City warms to turnaround plans at outsourcer Mitie

Shares in Mitie surged yesterday despite the struggling outsourcer sinking deep into the red, after it revealed cost-cutting plans as part of a shake-up meant to turn around its fortunes.

Outsourcing group Mitie is embarking on a 'major cost reduction programme'. Picture: Contributed

The company, whose contracts in Scotland including cleaning and maintaining the Scottish Parliament building, swung to a loss last year after it took a hit from accounting issues.

• READ MORE: Martin Flanagan: How the Mitie outsourcing sector has fallen

The group, which has been under pressure amid a string of recent profit warnings, reported a £58.2 million pre-tax loss in the year to 31 March, compared with a £91.9m profit in 2016. Revenue came in broadly flat at £2.1 billion.

Mitie was stung by £88.3m of one-off costs after a review of its books by KPMG showed practices that were “less conservative, albeit still justifiable, than others in the market”.

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But shares rose by 13.5 per cent, or 33.2p, to close at 280p after chief executive Phil Bentley also said the firm will embark on a “major cost reduction programme” following a strategic review. Mitie is aiming to slash £45m in costs.

Bentley said: “This has been a challenging year for Mitie. We have reported a loss as a result of the one-off accounting adjustments arising from the accounting review. We are now focused on the future of the business and I am encouraged that our order book has held up and our pipeline is growing.

“Following a full strategic review we are investing in technology in the workspace to meet our customers’ evolving needs and we are embarking on a major cost reduction programme.”

Mitie has overhauled its management as part of recovery efforts, with Bentley appointed in December and Sandip Mahajan hired as chief financial officer in February.

• READ MORE: Ruby McGregor-Smith to quit as Mitie chief executive

The firm also recruited a new chairman, Derek Mapp, last month. Mapp takes over from Roger Matthews, who will relinquish control at the annual general meeting (AGM) on 26 July after 11 years with the group.

The board said it was confident that the new management team is capable of “taking the business through its next stage of growth and development” and that it expects a return to modest growth in underlying profits this year.

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“Mitie is a business with an outstanding client base, great people and a diverse portfolio of long-term facilities management contracts.

“We are investing in a major transformation programme to improve our customer proposition, increase operational efficiency, streamline processes, leverage technology and develop and retain our people,” the company said.

“With our new investment-led strategy, we believe that there is a significant opportunity to transform Mitie into a more focused, higher growth/higher margin business which, in time, will result in materially increased shareholder value.”

Analysts at Liberum said the update meant there was now a “much reduced risk” of a rights issue and upgraded their rating from “sell” to “hold”.

“There is much to prove and the industry is likely to remain competitive and low growth. Differentiation through technology will also require investment,” they said in a broker note, but added the scale of cost savings is “impressive”.

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