British outsourcing firm Mitie says it intends to pull out of the social care sector amid a severe funding squeeze that has left the group nursing a £100m loss for the six months to September.
The company's share price plunged by more than 20 per cent for the second time in two months in early trading yesterday, before recovering slightly to end the day around ten per cent down at 190p.
The slump comes after Mitie reported a swing from a profit of £45m for the first half of the 2015/2016 financial year to a loss of £100m this time around, says the Daily Telegraph.
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"Revenues slipped 2.6pc to £1.09bn, and the company also cut its interim dividend by 26 per cent to 4p, ending 27 consecutive years of dividend increases," the paper adds.
The BBC says the main reason for the £145m swing in earnings is "Mitie writing down the value of its home healthcare business", which is struggling amid a decline in funding from councils and rising costs related to the national living wage.
As a result, the company has put the business under review. Analysts told the Telegraph the firm's healthcare division, which employs 3,000 people, is likely to be sold.
Who would want to buy it is another matter, given the oft-cited crisis in the care sector.
Writing in The Guardian, David Brindle says Mitie's announcement highlights "the perilous position of the social care system".
While the NHS is centrally funded, social care is provided by councils whose budgets have been ravaged by cuts in recent years.
Last year, then-chancellor George Osborne gave local authorities permission to raise an additional two per cent on top of a standard two per cent cap for council tax increases in order to pay for care, but most experts agree this is not enough to bridge the gap in funding.
Brindle says the Local Government Association puts the current funding gap between what the sector needs and what cash-strapped councils can actually afford at £1.3bn.
As a result it wants Chancellor Philip Hammond to announce an extension of the council tax surcharge option in his Autumn Statement tomorrow. It also wants funding from the Better Care Fund to be brought forward.
Mitie's outgoing chief executive Ruby McGregor-Smith says the sector will become dominated by "unregulated companies" unless social care funding models are reformed.
'Prickly peer' steps down from outsourcer Mitie
11 October
Baroness Ruby McGregor-Smith has announced she is stepping down as chief executive of outsourcing giant Mitie after almost ten years at the helm.
Labelled the "prickly peer" by journalists after terse exchanges in the wake of her 2015 appointment to the House of Lords, McGregor-Smith was the first Asian woman to lead a FTSE 250 company.
She told The Guardian she had made the decision to go late last year and the board has already appointed a successor - "Phil Bentley, who used to run British Gas and Cable & Wireless Communications", says the paper.
He will join Mitie next month and take over as chief executive on 12 December.
The Daily Telegraph, however, links her announcement to a profit warning issued by Mitie last month, which caused its shares to plunge 28 per cent in their worst single-day showing for 30 years.
Speaking to Reuters, McGregor-Smith said: "All we did three weeks ago was say our profits will be slightly lower. We didn't come out with anything too dramatic."
Undoubtedly, however – and despite a strong ten years that has seen Mitie's revenues double – the peer leaves Bentley to take on a tricky challenge in what the Financial Times describes as a sector in a "parlous state".
Mitie's warning was followed by Capita confirming last year's profit would be as much as £80m below what it had guided the market to accept in the summer.
Both companies have clients are not signing off on new deals as readily since the Brexit vote. That adds to existing problems such as squeezed government spending, which is hitting healthcare services, and rising costs due to the national living wage.
"Outsourcing is a difficult space to be in," said Kean Marden, an analyst at Jefferies.
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