Mitie posts record revenues in latest set of Group financials

The total contract value awarded in FY23 stands at £4.3 billion. Renewal rates remain at over 90%, with a book-to-bill ratio of 105%. Operating profit before other items is reported to be £162 million (FY22: £167 million) versus previous guidance for ‘at least £155 million’. The operating profit margin is 4.0% (FY22: 4.2%), with the prior year being boosted by higher margin COVID-related work. Excluding COVID work, revenue and operating profit before other items increased by 14% and 44% respectively.

Average daily net debt is £84 million (FY22: £25 million), duly reflecting the capital allocation policy announced last year. The closing net debt is £44 million (FY22: £27 million net cash).

FY24 has “started positively” and the Board of Directors at Mitie is therefore confident in meeting growth expectations for the year.

Business Services

The Business Services division of Mitie delivers intelligent security solutions in addition to cleaning and hygiene services, as well as office services. During the pandemic, Business Services was also primarily responsible for the delivery of Mitie’s short-term COVID-related contracts. These focused contracts completed early on in FY23.

Business Services has delivered “an encouraging performance”, with the continuation of the Afghan Relocations and Assistance contract, increased variable and project work and contract re-pricing alongside the delivery of margin enhancement initiatives, partially offsetting the completion of higher margin short-term COVID work that had benefited the prior year and a reduction in scope of the Brexit security contract at UK ports.

Excluding COVID work, revenue, operating profit before other items and the operating margin were all better than last year. The division secured £1.0 billion total contract value of new contract wins, renewals and extensions, including wins for Hammerson, the Home Office, John Lewis & Partners, the National Grid, NATS and Poundland. The largest extension was for three years with Sainsbury’s, while other renewals and extensions included those with Eurostar, Hammerson and the Manchester Airport Group.

Margin enhancement initiatives implemented during the year were a key driver of growth in underlying operating profit and the operating margin. The initiatives primarily focused on operational excellence, the roll-out of the Coupa digital supplier platform and leveraging the Workplace+ workforce management app to optimise workforce productivity and workflows across the division’s core services.

Technology continues to drive change across the. In Business Services, the ‘Merlin Protect 24/7’ platform (business intelligence software for security incident management) is being developed into a leading ‘Merlin for Cleaning’ version to monitor and track responses to reactive tasks such as spillages. Trials were carried out across several clients, including Amazon, the Co-op, Deloitte and Standard Life, with results showing notable productivity improvements in front line cleaning operations.

Of course, the division operates an intelligence and technology-led security business, including Mitie Intelligence Services (MIS). MIS identifies and assesses threats through its intelligence network and dedicated Intelligence Hub. It provides significant advantages in winning, transforming and retaining contracts across multiple sectors, including the retail, financial services and transport and aviation sectors.

MIS is well-positioned to work with customers when Martyn’s Law comes into effect, setting out requirements for venues and other organisations to ensure public safety.

Since the year end, Mitie has continued to build the division’s capabilities in intelligence and technology-led security through the acquisitions of the Linx International Group and R H Irving Industrials for a total consideration of £21 million. These businesses bring a range of complementary services and security infrastructure technology to Mitie and will enhance the division’s ability to provide comprehensive support – including training – for its customers as they prepare to meet the requirements of Martyn’s Law.

Surpassing expectations

Commenting on the annual results, Phil Bentley (Group CEO) said: “Mitie’s performance in FY23 has surpassed the Board’s expectations. We entered the year with the challenge of replacing almost £450 million of short-term and higher margin COVID-related contract revenue. Thanks to the hard work of our 64,000 colleagues and our technology-led approach, we have achieved this and more.”

Bentley continued: “Group revenue in FY23 exceeded £4 billion for the first time, reflecting good momentum from our new contract wins, renewals and extensions, alongside contributions from contract re-pricing and acquisitions. Basic earnings per share grew by 3.3% to 9.5 pence, benefiting from the refinancing of debt instruments and share buybacks, despite operating profit being slightly lower than last year due to the completion of the higher margin COVID-19 work.

Further, Bentley noted: “When we exclude short-term COVID work, revenue and operating profit before other items increased by 14% and 44% respectively. Our operating margin excluding COVID work of 3.8% (FY22: 3.0%) reflects growth in projects work and the focus on margin enhancement initiatives. We expect to deliver an additional £5 million of Interserve synergies, and therefore increase our guidance for total synergies to £55 million by the end of FY24, which is significantly ahead of our initial expectation of £30 million at the time of acquisition.”

According to Bentley, Mitie has been “transformed” over the last six years. “We’ve made further significant progress this year against each of our strategic pillars. We are now the largest facilities management business in the UK. Our unrelenting ambition is to drive the business to reach its full potential, not just financially, but also through its positive contribution to the environment and society at large.”

Looking ahead

FY24 has started positively at the business. “Since the start of the year,” asserted Bentley, “we have won and extended a number of significant new contracts and there’s a healthy pipeline of new opportunities, combined with the full-year benefit to be derived from major contracts won and extended in the final months of FY23.”

Mitie is going to continue its disciplined approach to bidding for contracts, even if it’s challenging to maintain renewal rates at the current level, and will continue to seek growth opportunities, both organically and through strategic bolt-on acquisitions in the security technology, decarbonisation and telecoms infrastructure sectors. “We have already completed two acquisitions in FY24,” outlined Bentley, “both of which strengthen our capabilities as the UK’s leading intelligence and technology-led security provider.”

Bentley concluded: “This positive momentum carried forward into the new financial year gives the Board confidence in meeting its growth expectations for FY24. Mitie is cash generative and has a strong, stable and flexible balance sheet to support increased returns for shareholders and future growth opportunities.”