A severe profit warning from low-margin office cleaner Mitie (MTO) sends its shares crashing 27.4% to 195.3p.

Mitie warns of lower revenue and ‘very significantly lower operating profit’ in the first half. The outsourcer blames a reduction in higher margin project work volumes and spending by clients, as well as pricing and cost pressures.

Operating profit has been hit by further one-off costs from cost efficiency programmes, which are expected to total up to £10 million.

Mitie has further bad news as it warns of ‘deterioration’ in the trading performance of its healthcare and property management businesses, which were hit by public sector budget constraints.

It has also cited short-term economic pressures, including lower UK growth rates, the increased National Minimum Wage, and uncertainty surrounding the EU referendum, for its underwhelming performance.

In a bid to counter the impact of these pressures, the firm is initiating cost-efficiency programmes to ensure long-term competitiveness.

Liberum has reduced its full-year 2017 earnings per share forecast by 8% to 20.6p, which is partially due to a reduction in high margin discretionary work.

The broker believes revenues and profits will be lower in property management due to less funding for local authorities, and dismisses Mitie’s claim that the operational performance of its contracts has been strong.

However, Mitie says operating profit will improve in its second half, which it also expects to reflect cost savings of approximately £15 million as the firm’s hard and soft facilities management businesses will be combined.

Mitie has won a security management contract worth £150 million with a major UK retailer, which will start in the third quarter of this year.

Issue Date: 19 Sep 2016