If you're holding this one I sure hope you know about this today! I've been watching this, but hadn't got as far as putting cash into it and I'm quite happy about that in view of this.



LONDON (AFX) - Compass Group PLC, the UK catering company, warned profits will fall well short of previous expectations this year and beyond owing to problems with a number of its catering contracts and the need to shore up its pension fund.

The news stunned financial markets, wiping around 1.5 bln stg off the company's market value.

'For 2004 and onward, total operating profit before goodwill amortisation is expected to be reduced by 30 mln stg,' Compass said in a pre-close statement before results for the year to September 30 are released on November 30.

And it warned profit will be reduced by a further 15 mln stg per year from 2005 as it continues to pump money into its pension funds.

The company pinned the blame on financial difficulties at one of its major distributors, weaker than expected margins on contracts to deliver lunches to British schoolchildren and weak trading at some of its European operations. Compass said the transfer of its business to a new, more expensive, distributor will cost it around 12.5 mln stg per year.

It was forced to make the switch after it became clear the incumbent partner, which it had been assisting financially, was to go into liquidation.

The company said weaker than anticipated profit margins on contracts with UK Local Education Authorities to supply school meals will crimp profit by a further 6.25 mln stg per year.

A similar reduction will result after the company incurred higher than expected start-up costs after securing a number of in-store restaurant contracts.

And weak trading conditions over the summer in Continental Europe, particularly France and the Netherlands, is set to wipe around 5 mln stg from its bottom line.

In addition Compass said that following a recent actuarial review, pension costs are expected to increase by 15 mln stg from 2005 and onwards.

Chief executive Michael Bailey tried to soften the blow, telling investors there will be no change to dividend policy.

'We would anticipate doing the dividend in line at the level we suggested to you earlier this year, we don't see any change in that,' Bailey told analysts on a conference call.

'At least,' he added when asked if dividend growth would be in-line with earnings per share.

By 10:50 am, Compass shares were trading 70.75 pence, or 22 pct, down on the day at 249.

rob.branch@afxnews

rhb/ec

2.60-2.75 would be a short term safe bet...or 15%, It definately well shortened by the Big boys now about to go...

Long...!