UK division drags down Sodexho profits

The poor performance of its UK subsidiary has led to a 10% slump in operating profits at international contract catering giant Sodexho Alliance.

Operating profit during the 12 months to 31 August fell to €528m, down from €586m the previous year "mainly because of a sharp deterioration in our UK subsidiary results."

Sodexho warned in September that it had discovered "serious errors of management" and "accounting anomalies" in its UK subsidiary, which would lead to profits for the year falling short of previous forecasts by as much as €30m.

Operating profit margin fell from 4.9% to 4.2%. Excluding the UK, it would only have fallen to 4.7%.

But worldwide sales were up by 6% from €12b to €12.6b and net profits were up by 33% to €183m.

The increase in net profits was thanks to exceptional items, including the sale of catering equipment firm Lockhart in May, which brought in €49m.

Losses from Land Technology, the UK grounds maintenance division around which most of the problems centred, were €32m.

Sodexho Alliance director Albert George said the business environment was sluggish.

"Private companies have been the hardest hit by the global slowdown, with site closings, massive layoffs and cutbacks in client expenditures leading to a reduction in the number of customers and lower demand for catering services," he said.

Sodexho's overall results had suffered mainly because of the fall in revenues and operating profits in the business and industry sector.

This trend had an even greater impact in the UK & Ireland, where more than two-thirds of turnover comes from business and industry.

But George added: "The education and healthcare segments continued to enjoy steady growth, with revenues rising 5% and 6% respectively."

Chairman Pierre Bellon claimed the outlook for next year was good, with "enormous growth potential".

To keep increasing profits and speed up organic sales growth, Bellon said, the company needed to improve its client retention and increase the number of services it provided at existing contracts, as well as winning new clients.

Despite the economic gloom, Sodexho has set a target of increasing organic sales by 5-6% this year, about three times the rate in 2001-2002.