The facilities management plc Mitie announced its results for the year ended March 2014. The FTSE 250 company employs 70,000 people across the UK and Continent. According to the firm the headline results reflect strong revenue and earnings growth, with revenues up 8.2 per cent to £2,142.6m and operating profit before other items increasing by 6pc to £127.5m.
The firm reports that it was awarded what it terms a landmark contract with the Home Office, valued at £180m over at least eight years, with responsibility for 900 detainees at the Colnbrook and Harmondsworth Immigration Removal Centres near Heathrow, west London. The company claims a buoyant sales pipeline at £8.2bn (2013: £8.7bn) and says that its order book remains strong at £8.7bn (2013: £9.2bn) although both totals are well down on the previous year.
In this period the FM company was awarded new contracts including:
· A five year £110m contract extension with Capita to deliver integrated facilities management
· A new three year £38m contract with brewer Mitchells & Butlers to deliver waste management services at 1,600 restaurants throughout the UK
· A new three year £33m contact to deliver technical facilities management for Four Seasons Healthcare; and
· A new three year £5m contract to provide facilities management services to Kellogg’s UK and European head offices in Manchester and Dublin.
Ruby McGregor-Smith CBE, Chief Executive of Mitie, said: “We have made excellent progress, achieving sector-leading organic growth driven by new and expanded contracts, as well as completing a bolt-on acquisition in healthcare. We are very well-positioned as one of the UK’s leading integrated facilities management providers and we have also invested in higher margin markets such as homecare, all of which will support our growth aspirations.
“We expect outsourcing opportunities will continue to grow, with a trend towards more clients seeking to access bundled and integrated services. We are confident that we will continue to build on our track record of delivering sustainable, profitable growth.”
In more detail, the firm says that it sees a significant opportunity to expand its business with our existing client base, ‘by proactively selling the benefits of bundling more services and of integrated FM’. It’s making an exit from its loss-making mechanical and electrical engineering construction business, hit by the slump in the building trade in the recession. The firm is looking to move more into home care.
The firm said in a ‘strategy overview’ in its results announcement: “Our growth in FM will come in part from developing relationships with new clients, but more so through expanding our relationships with existing clients. The evolution that our clients make from single service delivery, to bundles of services, to integrated FM in some cases, has been a significant driver of our growth and we see substantial further opportunities to grow with our clients in this way. To this end, we are investing heavily in our key account management capabilities and are taking a more sector-focused approach to both sales and operations.”
And as for details of the market in general, the firm says that the total UK FM market is valued at £125 billion, with £75 billion of that outsourced. The company’s principal addressable market, defined as contracts worth over £500,000 per year, is estimated to be £45 billion, of which Mitie have a 4 per cent share. The market remains fragmented and is dominated by around 120 large providers, with the 12 largest players accounting for 34pc of the market. According to the FM contractor, the FM market (which security management is part of) is expected to grow around 2pc per year between 2013 and 2017, a significant improvement on the 1.2 per cent a year seen between 2007 and 2013. As for operations and where security fits in, the firm divides facilities management into two: ‘soft FM’ is made up of cleaning and environmental services; security; catering and front of house services, while ‘hard FM’ provides technical and building services, such as lighting and other physical repairs.
As for some in in-house security management disparaging outsourced security as mere cost-cutting and headcount-reducing, the FM firm adds that during 2013 it commissioned independent research among senior property and facilities directors in the UK. “Clients want companies such as Mitie to help them carry out their business better, not just cheaper. Among the survey’s key findings was the fact that although outsourcing remains a key method of reducing costs, it is also recognised as a way to harness expertise. Many interviewees also agreed that a focus on least cost provision was a false economy, and stressed the need for a more outcome-based approach that encourages the best performance from the service provider.”
And as for the criticism from security-only contractors such as Securitas and Corps Security that an FM ‘bundle’ of services cannot keep delivering gains, Mitie admits that the immediate benefits of bundled and integrated services include lower costs and a single point of accountability, but argues that ‘long-term success is built on a track record of consistent delivery’. Mitie speaks of a risk-based approach to security whereby the firm assesses risks and then brings ‘the right people, technology and consultancy services to manage them’. The FM firm adds: “While manned guarding remains central to our security services, we have diversified through a range of higher margin and predominantly technology-based offerings. Services such as remote monitoring, employee screening, lone worker protection and vacant property security systems are changing our business mix. In addition, there are good opportunities for us to incorporate security within integrated FM contracts.”
In security guarding and quasi-Government tasks such as monitoring of offenders, the UK has recently seen the G4S guarding shortfall affair before the London Olympics and the scandal of over-billing for electronic monitoring of tagged offenders, admitted by G4S and Serco. However Mities says that in the public sector, it believes that outsourcing will remain a key government strategy and it foresees an increase in activity, Government in the name of best value for money opening public services to competition. Mitie does report what it calls ‘procurement delays in the justice market’. And as for the private sector, the FM contract firm says that its growth has been mainly driven by the private sector over the past five years; and private sector clients face many similar challenges to those in the public sector.
Contract wins over the last year include Arup; National Grid (six years, £4m); Eurotunnel; parcel firm FedEx (three years, £3m); and Springfields Fuels (seven years, £6m).
For more about Mitie’s results visit www.mitie.com/investors. For its ‘total security management’ arm visit http://www.mitie.com/services/specialist-services/total-security-management.
