UK's Mitie warns on profits as Brexit vote stalls outsourcing decisions

(Refiled to remove adverb 'however' in fourth paragraph)

By Esha Vaish

Sept 19 (Reuters) - Shares (Berlin: DI6.BE - news) in Mitie fell by 28

percent on Monday after the British business and public services

outsourcing group warned on profits this year, saying some large

new contracts had not come through as the vote to leave the EU

had surprised some customer firms, causing them to put off new

investment decisions.

The shares were down at 194 pence by 1513 GMT, down from 308

pence at the beginning of the year, and 270 pence on the eve of

the Brexit vote.

The pest control to property cleaning, security and

ancillary healthcare services provider said it had seen a

slowdown in new work in the run-up to and after the Brexit vote,

as clients deferred new outsourcing decisions and instead

renewed or extended large contracts with their existing service

providers.

Some big customers such as Lloyds Banking (Xetra: 871784 - news) , Vodafone

and Sky (Frankfurt: 893517 - news) had extended contracts with Mitie by

several years, the company said, adding that it was confident of

a better second half as new orders pick up.

Nevertheless the company said it also faced a number of

other "significant economic pressures" including lower growth

rates, public sector budget constraints and a new minimum wage

law that took effect from the beginning of the year.

"We entered the year in somewhat unusual circumstances with

so much uncertainty around so many areas and clients are just

taking their time to rebase where they are," Chief Executive

Ruby McGregor-Smith told Reuters.

Mitie's negligible overseas exposure had left it more

vulnerable than some of its peers to Brexit shocks and the

higher minimum wage but they were not immune, analysts said.

"A lot of the issues that they described are going to impact

others as well," Liberum analyst Joe Brent said.

Most of Mitie's rivals have so far only reported results for

the period ended June 30, taking in just a few days after the

Brexit vote.

Analysts said that support services and construction company

Interserve Plc (Frankfurt: 860509 - news) could also be affected by the slowdown in

decisionmaking on new outsourcing contracts.

However, building support services company Carillion (Stuttgart: 6CJ.SG - news)

which derives less than 5 percent of its revenue from

the UK housing market, said last month it was on track to meet

expectations for its results in 2016.

Meanwhile housing and social care services provider Mears

also said last month its trading performance remained

on track with respect to this year's results.

On Monday Mitie warned it now expected to make an operating

profit in the year ending March 2017 which would be "materially

below management's previous expectations". It reported an

operating profit last year of 128.9 million pounds.

Liberum analysts said management was now guiding towards a

10-20 percent fall in EBITDA from 146 million pounds last year,

cutting its forecast for full-year earnings per share by 8

percent to 20.6 pence. The company reported earnings last year

of a comparable 24.7 pence.

Mitie also said it had seen some recovery in trading

conditions in August and September but the benefits would not

come through soon enough to help offset negative factors which

would cause a "very significantly" lower first-half operating

profit and modestly lower revenue.

However, the company said to improve margins it would have

additional "organisational change" costs totalling up to 10

million pounds this year which would involve cutting some

managerial jobs but would lead to cost savings of up to 15

million pounds.

It also said it was reviewing its options regarding its

healthcare business, which provides local authorites with a

range of services such as home care for the elderly, as trading

conditions in the sector remained challenging.

Mears Group (LSE: MER.L - news) has already indicated its intention to exit

"unsustainable" care contracts.

(Reporting by Esha Vaish in Bengaluru; editing by Jason Neely,

Greg Mahlich)