Mitie’s order book shrinks as outsourcing sector battles ‘undoubted challenges’

Mitie’s shares slid this morning as it announced its order book had thinned by around one-tenth in the last year amid tricky conditions for outsourcers.

Chief executive Phil Bentley said the decline was part of a shift towards “adding more value and services to our top clients,” as the firm continues to battle headwinds from several major failures in the outsourcing industry in the last 18 months.

Read more: Mitie profits fall as post-Carillion business costs mount

He told City A.M.: “We sense clients watching and waiting, and being a little bit more cautious with their capital programme.”

Mitie this morning said it planned to focus on winning new public sector facilities management (FM) contracts in a bid to shore up its order book, after qualifying for the government’s framework of potential suppliers for the work earlier this financial year.

Mitie provides services for public and private sector clients including security, cleaning and catering, and employs 49,000 people in the UK.

In a trading update this morning it said revenue was expected to grow between seven and eight per cent for the year ending 31 March, while net debt continues to reduce to between £160m and £180m.

Operating profit is expected to be between £84m and £87m, against £89.6m last year.

Shares initially fell eight per cent later recovered to about five per cent down, at 142.6p this afternoon.

The firm is in the second year of a turnaround implemented by Bentley, which has seen cost-saving plans put in place in several of its divisions after heavy losses in recent years.

He said the forecasts come against a backdrop of “undoubted challenges” for the outsourcing sector, which continues to reel from the dramatic collapse of Carillion in January 2018, and the administration of Interserve earlier this month.

“Everyone blames Brexit,” he told City A.M. but added that's not the only issue. “We’re cleaning on the high street, we’re repairing and maintaining properties on the high street," he said. "You’ve only got to look at what’s going on on the high street – it’s tough out there."

He added: “We do [work for] manufacturers like BMW, Toyota, rolls royce, they’re not all going gung-ho at the moment, let’s face it.”

Mitie revenues slowed in its professional services and cleaning divisions, while its security business “continued to perform well with good underlying revenue and profit growth.”

The demise of Mitie’s rival Interserve has raised fresh questions about the government’s policy of outsourcing public services to the private sector, something the Labour Party opposes.

City A.M. understands Mitie, along with competitor Serco, has been in contact with Interserve’s administrators EY about the possibility of buying its support services arm after its parent company went into administration.

This morning he told City A.M. Mitie "would be foolish" not to consider buying the £1.7bn revenue support services arm.

Read more: Mitie closes in on Interserve support services arm

Bentley is understood to be interested in a potential buyout of the arm worth between £100m and £150m, but Interserve’s owners are likely to value business at more than double this price.

Key contract wins in recent months include a £10m catering contract with Edinburgh College for the next three years, a £14.5m FM contract for Yorkshire Building Society and a £17m extension on its existing FM contract with Gatwick Airport.