- Earnings helped by Covid-related contracts
- Underlying business performing ahead of expectations
- Solid balance sheet means acquisitions are back on the agenda
Shares in outsourcing firm Mitie (MTO) jumped as much as 12% to 69p in early trading after the firm posted forecast-beating results and the chief executive claimed the business had turned the corner.
While revenues and profits were flattered by Covid contracts, which are unlikely to recur this year, the underlying business looks to have strong momentum.
NON-REPEATABLE INCOME
Sales for the year to March rose 58% to £4 billion, ahead of analysts’ forecasts, while operating profits rose an even more impressive 184% to £167 million, also beating estimates.
Roughly £450 million, or a third of the uplift in sales, came from flexible, rapid-response Covid-related contracts, which are not expected to be repeated this year.
Due to their higher margins, these Covid-related contracts were also responsible for boosting operating profits last year.
However, even after stripping these contracts out, revenues were still up 40% thanks to new contract wins and good growth at former basket case Interserve, which Mitie took under its wing following insolvency.
New wins, renewals and extensions during the year amounted to a total contract value of £3.8 billion with 90% renewal rates.
The legacy Interserve business pulled its weight with 90% of contracts renewed and cost synergies of £30 million.
M&A FUELING FUTURE GROWTH
Due to the increase in profitability and a reduction in working capital, the firm enjoyed free cash inflows of £133 million against an outflow of £25 million the previous year.
Together with the disposal of the document management unit for £40 million, this meant the firm had the financial firepower to invest in faster-growing, higher-return businesses which should serve it well going forward.
Acquisitions include a clutch of telecoms maintenance companies, a security business and investments in several ‘decarbonisation’ assets which will help improve the firm’s environmental services offering.
‘Through our investment-led strategy, Mitie has reached an inflection point earlier than anticipated’, said chief executive Phil Bentley.
‘We delivered a strong financial performance with good underlying growth. The Group is now able to leverage its capital base to focus on long-term value creation, accelerating investment in growth and delivering enhanced shareholder returns.’
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