MITIE Group PLC (“MITIE”), the strategic outsourcing and energy services company, releases its Interim Management Statement for the period from 1 April 2011 to date.
MITIE has made significant progress in each of its key target markets during the year to date. We have seen good levels of organic growth in the early months of the year. Revenues and earnings are developing in line with management’s expectations. At 30 June 2011, 85% (30 June 2010: 78%) of budgeted revenues for this financial year had already been secured.
Enablers for growth
MITIE continues to see good opportunities for growth across its markets and for the development of its international strategy. Our order book is at record levels and our pipeline of opportunities remains very strong. MITIE’s ability to achieve good growth is underpinned by the following factors:
- Excellent client relationships across the public and private sector in the UK extending to a growing international portfolio
- Resilient business model with a well-diversified portfolio of sector exposures
- Energy services capability that is transforming the outsourcing model
- Market leading technology providing a competitive edge, operational excellence and market differentiation
- Significant potential for overseas growth
- Incentives at all levels to support our entrepreneurial culture
- Committed long term funding, a strong balance sheet with low gearing and no material pension deficit.
Public sector activities
In the public sector, there has been a steady flow of contract awards and retentions during the period. We remain focused on the justice, health, local authority and social housing markets which are showing a very encouraging pipeline of opportunities. Developments include:
- Appointed to the Ministry of Justice’s Total Facilities Management Framework, providing the route to bid for facilities management at courts in various regions of the country as well as two prisons
- Awarded two new technical facilities management contracts with the Royal Berkshire NHS Foundation Trust and St George’s Healthcare NHS Trust, following our appointment to the Office of Government Commerce NHS framework agreement. The contract with Royal Berkshire NHS Foundation Trust hospital has a total value of £6 million over three years, and the contract with St George’s Healthcare NHS Trust is for five years with a total value of £10 million
- This adds to our existing portfolio of services at St George’s Healthcare NHS Trust, which includes cleaning, catering and helpdesk activities bringing total current revenues to approximately £15 million per annum
- We have secured a minor works and maintenance contract with West Midlands Construction Framework for all non-housing capital expenditure and maintenance, primarily within the Birmingham City Council South Area. The contract is also available to 13 other local authorities within the West Midlands and has a four-year term with the possibility of a further two-plus-two years’ extension. The total overall contract value is anticipated to be within the range of £160-350 million
- Lewisham Homes has appointed MITIE to deliver £40 million of home improvement works to over 13,000 social housing tenants as part of a five-year Major Works Programme
- Awarded a contract to provide cleaning and environmental services at the offices of City of London, with a total value of £4 million over a three-year period.
Private sector activities
In the private sector, we have continued to win and retain work across a range of sectors. The pipeline of work remains buoyant, particularly in the financial services and retail sectors. Recent successes include:
- Our facilities and energy management contract with Rolls Royce continues to develop and now includes additional space planning, move management and project works which we estimate to have an in year value of £20 million. We now estimate that total revenues this year are to be around £80 million
- For the Airline Operators Committee at Heathrow Airport, a three-year contract to provide hold baggage screening services at terminals 1, 2, 3 and 4, with a total value of £17 million
- Security services contract including keyholding and response work for BT Group, with a total estimated value of £9 million over three years
- Retained and expanded our contract to provide integrated FM to Channel Four
- Television, with a total value of £8 million over three years
- A technical facilities management contract for WorldPay, with a total value of £6 million over three years
- For Primark stores, we have been awarded a variety of engineering services retail fit out projects for stores across the UK valued at £5 million.
Energy services activities
The energy services market is significant for MITIE. We are ranked as the second largest energy services company in the UK, with 34% of the Group’s revenues derived in this area. Our energy services proposition supports all the key energy issues faced by our clients. These include:
- Business continuity through security of supply (for example, for Waitrose and the Royal Free Hospital)
- Value through cost reduction (for example, work for the GLA)
- Reduction of carbon emissions (for example, at Ofcom)
- Renewable energy (for example, for A2 Dominion).
We have had a number of recent successes in this market. These include:
- Accepted as a partner in the NHS Carbon and Energy Fund, a £200 million capital fund which enables NHS Trusts to upgrade their energy infrastructure to save energy, carbon and money. We are currently bidding on the first projects to be let through the framework. We are one of only two companies who have been successfully selected to bid for the first four programmes
- Subject to final legal agreements (due to be completed within the next month) MITIE, Investec and Savills are to enter into a joint venture to install photovoltaic panels across social housing residences, with an initial installation of 5,000 panels and expected revenues of £35 million for MITIE. The initial installations are expected to be completed by the end of February 2012. This will be one of the largest social housing PV schemes undertaken in the UK. The scheme will provide great benefits to social landlords and their tenants by the generation of free electricity and reduction of carbon emissions
- For the London Borough of Camden, we have developed an innovative energy scheme to supply up to 1,500 council tenants with surplus heat from our energy plant at the Royal Free Hospital in Hampstead. The contract runs for a period of 15 years
- Awarded a contract to design, develop and maintain a combined heat and power decentralised energy centre for The Royal Marsden NHS Foundation Trust
- Following on from our work with the John Lewis Partnership to develop and operate a biomass energy centre at the Waitrose East Cowes store, we have been awarded another contract by Waitrose to undertake a decentralised energy project at their Bracknell store.
International strategy developments
We have made further developments in our international strategy. On 29 July, we acquired the remaining 50% of the equity share capital of Service Management International (SMI) from Klüh Service Management, based in Germany for £1.5 million. The acquisition of SMI is part of our strategy to develop MITIE’s ability to support our clients overseas and gives us an improved ability to compete for pan-European integrated FM contracts.
In August, SMI was appointed as a preferred bidder for a contract with Givaudan to provide integrated FM across several European countries, including Switzerland and Germany, for a 4-year period at a total value of £23 million.
Other SMI clients include Motorola, Honeywell, Brittany Ferries, Life Technologies and Computer Associates.
MITIE remains committed to supporting growing businesses through our £10 million Entrepreneurial Fund launched in January this year. Using our expertise in this area we see a growing opportunity to support the agenda for social enterprise and mutual share ownership structures.
In July, we joined a roster of leading companies as a founding sponsor of StartUp Britain, a Government-supported initiative to help aspiring entrepreneurs in the UK. StartUp Britain is in line with our efforts to encourage and support enterprise in the UK.
MITIE has pledged its support and commitment to back British start-ups as part of our response to the Government’s call for an ‘enterprise-led’ recovery. Over the last 23 years we have participated in over 80 successful start-ups.
There has been no material change in the Group’s financial position since 31 March 2011.
In July 2011, MITIE, as planned, completed the transition to its new banking facilities and now has in place £250 million of secured banking facilities which will fall due for renewal in September 2015, with the potential to extend that facility through an accordion arrangement to £400 million. MITIE is also funded by a further £100 million of US Private Placement loan notes that were issued in December 2010 and fall due for repayment between December 2017 and 2019.
Our current low debt levels and strong balance sheet continue to provide us with capacity for the development of organic growth and for value creating acquisitions should they arise.
Market purchase of shares
On 25 May 2011, MITIE commenced a programme to purchase its shares in the market in order to offset the planned issue of shares in late August 2011 to satisfy the consideration payable for the purchase of minority interests under the MITIE Model. Between 25 May 2011 and the close of trading on 12 August 2011, MITIE had purchased 3,560,000 shares in the market for a total consideration of £7,935,123 representing an average price of 222.9 pence per share. The highest price paid was 233.0 pence per share and the lowest price paid was 208.6 pence per share.
It is not MITIE’s current intention to operate a formal share purchase programme outside of this arrangement, although it may purchase shares to offset share scheme exercise activity at its discretion.
The financial year has started well and as expected. Whilst the global economic uncertainties continue to exist, we remain extremely positive about the range of outsourcing and energy services opportunities across all our key markets and continue to see a record order book and strong pipeline of sales opportunities. The Group is on track to continue its record of sustainable profitable growth.