executive director since hisappointment as a director on 17 February2007. Sir James Crosby succeeded PeterCawdron as Chairman of the committee uponhis retirement as a director of the Company atthe conclusion of the 2007 Annual GeneralMeeting. Other members who served duringthe year were Sir Roy Gardner; Sven Kado;Steve Lucas; Tim Parker, since his appointmenton 17 February 2007; and Val Gooding untilher resignation on 31 December 2006.Biographical details of the current membersof the committee are set out on page 17. TheGeneral Counsel and Company Secretaryacts as the secretary to the committee. Thecommittee met on six occasions during theyear. Attendance details are shown on page 29.Advisors to the committeeThe committee has access to detailed externalinformation and research on market data andtrends from independent consultants. Duringthe year KPMG LLP (who also provide duediligence services and support some of theCompany’s internal audit projects),PricewaterhouseCoopers LLP (who alsoprovide expatriate assignment advice) and theHay Group were engaged by the committeeto advise on the design of incentivearrangements, job evaluation andremuneration levels as well as general humanresource and compensation related matters.The committee also engaged Mercer HumanResource Consulting (who also providedpensions and actuarial advice to some of theGroup’s pension schemes) to provide adviceon job evaluation, remuneration levels andpension issues for employees below executivedirector level, and they also provided generalactuarial advice. The committee also soughtadvice from Freshfields Bruckhaus Deringerin its capacity as legal advisor to the Company.In addition, Alithos Limited providedinformation for the testing of the totalshareholder return performance conditionsfor the Company’s Long-Term Incentive Plan(‘LTIP’).The Chairman and the Group ChiefExecutive together with Jane Kingston,the Group Human Resources Director, andDavid Walker, Director of Group Reward, arenormally invited to attend each committeemeeting and provide advice and guidance tothe committee (other than in respect of theirown remuneration).Summary of activity during the yearDuring the year the committee conducted itsannual review of remuneration to ensure thatthe overall remuneration structure continuesto promote the Company’s business strategy.In addition the committee sought toharmonise Executive Committee members’service contracts in order to expressly requirean executive to seek alternative employmentin the event of termination and to acceptpayments in lieu of notice in monthlyinstalments. Further details of the executivedirectors’ service contracts are set out onpage 38. The committee also reviewed thelong-term incentive plans and reconfirmedthat the bonus matching and share optionplans would not be used for new awards toexecutive directors without seeking renewedshareholder approval. The committee alsoreviewed the free cash flow targets usedin the LTIP in light of the disposal of theSelecta vending business and adjusted thesame for awards made in the years ended30 September 2006 and 2007. Details of theLTIP and the adjustments made to the targetsare set out on pages 35 and 36.

34 Compass Group PLC Annual Report 2007Directors’ ReportDirectors’ remuneration reportcontinuedRemuneration policy and componentsThe committee reviews the Company’sremuneration philosophy and structureeach year to ensure that the remunerationframework remains effective in supporting theCompany’s business objectives, in line withbest practice and fairly rewards individualsfor the contribution that they make to thebusiness, having regard to the size andcomplexity of the Group’s operations andthe need to retain, motivate and attractemployees of the highest calibre.The committee intends that base salaryand total remuneration of executivedirectors should be in line with the market.Remuneration is benchmarked annuallyagainst rewards available for equivalentroles in a suitable comparator group withthe aim of paying neither significantly abovenor below the median for each element ofremuneration. The committee also considersgeneral pay and employment conditionselsewhere within the Group when assessing thelevel of salaries and remuneration packages.The total remuneration package linkscorporate and individual performance withan appropriate balance between short- andlong-term elements, and fixed and variablecomponents. The policy is designed toincentivise executives to meet the Company’skey objectives, such that a significant portionof total remuneration is performance related,based on a mixture of internal targets linkedto the Company’s key business drivers (whichcan be easily measured, understood andaccepted by both executives and shareholders)and appropriate external comparator groups.The committee considers that the targets setfor the different elements of performancerelated remuneration are both appropriateand demanding in the context of the businessenvironment and the challenges with whichthe Group is faced. The following table showsthe average proportions of salary, target (orpar) bonus, pension, benefits and the expectedvalue of long-term incentives granted to eachof the executive directors during the yearended 30 September 2007.Details of each individual element of theremuneration package are given below.SalaryBase salaries are rigorously benchmarkedand reflect the role, job size and responsibilityas well as individual performance andeffectiveness. The Group Chief Executive’ssalary is reviewed annually each June by thecommittee with any increase taking effect on1 July of each year. Other executives’ salariesare subject to annual review each Decemberwith any increases taking effect on 1 January.The annual base salaries of the executivedirectors are:Annual base salariesRichard Cousins £800,000 (effective 1 July 2007)Gary Green US$1,000,000 (effective 1 January 2007)Andrew Martin £500,000 (effective 1 January 2007)BenefitsThese comprise healthcare insurance forexecutive directors and their dependants,limited financial advice, life assurance andcar benefit.PensionsThe Group’s policy is not to offer definedbenefit arrangements to new employees atany level (save where required by applicablelegislation). Incoming executive directorsare invited either to join the Company’scontracted-in money purchase arrangementor to take a fixed salary supplement, which isexcluded from any bonus calculation.At 30 September 2007 there were no executivedirectors actively participating in any CompassGroup defined benefit pension arrangementsand none of the executive directors is accruingadditional entitlement to benefit under anyarrangements that existed prior to theirappointment as executive directors.Richard Cousins and Gary Green elected toreceive a salary supplement equal to 35% oftheir basic salaries in lieu of pension.In the light of the A Day pension legislation,Andrew Martin also elected to receive a salarysupplement equal to 35% of basic salary witheffect from 6 April 2006 and waived all rightsto his final salary pension, money purchasepension and unfunded unapproved pensionrelating to his employment prior to that dateas reported in 2006.Annual bonusThe annual bonus is earned by theachievement of performance targets set by thecommittee at the start of each financial yearand is delivered in cash. The target (or par)award for the year ended 30 September 2007was 75% of base salary, with a furthermaximum of 75% of base salary availablefor superior performance.For the year ended 30 September 2007, thebonus measures for Messrs Cousins andMartin were Group profit before interest andtax (‘PBIT’) (60%), free cash flow (‘FCF’)(20%) and a personal target (‘PT’) (20%)with a supplementary financial underpinsuch that the amount payable pursuant to theachievement of the FCF and PT measureswould be halved unless the threshold PBITmeasure was achieved. Mr Green’s 60%/20%PBIT/cash targets are split as to 20%/5%based on Group PBIT/FCF and 40%/15%based on PBIT/cash flow for his area ofresponsibility in the USA, Canada and Mexico.The percentages of base salary shown belowwere paid to the directors for the year ended30 September 2007.Actual bonus paid(% of base salary)Richard Cousins 145.5%Gary Green 127.5%Andrew Martin 147.0%The committee continues to be satisfied thatthe performance targets are challenging andpromote the Company’s business strategy andhave, accordingly, confirmed that there willbe no change to the bonus measures for theyear ending 30 September 2008, togetherwith the supplementary underpin based onachievement of the Group’s PBIT target.Executive directors’ remuneration package elementsYear ended 30 September 200733% Salary3% Benefits12% Pension25% Annual bonus27% LTIP

35 Compass Group PLC Annual Report 2007EmolumentsThe aggregate remuneration of the directors who served during the financial year ended 30 September 2007 was as follows:Salary Salary Annual 2007 2006& fees supplement 1 bonus Benefits Total TotalName of director £000 £000 £000 £000 £000 £000Directors in service at 30 September 2007ChairmanSir Roy Gardner 363 – – 38 401 188Executive directorsRichard Cousins 763 267 1,164 36 2,230 831Gary Green 2 380 133 484 21 1,018 –Andrew Martin 494 168 735 57 1,454 1,229Non-executive directorsPeter Blackburn 60 – – – 60 50Sir James Crosby 3 63 – – – 63 –Sven Kado 4 67 – – – 67 53Steve Lucas 75 – – – 75 65Tim Parker 3 38 – – – 38 –Sir Ian Robinson 5 50 – – – 50 –Former directorsPeter Cawdron 6 38 – – – 38 90Val Gooding 7 15 – – – 15 50Directors who left during the previous year – – – – – 2,282Total 2,406 568 2,383 152 5,509 4,8381. A supplement of 35% of basic salary is paid in monthly instalments in lieu of pension participation.2. Gary Green was appointed as a director of the Company on 1 January 2007 and the figures shown in the above table are pro-rated for the nine months from that date.3. Sir James Crosby and Tim Parker were appointed as directors of the Company on 17 February 2007.4. The figure shown for Sven Kado for 2006 and 2007 includes a fee of €4,000 and €10,000 respectively in respect of his non-executive directorship of Compass Group Deutschland GmbH.5. Sir Ian Robinson was appointed as a director of the Company on 1 December 2006.6. Peter Cawdron resigned as a director of the Company on 16 February 2007.7. Val Gooding resigned as a director of the Company on 31 December 2006.Long-Term Incentive PlanThe Company currently operates an LTIPunder which executives may receive aconditional award of shares which may vestafter a single three-year performance period,based on the achievement of stretchingperformance conditions. Prior to each yearend the committee agrees the LTIP awardsto be made on the basis of the share price asat the year end. Because each LTIP awardalso depends on financial information onlyavailable after the year end LTIP grants arenot normally made until some weeks afterthe year end. Both total shareholder return(‘TSR’) and FCF have been selected since2006 as the performance conditions which areconsidered to most closely align the interestsof participants with those of the shareholders.The LTIP rewards the achievement of theGroup’s FCF targets (which are key businesstargets for the Group) as well as theCompany’s relative TSR outperformanceagainst a defined list of comparatorcompanies (which aligns the interests ofparticipants with those of shareholders).During the year the committee reviewed theTSR comparator group and determined thatthe financial services constituents of theFTSE 100 should be excluded for the purposeof the TSR target for awards made in theyear ending 30 September 2008. For awardsmade in the year ended 30 September 2007the TSR comparator group was the entireFTSE 100.50% of any LTIP award is based on theGroup’s FCF over the three-year performanceperiod and 50% on the Company’s TSR overthe same period relative to the companiescomprising the TSR comparator group atthe start of the performance period. Theprecise FCF target for each award is linked tothe Group’s wider business targets and is setby the committee at the time of grant basedon Group projections and market expectations.No shares vest unless the Group achievesminimum performance. 25% of the portionof the award based on FCF vests on theachievement of minimum performance.Awards vest on a straight-line basis between25% and 100% where FCF is betweenminimum and maximum performance.Calculations of the achievement of thetargets are independently performed andare approved by the committee.Following the sale of the Selecta vendingbusiness in July 2007, the committee agreedto adjust the FCF targets for existing awardsmade in the years ended 30 September 2006and 2007. The committee considered thecontribution to the FCF made by the Selectavending business and sought to make anadjustment which maintained the targetsoriginally set in respect of the remainingbusiness. The minimum and maximumtargets for awards made in the yearended 30 September 2006 were amendedfrom £825 million and £900 million to£768 million and £843 million and the FCFtargets for awards made in the year ended30 September 2007 from £950 million and£1,050 million to £859 million and£959 million.TSR is the aggregate of share price growthand dividends paid (assuming reinvestmentof those dividends in the Company’s sharesduring the third-year performance period).100% of the portion of the award based onTSR will vest if performance is in the topquartile and 25% of the award will vestif performance is at the median. Whereperformance is between the median and topquartile, awards will vest on a straight-linebasis between the median and top quartile.No shares will be released if the Company’sTSR performance is below the median.

36 Compass Group PLC Annual Report 2007Directors’ ReportDirectors’ remuneration reportcontinuedThe following table sets out the percentageof each award which has vested and thepercentage of each extant award, had itvested on 30 September 2007.Percentage vested on maturityor indicative vesting percentageYear of based on performance Performanceaward as at 30 September 2007 conditions2001/02 0% (ended on 1 October 2006) TSR2002/03 0% (ended on 1 October 2007 TSR2003/04 0% (performance after 1st extendedperformance period of 48 months)TSR2004/05 0% (ended on 1 October 2007) TSR2005/06 73% (performance after 24 months) TSR/FCF2006/07 100% (performance after 12 months) TSR/FCFAwards made since 2004 do not benefitfrom retesting. In addition, for awards madein the year ended 30 September 2006 andsubsequent years, any vesting of an awardat the end of the performance period isconditional upon the committee beingsatisfied that the underlying financialperformance of the Group justifies suchvesting. Extant awards remain subject to theachievement of performance conditionsfollowing a participant’s agreed retirementdate and vesting is determined at the endof the performance period.Awards are discretionary and may be grantedup to an annual maximum of 200% of basesalary. Each year the committee assesses thebalance between fixed and variable pay andresolved that, exceptionally, any award madein the year ending 30 September 2008 shouldbe set at 200% of annual base salary torecognise exceptional performance achievedduring the year ended 30 September 2007.Directors’ interests in the Long-Term Incentive PlanDetails of existing awards as at the date of this report and awards conditionally made to the executive directors in office during the year ended30 September 2007 are shown in the table below:As at30 Sep 2006 Awarded Lapsed(or date of during during As atappointment): the year: the year: 30 Sep 2007: Market price atnumber of number of number of number of date of award: PerformanceName of director shares shares shares shares pence conditions Date of award Vesting dateRichard Cousins 727,272 – – 727,272 206.25 TSR/FCF 14 Jun 2006 1 Oct 2008– 419,384 – 419,384 312.00 TSR/FCF 8 Mar 2007 1 Oct 2009727,272 419,384 – 1,146,656Gary Green 1 70,340 – 70,340 – 482.00 TSR 2 25 Feb 2002 1 Oct 2006 3135,286 – – 135,286 336.25 TSR 2 3 Jul 2003 1 Oct 2007 3104,896 – – 104,896 371.75 TSR 2 19 Dec 2003 1 Oct 2008 3168,461 – – 168,461 243.50 TSR 2 21 Dec 2004 1 Oct 2007365,938 – – 365,938 206.25 TSR/FCF 14 Jun 2006 1 Oct 2008– 298,706 – 298,706 312.00 TSR/FCF 8 Mar 2007 1 Oct 2009844,921 298,706 70,340 1,073,287Andrew Martin 142,449 – – 142,449 243.50 TSR 2 21 Dec 2004 1 Oct 2007460,606 – – 460,606 206.25 TSR/FCF 14 Jun 2006 1 Oct 2008– 279,588 – 279,588 312.00 TSR/FCF 8 Mar 2007 1 Oct 2009603,055 279,588 – 882,6431. Gary Green was appointed as a director of the Company on 1 January 2007.2. 100% of the award is based on growth in the Company’s TSR relative to the FTSE 100 subject to the achievement of a supplementary financial underpin whereby average increase inearnings per share (‘EPS’) must be greater than the increase in the UK Retail Price Index (‘RPI’) over a three year period.3. Awards made prior to 2004 were subject to retesting. The dates shown are the final vesting dates for these awards. After 2004, all awards have only one vesting date as shown.All Awards were granted for nil consideration.The highest mid-market price of the Company’s ordinary shares during the year was 381.75 pence and the lowest was 264.50 pence. The year end price was 302.00 pence.Total shareholder returnThe performance graphs below show the Company’s TSR performance against the performance of the FTSE 100 over the two and five-yearperiods to 30 September 2007. The FTSE 100 Index has been chosen as being a broad equity market index of which the Company has beena constituent member throughout each period.TSR performance against FTSE 100Over two yearsTSR performance against FTSE 100Over five years200Compass GroupFTSE 100 Index250Compass GroupFTSE 100 IndexValue of a hypothetical £100 holding (£)180160140120Value of a hypothetical £100 holding (£)20015010050100Sep 05Dec 05 Mar 06 Jun 06 Sep 06Dec 06Mar 07 Jun 07Sep 070Sep 02Sep 03 Sep 04 Sep 05Sep 06Sep 07

37 Compass Group PLC Annual Report 2007Suspended plansThe LTIP was the only form of equity-basedincentive granted for the year ended30 September 2007, and this will continueto be the policy for the year ending30 September 2008.Awards prior to 2005 were made under twofurther share incentive plans in previous years:the Compass Group Bonus Matching SharesPlan and the Compass Group Share OptionPlan. Existing rights under these plans remainand may result in the vesting of further sharesin the capital of the Company. Shareholderapproval will be sought should the Companywish to make any further awards to executivedirectors under these suspended plans.Under the Compass Group BonusMatching Shares Plan, executive directorswere permitted to invest up to 50% of anypre-tax performance related bonus in theCompany’s shares. If the shares were heldfor three years and the director continued tobe employed by the Group, the participantwould be eligible to receive a proportion ofmatching shares based on the Group achievingunderlying earnings per share average growthin excess of RPI over the period.Under the Compass Group Share OptionPlan, executive directors were eligible toreceive awards equating to an annualmaximum of 200% of basic salary, at anexercise price not lower than the marketvalue of the Company’s shares on the dayprior to grant. Options would normally beexercisable on a sliding scale between thethird and tenth anniversaries of the dateof grant subject to satisfaction of anEPS performance condition, after whichthey lapse.The Company also has in place UK andoverseas all-employee plans in whichexecutive directors may participate. However,no grants have been made under these planssince 2005. Further details of the plans maybe found in prior years’ annual reports.Suspended plansThe tables below show the number of options and awards held by the directors in office during the year under the suspended share incentive plans.Directors’ bonus matching share awardsAs at date of As at Market priceappointment: 30 Sep 2007: at date ofnumber of number of award:Name of director shares shares pence Deferral periodGary Green 103,275 103,275 1 220.50 1 Oct 2004 – 30 Sep 20071. These shares can be called for by Mr Green in the 12 months from 1 October 2007.Directors’ interests in share optionsAs at30 Sep 2006 Exercised Lapsed(or date of during during As atappointment): the year: the year: 30 Sep 2007: Exercise Performancenumber of number of number of number of price: conditionsName of director shares shares shares shares pence (see notes below) Normal exercise periodGary GreenShare Option Plan 467,925 – – 467,925 316.10 1 29 Sep 2002–28 Sep 2009458,750 – – 458,750 371.60 2 13 Sep 2003–12 Sep 2010350,000 – – 350,000 430.00 2 19 Sep 2004–18 Sep 2011350,000 – – 350,000 422.00 2 23 May 2004–22 May 2012129,500 – – 129,500 292.50 2 30 Sep 2005–29 Sep 2012500,000 – – 500,000 320.00 2,4 28 May 2006–27 May 2013300,000 – – 300,000 316.25 2,3 3 Aug 2007–2 Aug 2014450,000 – – 450,000 229.25 2,3 1 Dec 2007–30 Nov 2014US Stock Bonus Plan 11,006 – – 11,006 – 5 1 Sep 20083,017,181 – – 3,017,181Andrew MartinShare Option Plan 650,000 – – 650,000 333.50 2,3 7 Jun 2007–6 Jun 2014365,000 – – 365,000 229.25 2,3 1 Dec 2007–30 Nov 2014Sharesave 3,532 3,532 – – 266.80 5 1 Sep 2007–29 Feb 20081,018,532 3,532 – 1,015,0001. Options were awarded under the Compass Group 1999 Executive Share Option Plan. The performance targets on these grants ceased to apply following the Granada Compass merger in 2000.2. Options were awarded under the Compass Group Share Option Plan. If average earnings per share growth is at least 6% over a three year period between grant and exercise, one third of shares underoption become exercisable. Options are exercisable in full at 12% growth and on a straight line basis in between.3. Performance is tested once only after a three year period. There is no further opportunity for retesting.4. The earnings per share target has not been met. The target may be retested annually for the life of the option.5. Options were awarded under an all-employee plan, and are not subject to satisfaction of a performance target.No awards or options were granted or exercised under any of the suspended share incentive plans during the year ended 30 September 2007.Earnings per share measures have been adjusted for awards made prior to 2005 to achieve consistency between IFRS and UK GAAP reporting.The highest mid-market price of the Company’s ordinary shares during the year was 381.75 pence and the lowest was 264.50 pence. The year end price was 302.00 pence.

38 Compass Group PLC Annual Report 2007Directors’ ReportDirectors’ remuneration reportcontinuedPlan limits headroom5% in 10 years 10% in 10 years3.73% Executive0.38% LTIP0.89% Headroom2.77% All Employee3.73% Executive0.38% LTIP3.12% HeadroomDilution limitsAll of the Company’s equity based incentiveplans incorporate the current ABI Guidelineson headroom which provide that overalldilution under all plans should not exceed10% over a 10 year period in relation to theCompany’s issued share capital (or reissue oftreasury shares), with the further limitation of5% in any 10 year period on executive plans.The committee regularly monitors theposition and prior to the making of any awardconsiders the effect of potential vesting ofoptions or share awards to ensure that theCompany remains within these limits. Anyawards which are required to be satisfied bymarket purchased shares are excluded fromsuch calculations. No treasury shares wereutilised in the year ended 30 September 2007.As at 30 September 2007, the Company’sheadroom position, which remains withincurrent ABI Guidelines, was as shown in thetable to the left.Service agreementsIt is the Company’s policy that servicecontracts for the executive directors have nofixed term but are capable of terminationon 12 months notice from the Companyand six months notice from the director,(12 months for Richard Cousins). TheCompany also retains the right to terminatethe contract immediately by making apayment in lieu of notice equal to 12 monthspay, on target bonus, pension supplementand an amount equal to 10% of basic pay inrespect of benefits to be paid in monthlyinstalments, subject to an obligation on thedirector to mitigate his loss. The servicecontracts outline the components ofremuneration paid to the individual but donot prescribe how remuneration levels are tobe modified from year to year.Executive directors’ serviceagreementsDate of contractRichard Cousins 22 November 2007Gary Green 27 November 2007Andrew Martin 27 November 2007External appointmentsWith the Board’s agreement executivedirectors may take up one non-executivedirectorship outside of the Group. RichardCousins receives a fee of £94,000 p.a., inrespect of his directorship of HBOS plc,which he is permitted to retain.Share ownership policyIn order that their interests are aligned withthose of shareholders, executive directors areexpected to build up and maintain a personalshareholding in the Company of at least100% of gross base salary. New directorswill undertake to build up their shareholdingwithin four years of their appointment.The committee reviewed and noted thatthese targets were achieved by all executivedirectors during the year. Directors’ currentshareholdings are set out on page 26.ChairmanThe fee for the Chairman is reviewedannually by the committee each Junewith any increase taking effect on 1 July.The Chairman’s fee was set at £400,000p.a., with effect from 1 July 2007.The Chairman is not eligible for pensionscheme membership, bonus or incentivearrangements. He is entitled to the provisionof life and medical insurance for himself andhis spouse, financial planning assistance andcar benefit.Policy on remuneration ofnon-executive directorsThe fees for the non-executive directorsare reviewed and determined by the Boardeach year. The base fee for the year ended30 September 2007 was £60,000 p.a., with anadditional fee of £15,000 p.a. payable wherea non-executive director acts as Chairman ofeither the Audit or Remuneration Committeeand an additional fee of £25,000 p.a. for thedirector nominated as senior independentnon-executive director. Non-executivedirectors are not eligible for pension schememembership, bonus or incentivearrangements.Non-executive directors have letters ofengagement. They are appointed for aninitial period of three years, after which theappointment is renewable at three-yearintervals by mutual consent. Details of theirappointments, which are terminable withoutcompensation, are set out in the table onpage 39.

39 Compass Group PLC Annual Report 2007Non-executive directors’ letters of engagementOriginal dateTotal lengthof service atNon-executive director of appointment Letter of engagement 30 September 2007Sir Roy Gardner 1 Oct 2005 15 Sep 2005 2 yearsPeter Blackburn 1 10 Apr 2002 16 May 2002(renewed 31 Mar 2004) 5 years, 5 monthsSir James Crosby 17 Feb 2007 16 Feb 2007 7 monthsSven Kado 10 Apr 2002 10 Apr 2002(renewed 31 Mar 2004) 5 years, 5 monthsSteve Lucas 7 Jul 2004 17 Jun 2004(renewed 25 Jun 2007) 3 years, 2 monthsSusan Murray 11 Oct 2007 11 Oct 2007 –Tim Parker 17 Feb 2007 16 Feb 2007 7 monthsSir Ian Robinson 1 Dec 2006 1 Dec 2006 10 months1. Mr Blackburn retired from the Board on 31 October 2007.Other senior executives andmanagementThere are a number of senior executiveswho, with the executive directors, comprisethe Executive Committee. These keymanagement roles influence the ability ofthe Group to meet its strategic targets. Thecommittee has regard to the remunerationlevel and structure of this group whose totalremuneration including salary and othershort-term benefits, target (or par) bonus andthe expected value of long-term incentives issummarised below.Total remunerationfor the year ended30 September 2007£000 Number in band201 – 500 1501 – 800 –801 – 1,100 21,101 – 1,400 31,401 – 1,450 1On behalf of the BoardSir James CrosbyChairman of the Remuneration Committee28 November 2007

40 Compass Group PLC Annual Report 2007Independent auditors’ report to themembers of Compass Group PLCIntroductionWe have audited the Group financialstatements of Compass Group PLC for theyear ended 30 September 2007 whichcomprise the consolidated income statement,the consolidated statement of recognisedincome and expense, the consolidated balancesheet, the consolidated cash flow statement,the accounting policies and the related notes1 to 37. These Group financial statementshave been prepared under the accountingpolicies set out therein. We have also auditedthe information in the Directors’ remunerationreport that is described as having been audited.We have reported separately on the parentcompany financial statements of Compass GroupPLC for the year ended 30 September 2007.This report is made solely to the Company’smembers, as a body, in accordance withsection 235 of the Companies Act 1985.Our audit work has been undertaken so thatwe might state to the Company’s membersthose matters we are required to state tothem in an auditors’ report and for no otherpurpose. To the fullest extent permitted by law,we do not accept or assume responsibility toanyone other than the Company and theCompany’s members as a body, for our auditwork, for this report, or for the opinions wehave formed.Respective responsibilities ofdirectors and auditorsThe directors’ responsibilities for preparingthe Annual Report, the Directors’remuneration report and the Group financialstatements in accordance with applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by theEuropean Union are set out in the statementof directors’ responsibilities.Our responsibility is to audit the Groupfinancial statements in accordance withrelevant legal and regulatory requirementsand International Standards on Auditing(UK and Ireland).We report to you our opinion as to whetherthe Group financial statements give a trueand fair view, whether the Group financialstatements have been properly prepared inaccordance with the Companies Act 1985 andArticle 4 of the IAS Regulation and whetherthe part of the Directors’ remuneration reportdescribed as having been audited has beenproperly prepared in accordance with theCompanies Act 1985. We also report to youwhether in our opinion the information givenin the Directors’ Report is consistent with theGroup financial statements.In addition we report to you if, in our opinion,we have not received all the informationand explanations we require for our audit,or if information specified by law regardingdirectors’ remuneration and other transactionsis not disclosed.We review whether the Corporate GovernanceStatement reflects the Company’s compliancewith the nine provisions of the 2003 CombinedCode specified for our review by the ListingRules of the Financial Services Authority, andwe report if it does not. We are not requiredto consider whether the Board’s statements oninternal control cover all risks and controls,or form an opinion on the effectiveness of theGroup’s corporate governance procedures orits risk and control procedures.We read the other information contained inthe Annual Report as described in the contentssection and consider whether it is consistentwith the audited Group financial statements.We consider the implications for our reportif we become aware of any apparentmisstatements or material inconsistencieswith the Group financial statements. Ourresponsibilities do not extend to any furtherinformation outside the Annual Report.Basis of audit opinionWe conducted our audit in accordance withInternational Standards on Auditing (UK andIreland) issued by the Auditing Practices Board.An audit includes examination, on a test basis,of evidence relevant to the amounts anddisclosures in the Group financial statementsand the part of the Directors’ remunerationreport to be audited. It also includes anassessment of the significant estimates andjudgements made by the directors in thepreparation of the Group financial statements,and of whether the accounting policies areappropriate to the Group’s circumstances,consistently applied and adequately disclosed.We planned and performed our audit so asto obtain all the information and explanationswhich we considered necessary in order toprovide us with sufficient evidence to givereasonable assurance that the Group financialstatements and the part of the Directors’remuneration report to be audited are freefrom material misstatement, whether causedby fraud or other irregularity or error. Informing our opinion we also evaluated theoverall adequacy of the presentation ofinformation in the Group financial statementsand the part of the Directors’ remunerationreport to be audited.OpinionIn our opinion:the Group financial statements give atrue and fair view, in accordance withIFRSs as adopted by the European Union,of the state of the Group’s affairs as at30 September 2007 and of its profit forthe year then ended;the Group financial statements have beenproperly prepared in accordance with theCompanies Act 1985 and Article 4 of theIAS Regulation;the part of the Directors’ remunerationreport described as having been auditedhas been properly prepared in accordancewith the Companies Act 1985; andthe information given in the Directors’Report is consistent with the Groupfinancial statements.Deloitte & Touche LLPChartered Accountants and Registered AuditorsLondon28 November 2007

41 Compass Group PLC Annual Report 2007Consolidated income statementfor the year ended 30 September 20072007 2006Before Exceptional Before Exceptionalexceptional items exceptional itemsitems (Note 7) Total items (Note 7) TotalNotes £m £m £m £m £m £mContinuing operations:Revenue 1 10,268 – 10,268 10,267 – 10,267Operating costs 2 (9,743) – (9,743) (9,812) – (9,812)Operating profit 1 525 – 525 455 – 455Share of profit of associates 4 – 4 2 – 2Total operating profit 529 – 529 457 – 457Finance income 4 28 – 28 15 – 15Finance costs 4 (115) – (115) (160) – (160)Hedge accounting ineffectiveness 4 (6) – (6) 11 – 11Profit before tax 436 – 436 323 – 323Income tax (expense)/credit 5 (124) – (124) (105) 44 (61)Profit for the year from continuing operations 1 312 – 312 218 44 262Discontinued operations:Profit/(loss) for the year from discontinued operations 6 15 197 212 60 (27) 33Continuing and discontinued operations:Profit for the year 327 197 524 278 17 295Attributable to:Equity shareholders of the Company 318 197 515 268 17 285Minority interest 9 – 9 10 – 10Profit for the year 327 197 524 278 17 295Basic earnings per share (pence)From continuing operations 8 15.0p 11.7pFrom discontinued operations 8 10.6p 1.6pFrom continuing and discontinued operations 8 25.6p 13.3pDiluted earnings per share (pence)From continuing operations 8 15.0p 11.7pFrom discontinued operations 8 10.4p 1.6pFrom continuing and discontinued operations 8 25.4p 13.3p

42 Compass Group PLC Annual Report 2007Consolidated statement of recognised income and expensefor the year ended 30 September 20072007 2006Notes £m £mNet income/(expense) recognised in equityFair value movement on cash flow hedges – 4Currency translation differences (12) (7)Actuarial gains/(losses) on post-retirement employee benefits 23 38 (37)Tax on items taken directly to equity 5 8 3Recognition of deferred tax asset relating to currency translation differences in prior years 5 37 –Income/(expense) recognised directly in equity 71 (37)TransfersTransfer to profit or loss from equity of cumulative translation differences on discontinued activities – 2Transfer to profit or loss from equity on cash flow hedges – (6)Net transfer to profit or loss from equity – (4)Net gain/(loss) recognised directly in equityNet gain/(loss) recognised directly in equity 71 (41)Profit for the financial yearProfit for the financial year 524 295Total recognised income and expense for the year 25 595 254Attributable to:Equity shareholders of the Company 576 248Minority interests 19 6Total recognised income and expense for the year 25 595 254

43 Compass Group PLC Annual Report 2007Consolidated balance sheetas at 30 September 20072007 2006Notes £m £mNon-current assetsGoodwill 10 2,985 3,451Other intangible assets 11 142 152Property, plant and equipment 12 576 756Interests in associates 13 25 39Other investments 14 12 9Deferred tax assets * 5 240 237Trade and other receivables 16 66 117Derivative financial instruments ** 20 13 22Non-current assets 4,059 4,783Current assetsInventories 17 179 212Trade and other receivables 16 1,343 1,424Tax recoverable * 10 10Derivative financial instruments ** 20 2 9Cash and cash equivalents ** 18 839 848Current assets 2,373 2,503Total assets 6,432 7,286Current liabilitiesShort-term borrowings ** 19 (151) (119)Derivative financial instruments ** 20 – (2)Current tax liabilities * (171) (357)Trade and other payables 21 (1,833) (1,990)Provisions 22 (86) (65)Current liabilities (2,241) (2,533)Non-current liabilitiesLong-term borrowings ** 19 (1,452) (1,835)Derivative financial instruments ** 20 (15) (18)Post-employment benefit obligations 23 (162) (282)Provisions 22 (351) (242)Deferred tax liabilities * 5 (5) (18)Other payables 21 (36) (46)Non-current liabilities (2,021) (2,441)Total liabilities (4,262) (4,974)Net assets 2,170 2,312EquityShare capital 24, 25 193 210Share premium account 25 122 96Capital redemption reserve 25 33 15Less: own shares 25 (1) –Other reserves 25 4,312 4,288Retained earnings 25 (2,511) (2,303)Total equity shareholders’ funds 2,148 2,306Minority interests 25 22 6Total equity 2,170 2,312* Component of current and deferred taxes ** Component of net debtApproved by the Board of directors on 28 November 2007 and signed on their behalf byRichard J Cousins, DirectorAndrew D Martin, Director

44 Compass Group PLC Annual Report 2007Consolidated cash flow statementfor the year ended 30 September 20072007 2006Notes £m £mCash flow from operating activitiesCash generated from operations 28 753 651Interest paid (152) (186)Interest element of finance lease rentals (3) (3)Tax received 4 4Tax paid (121) (97)Net cash from/(used in) operating activities of continuing operations 481 369Net cash from/(used in) operating activities of discontinued operations 29 (18) 178Net cash from/(used in) operating activities 463 547Cash flow from investing activitiesPurchase of subsidiary companies and investments in associated undertakings 27 (31) (167)Proceeds from sale of subsidiary companies and associated undertakings – discontinued activities 6 782 1,807Proceeds from sale of subsidiary companies and associated undertakings – other activities 32 –Proceeds from sale of other investments 4 –Tax on profits from sale of subsidiary companies and associated undertakings (51) (50)Contribution of disposal proceeds to pension plans (45) (280)Purchase of property, plant and equipment (156) (153)Proceeds from sale of property, plant and equipment 22 20Purchase of intangible assets and investments (21) (30)Dividends received from associated undertakings 6 2Interest received 28 15Net cash from/(used in) investing activities by continuing operations 570 1,164Net cash from/(used in) investing activities by discontinued operations 29 (30) (105)Net cash from/(used in) investing activities 540 1,059Cash flow from financing activitiesProceeds from issue of ordinary share capital 25 27 2Purchase of own shares 1 (576) (148)Net increase/(decrease) in borrowings 30 (239) (647)Repayment of obligations under finance leases 30 (15) (15)Equity dividends paid 9, 25 (208) (213)Dividends paid to minority interests 25 (3) (11)Net cash from/(used in) financing activities by continuing operations (1,014) (1,032)Net cash from/(used in) financing activities by discontinued operations 29 – –Net cash from/(used in) financing activities (1,014) (1,032)Cash and cash equivalentsNet increase/(decrease) in cash and cash equivalents 30 (11) 574Cash and cash equivalents at beginning of the year 30 848 281Exchange gains and losses on cash and cash equivalents 30 2 (7)Cash and cash equivalents at end of the year 30 839 8481. Share buy-back £575 million. Own shares acquired to satisfy employee share based payments £1 million.Reconciliation of free cash flow from continuing operationsfor the year ended 30 September 20072007 2006£m £mNet cash from operating activities of continuing operations 481 369Purchase of property, plant and equipment (156) (153)Proceeds from sale of property, plant and equipment 22 20Purchase of intangible assets and investments (21) (30)Dividends received from associated undertakings 6 2Interest received 28 15Dividends paid to minority interests (3) (11)Free cash flow from continuing operations 357 212

45 Compass Group PLC Annual Report 2007Accounting policiesfor the year ended 30 September 2007IntroductionThe significant accounting policies adoptedin the preparation of the Group’s financialstatements are set out below:A Accounting convention and basisof preparationThe financial statements have beenprepared in accordance with InternationalFinancial Reporting Standards (‘IFRS’)and International Financial ReportingInterpretations Committee (‘IFRIC’)interpretations as adopted by the EuropeanUnion at 30 September 2007 and with thoseparts of the Companies Act 1985 applicableto companies reporting under IFRS. Theyhave been prepared under the historical costconvention as modified by the revaluationof certain financial instruments.Certain new standards, amendments andinterpretations to existing standards havebeen published that are mandatory for theGroup’s accounting period beginning on1 October 2007 or later periods. The Grouphas identified IFRS 7 ‘Financial Instruments:Disclosures’, IFRS 8 ‘Operating Segments’,IAS 1 ‘Presentation of Financial Statements’(revised 2007), IFRIC 11 ‘IFRS 2 Group andTreasury Share Transactions’ and IFRIC 12‘Service Concession Arrangements’ as beingrelevant to its business but the Group has notadopted these early. The Group does notanticipate that any of these standards andinterpretations would have a material impacton the Group’s financial statements.IFRIC 14 ‘IAS 19 The Limit on aDefined Benefit Asset, Minimum FundingRequirements and their Interaction’ is notmandatory for the Group’s accounting periodending 30 September 2007, but has beenadopted early. The Group has not recognisedactuarial surpluses of £92 million arising ondefined benefit obligations in its accounts forthe year ended 30 September 2007.B Use of assumptions and estimatesThe preparation of the consolidated financialstatements requires management to makejudgements, estimates and assumptions thataffect the application of policies and reportedamounts of assets and liabilities, income andexpenses. These estimates and assumptionsare based on historical experience and otherfactors that are believed to be reasonableunder the circumstances. Actual results maydiffer from these estimates. The estimates andassumptions that have a significant risk ofcausing a material adjustment to the carryingvalue of assets and liabilities in the nextfinancial year are discussed below.Income taxesThe Group is subject to income taxes innumerous jurisdictions. Significant judgementis required in determining the worldwideprovision for income taxes as there are manytransactions and calculations for which theultimate tax determination is uncertain duringthe ordinary course of business. The Grouprecognises liabilities based on estimates ofwhether additional taxes will be due. Wherethe final tax outcome of these matters isdifferent from the amounts that were initiallyrecorded, such differences will impact theresults for the year and the respective incometax and deferred tax provisions in the year inwhich such determination is made.GoodwillThe Group tests annually whether goodwillhas suffered any impairment in accordancewith the accounting policy set out in sectionM below. The recoverable amounts of cashgenerating units have been determined basedon value in use calculations. These calculationsrequire the use of estimates and assumptionsconsistent with the most up-to-date budgetsand plans that have been formally approvedby management. The key assumptions usedfor the value in use calculations are set out innote 10 to the financial statements.Post employment benefitsDefined benefit schemes are reappraisedannually by independent actuaries based onactuarial assumptions. Significant judgementis required in determining these actuarialassumptions. The principal assumptions used aredescribed in note 23 to the financial statements.C Basis of consolidationThe consolidated financial statementsconsist of the financial statements of theCompany, entities controlled by the Company(its subsidiaries) and the Group’s share ofinterests in joint ventures and associates madeup to 30 September each year.D Subsidiaries, associates andjoint venturesSubsidiariesSubsidiaries are entities over which the Grouphas the power to govern the financial andoperating policies. The existence and effectof potential voting rights that are currentlyexercisable or convertible are consideredwhen assessing control.Joint venturesJoint ventures are entities in which the Groupholds an interest on a long-term basis andwhich are jointly controlled by the Group andother venturers under a contractualagreement. The Group’s share is accountedfor using the proportionate consolidationmethod. The consolidated income statementand balance sheet include the Group’s shareof the income, expenses, assets and liabilities.AssociatesAssociates are undertakings that are notsubsidiaries or joint ventures over which theGroup has significant influence and canparticipate in financial and operating policydecisions. Investments in associatedundertakings are accounted for using theequity method. The consolidated incomestatement includes the Group’s share of theprofit after tax of the associated undertakings.Investments in associates include goodwillidentified on acquisition and are carried inthe Group balance sheet at cost plus postacquisitionchanges in the Group’s shareof the net assets of the associate, less anyimpairment in value.AdjustmentsWhere necessary, adjustments are madeto the financial statements of subsidiaries,associates and joint ventures to bring theaccounting policies used in line with thoseused by the Group.Acquisitions and disposalsThe results of subsidiaries, associates orjoint ventures acquired or disposed of duringthe period are included in the consolidatedincome statement from the effective dateof acquisition or up to the effective date ofdisposal, as appropriate.Intra-group transactionsAll intra-group transactions, balances, incomeand expenses are eliminated on consolidation.Where a Group subsidiary transacts with ajoint venture of the Group, profits or lossesare eliminated to the extent of the Group’sinterest in the relevant joint venture.E AcquisitionsThe acquisition of subsidiaries is accountedfor using the purchase method. The costof acquisition is measured at the aggregateof the fair values, at the date of exchange,of assets given, liabilities incurred or assumed,and equity instruments issued plus costsdirectly attributable to the acquisition.Identifiable assets acquired and liabilitiesand contingent liabilities assumed arerecognised at the fair values at the acquisitiondate, except for non-current assets (or disposalgroups) that are classified as held for salewhich are recognised and measured at fairvalue less costs to sell.The cost of the acquisition in excess of theGroup’s interest in the net fair value of theidentifiable net assets acquired is recordedas goodwill. If the cost of the acquisition isless than the fair value of the net assets ofthe subsidiary acquired, the difference isrecognised directly in the income statement.

46 Compass Group PLC Annual Report 2007Accounting policiesfor the year ended 30 September 2007F Foreign currencyThe consolidated financial statements areprepared in pounds Sterling, which is thefunctional currency of the parent company.In preparing the financial statements ofindividual companies within the Group,transactions in currencies other than poundsSterling are recorded at the rates of exchangeon the dates of the transaction. At eachbalance sheet date, monetary assets andliabilities that are denominated in foreigncurrencies are retranslated at the rates on thebalance sheet date. Gains and losses arisingon retranslation are included in the incomestatement for the period, except for wherethey arise on items taken directly to equity, inwhich case they are also recognised in equity.In order to hedge its exposure to certainforeign exchange risks the Group enters intoforward contracts (see section Q below forthe Group’s accounting policies in respect ofderivative financial instruments).On consolidation, the assets and liabilities ofthe Group’s overseas operations (expressed intheir functional currencies, being the currencyof the primary economic environment inwhich each entity operates) are translatedat the exchange rates on the balance sheetdate. Income and expense items are translatedat the average exchange rates for the period.Exchange differences arising, if any, areclassified as equity and transferred to theGroup’s translation reserve. Such translationdifferences are recognised as income orexpense in the period in which the operationis disposed of.Goodwill and fair value adjustments arisingon the acquisition of a foreign entity aretreated as assets and liabilities of the foreignentity and translated at the closing rate.G RevenueRevenue is recognised in the period in whichservices are provided in accordance with theterms of the contractual relationships withthird parties. Revenue represents the fair valueof the consideration received or receivable forgoods and services provided in the normalcourse of business, excluding trade discounts,value added tax and similar sales taxes.Management fee contractsRevenue from management fee contractscomprises the total of sales made to consumers,the subsidy charged to clients, together with themanagement fee charged to clients.Fixed price contractsRevenue from fixed price contracts is recognisedin proportion to the volume of services that theGroup is contracted to supply in each period.Inter-segment transactionsThere is minimal intra-group trading betweenthe reported business segments. Where suchtrading does take place it is on similar terms andconditions to those available to third parties.H Rebates and other amountsreceived from suppliersRebates and other amounts received fromsuppliers include agreed discounts fromsuppliers’ list prices, value and volume-relatedrebates.Income from value and volume-related rebatesis recognised based on actual purchases in theperiod as a proportion of total purchases madeor forecast to be made over the rebate period.Agreed discounts relating to inventories arecredited to the income statement as the goodsare consumed.Rebates relating to items purchased but stillheld at the balance sheet date are deductedfrom the carrying value of these items so thatthe cost of inventories is recorded net ofapplicable rebates.Rebates received in respect of plant andequipment are deducted from the costscapitalised.I Borrowing costsBorrowing costs are recognised in the incomestatement in the period in which they areincurred.J Operating profitOperating profit is stated before the share ofresults of associates, investment revenue andfinance costs.K Exceptional itemsExceptional items are disclosed and describedseparately in the financial statements whereit is necessary to do so to provide furtherunderstanding of the financial performanceof the Group. They are material items ofincome or expense that have been shownseparately due to the significance of theirnature or amount.L TaxIncome tax expense comprises current anddeferred tax. Tax is recognised in the incomestatement except where it relates to itemstaken directly to equity, in which case it isrecognised in equity.Current tax is the expected tax payable onthe taxable income for the period, using taxrates that have been enacted or substantivelyenacted by the balance sheet date.Deferred tax is provided using the balancesheet liability method, providing for temporarydifferences between the carrying amounts ofassets and liabilities for financial reportingpurposes and the amounts used for taxpurposes. Deferred tax liabilities are generallyrecognised for all taxable temporary differencesand deferred tax assets are recognised to theextent that it is probable that taxable profitswill be available against which deductibletemporary differences can be utilised. Suchassets and liabilities are not recognised if thetemporary difference arises from goodwill orfrom the initial recognition (other than in abusiness combination) of other assets andliabilities in a transaction that affects neitherthe taxable profit nor the accounting profit.Deferred tax liabilities are recognised fortaxable temporary differences arising oninvestments in subsidiaries and associates,and interest in joint ventures, except wherethe Group is able to control the reversal ofthe temporary difference and it is probablethat the temporary difference will not reversein the foreseeable future.The carrying amount of deferred tax assetsis reviewed at each balance sheet date andreduced to the extent that it is no longerprobable that sufficient taxable profits willbe available to allow all or part of the assetto be recovered.Deferred tax is calculated at the tax rates thatare expected to apply in the period when theliability is settled or the asset realised.Deferred tax assets and liabilities are offsetagainst each other when they relate to incometaxes levied by the same tax jurisdiction andthe Group intends to settle its current taxassets and liabilities on a net basis.M Intangible assetsGoodwillGoodwill arising on consolidation representsthe excess of the cost of acquisition overthe fair value of the Group’s share of theidentifiable assets and liabilities of theacquired subsidiary, associate or joint ventureat the date of acquisition. Goodwill is testedannually for impairment and is carried at costless any accumulated impairment losses.Goodwill is allocated to cash-generating units(‘CGU’) for the purpose of impairmenttesting. A CGU is identified at the lowestaggregation of assets that generate largelyindependent cash inflows, and that which islooked at by management for monitoring andmanaging the business. This is generally thetotal business for a country. However, in someinstances, where there are distinct separatelymanaged business activities within a country,particularly if they fall within differentsecondary business segments, the CGUis identified at this lower level.

47 Compass Group PLC Annual Report 2007If the recoverable amount of the cashgeneratingunit is less than the carryingamount, an impairment loss is allocatedfirst to reduce the carrying amount of anygoodwill allocated to the unit and then tothe other assets of the unit pro-rata on thebasis of the carrying amount of each assetin the unit. Any impairment is immediatelyrecognised in the income statement and animpairment loss recognised for goodwill isnot subsequently reversed.On disposal, the attributable amount ofgoodwill is included in the determinationof the gain or loss on disposal.Goodwill arising on acquisitions before thedate of transition to IFRS has been retainedat the previous UK GAAP amounts subjectto being tested for impairment at that date.Goodwill written off to reserves under UKGAAP prior to 1998 has not been reinstatedand is not included in determining anysubsequent gain or loss on disposal.Other intangible assetsIntangible assets acquired separately arecapitalised at cost or, if acquired as part ofa business combination, are capitalised atfair value as at the date of the acquisition.Internally-generated intangible assets arenot capitalised. Amortisation is charged ona straight-line basis on assets over theirexpected useful lives.The following rates applied for the Group:Contract-related intangible assets: the lifeof the contract; andComputer software: 6% to 33% per annum.The typical life of contract-related intangiblesis between 2 and 20 years.N Property, plant and equipmentAll tangible fixed assets are reviewed forimpairment when there are indications thatthe carrying value may not be recoverable.Freehold land is not depreciated. All otherproperty, plant and equipment assets arecarried at cost less accumulated depreciationand any recognised impairment in value.Depreciation is provided on a straight-line basisover the anticipated useful lives of the assets.The following rates applied for the Group:Freehold buildings and long-termleasehold property: 2% per annum;Short-term leasehold property: the lifeof the lease;Plant and machinery: 8% to 33%per annum; andFixtures and fittings: 8% to 33% per annum.When assets are sold, the difference betweensales proceeds and the carrying amount of theassets is dealt with in the income statement.O Assets held for saleNon-current assets and disposal groups areclassified as held for sale if the carryingamount will be recovered through a saletransaction rather than through continuinguse. This condition is regarded as met onlywhen the sale is highly probable, managementis committed to a sale plan, the asset isavailable for immediate sale in its presentcondition and the sale is expected to becompleted within one year from the dateof classification. These assets are measuredat the lower of carrying value and fair valueless costs to sell.P InventoriesInventories are valued at the lower of costand net realisable value. Cost is calculatedusing either the weighted average price orthe first in, first out method as appropriateto the circumstances. Net realisable value isthe estimated selling price in the ordinarycourse of business, less applicable variableselling expenses.Q Financial instrumentsFinancial assets and financial liabilities arerecognised on the Group’s balance sheet whenthe Group becomes a party to the contractualprovisions of the instrument. Financial assetsand liabilities, including derivative financialinstruments, denominated in foreign currenciesare translated into Sterling at period-endexchange rates. Gains and losses are dealt withthrough the income statement, unless hedgeaccounting treatment is available.Cash and cash equivalentsCash and cash equivalents comprise cash atbank and in hand and short-term deposits withan original maturity of three months or less.BorrowingsBorrowings are recognised initially at theproceeds received, net of direct issue costs.Borrowings are subsequently stated atamortised cost; any difference between theproceeds (net of direct issue costs) and theredemption value is recognised in the incomestatement over the period of the borrowingsusing the effective interest method.Equity instrumentsEquity instruments issued by the Companyare recorded at the proceeds received, net ofdirect issue costs.Liabilities in respect of option agreementsOption agreements that allow minorityshareholders to require the Group to purchasethe minority interest are treated as derivativesover equity instruments. These are recordedin the balance sheet at fair value and thevaluation is re-evaluated at each period end.Fair value is based on the present value ofexpected cash outflows. The movement in fairvalue is recognised as income or expensewithin finance costs in the income statement.Derivative financial instruments andhedge accountingThe Group uses derivative financialinstruments such as foreign currency contractsand interest rate swaps to hedge its risksassociated with changes in foreign exchangerates and interest rates. Such derivativefinancial instruments are initially measuredat fair value on the contract date, and arere-measured to fair value at subsequentreporting dates.The use of financial derivatives is governedby the Group’s policies approved by the Boardof directors that provide written principleson the use of financial derivatives consistentwith the Group’s risk management strategy.The Group does not use derivative financialinstruments for speculative purposes.The fair value of forward foreign exchangecontracts is calculated by reference to currentforward exchange rates for contracts withsimilar maturity profiles. The fair value ofinterest rate swaps is determined by referenceto market values for similar instruments.For the purpose of hedge accounting, hedgesare classified as either fair value hedges whenthey hedge the exposure to changes in the fairvalue of a recognised asset or liability; or cashflow hedges where they hedge exposure tovariability in cash flows that is either attributableto a particular risk associated with a recognisedasset or liability or a forecasted transaction.In relation to fair value hedges (interestrate swaps) which meet the conditions forhedge accounting, any gain or loss fromre-measuring the hedging instrument at fairvalue is recognised immediately in the incomestatement. Any gain or loss on the hedgeditem attributable to the hedged risk is adjustedagainst the carrying amount of the hedgeditem and recognised in the income statement.Where the adjustment is to the carryingamount of a hedged interest-bearing financialinstrument, the adjustment is amortised tothe net profit and loss such that it is fullyamortised by maturity.When fair value hedge accounting isdiscontinued, any adjustment to the carryingamount of the hedged item for the designatedrisk for interest-bearing financial instrumentsis amortised to profit or loss, with amortisationcommencing no later than when the hedgeditem ceases to be adjusted.The Group’s policy is to convert a proportionof its floating rate debt to fixed rates, usingfloating to fixed interest rate swaps. The Groupdesignates these as cash flow hedges of interestrate risk.

48 Compass Group PLC Annual Report 2007Accounting policiesfor the year ended 30 September 2007In relation to cash flow hedges (forwardforeign exchange contracts) to hedge firmcommitments which meet the conditions forhedge accounting, the portion of the gainor loss on the hedging instrument that isdetermined to be an effective hedge isrecognised directly in equity and the ineffectiveportion is recognised in the income statement.When the hedged firm commitment resultsin the recognition of an asset or liability, thenat the time the asset or liability is recognised,the associated gains or losses that hadpreviously been recognised in equity areincluded in the initial measurement of theacquisition cost of other carrying amount ofthe asset or liability. For all other cash flowhedges, the gains or losses that are recognisedin equity are transferred to the incomestatement in the same period in which thehedged firm commitment affects the net profitand loss, for example when the future saleactually occurs.For derivative financial instruments that donot qualify for hedge accounting, any gainsor losses arising from changes in fair valueare taken directly to the income statementin the period.Hedge accounting is discontinued whenthe hedging instrument expires or is sold,terminated or exercised, or no longer qualifiesfor hedge accounting. At that point in time,any cumulative gain or loss on the hedginginstrument recognised in equity is kept inequity until the forecasted transaction occurs.If a hedged transaction is no longer expectedto occur, the net cumulative gain or lossrecognised in equity is transferred to theincome statement in the period.Additional information can be found in note 20to the financial statements.R LeasesLeases are classified as finance leaseswhenever the terms of the lease transfersubstantially all the risks and rewards ofownership to the lessee. All other leases areclassified as operating leases.Assets held under finance leases arerecognised as assets of the Group at their fairvalue or, if lower, at the present value of theminimum lease payments, each determined atthe inception of the lease. The correspondingliability to the lessor is included in the balancesheet as a finance lease obligation. Leasepayments are apportioned between financecharges and reduction of the lease obligationso as to achieve a constant rate of interest onthe remaining balance of the liability. Financecharges are charged directly against income.Payments made under operating leases arecharged to income on a straight-line basisover the period of the lease. Any incentives toenter into an operating lease are also spreadon a straight-line basis over the lease term.S ProvisionsProvisions are recognised when the Grouphas a present obligation as a result of a pastevent and it is probable that the Group will berequired to settle that obligation. Provisionsare measured at the directors’ best estimateof the cost of settling these liabilities and arediscounted to present value where the effectis material.T Employee benefitsPension obligationsPayments made to defined contributionpension schemes are charged as an expensewhen they fall due. Payments made tostate-managed schemes are dealt with aspayments to defined contribution schemeswhere the Group’s obligations under theschemes are equivalent to those arising ina defined contribution pension scheme.For defined benefit pension schemes, the costof providing benefits is determined using theProjected Unit Credit Method, with actuarialvaluations being carried out at each balancesheet date. Actuarial gains and losses arerecognised immediately in the statement ofrecognised income and expense.Past service cost is recognised immediately tothe extent that the benefits are already vested,and otherwise is amortised on a straight-linebasis over the average period until the benefitsbecome vested.The pension obligation recognised in thebalance sheet represents the present value ofthe defined benefit obligation as adjusted forunrecognised past service cost, and as reducedby the fair value of scheme assets. Any assetresulting from this calculation is limited topast service cost, plus the present value ofavailable refunds and reductions in futurecontributions to the plan.Other post-employment obligationsSome Group companies provide otherpost-employment benefits. The expected costsof these benefits are accrued over the periodof employment using a similar basis to thatused for defined benefit pension schemes.Actuarial gains and losses are recognisedimmediately in the statement of recognisedincome and expense.Share-based paymentsThe Group issues equity-settled andcash-settled share-based payments to certainemployees. Equity-settled share-basedpayments are measured at fair value(excluding the effect of non market-basedvesting conditions) at the date of grant.The fair value determined at the grant dateof the equity-settled share-based payments isexpensed on a straight-line basis over thevesting period, based on the Group’s estimateof the shares that will eventually vest andadjusted for the effect of non market-basedvesting conditions.Fair value is measured using either thebinomial distribution or Black-Scholes optionpricing models as is most appropriate for eachscheme. The expected life used in the modelshas been adjusted, based on management’sbest estimate, for the effects of exerciserestrictions and behavioural considerations.For cash-settled share-based payments,a liability equal to the portion of the goodsor services received is recognised at thecurrent fair value determined at each balancesheet date.Holiday payPaid holidays and similar entitlements areregarded as an employee benefit and arecharged to the income statement as thebenefits are earned. An accrual is made atthe balance sheet date to reflect the fair valueof holidays earned but not taken.

49 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20071 Segmental reportingGeographical segmentsNorth Continental United Rest of IntraAmerica Europe Kingdom the World Group TotalRevenues £m £m £m £m £m £mYear ended 30 September 2007Total revenue 4,162 2,842 1,986 1,654 (18) 10,626Less: inter-segment revenue – (7) (7) (4) 18 –External revenue 4,162 2,835 1,979 1,650 – 10,626Less: discontinued businesses – (282) (48) (28) – (358)External revenue – continuing 4,162 2,553 1,931 1,622 – 10,268Year ended 30 September 2006Total revenue 4,437 3,321 2,815 1,730 (39) 12,264Less: inter-segment revenue – (13) (10) (16) 39 –External revenue 4,437 3,308 2,805 1,714 – 12,264Less: discontinued businesses (147) (824) (923) (103) – (1,997)External revenue – continuing 4,290 2,484 1,882 1,611 – 10,267Geographical segmentsNorth Continental United Rest of CentralAmerica Europe Kingdom the World activities TotalResult £m £m £m £m £m £mYear ended 30 September 2007Total operating profit before associates 261 181 107 57 (58) 548Less: discontinued businesses – (30) – 7 – (23)Operating profit before associates – continuing 261 151 107 64 (58) 525Add: Share of profit of associates 1 – 3 – – 4Operating profit – continuing 262 151 110 64 (58) 529Finance income 28Finance costs (115)Hedge accounting ineffectiveness (6)Profit before tax 436Income tax expense (124)Profit for the year from continuing operations 312Year ended 30 September 2006Total operating profit before associates 247 177 125 46 (66) 529Less: discontinued businesses (2) (55) (18) 1 – (74)Operating profit before associates – continuing 245 122 107 47 (66) 455Add: Share of profit of associates 1 – 1 – – 2Operating profit – continuing 246 122 108 47 (66) 457Finance income 15Finance costs (160)Hedge accounting ineffectiveness 11Profit before tax 323Income tax expense (61)Profit for the year from continuing operations 262Russia and Turkey were transferred from the Rest of the World to the Continental Europe segment during the current reporting period to ensure alignment with the new management reporting structure.The 2006 segmental results have been restated on a consistent basis. The combined revenue and operating profit of these businesses was £46 million and £3 million respectively for the year ended30 September 2006.

50 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20071 Segmental reporting continuedBusiness segmentsTravelContracts Vending Concessions TotalRevenues £m £m £m £mYear ended 30 September 2007External revenue 9,843 783 – 10,626Less: discontinued businesses (33) (325) – (358)External revenue – continuing 9,810 458 – 10,268Year ended 30 September 2006External revenue 9,784 1,009 1,471 12,264Transfers 77 – (77) –Less: discontinued businesses (121) (482) (1,394) (1,997)External revenue – continuing 9,740 527 – 10,267The Travel Concessions businesses held on 30 September 2006 were transferred to the Contracts segment to ensure alignment with the new management reporting structure.Geographical segmentsUnallocatedNorth Continental United Rest of Central Current and NetAmerica Europe Kingdom the World activities deferred tax debt TotalBalance sheet £m £m £m £m £m £m £m £mAs at 30 September 2007Total assets 1,726 849 2,124 620 9 250 854 6,432Total liabilities (654) (713) (333) (362) (406) (176) (1,618) (4,262)Net assets 1,072 136 1,791 258 (397) 74 (764) 2,170Total assets include:Interests in associates 2 – 23 – – – – 25As at 30 September 2006Total assets 1,845 1,347 2,201 710 57 247 879 7,286Less: discontinued businesses – (557) (111) (20) – – – (688)Assets – continuing 1,845 790 2,090 690 57 247 879 6,598Total liabilities (746) (766) (424) (349) (340) (375) (1,974) (4,974)Less: discontinued businesses – 112 15 20 – – – 147Liabilities – continuing (746) (654) (409) (329) (340) (375) (1,974) (4,827)Net assets 1,099 581 1,777 361 (283) (128) (1,095) 2,312Less: discontinued businesses – (445) (96) – – – – (541)Net assets – continuing 1,099 136 1,681 361 (283) (128) (1,095) 1,771Total assets include:Investment in associates 16 1 22 – – – – 39Less: discontinued businesses – – – – – – – –Interests in associates – continuing 16 1 22 – – – – 39Russia and Turkey were transferred from the Rest of the World to the Continental Europe segment during the current reporting period to ensure alignment with the new management reporting structure.The 2006 segmental results have been restated on a consistent basis.Business segmentsUnallocatedTravel Central Current and NetContracts Vending Concessions activities deferred tax debt TotalBalance sheet £m £m £m £m £m £m £mAs at 30 September 2007Total assets 5,128 191 – 9 250 854 6,432As at 30 September 2006Total assets 5,284 800 19 57 247 879 7,286Transfers 19 – (19) – – – –Less: discontinued businesses (27) (661) – – – – (688)Assets – continuing 5,276 139 – 57 247 879 6,598The Travel Concessions businesses held on 30 September 2006 were transferred to the Contracts segment to ensure alignment with the new management reporting structure.

51 Compass Group PLC Annual Report 20071 Segmental reporting continuedGeographical segmentsNorth Continental United Rest of CentralAmerica Europe Kingdom the World activities TotalOther information £m £m £m £m £m £mYear ended 30 September 2007Total additions to property, plant and equipment 1 101 67 18 18 1 205Less: discontinued businesses 1 – (31) (3) – – (34)Additions to property, plant and equipment – continuing 1 101 36 15 18 1 171Total additions to other intangible assets 7 3 7 2 2 21Less: discontinued businesses – – – – – –Additions to other intangible assets – continuing 7 3 7 2 2 21Total depreciation of property, plant and equipment 64 56 34 15 1 170Less: discontinued businesses – (24) (4) – – (28)Depreciation of property, plant and equipment – continuing 64 32 30 15 1 142Total amortisation of other intangible assets 10 8 9 3 1 31Less: discontinued businesses – – – – – –Amortisation of other intangible assets – continuing 10 8 9 3 1 31Total other non-cash expenses 5 7 5 4 4 25Less: discontinued businesses – (1) – – – (1)Other non-cash expenses – continuing 5 6 5 4 4 24Year ended 30 September 2006Total additions to property, plant and equipment 1 122 88 50 24 – 284Less: discontinued businesses 1 (9) (59) (45) – – (113)Additions to property, plant and equipment – continuing 1 113 29 5 24 – 171Total additions to other intangible assets 16 2 11 1 1 31Less: discontinued businesses – (1) – – – (1)Additions to other intangible assets – continuing 16 1 11 1 1 30Total depreciation of property, plant and equipment 77 82 63 20 1 243Less: discontinued businesses (9) (50) (33) – – (92)Depreciation of property, plant and equipment – continuing 68 32 30 20 1 151Total amortisation of other intangible assets 13 15 8 1 1 38Less: discontinued businesses – – (1) – – (1)Amortisation of other intangible assets – continuing 13 15 7 1 1 37Total other non-cash expenses 6 7 8 3 1 25Less: discontinued businesses – (1) (3) – – (4)Other non-cash expenses – continuing 6 6 5 3 1 211. Includes leased assets.Other non-cash expenses are mainly comprised of share-based payments.Russia and Turkey were transferred from the Rest of the World to the Continental Europe segment during the current reporting period to ensure alignment with the new management reporting structure.The 2006 segmental results have been restated on a consistent basis.

52 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20071 Segmental reporting continuedBusiness segmentsTravelContracts Vending Concessions activities TotalOther information £m £m £m £m £mYear ended 30 September 2007Total additions to property, plant and equipment 1 157 47 – 1 205Less: discontinued businesses 1 – (34) – – (34)Additions to property, plant and equipment – continuing 1 157 13 – 1 171Total additions to other intangible assets 18 2 – 1 21Less: discontinued businesses – – – – –Additions to other intangible assets – continuing 18 2 – 1 21Year ended 30 September 2006Total additions to property, plant and equipment 1 150 61 73 – 284Transfers 1 12 – (12) – –Less: discontinued businesses 1 – (52) (61) – (113)Additions to property, plant and equipment – continuing 1 162 9 – – 171Total additions to other intangible assets 30 – – 1 31Transfers – – – – –Less: discontinued businesses (1) – – – (1)Additions to other intangible assets – continuing 29 – – 1 30Central1. Includes leased assets.The Travel Concessions businesses held on 30 September 2006 were transferred to the Contracts segment to ensure alignment with the new management reporting structure.2 Operating costs2007 2006Operating costs £m £mCost of food and materials:Cost of inventories consumed 3,426 3,441Labour costs:Employee benefit expense (note 3) 4,518 4,506Overheads:Depreciation – owned property, plant and equipment 131 140Depreciation – leased property, plant and equipment 11 11Amortisation – owned intangible assets 31 37Property lease rentals 52 56Other occupancy rentals – minimum guaranteed rent 38 36Other occupancy rentals – rent in excess of minimum guaranteed rent 4 4Other asset rentals 55 60Audit and non-audit services (see below) 5 7Other expenses 1,472 1,514Total continuing operations 9,743 9,812The 2006 amounts in respect of rental expenses have been restated to reflect a more accurate classification of costs adopted in 2007.Impairment of goodwill, impairment of inventories, impairment of financial assets and net foreign exchange gains/losses recorded in income statement £nil (2006: £nil).

53 Compass Group PLC Annual Report 20072 Operating costs continued2007 2006Audit and non-audit services £m £mAudit servicesFees payable to the Company’s auditors for the audit of the Company’s annual financial statements 0.4 0.4Fees payable to the Company’s auditors and their associates for other services to the Group:The audit of the Company’s subsidiaries and joint ventures pursuant to legislation 2.6 2.7Audit fees relating to IFRS comparatives – 0.2Total audit fees 3.0 3.3Non-audit servicesOther services supplied pursuant to legislation 0.1 0.3Other services relating to tax 1.7 2.9All other services 0.3 0.8Total non-audit fees 2.1 4.0Total audit and non-audit servicesTotal audit and non-audit services 5.1 7.3All other services includes £0.2 million in respect of assurance work relating to disposals (2006: £0.5million).3 Employees2007 2006Average number of employees, including directors and part-time employees Number NumberNorth America 126,691 122,412Continental Europe 66,990 67,302United Kingdom 66,105 68,885Rest of the World 101,541 96,633Total continuing operations 361,327 355,232Discontinued businesses 4,303 34,008Total continuing and discontinued 365,630 389,2402007 2006Aggregate remuneration of all employees including directors £m £mWages and salaries 3,804 3,853Social security costs 638 587Share-based payments 24 21Pension costs – defined contribution plans 34 27Pension costs – defined benefit plans 18 18Total continuing operations 4,518 4,506Discontinued businesses 102 505Total continuing and discontinued 4,620 5,011In addition to the pension cost shown in operating costs above, there is a pensions-related net charge to finance costs of £2 million (2006: £11 million).The remuneration of directors and key management personnel is set out below. Additional information on directors’ and key managementremuneration, share options, long-term incentive plans, pension contributions and entitlements can be found in the audited section of theDirector’s remuneration report on pages 33 to 39 and forms part of these financial statements.2007 2006Remuneration of key management personnel £m £mSalaries 4.8 4.3Other short-term employee benefits 6.4 4.9Termination benefits 2.3 0.4Share-based payments 5.5 2.8Pension 0.9 0.4Total 19.9 12.8Key management personnel is defined as the Board of directors and the members of the Executive Committee.

54 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20074 Finance income and costs2007 2006Finance income and costs £m £mFinance incomeBank interest 28 15Finance costsBank loans and overdrafts 5 35Other loans 104 107Finance lease interest 3 3Interest on bank loans, overdrafts, other loans and finance leases 112 145Unwinding of discount on put options held by minority shareholders 1 4Interest on pension scheme liabilities net of expected return on scheme assets (note 23) 2 11Total finance costs 115 160Hedge accounting ineffectivenessUnrealised net losses/(gains) on financial instruments 3 (11)Unhedged translation losses on foreign currency borrowings 3 –Total hedge accounting ineffectiveness losses/(gains) 6 (11)5 Tax2007 2006BeforeBeforeexceptional Exceptional exceptional ExceptionalRecognised in the income statement: items items Total items items Totalincome tax expense on continuing operations £m £m £m £m £m £mCurrent year 149 – 149 146 (17) 129Adjustment in respect of prior years (27) – (27) (40) (5) (45)Current tax expense/(credit) 122 – 122 106 (22) 84Current year 2 – 2 (1) (22) (23)Impact of changes in statutory tax rates 6 – 6 – – –Adjustment in respect of prior years (6) – (6) – – –Deferred tax expense/(credit) 2 – 2 (1) (22) (23)Income tax expense/(credit) on continuing operations 124 – 124 105 (44) 61The income tax expense for the year is based on the United Kingdom statutory rate of corporation tax of 30% (2006: 30%). Overseas tax iscalculated at the rates prevailing in the respective jurisdictions. The impact of changes in statutory tax rates relates principally to the reduction ofthe UK corporation tax rate from 30% to 28% from 1 April 2008. This change has resulted in a deferred tax charge arising from the reduction inthe balance sheet carrying value of deferred tax assets to reflect the anticipated rate of tax at which those assets are expected to reverse.Before2007 2006exceptional Exceptional exceptional Exceptionalitems items Total items items TotalReconciliation of the income tax expense on continuing operations £m £m £m £m £m £mProfit before tax from continuing operations before exceptional items 436 – 436 323 – 323Notional income tax expense at the UK statutory rate of 30% on profit before tax 131 – 131 97 – 97Effect of different tax rates of subsidiaries operating in other jurisdictions 19 – 19 20 – 20Impact of changes in statutory tax rates 6 – 6 – – –Permanent differences 3 – 3 22 – 22Impact of share-based payments – – – 3 – 3Tax on profit of associates (1) – (1) (1) – (1)Losses and other temporary differences not previously recognised (10) – (10) (7) (27) (34)Unrelieved current year tax losses 9 – 9 7 – 7Prior year items (33) – (33) (37) (17) (54)Other – – – 1 – 1Income tax expense on continuing operations 124 – 124 105 (44) 61Before

55 Compass Group PLC Annual Report 20075 Tax continuedBefore2007 2006exceptional Exceptional exceptional Exceptionalitems items Total items items TotalTax credited/(charged) to equity £m £m £m £m £m £mDeferred tax (charge)/credit on actuarial gains/losseson post-employment benefits (6) – (6) 10 – 10Tax on foreign exchange movements recognised in equity 13 – 13 (10) – (10)Other current and deferred tax credits 1 – 1 3 – 3Tax on items credited to equity 8 – 8 3 – 3Recognition of deferred tax asset relating tocurrency translation differences in prior years 37 – 37 – – –Tax credited to equity 45 – 45 3 – 3Beforeand post- Self-funded short-termTax employment insurance temporaryMovement in net deferred tax asset/(liability)depreciation Intangibles benefits Tax losses provisions differences Total£m £m £m £m £m £m £mAt 1 October 2005 (51) 12 172 12 19 17 181Credit/(charge) to income 22 (8) (23) – 4 47 42Credit/(charge) to equity – (9) 10 – – (3) (2)Transfer from/(to) current tax – – (1) – – – (1)Business disposals 4 (4) – (1) – 4 3Other movements 3 2 (1) – 1 (9) (4)Exchange adjustment 1 5 (3) (1) (1) (1) –At 30 September 2006 (21) (2) 154 10 23 55 219At 1 October 2006 (21) (2) 154 10 23 55 219Credit/(charge) to income 36 (12) (45) 1 9 6 (5)Credit/(charge) to equity – (7) (8) – – 36 21Transfer from/(to) current tax (11) – – – – – (11)Business disposals 11 – (2) – – – 9Other movements – (1) 1 (2) – 5 3Exchange adjustment 2 – (4) – (2) 3 (1)At 30 September 2007 17 (22) 96 9 30 105 235PensionsNet short-term temporary differences relate principally to provisions and other liabilities of overseas subsidiaries.After netting off balances within countries, the following are the deferred tax assets and liabilities recognised in the consolidated balance sheet:2007 2006Net deferred tax balance £m £mDeferred tax assets 240 237Deferred tax liabilities (5) (18)Net deferred tax asset/(liability) 235 219Unrecognised deferred tax assets in respect of tax losses and other temporary differences amount to £43 million (2006: £55 million). Of thetotal, tax losses of £2 million will expire at various dates between 2009 and 2013. These deferred tax assets have not been recognised as the timingof recovery is uncertain. No deferred tax liability is recognised on temporary differences of £2,726 million (2006: £1,850 million) relating to theunremitted earnings of overseas operations as the Group is able to control the timing of the reversal of these temporary differences and it is probablethat they will not reverse in the foreseeable future.Net

56 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20076 Discontinued operationsYear ended 30 September 2007:The Group disposed of its European vending business, Selecta, on 2 July 2007. The Group has also completed the sale and closure of a numberof other small businesses as part of the exit from the discontinued travel concessions business. The results of all these businesses are classified asdiscontinued operations and are therefore excluded from the results of continuing operations in 2007. The 2006 results have been restated on aconsistent basis. The process was complete by the end of the year and no assets or liabilities are classified as being held for sale as at 30 September 2007.Year ended 30 September 2006:The Group disposed of its Inflight catering operations, which operated principally in Continental Europe, on 19 December 2005, and disposed of itstravel concession catering business, Select Service Partner, including Creative Host Services in the US (together ‘SSP’) on 15 June 2006. The Groupalso discontinued its Middle East military catering operations and withdrew from or disposed of various other businesses. The results of thesebusinesses are classified as discontinued operations and are therefore excluded from the results of continuing operations in 2006. This process wassubstantially complete by the end of the year and no assets or liabilities were classified as being held for sale at 30 September 2006.2007 2006Selecta Other 1 Total SSP Selecta Other 2 TotalNet assets disposed and disposal proceeds £m £m £m £m £m £m £mGoodwill 411 2 413 798 – 51 849Other intangible assets – – – 10 – – 10Property, plant and equipment 144 2 146 755 – 125 880Investments – – – 5 – 3 8Inventories 37 – 37 29 – 9 38Trade and other receivables 58 3 61 74 – 49 123Cash and cash equivalents 53 1 54 94 – 24 118Gross assets disposed of 703 8 711 1,765 – 261 2,026Trade and other payables (100) – (100) (208) – (51) (259)Post-employment benefit obligations – (3) (3) (10) – (4) (14)Tax (15) – (15) (6) – (6) (12)Minority interest – – – (1) – (5) (6)Other liabilities (3) (2) (5) – – (5) (5)Gross liabilities disposed of (118) (5) (123) (225) – (71) (296)Net assets disposed of 585 3 588 1,540 – 190 1,730Liabilities retained 63 45 108 88 – 21 109Cumulative exchange translation loss recycled on disposals 3 – – – 2 – – 2Profit/(loss) on disposal 130 (27) 103 168 – (54) 114Consideration, net of costs 778 21 799 1,798 – 157 1,955Consideration deferred to future periods – – – (37) – (8) (45)Cash disposed of (53) (1) (54) (94) – (24) (118)Cash inflow from current year disposals 725 20 745 1,667 – 125 1,792Deferred consideration relating to previous disposals – 37 37 – – 15 15Cash inflow from disposals 725 57 782 1,667 – 140 1,807

57 Compass Group PLC Annual Report 20076 Discontinued operations continued2007 2006Selecta Other 1 Total SSP Selecta Other 2 TotalFinancial performance of discontinued operations £m £m £m £m £m £m £mTrading activities of discontinued operationsExternal revenue 325 33 358 1,238 483 276 1,997Inter-segment revenues 14 1 15 – 21 – 21Total revenue 339 34 373 1,238 504 276 2,018Operating costs (307) (43) (350) (1,209) (456) (279) (1,944)Trading activities of discontinued operations before exceptional costs 32 (9) 23 29 48 (3) 74Exceptional operating costs (note 7) – – – – – (47) (47)Profit before tax 32 (9) 23 29 48 (50) 27Income tax (expense)/credit (see below) (8) – (8) (7) (8) 1 (14)Profit after tax 24 (9) 15 22 40 (49) 13Exceptional items: disposal of net assets and otheradjustments relating to discontinued operationsProfit on disposal of net assets of discontinued operations 130 18 148 170 – (54) 116Increase in provisions related to discontinued operations 4 – (45) (45) – – – –Cumulative translation exchange loss recycled on disposals 3 – – – (2) – – (2)Profit on disposal before tax 130 (27) 103 168 – (54) 114Income tax (expense)/credit (see below) (1) 95 94 (99) – 5 (94)Total profit after tax 129 68 197 69 – (49) 20Profit/(loss) for the year from discontinued operationsProfit/(loss) for the year from discontinued operations 153 59 212 91 40 (98) 332007 2006Selecta Other 1 Total SSP Selecta Other 2 TotalIncome tax from discontinued operations £m £m £m £m £m £m £mIncome tax on trading activities of discontinued operationsCurrent tax (7) – (7) (9) (12) 1 (20)Deferred tax (1) – (1) 2 4 – 6Income tax (expense)/credit on discontinued operations (8) – (8) (7) (8) 1 (14)Exceptional items: income tax on disposal of net assets andother adjustments relating to discontinued operationsCurrent tax (1) 18 17 (117) – 11 (106)Deferred tax – (2) (2) 18 – (6) 12Exceptional tax credit (note 7) – 79 79 – – – –Income tax (expense)/credit on disposal of net assets ofdiscontinued operations (1) 95 94 (99) – 5 (94)Total income tax from discontinued operationsTotal income tax (expense)/credit from discontinued operations (9) 95 86 (106) (8) 6 (108)1. Travel concessions and various other non-core businesses and adjustments to prior year disposals.2. Middle East military catering operations and various other non-core businesses.3. The Group manages foreign currency exposures in accordance with the policies set out in note 20, matching its principal projected cash flows by currency to actual or effective borrowings in the samecurrency. As a result the cumulative exchange translation loss recycled on disposals is £nil (2006: £2 million).4. Additional provisions established in respect of the prior year disposal of travel concessions catering businesses and in respect of Middle East military catering operations discontinued in the prior year.

58 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 20077 Exceptional itemsExceptional items are disclosed and described separately in the financial statements where it is necessary to do so to clearly explain the financialperformance of the Group. Items reported as exceptional are material items of income or expense that have been shown separately due to thesignificance of their nature or amount.2007 2006Exceptional items £m £mContinuing operationsCurrent year tax – 5Adjustment in respect of prior year’s tax – 17Current year tax – 22Current year deferred tax – 22Adjustment in respect of prior year’s deferred tax – –Current year deferred tax – 22Continuing operations (note 5) – 44Discontinued operationsProfit on disposal of net assets and other adjustments relating to discontinued operations net of tax (note 6) 197 20Settlement of UN contract claims and related expenses – (39)Middle East military catering business – (8)Discontinued operations 197 (27)Continuing and discontinued operationsTotal 197 17Year ended 30 September 2007:The Group disposed of its European vending business, Selecta, on 2 July 2007 for a net profit after tax of £129 million.The Group also completed the sale and closure of a number of other small businesses as part of the exit from discontinued operations, andestablished additional provisions totalling £45 million in respect of prior year disposals in these areas, resulting in a net loss after tax of £11 millionbefore the net release of tax provisions of £79 million. These provisions were released following the settlement of a number of long-standing issuesconnected with prior year discontinued activities. The total net profit after tax arising on disposal of these operations was £68 million.Overall an exceptional net credit of £197 million was recognised in the period.Year ended 30 September 2006:A £44 million exceptional tax credit arose in respect of previously unrecognised tax losses and tax deductions in respect of pension prepaymentsin the UK tax group that originated in previous years.£39 million was charged to complete investigations and to settle lawsuits for lost profits brought by two competitors of the Group, ES-KOInternational Inc and Supreme Foodservice AG in relation to contracts awarded to Eurest Support Services by the United Nations.£8 million was provided to settle claims arising in respect of the discontinued Middle East military catering operations.A profit of £20 million (net of cumulative translation exchange losses and tax) was recognised in respect of the disposal of the Group’s Inflightcatering services business on 19 December 2005 and its travel concessions catering business (‘SSP’) on 15 June 2006.

59 Compass Group PLC Annual Report 20078 Earnings per shareThe calculation of earnings per share is based on earnings after tax and the weighted average number of shares in issue during the period.The adjusted earnings per share figures have been calculated based on earnings excluding the effect of discontinued activities and exceptionalitems; these are disclosed to show the underlying trading performance of the Group.2007 2006Attributable Attributableprofit profitAttributable profit £m £mProfit for the year attributable to equity shareholders of the Company 515 285Less: profit for the year from discontinued operations (212) (33)Attributable profit for the year from continuing operations 303 252Less: profit from exceptional items included in continuing operations (net of tax) – (44)Attributable profit for the year from continuing operations before exceptional items 303 208Add back: loss/(profit) from hedge accounting ineffectiveness (net of tax) 4 (7)Underlying attributable profit for the year from continuing operations before exceptional items 307 2012007 2006Ordinary Ordinaryshares of shares of10p each 10p eachAverage number of shares (millions of ordinary shares of 10p each) millions millionsAverage number of shares for basic earnings per share 2,015 2,147Dilutive share options 11 3Average number of shares for diluted earnings per share 2,026 2,1502007 2006Earnings Earningsper share per sharepence penceBasic earnings per share (pence)From continuing and discontinued operations 25.6 13.3From discontinued operations (10.6) (1.6)From continuing operations 15.0 11.7Exceptional items included in continuing operations (net of tax) – (2.0)From continuing operations before exceptional items 15.0 9.7Hedge accounting ineffectiveness (net of tax) 0.2 (0.3)From underlying continuing operations before exceptional items 15.2 9.4Diluted earnings per share (pence)From continuing and discontinued operations 25.4 13.3From discontinued operations (10.4) (1.6)From continuing operations 15.0 11.7Exceptional items included in continuing operations (net of tax) – (2.0)From continuing operations before exceptional items 15.0 9.7Hedge accounting ineffectiveness (net of tax) 0.2 (0.4)From underlying continuing operations before exceptional items 15.2 9.39 DividendsA final dividend in respect of 2007 of 7.2 pence per share, £139 million in aggregate 1 , is to be proposed at the Annual General Meeting on8 February 2008 giving a total dividend in respect of 2007 of 10.8 pence per share (2006: 10.1 pence per share). These financial statementsdo not include an accrual for this final dividend.2007 2006DividendsDividendsper shareper shareDividends on ordinary shares of 10p each pence £m pence £mAmounts recognised as distributions to equity shareholders during the year:Final dividend for the prior year 6.7p 136 6.5p 140Interim dividend for the current year 3.6p 72 3.4p 73Total dividends 10.3p 208 9.9p 2131. Based on the number of shares in issue at 30 September 2007.

60 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200710 GoodwillDuring the year the Group acquired the remaining 5% of its Italian subsidiary Onama S.p.A. It also made a number of small acquisitions inNorth America and the Rest of the World. This is reflected in the £12 million addition to goodwill shown below.Goodwill £mCostAt 1 October 2005 4,327Additions arising from acquisitions 152Reclassified (6)Business disposals – discontinued activities (849)Currency adjustment (66)At 30 September 2006 3,558At 1 October 2006 3,558Additions arising from acquisitions 12Reclassified –Business disposals – discontinued activities (413)Currency adjustment (65)At 30 September 2007 3,092ImpairmentAt 1 October 2005 107Impairment charge recognised in the year –At 30 September 2006 107At 1 October 2006 107Impairment charge recognised in the year –At 30 September 2007 107Net book amountsAt 30 September 2006 3,451At 30 September 2007 2,985Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (‘CGUs’) that are expected to benefit from thatbusiness combination. A summary of goodwill allocation by business segment is shown below.After2007 Original Transfers Disposals disposalsGoodwill by business segment £m £m £m £m £mUSA 757 825 – – 825Rest of North America 87 83 – – 83Total North America 844 908 – – 908Continental Europe 161 500 2 (352) 150United Kingdom 1,733 1,798 – (65) 1,733Rest of the World 247 245 (2) – 243Continuing Business 2,985 3,451 – (417) 3,034Discontinued Business – – – 417 417Total 2,985 3,451 – – 3,451Russia and Turkey were transferred from the Rest of the World to the Continental Europe segment during the current reporting period to ensure alignment with the new management reporting structure.The transfers column adjusts prior year goodwill so that it is on a consistent basis.The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverableamount of a CGU has been determined from value in use calculations. The key assumptions for these calculations are long-term growth ratesand pre-tax discount rates and use cash flow forecasts derived from the most recent financial budgets and forecasts approved by managementcovering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates based on local expectedeconomic conditions and do not exceed the long-term average growth rate for that country. The pre-tax discount rates are based on the Group’sweighted average cost of capital adjusted for specific risks relating to the country in which the CGU operates.Growth and discount rates growth rates discount ratesUSA 2.8% 12.2%Rest of North America 2.2% 10.4%Continental Europe 0.6-2.7% 7.0-10.7%United Kingdom 2.5% 9.8%Rest of the World (0.3)-9.0% 6.5-17.6%Residual2006Pre-tax

61 Compass Group PLC Annual Report 200711 Other intangible assetsrelated software TotalOther intangible assets £m £m £mCostAt 1 October 2005 81 173 254Additions 16 15 31Disposals (3) – (3)Business acquisitions (1) – (1)Business disposals – discontinued activities (3) (20) (23)Reclassified 10 – 10Currency adjustment (6) (3) (9)At 30 September 2006 94 165 259At 1 October 2006 94 165 259Additions 16 5 21Disposals (10) (22) (32)Business acquisitions 1 – 1Business disposals – discontinued activities (3) (1) (4)Reclassified 12 2 14Currency adjustment (3) (2) (5)At 30 September 2007 107 147 254AmortisationAt 1 October 2005 23 63 86Charge for the year 13 25 38Disposals (1) – (1)Business disposals – discontinued activities – (13) (13)Reclassified – – –Currency adjustment (2) (1) (3)At 30 September 2006 33 74 107At 1 October 2006 33 74 107Charge for the year 14 17 31Disposals (8) (21) (29)Business disposals – discontinued activities (3) (1) (4)Reclassified 8 – 8Currency adjustment (1) – (1)At 30 September 2007 43 69 112Net book amountsAt 30 September 2006 61 91 152At 30 September 2007 64 78 142ContractComputerContract-related intangible assets result from payments made by the Group in respect of client contracts and generally arise where it is economically more efficient for a client to purchase assets used in theperformance of the contract and the Group fund these purchases.

62 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200712 Property, plant and equipmentLand and Plant and Fixtures andbuildings machinery fittings TotalProperty, plant and equipment £m £m £m £mCostAt 1 October 2005 973 1,346 768 3,087Additions 22 193 69 284Disposals (19) (75) (77) (171)Business acquisitions – – 4 4Business disposals – discontinued activities (679) (328) (283) (1,290)Reclassified 15 (59) 28 (16)Currency adjustment (19) (41) (12) (72)At 30 September 2006 293 1,036 497 1,826At 1 October 2006 293 1,036 497 1,826Additions 18 144 43 205Disposals (46) (121) (63) (230)Business acquisitions – – – –Business disposals – discontinued activities (16) (318) (58) (392)Reclassified (32) 46 (17) (3)Currency adjustment (7) (30) 1 (36)At 30 September 2007 210 757 403 1,370DepreciationAt 1 October 2005 220 800 410 1,430Charge for the year 24 152 67 243Disposals (9) (75) (52) (136)Business disposals – discontinued activities (112) (171) (127) (410)Reclassified (3) (7) (6) (16)Currency adjustment (8) (26) (7) (41)At 30 September 2006 112 673 285 1,070At 1 October 2006 112 673 285 1,070Charge for the year 14 110 46 170Disposals (27) (107) (52) (186)Business disposals – discontinued activities (7) (197) (42) (246)Reclassified 4 (4) 3 3Currency adjustment 1 (20) 2 (17)At 30 September 2007 97 455 242 794Net book amountsAt 30 September 2006 181 363 212 756At 30 September 2007 113 302 161 576The net book amount of the Group’s property, plant and equipment includes assets held under finance leases as follows:Land and Plant and Fixtures andbuildings machinery fittings TotalProperty, plant and equipment held under finance leases £m £m £m £mAt 30 September 2006 5 39 6 50At 30 September 2007 2 41 2 45

63 Compass Group PLC Annual Report 200713 Interests in associatesDuring the year the Group sold half of its 25% interest in its former associate Au Bon Pain leaving it with a 12.5% shareholding. This shareholdingis now accounted for as an investment (note 14).Principal associatesTwickenham Experience LtdOval Events LimitedThompson Hospitality Services LLCCountry of incorporationEngland & WalesEngland & WalesUSA2007 2006Interests in associates £m £mNet book valueAt 1 October 39 45Additions – –Business disposals – discontinued activities – (5)Business disposals – other activities (7) –Share of profits less losses (net of tax) 4 2Dividends received (6) (2)Reclassified to investments (note 14) (6) –Currency and other adjustments 1 (1)At 30 September 25 39The Group’s share of revenues and profits (including those from Au Bon Pain up to the date the Group reduced its shareholding to 12.5%)is included below:2007 2006Associates £m £mShare of revenue and profitsRevenue 37 50Expenses (33) (48)Profit after tax for the year 4 2Share of net assetsGoodwill 19 25Other 6 14Net assets 25 39Share of contingent liabilitiesContingent liabilities – –14 Other investments2007 2006Other investments £m £mNet book valueAt 1 October 9 6Additions 2 2Business disposals – discontinued activities – (2)Business disposals – other activities (4) –Reclassified from interests in associates (note 13) 6 –Currency and other adjustments (1) 3At 30 September 12 9Comprised ofDebenture and other holdings in sports and leisure venues 1 4Investment in Au Bon Pain 6 –Other investments 5 5Total 12 9

64 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200715 Joint venturesDuring the year the Group’s joint venture partner in Turkey exercised an option to acquire 4% of the share capital of Sofra Yemek Üretim VeHizmet AS, reducing the Group’s holding to 50%. This did not affect the treatment of Sofra which was accounted for as a joint venture in theprior year as the partners worked with equal powers to control the entity.Principal joint ventures Country of incorporation % ownershipGR SA Brazil 50Quadrant Catering Ltd England & Wales 49Radhakrishna Hospitality Services Ltd India 50Sofra Yemek Üretim Ve Hizmet AS Turkey 50ADNH-Compass Middle East LLC United Arab Emirates 50None of these investments is held directly by the ultimate parent company. All joint ventures provide foodservice in their countries of incorporationand make their accounts up to 30 September.The share of the revenue, profits, assets and liabilities of the joint ventures which are included in the consolidated financial statements are as follows:2007 2006Joint ventures £m £mShare of revenue and profitsRevenue 318 282Expenses (291) (266)Profit after tax for the year 27 16Share of net assetsNon-current assets 34 40Current assets 66 72Non-current liabilities (6) (10)Current liabilities (56) (51)Net assets 38 51Share of contingent liabilitiesContingent liabilities 10 316 Trade and other receivables2007 2006Current Non-current Current Non-currentTrade and other receivables £m £m £m £mTrade receivables 1,196 4 1,212 4Less: provision for the impairment of receivables (47) – (41) –Net trade receivables 1,149 4 1,171 4Amounts owed by associates 5 1 – 1Other receivables 63 54 151 100Prepayments and accrued income 126 7 102 12Trade and other receivables 1,343 66 1,424 117The book value of net trade receivables approximates to their fair value due to the short-term nature of the receivables. There is limitedconcentration of credit risk with respect to trade receivables due to the diverse and unrelated nature of the Group’s customer base. The yearon year change in provision for the impairment of receivables is largely explained by the deconsolidation of the discontinued businesses.Trade receivable days for the continuing business at 30 September 2007 were 50 days (2006: 51 days for the continuing business).17 Inventories2007 2006Inventories £m £mFood and beverage inventories 135 154Other inventories 44 58Inventories 179 212

65 Compass Group PLC Annual Report 200718 Cash and cash equivalents2007 2006Cash and cash equivalents £m £mCash at bank and in hand 140 153Short-term bank deposits 699 695Cash and cash equivalents 839 8482007 2006Cash and cash equivalents by currency £m £mSterling 685 741US Dollar 45 20Euro 35 53Japanese Yen 5 3Other 69 31Cash and cash equivalents 839 84819 Short-term and long-term borrowings2007 2006Current Non-current Total Current Non-current TotalShort-term and long-term borrowings £m £m £m £m £m £mBank overdrafts 118 – 118 56 – 56Bank loans 19 17 36 15 22 37Loan notes – 380 380 33 421 454Bonds – 1,019 1,019 – 1,350 1,350Borrowings (excluding finance leases) 137 1,416 1,553 104 1,793 1,897Finance leases 14 36 50 15 42 57Borrowings (including finance leases) 151 1,452 1,603 119 1,835 1,954Bank overdrafts principally arise as a result of uncleared transactions. Interest on bank overdrafts is at the relevant money market rates.All amounts due under bonds, loan notes and bank facilities are shown net of unamortised issue costs. Bonds are unsecured and are comprisedas follows:Bonds Nominal value Redeemable InterestEuro Eurobond a300m 2009 6.0%Sterling Eurobond £200m 2010 7.125%Sterling Eurobond £325m 2012 6.375%Sterling Eurobond £250m 2014 7.0%The bond redeemable in 2014 is recorded at its fair value to the Group on acquisition.The Group has fixed term, fixed interest private placements totalling US$769 million (£377 million) at interest rates between 5.11% and 7.955%.US$15 million (£7 million) is repayable in 5 to 10 years. The carrying value of these loan notes is £380m.2007 2006Maturity profile of borrowings (excluding finance leases) £m £mWithin 1 year, or on demand 137 104Between 1 and 2 years 292 7Between 2 and 3 years 224 606Between 3 and 4 years 63 228Between 4 and 5 years 550 72In more than 5 years 287 880Borrowings (excluding finance leases) 1,553 1,897

66 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200719 Short-term and long-term borrowings continued2007 2006Carrying Fair Carrying Fairvalue value value valueCarrying value/fair value of borrowings (excluding finance leases) £m £m £m £mr300m/r750m Eurobond 2009 1 212 214 519 531£200m Eurobond 2010 201 204 204 208£325m Eurobond 2012 328 324 339 333£250m Eurobond 2014 278 258 288 266US private placements 380 392 448 478Other loan notes – – 6 6Bank loans 36 37 37 36Overdrafts 118 118 56 56Borrowings (excluding finance leases) 1,553 1,547 1,897 1,9141. m450m of Eurobonds due in 2009 were repurchased during the current year leaving m300m outstanding.2007 2006PresentGross value Gross valuePresent value of finance lease liabilities £m £m £m £mFinance lease payments falling due:Within 1 year 16 14 18 15In 2 to 5 years 32 28 35 33In more than 5 years 9 8 11 957 50 64 57Less: future finance charges (7) – (7) –Present value of finance lease liabilities 50 50 57 57Present2007 2006FinanceFinanceBorrowings leases Total Borrowings leases TotalBorrowings by currency £m £m £m £m £m £mSterling 831 1 832 849 3 852US Dollar 452 24 476 481 25 506Euro 237 21 258 525 22 547Japanese Yen 16 – 16 22 1 23Other 17 4 21 20 6 26Total 1,553 50 1,603 1,897 57 1,954The Group had the following undrawn committed facilities available at 30 September 2007, in respect of which all conditions precedent had thenbeen met:2007 2006Undrawn committed facilities £m £mExpiring between 2 and 5 years 630 96020 Derivative financial instrumentsFinancial managementThe Group continues to manage its interest rate and foreign currency exposure in accordance with the policies set out below.The Group’s financial instruments comprise cash, borrowings, receivables and payables that are used to finance the Group’s operations.The Group also uses derivatives, principally interest rate and cross currency swaps and forward currency contracts, to manage interest rateand currency risks arising from the Group’s operations. The Group does not trade in financial instruments. The Group’s treasury policies aredesigned to mitigate the impact of fluctuations in interest rates and exchange rates and to manage the Group’s financial risks. The Boardapproves any changes to the policies.

67 Compass Group PLC Annual Report 200720 Derivative financial instruments continuedLiquidity riskThe Group finances its borrowings from a number of sources including the bank and public and US private placement markets.Foreign currency riskThe Group’s policy is to match its principal projected cash flows by currency to actual or effective borrowings in the same currency. As currencyearnings are generated, they are used to service and repay debt in the same currency. Where necessary, to implement this policy, forward foreignexchange contracts and cross currency swaps are taken out which, when applied to the actual currency liabilities, convert these to an effectiveamount borrowed by currency.The borrowings in each currency give rise to foreign exchange differences on translation into Sterling. As the borrowings are either less than,or equate to, the net investment in overseas operations, these exchange rate movements are treated as movements on reserves and recorded inthe statement of recognised income and expense rather than in the income statement.Non-Sterling earnings streams are translated at the average rate of exchange for the year. Fluctuations in exchange rates have given and willcontinue to give rise to translation differences.Interest rate riskAs detailed above, the Group has effective borrowings in a number of currencies and its policy is to ensure that, in the short-term, it is not materiallyexposed to fluctuations in interest rates in its principal currencies. The Group implements this policy either by borrowing fixed rate debt or by usinginterest rate swaps so that at least 80% of the Group’s projected net debt is fixed for one year, reducing to 60% fixed for the second year and 40%fixed for the third year.Hedging activitiesFair value hedgesThe Group uses interest rate swaps to hedge the fair value of fixed rate borrowings. These instruments swap the fixed interest payable on theborrowings into floating interest rates and hedge the fair value of the borrowings against changes in interest rates.Cash flow hedgesThe Group uses interest rate swaps to hedge the cash flows from floating rate borrowings. These instruments swap floating interest payable onthese borrowings into fixed interest rates and hedge against cash flow changes caused by changing interest rates. The cash flows and incomestatement impact hedged in this manner will occur between one and three years of the balance sheet date.Net investment hedgeThe Group uses foreign currency denominated debt, forward foreign exchange contracts and cross currency swaps to hedge against the change inSterling value of its foreign currency denominated net assets due to movements in foreign exchange rates.Derivatives not in a hedging relationshipThe Group has a number of derivative financial instruments that do not meet the criteria for hedge accounting. These include interest rate swaps,forward foreign exchange contracts and cross currency swaps.All derivative financial instruments are shown at fair value in the balance sheet. The fair values have been determined by reference to pricesavailable from the markets on which the instruments are traded. All other fair values shown above have been calculated by discounting cash flowsat prevailing interest rates.2007 2006Current Non-current Current Non-current Current Non-current Current Non-currentassets assets liabilities liabilities assets assets liabilities liabilitiesDerivative financial instruments £m £m £m £m £m £m £m £mInterest rate swaps:Fair value hedges – 13 – (15) – 22 – (18)Cash flow hedges – – – – – – – –Not in a hedging relationship 2 – – – 9 – (1) –Cross currency swap:Not in a hedging relationship – – – – – – (1) –Total 2 13 – (15) 9 22 (2) (18)

68 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200720 Derivative financial instruments continued2007 2006Fair value Cash flow Fair value Cash flowswaps swaps swaps swapsNotional amount of derivative financial instruments by currency £m £m £m £mSterling 775 30 775 –US Dollar 173 245 236 375Euro 52 35 339 156Japanese Yen 16 77 21 68Other – 128 – 223Total 1,016 515 1,371 8222007 2006ForwardsForwardsand cross Effective and cross EffectiveGross currency currency of Gross currency currency ofEffective currency denomination of borrowings borrowings swaps borrowings borrowings swaps borrowingsafter the effect of derivatives £m £m £m £m £m £mSterling 837 (318) 519 851 (526) 325US Dollar 476 247 723 506 375 881Euro 258 (98) 160 547 (205) 342Japanese Yen 16 59 75 23 58 81Other 21 105 126 26 299 325Total 1,608 (5) 1,603 1,953 1 1,954Less than Between 1 Between 2 Between 3 Between 4 Over1 year and 2 years and 3 years and 4 years and 5 years 5 years TotalGross debt maturity analysis £m £m £m £m £m £m £m30 September 2007Fixed interest:r300m Eurobond 2009 – 211 – – – – 211£200m Eurobond 2010 – – 200 – – – 200£325m Eurobond 2012 – – – – 324 – 324£250m Eurobond 2014 – – – – – 250 250US private placements – 72 18 59 220 7 376Bank loans 4 4 4 4 – – 16Total fixed interest 4 287 222 63 544 257 1,377Cash flow swaps (fixed leg) 316 199 – – – – 515Fair value swaps (fixed leg) (4) (131) (454) (4) (423) – (1,016)Fixed interest (asset)/liability 316 355 (232) 59 121 257 876Floating interest:Bank loans 20 3 1 – (1) 2 25Overdrafts 118 – – – – – 118Other loans – – – – – – –Total floating interest 138 3 1 – (1) 2 143Cash flow swaps (floating leg) (316) (199) – – – – (515)Fair value swaps (floating leg) 4 131 454 4 423 – 1,016Floating interest (asset)/liability (174) (65) 455 4 422 2 644Other:Finance lease obligations 14 11 9 5 3 8 50Fair value adjustments to borrowings – (2) (2) – (9) 25 12Swap monetisation – 4 3 – 16 3 26Foreign currency and cross currency swaps (5) – – – – – (5)Other (asset)/liability 9 13 10 5 10 36 83Gross debt excluding derivatives 151 303 233 68 553 295 1,603Derivative financial instruments:Derivative financial instruments (2) 3 (12) – 11 – –Gross debt 149 306 221 68 564 295 1,603

69 Compass Group PLC Annual Report 200720 Derivative financial instruments continuedLess than Between 1 Between 2 Between 3 Between 41 year and 2 years and 3 years and 4 years and 5 years Over 5 years TotalGross debt maturity analysis £m £m £m £m £m £m £m30 September 2006Fixed interest:r750m Eurobond 2009 – – 509 – – – 509£200m Eurobond 2010 – – – 201 – – 201£325m Eurobond 2012 – – – – – 325 325£250m Eurobond 2014 – – – – – 250 250US private placements 27 – 81 19 68 247 442Bank loans 5 4 4 4 4 – 21Total fixed interest 32 4 594 224 72 822 1,748Cash flow swaps (fixed leg) 535 287 – – – – 822Fair value swaps (fixed leg) (52) (4) (424) (454) (5) (432) (1,371)Fixed interest (asset)/liability 515 287 170 (230) 67 390 1,199Floating interest:Bank loans 11 3 – – – 2 16Overdrafts 56 – – – – – 56Other loans 6 – – – – – 6Total floating interest 73 3 – – – 2 78Cash flow swaps (floating leg) (535) (287) – – – – (822)Fair value swaps (floating leg) 52 4 424 454 5 432 1,371Floating interest (asset)/liability (410) (280) 424 454 5 434 627Other:Finance lease obligations 15 14 10 6 3 9 57Fair value adjustments to borrowings – – (10) – – 29 19Swap monetisation – – 22 4 – 25 51Foreign currency and cross currency swaps (1) – – – – 2 1Other (asset)/liability 14 14 22 10 3 65 128Gross debt excluding derivatives 119 21 616 234 75 889 1,954Derivative financial instruments:Derivative financial instruments (7) – 11 (18) – 3 (11)Gross debt 112 21 627 216 75 892 1,94321 Trade and other payables2007 2006Current Non-current Current Non-currentTrade and other payables £m £m £m £mTrade payables 660 4 777 4Amounts owed to associates – – – –Social security and other taxes 190 – 176 –Other payables 169 18 210 28Deferred consideration on acquisitions 3 3 20 3Liability on put options held by minority equity partners – 8 9 8Accruals and deferred income 811 3 798 3Trade and other payables 1,833 36 1,990 46The directors consider that the carrying amount of trade payables approximates to their fair value.Trade payable days for the continuing business at 30 September 2007 were 48 days (2006: 48 days for the continuing business).

70 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200722 ProvisionsProvisions inrespect ofdisposed Onerous Legal andProvisionsInsurance businesses contracts other claims Environmental Total£m £m £m £m £m £mAt 1 October 2005 59 – 24 59 11 153Reclassified 67 – 14 (10) (1) 70Expenditure in the year (40) (1) (1) (5) – (47)Charged to income statement 45 109 8 – – 162Credited to income statement – – (1) (5) – (6)Transferred to post-employment benefit obligations (20) – – – – (20)Currency adjustment (4) – – (1) – (5)At 30 September 2006 107 108 44 38 10 307At 1 October 2006 107 108 44 38 10 307Reclassified – – 3 4 (4) 3Expenditure in the year (7) (14) (6) – (1) (28)Charged to income statement 19 108 5 30 3 165Credited to income statement – (2) – – – (2)Transferred to post-employment benefit obligations – – – – – –Currency adjustment (7) – – (1) – (8)At 30 September 2007 112 200 46 71 8 4372007 2006Provisions £m £mNon-current 351 242Current 86 65Total provisions 437 307Insurance relates to the costs of self-funded insurance schemes and is essentially long term in nature.Provisions in respect of discontinued and disposed businesses relate to estimated amounts payable in connection with onerous contracts and claimsarising from disposals. The final amount payable remains uncertain as, at the date of approval of these financial statements, there remains afurther period during which claims may be received. The timing of any settlement will depend upon the nature and extent of claims received.Onerous contracts represent the liabilities in respect of short-term and long-term leases on unoccupied properties and other contracts lastingunder five years.Legal and other claims relate principally to provisions for the estimated cost of litigation and sundry other claims. The timing of the settlementof these claims is uncertain.Environmental provisions are in respect of potential liabilities relating to the Group’s responsibility for maintaining its operating sites in accordancewith statutory requirements and the Group’s aim to have a low impact on the environment. These provisions are expected to be utilised asoperating sites are disposed of or as environmental matters are resolved.23 Post-employment benefit obligationsPension schemes operatedThe Group operates a number of pension arrangements throughout the world which have been developed in accordance with statutoryrequirements and local customs and practices. The majority of schemes are self administered and the schemes’ assets are held independently ofthe Group’s finances. Pension costs are assessed in accordance with the advice of independent, professionally qualified actuaries. The Group makesemployer contributions to the various schemes in existence within the range of 6% to 30% of pensionable salaries.The contributions payable for defined contribution schemes of £36 million (2006: £33 million) have been fully expensed against profits in thecurrent year.UK schemesWithin the UK there are three main arrangements:(i) Compass Group Pension Plan, ‘the Plan’(ii) Compass Pension Scheme, ‘the Scheme’(iii) Compass Retirement Income Savings Plan, ‘CRISP’

71 Compass Group PLC Annual Report 200723 Post-employment benefit obligations continuedCRISP was launched on 1 February 2003. This is the main vehicle for pension provision for new joiners in the UK but existing members of thePlan and the Scheme will continue to accrue benefits under those arrangements. CRISP is a contracted-in money purchase arrangement wherebythe Group will match employee contributions up to 6% of pay (minimum 3%). Within CRISP there has been a new defined contribution sectionestablished from April 2006 known as the Compass Higher Income Plan, ‘CHIP’. Senior employees who contribute to CRISP or to the Plan orScheme will receive an additional employer-only contribution into CHIP. The amount of contribution and eligibility for CHIP are decidedannually at the Company's discretion. The payment towards CHIP may be taken as a cash supplement instead of a pension contribution.The Plan and the Scheme are defined benefit arrangements that are closed to new entrants other than for transfers under public sector contractswhere the Group is obliged to provide final salary benefits to transferring employees. Such transferees enter into special sections of the Plan, knowncollectively as ‘the GAD sections’, which have been certified by the Government Actuary’s Department as ‘broadly comparable’ to the relevantpublic sector scheme. After a thorough review by the Group, the pensions accruing under the Plan and Scheme for service accruing after 6 April2006 (other than for the protected members in the GAD sections) were reduced so that all members now accrue benefits on an 80ths of finalpensionable salary basis. In addition the link between pensionable pay and salary was removed so that pensionable pay from 6 April 2006 willonly increase in line with salary up to a maximum of 5% per annum or the increase in the Retail Price Index if lower. This change, together withadditional funding (including a lump sum of £280 million in 2005/06 and a further £45 million in 2006/07 from the proceeds of the Selectadisposal) and a reduction in the risk profile of investments means that the Group has taken action to substantially reduce the funding deficits in theUK over the last two years.The Plan and the Scheme are operated on a prefunded basis. The funding policy is to contribute such variable amounts, on the advice of theActuary, as achieves a 100% funding level on a projected salary basis. The actuarial assessments covering expense and contributions are carriedout by independent qualified actuaries. Formal actuarial valuations of the Plan and the Scheme are carried out every three years. The most recentvaluations were as at 5 April 2004. The valuation due as at 5 April 2007 is under way and at an advanced stage, but the final results were notavailable at the time of the completion of this report. However, a significant improvement in the funding positions is expected, even allowing forthe updated mortality assumptions. The Plan and the Scheme are reappraised annually by independent actuaries in accordance with IAS 19requirements.CRISP has a corporate trustee. The Chairman, Tony Allen, is independent. The other five trustee directors are UK-based employees or formeremployees of the Group, four of whom have been member-nominated. The Plan has a corporate trustee with two independent directors, includingthe Chairman, Peter Morriss. The other eight trustee directors are UK-based employees or former employees of the Group, four of whom havebeen member-nominated. The Scheme is a closed defined benefit arrangement and also has a corporate trustee. The Chairman, David Bishop,is independent. The remaining seven trustee directors are UK-based employees or former employees of the Group, three of whom have beenmember-nominated.Overseas schemesIn the USA, the main plan is a defined benefit plan. The funding policy, in accordance with government guidelines, is to contribute such variableamounts, on the advice of the actuary, as achieves a 100% funding level on a projected salary basis. In the Netherlands the Group operated insureddefined benefit pension plans where the Group contributions represent the insurance companies’ assessment of the annual cost of the benefitsearned in that year. During the year the arrangements in the Netherlands have been closed and replaced with defined contribution arrangements.The accrued liabilities arising from the defined benefit plans were transferred to the respective insurance companies. In Canada, Norway andSwitzerland the Group also participates in funded defined benefit arrangements.In other countries Group employees participate primarily in state arrangements to which the Group makes the appropriate contributions.The defined benefit schemes are closed to new entrants. For these schemes the current service cost will increase under the projected unit creditmethod as the members of the schemes approach retirement.Disclosures showing the assets and liabilities of the schemes are set out below. These have been calculated on the following assumptions:UK schemes USA schemes Other schemesAt 30 At 30 At 30 At 30 At 30 At 30 At 30 At 30 At 30AssumptionsSeptember September September September September September September September September2007 2006 2005 2007 2006 2005 2007 2006 2005Rate of increase in salaries 3.2%/4.2% 1 2.8%/3.3% 1 3.2% 4.0% 4.0% 4.0% 2.9% 2.7% 2.6%Rate of increase for pensionsin payment 3.2%/3.5% 1 2.8% 3.0% 2.2% 2.5% 2.4% 0.9% 0.7% 0.8%Rate of increase for deferred pensions 3.2% 2.8%/3.0% 1 2.7% 0.0% 0.0% 0.0% 0.6% 0.7% 0.8%Discount rate 5.8% 5.0% 5.0% 6.1% 5.8% 5.5% 4.9% 3.9% 3.8%Inflation assumption 3.2% 2.8% 2.7% 2.2% 2.5% 2.4% 2.1% 1.8% 1.8%1. Varies according to the benefit structure.

72 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200723 Post-employment benefit obligations continuedThe mortality tables used in the actuarial valuation imply life expectancy at age 65 in years for typical members as follows:UK schemes Male non-pensioner Male pensioner Female non-pensioner Female pensionerAt 30 September 2007 21.8 years 20.5 years 24.7 years 23.5 yearsAt 30 September 2006 20.9 years 19.7 years 23.7 years 22.6 yearsUSA schemes Male FemaleAt 30 September 2007 18.1 years 20.4 yearsAt 30 September 2006 18.1 years 20.4 yearsUK schemes USA schemes Other schemesExpected Expected Expected Total30 September 2007 return £m return £m return £m £mEquity instruments 8.0% 383 8.8% 46 6.6% 25 454Debt instruments 5.3% 838 5.9% 19 4.7% 33 890Other 6.0% 69 3.8% 4 5.2% 25 98Total plan assets 6.1% 1,290 7.7% 69 5.7% 83 1,442Present value of funded obligations (1,199) (81) (98) (1,378)Present value of unfunded obligations (29) (48) (57) (134)Surplus not recognised in accordance with IFRIC 14 (91) – (1) (92)Liability in the balance sheet (29) (60) (73) (162)UK schemes USA schemes Other schemesExpected Expected Expected Total30 September 2006 return £m return £m return £m £mEquity instruments 7.7% 401 8.7% 47 6.4% 45 493Debt instruments 4.7% 764 5.6% 20 3.5% 81 865Other 4.5% 9 4.4% 1 4.1% 40 50Total plan assets 5.7% 1,174 7.8% 68 4.5% 166 1,408Present value of funded obligations (1,241) (91) (187) (1,519)Present value of unfunded obligations (28) (64) (79) (171)Liability in the balance sheet (95) (87) (100) (282)UK schemes USA schemes Other schemesExpected Expected Expected Total30 September 2005 return £m return £m return £m £mEquity instruments 7.5% 489 8.3% 53 6.2% 44 586Debt instruments 4.5% 305 5.0% 17 3.4% 65 387Other 4.0% 18 3.9% 1 3.0% 48 67Total plan assets 6.3% 812 7.4% 71 4.0% 157 1,040Present value of funded obligations (1,155) (96) (176) (1,427)Present value of unfunded obligations (24) (70) (74) (168)Liability in the balance sheet (367) (95) (93) (555)The expected rates of return on individual categories of plan assets are determined after taking advice from external experts and using availablemarket data, for example, by reference to relevant equity and bond indices published by Stock Exchanges. The overall rate of return is calculatedby weighting the individual rates in accordance with the anticipated balance in the respective investment portfolio of each plan.2007 2006Total pension costs/(credits) UK USA Other Total UK USA Other Totalrecognised in the income statement £m £m £m £m £m £m £m £mCurrent service cost 12 3 12 27 19 3 16 38Past service credit – (1) – (1) – (2) – (2)Curtailment credit – – (6) (6) (6) (6) – (12)Charged/(credited) to operating expenses 12 2 6 20 13 (5) 16 24Amount charged to plan liabilities 64 8 8 80 59 9 8 76Expected return on plan assets (67) (5) (6) (78) (54) (5) (6) (65)(Credited)/charged to finance costs (3) 3 2 2 5 4 2 11Total pension costs/(credits) 9 5 8 22 18 (1) 18 35The total pension costs/(credits) shown above relate to both the continuing and discontinued business.

73 Compass Group PLC Annual Report 200723 Post-employment benefit obligations continued2007 2006Fair value of pension plan assets UK USA Other Total UK USA Other Totalrecognised in the balance sheet £m £m £m £m £m £m £m £mAt 1 October 1,174 68 166 1,408 812 71 157 1,040Currency adjustment – (6) 1 (5) – (4) (8) (12)Expected return on plan assets 67 5 6 78 54 5 6 65Actuarial gain * 14 5 3 22 27 – 12 39Employee contributions 4 – 4 8 5 – 4 9Employer contributions 68 17 25 110 314 5 10 329Asset transfer from Granada scheme – – – – 3 – – 3Benefits paid (47) (20) (13) (80) (41) (9) (6) (56)Merger of Vendepac Scheme into the UK Scheme 10 – (10) – – – – –Disposals & plan settlements – – (99) (99) – – (9) (9)At 30 September 1,290 69 83 1,442 1,174 68 166 1,4082007 2006Present value of defined benefit UK USA Other Total UK USA Other Totalobligations recognised in the balance sheet £m £m £m £m £m £m £m £mAt 1 October 1,269 155 266 1,690 1,179 166 250 1,595Currency adjustment – (11) 2 (9) – (9) (9) (18)Current service cost 12 3 12 27 19 3 16 38Past service credit – (1) – (1) – (2) – (2)Curtailment credit – – (6) (6) (6) (6) – (12)Amount charged to plan liabilities 64 8 8 80 59 9 8 76Actuarial (gain)/loss * (84) (5) (19) (108) 55 5 16 76Employee contributions 4 – 4 8 5 – 4 9Benefits paid (47) (20) (13) (80) (41) (9) (6) (56)Benefits paid by the Group – – – – (1) – (6) (7)Merger of Vendepac Scheme into the UK Scheme 10 – (10) – – – – –Disposals and plan settlements – – (103) (103) – – (23) (23)Other balance sheet transfers – – 14 14 – – 20 20Reclassified – – – – – (2) (4) (6)At 30 September 1,228 129 155 1,512 1,269 155 266 1,690The history of experience adjustments is as follows. In accordance with the transitional provisions for the amendments to IAS 19 ‘EmployeeBenefits’ issued on 16 December 2004, the disclosures below are determined prospectively from the 2005 reporting period.2007 2006 2005Experience adjustments £m £m £mPresent value of defined benefit obligations 1,512 1,690 1,595Fair value of plan assets (1,442) (1,408) (1,040)Surplus not recognised in accordance with IFRIC 14 * 92 – –Net deficit reported 162 282 555Experience adjustments on plan liabilities – (loss) (15) (14) (8)Experience adjustments on plan assets – gain 22 39 75* The actuarial gain/loss reported in the consolidated statement of recognised income and expense is the sum of the items marked with an asterisk.The Group made total contributions of £110 million in the year (2006: £329 million) including special contributions of disposal proceedsto pension plans of £45 million (2006: £280 million) and expects to make regular ongoing contributions of £38 million in 2008.The expected return on plan assets is based on market expectations at the beginning of the period. The actual return on assets was £100 million(2006: £104 million).The cumulative actuarial loss recognised in the statement of recognised income and expense was £156 million (2006: £194 million). An actuarialgain of £38 million (2006: actuarial loss £37 million) was recognised during the year.The deficit would have reduced to £70 million if the full surplus on certain schemes had been fully recognised. IFRIC 14 only permits therecognition of a pension fund surplus where a company can clearly demonstrate that it can access the surplus through, for example, reducedfuture contributions. The Group has taken the prudent view that it will not be able to access these surpluses, totalling £92 million, in theforeseeable future.

74 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200724 Called up share capitalDuring the year 4,463,879 options were granted under the Compass Group Management Share Option Plan. All options were granted over theCompany’s ordinary shares and the grant price was equivalent to the market value of the Company’s shares at the date of grant. No options weregranted under any of the Company’s other share option plans.The Company commenced an on market share buy-back programme following the disposal of Select Service Partner in June 2006. Thisprogramme was extended following the disposal of Selecta in July 2007. During the year, a total of 181,407,434 ordinary shares of 10p eachwere repurchased for a consideration of £575 million and cancelled.2007 2006Number ofNumber ofAuthorised and allotted share capital shares £m shares £mAuthorised:Ordinary shares of 10p each 3,000,010,000 300 3,000,010,000 300Allotted and fully paid:Ordinary shares of 10p each 1,926,996,323 193 2,098,723,901 2102007 2006Number ofNumber ofAllotted share capital shares sharesOrdinary shares of 10p each allotted as at 1 October 2,098,723,901 2,155,661,135Ordinary shares allotted during the year on exercise of share options 9,679,856 743,766Repurchase of ordinary share capital (181,407,434) (57,681,000)Ordinary shares of 10p each allotted as at 30 September 1,926,996,323 2,098,723,901At 30 September 2007, employees held options over a total of 122,169,742 ordinary shares under all of the Group’s share option plans as follows:Executive and Management Share Option Plans Number of shares Option price per share (pence)Exercisable:17 December 2000 – 16 December 2007 141,106 324.9111 December 2001 – 10 December 2008 166,186 338.2717 June 2002 – 16 June 2009 69,244 444.7616 September 2002 – 15 September 2009 4,858,287 312.80 129 September 2002 – 28 September 2009 1,325,788 316.10 125 November 2002 – 24 November 2009 497,781 391.7022 December 2002 – 21 December 2009 13,849 431.403 February 2003 – 2 February 2010 285,342 394.00 113 September 2003 – 12 September 2010 12,497,735 371.6028 May 2004 – 27 May 2011 430,000 524.5019 September 2004 – 18 September 2011 9,426,450 430.0023 May 2005 – 22 May 2012 10,430,150 422.0030 September 2005 – 29 September 2012 3,580,376 292.504 December 2005 – 3 December 2012 1,073,900 313.7528 May 2006 – 27 May 2013 14,305,550 320.003 December 2006 – 2 December 2013 85,500 356.003 December 2006 – 2 December 2013 2,053,300 356.007 June 2007 – 6 June 2014 1,200,000 333.503 August 2007 – 2 August 2014 1,300,000 316.253 August 2007 – 2 August 2014 13,260,610 316.251 December 2007 – 30 November 2014 3,290,000 229.251 December 2007 – 30 November 2014 18,437,823 229.2514 December 2008 – 13 December 2015 6,867,800 210.0012 June 2009 – 11 June 2016 215,000 234.5030 March 2010 – 29 March 2017 4,177,304 335.7528 September 2010 – 27 September 2017 265,354 310.75110,254,4351. Options granted over ordinary shares in Compass Group Holdings PLC (‘CGH’). Under its articles of association, any CGH ordinary shares which are issued on exercise are automatically transferredto the Company in consideration of the issue of Compass Group PLC ordinary shares on the basis of 1.835 Compass Group PLC shares for every CGH share. Numbers and prices given are relative toCompass Group PLC.

75 Compass Group PLC Annual Report 200724 Called up share capital continuedUK and International Sharesave Plans Number of shares Option price per share (pence)Exercisable:1 September 2008 – 28 February 2009 89,086 436.001 September 2008 – 28 February 2009 1,814 1 436.001 September 2007 – 28 February 2010 415,509 336.001 September 2007 – 28 February 2008 256,821 1 336.001 September 2008 – 28 February 2011 192,961 290.201 September 2008 – 28 February 2009 210,085 1 290.201 September 2007 – 28 February 2012 623,332 266.801 September 2007 – 28 February 2012 815,742 1 266.801 September 2007 1,466,372 1 266.804 September 2007 48,932 1 266.801 September 2008 – 28 February 2013 3,750,761 179.201 September 2008 – 28 February 2011 1,327,843 1 179.201 September 2008 2,543,830 1 179.201 September 2008 172,219 1 179.2011,915,3071. Options granted under the international sharesave plan represent appreciation rights over the number of shares shown. In the event of exercise, holders will receive a number of shares calculated byreference to the increase in the market price at the time of exercise over the option price.25 Reconciliation of movements in equityAttributable to equity shareholders of the CompanyShare CapitalShare premium redemption Own Other Retained Minoritycapital account reserve shares reserves earnings interests TotalReconciliation of movements in equity £m £m £m £m £m £m £m £mAt 1 October 2005 216 94 9 (1) 4,137 (2,204) 27 2,278Total recognised income and expense – – – – (12) 260 6 254Issue of shares – 2 – – – – – 2Fair value of share-based payments (net) – – – – 25 – – 25Share buy-back (6) – 6 – – (149) – (149)Transfer on exercise of put options – – – – 138 3 (10) 131Other changes – – – 1 – – (6) (5)210 96 15 – 4,288 (2,090) 17 2,536Dividends paid to Compass shareholders (note 9) – – – – – (213) – (213)Dividends paid to minority interests – – – – – – (11) (11)At 30 September 2006 210 96 15 – 4,288 (2,303) 6 2,312At 1 October 2006 210 96 15 – 4,288 (2,303) 6 2,312Total recognised income and expense – – – – 1 575 19 595Issue of shares 1 26 – – – – – 27Fair value of share-based payments (net) – – – – 14 – – 14Share buy-back (18) – 18 – – (575) – (575)Transfer on exercise of put options – – – – 9 – – 9Other changes – – – (1) – – – (1)193 122 33 (1) 4,312 (2,303) 25 2,381Dividends paid to Compass shareholders (note 9) – – – – – (208) – (208)Dividends paid to minority interests – – – – – – (3) (3)At 30 September 2007 193 122 33 (1) 4,312 (2,511) 22 2,170Own shares held by the Group represent 271,960 shares in Compass Group PLC (2006: 161,600 shares). 161,012 shares are held by the CompassGroup Employee Share Trust (‘ESOP’) and 110,948 shares by the Compass Group Employee Trust Number 2 (‘CGET2’). These shares are listedon a recognised stock exchange and their market value at 30 September 2007 was £0.8 million (2006: £0.4 million). The nominal value held at30 September 2007 was £27,196 (2006: £16,160).ESOP and CGET2 are discretionary trusts for the benefit of employees and the shares held are used to satisfy some of the Group’s liabilities toemployees for share options, share bonus and long-term incentive plans. All of the shares held by the ESOP and CGET2 are required to be madeavailable in this way.

76 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200725 Reconciliation of movements in equity continuedThe analysis of other reserves is shown below:Share-basedEquityadjustmentpayment Merger Translation Hedging for put Total otherreserve reserve reserve reserve options reservesOther reserves £m £m £m £m £m £mAt 1 October 2005 105 4,170 16 1 (155) 4,137Total recognised income and expense – – (11) (1) – (12)Fair value of share-based payments 25 – – – – 25Settled in cash or existing shares (purchased in market) – – – – – –Transfer on exercise of put options – – – – 138 138At 30 September 2006 130 4,170 5 – (17) 4,288At 30 September 2006 130 4,170 5 – (17) 4,288Total recognised income and expense – – 1 – – 1Fair value of share-based payments 25 – – – – 25Settled in cash or existing shares (purchased in market) (11) – – – – (11)Transfer on exercise of put options – – – – 9 9At 30 September 2007 144 4,170 6 – (8) 4,312The merger reserve arose in 2000 following the demerger from Granada Compass plc. The equity adjustment for put options arose on accountingfor the options held by the Group’s minority partners requiring the Group to purchase those minority interests.26 Share-based paymentsShare optionsFull details of the Compass Group Share Option Plan (‘Option Plan’), the Management Share Option Plan (‘Management Plan’) and the SavingsrelatedShare Option Scheme can be found in the Directors’ remuneration report.The following tables illustrate the number and weighted average exercise prices of, and movements in, share options during the year.2007 2006Number Weighted average Number Weighted averageof share exercise price of share exercise priceExecutive and management schemes options (pence) options (pence)Outstanding at 1 October 129,018,281 321.25 140,634,118 330.33Granted 4,463,879 334.26 7,813,300 210.67Exercised (8,946,120) 283.31 (600,725) 229.09Forfeited (14,036,513) 350.13 (18,759,168) 346.29Expired (245,092) 379.22 (69,244) 310.29Outstanding at 30 September 110,254,435 321.05 129,018,281 321.25Exercisable at 30 September 62,610,104 364.63 55,215,845 380.21The balance above includes options over 29,711,766 shares (2006: 36,367,195 shares) that were granted on or before 7 November 2002 andhad vested by 1 October 2004. These options have not been subsequently modified and therefore do not need to be accounted for in accordancewith IFRS 2 ‘Share-based Payment’.2007 2006Number Weighted average Number Weighted averageof share exercise price of share exercise priceEmployee savings-related schemes – options options (pence) options (pence)Outstanding at 1 October 8,463,978 236.51 12,191,328 242.24Granted – – – –Exercised (639,141) 236.82 (48,937) 179.20Forfeited (1,741,974) 227.34 (2,797,940) 231.14Expired (1,011,214) 377.34 (880,473) 336.00Outstanding at 30 September 5,071,649 211.55 8,463,978 236.51Exercisable at 30 September 614,111 305.45 1,023,142 376.32The balance above includes options over 89,086 shares (2006: 744,709 shares) that were granted on or before 7 November 2002 and had vested by1 October 2004. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.

77 Compass Group PLC Annual Report 200726 Share-based payments continued2007 2006Number Weighted average Number Weighted averageof share exercise price of share exercise priceEmployee savings-related schemes – share appreciation rights options (pence) options (pence)Outstanding at 1 October 9,595,916 220.56 15,140,626 235.29Granted – – – –Exercised (56,267) 191.27 (3,354) 179.20Forfeited (2,613,234) 220.02 (3,545,071) 244.30Expired (82,757) 436.00 (1,996,285) 290.20Outstanding at 30 September 6,843,658 218.40 9,595,916 220.56Exercisable at 30 September 2,196,771 274.89 84,571 436.00Options granted under the international savings-related schemes represent appreciation rights over the number of shares shown. When exercised,holders receive a number of shares calculated by reference to the increase in the market price at that time over the option price (as shown in thetable above). Any remaining share appreciation rights are shown in the table above as expired.Information relating to all option schemesThe weighted average share price at the date of exercise for share options exercised during the year was 345.64 pence (2006: 263.80 pence).The options outstanding at the end of the year have a weighted average remaining contractual life of 5.5 years (2006: 6.4 years) for executiveand management schemes and 1.5 years (2006: 2.5 years) for employee schemes.For 2007, options were granted on 30 March 2007 and 28 September 2007. The estimated fair value of options granted on those dates was90.97 pence and 62.10 pence respectively. For 2006, options were granted on 14 December 2005 and 12 June 2006. The estimated average fairvalue of these options was 41.97 pence and 45.88 pence respectively.Fair values for the executive and management schemes were calculated using a binomial distribution option pricing model so that proper allowanceis made for the presence of performance conditions and the possibility of early exercise. In addition, a Monte Carlo simulation model was used toestimate the probability of performance conditions being met. Fair values for options granted under employee savings-related schemes werecalculated using the Black-Scholes option pricing model. The inputs to the option pricing models are reassessed for each grant.The historical volatility is calculated with reference to weekly movements in the Compass share price over the three years prior to the grant date.The following assumptions were used in calculating the fair value of options granted under executive schemes:Assumptions – options 2007 2006Historical volatility 28.0% 31.6%Risk free interest rate 5.2% 4.3%Dividend yield 3.0% 4.6%Expected life 6.0 years 7.0 yearsWeighted average share price at date of grant 337.74p 211.59pWeighted average option exercise price 334.26p 210.67pLong-term incentive planFull details of the Compass Group Long-Term Incentive Plan (‘LTIP’) can be found in the Directors’ remuneration report.The following table shows the movement in share awards during the year.2007 2006NumberNumberLong-term incentive plan of shares of sharesOutstanding at 1 October 6,183,127 5,669,951Awarded 2,041,940 3,189,460Exercised (253,526) (90,750)Forfeited or waived (1,486,193) (1,629,107)Lapsed (925,349) (956,427)Outstanding at 30 September 5,559,999 6,183,127Exercisable at 30 September – 253,626Vesting of LTIP awards made before September 2005 and 50% of LTIP awards made in the years to 30 September 2006 and 2007 are dependenton the Group’s performance relative to a comparator group of companies comprising the FTSE 100 Index. This is treated as a market-basedcondition for valuation purposes and an assessment of the vesting probability was built into the grant date fair value calculations. This assessmentwas calculated using a Monte Carlo simulation option pricing model.

78 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200726 Share-based payments continuedThe remaining 50% of awards made in the year to 30 September 2007 depend on the achievement of the Group Free Cash Flow (‘GFCF’) targetfor the three years from 1 October 2006 to 30 September 2009. 25% of the award will vest if GFCF of at least £859 million is achieved over theperiod and the full award will vest if GFCF of £959 million is achieved. 50% of awards made in the year to 30 September 2006 depend on theachievement of the GFCF target for the three years from 1 October 2005 to 30 September 2008. 25% of the award will vest if GFCF of at least£768 million is achieved over the period and the full award will vest if GFCF of £843 million is achieved. Awards will vest on a straight-line basisbetween these two points.The fair value of these awards was calculated using the Black-Scholes option pricing model, the vesting probability being assessed based ona simulation model of the GFCF forecast.The weighted average share price at the date of exercise for LTIP awards exercised during the year was 324.41 pence (2006: 225.47 pence).The LTIP awards outstanding at the end of the year have a weighted average remaining contractual life of 1.5 years (2006: 1.6 years).In 2007, LTIP awards were made on 8 March 2007 and 1 June 2007. The estimated fair value of awards granted on these dates was 251.88 pence.In 2006, LTIP awards were made on 14 June 2006. The estimated average fair value of these awards was 120.00 pence.The inputs to the option pricing models are reassessed for each award. The following assumptions were used in calculating the fair value of LTIPawards made during the year:Assumptions – long-term incentive plan 2007 2006Historical volatility 28.1% 28.2%Risk free interest rate 5.2% 4.7%Dividend yield 3.2% 4.3%Expected life 2.5 years 2.3 yearsWeighted average share price at date of grant 317.70p 206.25pLong-term bonus planCertain executives participating in the Long-Term Bonus Plan in prior years received an award of deferred Compass Group PLC shares.The award of bonus shares is subject to performance conditions and matching shares may be released by the Company following completionof a further period of service.The following table illustrates the movement in the number of awards during the year.2007 2006NumberNumberLong-term bonus plan of shares of sharesOutstanding at 1 October 6,514,317 9,984,014Awarded 222,932 174,628Adjustment of awards following acquisition of minority interests 295,984 –Vested (2,079,432) (958,590)Lapsed (cash settled) (1,020,400) (1,947,501)Forfeited (470,875) (738,234)Outstanding at 30 September 3,462,526 6,514,317Fair values for bonus shares awarded during the year were calculated using the Black-Scholes option pricing model. The inputs to the optionpricing model are reassessed for each grant. The following assumptions were used in calculating the fair value of awards granted:Assumptions – long-term bonus plan 2007 2006Historical volatility 31.0% 35.9%Risk free interest rate 4.3% 4.8%Dividend yield 4.3% 4.0%Expected life 3.0 years 3.0 yearsWeighted average share price at date of grant 222.28p 220.32pThe weighted average share price at the date of exercise for share bonus awards vesting during 2007 was 305.07 pence (2006: 211.54 pence).The share bonus awards outstanding at the end of the year have a weighted average remaining contractual life of 0.1 years (2006: 0.6 years).The estimated average fair value of share bonus awards made during the year was 280.56 pence (2006: 265.70 pence).

79 Compass Group PLC Annual Report 200726 Share-based payments continuedIncome statement expense and carrying valueThe Group recognised expenses of £24 million (2006: £21 million) for continuing operations and £1 million (2006: £4 million) for discontinuedoperations in respect of equity-settled share-based payment transactions.Cash-settled share-based paymentsThe Group has granted phantom share options to certain employees under the terms of the Management Equity Bonus Plan which mirrorgrants made under the Management Plan. These require the Group to pay the intrinsic value of the option to the employee at the date of exercise.At 30 September 2007, the Group has recorded liabilities of £1 million (2006: £2 million). The fair value of the phantom options is determinedusing the binomial distribution option pricing model using the assumptions shown above. The Group recorded a total credit of £1 million(2006: expense £1 million) during the year in respect of cash-settled phantom share options.27 Business combinationsAcquisitions in the year included the purchase of the final 5% minority interest in Onama S.p.A. for a consideration of £7 million and a numberof smaller infill acquisitions for a consideration of £7 million. Total £14 million.£12 million goodwill was recognised in respect of these acquisitions. This included a fair value adjustment of £2 million which increasedliabilities acquired.Goodwill arising on acquisitions in the year is attributable to the anticipated profitability that will be generated from an extension to theGroup’s operations.Onama was previously accounted for as a subsidiary and therefore there is no impact on the Group’s consolidated revenue or operating profitsin acquiring the final 5%. The impact on the Group’s consolidated revenue and operating profits had the other investments been owned forthe full year would have been minimal.The Group also paid deferred consideration relating to prior year acquisitions of £17 million, leaving £6 million deferred consideration outstanding.The total amount of cash paid in the year was £31 million.28 Reconciliation of operating profit to cash generated by operations2007 2006Reconciliation of operating profit to cash generated by operations £m £mOperating profit from continuing operations 525 455Adjustments for:Depreciation of property, plant and equipment 142 151Amortisation of intangible fixed assets 31 37Loss on disposal of property, plant and equipment 5 5Increase/(decrease) in provisions 43 (3)Decrease in pensions liability (42) (35)Share-based payments – charged to profits 1 23 21Share-based payments – settled in cash or existing shares 2 (11) –Operating cash flows before movement in working capital 716 631(Increase)/decrease in inventories (7) (4)(Increase)/decrease in receivables 8 (33)Increase/(decrease) in payables 36 57Cash generated by operations 753 6511. £24 million share based payments charge – £1 million credit in respect of cash-settled phantom share options (credited back to the income statement).2. It was originally anticipated that these payments would be satisfied by the issue of new shares.

80 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200729 Cash flow from discontinued operations2007 2006Cash flow from discontinued operations £m £mNet cash from/(used in) operating activities of discontinued operationsCash generated from discontinued operations (11) 193Tax paid (7) (15)Net cash from/(used in) operating activities of discontinued operations (18) 178Net cash from/(used in) investing activities by discontinued operationsPurchase of property, plant and equipment (34) (116)Proceeds from sale of property, plant and equipment 4 11Net cash from/(used in) investing activities by discontinued operations (30) (105)Net cash from/(used in) financing activities by discontinued operationsDividends paid to minority interests – –Net cash from/(used in) financing activities by discontinued operations – –30 Analysis of net debtThis table is presented as additional information to show movement in net debt, defined as overdrafts, bank and other borrowings, finance leasesand derivative financial instruments, net of cash and cash equivalents.TotalCash Bank overdrafts Derivativeand cash Bank and other and Finance financial Gross NetNet debtequivalents overdrafts borrowings borrowings leases instruments debt debt£m £m £m £m £m £m £m £mAt 1 October 2005 281 (33) (2,637) (2,670) (60) 24 (2,706) (2,425)Cash flow 574 (27) 674 647 15 – 662 1,236Exchange movements (7) 3 71 74 2 – 76 69Acquisitions and disposals(excluding cash and overdrafts) – 1 (1) – 1 – 1 1Other non-cash movements – – 52 52 (15) (13) 24 24At 30 September 2006 848 (56) (1,841) (1,897) (57) 11 (1,943) (1,095)At 1 October 2006 848 (56) (1,841) (1,897) (57) 11 (1,943) (1,095)Cash flow (11) (66) 305 239 15 – 254 243Exchange movements 2 3 68 71 1 – 72 74Acquisitions and disposals(excluding cash and overdrafts) – 1 – 1 6 – 7 7Other non-cash movements – – 33 33 (15) (11) 7 7At 30 September 2007 839 (118) (1,435) (1,553) (50) – (1,603) (764)Other non-cash movements includes amortisation of the fair value adjustment in respect of the £250 million sterling Eurobond redeemable in 2014 of £4 million, fair value debt adjustment of £4 million and swapmonetisation credit of £25 million.

81 Compass Group PLC Annual Report 200731 Contingent liabilities2007 2006Contingent liabilities £m £mPerformance bonds, guarantees and indemnities (including those of associated undertakings) 227 203On 21 October 2005, the Company announced that it had instructed Freshfields Bruckhaus Deringer to conduct an investigation into therelationships between Eurest Support Services (‘ESS’) (a member of the Group), IHC Services Inc. (‘IHC’) and the United Nations (‘UN’). Ernst& Young assisted Freshfields Bruckhaus Deringer in this investigation. On 1 February 2006, it was announced that the investigation had concluded.The investigation established serious irregularities in connection with contracts awarded to ESS by the UN. The work undertaken by FreshfieldsBruckhaus Deringer and Ernst & Young gave no reason to believe that these issues extended beyond a few individuals within ESS to other partsof ESS or the wider Compass Group of companies.The Group settled all outstanding civil litigation against it, in relation to this matter, in October 2006 but litigation continues between competitorsof ESS, IHC and other parties involved in UN procurement.IHC’s relationship with the UN and ESS was part of a wider investigation into UN procurement activity being conducted by the United StatesAttorney’s Office for the Southern District of New York, and with which the Group cooperated fully. The current status of that investigation isuncertain and a matter for the US authorities. Those investigators could have had access to sources unavailable to the Group, FreshfieldsBruckhaus Deringer or Ernst & Young, and further information may yet emerge which is inconsistent with, or additional to, the findings of theFreshfields Bruckhaus Deringer investigation, which could have an adverse impact on the Group. The Group has however not been contacted by,or received further requests for information from, the United States Attorney’s Office for the Southern District of New York in connection withthese matters since January 2006. The Group has cooperated fully with the UN throughout.In February 2007, the Group’s Portuguese business, Eurest (Portugal) Sociedade Europeia Restaurantes LDA, was visited by the PortugueseCompetition Authority (‘PCA’) as part of an investigation into possible past breaches of competition law by the Group and other caterers in thesector. The PCA investigation relates to a part of the Portuguese catering business which services mainly public sector contracts. The Groupis cooperating fully with the PCA’s ongoing investigation. Revenues of the Portuguese business for the year ended 30 September 2007 were£90 million (r134 million). It is likely that the investigation will take several months to complete and its outcome cannot be predicted at this point.It is not currently possible to quantify any potential liability which may arise in respect of these matters. The directors currently have no reasonto believe that any potential liability that may arise would be material to the financial position of the Group.The Group, through a number of its subsidiary undertakings, is, from time to time, party to various other legal proceedings or claims arising fromits normal business. Provisions are made as appropriate. None of these proceedings is regarded as material litigation.The Group has provided a guarantee to one of its joint venture partners over the level of profits which will accrue to them in future periods.The maximum amount payable under this guarantee is £35 million, which would be payable in respect of the period from 1 July 2007 to31 December 2010. Based on the latest management projections, no liability is expected to arise in relation to this guarantee and accordingly,no provision has been recorded at 30 September 2007 (2006: £nil).32 Capital commitments2007 2006Capital commitments £m £mContracted for but not provided for 23 3033 Operating lease and concessions commitmentsThe Group leases offices and other premises under non-cancellable operating leases. The leases have varying terms, purchase options, escalationclauses and renewal rights. The Group has some leases that include revenue-related rental payments that are contingent on future levels of revenue.Future minimum rentals payable under non-cancellable operating leases and concessions agreements are as follows:Operating leases2007 2006OtherOperating leasesLand and Other occupancy Land and Other occupancybuildings assets rentals buildings assets rentalsOperating lease and concessions commitments £m £m £m £m £m £mFalling due within 1 year 40 41 26 47 46 43Falling due between 2 and 5 years 111 54 61 111 51 104Falling due in more than 5 years 71 5 33 106 6 71Total 222 100 120 264 103 218Other

82 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200734 Related party transactionsThe following transactions were carried out with related parties of Compass Group PLC:SubsidiariesTransactions between the ultimate parent company and its subsidiaries, and between subsidiaries, have been eliminated on consolidation.Joint venturesThere were no significant transactions between joint ventures and the rest of the Group during the year.AssociatesThe balances with associated undertakings are shown in notes 16 and 21. There were no significant transactions with associated undertakingsduring the year.Key management personnelThe remuneration of key management personnel is shown in note 3. During the year there were no material transactions or balances between theGroup and its key management personnel or members of their close family.35 Post balance sheet eventsOn 1 October 2007 the Group acquired Propoco Inc (‘Professional Services’), a leading regional provider of facilities management services tothe US healthcare market, for a total consideration of £38 million. £36 million was paid at closing, with the remaining £2 million being deferredfor 12 months.The Group’s share buy-back programme continued after the balance sheet date. Between 1 October 2007 and 23 November 2007, the Grouprepurchased for cancellation 34 million ordinary shares for a total consideration of £105 million, bringing the total number of shares repurchasedsince the buy-back programme began to 273 million shares for a total consideration of £825 million (before brokers commission and stamp duty).36 Exchange ratesExchange rates 2007 2006Average exchange rate for yearAustralian Dollar 2.44 2.41Brazilian Real 4.02 3.97Canadian Dollar 2.19 2.06Euro 1.48 1.46Japanese Yen 234.05 209.07Norwegian Krone 11.98 11.66South African Rand 14.18 11.95Swedish Krona 13.63 13.67Swiss Franc 2.40 2.29US Dollar 1.97 1.80Closing exchange rate as at 30 SeptemberAustralian Dollar 2.30 2.53Brazilian Real 3.75 4.22Canadian Dollar 2.02 2.13Euro 1.43 1.48Japanese Yen 234.33 220.54Norwegian Krone 11.05 12.47South African Rand 14.05 14.52Swedish Krona 13.18 13.80Swiss Franc 2.38 2.34US Dollar 2.04 1.87Average rates are used to translate the income statement and cash flow. Closing rates are used to translate the balance sheet. Only the most significant currencies are shown.

83 Compass Group PLC Annual Report 200737 Details of principal subsidiary companiesCompany Country of incorporation Principal activitiesNorth AmericaCompass Group Canada Ltd Canada Trading company providing foodserviceBon Appétit Management Co USA Trading company providing foodserviceCompass Group USA Investments, Inc USA Holding companyCompass Group USA, Inc USA Trading company providing foodserviceCrothall Services Group USA Trading company providing support services to the healthcare marketFlik International Corp USA Trading company providing fine dining facilitiesFoodbuy LLC (64%) USA Provision of purchasing services in North AmericaLevy Restaurants LP USA Trading company providing fine dining and foodservice at sports and entertainment facilitiesMorrison Management Specialists, Inc USA Trading company providing foodservice to the healthcare marketRestaurant Associates Corp USA Trading company providing fine dining facilitiesWolfgang Puck Catering & Events, LLC (49%) 1 USA Trading company providing fine dining facilitiesContinental EuropeCompass Group France Holdings SAS France Holding companyCompass Group France France Trading company providing foodserviceCompass Group Deutschland GmbH Germany Holding companyClinic Catering Service GmbH & Co. OHG Germany Trading company providing foodservice to the healthcare and retirement marketEurest Deutschland GmbH Germany Trading company providing foodservice to business and industryEurest Sports & Food GmbH Germany Trading company providing foodservice to the sports and leisure marketOnama S.p.A. Italy Trading company providing foodservicePalmar S.p.A. (90%) Italy Trading company providing support servicesRistomat S.p.A. Italy Trading company providing prepaid meal vouchersCompass Group International BV Netherlands Holding companyCompass Group Nederland BV Netherlands Trading company providing foodserviceCompass Group Nederland Holding BV Netherlands Holding companyEurest Support Services BV Netherlands Trading company providing support servicesCompass Group Holdings Spain, S.L. Spain Holding companyEurest Colectividades S.L. Spain Trading company providing foodserviceCompass Group (Schweiz) AG Switzerland Trading company providing foodserviceRestorama AG Switzerland Trading company providing foodserviceUnited KingdomCompass Contract Services (UK) Ltd England & Wales Trading company providing foodserviceCompass Group Holdings PLC England & Wales Holding company and corporate activitiesCompass Group, UK & Ireland Ltd England & Wales Holding companyCompass International Purchasing Ltd England & Wales Provision of purchasing services throughout the worldCompass Purchasing Ltd England & Wales Provision of purchasing services in the UK and IrelandHospitality Holdings Ltd 2 England & Wales Intermediate holding companyLetheby & Christopher Ltd England & Wales Trading company for the UK sports and events foodservice businessScolarest Ltd England & Wales Trading company providing foodservice to the UK education marketRest of the WorldCompass Group (Australia) Pty Ltd Australia Trading company providing foodserviceSeiyo Food – Compass Group, Inc (86%) Japan Trading company providing foodserviceCompass Group Southern Africa (Pty) Ltd (70%) South Africa Trading company providing foodservice1. The Group exercises control of this entity and accounts for it as a subsidiary.2. Held directly by the parent company.All companies listed above are wholly owned by the Group, except where otherwise indicated. All interests are in the ordinary share capital.All companies operate principally in their country of incorporation, except for Compass International Purchasing Ltd which operates throughoutthe world. A full list of the Group’s operating subsidiary undertakings will be annexed to the next annual return.

84 Compass Group PLC Annual Report 2007Parent Company financial statements Compass Group PLCDirectors’ responsibilitiesThe directors are required by law to prepareseparate financial statements for theCompany in accordance with the CompaniesAct 1985. The directors have chosen toprepare these financial statements forthe Company in accordance withUnited Kingdom Generally AcceptedAccounting Practice.Company law requires the directors toprepare financial statements for each financialyear which give a true and fair view of thestate of affairs of the Company as at the endof the financial year and of the profit or lossof the Company for that period. In preparingthose financial statements, the directors arerequired to:select suitable accounting policies and thenapply them consistently;make judgements and estimates that arereasonable and prudent;state whether applicable accountingstandards have been followed, subject toany material departures disclosed andexplained in the financial statements; andprepare the financial statements on thegoing concern basis, unless it isinappropriate to presume that theCompany will continue in business.The directors are responsible for keepingproper accounting records which disclose withreasonable accuracy at any time the financialposition of the Company and to enable themto ensure that the financial statements complywith the Companies Act 1985 and Article 4 ofthe IAS Regulation. They are also responsiblefor safeguarding the assets of the Companyand hence for taking reasonable steps forthe prevention and detection of fraud andother irregularities.The directors are responsible for themaintenance and integrity of the Companywebsite. Legislation in the United Kingdomgoverning the preparation and disseminationof financial statements may differ fromlegislation in other jurisdictions.

85 Compass Group PLC Annual Report 2007Independent auditors’ report to the members of Compass Group PLCIntroductionWe have audited the parent company financialstatements of Compass Group PLC for theyear ended 30 September 2007 whichcomprise the parent company balance sheet,accounting policies and the related notes 1 to 9.These parent company financial statementshave been prepared under the accountingpolicies set out therein.We have reported separately on the Groupfinancial statements of Compass Group PLCfor the year ended 30 September 2007 andon the information in the Directors’remuneration report that is described ashaving been audited.This report is made solely to the Company’smembers, as a body, in accordance withsection 235 of the Companies Act 1985.Our audit work has been undertaken so thatwe might state to the Company’s membersthose matters we are required to state to themin an auditors’ report and for no otherpurpose. To the fullest extent permitted bylaw, we do not accept or assume responsibilityto anyone other than the Company and theCompany’s members as a body, for our auditwork, for this report, or for the opinions wehave formed.Respective responsibilities of directorsand auditorsThe directors’ responsibilities for preparingthe Annual Report, the Directors’remuneration report and the parent companyfinancial statements in accordance withapplicable law and United KingdomAccounting Standards (United KingdomGenerally Accepted Accounting Practice)are set out in the statement of directors’responsibilities.Our responsibility is to audit the parentcompany financial statements and the partof the Directors’ remuneration report to beaudited in accordance with relevant legal andregulatory requirements and InternationalStandards on Auditing (UK and Ireland).We report to you our opinion as to whetherthe parent company financial statements givea true and fair view and whether the parentcompany financial statements have beenproperly prepared in accordance with theCompanies Act 1985. We also report to youwhether in our opinion the Directors’ Reportis consistent with the parent companyfinancial statements.In addition we report to you if, in our opinion,the Company has not kept proper accountingrecords, if we have not received all theinformation and explanations we require forour audit, or if information specified by lawregarding directors’ remuneration and othertransactions is not disclosed.We read the other information containedin the Annual Report as described in thecontents section and consider whether it isconsistent with the audited parent companyfinancial statements. We consider theimplications for our report if we becomeaware of any apparent misstatements ormaterial inconsistencies with the parentcompany financial statements. Ourresponsibilities do not extend to any furtherinformation outside the Annual Report.Basis of audit opinionWe conducted our audit in accordance withInternational Standards on Auditing (UK andIreland) issued by the Auditing PracticesBoard. An audit includes examination, on atest basis, of evidence relevant to the amountsand disclosures in the parent companyfinancial statements. It also includes anassessment of the significant estimates andjudgements made by the directors in thepreparation of the parent company financialstatements, and of whether the accountingpolicies are appropriate to the Company’scircumstances, consistently applied andadequately disclosed.We planned and performed our audit so as toobtain all the information and explanationswhich we considered necessary in order toprovide us with sufficient evidence to givereasonable assurance that the parentcompany financial statements are free frommaterial misstatement, whether caused byfraud or other irregularity or error. In formingour opinion we also evaluated the overalladequacy of the presentation of informationin the parent company financial statements.OpinionIn our opinion:the parent company financial statementsgive a true and fair view, in accordance withUnited Kingdom Generally AcceptedAccounting Practice, of the state of theCompany’s affairs as at 30 September 2007;the parent company financial statementshave been properly prepared in accordancewith the Companies Act 1985; andthe information given in the Directors’Report is consistent with the parentcompany financial statements.Deloitte & Touche LLPChartered Accountants and Registered AuditorsLondon28 November 2007

86 Compass Group PLC Annual Report 2007Parent Company balance sheetas at 30 September 20072007 2006Compass Group PLC Notes £m £mFixed assetsInvestments 2 933 915Current assetsDebtors: amounts falling due within one year 3 4,828 3,311Debtors: amounts falling due after more than one year 3 13 22Cash at bank and in hand 678 695Current assets 5,519 4,028Creditors: amounts falling due within one yearCreditors: amounts falling due within one year 4 (3,757) (1,668)Net current assetsNet current assets 1,762 2,360Total assets less current liabilitiesTotal assets less current liabilities 2,695 3,275Creditors: amounts falling due after more than one yearCreditors: amounts falling due after more than one year 4 (1,403) (1,878)Net assetsNet assets 1,292 1,397Capital and reservesCalled up share capital 7, 8 193 210Share premium account 8 122 96Capital redemption reserve 8 33 15Share-based payment reserve 8 144 130Profit and loss account 8 800 946Total equity 1,292 1,397Approved by the Board of directors on 28 November 2007 and signed on their behalf byRichard J Cousins, DirectorAndrew D Martin, Director

87 Compass Group PLC Annual Report 2007Parent Company accounting policiesfor the year ended 30 September 2007IntroductionThe significant accounting policies adoptedin the preparation of the separate financialstatements of the Company are set out below:A Accounting convention and basisof preparationThese financial statements have beenprepared in accordance with applicable UKgenerally accepted accounting principles (UKGAAP) and the Companies Act 1985 usingthe historical cost convention modified for therevaluation of certain financial instruments.B ExemptionsThe Company’s financial statements areincluded in the Compass Group PLCconsolidated financial statements for the yearended 30 September 2007. As permitted bysection 230 of the Companies Act 1985, theCompany has not presented its own profit andloss account. The Company has also takenadvantage of the exemption from presentinga cash flow statement under the terms ofFRS 1 ‘Cash Flow Statements’. The Companyis also exempt under the terms of FRS 8‘Related Party Disclosures’ from disclosingtransactions with other members ofCompass Group.The Compass Group PLC consolidatedfinancial statements for the year ended30 September 2007 contain financialinstrument disclosures which comply withFRS 25 ‘Financial Instruments: Disclosureand Presentation’. Consequently, theCompany has taken advantage of theexemption in FRS 25 not to presentseparate financial instrument disclosuresfor the Company.C Change in accounting policiesThe Company has not applied anyaccounting standards for the first time inthe year ended 30 September 2007.D Investments in subsidiaryundertakingsInvestments are stated at cost less provisionfor any impairment. In the opinion of thedirectors the value of such investments arenot less than shown at the balance sheet date.E Foreign currencyAssets and liabilities in foreign currenciesare translated into sterling at the rates ofexchange ruling at the year end.F BorrowingsBorrowings are recognised initially at fairvalue, net of transaction costs incurred.Borrowings are subsequently stated atamortised cost unless they are part ofa fair value hedge accounting relationship.Borrowings that are part of a fair value hedgeaccounting relationship are measured atamortised cost plus or minus the fair valueattributable to the risk being hedged.G Derivatives and other financialinstrumentsThe Company uses derivative financialinstruments to manage its exposure tofluctuations in foreign exchange rates andinterest rates. Derivative instruments utilisedinclude interest rate swaps, cross currencyswaps and forward foreign exchange contracts.The Company and Group policy is disclosedin the accounting policies to the consolidatedfinancial statements.H DividendsDividends are recognised in the Company’sfinancial statements in the year in which theyare approved in general meeting by theCompany’s shareholders. Interim dividendsare recognised when paid.I Deferred taxDeferred tax is provided at the anticipatedrates on timing differences arising from theinclusion of items of income and expenditurein tax computations in periods different fromthose in which they are included in thefinancial statements. Deferred tax assets arerecognised to the extent that it is regardedas more likely than not that they willbe recovered.J Share-based paymentsThe Group issues equity-settled and cashsettledshare-based payments to certainemployees. Equity-settled share-basedpayments are measured at fair value(excluding the effect of non market-basedvesting conditions) at the date of grant.The fair value determined at the grant dateof the equity-settled share-based paymentsis expensed on a straight-line basis over thevesting period, based on the Group’s estimateof the shares that will eventually vest andadjusted for the effect of non market-basedvesting conditions.Fair value is measured using either thebinomial distribution or Black-Scholes pricingmodels as is most appropriate for eachscheme. The expected life used in the modelshas been adjusted, based on management’sbest estimate, for the effects of exerciserestrictions and behavioural considerations.For cash-settled share-based payments, aliability equal to the portion of the goods orservices received is recognised at the currentfair value determined at each balancesheet date.The issue of share incentives by the Companyto employees of its subsidiaries representsadditional capital contributions. An additionto the Company’s investment in Groupundertakings is reported with a correspondingincrease in shareholders’ funds. For details ofthe charge see note 26 to the consolidatedfinancial statements.

88 Compass Group PLC Annual Report 2007Notes to the Parent Company financial statementsfor the year ended 30 September 20071 Profit and loss account disclosuresThe Company profit on ordinary activities after tax was £637 million (2006: £699 million).The fee for the audit of the Company’s annual financial statements was £0.4 million (2006: £0.4 million).The Company had no direct employees in the course of the year (2006: none).2 Investments in subsidiary undertakings2007 2006Investments in subsidiary undertakings £m £mCost and net book valueAt 1 October 915 890Share-based payments to employees of subsidiaries 29 25Settlement of share-based payments by subsidiaries (11) –At 30 September 933 915The principal subsidiary undertakings are listed in note 37 to the consolidated financial statements.3 Debtors2007 2006Debtors £m £mAmounts falling due within one yearAmounts owed by subsidiary undertakings 4,821 3,217Deferred consideration receivable – 14Group relief receivable – 39Derivative financial instruments 7 9Other debtors – 32Amounts falling due within one year 4,828 3,311Amounts falling due after more than one yearDerivative financial instruments 13 22Amounts falling due after more than one year 13 224 Creditors2007 2006Creditors £m £mAmounts falling due within one yearLoan notes – 26Bank loans 4 4Bank overdrafts 278 300Group relief payable 4 –Derivative financial instruments – 2Amounts owed to subsidiary undertakings 3,415 1,230Accruals and deferred income 56 106Amounts falling due within one year 3,757 1,668Amounts falling due after more than one yearBonds 993 1,323Loan notes 384 426Bank loans 11 109Derivative financial instruments 15 18Deferred tax liability – 2Amounts falling due after more than one year 1,403 1,878

89 Compass Group PLC Annual Report 20074 Creditors continuedBonds are unsecured and are comprised as follows:Bonds Nominal value Redeemable InterestEuro Eurobond r300m 2009 6.0%Sterling Eurobond £200m 2010 7.125%Sterling Eurobond £325m 2012 6.375%Sterling Eurobond £250m 2014 7.0%Euro Eurobonds with nominal value r450 million redeemable in 2009 were repurchased during the current year leaving r300 million outstanding.The Company has fixed term, fixed interest private placements totalling US$769 million (£377 million) at interest rates between 5.11% and7.955%. US$15 million (£7 million) is repayable in 5 to 10 years.The deferred tax liability arose on marking to market interest rate swaps.5 Maturity of financial liabilities, other creditors and derivative financial instrumentsThe maturity of financial liabilities, other creditors and derivative financial instruments as at 30 September 2007 is as follows:2007 2006Bonds and Loans and Bonds and Loans andMaturityloan notes overdrafts Other Total loan notes overdrafts Other Total£m £m £m £m £m £m £m £mIn more than 1 year but not more than 2 years 285 4 3 292 – 98 2 100In more than 2 years but not more than 5 years 832 7 (1) 838 894 11 (7) 898In more than 5 years 260 – – 260 855 – 3 858In more than 1 year 1,377 11 2 1,390 1,749 109 (2) 1,856In 1 year or less, or on demand – 282 (7) 275 26 304 (7) 323Total 1,377 293 (5) 1,665 1,775 413 (9) 2,179Other includes the debtor and creditor amounts associated with derivative financial instruments and the associated deferred tax liability.2007 2006Bank loans £m £mAmounts repayable by instalments falling due between 1 and 5 years 12 17Amounts repayable by instalments falling due within 1 year 4 4Amounts repayable by instalments falling due within 5 years 16 21Amounts repayable otherwise than by instalments falling due between 1 and 5 years 4 92Amounts repayable otherwise than by instalments falling due within 1 year – –Amounts repayable otherwise than by instalments falling due within 5 years 4 926 Derivative financial instruments2007 2006Financial Financial Financial Financialassets liabilities assets liabilitiesDerivative financial instruments £m £m £m £mInterest rate swaps:Fair value hedges 13 (15) 22 (18)Cash flow hedges – – – –Not in a hedging relationship 2 – 9 (1)Currency swaps:Cross currency swaps – – – (1)Other:Forward foreign exchange contracts 5 – – –Derivative financial instruments 20 (15) 31 (20)

90 Compass Group PLC Annual Report 2007Notes to the Parent Company financial statementsfor the year ended 30 September 20077 Share capitalDetails of the share capital, share option schemes and share-based payments of Compass Group PLC are shown in notes 24 and 26 to theconsolidated financial statements.8 Capital and reservesShare Capital Share-based ProfitShare premium redemption payment Hedging and lossCapital and reservescapital account reserve reserve reserves reserve Total£m £m £m £m £m £m £mAt 1 October 2005 216 94 9 105 1 609 1,034Fair value movement on cash flow hedges 1 – – – – 3 – 3Transfer to profit and loss from equity on cash flow hedges 1 – – – – (4) – (4)Issue of shares – 2 – – – – 2Repurchase of ordinary share capital (6) – 6 – – (149) (149)Fair value of share-based payments – – – 25 – – 25Settled in cash or existing shares (purchased in market) – – – – – – –Dividends paid to Compass shareholders – – – – – (213) (213)Profit for the financial year – – – – – 699 699At 30 September 2006 210 96 15 130 – 946 1,397At 1 October 2006 210 96 15 130 – 946 1,397Issue of shares 1 26 – – – – 27Repurchase of ordinary share capital (18) – 18 – – (575) (575)Fair value of share-based payments – – – 25 – – 25Settled in cash or existing shares (purchased in market) – – – (11) – – (11)Dividends paid to Compass shareholders – – – – – (208) (208)Profit for the financial year – – – – – 637 637At 30 September 2007 193 122 33 144 – 800 1,2921. Net of deferred tax.9 Contingent liabilities2007 2006Contingent liabilities £m £mGuarantees and indemnities (including subsidiary undertakings’ overdrafts) 268 288Details regarding certain contingent liabilities which involve the Company are set out in note 31 to the consolidated financial statements.

91 Compass Group PLC Annual Report 2007Shareholder informationRegistrars and transfer officeAll matters relating to the administration ofshareholdings should be directed to CapitaRegistrars, The Registry, 34 BeckenhamRoad, Beckenham, Kent BR3 4TU, telephonewithin the UK: 0871 664 0300 (calls cost10 pence per minute plus network extras) andfrom overseas: +44 20 8639 2157; email:ssd@capitaregistrars.com.Shareholders can register online to viewtheir Compass Group PLC shareholdingdetails using the Share Portal, a service offeredby Capita Registrars. This service can beaccessed at www.capitashareportal.com.Shareholders registering for the Share Portalwill require their investor code which is shownon share certificates and on the form of proxyaccompanying this Report. The serviceenables shareholders to do all of the following:check their shareholdings in CompassGroup PLC 24 hours a day;register their email and mailing preference(post or electronic) for future shareholdermailings;gain easy access to a variety of shareholderinformation including indicative valuationand payment instruction details; anduse the Internet to appoint a proxy toattend general meetings of CompassGroup PLC.Electronic communicationsThe Company can, at shareholders’ request,send shareholders an email notification eachtime a new shareholder report or othershareholder communication is placed on itswebsite. This enables shareholders to readand/or download the information at theirleisure. Shareholders can still request papercopies of the documents if they so wish.To encourage shareholders to convert toe-communications, the Company will arrangefor a sapling tree to be planted in the UK foreach shareholder who chooses to receive allfuture communications electronically. Thenext opportunity for the Company to notifyshareholders electronically will be for theInterim Report, to be published in June 2008.Dividend Reinvestment Plan (DRIP)The Company has introduced a DRIPservice, provided by Capita IRG TrusteesLimited. The DRIP allows eligibleshareholders to use the whole of their cashdividend to buy additional shares in theCompany, increasing their shareholding.Additional information, including details ofhow to sign up, can be obtained from CapitaIRG Trustees Limited, telephone within theUK: 0871 664 0381 (calls cost 10 pence perminute plus network extras) and fromoverseas: +44 20 8639 3402; email:shares@capitaregistrars.com.Share price informationThe current price of the Company’s shares isavailable on Ceefax, Teletext, FTCityline(operated by the Financial Times), telephonewithin the UK: 0906 843 3250 and on theCompany’s website: www.compass-group.com.ShareGiftShareGift, the charity share donation scheme,is a free service for shareholders wishing to giveshares to charitable causes. It is particularlyuseful for those shareholders who may wish todispose of a small quantity of shares where themarket value makes it uneconomic to sell on acommission basis. Further information can beobtained from ShareGift (telephone within theUK: 020 7930 3737 and from overseas+44 20 7930 3737 or www.sharegift.org)or from the Registrars.American Depositary Receipts (ADRs)The Company operates an ADR programme.Each ADR is equivalent to one CompassGroup PLC ordinary share and trades underthe symbol CMPGY. Further information canbe obtained from The Bank of New YorkMellon, Investor Relations, PO Box 11258,Church Street Station, New York, NY 10286-1258, telephone: within the US toll free 1-888BNY-ADRs and from overseas +1 212 8153700; email: shareowners@bankofny.com andfrom websites: www.adrbny.com andwww.stockbny.com.Warning about unsolicitedinvestment contactsMany companies have become aware thattheir shareholders have received unsolicitedtelephone calls or correspondence concerninginvestment matters. These are typically fromoverseas based ‘brokers’ who target UKshareholders offering to sell them what oftenturns out to be worthless or high risk shares inUS or UK investments. Shareholders areadvised to be very wary of any unsolicitedadvice, offers to buy shares at a discount oroffers of free company reports.If you receive any unsolicited investment advice:Make sure you get the correct name of theperson and organisation.Check that they are properly authorisedby the Financial Services Authority beforegetting involved. You can check atwww.fsa.gov.uk/register.The FSA also maintains on its website a listof unauthorised overseas firms who aretargeting, or have targeted, UK investorsand any approach from such organisationsshould be reported to the FSA so that thislist can be kept up to date and any otherappropriate action can be considered. Ifyou deal with an unauthorised firm, youwould not be eligible to receive paymentunder the Financial Services CompensationScheme. The FSA can be contacted bycompleting an online form atwww.moneymadeclear.fsa.gov.uk.Inform our Registrars by telephone withinthe UK: 0871 664 0300 (calls cost 10 penceper minute plus network extras) and fromoverseas: +44 20 8639 2157; email:ssd@capitaregistrars.com.More detailed information on this or similaractivity can be found on the FSA websitewww.moneymadeclear.fsa.gov.uk.Unsolicited mailThe Company is legally obliged to make itsregister of members available to the public.As a consequence of this some shareholdersmight have received unsolicited mail. UKshareholders wishing to limit the amountof such mail should write to the MailingPreference Service, FREEPOST 29LON20771, London W1E 0ZT. Alternatively,UK shareholders may register online atwww.mpsonline.org.uk or request anapplication form by calling from withinthe UK: 0845 703 4599.Identity theft – protecting aninvestmentCriminals may steal shareholders’ personalinformation putting a holding at risk.Advice on protecting a shareholding:Ensure certificates are kept in a safe placeor hold shares electronically in CRESTvia a nominee.Keep all correspondence from theRegistrars which shows a shareholderinvestor code in a safe place, or destroycorrespondence by shredding.When changing address, inform theRegistrars. If a letter from the Registrars isreceived regarding a change of address andthere has been no recent move, contact theRegistrars immediately. The shareholderconcerned may be a victim of identity theft.Know when the dividends are paid.Shareholders may wish to consider havingtheir dividends paid directly into their bankor building society account, both for theconvenience and the resulting reduction inthe risk of the cheque being intercepted orlost in the post. To take advantage of thisdividend mandate facility, contact theRegistrars, telephone within the UK:0871 664 0300 (calls cost 10 pence perminute plus network extras) and fromoverseas: +44 20 8639 2157; oralternatively complete a form online atwww.capitaregistrars.com/shareholdersusing the Share Portal service.On changing bank or building societyaccount, inform the Registrars of thedetails of the new account and respond toany letters the Registrars send about this.When buying or selling shares, shareholdersshould seek to only deal with brokersregistered in their country of residenceor the UK.Financial calendarAnnual General Meeting:8 February 2008Results announcements:Half year – MayFull year – late November/early DecemberDividend payments:Interim – AugustFinal – March

92 Compass Group PLC Annual Report 2007Shareholder informationcontinuedNumber ofNumber of Holders shares held heldShareholder analysis holders % millions %Type of holder:Individuals 61,918 92.4 87 4.5Institutional and other investors 5,112 7.6 1,840 95.5Total 67,030 100.0 1,927 100.0Size of holding:1-100 13,402 20.0 1 0.0101-200 10,979 16.4 2 0.1201-500 16,454 24.5 5 0.3501-1,000 10,728 16.0 8 0.41,001-2,000 7,797 11.6 11 0.62,001-5,000 4,861 7.2 15 0.85,001-10,000 1,251 1.9 9 0.510,001-50,000 750 1.1 16 0.850,001-100,000 174 0.3 12 0.7100,001-500,000 306 0.5 74 3.8500,001-1,000,000 99 0.1 70 3.61,000,001-5,000,000 159 0.2 361 18.75,000,001-10,000,000 36 0.1 256 13.310,000,001 and above 34 0.1 1,087 56.4Total 67,030 100.0 1,927 100.0Shares

93 Compass Group PLC Annual Report 2007Index to the consolidated financial statementsNotePageIndependent auditors’ report 40Consolidated income statement 41Consolidated statement of recognised income and expense 42Consolidated balance sheet 43Consolidated cash flow statement 44Reconciliation of free cash flow from continuing operations 44Accounting policies 451 Segmental reporting 492 Operating costs 523 Employees 534 Finance income and costs 545 Tax 546 Discontinued operations 567 Exceptional items 588 Earnings per share 599 Dividends 5910 Goodwill 6011 Other intangible assets 6112 Property, plant and equipment 6213 Interests in associates 6314 Other investments 6315 Joint ventures 6416 Trade and other receivables 6417 Inventories 6418 Cash and cash equivalents 6519 Short-term and long-term borrowings 6520 Derivative financial instruments 6621 Trade and other payables 6922 Provisions 7023 Post-employment benefit obligations 7024 Called up share capital 7425 Reconciliation of movements in equity 7526 Share-based payments 7627 Business combinations 7928 Reconciliation of operating profit to cash generated by operations 7929 Cash flow from discontinued operations 8030 Analysis of net debt 8031 Contingent liabilities 8132 Capital commitments 8133 Operating lease and concessions commitments 8134 Related party transactions 8235 Post balance sheet events 8236 Exchange rates 8237 Details of principal subsidiary companies 83Forward looking statementsThis Report contains forward looking statements withinthe meaning of Section 27A of the Securities Act 1933, asamended, and Section 21E of the Securities Exchange Act,as amended. These statements are subject to a number ofrisks and uncertainties and actual results and events coulddiffer materially from those currently being anticipated asreflected in such forward looking statements. The terms‘expect’, ‘should be’, ‘will be’, ‘is likely to’ and similarexpressions identify forward looking statements. Factorswhich may cause future outcomes to differ from thoseforeseen in forward looking statements include, but arenot limited to: general economic conditions and businessconditions in Compass Group’s markets; exchange ratefluctuations; customers’ and clients’ acceptance of itsproducts and services; the actions of competitors; andlegislative, fiscal and regulatory developments.Index to the Parent Company financial statementsNotePageDirectors’ responsibilities 84Independent auditors’ report 85Parent Company balance sheet 86Parent Company accounting policies 871 Profit and loss account disclosures 882 Investments in subsidiary undertakings 883 Debtors 884 Creditors 885 Maturity of financial liabilities, other creditors andderivative financial instruments 896 Derivative financial instruments 897 Share capital 908 Capital and reserves 909 Contingent liabilities 90

Registered officeCompass Group PLCCompass HouseGuildford StreetChertseySurrey KT16 9BQUnited KingdomRegistered No: 4083914Tel +44 (0)1932 573 000Fax +44 (0)1932 569 956www.compass-group.comAuditorsDeloitte & Touche LLPHill House1 Little New StreetLondon EC4A 3TRFinancial advisorsCitigroup Global Markets LtdCitigroup Centre33 Canada SquareCanary WharfLondon E14 5LBLegal advisorsFreshfields Bruckhaus Deringer65 Fleet StreetLondon EC4Y 1HSRegistrarsCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TUStockbrokersMorgan Stanley & Co International Limited25 Cabot SquareCanary WharfLondon E14 4QAMerrill Lynch InternationalMerrill Lynch Financial Centre2 King Edward StreetLondon EC1A 1HQDesigned and produced by Carnegie Orr +44 (0)20 7610 6140. Printed in the UK by CTD.This report is printed on Look, which is 100% ECF (Elemental Chlorine Free) pulp and is 100% recyclable and sourced from carefullymanaged and renewed commercial forests, certified in accordance with the FSC (Forest Stewardship Council). The mill is ISO 14001 certified.Our printers are fully accredited to the ISO 14001 environmental management system. They utilise vegetable based inks and operate a directcomputer to plate repro system, eliminating the need for film with its chemicals such as developer and acid fixers.

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