Mitie plummets on profit warning as clients delay spending

Outsourcer Mitie Group warned that full year profits would be materially lower than expected due to a drop-off in higher margin contracts in the first-half and the cost of new efficiency programmes.

Outsourcer Mitie Group warned that full year profits would be materially lower than expected due to a drop-off in higher margin contracts in the first-half and the cost of new efficiency programmes.

Revenue and profit in the property management segment has been "significantly" hit by local authority budget pressures and particularly by the statutory social housing rent reductions that came into effect in April, which have reduced the funding available to local authorities and housing associations for repairs, maintenance and project works.

Management said they will carry out a review of the long-term plans for the healthcare business as trading has deteriorated as reduced local authority social care budgets combine with unsustainable pricing in some areas.

Efficiency has already come under the microscope across the group's operational and back office functions, with an efficiency programme that aims to cut costs, with an investment in technology to support revenue and margins.

In total this will cost around £10m over the year and adds to the profit shortfall for the year.

In the first half ending 30 September the split will be £5m, plus revenue is expected be modestly lower and operating profit to be "very significantly" lower.

"This is specifically due to a reduction in higher margin project work volumes and discretionary spend by clients, pricing and cost pressure, a deterioration in the trading performance of our local government facing Healthcare and Property Management businesses," Mitie said.

For the full year, guidance remains for modest growth in group revenue as new contracts and seasonal factors kick in to offset the revenue declines in the first half.

"For the year as a whole, we expect modest growth in the Facilities Management business which will be offset by contraction in Property Management and Healthcare," the company said, with operating profit "materially" below previous expectations, even including the expected benefit of around £15m of gross cost savings.

Shares in Mitie fell 25% in the first few minutes of trading to leave the shares at 202p by 0825 BST on Monday.