School meals problems drag down Compass profits

Operating profits for 2004 will be down by £30m, contract caterer Compass warned today, despite the fact the company will have secured a record number of new contracts during the year.

The shortfall is because of a number of catering contracts with local education authorities awarded over the past couple of years failing to deliver on anticipated margins, said Compass in a trading statement.

Increased labour costs, lower than expected take-up and pressure on school meal budgets were all the blame, it added.

On top of this, problems at one of its major UK distributors had meant Compass had to transfer its business to another operator, incurring extra costs.

A raft of new in-store restaurant contracts in the UK meant there would be higher start-up costs over the next three years, said Compass.

And finally trading over the summer in continental Europe, particularly in France and the Netherlands, had been "disappointing", leading to reduced sales and, again, pressure on margins.

Nevertheless, overall like-for-like turnover growth for the full year was expected to be 7%, said Compass.

It was seeing strong growth, of 12%, from its new business.

A record number of new contracts had been gained, with combined turnover of £1.3b.

Spending on acquisitions had been significantly reduced, and this would continue, with the 2004 spend coming in at around £160m, and lower next year.

"The early indicators for 2005 are good and we remain confident of achieving like-for-like turnover growth of at least 6%," said Compass.

Recent new contracts in the UK included Eurostar extending its contract with Momentum, a Compass joint venture, for a further two years with an annual turnover of £27m.

Henley Royal Regatta has also renewed and expanded its contract with Compass' All Leisure division for a further five years, with an annual turnover of £2m.

All Leisure has also won a seven-year, £728,000 a year contract with Royal Horticultural Halls and Conference Centre.

The London Stock Exchange has renewed a £1m a year contract with Restaurant Associates for a further three years and Microsoft has renewed a £2.7m a year contract with Baxter and Platts for a further three years.

The trading statement was released ahead of Compass's full-year results, to the end of September, which will be published at the end of November.

by Nic Paton

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