23rd May 2016 12:59
LONDON (Alliance News) - Outsourcer Mitie Group PLC retained a confident outlook on its prospects on Monday as it posted a marginal rise in underlying profit and proposed a share buyback, though sales dipped as the group faced project spending delays and cancellations driven first by the General Election and now by the Brexit referendum.
Mitie shares were up 4.6% to 286.20 pence, the best performer in the FTSE 250.
Mitie said it has secured 82% of its projected revenue for the 2017 financial year, down from the 85% it had secured at the same point a year earlier, and said its sales pipeline was GBP9.1 billion, down from GBP9.7 billion. Mitie's order book at the close of the year was also lower year-on-year, down to GBP8.5 billion from GBP9.0 billion.
But the group said the order book and sales pipeline both remain substantial and it continues to see a good range of outsourcing opportunities in its key markets, leaving it positive on its current financial year to March 2017.
"We continue to see a range of good outsourcing opportunities across our key markets and anticipate modest growth in the coming year. We remain positive about the group's prospects for the future," said Chief Executive Ruby McGregor-Smith.
For the year to end-March, Mitie said its pretax profit more than doubled to GBP96.8 million from GBP41.5 million the year earlier, mainly due to lower one-off costs. Operating profit excluding exceptional items was marginally higher, up to GBP128.9 million from GBP128.6 million.
Mitie declared a final dividend of 6.7 pence per share, up from 6.5p, taking its total payout for the year up 3.4% to 12.1p from 11.7p. In addition, Mitie announced a GBP20.0 million share buyback to return further cash to shareholders.
Revenue was slightly lower, down to GBP2.23 billion from GBP2.27 billion, which Mitie attributed to lower discretionary and project spend by its clients. The group expects revenue to grow in the current financial year thanks to a recent flow of facilities management contract wins.
Facilities management remains Mitie's main business, generating 84% of its total revenue. The division is split in two, comprising soft and hard facilities management. Soft FM includes cleaning and environmental services, security, catering and front-of-house services. Hard FM, meanwhile, covers technical services, building maintenance and energy services.
Mitie said its facilities management units had a strong year overall, with contract retention at 93%, but revenue dipped 1.5%. Growth was constrained in the first half of the financial year by a shift in client spending patterns. In the first quarter, the UK General Election resulted in organisations delaying project decisions, Mitie said.
The private sector resumed activity after the election results were in, but the public sector continued to focus on cutting deficits and spending levels.
Then, in the second half, further uncertainty and constraints on spending emerged ahead of the UK's referendum on its European Union membership, meaning further projects were delayed until after the vote is in once again.
Mitie also said it has seen a reduction in discretionary spend and projects, though day-to-day services continued apace. As a result, Mitie removed discretionary spending items from its budget and cancelled or delayed some of its own projects in order to maintain profitability in the FM arm.
The other key challenge Mitie has faced is the introduction of a new National Living Wage in the UK, an effective minimum wage for over-25s. In response to this, Mitie has engaged with its clients but said it has seen a mix of some clients able to absorb the costs, while others cannot. In those instances, Mitie is working with its clients to identify changes to either the quantity or scope of services it provides and is considering how to better use technology in delivering its services to further cut costs.
Still, the FM business still secured some significant contracts over the course of the year, including a GBP190.0 million nine-year deal with pay-TV group Sky PLC and a GBP100.0 million three-year deal with property firm JLL. On the integrated FM side, contracts which incorporate both hard and soft FM services, the group won deals with engine maker Rolls-Royce Holdings PLC and French defence contractor Thales Group.
Elsewhere, Mitie said its property management business, focused on the UK social housing sector, delivered revenue and profit growth despite not seeing a traditional uptick in activity in the second half. Social landlords have been forced to reassess spending plans following the government's decision to cut social housing rents. This has left many social landlords having to trim project spending and focus instead on essential maintenance work.
Mitie said it is retaining a flexible approach to service delivery for the social housing market and is expanding its capabilities to add further services to an integrated offering for the sector.
Still, the revenue growth was helped by a robust first-half performance and by continued contract wins for Mitie's painting and repair services business.
Healthcare, the group's smallest business which provides care-at-home services, experienced a "challenging year", Mitie said. Akin to the Property Management division, a squeeze on local authority budgets from central government cuts has been compounded by demographic shifts and council tax freezes.
Some of this, Mitie said, has been alleviated by the UK government allowing council tax rises, but the company said much of this will be taken up by increased costs as a result of the implementation of the National Living Wage.
Mitie said its future approach on the social care market will be "highly selective" and it will only work with clients prepared to pay "sustainable rates" for care.
By Sam Unsted; [email protected]; @SamUAtAlliance
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