A warning by catering giant Compass (CPG) that restructuring costs will weigh on margins this year sends shares in the £18 billion cap down 4.6% to £10.36.
The food and support services company is implementing a restructuring plan to reduce costs in its offshore and remote business globally and in some emerging markets.
This will cost between £20 million and £25 million per year in 2015 and 2016 and its full-year operating margin will be flat as a result, the company says.
‘In 2016 the savings, together with margin improvement in the rest of the group, is expected to offset the impact of lower volumes and pricing pressures in our fast growing and emerging region,’ it adds.
Compass’ organic revenue grew by 5.5% in the nine months to 30 June and by 5.1% in the third quarter driven by strong net new business in North America and an acceleration of its growth in Europe and Japan.
Its fast growing and emerging markets were more subdued and underlying margin improvement has slowed to five basis points.
Panmure Gordon analyst Anna Barnfather says she has concerns about the ‘sustainability of retention rates and cost inflation and commodity drag’.
‘With no new guidance on future cash returns to shareholders and with volume growth still underwhelming, we see downside risk in the near term,’ she adds.
Panmure has a ‘hold’ rating with a target price of £11.00, implying upside of 6%.
