100% integrated FM contract retention and new contract awards

Mitie Group plc (“Mitie”), the strategic outsourcing company, announces a trading update prior to entering a close period on 1 October 2015. Interim financial results for the six months ending 30 September 2015 will be announced on 23 November 2015.

Overview

Mitie has had a good start to the year with good organic revenue growth driven by new and recently expanded contracts. 94% of budgeted revenues for this financial year have already been secured. In line with historic trends, overall performance will be weighted towards the second half of the financial year, supported by positive momentum on organic growth.

Mitie is now a purely services business, operating primarily in our core market of UK facilities management (FM), which is performing strongly. As guided, there are no further exceptional costs relating to our exit from the construction market. Our social housing business is performing well. The homecare market remains challenging, however we are encouraged by the recent award of two significant contracts, responsibly procured at sustainable rates.

Recent progress

Developing and maintaining long-term client relationships is critical to the growth and success of our business. As our largest integrated FM contracts account for an increasing share of our revenues, contract retention is something we are particularly focused on. We have successfully extended all our major private sector IFM contracts over the last 12 months and there are no significant re-bids in this portfolio over the medium term. We have made excellent progress during the year with the following clients:

• Rolls-Royce: we have been appointed preferred bidder to continue providing our pan-European, integrated FM contract. The renewed contract, our largest contract out to tender in this financial year, builds on a 22-year relationship between Mitie and Rolls-Royce.
• Sky: we have extended our integrated FM contract for an additional five years. Mitie has been working with Sky since 2012, as part of a five-year contract; the new agreement extends this partnership through to January 2023. 
• Vodafone: Gather & Gather, Mitie’s catering business, has been appointed preferred bidder for a new standalone contract to provide all catering across Vodafone’s UK estate. This will be valued at approximately £8m per annum over five years. 
• RWE npower: we have been appointed preferred bidder for a renewed contract providing integrated FM services across its UK estate. It has an expected total value in excess of £30 million over three years, with a further potential two year extension period. 
• Media group: we have been appointed preferred bidder for an integrated FM contract, having previously provided security to the group. The expanded contract, which will be signed for a five year term, has an expected total value in excess of £20 million, with a further potential two year extension period.

We have also had success with developing important new client relationships, and are very pleased with the positive momentum in integrated FM, where we are the market-leading provider in the UK. We have been awarded a range of new contracts with the following clients:

• Deloitte: we were appointed preferred bidder for a five year integrated FM contract. The new contract has a total base value in excess of £40m over the five-year period, with the potential to add up to £2m per annum of reactive and project works. Mitie will deliver services across Deloitte’s entire UK estate of 34 offices occupying 1.3 million square feet.
• High street bank: we were awarded an integrated FM contract with a new high street challenger bank. The new contract has a total base value of £40m over a five-year period, with the potential to deliver a further £20m of reactive and project works. Mitie will work across the bank’s entire UK estate, including all of its office buildings and over 300 bank branches. 
• Thales Group: we have been appointed preferred bidder for an integrated FM contract, valued at £40m over five years, with potential for further project work. Mitie will deliver services across Thales’ UK estate.

In our Homecare business we have been awarded two significant new contracts. These are within the Royal Borough of Kensington and Chelsea and the London Borough of Hammersmith and Fulham. The combined value of both contracts is forecast to be in excess of £5m per annum for five years, with an option to extend for a further two years. Both contracts will be paying the London Living Wage of £9.15 per hour.

Other developments

As a large employer, we welcome the recent budget announcement that a new National Living Wage (NLW) will be introduced in the UK. We are positive about this move, which ensures that those of our people who are affected, are better rewarded and feel more motivated to do the jobs they do. It will also improve retention rates across our business.

Since the minimum wage was introduced in 1999, we have managed the impact from its annual change as part of the normal course of our business. We are confident that the contractual positions we have across our client base will similarly ensure that the introduction of the NLW will not have a material impact on our future earnings.

We also believe that this is an important move for the outsourcing industry, as it affects all competitors equally and creates a level playing field in terms of bidding. We do expect outsourcing prices to increase in the future and will not be advocating job cuts in reaction to this change. However, we will continue to work with our clients to identify cost efficiencies in other areas. The initial response from our client base has been supportive of our approach.

Outlook

The financial year has started well. We have a substantial order book as well as a strong pipeline of sales opportunities and positive momentum in our business, giving us confidence that we will deliver good full-year organic revenue growth. We are encouraged by the range of outsourcing opportunities across our key markets and are confident that we will continue to build on our long track record of sustainable profitable growth.

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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