Fall in army orders sparks second Compass warning

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The Independent Online

Shares in Compass tumbled yesterday after the catering group warned its profits would be hit by the loss of lucrative work feeding soldiers in the Middle East as the region moves to an uneasy peace.

Shares in Compass tumbled yesterday after the catering group warned its profits would be hit by the loss of lucrative work feeding soldiers in the Middle East as the region moves to an uneasy peace.

The company, struggling to regain investor confidence after a profits warning in September, said some of its military contracts had been replaced by less profitable peacekeeping activity.

Compass said its full-year profits would be £15m lower. It charges less for feeding peacekeepers because cooking their meals is less risky. Its shares fell 5 per cent to 241.5p. Its broker, ABN Amro, cut its full-year pre-tax profits forecast to £620m from £644m. It was the third time analysts have taken a knife to their number since September.

Yesterday's shortfall also reflected a £9m hit from restructuring its back-office functions in the UK. Some jobs will be lost in accounting and IT as part of the reorganisation.

Mike Bailey, the chief executive, said the group would be "quite cautious" about the terms of military contracts in the future but would not seek to reduce its exposure to feeding troops. "It's good business. It's profitable. Is it more volatile than other parts of Compass? Absolutely."

Mr Bailey sought to downplay the significance of yesterday's warning, pointing out that the group was on track to hit its organic growth and free cash flow targets. Turnover is expected to rise by 6 per cent, on a like-for-like basis, and free cash flow will be between £350m and £370m, as it previously indicated. New business wins and a high level of contract retention drove sales growth, it said. The company recently re-jigged its executive incentive plan to link Mr Bailey's bonus directly to its free cash flow and return on invested capital ambitions. The move was intended to silence critics who felt Compass, the world's biggest catering company, had just been buying growth. "We have confirmed that we are doing what we said. We haven't made any acquisitions," he said.

Although Compass owns Scholarest, the catering company thrust into the spotlight by Jamie Oliver's recent school dinner crusade, Mr Bailey said the Government's pledge to spend more on feeding children would have little impact on its bottom line. He said: "It will allow us to do a better job. We see it as a good first step but it's not the be all and end all."

Scholarest, berated by the celebrity chef for serving the likes of Turkey Twizzlers to schoolchildren, could have "done without" the publicity, Mr Bailey said. But he added: "I see upside all round. For the kids, for the parents and opportunities for us in a market that is still largely self operated." Nearly three-quarters of schools cook their own meals.

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