OUTSOURCING business Mitie Group has fallen to a loss for the six months ending September 30, after its results were weighed down by the impact of exiting high-risk projects.
However, the company was optimistic about its outlook, a view shared by analyst Andrew Gibb, of Investec, who described the interim results as "solid" overall and said his team reiterated its 'buy' recommendation.
Mitie, one of the biggest private-sector employers in Scotland with clients including Royal Bank of Scotland, posted a pretax loss for the period of £1.3 million, compared to profit of £42.8m for the same period 12 months previously.
Its shares closed at 276.70p, down by 14.50p or 4.98 per cent.
The result included items of £58.3m, up from £12.5m in the year-ago period, and excluding these, headline interim pretax profit hit £57m and £55.3m respectively.
The latest interim results' items included costs related to the company's departure from its mechanical and electrical engineering construction business. It said the exit will complete this financial year, with interim losses to September of £6.9m, "and we expect this to range between £11m and £15m for the full year".
Additionally it said it evaluated the remaining risk on the design and build contracts left in its asset management business, with exceptional charges of £45.7m incurred in the period covering all balance sheet exposures and material expected future costs.
Referring to the two exits, chief executive Ruby McGregor-Smith said: "We are very disappointed with this outcome and absolutely acknowledge that the level of operational and financial risk on these projects far exceeded our initial evaluations." She added that Mitie expects "no further exceptional charges from either of these businesses in this financial year or beyond".
Mr Gibb said that while exiting the businesses was costly, it was the "correct decision" and left the group with higher revenue visibility and lower risk.
Total revenue amounted to £1.1 billion, remaining broadly flat from the year-ago period, and net finance costs amounted to £7.2m compared to £7m 12 months previously. Operating profit reached £5.9m, from £49.8m at September 30, 2013, and looking at its latest overall interim performance, the firm said it was driven "predominantly by the private sector".
Mr Gibb said the results were led by the strength of the company's facilities management (FM) business, with core FM organic growth of 6.3 per cent.
Mitie, whose name stands for Management Incentive Through Investment Equity, highlighted that during the six months it was awarded a range of FM contracts, including retaining its integrated contract with Vodafone for a further five years, valued at £250m. It also secured a new contract for Heathrow Airport valued at £40m over three years.
In terms of outlook, Mitie said that while it continues to focus primarily on organic growth, it is "alert" to relevant acquisition opportunities, with potential in its FM and healthcare areas for purely niche/bolt-on capability as purchases of scale are not required.
On October 16 it acquired pre-employment screening and vetting business Procius for consideration of up to £2.3m.
In terms of outlook, Ms McGregor-Smith said the business has de-risked considerably, has "substantial" order book and sales pipeline, and is "in a good position to deliver growth and look ahead with confidence".
Mr Gibb said his team still believes mid-single digit organic growth is a "realistic" short-term target for the group, alongside an operating margin of about six per cent.
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