11 April 2017 | Graeme Davies
A slew of disappointing corporate announcements including profit warnings, underwhelming financial results and hefty financial charges, coupled with a Spring Budget bereft of any big promises on outsourcing and infrastructure has added up to an unhappy few weeks for the quoted FM sector.
Few were surprised by yet more woe for Capita and Mitie, but the past few weeks have also seen shares in Interserve slammed as it drastically increased its financial provisions for exiting its waste-to-energy business. Serco also hit a bump in the road.
After several trading warnings as 2016 drew to a close, Capita ended February by finding another £50 million of historic assets and £40 million of accrued income from previous years to write down as it finalised its results. It also announced the departure of CEO Andy Parker after 16 years with the firm. Mitie also exited its healthcare business, selling it for £2 plus a contribution of £9.5 million to cover trading losses and a turnaround plan, such was the keenness of the board to end its exposure to a loss-making venture that had lost it up to £150 million worth of impairment and write-down charges.
Can such drastic moves work? Often it buys the board time to turn the rest of the business around and can mask problems at the retained businesses in the short term. But, as Serco has found out, recovery is never linear. Under CEO Rupert Soames, Serco has left loss-making deals and businesses, shored up its balance sheet with a fundraising and set sail for calmer waters.
Trading profit dipped in 2016, as expected, but management also warned that benefits from remedial actions taken in previous years would not be repeated this year and said that its margins are so thin that any ability to absorb changes as a result of political uncertainty was limited. Although the firm has internal matters under control, external factors it cannot control could knock it out of its stride.
The Spring Budget failed to provide much succour for an embattled sector as Philip Hammond kept a tight hold on the purse strings, looking to build a buffer in case Brexit-related jitters knock the UK economy. Indeed, uncertainty feels like the name of the game for the FM sector.
Graeme Davies writes for Investors Chronicle