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In its latest trading update for the three-month period ended 31 December 2022 (Q3 FY23), Mitie says it has delivered an encouraging performance in the third quarter of the year, with revenue growing sequentially each quarter during FY23.
Revenue
Third quarter revenue, including share of joint ventures and associates, of £1,005m was 3% ahead of Q2 FY23 (£978m), and 6% ahead of Q1 FY23 (£945m). This growth reflects increased project revenues across a number of Mitie’s Central Government and Defence and Technical Services contracts, together with the contribution from acquisitions and contract wins in Technical Services, and effective pricing of cost inflation.
Q3 FY23 revenue was in line with the same period last year (£1,008m), and underlying revenue grew by 12% when the £109m of revenue from short-term COVID-related contracts is excluded from Q3 FY22.
Revenue for the nine months to 31 December 2022 of £2,928m was also in line with the same period last year (£2,920m), and underlying revenue was 14% higher when the revenue from short-term COVID-related contracts is excluded.
Contract wins and renewals
New wins and renewals of £163m total contract value (TCV) in the quarter were lower than usual, however Mitie reports that there are a number of client decisions on major new opportunities expected in the fourth quarter. Total year-to-date new contract wins and renewals were £1.7bn.
Notable new and additional wins in the third quarter included Dublin Airport, where Mitie won a new five-year contract, Asda, and Essex County Council. In addition to these wins, Mitie has been appointed as ‘preferred bidder’ for two major new customers, NATS and a large utility company, with TCVs2 of £132m and £90m respectively.
The renewal and extension rate remained above 90%, with renewals or extensions from Deloitte, Ikea and Belfast City Airport in the quarter.
Divisional performance
- Business Services
Revenue of £295m was 24% lower than the same quarter last year (Q3 FY22 £390m). Excluding the Q3 FY22 COVID-related contracts, Business Services underlying revenue grew by 4% in Q3 FY23, boosted by the provision of additional Border Force services, and an inflationary pricing uplift.
- Technical Services
Revenue of £287m was 16% ahead of the same quarter last year (Q3 FY22 £248m), benefiting from new acquisitions (including P2ML, 8Point8 and Custom Solar in H1 FY23), contract wins, and the continued steady recovery of the Projects business.
Progress was made in the quarter with the remediation of the short-term operational inefficiencies experienced following the ‘go live’ of Mitie’s Project Forté, with service level performance now back to pre-Forté levels.
- Central Government and Defence (CG&D)
Revenue of £199m was 23% ahead of the same quarter last year (Q3 FY22 £162m), benefiting from a full period of revenue from the new Defence Infrastructure Organisation (FDIS (Scotland & Northern Ireland)) contract, which commenced on 15 December 2021, as well as growth in project revenues across a number of the largest CG&D contracts.
- Communities
Revenue of £118m was 4% ahead of the same quarter last year (Q3 FY22 £113m) driven by the contribution from new contracts, including John Radcliffe Hospital and Kingston Council, and the inflationary pricing uplift. This growth was partially offset by two contract losses, one of which Mitie says it declined to re-bid on, and a second which was insourced.
- Specialist Services
Revenue of £106m was 10% ahead of the same quarter last year (Q3 FY22 £96m), driven primarily by increased Escorting Services in Care & Custody, and higher winter revenue in Landscapes.
Net debt
Average daily net debt (post-IFRS 16) for the three months ended 31 December 2022 was £103m, compared to £0m for the three months ended 31 December 2021. This reflected planned capital deployment actions including the closure of the customer invoice discounting facility (£45m), the share buyback programme that completed in September 2022 (£50m), share purchases for the Employee Benefit Trust (£13m), the purchase of 8Point8, P2ML and Custom Solar (£20m), and dividend distributions (£20m).
Outlook
Looking ahead, Mitie says it expects revenue momentum to continue over the balance of the year, albeit at a slower pace as the company laps contracts won late in FY22. Mitie adds that Q4 is typically its strongest quarter, as project work increases, and it completes seasonal winter work in Landscapes.
Mitie stated that this combined with the ramp up of margin enhancement initiatives and ongoing effective management of inflation, provides the Board with “confidence that the full year results will be consistent with the recently upgraded guidance for operating profit before other items of at least £145m”.
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