Compass Group says Bailey's job is secure
Compass Group has dismissed speculation that chief executive Mike Bailey's position is in jeopardy, after the world's biggest caterer issued its second profit warning in just seven months.
The response comes after leading investors threatened to write to Compass chairman Sir Francis Mackay demanding an explanation following Thursday's announcement that profits would be £24m below expectations.
Media reports suggested that investors were after "boardroom blood" and were keen to express their lack of confidence in senior management.
It is believed that Mackay is backing his chief executive, fuelling speculation that both could fall.
But a spokesman for the Surrey-based caterer said: "The management team are fully aware of investors' priorities and are totally focused on generating free cash-flow and delivering improved return on capital employed."
An inside source told Caterer that none of the major investment banks have downgraded their recommendations. According to the source, neither the company nor company brokers have received any calls asking for Bailey to go.
Compass said that its second profit warning was due to military contracts in the Middle East being downgraded as soldiers switched to peacekeeping roles - it can no longer charge high-risk premiums for operating in combat zones.
The company also announced that £9m extra costs would be incurred as a result of beefing up its sales and marketing operations in the UK.
One City analyst, Robert Morton, of Investec, said the market was still sensitive after last September's profit warning, which wiped £1.7b off the company's value.
"With the background, anything negative is magnified and anything positive is reduced. This is a completely different kettle of fish to last September, which was self-inflicted. The news about the military contracts was always going to happen and is out of the company's control."
After last year's cash-flow warning Bailey has been keen to stress the company has made the right changes to get profits back on track. "Our focus is firmly on putting the necessary actions in place to deliver strong, free cash-flow generation," he said.
Source: Caterer & Hotelkeeper magazine, 07 April 2005
