Retailing shares have performed worse than the wider stock market in November and December for each of the past three years. The sale is expected to improve the group's return on capital employed by 30 basis points.Meanwhile, Compass has appointed a top City law firm, Freshfields, Bruckhaus, Deringer, to investigate the relationship between its ESS military supplies division, which was run by Peter Harris, the UN and an intermediary called IHC. Although it says the volume of business is negligible at less than 0.5 per cent of its revenues, analysts believe the potential damage to Compass's reputation is anything but.With the company's close period approaching before its preliminary results, the City will get fewer answers to its questions than normal. Mr Bailey has repeatedly brushed off suggestions there is anything amiss at the company he has worked for since 1993. As recently as May he declared: "I'm still as positive on Compass as I have always been."If only shareholders shared his optimism..
Compass has opted to sell one of its most capital-intensive divisions - Select Service Partner, which owns the Moto service stations in the UK and operates caf?and mini-markets at railway stations and airports.The £1bn business has already attracted attention from the fast-food entrepreneur Lawrence Wosskow, who bought Little Chef for £52mast week The sales memorandum for SSP is being sent out next month It will hand one-third of the proceeds back to shareholders. The buying benefits from being one of the UK's biggest purchases of, say, Nescaf?are not coming through. In response, the group ushered in a new era of generating free cash and boosting its return on invested capital It took an axe to its UK profit margin. But profits warnings two and three followed swiftly.It is the group's UK arm, home to its embattled Scholarest education operation, that is the source of most of its trading woes.
On top of the Jamie Oliver-led tirade of publicity against the unhealthy dishes it was happy to feed schoolchildren, it has had to cope with a litany of issues from pricing pressures to subdued trading. Even the London bombings hit the group, which feeds thousands of people on the move via its Upper Crust, Caf?itazza and Harry Ramsden's franchises.In short, the group's claims that being the world's biggest contract caterer is a source of untold riches are falling on deaf ears. It obsessed about this goal at the expense of its margins and allowed its most capital-intensive operations, such as its Moto service stations, to swallow truckloads of working capital.Critics have lambasted the group's "aggressive business model, aggressive management and aggressive finances", arguing the acquisitive catering company had simply been buying growth. It was the group's first profits warning in September 2004 that opened the City's eyes to the minefield of unexploded bombs that was its business model.Its contracts to feed UK schoolchildren were proving less profitable than anticipated; ditto its contracts to feed troops in the Middle East Cash was pouring out of the business. Until Sir Roy, the senior independent director, knows what sort of a man he wants under him, the group cannot even appoint headhunters. That said, the question of Mr Bailey's early departure is a matter of "when, not if", according to one investor, who said: "Having nobody there would be better than him."Although Compass claims it has tried hard to win investors round, observers believe it has always done too little, too late to inspire any trust.
