Compass Group shares fall on restructuring warning

Shares in Compass Group fell after it warned the costs of a new restructuring plan would impact full year operating margins, after third quarter results were mostly in line with forecasts.

The new restructuring has been launched as its fast growing and emerging (FG&E) markets are likely to remain tough, notably in the defence, remote and offshore segment.

By 09:02 BST shares in the catering group were down by 4.48% to 1,037.34p, after it said restructuring would cost between £20-£25m per year in 2015 and 2016.

The company posted a 6.8% rise in organic revenues in its third quarter trading update on Wednesday.

Additionally, organic revenue was up by 7.4% for the nine month period to 30 June 2015.

The food and services business said it was on track for positive full-year revenue, while operating margins were declining.

Compass added that strong rates of net new business were somewhat offset by weaker volumes in Brazil and Turkey.

Volume and margin pressures in oil and gas, and mining clients, especially in Australia, as well as soft volumes in emerging markets were partly offset by an efficiency programme, the company said further.

Corporate restructuring plan for its offshore and remote businesses and emerging markets would cost between £20-£25m per year in 2015 and 2016, and would weigh on profits.

“With our continued focus on costs and efficiencies, we expect the 2015 full year operating margin for the Group to be flat after these additional restructuring costs,” the company noted.

Analysts at Societe Generale thought the restructuring was likely to negatively drag EBIT margin in 2015 flat versus 10 basis points improvement previously forecast, with similar impact in 2016.

"An additional restructuring plan seems to be a good decision but highlights a challenging environment in some countries."