MITIE HAS released its half-year results for the six-month period ending 30 September 2022. Performance is “strong” with new contract wins and recent acquisitions more than replacing the short-term revenue boost from COVID-related contracts in the first half of 2022.
Guidance for the full year has been increased with operating profit before other items expected to be at least £145 million. The business has returned £70 million to shareholders with the completion of £50 million share buyback and £19.5 million of dividend payments.
Further, Mitie has increased the interim dividend by 75% to 0.7p per share and announced a £10 million Winter Support Package for H2 to help colleagues manage the rising cost of living.
Top line highlights
Revenue was £1,923 million. As stated, new contract wins, acquisitions and price inflation more than offset the boost in the same period last year from short-term COVID-related contracts (H1 FY22: £1,912 million).
A total contract value of £1.5 billion was added during H1, with renewal rates over 90%. The book-to-bill ratio is 107%. Operating profit before other items was £68.0 million, down 20% (H1 FY22: £85.3 million), and operating profit margin before other items stands 1.0ppts lower at 3.5% (H1 FY22: 4.5% was boosted by higher margin short-term, COVID-related contracts).
Excluding short-term COVID-related contracts:
*Revenue grew by 16%, reflecting good momentum across all divisions and the effective management of inflationary pressures
*Operating profit before other items of £65.4 million was 45% better (H1 FY22: £45.0 million) with a margin of 3.4% (H1 FY22: 2.7%), as margin enhancement initiatives started to deliver
*Operating profit after other items was £50.5 million (H1 FY22: £59.2 million), as reduced other items (£17.5 million of other items in H1 FY23 versus £26.1 million in H1 FY22) partially offset the reduction in COVID-related contracts
*Average daily net debt for the six months to 30 September 2022 was £62 million (FY22: £25 million), following the unwind of the £45 million customer invoice discounting, the £50 million share buy-back and £20 million FY22 final dividend, with leverage remaining comfortably below the long-term target of less than 1.0x average net debt/EBITDA
*Interim dividend increased 75% to 0.7p per share (H1 FY22: 0.4p per share)
*£10 million Winter Support package to assist colleagues in managing the cost-of-living crisis
*Increased guidance for FY23, with operating profit before other items now expected to be at least £145 million
Good underlying momentum
Commenting on the first six months of the year, Phil Bentley (Group CEO at Mitie) said: “Our strong performance in the first six months of the year reflects good underlying momentum across all divisions. New contract wins, recent acquisitions and pricing have more than replaced the short-term revenue boost from COVID-related contracts in the first half of last year. Our strategy is delivering underlying revenue growth and cost savings from our margin enhancement initiatives, while at the same time inflationary pressures are being carefully managed.”
Bentley continued: “In the first six months of the year, we have invested £19 million in three fast-growing, high margin businesses and, looking forward, we continue to see opportunities to invest in future growth through ‘bolt-on’ acquisitions. We returned £70 million to shareholders via the share buy-back programme and the FY22 final dividend, and are increasing our interim dividend to 0.7 pence per share.”
In addition, Bentley observed: “As always, we owe our 68,000 colleagues huge thanks for their hard work across all of our contracts, including the mobilisation of a record number of new contracts in the first half of this year. We continue to be focused on ensuring that Mitie is an ‘employer of choice’ by providing a market-leading employee benefits package. With the current cost-of-living crisis, a number of initiatives focused on supporting our lower paid colleagues are being launched in the second half.”
Further, Bentley said: “Although inflationary pressures will continue into the second half, historically our second half performance is stronger, with increased revenues from projects, seasonal winter work and the ramp-up of margin enhancement savings coming through as the year unfolds. We therefore expect to deliver operating profit before other items of at least £145 million for FY23.”
Mitie’s Business Services division delivers security solutions (among other services). For the last two years, Business Services was also primarily responsible for the delivery of Mitie’s short-term COVID-related services across COVID-19 Testing Centres and quarantine services. These contracts ended early in Q1 FY23.
Revenue of £592.2 million was 24% lower than for the same period last year (H1 FY22: £775.0 million), due to the ending of the COVID-related contracts. Excluding the £12 million revenue from short-term COVID-related contracts in H1 FY23 (H1 FY22: £245 million), revenue increased by 9%.
Operating profit before other items of £32.9 million was 50% lower than the same period last year (H1 FY22: £65.2 million). Excluding the £2.6 million contribution from short-term COVID-related contracts in H1 FY23 (H1 FY22: £40.8 million), operating profit before other items increased by 24%.
The total contract value of £616 million from new, renewed or extended contracts including renewals for Sainsbury’s, Vodafone and Superdrug alongside the expansion of the Marks & Spencer contract and new wins involving Afghan Relocations and Assistance, Sky Studios and Netflix.
Business Services has mobilised three significant contracts in Q1 FY23 for BAE Systems, Hammerson and Poundland worth £27 million of annualised revenue.
Strong first half
In general, Business Services enjoyed a strong first half, winning new contracts and delivering margin enhancement initiatives to partially offset the loss of the prior year’s revenue and profit from the short-term, higher margin COVID-related contracts. Excluding the COVID-related contracts, revenue, operating profit and margin all increased.
Business Services realised £425 million in total for contract renewals or extensions, including those with Sainsbury’s, the Manchester Airport Group, Vodafone and Hammerson. It has made “a good start” to implementing margin enhancement initiatives, which are primarily focused on functional and operational excellence, the standardisation of operations, implementing the Coupa digital supplier platform (focused on rationalising procurement spend) and leveraging the workforce management platform Workplace+ to drive workflow and workforce optimisation across security, cleaning and office services.
The acquisition of Esoteric has “reinforced Mitie’s position as the UK’s leading intelligence and technology-led security business” and provided the opportunity to create Mitie Intelligence Services. This offer is providing a significant advantage in winning and retaining contracts in multiple sectors and also generating opportunities to expand services with existing customers, notably so in the business crime intelligence arena.
In addition, Mitie Intelligence Services is well-positioned to work with customers when the ‘Protect Duty’ becomes law next year, ensuring the safety of publicly accessible locations.
In June, a new data sharing agreement was launched, supported by major retail clients and senior police officials from the National Business Crime Centre. A genuine ‘first’ for the retail industry, this initiative highlights the successes achieved in tackling organised and prolific crime gangs and provides a forum to discuss future strategy for security across the retail sector and beyond.
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