Mitie profits fall as post-Carillion business costs mount

Profits at outsourcing firm Mitie have fallen over the last six months in the wake of Carillion's collapse, despite selling off several of its divisions and reporting a rise in revenue.

Its share price fell more than three per cent as markets opened this morning.

The figures

Revenue rose four per cent to £1.04bn in the six months to the end of September, up from £1bn in 2017.

Profit before tax rose to £19m, up from £17.7m a year earlier. However adjusted operating profit fell more than four per cent to £38.4m, hit by a rise in administrative expenses, an adverse contract mix at its cleaning and environmental services division, a decline in revenue in its catering division and £3.3m of mobilisation costs within its care and custody unit.

Mitie's secured order book declined by £255m over the period to £3.9bn, which it said was due to being "more disciplined" in its bidding process than last year.

The company also offloaded its pest control business to Rentokil Initial for £40m in the period, as well as its social housing business to rival group Mears for £36m.

For the first six months of its financial year, Mitie has declared a dividend of 1.33p, a third of 2017's full-year dividend of 4p.

Why it's interesting

Due to increased scrutiny of the outsourcing industry after the collapse of Carillion, the company said it expects to report modest top-line growth for the year, with its margin improving to between 4.5 per cent to 5.5 per cent.

Outsourcing businesses across the UK appear to have struggled this year, with many companies changing their business models to fine-tune their place in the market. Mitie is no different, having sold its pest control and social housing businesses to rivals while beefing up its security division with the acquisition of Vision Security.

Analysts at Liberum said the results were in line with its expectations for the group, although it had anticipated higher growth in the continuing business due to Mitie having offloaded several divisions.

What Mitie said

Chief executive Phil Bentley said:

"We continue our strategic focus on our core businesses and core clients. We are enhancing service delivery and margin by reducing our cost base, investing in customer services and deploying the distinctive technology our clients increasingly demand from their 'Connected Workspace'.

"We are making steady progress on all fronts. With recent disposals and acquisitions, we have begun the process of sharpening our focus on those business lines where we can secure a leading market position, underpinned by technology. This approach is already gaining traction.

"Our industry remains competitive and challenging, but with the actions we are taking, we see improving prospects for growth ahead of us."