Mitie Group plc (“Mitie”), the strategic outsourcing company, announces 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.
Overview
We expect full year profits will be within the range of current market expectations. We have seen revenue shortfalls in the second half of the financial year, as some work has been either delayed or cancelled as a result of increased economic pressures and uncertainty. As a result, revenues will be below the current range of expectations in the market. In response, we have proactively managed our cost base and focused on maintaining margins, whilst continuing to invest for the long term.
We are encouraged by recent contract awards in our Facilities Management (FM) business, where we remain the number one provider in the UK. We have mobilised a number of contracts towards the end of the final quarter, and have other new contracts due to commence in the first half of next year.
After a strong first half, growth in our Property Management business has been slower during the second half of the year due to changes in spending patterns by our local authority and housing association clients, in anticipation of the statutory one percent reduction in social housing rents coming into effect on 1 April 2016. We are encouraged however by the extensive pipeline of future opportunities in the social housing market. Our Healthcare business is making progress with improving quality scores and more evidence of higher charge-out rates, although the homecare market remains challenging.
Market developments
We have now largely completed discussions with our clients in relation to both the regular annual increase in the minimum wage and the introduction of the National Living Wage in April 2016, and remain confident that our contractual protections ensure that it will not have a material impact on our 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 apprentice levy, and additional labour legislation. These changes are contributing to an increase in the overall cost of more labour-intensive services. In what is already a competitive environment, we expect this will create further shifts in our markets.
We are responding to these changes by accelerating our focus on technology solutions to drive greater efficiency and smarter working in all the core services we provide. This is an area where we have 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. With a leading position in our key FM markets, and a top four position across all of our markets, we are well placed to provide a range of evolving outsourcing models for all of our clients.
Recent progress
We have successfully extended our integrated FM contract with the Cumbrian Collaboration until 2019, in a contract valued in excess of £30m per annum. In the last quarter of the financial year, we have also mobilised three new integrated FM contracts that were awarded earlier in the year, with Deloitte, Thales and dmg media, with a combined annual value of £25m.
We have had significant success with a new client, NHS Property Services, which will generate up to £150m 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. We have successfully 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 £30m. Mitie will conduct extensive asset and facet surveys and use its patented technology to manage, monitor and report all maintenance activities and future capital works.
We have 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 consolidate their sites to create a single grid. The contract, valued at £70m 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 unique dashboard asset management software, Direct Audits, to provide real-time contract and asset data.
In the retail sector, we have expanded our relationship with Ladbrokes, in a new contract valued at £80m over a five year period. We 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 £50m over four years and will see Mitie providing services across Sainsbury’s Northern zone of 500 stores. The contract will utilise our unique technology, including operational management software, smart incident and trend mapping software, and our Mitec technology centre. Every store will also have smartphone and tablet access to our 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 engineering maintenance, cleaning, security and front of house services. It is valued at £10m over five years, with potential to add further sites to the contract.
Outlook
We have a flexible, resilient business model and a track record of responding to changing market conditions and client needs.
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, whilst maintaining a robust balance sheet and margins within our target range.
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.
-Ends-
Future reporting dates:
Mitie will announce its results for the financial year ending 31 March 2016 on 23 May 2016.
For further information, contact:
John Telling
Group Corporate Affairs Director, Mitie Group plc
T: +44 (0) 203 123 8673 M: +44 (0) 7979 701 006 E: john.telling@mitie.com
Erica Lockhart
Executive Affairs Director, Mitie Group plc
T: +44 (0) 203 123 8179 M: +44 (0) 7979 784 488 E: erica.lockhart@mitie.com
