Shares in Mitie Group PLC (LON:MTO) dropped by a quarter after the support services supplier warned on profits.
The stock lost 66.57p to 202.43p as Mitie forecast “very significantly lower” first-half operating profit than in the same period a year ago, while revenue would drop modestly.
The group said its core facilities management arm, which makes up 84% of its revenue, had picked up some important contracts and trading was still strong.
But new business in the division was getting harder to come by and a decline in its property management and health businesses would offset facility management gains.
Mitie said it was facing short-term economic pressure including lower UK growth rates, changes to labour laws, further public-sector budget cuts and EU referendum-linked uncertainty.
The group said higher-margin project work volumes and discretionary spending by customers, particularly on catering and cleaning, had dropped.
It also blamed pricing and cost pressures, cuts to local council health budgets and costs of up to £5mln for efficiency programmes.
“Operating profit for the full year is now expected to be materially below management's previous expectations as a result of a continuation of the pressures experienced in the first half and further one-off costs of organisational change associated with our cost efficiency programmes, which are expected to total up to £10m in the year,” it said.
Broker N+1 Singer said the company was feeling the effects of increases in the national minimum wage and the new apprenticeship levy.
Analyst Jamie Constable said: “Read across for the likes of Mears – although they recently took action to stem their pain – and others in the support services sector such as Carillion PLC (LON:CLLN) and possibly Interserve, although they have previously flagged the issues.”
Shares in Mears Group PLC (LON:MER) fell 2.3% to 442.5p, Carillion was 1.2% down at 255.3p and Interserve plc (LON:IRV) lost 2% to 386.25p.