Catering Group Compass Serves Up Profit Warning As Virus Hits
Catering company Compass Group has said that it expects its first-half profits to be £125 million to £225 million pounds lower than expected due to the closures of schools and businesses and cancellations of sports events in Europe and North America to contain the spread of the coronavirus.
Shares in the FTSE 100 company were down 20% to their lowest level since 2013 after Compass said that the anti-virus measures, including the school closures and work-from-home moves by businesses, will hit its volumes "severely."
Compass provides meals for office workers, armed forces and school children in 45 countries, and employs approximately 600,000 people.
The rapid spread of COVID-19 has led governments all over the world to urge people to practice "social distancing" and avoid crowds, with major sports events around the world postponed or cancelled to fight the spread.
The company's sports, leisure and hospitality division owns several brands such as the jockey club catering that serves events including Britain's Grand National, which was cancelled this week.
"The vast majority of our sports & leisure and education business in these regions has been closed, and our business & industry volumes are being severely impacted," the company said in a trading update. "We are implementing significant mitigation plans to manage our costs, and at this stage expect the drop-through impact of the lost revenue to be between 25%-30% across the business."
Analysts at JP Morgan downgraded estimates for caterers across the board as the industry grapples with fallout from curbs on travel, where flights have been grounded and hotel vacancies have been rising.
JPM estimates Compass's full year 2020 operating profit to be down 12%.
As mentioned above, Compass said that operating profit for its first half would be £125 million to £225 million pounds lower than expected. The group had reported underlying operating profit of £951 million in the same period a year ago.
Compass had already warned in November that hundreds of jobs could be in jeopardy as it cut costs in the face of a weakening economic outlook in Europe that had dented the company's volumes and margins.
The group said that organic growth for the first half of 2020 will now be between zero and 2%. In February, it forecast 2020 organic growth around the mid-point of a 4%-6% range.
"We are working to protect our cash flow and are pro-actively managing our capital expenditure and working capital," Compass said, adding that it still has significant headroom and liquidity in its current credit facilities.