19th Sep 2016 08:01
LONDON (Alliance News) - Facilities management services firm Mitie Group PLC saw a quarter of the value of its shares wiped out on Monday morning after it warned its profit for the full year will take a hit from a series of cost pressures and market challenges it faces.
Mitie shares were down 24% at 203.50 pence on Monday morning, the worst performer in the FTSE 250 by a significant margin.
Mitie said the long-term health of its core Facilities Management business remains robust, with new contracts having been secured in its financial half-year to the end of September. However, the short-term picture for the group is much less rosy.
The group said lower UK growth rates and changes to labour legislation in Britain, notably the introduction of the National Living Wage, had delivered a short-term hit to its trading. This has been complemented by further constraints put on public sector spending in the UK and the uncertainty which prevailed prior to the UK's Brexit referendum and in the aftermath of the vote.
Mitie said it has taken "strong action" to try to counter these headwinds by making operational changes and cutting costs, but despite these measures it will take a serious hit to its results for the year to the end of March 2017, with the pain to be concentrated in the first half.
Mitie said it expects revenue in the half-year to the end of September will be "modestly lower" year-on-year, but said operating profit will be "very significantly lower", mainly due to a reduction in higher-margin contract work and a fall in discretionary spending by clients.
It also has been hit by pricing pressures, higher costs, restructuring expenses and a deterioration in the performance of its local government-focused Healthcare and Property Management businesses.
For the full year, Mitie said it continues to anticipate revenue will show a "small amount of growth" year-on-year thanks to new contracts it has won. This growth will be driven entirely by the Facilities Management business, while sales in Property Management and Healthcare will fall.
Operating profit for the full year is now expected to be materially beneath Mitie's previous expectations due to these issues faced in the first half and due to an expected GBP10.0 million in restructuring costs that the firm expects to book in the financial year.
Mitie said the Facilities Management unit, from which it derives 84% of group revenue, has seen a good level of activity and the pipeline for the business remains strong.
However, the recent economic uncertainty in the UK is having the effect of causing clients to renew or extend larger contracts and defer any decisions on new investment, which is hitting growth for the Facilities Management arm.
In Facilities Management, Mitie said it is making good progress on combining its hard and soft facilities management operations, part of a push to eliminate duplication, standardise in-house process and align management structures to simplify the overall business.
The Property Management business, meanwhile, has been hurt by significant pressures on local authority budgets, in particular by the social housing rent reductions which came into effect in April. This has reduced local authority budgets for repairs, maintenance and project work on social housing estates.
Due to this, Mitie said revenue and profit in the Property Management arm will be lower year-on-year, while start dates on some projects on Mitie's books have also been delayed.
The Healthcare division is facing similar challenges to Property Management. Local authority social care budgets have been squeezed, and Mitie said further evidence of "unsustainable pricing" has been seen in some areas.
Due to the ongoing issues in the Healthcare arm, Mitie said it is now reviewing its long-term plans for the Healthcare business and related options, though it said further detail on this will come at its interim results, due on November 21.
By Sam Unsted; [email protected]; @SamUAtAlliance
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