Compass goes full steam ahead to produce a recipe for revival

It's 12 o'clock and a not-so-tidy crocodile of year twos is tramping into the school hall for lunch. On the menu is a choice of sweet and sour chicken with rice or mixed bean stroganoff with pasta quills. Both come with steamed veg or salad, with low-fat fruit yoghurt and fruit dippers or fresh fruit cups to follow.

If this sounds too good to be true for a west London primary school, albeit one in the borough of Richmond, then consider this: Sally, the dinner lady in charge, is employed by none other than Scolarest, the caterer demonised for dishing out Turkey Twizzlers to the nation's children.

The culinary changes afoot at Scolarest are symbolic of the transformation being wrought at its parent company Compass, which is trying to atone for years of disappointments - both edible and financial - by overhauling its entire global operations.

Richard Cousins, recently installed as chief executive, will tomorrow spell out his vision for the caterer as he unveils its annual results. He is expected to announce a retreat from the smallest of the 90-odd countries in which it has operations in an attempt to simplify an overcomplicated business. Its cacophony of different UK brands will be whittled down and further cost cuts, on top of the £50m it targeted 12 months ago, are also likely.

Sheen Mount Primary is at the vanguard of a new approach to school catering that Compass hopes will lay to rest the ghost of Turkey Twizzlers for good. The caterer believes it has solved the conundrum of shrinking school kitchens - most have been turned into extra classrooms - which make preparing even the most basic of hot meals problematic by abandoning the need for expensive ovens altogether.

That sweet and sour chicken was whipped up not by Sally, but in a central kitchen. It arrives in the form of a Marks & Spencer-esque ready meal that simply needs reheating in one of the four giant microwave ovens that now comprise the school's sole cooking facilities. The contents are made edible via a form of steam pressure cooking to which Compass has the sole contract catering rights for the next ten or so years. (M&S has the retail franchise.)

Steve Kemp, Scolarest's operations director, says "esteam", the trademark for the cooking method, is useful where "local authorities and schools are struggling to deliver good quality lunches at an affordable price". He adds: "The end product is good, and much cheaper to deliver. There is lower labour, less cost and less wastage." Nutritionists also rate steaming food more highly than other cooking methods.

Elaine England, the headteacher, said Sheen Mount made the switch from its unpopular, largely processed, menu at the start of the autumn term. "I wasn't happy with what was served before. This is a much healthier option. It made sense. It was what the parents and the children wanted."

Nathan, 6, says the chicken "was really good because it actually tasted pretty sweet". James, also 6, went for the bean stroganoff and pasta. "Not because I'm vegetarian but because it is very healthy for you. And it's nicer." Beth, 10 nearly 11, rated the chicken on nutritional grounds, adding: "It's just really, really nice."

About 130 of Sheen Mount's 400 pupils have signed up to the new-look school dinners, which cost £2. That is lower than the national average uptake, of between 40 and 45 per cent, but vastly better than the handful of children who were eating school meals before. So far Richmond is one of just five authorities that have been won over by the merits of steam cuisine. The others are in Dorset, West Sussex, Bournemouth and Poole - around 300 schools in total, or 5 per cent of Scolarest's education customers.

Critics have accused schools of serving children airline-style meals, but if the alternative is either nothing, or something whipped up off-site and delivered daily in takeaway containers then suddenly Scolarest's microwave ovens start to look more attractive.

Compass is also introducing the steam cuisine in its Medirest healthcare business, where it is called "Steamplicitiy". It is served at 30 hospitals, including London's Charing Cross. For patients the benefits are numerous but include being able to choose your own meal, rather than having to eat the food selected by the person who had your bed three days ago, and being able to eat at whatever time of day or night you are hungry.

Ian Moore, a Medirest director, points out that heating food in microwave ovens "doesn't require large on-site central kitchen facilities ... which means more of the meal costs are spent on food rather than overheads". Hospitals could save up to £100,000 a year on energy alone, he adds.

And Compass doesn't see the potential as limited to feeding schoolchildren and patients: Ian El-Mokadem, its new UK group managing director, says there is scope to introduce the steam-cooked menus - "which are exactly the sort of thing that we as market leader should be doing" - at the prisons it services. "They could lose the kitchens and convert them into cells and upgrade the food at the same time." The steam-cooked meals were even recently used to feed hungry rugby fans in the private boxes at Twickenham after there was a problem with the main kitchens.

Mr El-Mokadem, who used to run Centrica's telecoms arm One.Tel, was asked to become the fifth head of Compass's troubled UK division by Sir Roy Gardner, who quit as Centrica's boss to take the caterer's vacant chairman's seat earlier this year. "If I have any frustrations then I would like to have many more examples like that [esteam/steamplicity] to reel off," he adds.

Although the steamed meals are small beer in the context of Compass's £12bn-plus annual sales, analysts believe they are a good example of the new top team's desire to shake up the company. Mr Cousins will reveal his first impressions tomorrow morning and the City is expecting big things. Shares in Compass, which have been a disaster since the caterer was first merged with and then demerged from Granada, have rebounded by almost a third in the past year.

With a United Nations bribery scandal still hanging over the group, investors will be pouring over its contract-retention statistics. Shareholders will also want reassurance that Compass can grow its underlying sales ("throughput"), something it needs to do to compensate for lower margins and rising costs, and improve its return on capital. The City has not yet forgiven Compass for a massive global acquisition spree that boiled down to little more than an expensive way to buy growth.

Mr El-Mokadem is aware of the challenges. "The mindset of the business has to change to be more of a retail business," he says, referring to the fact that Compass is competing against retail chains such as Prêt à Manger for customers' lunch money.

Analysts at Merrill Lynch agree, writing in a recent note: "Compass's ability to cope with the shift from service provider to retailer will be key in maintaining profitability in the years ahead." They warn that even then it will not be plain sailing, adding: "We remain cautious about the challenges that lie ahead and believe that considerable uncertainty remains as to its ability to cope with them." Over to Mr Cousins.