PARIS (Reuters) - Elior (ELIOR.PA), Europe’s third-largest catering group, warned of slower organic sales growth for the current financial year in a cautious outlook that caused its shares to slump.
Elior said its exit from non-profitable contracts in Italy was one of the main reasons as to why sales growth would be slower for this year compared to the previous year.
Elior, which competes with Sodexo (EXHO.PA) and Compass (CPG.L) and has made several profit warnings over the last year, also predicted its adjusted EBITA (earnings before interest, tax and amortization) margin would stabilize in the current year.
Elior has launched a review of strategic options for its concessions business, which handles catering in airports and motorways, as part of a broader plan to boost its growth.
It added it would take a decision on the matter in the first half 2019.
“Spinning off this business would potentially give each of our activities more room for maneuver and result in higher value creation...All options are open and a sale is one of them,” said Chief Executive Philippe Guillemot.
Elior’s concessions business accounts for 28 percent of group revenue while the contract catering business makes the bulk of sales.
Elior made the forecasts after slashing its dividend by 19 percent after reporting a well-flagged decline in its adjusted EBITA margin to 4.3 percent from 5.3 percent in the 2016-2017 fiscal year.
Organic sales growth slowed to 3 percent from 3.6 percent and Elior forecast growth of just over 1 percent for 2018/19, which brokerage MidCap Partners said was “disappointing”.
“FY 2018/19 will be a year of stabilization of our performance. We are entering the year in good shape to deliver on the Elior 2021 strategic plan,” added CEO Guillemot.
In June, Elior held a briefing where it said that for the period covering 2019-2021, it was targeting annual organic sales growth above 3 percent and growth in adjusted earnings before interest, tax and amortization (EBITA) margin that would be double that of its organic sales growth.
The plan comes with Elior shares under pressure after that string of profit warnings, which the group has blamed on start-up costs on new contracts and the fact that some of its cost-saving plans made less of a contribution than expected.
Elior has also cautioned that its path towards those goals, which also included cumulative operating free cash flow of 750 million euros , would “not be linear”.
Elior shares have fallen around 25 percent so far in 2018.
Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta