Tuesday 26 November 2019 10:44 am

Compass Group shares sink as business catering unit is undercooked

Compass Group, which provides meals for office workers, armed forces and school children across the globe, has warned deteriorating business and consumer confidence in Europe has hurt volumes and margins at its company catering unit.

The London-listed firm’s shares sank 5.5 per cent this morning, despite growth in its North America division and in its UK defence and sports catering units.

Read more: Shares jump as caterer Compass points north despite pressures from UK business

The figures

Compass reported a 5.7 per cent increase in full year underlying revenues, reaching £25.2bn for the year ending 30 September. Operating profit rose 4.7 per cent to £1.9bn.

A final dividend of 26.9p took the full year payment to 40p, 6.1 per cent ahead of last year.

Operating margin was 7.4 per cent, while free cash flow grew 9.3 per cent to £1.25bn.

Why it’s interesting

Group chief executive Dominic Blakemore said that despite the good performance, Compass was “not immune to the macro environment”.

“Deteriorating business and consumer confidence in Europe has impacted our business and industry volumes, new business activity and margin,” he said.

He added that the firm was taking “prompt action” in Europe and the rest of the world markets to adjust its cost base.

The cost saving action is expected to result in £300m of exceptional costs across this year and next.

Read more: Compass serves up growth

What Compass said

Blakemore continued: “Our expectations for the group in 2020 are positive although we remain cautious on the macro environment in Europe. The pipeline of new contracts in North America is strong and Rest of World is growing well, although we are seeing some hesitation in decision making in Europe.

“Thanks to the group’s geographic and sectoral diversity, we are nevertheless confident of continued progress. As such we expect organic growth to be around the mid-point of our 4-6 per cent range whilst maintaining our strong margin1 as we mitigate the expected volume pressures through our cost actions.

“In the longer term, we remain excited about the significant structural growth opportunities globally, the potential for further revenue and profit growth, combined with further returns to shareholders.”