Compass shares slide on profits warning
Catering giant Compass lost a quarter of its market value today after warning full-year profits would be hit by a string of factors.
Shares in the group – best known for serving food to blue-chip companies and its Upper Crust sandwich chain – fell 25% as Compass said operating profits would be reduced by £30m (€43.9m) in this financial year.
Chertsey-based Compass, whose customers include the BBC and London Zoo, listed a number of pressures, including the switching of services from an unnamed distributor currently suffering financial difficulties.
It also said school meal budgets and higher canteen staff wages meant a number of contracts with local education authorities were failing to deliver anticipated margins.
Among other concerns, Compass said summer trading in Europe, particularly in France and the Netherlands, had been poor.
Elsewhere, start-up costs from a number of recently-secured in-store restaurant contracts were starting to come through. Further costs are expected over the next three years as work starts on the contracts.
Despite the warning, Compass said the outlook for the business remained encouraging, with turnover growth in each of its sectors continuing to be strong.
The group, whose brands also include Caffe Ritazza and Harry Ramsden’s fish and chip shops, said it expected to achieve like-for-like turnover growth of 7% in the current financial year.
It said it expected 12% growth in new business as a result of record new contract wins worth around £1.3bn (€1.9bn).
Analysts had previously been expecting operating profits of £820m (€1.2bn) in the year to September 30, up from £781m (€1.1bn) a year earlier.
Compass said operating profits would be affected in 2004 "and onward", although it did not specify how long the impact would last.
Analyst Robert Morton at Investec Securities said the trading update had a positive tone but delivered a mixed message.
He added: “This is a well-managed business and whilst there are clearly some short-term issues on which we need further clarification, longer term prospects appear sound.”
Following the statement, Investec said it was expecting pre-tax profits of £696m (€1bn) for 2004 and £780m (€1.1bn) for 2005.
