Compass in 87m pounds cash call to fund catering deal

COMPASS GROUP, the contract caterer serving Casey Jones burger-bars and Roedean school, is to become Europe's leading airport caterer following the pounds 62m acquisition of the airport restaurant and contract catering businesses of SAS Service Partner.

To fund the purchase, which will make Compass the fourth-largest contract caterer in Europe, Compass is raising pounds 86.8m through a rights issue. Shareholders are being asked to subscribe for six new shares at 420p for every 19 currently held.

Francis Mackay, chief executive, said that the purchase of SAS, a subsidiary of the Scandinavian airline, gave Compass a springboard to expand its contract catering expertise into northern Europe.

The acquisition, for a nominal pounds 72m but excluding pounds 8m in cash held by SAS, should enhance Compass's earnings from the outset. Compass shares closed 1p higher at 528p.

Mr Mackay said he did not expect another big acquisitive move for at least 18 months but indicated that Germany would be a prime target for growth over the next few years.

Compass was thwarted in an attempt to buy Forte's Gardner Merchant contract catering subsidiary for pounds 530m last summer. It subsequently bought Travellers Fare and the upmarket Letheby & Christopher caterers for pounds 32m.

News of the acquisition and rights issue accompanied interim results showing a 7.1 per cent increase in pre- tax profits to pounds 18.2m on an 18.6 per cent gain in sales to pounds 209.4m. Contributions from acquisitions are not disclosed but profits were struck after up to pounds 1m of one-off marketing costs.

The half-year dividend has gone up from 4.19p to 4.44p and Compass said it expected to pay a final dividend of 8.56p making a 13p total, or a 5.7 per cent increase.

SAS has airport and contract catering operations in eight countries including Britain, where it has units at Heathrow, Manchester and some regional airports. It has exclusive rights to run Burger King and Harry Ramsden's restaurants at a number of European airports.

Underlying profits at SAS were pounds 8.6m on sales of pounds 187m, implying an exit p/e of 10.

Compass has recruited Fritz Ternofsky, an Austrian caterer, to the board to head its international catering activities.