Support services groups Mitie (MTO) and Mears (MER) could be among the hardest hit by the government's national minimum wage increases, according to new research from Liberum. The broker claimed Mitie, an outsourcing company, would be worst off thanks to the living wage announced in the July Budget, which mandates paying staff aged 25 and over £7.20 an hour from April and more than £9 an hour by 2020.
The impact on Mitie was predicted as Liberum's research, released on 17 August, suggested the company had the lowest wage cost per employee at £16,400. Wage costs also account for just over half of the group's total costs. Liberum estimates a 35 per cent reduction in FY17 EPS to 17p, due to the changes. Social housing and care services group Mears is just behind Mitie, the broker said, with an average wage cost per employee of £19,400, although only a third of its total costs are wage-related. The group's chief executive David Miles said at the time of the group's half-year results the pay changes would lump "increased pressure on councils, trusts and care providers", suggesting its care division will likely be most impacted.
Interserve (IRV) recently announced the changes will have a detrimental impact on its bottom line next year, estimating the minimum wage increases will adversely affect margins to the tune of £10m-£15m. Despite delivering a solid set of half-year results earlier this month, this news sufficiently spooked investors and caused shares to fall 5 per cent.
Elsewhere, aviation and distribution services group John Menzies (MNZS) will see its employee costs increase as a result of the government's reforms. "It's a matter that really applies to our distribution division and not our aviation division," said finance director Paula Bell. Ms Bell added the group was assessing mitigating action via efficiency measures and would also be talking to its publishing clients.
