Compass to take £100m impairment in response to Covid impact

Food services group Compass said annual revenues would fall by almost a fifth and said it take a £100m impairment charge as it reviewed contracts in response to the Covid-19 pandemic's impact.

The world's biggest catering company on Wednesday said full year revenues would be 19% lower year on year, after a 36% decline in the final three months of the fiscal year, compared to a 44% slump in the third quarter.

Fourth quarter revenues improved as schools and businesses reopened after the coronavirus pandemic lockdown, but Compass warned a winter outbreak could hamper the pace of recovery.

The fourth quarter underlying operating margin was expected to be around 3% lower, an improvement from a 5.2% fall in the third quarter. The full year underlying operating profit margin was expected to be around 3%.

“We are pleased with our progress in the quarter and that the business is now at breakeven at a trading level,” Compass said in a trading update.

“We continue to proactively manage the business, reducing our costs, rebuilding our margins and investing to strengthen our competitive advantages. However, the pace at which our revenues and margins will recover remains unclear, especially given the possible increase in lockdown measures in the Northern Hemisphere through the winter months.”

Group organic revenue was around 36% lower than last year, an improvement on Q3, thanks to reopening of businesses and schools in the US and Europe.

Full year revenue is expected to be around 19% lower than last year’s £25.2bn, with margins around 3%, down from 7.4% last year.

Despite a better quarter, Compass said the speed at which revenue and margins recover is unclear, particularly in light of potential further lockdown measures.

Emilie Stevens, equity analyst at Hargreaves Lansdown said further lockdowns remain an ‘if’, as does their severity, "but we’re encouraged by the progress Compass has made to be able to work under stricter social distancing measures".

"If lockdowns are less severe allowing schools to stay open and businesses in US to stay in the office, Compass will likely avoid the lows it saw earlier this year. The re-negotiation of contracts and the ability to start passing on higher costs to clients, together with £5bn in liquidity, also puts the group in a strong place to ride out a prolonged storm.”