Outsourcing group’s shares fall 18% in early trading as £128m write-off drives it to £100m pre-tax loss for half-year
Lady McGregor-Smith, Mitie chief executive, announced soon after the first profit warning that she would step down.
Mitie has published its second profit warning in two months after the outsourcing company’s customers continued to reduce spending due to rising costs and economic uncertainty.
The company also said it would withdraw from its healthcare business, which provides home care for the elderly. The £128m cost of writing off the business drove Mitie to a £100m pre-tax loss for the first half of the year.
Lady McGregor-Smith, Mitie’s departing chief executive, said spending cuts had made the healthcare business unviable. The Conservative peer said vulnerable people would suffer unless the government resolved to fund care properly.
Mitie has expanded to employ 63,000 people across businesses including office cleaning, immigration centres and pest control as organisations have sought to cut costs by contracting out services.
The company hit the buffers in September as it said annual profit would be lower than expected because customers, from banks to local authorities, were delaying projects amid uncertainty caused by the Brexit vote and rising employment costs.
Underlying annual earnings are expected to be up to 15% lower than analysts had pencilled in after the first profit warning.
Mitie’s shares fell as much as 18% in early trading and were down 7% at 194p after lunch.
McGregor-Smith, who has run Mitie for almost 10 years, announced soon after the first profit warning that she would step down. McGregor-Smith, who was the first Asian woman to run a FTSE 250 company when she took the job, will leave on 12 December and be replaced by Phil Bentley, the former boss of Cable & Wireless. Advertisement
McGregor-Smith said: “I made the decision [to leave] over a year ago and the board has been looking at succession. I have to do the job based on current market conditions.” She said cost cuts and new business in the pipeline had put Bentley in a good position to restore profitability.
Mitie put its healthcare division under review in September and will now look for a company to take over the business or allow its contracts to wind down. Cash-strapped local councils have been seeking price cuts from the loss-making business, McGregor-Smith said.
McGregor-Smith said councils and the health service were not to blame for the care crisis because employment costs, including introducing the “national living wage”, had gone up by a third in the past three years as government funding had fallen sharply. The prices requested by local authorities for care made it impossible for Mitie to carry on, she said.
“When I talked this through with the Care Quality Commission last week I said there is nothing else we can do. We are watching the standard of care fall when other players take the work on.
“Care workers should be paid significantly more but someone has got to pay for it. If we are serious about social care in the UK it needs significantly more than the funding that has been suggested. We don’t believe additional funding will be made available to those who need it the most.”
A report by the King’s Fund in September said old people’s level of care depended on where they lived and how rich they were rather than their level of need. It said local authority spending on care for older and disabled people had fallen 11% in real terms in the past five years.
McGregor-Smith said she had not thought about resigning the Tory whip in the House of Lords to protest against the lack of funding. She said no government in the past 10 years had done enough to support the sector.
Mitie swung to a pre-tax loss of £100.4m in the six months to the end of September from a £45.1m profit a year earlier. The £128m write-off connected to the healthcare business included £117m of goodwill and intangible assets.