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REG - MITIE Group PLC - Q3 trading update

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RNS Number : 8318A  MITIE Group PLC  25 January 2024

 

Thursday, 25 January 2024

LEI number: 213800MTCLTKEHWZMJ03

 

 

Mitie Group plc: Q3 FY24 trading update

 

Record quarterly revenue with growth +14% yoy

£62m free cash flow generated Q3 year-to-date vs £25m in prior period

Full year guidance for operating profit of at least £190m reiterated

 

Mitie Group plc ("Mitie" or "the Group") (LSE: MTO), the UK's leading
facilities transformation company, today provides a trading update for the
three-month period ended 31 December 2023 ("Q3 FY24").

 

Q3 Highlights

 ·         Record revenue 1  (#_ftn1) of £1,146m, an increase of 14% on Q3 FY23,
           reflecting continued growth in Key Accounts and Projects upsell, contract
           re-pricing and infill M&A
 ·         Good sequential trading momentum, with Q3 revenue 6% above Q2 and 9% above Q1
 ·         Total contract value ("TCV") of £0.9bn wins/renewals/extensions in Q3; TCV of
           £3.5bn in the first nine months of the year, 46% ahead of the same period
           last year
 ·         Two strategic acquisitions completed for a consideration of £21m, taking the
           total year-to-date investment in higher growth, higher margin infill M&A
           to £65m 2  (#_ftn2)
 ·         Closing net debt of £122m (31 March 2023: £44m), with strong free cash flow
           of £62m supporting planned capital deployment actions, including £73m of
           shareholder returns
 ·         £50m share buyback programme nearing completion; up to c.£8m of exercise
           receipts from the 2020 SAYE scheme (vested Dec 2023) to be applied to further
           share buybacks
 ·         The Group remains on track to deliver guidance for operating profit before
           other items of at least £190m in FY24 (FY23: £162m)

 

Mitie delivered a strong performance in Q3 FY24 with revenue increasing 14%
year-on-year to a record £1,146m (Q3 FY23: £1,005m). This increase reflected
organic growth of 10.0%, inclusive of 4.1% contract re-pricing, through Key
Accounts (net contract wins and losses and contract growth) and Projects
upsell. Infill M&A completed since 1 October 2022 contributed a further
4.0% of inorganic growth.

 

Revenue has also grown sequentially in each quarter, reflecting good trading
momentum and the increasing contribution from strategic growth initiatives. Q3
FY24 revenue of £1,146m was 6% ahead of Q2 FY24 (£1,079m), and 9% ahead of
Q1 FY24 (£1,053m).

 

In the nine months to 31 December 2023 revenue of £3,278m was 12% ahead of
the same period last year (£2,928m).

 

New contract wins and renewals

During the quarter we won and extended or renewed a number of significant
contracts worth up to £0.9bn TCV 3  (#_ftn3) (Q3 FY23: £0.3bn). Contract
wins and extensions or renewals in the nine months to 31 December 2023
increased by 46% to £3.5bn, compared with the same period of the prior year
(£2.4bn).

 

Notable Q3 FY24 wins included Aena in Spain, Department for Work and Pensions
(DWP) projects work, increased security provision for the Home Office,
expanded cleaning and security services across Landsec's estate, and
additional station guarding for Network Rail. The renewal rate of 84%
reflected the loss of two significant contracts, as previously communicated.
Notable contract renewals and extensions in the quarter included Facebook,
Home Office and Ministry of Justice, King George Hospital, Landsec and Network
Rail.

 

Acquisitions

We completed the strategic acquisitions of Cliniwaste (October), a specialist
in treating plastic waste in healthcare environments, and GBE Converge Group
(November) in Q3 FY24 for a total consideration of £21m. GBE is a leading
independent provider of fire and security solutions in the construction, data
centre and Information and Communications Technology (ICT) sectors and
complements our recent acquisition of JCA Engineering.

 

Q3 FY24 Divisional performance

 

Business Services

Revenue of £381m was 7% ahead of the same quarter last year (Q3 FY23:
£356m), benefiting from contract re-pricing, recent acquisitions including
GBE, Linx International and RHI Industrials, projects and variable works
(largely driven by our intelligence-led approach to tackling elevated levels
of crime in the retail sector) and net wins, partially offset by scope
reductions on contracts such as the Afghan Relocations and Assistance
Programme.

 

Technical Services

Revenue of £337m was 17% ahead of the same quarter last year (Q3 FY23:
£287m), benefiting from the growth in businesses acquired in prior periods
(including Rock and JCA Engineering), net wins, and continued growth in
projects and variable works across IFM contracts, including for the National
Air Traffic Services (NATS) contract won in late FY23.

 

Central Government and Defence (CG&D)

Revenue of £237m was 19% ahead of the same quarter last year (Q3 FY23:
£199m), primarily driven by projects work across a number of the largest
CG&D contracts, such as FDIS and DWP, and due to the consolidation of the
Landmarc military training estate as a subsidiary 4  (#_ftn4) (c.£11m
additional revenue in Q3).

 

Communities

Revenue of £191m was 17% ahead of the same quarter last year (Q3 FY23:
£163m), driven by contract re-pricing and an increase in the provision of
services for the Immigration Escorting Services contract.

 

 

 

Share buyback programme

Our current £50m share buyback programme is nearing completion. In the nine
months to 31 December 2023, 45m shares were purchased at an average price of
98p and a cost of £44m, including c.30m shares to satisfy the 2020 SAYE
scheme that vested in December 2023.

 

The 2020 SAYE scheme has been our most successful yet, with over 1,600
predominantly frontline colleagues gaining an average of £13,000 each from
their savings plans. Since the scheme vested, 24m shares have been exercised
by employees, and Mitie has received £6.5m from the 27.3p discounted option
price paid by employees towards each share.  Once all of the shares have been
exercised, cash receipts will increase to c.£8m.

 

It is Mitie's intention to use the c.£8m of exercise receipts for further
share buybacks within the current programme. The net spend by the Group of
£50m is unchanged by this (reducing the average price to c.85p) and all
shares purchased using the c.£8m will be cancelled.

 

Net debt

Period end net debt (post-IFRS 16) was £122m (including £30m cash acquired
on the consolidation of Landmarc), an increase of £9m from 30 September 2023,
and £78m from 31 March 2023.

 

The increase in net debt since 31 March 2023 reflects the capital allocation
policy that we set out at our Capital Markets Day in October 2023, with strong
free cash flow generation of £62m (nine months to 31 December 2022: £25m 5 
(#_ftn5) ) being reinvested into planned capital deployment actions. Total
capital deployment spend of £152m included the share buyback programme
(£44m), share purchases for employee incentive schemes (£20m), acquisitions
(£65m), and dividend distributions (£29m), partially offset by cash receipts
from the 2020 SAYE scheme (£6m). There has also been an £18m increase in
lease obligations in FY24 as we continue to transition our fleet to electric
vehicles.  Q3 FY24 average daily net debt was £162m (Q3 FY23: £103m).

 

Outlook

Our strategy of focusing on Key Accounts growth (supported by a record £19bn
pipeline of opportunities), Projects upsell and infill M&A drove a strong
performance in the third quarter. We expect good revenue momentum to continue
into the fourth quarter, albeit against a very strong prior year comparative
for Projects work. As such, Q4 revenue growth is expected to moderate to
mid-single digits, still comfortably ahead of the wider FM market.

 

Our strong performance, combined with the ongoing delivery of margin
enhancement initiatives, means that the Group remains on track to deliver
operating profit before other items of at least £190m in FY24.

 

- END -

 

 Revenue (including share of JVs and associates), £m   Q3: 3 months to 31 Dec 2023  Q3: 3 months to 31 Dec 2022  % Increase /(decrease)  Q2: 3 months to 30 Sept 2023  % Increase/ (decrease)

                                                                                                                                                                       Q3 v Q2 FY24

 Business Services                                     381                          356                          7.0                     359                           6.1
    Cleaning and Security                              316                          295                          7.1                     299                           5.7
    Landscapes                                         17                           18                           (5.6)                   14                            21.4
    Spain                                              28                           24                           16.7                    27                            3.7
    Waste                                              20                           19                           5.3                     19                            5.3
 Technical Services                                    337                          287                          17.4                    326                           3.4
 CG&D                                                  237                          199                          19.1                    199                           19.1
 Communities                                           191                          163                          17.2                    196                           (2.6)
   Local Government &                              135                          118                          14.4                    147                           (8.2)

   Education and Healthcare
    Care & Custody                                     56                           45                           24.4                    49                            14.3
 Mitie Group                                           1,146                        1,005                        14.0                    1,079                         6.2

 

For further information

 Kate Heseltine                  M: +44 (0)738 443 9112  E: kate.heseltine@mitie.com (mailto:kate.heseltine@mitie.com)

 Group IR Director

 Claire Lovegrove                M: +44 (0)790 027 6400  E: claire.lovegrove@mitie.com (mailto:claire.lovegrove@mitie.com)

 Director of Corporate Affairs

 Richard Mountain                M: +44 (0)790 968 4466

 FTI Consulting

 

About Mitie

Founded in 1987, Mitie looks after the places where Britain works, and is the
leading facilities transformation company in the UK. We offer a range of
services to the public sector through our Central Government & Defence and
Communities (Local Government & Education, Healthcare and Care &
Custody) divisions. Our Technical Services (Engineering Services) and Business
Services (Security, Cleaning, Landscapes, Spain and Waste) divisions serve
private sector customers in areas such as Financial & Professional
Services, Industrials, Retail and Transport, and increasingly the public
sector.

Mitie employs 65,000 people. We take care of our customers' people and
buildings, through the 'Science of Service', and we are transforming
facilities to be more flexible, safe, sustainable, and attractive to all.
Mitie continues to execute its technology-led strategy and in the past twelve
months has received multiple industry awards including B2B Marketing Team of
the Year, Best Low Carbon Solution and Net Zero Carbon Strategy of the Year.
Targeting Net Zero by the end of 2025, our ambitious emissions reduction plans
have also been validated by the Science Based Targets initiative (SBTi). We
have been recognised as a UK Top Employer for the sixth consecutive year. Find
out more at www.mitie.com (http://www.mitie.com) .

 

 1  (#_ftnref1) Including share of JVs and associates

 2  (#_ftnref2) Net of cash acquired and excluding deferred performance-linked
consideration and earnouts

 3  (#_ftnref3) Including estimates for projects and variable works

 4  (#_ftnref4) As noted in the H1 results on 23 November 2023, Mitie reached
an agreement with its joint venture partner in Landmarc to amend the
shareholder agreement and received clearance following mandatory notification
under the UK National Security and Investment Act 2021 on 16 November 2023

 5  (#_ftnref5) Excluding the £45m impact of the closure of the Customer
Invoice Discounting facility

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