Compass shares fall after forecast

Shares in Compass Group took another hit yesterday as the contract catering giant cut its profit forecast for 2005.

The Surrey-based group said £15m would be wiped off profits at its military operations in the Middle East.

It said that margins in the region will fall as the group stops charging high-risk premiums for operating in combat zones.

The world's largest contract caterer also announced that £9m extra costs would be incurred as a result of beefing up its sales and marketing operations in the UK.

The share price fell by 7% to 236p before recovering to 244p at close of play yesterday following the trading statement, which was issued six weeks before its half-year results

But City analysts believe it is not all bad news. Robert Morton, of Investec, said the market is still sensitive after last September's profit warning that wiped £1.7b off the company's value. "With the background, anything negative is magnified and anything positive is reduced."

Overall, Compass forecast a 6% rise in turnover for 2005, which it said was driven by new contract wins and a high level of client retention.

In the UK, like-for-like turnover will meet the group's expectations on the back of steady growth in its contract and concession businesses.

However, problems continue in northern Europe, which the group described as a "very challenging" market.

Meanwhile, in North America, profit is expected to be in line with expectations, as the market there continues to perform well.

by Tom Bill

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