Beleaguered outsourcing firm Mitie shocked the City with its second profit warning in two months yesterday as it continues to battle the impact of increased economic uncertainty and higher staff costs.
The company swung to a £100.4 million half-year loss from a £45.1m profit in the same period last year as revenue fell 2.6 per cent to £1.09 billion.
Mitie also slashed its dividend 25 per cent to 4p from 5.4p, and announced it was withdrawing from the home healthcare market.
The company, whose cleaning and maintenance contracts for clients in Scotland include the Holyrood parliament building, Royal Bank of Scotland and Standard Life, said it was suffering from “changing market conditions as clients adjust to rising labour costs and economic uncertainty”.
It warned that full-year earnings would likely be below management’s previous expectations. Outgoing chief executive Ruby McGregor-Smith admitted the first half of the year had been difficult but said the company was not alone in facing “significant macro-economic challenges”.
She said: “Second-half performance is expected to improve with our new operating model as we adapt to market conditions,”
Shares fell by 20 per cent in early trading although recovered some of the lost ground to close down 20p, or 9.5 per cent at 190.5p. The shares had been trading at over 300p at the beginning of the year.
On the healthcare withdrawal, Mitie said: “Our healthcare businesses will continue to fulfil all obligations but there will be no investment in new areas of this market.
“Mitie will manage its withdrawal in an orderly and responsible manner. The board has changed its long-term view of this market. All healthcare goodwill and intangibles have been written off.”
Neil Wilson of ETX Capital warned that rising staffing costs are not going to get much better for Mitie with the National Living Wage set to rise along with pension costs and apprentice levies.
“Labour costs will rise and a weak pound will further drive up imported goods and services. All this puts pressure on Mitie’s clients and makes them less likely to spend,” Wilson added.
McGregor-Smith is due to step down as chief executive next month after almost ten years at the helm and will be replaced by former Cable & Wireless and British Gas executive, Phil Bentley.
Mitie chairman Roger Matthews paid tribute to McGregor-Smith for the “significant contribution” she had made to the business.
He said: “Under her strong and passionate leadership our facilities management business has been transformed with the ability to provide a broad range of services to our blue-chip client base.”
Matthews added that her successor had an “excellent track record of delivering shareholder value”.