Pre-close Statement

RNS Number : 2226R

MITIE Group PLC

20 September 2017

 

20 September 2017

Mitie Group plc

1H 17/18 Pre-close Statement

Mitie Group plc ("Mitie" or "the Group"), today issues its pre-close statement for the half year ended 30 September 2017 ("H1 17/18"). Mitie is one of the UK's leading facilities management, connected workspace and professional services businesses.

Strategic progress

·    Restoring balance sheet strength and transforming our cost base - on track

·    Investing in technology and Connected Workspace capabilities - ahead of plan

·    Enhancing customer and relationship management programme - on track

·    Improving employee engagement and driving productivity - behind plan

·    Finance, HR, IT, Group structure reviews and cost reduction programmes - on track

Peter Dickinson, Acting CEO of Mitie, said: "Overall we are making steady progress in the transformation of Mitie. Top line growth in the first 6 months has been encouraging, our dedicated focus on putting customers at the heart of our business and identifying cost savings is beginning to deliver and we are investing at pace in talent, capabilities and systems.  Transforming a large, diverse business such as Mitie is neither linear nor without challenges, but the programme remains on track. I expect to see the positive impact of our endeavours as we move into the second half of the year."

Trading performance

The Group's order book is up 3% against 31 March 2017, at £6.7bn. This includes new contract awards from a multi-national grocery retailer, an e-commerce and cloud computing company, and a major homewares and household goods retailer. This has been in part been off-set by the loss of a top 20 contract which was not due for retendering until 2019. This lost contract will result in a one-off non-cash write-off of £6m.  We anticipate receipt of a termination payment of £2m.

Revenue for the Group year-to-date has been better than anticipated and is expected to be c. £1.1bn for the half-year, 4% ahead of the FY2017 comparable period.  This revenue trend is expected to continue for the full year.

We continue to invest with discipline in our core capabilities and infrastructure to deliver on our strategy. However, cost-to-serve and general overhead is running marginally ahead of last year, and earlier expectations. We expect this level of spend to continue for the remainder of the year. A focus on enhanced customer delivery, recruitment of experienced new talent into Sales, IT and data analytics and the further development of our Professional Services and Connected Workspace capabilities have all contributed to the uplift in costs. Upgrading elements of our risk, control, finance and corporate functions' expertise have also been contributory factors.  

Transformation programme: Project Helix

We continue to make progress with the implementation of Project Helix, our Group wide cost transformation programme. As previously stated, this will see a reduction in Group operating costs on an annualised basis of £40m by FY2020.

We have commenced a process to rationalise and simplify our corporate structure which will eliminate over 50 entities and includes the proposed acquisition of minority shareholder interests in the remaining 'Mitie Model' companies. We anticipate the buy-out of all minority shareholder interests will be completed by the end of October 2017. The consideration will be satisfied by the issue of Mitie shares, representing 0.7% of the current issued share capital of Mitie. It is expected that the dilutive impact of the share issue will be off-set by a claw-back of certain shares issued pursuant to an earlier buy-out of minority shareholders in a "Mitie Model" company, due to the restatement of that company's FY2016 accounts.

The proposal to transition certain accounting and finance processes to an outsourced solution is on track and, subject to employee consultation, is expected to be implemented by the final quarter of FY2018. Our HR transformation (which includes the automation of many administrative activities) is also making very good progress and is due to conclude by December 2017.

As part of our work-flow transformation, a simplification of the spans and layers of management within our Engineering and Cleaning divisions has now commenced - ahead of schedule - to improve management accountability and visibility of contract profitability.

These initiatives and other aspects of the transformation programme are expected to result in headcount reduction of approximately 480 by the end of the current financial year.

In addition, we have now commenced a Group-wide IT transformation programme. This will simplify the Group's IT architecture and centralise monitoring, system controls and maintenance, all with greater 3^rd party automation.

As result of this broad programme of upgrades, costs associated with the Helix programme are greater than previously anticipated. In particular, this is due to the acceleration of our IT transformation activities, dual occupation costs as we consolidate our London operations from three buildings into one, and costs related to a work-flow management re-design exercise. Estimated implementation costs which will be incurred in the current financial year currently stand at £24m (of which c. £21m will be cash) against the previous estimate of £15m.

Strategic Review of Property Management Business

As part of the wider strategic review of the Group's operations, Mitie is continuing to examine options for its Property Management business. Mitie has now instructed Evercore Partners International LLP to explore a potential sale of the business, having received expressions of interest from third parties.

Defined benefit pension scheme

The consultation process relating to the closure of Mitie's defined benefit pension scheme is due to be completed by 14 November 2017. It is expected that the scheme will close to future accruals with effect from that date. The annualised savings to the Group are expected to be in the region of £850,000 per annum.

Cash and Covenants

Our half-year net debt position is expected to be in the range of between £160m and £180m (2016:  £230m) and we currently expect to comply with our debt covenants as measured at that point.

Change of Auditor

The Board has recently carried out a competitive tender process for the provision of audit services and, as a result, Deloitte LLP has resigned as Mitie's auditor with effect from 19 September 2017, and the Board has appointed BDO LLP to fill the casual vacancy until Mitie's next Annual General Meeting, in 2018, when shareholders will have the opportunity to vote on their appointment.

In the 2017 Annual Report and Accounts, the Audit Committee confirmed that it would commence an audit tender process such that a new external auditor could be appointed during the financial year ended 31 March 2018.  BDO LLP will immediately review the financials for the half-year, 30 September 2017, and audit the full year ended 31 March 2018.

There are no matters in connection with Deloitte's resignation as auditors which, in the view of the Board, need to be brought to the attention of shareholders.

Analysts and investors conference call

Mitie will be hosting a conference call at 0900 on Wednesday 20 September for analysts and investors. Dial-in details are as follows:

UK Toll Number: [phone]

UK Toll-Free Number: 08003589473

International dial in numbers: 

http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

Pin code: 11320561#

For further information, contact:

Peter Dickinson

Acting CEO, General Counsel and Company Secretary, Mitie Group plc

T: [phone]                   M: [phone]   E: [e-mail]

Anna Chen

Investor Relations Manager, Mitie Group plc

T: [phone]                   M: [phone]   E: [e-mail]

Notes for editors

About Mitie Group

Mitie is a FTSE 250 business providing a wide range of facilities management and professional services, from real estate consultancy, project management, energy consultancy, compliance, risk assessment and security systems to cleaning, catering, engineering, technical and environmental services and a range of specialist services.

We work in partnership with organisations to deliver long-term savings, managing and maintaining some of the nation's most recognised landmarks for a range of blue-chip public and private sector customers. 

We are the UK's largest facilities management company employing some 53,000 people across the country.

Find out more at www.mitie.com

 

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