Sodexho slashes profit forecasts after discovery of 'serious errors'

The catering giant Sodexho Alliance slashed its profit forecasts by up to 14 per cent yesterday after warning about management and accounting problems at its British business.

The French group, which rivals Compass Group for catering and management contracts for businesses, hospitals and schools, saw its shares plunge 30 per cent to a six-year low of €19.25 after it issued its third profits warning this year. The warning dragged shares in Compass as much as 10 per cent lower in early trade in London before they recovered to end down 3.5 per cent at 270p.

Sodexho said it had detected "serious errors of management as well as accounting anomalies" in its British operations, the effect made more serious by difficult economic conditions. It said the problems would set back its long-term group targets by a full year.

The company also claimed that its auditors in Britain, who are PricewaterhouseCoopers (PwC), had "not been sufficiently vigilant". PwC said it could not comment on the business of a client.

The British unit employs more than 50,000 staff, with clients including the Ministry of Defence and the NHS. Problems in Britain came to light at the time of its first-half earnings in May, when Sodexho's operating margins there more than halved. It said then that the problems centred on its British grounds maintenance subsidiary, Sodexho Land Technology.

"Fiscal year 2001/2002 in the United Kingdom will be seen as an accident in Sodexho's development," Pierre Bellon, the chairman, said. "It has set our long-term objectives back by one year." Sodexho has changed the British management team and said yesterday that recovery in Britain was under way.

The finance director, Sian Herbert-Jones, said Sodexho had detected no fraud in its UK operations, which accounted for about 12 per cent of 2001 operating profit and 14 per cent of sales.

Albert George, the deputy chairman, said "accounting corrections" and restructuring costs, plus a loss-making hotel branch, poor performance at 20 of its business contracts, the replacement of obsolete information technology equipment and provisions would eliminate 2001/2002 profits in Britain.Sodexho cut its group profit target for 2001/02 from €210m to between €180m and €190m.