Shares of Mitie lost more than a quarter of their value after the outsourcing group published a profit warning triggered by the vote to leave the EU, government spending cuts and a slowing economy.
Mitie, which employs 63,000 people across sectors including care for the elderly, office cleaning and immigration centres, said customers in the public and private sectors were delaying spending amid economic uncertainty following the EU vote and squeezed budgets.
The company said customers put projects on hold in the run-up to 23 June and remained reluctant to order extra spending.
As a result, Mitie, which also has cleaning contracts with the Ambassador Theatre Group and maintenance contracts with London and Quadrant housing trust, said annual profit would be much less than management had expected.
Analysts predicted earnings before interest and tax would be about 15% lower than the £130m forecast before the update. Mitie shares plunged 28% to 192p – their lowest since early 2009 when Britain was in recession.
More than half of Mitie’s revenue comes from companies in the private sector. It said uncertainty created by the referendum result had prompted banks and other City firms to delay office maintenance they would normally commission on top of regular cleaning contracts.
Local councils also have less money because of central government budget cuts and have reduced spending on maintaining social housing. Councils have also sought price cuts from Mitie’s healthcare division, which provides home care for the elderly, making the business unviable in the current market.
Ruby McGregor-Smith, Mitie’s chief executive, said the trading environment was the most uncertain she had experienced in more than 20 years in the outsourcing business. The Conservative peer said cuts to local authority budgets had gone too far and called on the government to make more money available for essential services.
She said: “I think the budget pressures are incredibly significant. I think it should be reversed and it is too challenging.”
Mitie warned in May that local authority customers had less money to spend because of spending cuts and that the referendum had dented confidence. It brought forward Monday’s trading statement from the end of the month after the effect on its business became clear.
City analysts questioned McGregor-Smith for more than an hour about why trading had got so much worse. She said the trends had taken her team by surprise and the Brexit vote had exacerbated existing weakness.
She told analysts: “We are seeing some pressures and some delays and, absolutely, we thought we would be in a better place than we are today. There is some high-margin work that has been delayed … We have been surprised by some of the delays we have seen in our business.”
McGregor-Smith, who has run Mitie for nine years, said she would review all options for the loss-making healthcare business but that Mitie had to be careful because vulnerable people and thousands of employees relied on its services. Courses of action include gradually ending contracts, selling the business and waiting until price pressure eases.
She said: “Going back to 2010, I said we need to look at deficit reduction seriously but in some areas on the ground where we operate I see the impact of these cuts. I would say in some areas those cuts need to be changed, particularly when you are looking after the elderly and in social housing and education.”
McGregor-Smith said she supported the “national living wage” but that the measure, along with extra pension contributions, meant customers have less money to spend on extra services. She said efficiency measures at Mitie, including cuts to its workforce, would cost about £10m in the year to the end of March.
She said Mitie was winning new contracts and she was confident about the company’s future after short-term pressures ease. Mitie said job cuts would mainly be among senior managers as it combines administration functions.
