Warning slashes Compass value

More than £1.7b was wiped off the value of Compass Group last week after the contract catering giant warned that profits for the full year would be £30m below market expectations.

The company said it expected profits to be lower than first predicted for four main reasons: the need to replace one of its main UK distributors, which had run into financial problems; losses from several of its school meals contracts; start-up costs for a number of new in-store contracts it had secured; and poor summer trading in Europe, particularly France and the Netherlands.

Compass also warned that its cash-flow would be hit by an extra £200m of costs, with half relating to extending payment terms with suppliers and the other half concerning logistical issues in its military contracts.

Despite a shocked reaction from shareholders, the hit on profits equates to only a 4% downgrade.

Compass said that like-for-like turnover for the year to 30 September was likely to be up by 7%, with £1.3b of contract gains and a 95% retention rate boosting new business by 12%.