Catering company Compass said it had become more selective about school lunch contracts after the division contributed to a fall in full-year profits.

The group, best known for its Upper Crust sandwich chain and for serving food to blue-chip companies, said profits before tax and exceptionals fell to £645m from £661m during a challenging year. This was at the lower end of forecasts, which were revised after a recent profits warning.

Compass, through its business division Eurest, provides catering for 4,000 employees at the 2,000-acre Wilton manufacturing site on Teesside, as well as catering at BASF in Seal Sands.

The group said it was entering its new financial year confident that action had been taken to address the issues that resulted in the warning.

Compass said in September that lower school meal budgets and higher canteen staff wages meant a number of contracts with local education authorities were failing to deliver the anticipated margins.

The group has since been more selective about the school contracts it takes on.

It has strengthened its management team in Europe, where summer trading had been poor, and switched services from an unnamed distributor suffering financial difficulties.

The group announced that it would manage nine Marks & Spencer Simply Foods units at Moto motorway service stations within the next 18 months.