Dividend held back as new CEO looks to alter Mitie

Mitie withheld its final dividend as the outsourcing group tumbled into losses, though the new management team expect a return to "modest growth" in underlying profits this year as it slashes costs and focuses on tech.

Reported revenue fell 1% in the year to 31 March to £2.13bn, with an operating loss of £42.9m due to accounting adjustments arising from a review of the business and a resulting loss per share of 14.7p.

A total loss before tax of £183.2m was reported, including a £132.3m loss from the discontinued operations after the exit from the domiciliary healthcare market was completed.

Adjusted revenues rose marginally with the core facilities management business growing 3%, while adjusted operating profit fell by 14% to £82.0m.

Analysts said underlying EBIT fell from £95m to £82m, principally due to weak volumes in property management, cleaning and engineering services due, plus the previous management's failure to cut overheads quick enough.

New chief executive Phil Bentley said it has been a challenging year for Mitie but he has launched a major £45m cost efficiency programme and is looking to improve margins via a focus on the 'Connected Workspace', where technology such as apps and big data are increasingly used to improve services.

"We have reported a loss as a result of the one-off accounting adjustments arising from the accounting review. We are now focused on the future of the business and I am encouraged that our order book has held up and our pipeline is growing," he said.

"Following a full strategic review we are investing in technology in the workspace to meet our customers' evolving needs and we are embarking on a major cost reduction programme."

Analysts at Liberum were impressed by the speed of the cost savings, with £5m investment in the programme per year expected to see £10m of savings in the new 2018 financial year and a further £15m in 2019.

Net debt fell from £178m to £147m and the company is holding an extraordinary shareholder meeting on 12 June to seek permission to alter its debt covenants to avoid a potential breach.

Shares in Mitie spiked above 280p for the first time in over a year but eased to 263.4p as 0900 BST approached, still a rise of close to 7%.

Liberum, as they upgraded rating to 'hold' from 'sell', said underlying trading was broadly in line with estimates and increased their 2018 and 2019 EPS forecasts by 13% and 29% although the dividend was re-based.

"The order book is flat but the pipe-line is up. New leadership and a new strategy will be delivered quickly. Target margins of 4.5% to 5.5%, higher than our previous view of 4.0-5.0%, through cost-savings and increased technology," they summarised, adding that management’s actions and the forbearance of the banks have significantly reduced the risks of a rights issue.