Mitie sees order book shrink amid ‘undoubted challenges’
The outsourcing giant is expecting underlying operating profit to rise to between £84m and £87m, but said orders will fall around 10%
Outsourcing giant Mitie has seen shares come under pressure after forecasting lower-than-expected annual profits and warning that orders shrank by around 10% over the past year.
Shares in the group dropped 3%, having tumbled as much as 9% at one stage, on the order book woes and as the company’s guidance for 2018-19 profits missed City expectations.
In a pre-close full-year trading update, Mitie said it is expecting underlying operating profit to rise to between £84 million and £87 million for the year to March 31.
But this is below the consensus and will mark a small rise on the £83.2 million reported for 2017-18.
The group also said that, while its order book held broadly flat in the second half, it is estimated to have fallen by around 10% over the full year.
This comes after it revealed last November that it suffered a £255 million drop in its order book over the first half.
Mitie said it had renewed a number of significant contracts in the year to March 31, but warned that these are at lower profit margins in the first year of operation.
However, it is also expecting to report “moderate” earnings growth in 2019-20, with revenue growth and cost savings partially offset by lower margin contract renewals and reinvestment in the business.
The second year of our transformation has seen steady progress in Mitie ... against a backdrop of undoubted challenges for the outsourcing sector CEO Phil Bentley
Chief executive Phil Bentley said: “The second year of our transformation has seen steady progress in Mitie.
“This is against a backdrop of undoubted challenges for the outsourcing sector, and some short-term economic uncertainty impacting clients’ capital programmes and willingness to enter into longer-term integrated contract commitments.”
He added that the group was focusing on adding value and services to top clients, which is helping it grow retained business in the face of a softening order book.
Mitie is expecting to report revenue growth of 7% to 8% in 2018-19, with underlying growth of 4%.
It also confirmed that its turnaround programme is expected to deliver benefits of around £45 million in the financial year just gone and £50 million by the end of 2019-20.
Mitie is in the second year of an overhaul under Mr Bentley.
The group was forced to launch the wide-ranging turnaround plan after a string of profit warnings amid a torrid time for outsourcing firms following the collapse of Carillion in January last year.
Mitie is simplifying its corporate structure, outsourcing and automating some back office functions, merging its London offices into one, and investing to increase its technology capabilities.
It is also selling off unwanted businesses, agreeing last year to sell its social housing business to Mears Group in a deal worth up to £35 million.
In addition, the firm sold its pest-control business and bought Vision Security Group in the past financial year.