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Mitie predicts flat profits ahead of half-year results

Mitie has published its pre-close statement on the Group’s expected performance ahead of reporting 1H 18/19. Results are in line with expectations, the majority of businesses are performing well and the transformation programme ‘Project Helix’ is progressing to plan.

Operating profit in 1H 18/19 is likely to be flat to slightly down on prior year with good underlying progress held back by a softer performance in Social Housing, unfavourable contract mix in Cleaning and the write-off of billed mobilisation costs in Care & Custody. In addition, Mitie continues to invest in customer service, commercial capabilities to drive growth, and the “Connected Workspace”.

Group revenue is expected to grow at around 2-3% in 1H 18/19 with solid performance across the majority of the group’s divisions,

In Engineering Services revenue is expected to be down due to contracts lost in the prior year and a softer performance in the Social Housing business. However, profit is expected to be slightly ahead. In the comparable period last year, the Property Management operating profit – which had previously been reported as discontinued – included a litigation settlement charge of £4 million.

Security continues to perform well across all its segments due to prior year wins and good growth in project and variable works.

Professional Services is expected to show improved profitability due to the re-balancing of revenue to higher margin activities and good cost discipline.

Cleaning has continued to see good revenue momentum in 1H 18/19, driven by the impact of prior year wins. Operating profit is expected to be lower however, due to unfavourable contract mix versus last year.

Care & Custody revenues have grown as a result of contract wins in the prior year, including the significant Home Office Detention & Escorting contract. The underlying trading profitability of the division has significantly improved in 1H 18/19 versus last year, but is impacted by expensing c.£4 million of mobilisation costs for the D&E contract. These have been billed and settled by the client.

Catering is expected to be slightly down in the first half of FY 18/19, mainly due to weaker sales in outdoor events.

The Group has secured a number of significant wins across a mix of local authority, banking, industrial, transport, NHS and retail clients. The overall order book has declined slightly since the financial year-end, with delivery of long-term contracts being partly counterbalanced by contract wins and retentions.

Mitie has been successful in qualifying as a supplier on the Crown Commercial Service (CCS) Framework, which it hopes, in time, will lead to an increase in its public sector business.

Transformation Programme (Project Helix) Project Helix is progressing to plan in its second year of implementation. As guided previously, Mitie expects to deliver c.£40 million of cumulative in-year cost savings, with direct costs associated with Project Helix in FY 18/19 to be c.£15 million.

Management’s outlook for the FY 18/19 performance is unchanged. The Group expects to deliver modest top- line growth this year and reports it is making good progress in the second year of its transformation. The company remains committed to its medium-term target of improving operating profit margins to 4.5%-5.5%.

Phil Bentley, Chief Executive of Mitie, commented: “The majority of our businesses are performing well and our larger contracts are delivering solid growth in volumes and profitability. We are maintaining our full-year guidance as project work volume is increasing, our in-year sales wins are growing and like-for-like revenue growth has strengthened in the second quarter. Our Pan-Mitie initiatives to re-engineer our processes – Project Helix – are on track and delivering in-year and run-rate savings as previously guided.

“The environment in our industry remains highly competitive, especially when it comes to contract renewals. We see technology, especially in our core businesses, playing an increasingly important part in differentiating our service delivery and improving margins, and therefore we are continuing to invest in the “Connected Workspace” to accelerate growth.”

Mitie expects to publish its financial and operational results for the period ending on 30 September 2018 on 22 November 2018.

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