Compass, the catering and services group, on Tuesday reported a 10 per cent fall in pre-tax profit in the first half of the year, with a strong trading performance in the North American business offset by tough conditions in Europe and the UK.
”This continues to be a case of steady as she goes,” said Michael Bailey, the chief executive due to be replaced by Richard Cousins in June. The company, which is planning to buy back £500m of its shares over the next 12-18 months, said it remained “on track” to deliver on full year expectations.
Compass issued three warnings in 2005, and its profits were affected by a weak performance from the UK operation and the loss of military contracts in the Middle East. It said earlier this year it had completed most of the restructuring programme it announced in 2005.
The company said on Tuesday that revenue at its UK and Ireland operations was up 3 per cent to £1bn ($1.88bn) in the first half of the year on a like-for-like basis, and that it was making “good progress” in addressing lower margin contracts.
Operating profit in the UK fell 8 per cent to £56m. Compass said spending on restructuring in the UK business had outweighed the benefits in the first half by £3m, but it expected that to reverse by the year-end.
In North America, trading was strong in the first half, with revenue up 13 per cent to £2.3bn, and operating profit up 16 per cent to £125m. In the rest of the world revenues rose 9 per cent to £857m and operating profit was up 14 per cent to £25m.
In continental Europe, where trading conditions remained “challenging”, revenue grew 3 per cent to £1.5bn, and operating profits fell 8 per cent to £92m. Compass said that the performance of its European businesses had improved slightly, although it had yet to see an improvement in Italy, or in Selecta, the European vending business.
In April, Compass agreed to sell Select Service Partner, the travel concessions business that includes the Upper Crust and Caffe Ritazza brands, to a consortium of investors including Macquarie Bank and EQT Partners for £1.8bn, more than had been expected.
Pre-tax profits on Compass’ continuing operations fell to £184m in the six months to March 31, down from £203m in the same period a year earlier. Earnings per share fell from 6.3p to 5.6p, and revenue rose from £5.14bn to £5.7bn. The interim dividend is 3.4p per share, up from 3.3p a year earlier.
The company has been caught up in investigations into corrupt buying practices at the United Nations, but did not give an update on the issue.
Kevin Lapwood, analyst at Seymour Pierce, said in a note that the ongoing contract catering businesses appeared to have done “slightly better” than had been expected. “The company now faces a difficult period in which it will demerge its travel concessions businesses, change its chief executive and still faces legal challenges in the US over recent cash for contracts allegations.”
The shares rose 2 per cent to 240¼p in early trading.
Get alerts on Retail & Consumer when a new story is published