London Briefing: City sceptical about services firm’s Brexit excuse

When outsourcing group Mitie warned last month that profits this year would be significantly lower, sending its shares crashing by more than a quarter, the City was sceptical about its explanation.

The group – which supplies public and private sector customers with office and hospital cleaners, caterers, security guards, gardeners and carers for the elderly – blamed uncertainty caused by the Brexit referendum, along with squeezed local authority budgets.

Analysts, alarmed at the speed with which Mitie’s trading appeared to have deteriorated, were not convinced by chief executive Ruby McGregor-Smith’s explanation that the vote to leave the European Union was forcing the group’s clients to delay office maintenance projects.

She admitted to having been taken by surprise by the delays and warned that jobs would have to go among Mitie’s 63,000 strong workforce.

The job that went on Monday, however, was McGregor-Smith’s as the group announced its chief executive of almost 10 years would be stepping down in December.

Both the company and McGregor-Smith, who was made a Conservative peer by then prime minister David Cameron last year, insisted the decision to quit had nothing to do with the profits warning just three weeks earlier. Instead, she suggested, it was because she wanted to spend more time with her children.

Explanation

The City was as sceptical about that explanation as it was with the profits warning, particularly given the fact that her children are not toddlers but young adults, one doing A-levels as a weekly boarder and the other already at university.

McGregor-Smith is one of Britain’s highest-profile businesswomen and made the headlines when she took the top job at Mitie in 2007, becoming the first Asian woman to head a FTSE 250 company.

She was appointed last year by UK business secretary Sajid Javid to lead a review of the problems holding back black and ethnic minority employees in business, and is known for her opposition to quotas for women in the boardroom, insisting that appointments should be made solely on ability.

But McGregor-Smith has had an uneasy relationship with the City and the financial press. The Financial Times dubbed her "the prickly peer" in an interview last year, when she bristled at questions on her pay package, then worth £1.5 million (€1.7 million) and more than 100 times the rate paid to Mitie's army of minimum wage cleaners and carers.

There have also been tales of analysts critical of the company being barred from its briefings or even threatened with legal action for daring to predict that the shares might fall, even though it was among the most heavily shorted stocks in the market.

The shares certainly fell after last month’s profit warning, crashing by almost 30 per cent and wiping some £240 million from the company’s stock market value, as it warned that profits were likely to fall by £20 million to £125 million this year.

They added a couple of pence on news of McGregor-Smith’s departure but, at around 200p, are still well below the 269p at which they were trading before the warning.

Combative relationship

The task of turning Mitie round now falls to Phil Bentley, former boss of British Gas and Cable & Wireless. He's well respected for his success in restructuring C&W, which was bought by Liberty Global for £3.5 billion last year, putting Bentley back on the jobs market. But analysts hoping for a less combative relationship with the company under its new boss might just be disappointed, as Bentley has a reputation for being abrasive.

He certainly knows how to take criticism, however. During his time at British Gas, he was regularly castigated for "ripping off" household customers and endured a memorable on-screen mauling on energy profits from Newsnight's chief inquisitor Jeremy Paxman.

That will have been good training for his new role at Mitie, which he takes up at the start of next month. The company has been for criticised for its boardroom pay structures. His predecessor earned a pay package of £2.5 million last year and, although Bentley’s salary details have not been revealed, he’s thought likely to have been wooed with an even more lucrative deal. No details have been given of McGregor-Smith’s pay-off.

Mitie is not alone in its difficulties. Others in the sector, such as Serco, Capita and G4S, are also struggling. Analysts expect Bentley to take early action on the loss-making healthcare division, which provides homecare for the elderly and was put up for review last month. He’s also expected to conduct a review of the group’s contracts, many of which may need to be renegotiated or written off.

– (Fiona Walsh is business editor of theguardian.com)