Trading update

RNS Number : 1344K

MITIE Group PLC

19 September 2016

 

19 September 2016

Mitie Group plc

Trading update

Mitie Group plc ("Mitie"), the strategic outsourcing company, today announces a trading update. Interim results for the six months ending 30 September 2016 will be announced on 21 November 2016. 

Overview

During the trading period from 1 April 2016 to date, Mitie has secured some important new contracts in its core Facilities Management business, where our long term strategic positioning, order book and pipeline remain strong.

However, in the short term we continue to experience the effects of significant economic pressures. These include lower UK growth rates, changes to labour legislation and further public sector budget constraints, and uncertainty both pre and post the EU referendum. We have taken strong action to counter the impact of these pressures by making changes now to the way we operate and initiating cost efficiency programmes across the group.  These positive changes will help to ensure the long term competitiveness of the group and its service offering.

Whilst we have seen some positive trends and contract awards in the year to date, it is our expectation that the pressures we are facing in our markets will impact our trading results during this financial year ending 31 March 2017, most significantly in the first half. 

When compared to the same period last year, in the first half we expect revenue to be modestly lower and operating profit to be very significantly lower.  This is specifically due to a reduction in higher margin project work volumes and discretionary spend by clients, pricing and cost pressure, a deterioration in the trading performance of our local government facing Healthcare and Property Management businesses, and the in-period costs of implementing efficiency programmes of up to £5m. 

For the full year, we continue to expect group revenues to show a small amount of growth compared to the prior year, in line with previous guidance. This is a result of the commencement of new contracts and seasonal factors in the second half offsetting revenue declines in the first half.  For the year as a whole, we expect modest growth in the Facilities Management business which will be offset by contraction in Property Management and Healthcare.

Operating profit for the full year is now expected to be materially below management's previous expectations as a result of a continuation of the pressures experienced in the first half and further one-off costs of organisational change associated with our cost efficiency programmes, which are expected to total up to £10m in the year. 

Operating profit in the second half will reflect the expected improvement in revenue and associated gross margin in that period driven by factors such as the impact of contracts secured in the last 12 months and by seasonal services and maintenance programmes.  It will also reflect the expected benefit of gross cost savings which we currently estimate to be in the region of £15m in the second half based on our detailed plans.  These savings will result from the combination of our hard and soft facilities management businesses and a number other efficiency programmes initiated across the group.  

Current market conditions

Our core Facilities Management business represents 84% of our revenue. There has been a good level of activity in our single service businesses and we are successfully securing a good flow of new contracts. The pipeline of opportunities for new integrated facilities management and single service and bundled contracts remains strong.

However, we are finding that the recent economic uncertainty is currently driving clients to renew or extend larger contracts with existing suppliers including Mitie, a trend we have seen over the last 18 months, and to defer investment decisions.  This has impacted growth in the first half.

We are making good progress in combining areas of our hard and soft facilities management infrastructure.  This activity has been designed to enhance the efficiency of our FM delivery model, driving cost efficiency across our operational and back office functions.  This programme of change has been designed to eliminate duplication, standardise and enhance processes, and align management structures across the business.

Our investment in technology to support our FM proposition is also contributing to the increased attractiveness and competitiveness of our proposition in certain FM markets and is expected to support revenue and margins into the medium term.

Our Property Management business has been significantly impacted this year by local authority budget pressures and particularly by the statutory social housing rent reductions that came into effect in April. This has reduced the funding available to local authorities and housing associations for repairs, maintenance and project works. Revenue and profits will be lower this year as a result, and start dates for some project programmes have been delayed this year.  The pipeline for this business continues to offer interesting growth opportunities for the group for the longer term.

Trading and general market conditions in our Healthcare business remain challenging with reduced local authority social care budgets and further evidence of unsustainable pricing in some areas. Given this further deterioration during the first half of the year, we are now reviewing the long term plan and related options for our Healthcare business.   We will update the market on progress at the interim results.

Recent contract awards

We have been awarded a substantial addition to a total security management contract with a major UK retailer which will start in Q3 this financial year. This contract will integrate risk management, technology and manned guarding to provide the client with a risk based solution incorporating data and trend mapping using our Mitec technology centre to determine security strategy and provide a flexible service with real time incident management. The enlarged contract is expected to be worth in excess of £150m (extension worth £110m) over the first three years and has an option for an additional two years.

Our contract with NHS Property Services has started well and we have been awarded additional services most notably in security where we have secured an additional £10m per annum of manned guarding work. We have also been awarded the security contract for London City Airport which is worth £4m over three years.

Our cleaning business has been awarded new contracts with a major US bank and the Ambassador Theatre Group and has renewed its contract with West Midlands Passenger Transport. Cleaning has also resecured a bundled contract with Merseyrail in conjunction with our hard FM services team which is worth in excess of £12m over five years. Hard FM has also secured a three year contract with a European bank worth £5m.

Catering has been awarded a contract with LinkedIn in Dublin worth over €6m  and our property solutions business has secured an insurance claims management contract with DAS Group UK which is worth £12m over three years. Property Management has been awarded a four year external repairs and maintenance contract with London & Quadrant Housing Trust worth £20m over four years.

Whilst our current environment is challenging, Mitie remains a strong business and has a leading market position in FM services in the UK.  Mitie has an excellent customer base and order book, a substantial pipeline of opportunities and a portfolio of high quality, long-term contracts. These factors, combined with the quality of the services we provide, give us confidence for the future.

-Ends-

This announcement contains inside information.

Call with management:

Mitie will be hosting a conference call at 0800 on Monday 19 September for analysts and investors. Dial-in details are as follows:

UK Toll Number: 02031394830

UK Toll-Free Number: 08082370030

International dial-in numbers: http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf 

Pin code: 34084038#

Audio playback: [phone]

For further information, contact:

John Telling

Group Corporate Affairs Director, Mitie Group plc

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

Erica Lockhart

Investor and Public Relations Manager, Mitie Group plc

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

Notes for editors

What is Mitie?

Mitie is a FTSE250 strategic outsourcing company.

We work with people who want to perform better - now and in the future. We help our clients to run more efficient and effective businesses by looking after their facilities, their energy needs and the people they're responsible for.

We're all about developing our people to excel every day, challenge the status quo, and inspire change in the way people live and work.

Find out more at www.mitie.com

 

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