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UPDATE 2-UK financial watchdog probes Mitie over timing of profit warning
August 29, 2017 / 6:43 AM / a month ago

UPDATE 2-UK financial watchdog probes Mitie over timing of profit warning

* FCA looking into Mitie’s Sept warning, 2015-16 results

* Firm has restated accounts, cut costs under new CEO (Adds analyst, source comments, details, background)

By Esha Vaish and Noor Zainab Hussain

Aug 29 (Reuters) - Britain’s financial watchdog has launched an investigation into Mitie over its 2015-16 results and the timing of a September 2016 profit warning, adding to problems at the outsourcing company as it tries to revive its fortunes.

The provider of pest control, cleaning and security services said on Tuesday it was informed of the probe by the Financial Conduct Authority (FCA) on Aug. 25 and was “fully cooperating.”

British outsourcing companies such as Mitie, Capita and Carillion have been hit over the past year by rising labour costs and unplanned changes on contracts that were taken on during the financial downturn, often with paper-thin margins.

A failure by some clients to renew or commission new contracts has compounded the problem, leading Mitie to issue two more profit warnings in quick succession to its first in September 2016.

Last month, Britain’s accounting watchdog said it was investigating Deloitte over its auditing of Mitie’s books.

Companies are required to announce promptly material changes in their financial prospects to investors, and Britain’s financial watchdog has previously fined oil services group Lamprell and JJB Sports for failing to make timely disclosures.

Mitie is in the midst of a turnaround drive under new chief executive Phil Bentley, who took over in December. It has since restated its historic accounts, announced it would appoint a new auditor and sold a loss-making unit.

The company expects to return to modest growth in underlying profit this year, but could face fines and investigations into employees if it is found by the FCA to have breached rules.

Peel Hunt analyst Chris Bamberry said the issues highlighted by the FCA related to the previous management team, indicating limited impact on Mitie’s future abilities.

“The issues are historic issues ... The world’s moved on. (This review) is backward looking,” he said.

Mitie shares, which almost halved in value last year, were little changed at 265.5 pence in afternoon trade.

A person familiar with the company said management remained focused on day-to-day operations.

“This is all in relation to historic areas ... It’s business as usual from (management‘s) perspective,” the source said.

Reporting by Esha Vaish in Bengaluru; Editing by Louise Heavens and Mark Potter

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