Compass, the world’s largest caterer, on Thursday dismissed concerns about its exposure to rising food prices, saying trading in the past five months had been ahead of its expectations and sounding an upbeat outlook for 2008.
In what analysts described as a strong trading update, Compass said it expected organic revenue growth for the six months to March 31 to be just over 5 per cent and forecast a larger-than-expected 50 basis point rise in profit margins.
The upbeat news comes as rising raw material prices threaten to send costs inputs spiralling among food producers and caterers and provides further evidence that Richard Cousins, who took over as chief executive in 2006, is well on his way to turning around the company.
While French rival Sodexo had blamed the impact of food price inflation for a disappointing performance last year, Compass said it was controlling food prices through purchasing and supply chain efficiencies, menu changes and price increases.
”We have had an encouraging start to the year,” it said in a statement. ”A combination of good market growth from a diversified geographical and sector base, improving working capital management, capital expenditure control and clearly identified cost efficiencies, leaves us confident that this trend will continue through the second half of the year.”
Compass, a Surrey-based firm that provides caterering services to the Wimbledon tennis tournament and the Bank of England, among others, has staged a recovery over the last two years following a string of profit warnings and a corruption probe relating to United Nations contracts.
From a low of just under 14p in 2006, shares in the company have rebounded to hit 349½p last month. They gained 4 per cent to 322¾ in early trading on Thursday.
Analysts at Morgan Stanley said Thursday’s trading update should lead to a 5 per cent increase to Compass’s full-year earnings per share forecasts. Their current forecast is for earnings of 19.3p a share.
”Foodservice is one of the more defensive sectors in the wider sector, and we also think there is upside risk from gearing the balance sheet which the company will discuss in May,” the broker said.
First-half figures will be released on May 14.
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