June 12, 2017 / 6:59 AM / a month ago

Mitie forecasts recovery after ditching final dividend

3 Min Read

FILE PHOTO: A passenger waits outside of Gatwick Airport in southern England, Britain, October 9, 2016. Support services company Mitie has had a contract to work with Gatwick for a number of years.Toby Melville/File Photo

(Reuters) - British outsourcing firm Mitie (MTO.L) expects to return to modest growth in underlying profit this year, citing new contracts and cost cuts after it axed its final dividend at the end of a troubled period.

The provider of pest control, cleaning, security and healthcare services reviewed its strategy and accounts after three profit warnings in a year, blaming uncertainty surrounding Brexit and rising costs.

On Monday, the company reported an operating loss of 42.9 million pounds ($54.6 million) in the year to March 31 following one-off accounting adjustments.

Chief Executive Phil Bentley, who took charge in December as part of a management overhaul, said Mitie's labour costs had hurt its competitiveness.

It now plans to automate processes in its HR, finance and workforce management departments to deliver 45 million pounds of cost efficiencies over three years, working with Microsoft (MSFT.O) as a technology partner.

Market reaction was positive, with shares gaining almost 10 percent.

Bentley, former head of UK energy supplier British Gas, said Mitie had a way to go in terms of automation compared to his previous employer.

Mitie, which employs 53,000 people, had already cut just under 200 jobs and there were indications of more to come.

"We have a lot of costs that are duplicative and we do have a lot of manual processes... If I've got people processing manual time sheets and I can get a computer to do it then that's what I'm going to do," he told Reuters.

Bentley also painted a brighter picture for the company which competes for work with companies such as Capita (CPI.L), Serco (SRP.L) and G4S (GFS.L).

"We are now focussed on the future of the business and I am encouraged that our order book has held up and our pipeline is growing," he said in the company's results statement.

Analysts said the market was giving Bentley's new management team the benefit of the doubt.

"Investors will take heart from sector peer G4S, which is about to re-enter the FTSE 100 after a major turnaround under (CEO) Ashley Almanza," said Russ Mould, investment director at AJ Bell.

"That said, the road to redemption could be a bumpy one," he added, noting sluggish growth in key markets.

Reporting by Esha Vaish in Bengaluru; editing by Louise Heavens and Keith Weir

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