Mitie Group plc, the strategic outsourcing company, has announced a trading update before entering a close period on 1 April 2016. Preliminary results for the financial year ending 31 March 2016 will be announced on 23 May 2016.
The business expects that full year profits will be within the range of current market expectations. There have been revenue shortfalls in the second half of the financial year, as some work has been either delayed or cancelled due to increased economic pressures and uncertainty. As a result, revenues will be below the current range of expectations in the market. In response, Mitie Group plc has proactively managed its cost base and focused on maintaining margins, while also continuing to invest for the long-term.
The company is “encouraged” by recent contract awards in its FM business, mobilising a number of contracts towards the end of the final quarter with other new contracts due to commence in the first half of next year.
Current market developments
Mitie Group plc has now largely completed discussions with its clients in relation to both the regular annual increase in the Minimum Wage and the introduction of the National Living Wage next month, and remains confident that its contractual protections ensure that these developments will not have a material impact on future earnings.
“Going forward, there are broader changes to UK employment costs in addition to the National Living Wage, such as rising employer pension contributions, a new Apprenticeship Levy and additional labour legislation. These changes are contributing towards an increase in the overall cost of more labour-intensive services. In what’s already a competitive environment, we expect this will create further shifts in our markets.”
The company is responding to these changes by accelerating its focus on technology solutions to drive greater efficiency and smarter working in all the core services provided. This is an area where Mitie has been investing significantly. “Where we take this technology-led approach, it reduces revenues but sustains margins. We have a flexible, resilient business model that adjusts to client needs, be that single, bundled or integrated services.”
Recent progress made
The business has successfully extended its integrated FM contract with the Cumbrian Collaboration until 2019 in a contract valued at in excess of £30 million per annum. In the last quarter of the financial year, Mitie Group plc has also mobilised three new integrated FM contracts that were awarded earlier in the year with Deloitte, Thales and dmg media. These contracts represent a combined annual value of £25 million.
Mitie has also enjoyed significant success with a new client, NHS Property Services, which will generate up to £150 million of revenue over five years. A private company set up by the Department of Health to manage all the ex-Primary Care Trust estate, the client has undertaken a nine-month rationalisation process of FM services to consolidate over 2,300 individual contracts into five key contracts. Mitie has secured new work delivering hard FM, security, landscaping and pest control. The contracts are for three years with the option of two one-year extensions, and the estimated annual value is £30 million.
Mitie Group plc has been awarded a five-year contract with Cornerstone Telecommunications Infrastructure Limited (CTIL), a joint venture between Vodafone UK and O2 (Telefonica), to manage the network sites for both companies and also consolidate their sites to create a single grid. The contract, which is valued at £70 million over five years, will see Mitie deliver hard FM services to the network of over 20,000 cell mast sites across the UK. Mitie will use its dashboard asset management software, designated Direct Audits, to provide real-time contract and asset data.
Developments in the retail sector
In the retail sector, Mitie Group plc has expanded its relationship with Ladbrokes in a new contract valued at £80 million over a five-year period. The business will continue to deliver a range of services including hard FM, cleaning, waste, pest control and compliance across over 2,000 retail outlets and Ladbrokes’ head office.
Sainsbury’s has awarded Mitie a major new contract to deliver security services. The contract is valued in excess of £50 million over four years and will see Mitie providing services across Sainsbury’s Northern zone of 500 stores. The contract will use operational management software, smart incident and trend mapping software and the Mitec technology centre. Every store will also have smart phone and tablet access to Mitie’s suite of software that enables real-time incident management and data capture which analyses trends to manage risk.
Dixons Carphone has also awarded Mitie a new bundled facilities management contract. The initial works will include security, engineering maintenance, cleaning and Front of House services. This contract is valued at £10 million over five years, with the potential for further sites to be added.
What’s the outlook?
In terms of the forward outlook, the company’s statement reads: “We have a flexible and resilient business model and a track record of responding to changing market conditions as well as client needs.”
The statement continues: “Due to current macroeconomic factors, we anticipate modest growth in the next financial year. Our focus remains on generating profits backed by strong cash flows, while maintaining a robust balance sheet and margins within our target range.”
In conclusion, the statement outlines: “We have a substantial order book and sales pipeline. We continue to see a range of good outsourcing opportunities across our key markets, and we remain positive about the group’s prospects for the future.”