Facilities management business Mitie (MTO) has warned cash generation will be hit by higher costs of its business transformation initiative and less reliance on invoice discounting.
Operating profit met expectations, although it was ‘slightly down’ on the prior year due to investments.
Shares in Mitie fall 5% to 153.2p despite progress with a cost-saving programme called Project Helix.
The company hopes to deliver £50m in savings by March 2020, but costs for the project are expected to be £35m, up from £24m this year.
Increased costs for any impact from Brexit have been budgeted for 2018/2019, while the impact of competition on Mitie’s operations was dismissed.
ANTICIPATED STRONG SALES GROWTH
In the year to 31 March 2018, sales growth is anticipated to reach between 2% and 2.5% at £2.2bn, driven by solid performance and contract wins across all divisions.
Highlights include high project work volumes in Engineering Services, more technology content in Security and new business wins in Care & Custody.
The biggest new contract in Care & Custody is worth £525m over 10 years, which will double the size of this division.
Canaccord Genuity analyst Gert Zonneveld says the strategic initiatives should ‘significantly enhance’ Mitie’s medium-to-longer term prospects around competitiveness and profitability.
The analyst is comfortable that the company can trade within its banking covenants despite higher debt and anticipated lower cash generation.
