Mitie chief executive Phil Bentley: Contractors must bolster balance sheets to absorb Carillion-style “knocks”
Britain’s beleaguered contracting sector must shore up their balance sheets to weather a Carillion-style storm, the boss of support services giant Mitie has said.
Capita was the latest contractor to suffer at the hands of investors. Shares almost halved last week after it revealed an operational turnaround and warned on profits.
And the likes of Interserve and Mitie have been the victim of volatile trading as concerns mount they could be in line for the same sort of mammoth contract write-downs that put Carillion on the path to failure last month.
Mitie, which employs over 60,000 people worldwide, has seen its stock market valuation almost half since July last year.
Phil Bentley, Mitie’s chief executive, told City A.M. Carillion was operating with wafer-thin margins, exposing it to “cost overrun risk”.
“The balance sheet ultimately that could not take the knocks,” he said.
Most CEOs [in the contracting sector] are now saying: ‘We’ve got to have less leverage in our balance sheet. We have more headroom for our equity base to take the knocks.’
Read more: Carillion’s banks were left on the sidelines while shares plummeted
Accounting “interpretations”
The catalyst to Mitie’s malaise was a big write-down on one contract that saw profits restated from £129m to a loss of £6m.
Bentley said the firm had stopped the “interpretations” of accounting rules that allowed profits to be decoupled from cash flow and was regularly reviewing contracts with the help of forensic accountants.
Meanwhile, the Mitie chief rejected criticism of the government not stepping in to bail out Carillion.
“As far as I am aware, no-one put a gun to the head of Carillion and said sign here. I am a little sceptical about the argument that the government are to blame here. They are looking for value for the taxpayer.”
Had some of Carillion’s major projects been in the public sector the taxpayer would have had to pick up the bill for over-runs of hundreds of millions of pounds, he said.
[The public] should be delighted that the bankers and equity holders of Carillion paid for the over-run, not the taxpayer.
Bentley insisted Mitie’s business is fundamentally different from its rivals because it is paid on an input rather than output measure. For example, its contracts are often based on delivering a specific number of working hours (cleaning or servicing), rather than guaranteeing delivery of an overall project or service.
Read more: Contractor concerns weigh heavy on Mitie and Interserve