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Compass Group in £2bn placing to weather coronavirus crisis

The contract caterer's revenues have fallen sharply since the start of March due to the impact of lockdowns across its markets

Compass Group -

Compass Group PLC (LON:CPG) saw its shares retreat on Tuesday as the contract caterer unveiled plans to raise £2bn via share issues to strengthen its financial position during the coronavirus (COVID-19) pandemic.

The FTSE 100-listed firm said its revenues have fallen sharply since the start of March due to the impact of lockdowns across its markets.

Sales in April fell by 46%, following a 20% decline in March and additional liquidity is needed to weather the crisis, the company said.

Around half of its facilities were shut last month with Sports & Leisure fully closed, Education and Business & Industry mostly closed (65%) and Healthcare & Seniors and Defence, Offshore & Remote almost fully open, it added.

In response, monthly costs have been reduced by £500mln which has helped mitigate the loss in revenues, said the group.

In the half-year to March, the impact of the closures on operating profit was 28.5%, though Compass said this improved slightly in April to a fall of 23%.

Net debt at end April was £4.87bn, with the group having committed loan facilities of £2.8bn while it has also taken up a £600mln loan from the UK government’s COVID-19 scheme.

Following the placing, which will be carried out through a bookbuild today and includes a retail offer through PrimaryBid, the company said its net debt will drop to £2.9bn.

Compass Group's interim results for the six months to March showed revenues rose by 1.6% to £12.6bn while operating profits fell by 10% to £854mln.

Reinforces credentials as a survivor

Commenting on the fundraising, Russ Mould, investment director at AJ Bell said: “The business could probably have withstood a fair while longer in the pressure cooker of the coronavirus crisis without going cap in hand to shareholders.

“However the fundraise should reinforce its credentials as a survivor in its market and one with the capacity to invest for recovery and to take advantage of M&A opportunities as and when they arise.

“And it is refreshing to see retail investors offered the opportunity to participate, even if the nature of the placing means existing shareholders aren’t being given first refusal on the new shares."

He added: “Compass is already at the top of the food chain and its smaller rivals don’t have the luxury of tapping the capital markets for billions in fresh liquidity. One longer-term challenge for the business is the trend towards working from home. If this becomes more established in the ‘new normal’ then the size its customer base could shrink appreciably.”

In morning trading, Compass Group shares were 2.6% lower at 1,123p.

 -- Adds broker comment, share price --

Quick facts: Compass Group

Price: 1115 GBX

LSE:CPG
Market: LSE
Market Cap: £19.89 billion
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