Mitie storms ahead as government cost cuts drive efficiency

A DRIVE for greater efficiencies as governments and companies seek to cut costs has helped outsourcing giant Mitie grow profits and build up a record order book.

The FTSE 250 company, which delivers a range of cleaning, security and energy services and employs some 8,000 full- and part-time staff in Scotland, said yesterday that operating profit increased by 6.6 per cent to £51.6 million in the six months to the end of September.

Revenues were up 5.8 per cent to £971.7m, while Mitie said its order book had risen 17.6 per cent to £8 billion, effectively securing 97 per cent of this year’s revenue and 68 per cent of forecast revenue for 2012-13.

While rival outsourcers have turned to acquisitions to help offset a lack of organic growth this year, blaming contract delays and budget cuts, Bristol-based Mitie has won a number of deals including facilities management work with south England courts, two prisons, Essex council and spirits group Diageo.

This summer, the group landed a contract to provide support for events at Edinburgh Castle. It has cleaned the Scottish Parliament building since its opening in 2004, and recently began providing cleaning services to Stirling Castle.

Mitie also works with the Scottish Prison Service, Royal Bank of Scotland and Standard Life Investments.

The company is currently bidding on a facilities management deal with Edinburgh council worth some £280m, as well as justice sector work which could include electronic tagging and prison management.

Chief executive Ruby McGregor-Smith said the energy management business, supported by the 2009 acquisition of Irish rival Dalkia, had helped it win contracts and also allowed the firm to offer existing clients more higher margin services.

She said: “I think our particular differentiation around energy, which others do not have, is incredibly important. That is what is driving our organic growth.”

Mitie’s energy-related activities include offering security of supply and renewable energy plants as well as helping clients reduce their costs and carbon emissions. Its work varies from training workers to be more energy efficient to designing, developing and maintaining a combined heat and power plant for an NHS trust.

McGregor-Smith said the firm was now focused on retaining its margins, building on existing relationships with customers and exploiting opportunities in energy services.

“We are mindful of the challenging economic environment,” she said. “However, the search for greater cost and energy efficiency is central to the strategies of governments and businesses in all our markets – and better quality services, more innovation and more efficiency lies right at the heart of what we do.”

The Mitie boss said she was confident the group would continue its track record of sustainable profitable growth. Analysts agreed, with a flurry of “buy” notes.

Caroline de La Soujeole, a support services analyst at Seymour Pierce, said Mitie had “first mover advantage” in the attractive energy services market, which she expects will see strong growth over the foreseeable future.

She said the company’s share price “fails to reflect the fact that Mitie is now penetrating in areas with higher growth and higher margin potential”.

Analysts at Investec added: “We expect earnings growth to now accelerate as clients seek to reduce costs.”

Mitie upped its interim dividend by 7.3 per cent to 4.4p.