Beleaguered Compass sees profits fall

By Anita Awbi

- Last updated on GMT

Related tags Operating profit Profit Catering

Troubled catering firm Compass Group today announced a five per
cent drop in first-half operating profit, amid allegations the
company bribed UN officials for war contracts.

The UK-based food service firm took a 9.4 per cent fall in pre-tax profit to £184m (€270m) for the six months ending March 31, hitting analyst predictions of around £180-185m.

Profits were affected by slow European trading and the loss of military contracts in the Middle East.

However, both factors were partially offset by a strengthening of US operations, which enjoyed a 13 per cent jump in like-for-like revenue growth from £1.88bn in 2005 to £2.3bn this year.

Meanwhile UK operating profit fell eight per cent to £56m, from £61m. The firm also stated the climate in Continental Europe remained "challenging"​, echoing British performance to deliver an eight per cent drop in operating profit from £100m in 2005 to £92m this year.

Free cash flow tumbled 17.5 per cent to £80m from £97m this time last year.

"This continues to be a case of steady as she goes,"​ said CEO Michael Bailey. "Our performance during the first half of the 2006 in maintaining high levels of contract retention and making significant new business gains reflects the commitment and dedication of our teams."

Bribery charges

Compass has been at the centre of a UN bribery row since allegations emerged in October that the group sought to manipulate UN contract decisions to serve peacekeeping forces in Liberia and Eritrea.

Two rival food service firms, Monaco-based ES-KO and Swiss-based Supreme Foodservice, filed complaints in March about the contracts in a New York district court.

However Compass said it has not been issued with any legal writs as yet.

An update on the progress of the investigations launched by the rivals was expected in today's six-month trading statement, but very little about the effects of the two possible $125m (97.6m) lawsuits have been revealed.

"No provision has been made in these accounts in respect of these matters and it is not currently possible to quantify any potential liability which may arise. The directors currently have no reason to believe that any potential liability that may arise would be material to the financial position of the group,"​ the firm said in a statement.

Divestures & acquisitions

Last month Compass announced the sale of its core travel food service business to an investment consortium headed by Australia's Macquarie Bank.

The group will sell the Select Services Partner (SSP) business, the Moto UK motorway food business and American Creative Host Services to Macquarie, with the remainder of the SSP businesses to go to investment firm EQT and other sponsors.

Together, the sales will fetch £1.8bn, beating analyst predictions of between £1.2bn and £1.4bn. The figure is 16 times SSP's 2005 operating profit before goodwill amortisation (EBITA) and represents a major windfall for the firm.

In addition to the sale of SSP, the firm offloaded 90 per cent of its European Inflight catering business, bringing total proceeds to nearly £1.9bn.

Also during the first half of 2006 Compass bought the remaining 51 per cent of US-based Levy Restaurants, directing £143m from the SSP sale to this end.

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