LONDON (ShareCast) - (ShareCast News) - Mitie Group warned earnings will be below forecasts as the beleaguered facilities management firm battles with client deferrals, delayed investment plans and an underperforming cleaning division.
After profit warnings in September and November, the FTSE 250 company again lowered its guidance for earnings in the year to 31 March, with underlying profit now anticipated be in the range of £60m to £70m, after management took a more conservative position on contractual positions and identified an additional £14m in one-off charges in the year, though excluding the previously announced £10m of one-off charges linked to cost savings.

In November, Mitie reported a first-half loss of £100m and warned of further one-off closure costs and losses on disposals as it exits the loss-making home healthcare market.

Wednesday's third-quarter update revealed the property management and technical facilities management divisions have both been affected by client deferrals and delays in investments, which are now expected to be fulfilled in the second quarter of calendar 2017.

Furthermore, the cleaning division was felt by new chief executive Phil Bentley to be "underperforming", which has led to a divisional management rejig.

The group maintained, however, that despite the lower forecast in earnings, it expects to continue operating within its banking covenants.

Following Bentley's appointment as CEO late last year, when Ruby McGregor-Smith left the company after a decade in charge, he has now brought in Sandip Mahajan from Balfour Beatty as chief financial officer, effective from 10 February, to succeed Suzanne Baxter, who will provide ongoing support to aid a smooth transition.

Mitie's shares, which sank 20% on the 21 November profit warning and were as low as 165p on the day, were down 9% to 186.1p on Wednesday.

Neil Wilson, senior market analyst at ETX Capital, said the new update was "not going to help investors see this stock in a more positive light".

Conservative peer McGregor-Smith had blamed the downturn in business on the Brexit vote, a slow down in the economy and cuts to government spending and Wilson said Mitie had been hit by rising staff wages as well significant macroeconomic challenges that are translating into clients delaying investment and spending.

"Staffing costs will only get tougher as the National Living Wage is set to rise along with pension costs and apprentice levies. Meanwhile a weak pound will drive up the cost of imported goods and services. Input prices for manufacturers have surged nearly 16% in the last year. All of this piles pressure on Mitie's clients, making them less likely to spend, apparently."

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