Mitie feels the pinch from price pressure on government contracts

Mitie, Britain's biggest provider of immigration detention centres, has swung to a first-half loss as the group admitted that price pressures from government made public sector contracts challenging.

The outsourcing company, which cleans British courts, runs home care services for the elderly and provides baggage screening at London's Heathrow airport, said the government procurement process was focused on "price not delivery".

Just a week after rival Serco announced that it was forced to announce £1.5bn writedowns on lossmaking government contracts, Mitie chief executive Ruby McGregor Smith said: "There is a lot of pressure in the public sector procurement process on price and that is challenging but overall it is a positive place to be."

Exceptional costs of £58.3m related to the sale of its mechanical and engineering division dragged Mitie into the red in the six months to September 30, to an unexpected statutory pre-tax loss of £1.3m compared with a £42.8m pre-tax profit a year earlier. Excluding one-off costs, pre-tax profit rose 3 per cent. Revenues grew 4.8 per cent to £1,095m.

In September Mitie secured the contract to manage 900 detainees a year at the Colnbrook and Harmondsworth Immigration Removal Centres near Heathrow airport ahead of Serco and Geo. It is currently merging the two centres in a restructuring that includes job losses on the £180m contract, but Ms McGregor-Smith declined to say how many.

The deal means it is responsible for a third of the Ministry of Justice's immigration estate. It is also bidding for work providing facilities management in prisons, which is due to be awarded imminently.

Although Mitie has largely escaped the public criticism piled on rivals G4S and Serco after they were found to have overcharged taxpayers for the electronic monitoring of offenders, it recently faced protests after winning a £70m, five-year deal to provide cleaning, catering, portering and postrooms for the Royal Cornwall Hospitals trust. The company has been expanding into the £17bn a year home care market, which provides support for the ill, disabled and the elderly. But it admitted that it was struggling to recruit and retain sufficient levels of care workers.

Joe Brent, analyst at Liberum, issued a sell note. "We expect consensus EPS to fall 2-3 per cent principally due to weaker than expected healthcare. Healthcare is being impacted by the challenges of training and recruiting staff which has made contract mobilisations difficult."

Despite this, Mitie pointed to a number of large commercial contracts such as a £250m long-term deal with Vodafone, looking after its property portfolio, and a deal to provide office cleaning and management at BBC Worldwide's new offices in Television Centre, White City, London, when they open in 2015.

The company, which has faced repeated rebellions over boardroom pay, raised its dividend to 5.2p a share. Shares fell 5 per cent in early trading.

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