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Mitie shows resilience in the face of Covid-19

Alongside this morning’s announcement that Mitie has signed a sales and purchase agreement to acquire Interserve’s FM division, the outsourcing company has also published its full-year results for the year ended 31 March 2020 which reports that although the outbreak of Covid-19 has continued to impact Mitie’s performance through the start of FY 20/21, the business is “proving to be more resilient than initially expected” especially on the fixed contract element of the business.

Group revenue in April and May 2020 was £301.4 million, 12% lower than the same period last year. Included in this revenue decline were revenues associated with the “expected loss” of two high margin public sector contracts – MOJ and NHS Properties –which represented 3% of the year-on-year revenue reduction. These were partly offset by significant new customers wins including IFM contracts with GSK and BMW and Toyota Motor Manufacturing UK.

FY19/20 revenue of £2,174 million was 4% ahead of the prior year with flat organic revenue growth (FY 18/19: £2.085 million). Revenue from Mitie’s UK businesses, excluding the revenue associated with the VSG acquisition, was just ahead of the prior year by 0.5%.

Operating profit from continuing operations before other items increased 8% to £86.1 million (FY 18/19: £79.6 million) which came from new strategic contracts, in addition to cost savings from the integration of VSG, and the integration of Cleaning into Business Services.

Commenting on FY19/20 results, Phil Bentley, Group Chief Executive, said: “Mitie has a leading position in the facilities management market in the United Kingdom with a profitable and well invested business model. We deliver essential services and support a range of public sector and private sector clients with critical roles in the UK economy.

“This year our financial results reflect solid progress. We have achieved revenue growth of 4%, operating profit growth of 8% and further reduced our average net debt to £240m (pre-IFRS 16). We have continued winning new business, adding value to existing contracts and improving the financial stability of the Group.

“The second half of the year was more challenging, particularly for Technical Services which undertakes a significant proportion of discretionary variable works and project work. The headwind of Brexit and the General Election, in conjunction with Covid-19 in March, resulted in lower revenue. Business Services reported a stronger second half. Specialist Services also maintained its strong performance.

“In the first two months of our current financial year, our business proved more resilient than initially expected, reflecting the essential nature of the services we provide to customers. The decline in revenue was 12% with a drop through to profit of 20%. As further cost saving initiatives kick-in, we would expect the profit drop-through impact to reduce. Year to date average net debt of £86 million at 31 May 2020 is at the lowest point for over 10 years and has benefited from tax deferral support from HMRC. Early indications show that June trading will also be better than expected.

“As the lockdown eases, we are working with our customers to ensure their employees can safely return to work. Over the medium term, Covid-19 will present a different way of doing business and we are at the forefront of creating new solutions to enable our customers to operate safely and efficiently. We have already launched a new cleaning product – ‘Citrox Protect’ – which provides surface protection against certain coronaviruses and we have installed new thermal imaging equipment. Our two guides to help our customers prepare for returning to their buildings and managing in the Covid-19 environment have been well received.

“As stated in the trading update of 27 March 2020, due to the ongoing uncertainties arising out of the Covid-19 pandemic, the Board will not be providing guidance for the year 20/21.”

In a separate announcement issued today, Mitie is set to enhance it’s position within the UK Facilities Management sector with the purchase of Interserve’s Support Division for a total consideration of  £271 million to be paid in cash and shares equivalent to 23.4% of the enlarged Mitie Group.

Bentley added: “Today’s announcement of a £201 million Rights Issue will strengthen our balance sheet against an extended Covid-19 impact, secure Bank refinancing and provide a platform for growth opportunities.

“We are pleased to have signed a Sale and Purchase Agreement to acquire Interserve’s Facilities Management. This will be a transformative acquisition, expanding the scale and footprint of our business to create the UK’s largest facilities management company and accelerate the delivery of Mitie’s long-term technology-led, vision.

“The transaction will better balance our public and private sector divisions; driving greater returns from the investments we have made in technology and customer service over the past three years.

“Together, we will create a true UK Facilities Management champion and partner to UK business, with over 77,500 exceptional employees.”

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