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Mitie’s order book softens in FY 18/19 but optimism remains for future growth

Mitie has published a pre-close statement on the Group’s expected performance for the fiscal year ending 31 March 2019 (FY 18/19), subject to final audit, ahead of reporting full-year 18/19 results on 6 June 2019.

Figures exclude the discontinued operations of the Pest Control and Social Housing businesses, but include the acquisition of Vision Security Group (VSG) completed on 26 October 2018, unless otherwise stated.

Group revenue is expected to grow 7-8% in FY 18/19 (compared to an unaudited FY 17/18 revenue from continuing operations of £2,030.6m), with organic growth of c.4%.

Operating profit before other items in FY 18/19 is expected to be in the range £84-87m. This is above Mitie’s restated unaudited FY 17/18 comparative from continuing operations of £83.2m due to revenue growth, cost savings and a positive contribution from VSG, partly offset by continued reinvestment into the business. The reinvestment includes reinstating staff incentive schemes which were suspended during the first two years of the turnaround.

Mitie’s committed order book has held broadly flat in H2, including the benefit from the acquisition of VSG; but is expected to have declined by c.10% over the full year. In H2 18/19, Mitie won several important new contracts, including a £10m three-year catering contract for Edinburgh College, a five-year document management and logistics services contract with The Law Society, a £14.5m FM contract with Yorkshire Building Society and a £7.5m five-year IFM contract with Connect Group. It has also been awarded a £17m five-year contract extension with Gatwick Airport.

In H1 18/19, Mitie was successful in qualifying as a supplier on Phase 1 of the Crown Commercial Service (CCS) FM Marketplace Framework, which will enable the business to bid for facilities management contracts for Government departments. During H2 18/19, Mitie also qualified for inclusion in Phase II of the CCS FM Marketplace Framework, which will allow it to bid for the Defence Facilities Management as well as for Security Services and Technical Security contracts.

The Group is two years into its three-year transformation programme ‘Project Helix’, which according to Mitie remains on track to deliver run-rate benefits of c.£45m in FY 18/19 and c.£50m by the end of FY 19/20.

Looking ahead, Mitie says it expects to continue to grow revenue organically at 3-4%. Having successfully renewed a number of significant contracts in FY 18/19 albeit, in the first year of operation, at lower margins. It also expects to achieve its margin target of 4.5-5.5% over the medium term. For FY 19/20 Mitie expects operating profit to show moderate growth – with revenue growth and cost savings partially offset by the contract renewals and continued reinvestment in its business.

Phil Bentley, CEO, commented: “The second year of our transformation has seen steady progress in Mitie. Project Helix is now largely complete and we will be turning our focus to the IT Platform underpinning our Engineering Services business. We are pleased to be growing revenues and our cost saving initiatives are allowing us to invest in the “Connected Workspace” as a differentiator and driver of digital transformation both for Mitie and our clients. It is therefore encouraging to see that our Net Promoter Score (NPS) has, once again, improved materially over the last 12 months to +12 (from -10).

“This is against a backdrop of undoubted challenges for the outsourcing sector, and some short-term economic uncertainty impacting clients’ capital programmes and willingness to enter into longer term integrated contract commitments. Although our order book has softened, we have focussed on adding more value and services to our top clients and, as a result, we have seen continued growth in these accounts throughout FY 18/19.”

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