Mitie morphing powers up as results show early turnaround gains

Facilities management outsourcer Mitie impressed investors with full year results after what was a turbulent turnaround year.

Adjusted revenues in the year to March rose 2.8% to £2.2bn and adjusted operating profit shrank 6% to £77.1m, broadly in line with City forecasts. Profits were lower as additional investment in staff, systems and technology counterbalanced increased earnings from contract growth and annualised cost savings of £13.5m.

The fully diluted earnings per share before other items of 16.8p compared to a loss of 5.5p per share the prior year, while the total dividend was held at 4p. Directors said they intend to maintain the payout at least until completion of the 'Project Helix' transformation programme, after which it will review the dividend policy.

Following a strategy review last June by chief executive Phil Bentley, who was joined on the board by new chairman Derek Mapp in July, a new finance chief in November and a rejig of non-executive directors since, has seen optimism dim slightly amid the reality of tough trading conditions. This was capped off by the aborted attempt to dispose of the property management business after failing to find a buyer to match management’s valuation.

But revenue growth in the year reflected strong growth in its Care & Custody arm in particular, with solid gains in Security, Engineering Services and Catering divisions. There were significant wins including a £500m-plus Home Office contract for escorting and detention, a large technology-led FM contract with the Co-op and a five-year contract with West Hertfordshire Hospital NHS Trust, to leave the order book 2.4% larger over the year at £4.5bn.

Bentley said it was a year of "discovery, simplification and significant change" set against a challenging market. "We are one year into our transformation programme and we are where we need to be."

He said the foundations had been built to "ensure" Mitie is at the forefront of the UK facilities management industry.

"Our core business has demonstrated its strength and resilience and is performing well, our commitment to strong financial management remains unwavering and our focus on costs, customers, technology and our people is delivering tangible benefits.

"With an uptick in revenue, a normalising balance sheet, a good order book, a focused execution plan, significant investment in technology and a settled management team, I believe Mitie is well positioned for growth."

Net debt increased to £193.5m from £147.2m due to the previously flagged working capital related cash outflows, primarily driven by reduced invoice discounting and a reduction on creditor days.

Shares in Mitie clambered up to 203.5p, up 4% to level last seen in January.

Analysts at Canaccord said the increase in net debt masks the fact that the average debt level in 2017/18 of £286m was over £50m lower than the prior year and that Mitie remains comfortably within its banking covenants.

"The transformation programme is progressing well and remains on track to deliver run-rate cost savings of $50m by March 2020, although not all costs savings are expected to flow to the bottom line as the company continues to invest in strengthening the business," analysts said.

"Importantly Mitie remains confident of achieving medium term operating margins of 4.5%-5.5%. We retain our favourable stance as the implementation of its strategic initiatives should significantly enhance the medium to longer term prospects of the group in terms of competitiveness as well as profitability."

Artjom Hatsaturjants at Accendo Markets added that with brokers watching cash flows after the troubles suffered by Carillion, markets were rewarding the company for improving its supplier payment performance, as well as reducing invoice discounting practices, which should track well with the company’s goal of improving solvency going forward.

"The past year has been challenging for Mitie Group, but it has managed to pass the test of improving financial stability with flying colours, with benefits of the multi-year transformation programme already apparent in cost savings and improved service delivery due to better engineer workflows."