Compass to sell vending machine business and quit 30 countries

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Richard Cousins, the new chief executive of Compass, yesterday announced plans to sell its Selecta vending machine business as he outlined his vision for the future of the group.

Following a six-month review, the world's largest catering company plans to pull out of a third of the 90 countries it operates in - including Iraq and Kuwait - and will focus on growing the business organically rather than through acquisitions.

Its shares jumped 7 per cent, a gain of 19p to 290p, as the City welcomed the move to streamline the business, which employs 400,000 people across 40,000 locations.

Mr Cousins, who took over from Mike Bailey in May, insisted that Compass was a "fundamentally attractive" business but "the model had got overstretched with too many acquisitions, countries and contracts".

The group's troubled UK education division continues to suffer from the fallout of the celebrity chef Jamie Oliver's campaign against low quality school dinners, symbolised by the demonisation of Turkey Twizzlers, which the company used to provide.

Compass has since upgraded its meals provision and is on target to meet government regulations on quality. It has introduced steam pressure cooking at schools struggling to provide nutritional meals due to lack of good kitchen facilities.

At primary schools, the healthier meals are proving popular but at secondary schools, where the backlash against the junk food ban is sending pupils to the chippy, some contracts have been cancelled leading to a 4 per cent dip in revenues with operating profit flat at £114m.

Across the group, pre-tax profits rose 5.5 per cent rise to £363m for the year to 30 September on revenues of £10.8bn, an increase of 7 per cent on last year.

The disposal of Selecta, which posted a profit of £45m last year on turnover of £476m, is expected to complete next summer. It operates in 21 countries and serves 5 million customers a day.

Mr Cousins said the sale and the withdrawal from smaller countries would allow a much greater focus for the remaining businesses. A cost-cutting drive, which saw £50m saved last year, will continue.

Compass used the £1.8bn proceeds from the sale of its travel business Select Service Partner to cut its pension deficit by half, return £500m to shareholders and pay down around £800m of debt.

Robert Morton, analyst at Investec Securities, with a buy rating on the stock, said that with a clearer focus and a simpler management structure in place "the group will be able to achieve a strong recovery over the next few years".

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbroker, added: "Compass remains on the list of potential takeover/ merger candidates of the future."