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MITIE to focus on ‘higher margin’ services as M&E profits stall

MITIE has this morning announced a major restructure as it withdraws from unprofitable ‘large, one-off mechanical and electrical engineering installation projects’ in an attempt to restore healthy profit margins in its divisions. The company also admitted to spending £4.8m on restructuring as it attempts to bring its Technical Facilities Management and Property Management divisions back on track.

Although MITIE, the facilities management, property and energy service provider also today announced ‘strong organic growth’ of 4.3%, a ‘significant order book and sales pipeline’ and the prospect of ‘excellent organic growth opportunities’ in its new healthcare market following the company’s strategic acquisition of Enara, this morning’s restructuring announcement coupled with the ongoing ‘challenging conditions’ has affected shareholder confidence and the company’s share price dropped 13 pence to a three-month low to 276.99p from 292p on Friday after the Group published its in its half yearly results early today.

The Chief Executive’s update read: “As the group grows larger we are increasing our focus on higher margin services that provide long-term, sustainable revenue streams. The ongoing uncertainties in both the UK and global economies continue to affect some of our services which are exposed to more cyclical markets. We have reviewed the parts of our portfolio which are affected by the difficult economic conditions and external market pressures, and have concluded that delivering large, one-off mechanical and electrical engineering installation projects directly does not help us deliver our strategy or meet the performance targets of the group. We have already reduced our activities in this area within Property Management, and intend to significantly reduce them further over the next two to three years. We also reviewed and restructured the overhead cost base within our Technical Facilities Management and Property Management divisions during the period, and have incurred £4.8m of restructuring costs in relation to these changes.”

In MITIE’s core operating divisions, the company’s impressive facilities management results boosted by a major five year, £775m contract with Lloyds Banking Group and significant new contracts with BSkyB for £100m over five years and Golding Homes for £70-120m over ten years, could not offset the falls and stagnant results in the other three sectors:

  • Operating profit* for Facilities management, including cleaning, catering, front of house, waste management, security and pest control was up a healthy 29.8% to £35.3m (2011 £27.2m).
  • Operating profit* for its Technical Facilities Management division , incorporating integrated technical and energy services, such as M&E engineering maintenance, carbon management, lighting design and building management systems, was unchanged at £11.6m (2011 £11.6m).
  • Operating profit* for its Property Management division, comprising project management and property services such as refurbishments, plumbing and heating, painting and repairs and residential fit-outs fell 30.7% from £11.4m in 2011 to just £7.9m in 2012’s half year figures.
  • MITIE’s Asset Management division revenue fell 39.1% in 2012 to £23.1m (2011 £37.9m) pushing division’s profits down to -£1.9m in 2012 from a profit of £1.4m in 2011.

Following MITIE’s strategic acquisition of Enara in October, the company also announced today that it will be creating a new healthcare division. The company sees the £8bn home care market being ‘an ideal entry point into the wider healthcare market’ which it sees as having ‘excellent organic growth opportunities’. MITIE will publish its initial figures for this new division in its full year results.

Ruby McGregor-Smith CBE, Chief Executive of MITIE Group PLC, commented:

“We remain positive about the range of outsourcing and energy services opportunities across our key markets and continue to see a growing order book as well as a strong pipeline of sales opportunities. We expect total revenue growth to be higher in the second half as a result of both the organic revenue contribution from new and expanded contracts including Lloyds Banking Group, and the acquisition of Enara.

“We are confident that we will continue to build on our long track record of sustainable, profitable growth.”

Key results:

  •  Strong revenue growth of 5.6% to £1,026.6m, of which 4.3% is organic
  •  Operating profit before other items up 2.5% to £52.9m
  •  Operating profit margin before other items at 5.2% (2011: 5.3%)
  •  Excellent conversion of EBITDA to cash of 83.1% on a rolling 12-month basis, above stated long-term target KPI of 80%
  •  Interim dividend up 4.5% to 4.6p (2011: 4.4p)
  •  Low leverage with net debt at period end of £132.9m (2011: £119.3m) or 1.0x EBITDA on a rolling 12-month basis

 

Order book and sales pipeline:

  •  Organic order book development – up 4.7% or £0.4bn to £9.0bn (March 2012: £8.6bn)
  •  Strong pipeline of potential bid activity which currently stands at £10.5bn (March 2012: £11.2bn)
  • 98% of 2012/13 budgeted revenue secured at 30 September 2012 (prior year: 97%), 72% of 2013/14 forecast revenue secured (prior year: 68%)

 

 

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