Mitie reports ‘encouraging performance’ in FY23 trading update

Mitie Group has provided a trading update for the year ended 31 March 2023 (FY23) which reports group revenue is expected to be slightly above the prior year (FY22: £3,997 million), having successfully replaced all short-term Covid-related contract revenue (FY22: £448 million).

As a result of this “encouraging performance”, which saw fourth quarter revenue growing by c.10 per cent compared with the same period last year, and Mitie’s ongoing programme of margin enhancement initiatives, the Group says it expects FY23 operating profit before other items to be at least £155 million (current guidance for ‘at least £145 million’).

In Mitie’s Q3 update, the Group highlighted that it was the preferred bidder for two large Strategic Accounts with NATS (TCV of £132 million) and National Grid (TCV of £120 million), and both contracts were awarded in the final quarter. Following a full and extensive re-tender, Mitie has been retained as strategic partner to the Ministry of Defence for its overseas military base in Cyprus (TCV of up to £643 million), and a further substantial public sector contract is at an advanced stage (TCV of up to £552 million). Mitie also recently signed a new contract with Eurostar (TCV of £40 million) and renewed a contract with a large critical infrastructure organisation (TCV of up to £497 million).

Mitie says it is now entering the new financial year with a “strong order book and a healthy pipeline”. Further details on all the company’s new wins and renewals will be provided when it reports its full year results in June.

Purchase of shares for employee incentive schemes

The Mitie Board has taken the decision to purchase shares for all employee incentive schemes, to eliminate the otherwise dilutive effect to shareholders of issuing new shares to fulfil the schemes. The majority of Mitie’s share schemes are satisfied through the company’s Employee Benefit Trust (EBT), whilst Save As You Earn (SAYE) schemes are satisfied through Treasury shares, in order to mitigate unnecessary stamp duty costs for the employee.

In FY23, 50 million shares were purchased through the EBT, including c.4 million shares for Mitie’s employee Winter Support package, at a total cost of £37 million. The 50 million shares include a ‘catch up’ for schemes that have already been running for two or three years, and as a result, the amount required to be purchased in FY24 will reduce significantly to c.20 million shares. Share purchases in FY25 are expected to be lower again, as specific incentives put in place in respect of the Interserve acquisition mature in FY24.

Launch of share buyback programme

The Mitie Board has also announced a new £50 million share buyback programme, with the first £25 million tranche being launched yesterday. This follows on from an initial £50 million share buyback programme that was executed in FY23. The timing of the second tranche of the current programme will be dependent upon M&A opportunities.

Looking ahead, Mitie said: “We have entered the new financial year in a good position, having made solid progress on our strategic priorities in FY23. Momentum from margin enhancement initiatives, including increased synergies from the Interserve acquisition, and efficiencies across our labour, third party and overhead cost base, is expected to continue in FY24. We will also maintain a disciplined approach to bidding for new and renewing contracts. Detailed guidance for FY24, alongside a full update on capital allocation, will be provided with our full year results on Thursday 8 June.”