The facilities management (FM) contractor Mitie had ‘a very strong year’ in its business services arm that includes security, according to the plc’s results for the financial year.
The contractor has reported in its plc results that the last financial year represented its most successful for contract wins (and projects): including BAE, the Defence Infrastructure Organisation (DIO) (Future Defence Infrastructure Services contract (FDIS) (Scotland & Northern Ireland)), Home Office, Legal & General, FMSP Clyde, Westfield shopping centres, City of Edinburgh Council and Swansea University.
A total of £1.7bn of contracts were renewed or extended in the year, including Co-op, Gibraltar, Heathrow Airport, Marks & Spencer and Department for Transport. The contractor’s renewal rate is 90 per cent, slightly lower than previous rates due to a small number of contract losses and the company’s decision not to seek the renewal of a number of low margin contracts.
Mitie acquired rival FM firm Interserve in November 2020; the operational integration is complete, the firm has reported. Interserve’s contract renewal rates were significantly lower than Mitie’s, the firm reports: “It is therefore pleasing that we have renewed or extended 90pc of Interserve contracts that have come up for renewal,” it said in the annual results.
The firm is aiming for margins of between 4.5pc and 5.5pc over the medium term. “This will be achieved from the Interserve cost synergies, improving the performance of the handful of Interserve loss-making contracts, a focus on operational excellence to improve contract profitability, savings from automating workflow management and better procurement processes.”
The contractor runs five divisions; Business Services covers Cleaning, Security and Office Services; including UK Government contracts for covid testing centres and quarantine services and, more recently, security for hotels taking Afghan refugees. Security revenue rose by 59 per cent, to £1,127m from £709m. The margin of business services as a whole rose, to 7.1pc from 4.7pc.
Phil Bentley, Group Chief Executive, pictured, said: “Through our investment-led strategy, Mitie has reached an inflection point earlier than anticipated. We delivered a strong financial performance in FY22, with good underlying growth. The Group is now able to leverage its capital base to focus on long-term value creation, accelerating investment in growth and delivering enhanced shareholder returns.
“Thanks to the hard work of our 72,000 colleagues, Mitie has recovered strongly from the pandemic, delivering a record £4bn of revenue in FY22, operating profit of £167m and free cash flow of £133m. The Interserve business is performing strongly under our stewardship and our ability to rapidly mobilise flexible contracts led to robust COVID-related business. Our underlying business performed well in the year, growing 14 per cent.
“Our strategy – focused on accelerating growth, enhancing margins and improving cash generation – is creating a strong platform to further improve earnings. Our robust balance sheet and significant free cash flow allowed for continued investment in high return acquisitions across decarbonisation (Rock Power Connections and Biotecture), telecoms maintenance (DAEL Ventures UK), and intelligent security (Esoteric). Two further telecoms maintenance businesses (P2ML and 8point8) were acquired early in FY23 and today we announce we have entered into a Sale & Purchase Agreement (SPA) for Custom Solar, a solar power solutions company.
“Underpinning our strategy is our ‘Science of Service’ offering, which we launched in the final quarter of FY22. This provides a solution to our customers whose workspaces require greater hygiene, intelligent security, and critical asset monitoring backed by data analytics, whilst our internal technology is driving productivity gains and cost efficiencies, supporting our margin enhancement strategy. Our technology is a key driver of both our new contract wins including projects – up to £2.1bn TCV in the year – and our high renewals rates – 90pc in the period.
“As part of our strategic focus on long-term value creation, our revised medium term capital allocation policy will focus on investments in high margin bolt-on acquisitions, whilst increasing shareholder returns. The Board is recommending a reinstatement of the final dividend of 1.4p and Mitie will now commence an initial £50m share buyback programme.
“The current year has started well, with significant contract wins from Hammerson, Netflix, Poundland, and Primark as well as renewals/extensions of our contracts to support military bases in Cyprus, Ascension Islands, and the Falklands. This new business momentum, together with a full year’s contribution from significant contract wins including FDIS and BAE and the uptick in Government projects and variable works (as our customers experience higher utilisation rates across their buildings), gives us confidence in our growth outlook. The impact of inflation on our business continues to be well managed and we will see further benefits this year from our margin enhancement initiatives. As a result, in FY23, after excluding the £448m COVID related contract work that was delivered in FY22, we expect to deliver mid to high single digit revenue growth, together with good operating margin progress.”
