November 20, 2017 / 8:12 AM / a month ago

Outsourcer Mitie's accounts back under FRC's microscope

(Reuters) - Britain’s Financial Reporting Council (FRC) watchdog has launched a new investigation into how Mitie Group’s (MTO.L) 2015-16 financial statements were prepared and approved, the facilities management company said on Monday.

The investigation is the third recent regulatory look at the accounts of a group that has delivered a string of profit warnings as it battled to contend with rising labour costs and the expense of extracating itself from low-margin contracts taken on during the economic downturn.

Mitie said the new investigation was focused on the accountants and not the group itself and did not relate to any current directors nor Sandip Mahajan, who was replaced as chief financial officer last week, nine months after his appointment.

It also said the first of the three investigations, launched last October, had been concluded with the Financial Reporting Council taking no action.

That investigation of Mitie’s books also concerned its 2015-16 financial reporting but related chiefly to goodwill impairment issues in the healthcare business it sold in March.

Shares in the company gained 1 percent after Mitie also reported a jump in earnings, suggesting progress is being made with sweeping restructuring measures announced by Phil Bentley after he took over as chief executive last year, including an overhaul of its cleaning and engineering divisions.

Half-year adjusted operating profit rose nearly 6 percent year on year to 32.6 million pounds.

Revenue was up 3.9 percent at 959.7 million pounds, short of the 1.1 billion pounds it forecast in September. Its order book at the end of September stood at 5.93 billion pounds, up from 5.87 billion a year earlier.

    “We remain confident that (CEO) Phil Bentley will succeed with his transformation and believe that the new structure can provide a platform to consolidate once systems and management are established,” Liberum analysts wrote in a note.

    Like peers including Capita (CPI.L) and Carillion (CLLN.L), Mitie has been hit by rising labour costs after Britain’s vote to leave the European Union undermined the country’s appeal for cheap eastern European workers.

    The provider of pest control, cleaning and security services also said on Monday that it is looking to sell its property management business.

    The FRC is also conducting an investigation, announced in July, in relation to the conduct of Deloitte’s [DLTE.UL] audits of two of Mitie’s annual financial statements.

    Reporting by Arathy S Nair in Bengaluru; Editing by Jason Neely and David Goodman

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