UK social care needs urgent reform, warns Mitie

A major provider of social and elderly care in the UK has criticised the Government for failing to push through much-needed reforms in the sector.

Outsourcer Mitie said integrating the health and social care budgets was the "only solution" to solving the care crisis in the country but warned that the Government was pushing the reforms into the long grass.

"Once made, this change will create a more integrated service, with a much simpler path through it and a better experience for individuals caught in the middle of the current arrangements," the company said.

"However, change has been slow and a faster pace in integrating NHS and social care would benefit all parties involved - the individuals receiving care and their families, the providers of care, the commissioners of care, and the taxpayer - none of whom are 'winners' under the current arrangement."

The FTSE 250-listed company warned that delaying the changes was heaping pressure on councils, whose budgets have already been cut several times over the past five years.

However, chief executive Ruby McGregor-Smith praised the Chancellor's new national living wage, saying it would ensure that employees in low-paid jobs, such as the cleaners, security guards and carers whom Mitie employs, are better rewarded and feel more valued.

She also said the minimum wage would increase retention rates across the business and reduce staff turnover, as well as improve the wider outsourcing industry because it would affect all companies equally and create a level playing field in terms of bidding.

The additional costs associated with the wage increase would not have a material impact on Mitie's future earnings, she said, and the company would not be looking to cut jobs to offset the impact.

"We do expect outsourcing prices to increase in the future and will not be advocating job cuts in reaction to this change. However, we will continue to work with our clients to identify cost efficiencies in other areas. The vast majority of our client base has been supportive of our approach."

The comments came as Mitie reported a 19pc slump in sales and a £2.1m operating loss in its healthcare division, which provides homecare services on behalf of councils.

The revenue slump in the first six months of the year was partly down to closing some care agency branches where pricing pressure was too high.

At the same time, the division, which accounts for just 3pc of group turnover, saw its cost base rise as Mitie increased salaries ahead of the introduction of the national living wage.

But despite the short-term challenges, Ms McGregor-Smith remained confident of the long-term prospects.

An ageing population, coupled with a need to care for people in their own homes rather than in hospitals or residential care environments, would underpin growth of this market, she said. Accordingly, Mitie expects the division to return to profitability in the next 18 months.

"Our average charge rates are rising and we expect the introduction of the national living wage to support this trend," she said.

"We have also seen some consolidation in the market, where we are being awarded more work as the lead provider, rather than as one of a large number of providers."

Overall, Mitie reported a 3pc rise in first-half sales and a 10pc drop in operating profit to £58.1m.

In the facilities management division, which accounts for 85pc of group sales and carries out tasks such as cleaning and building maintenance, sales inched up 3pc to £946m.

Profits fell 2pc to £53m, although that was down to the timing of certain projects, where earnings are skewed to the second half.

The report sent Mitie's shares down more than 5pc in morning trade.

In the first half of the year, Mitie retained a contract with Rolls-Royce - the largest contract out to tender in the year - and extended its facilities management contract with Sky for another five years.

It bagged a number of new cleaning contracts with clients such as Westfield Shopping Centre, Chelsea Harbour and Royal Bank of Canada, while retaining work with the likes of Ofcom, Michael Page Group and Etihad Airways.

Investec analyst Andrew Gibb pointed out that there was "clearly much to do in the second half and much will depend on the performance of healthcare".

However, he added: "One of the key components in this statement is the absence of exceptional items and this should provide a degree of reassurance on the de-risking of the business. We also note that there is no change to its stance on the national living wage, with no material impact on earnings anticipated.

"With its core UK facilities management business trading strongly, alongside improvements in social housing, we continue to believe the group is well placed for the medium-term."

The results follow a difficult year for Mitie, marred by profit warnings on the back of stiff competition for local authority housing maintenance contracts, a tough homecare market and the hit Mitie took after exiting its mechanical and electrical engineering business.