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Compass points to job cuts as Europe economic slowdown bites

[BENGALURU] Compass Group on Tuesday warned that hundreds of jobs could be in jeopardy as a part of a programme to stem costs, as the weakening economic outlook in Europe dented the catering company's volumes and margins.

Compass said deteriorating consumer and business confidence in Europe had hurt volumes and margins at its company catering services, sending shares almost 8 per cent lower.

The world's biggest catering firm could cut jobs in Britain, France and Germany, with roles in Japan and Brazil also at risk, Chief Executive Officer Dominic Blakemore told Reuters.

Compass, which provides meals for office workers, armed forces and school children in 45 countries and employs 600,000 people, expects 2020 organic revenue growth around the mid-point of its 4-6 per cent expected range.

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The lacklustre outlook took the shine off a 4.7 per cent rise in underlying operating profit to £1.88 billion (S$3.3 billion) for the year ended Sept 30, helped by growth in North America and the UK defence and sports and leisure businesses.

"Some of our manufacturing, automotive and financial service clients are reducing headcount or changing their shift patterns. In turn, that leads to lower employment levels and fewer people eating in our restaurants," Mr Blakemore said.

Catering for business and industry brings in 39 per cent of revenue with Compass counting Google, Boeing, Microsoft and Chevron among its clients.

Mr Blakemore said Compass' expectations for 2020 were positive but it remained cautious about economic conditions in Europe.

Compass, which competes with France's Sodexo, said it would cut costs in the region, resulting in a charge of about £300 million.

Of that, £190 million was incurred in 2019, partly accounted for by a £120 million hit on structurally loss making contracts.

"These are an unusually eventful set of numbers for Compass," said Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, adding that the cost of getting the company in better shape was unexpectedly high.

"When shares are priced at a premium ... even the smallest slip can startle the market, with potentially painful consequences," he added.

Compass shares trade at an estimated price-to-earnings ratio of 25, compared to a sector average of 22, according to Refinitiv Eikon data.

Compass warned that some clients in Europe were hesitant to make decisions, particularly in Britain.

Compass increased its annual dividend. It is one of 26 current blue-chip companies to have hiked its annual payout every year for the last decade.

REUTERS