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Mitie outsourcing group issues profit warning

Shares in outsourcing group Mitie have sunk by a quarter after it cut its profit outlook amid uncertainty over the UK’s decision to leave the EU and other “economic pressures”. Mitie said its profits would be “materially below” its expectations as a result of challenges it faced.These included lower UK growth rates, changes to labour laws and public sector spending cuts.

It also said “uncertainty both pre and post the EU referendum” was to blame.Mitie is one the UK’s largest outsourcing groups, offering facilities management services to clients such as the NHS, London City Airport and Linkedin.Its profit before tax increased by 0.7% to £114.1m in 2015, but in May this year it warned uncertainty around the EU referendum was causing clients to delay or cancel projects.

It also said that the introduction of the National Living Wage in April would add to its costs in 2016. The company, which is led by chief executive Baroness Ruby McGregor-Smith, said it was taking “strong action” to counter the impact of these pressures including making cost savings across the group. It also said a stronger forecast second half would lead to a slight growth in sales at the end of the year. However, operating profits are expected to be significantly below expectations. According to Reuters, analysts Liberum have cut their full-year earnings per share guidance by 8%, warning that Mitie’s management is preparing for a 10-20% fall in core earnings. The news could also negatively impact rival outsourcing groups Carillion and Interserve, Liberum said. In early afternoon trading, Mitie shares were down more than 2% to

Analysis: Simon Jack, business editor

The city exacts a heavy price from companies whose profits don’t live up to expectations. Even by the city’s harsh standards, today’s plunge was spectacular.

The value of Mitie fell by a quarter because the reasons it gave were not flash-in-the-pan problems, but significant economic pressures which highlight trends of interest to a wider group than the outsourcing company’s shareholders.Mitie said profits will be hit by a triple whammy of a higher minimum wage, declining local authority budgets and Brexit concerns.

The national living wage saw minimum rates of pay rise from £6.50 to £7.20 an hour in April. Previously, the company said this would have minimal impact on its profits, so today marked a change of tune. Back in May the company warned that many big customers were holding budgets back ahead of the 23 June referendum. Today, Mitie said that the continuing uncertainty surrounding the kind of Brexit the UK negotiates meant that still held true.

Mitie also provides social care and housing maintenance services to local councils, and the company said it was feeling the effects of cuts to their budgets. Mitie is in many ways a microcosm of some of the big issues facing UK businesses – and as the city reminded it today, not in a good way.

Article source: http://www.bbc.co.uk/news/business-37405427

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