Compass shares slide after declining confidence weighs on caterer’s European arm

Compass Group shares have slipped after the catering firm warned that a decline in confidence in Europe has hit its business catering division.

The group posted higher underlying operating profits for the year, but the company said it is taking action to improve its cost base in Europe due to weakness in the region.

Profits increased by 4.7% to £1.88 billion for the year to September 30 on the back of rising sales.

Compass, which supplies meals for office workers, school children and armed forces, said revenues jumped 6.4% to £25.15 billion for the year.

The FTSE 100 business said sales were buoyed by growth in North America and in its UK defence and sport and leisure divisions.

“Despite this good performance, we are not immune to the macro environment,” said Dominic Blakemore, chief executive of the group.

“Deteriorating business and consumer confidence in Europe has impacted our Business & Industry volumes, new business activity and margin.

“In the longer term, we remain excited about the significant structural growth opportunities globally, the potential for further revenue and profit growth, combined with further returns to shareholders.”

Despite being cautious about the economic environment, Mr Blakemore said the company expects to see sales and profit growth in 2020.

It said its pipeline of new contracts has driven “excellent” growth in North America, while its Rest of the World region has improved over the past year.

Organic sales jumped by 7.7% in North America, taking total revenues up to £15.7 billion for the year.

European sales increased by 1.6% to £5.9 billion following 4.1% organic growth.

It said it won new contracts with firms such as Landsec in the UK, as well as a contract extension with Chelsea Football Club.

Russ Mould, investment director at AJ Bell, said: “The world’s biggest catering company has served up a bit of a dog’s dinner alongside its full-year results.

“The numbers themselves are fairly solid but it is the accompanying commentary and guidance which is giving the market indigestion as the company takes a hit in Europe and certain other regions where both volumes and margins are under the cosh.

“Compass has become a prized stock with many investors for the consistency of its returns but today’s news may place put the spotlight on the impact a global slowdown could have on the business.”

Shares in Compass fell 5.8% to 1,951 in early trading on Tuesday.