By Diana Mandia and Federica Mileo

(Reuters) -French catering and food services company Sodexo lowered its annual revenue growth outlook on Friday citing the pandemic, the Ukraine conflict and the closure of COVID-19 testing centres it ran in the United Kingdom.

The world’s second-largest food catering services group behind Britain’s Compass said it expected organic revenue growth to come in around the bottom of its previous forecast range of 15% to 18% for its 2022 financial year to Aug. 31.

Sodexo also said it had terminated its investments in Russia following the war in Ukraine and that contracts won last year and which should have started in the second half of 2022 would not materialise.

The loss of revenue from the terminated contracts is estimated at 40 million euros ($44 million), Sodexo said.

Sodexo shares had slumped 8.5% to 67.56 euros by 0936 GMT.

“Our business in Russia is small, but it was growing fast,” Chief Financial Officer Marc Rolland told analysts on a call.

Sodexo, whose Russian activities represent less than 1% of its revenue, said last week it was “closely monitoring the situation and examining various options”.

Compass Group said last week it had completed the disposal of its operations in Russia, after announcing earlier in March its decision to leave the Russian market permanently and to move away from all known Russian suppliers.

NEGOTIATIONS WITH FOOD SUPPLIERS

The conflict between Russia and Ukraine, once known as the breadbasket of Europe, is also sending food and energy prices to record highs, clouding the outlook for the global economy as consumer finances come under pressure.

“We are very, very vigilant because the situation surrounding the war in Ukraine is causing a certain volatility in certain commodities, so it’s something we are watching like a hawk,” Rolland said in a call with reporters.

Sodexo says it was negotiating and changing suppliers to deal with rising food prices.

“We are negotiating. We are changing suppliers,” he said. “The relationship with suppliers is built over a long period of time. It’s not just we buy the cheapest now available on the market.”

However, the company said it remained confident it could manage inflationary pressure on margins, with its business model allowing price rises to be passed on to clients progressively.

Sodexo also said contracts to operate COVID-19 testing centres in UK had ended on March 31, much earlier than expected.

It posted half-year underlying operating profit of 538 million euros, ahead of analyst expectations for 530 million euros, and said it has seen a pick-up since the end of February.

($1 = 0.9048 euros)

(Reporting by Federica Mileo and Diana Mandia; Editing by David Goodman and David Clarke)

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