Compass Group PLC - Credit Highlights

The negative outlook reflects our view that the COVID-19 outbreak will continue to impact Compass' trading in FY2021 such that the group will not be able to recover to pre-outbreak credit metrics before the end of FY2021 if management does not take further steps to manage cash, or if social distancing measures and restrictions continue into the second half of FY2021. We would consider lowering the ratings if Compass' cash flow dropped such that adjusted funds from operations (FFO) to debt fell below 40% over the next two years, or adjusted debt to EBITDA remained consistently above 2.5x. This could happen due to persistently challenging operating conditions without sufficient mitigating actions taken by management regarding shareholder remuneration and cost control.

...Key strengths Key risks Leading global player in the food services industry. Competitive and fragmented industry with relatively low barriers to entry and limited pricing flexibility. Portfolio of established brands and extensive global footprint. Potential long-term impairment of certain business lines due to changing working & learning practices following the COVID-19 pandemic. Relatively stable and predictable revenue, margins, and cash flow due to low capital requirements. Exposure to fluctuations in food, commodity, and oil prices. Track record of strong credit metrics and liquidity, along with solid free operating cash flow (FOCF) generation. Supportive financial policy following ú2 billion equity issuance in 2020, and a tighter leverage target over the medium term....

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