September 26, 2018 / 6:26 AM / in a month

Mitie shares fall on forecast of muted profit, higher debt

(Reuters) - Mitie’s (MTO.L) shares fell as much as 8 percent on Wednesday after the British outsourcing group said it expects flat to lower operating profit and higher debt in the first half of the year, largely due to increased technology costs.

Mitie, which provides engineering, security and cleaning services to clients including Sainsbury’s (SBRY.L), Vodafone (VOD.L) and Rolls-Royce (RR.L), is focused on technology investment and employee retention in a turnaround plan.

“We see technology, especially in our core businesses, playing an increasingly important part in differentiating our service delivery and improving margins,” Mitie Chief Executive Phil Bentley said in a statement.

Mitie is investing in “connected workspace”, a platform of inter-connected products and services that help analyse data from apps, sensors and other devices to boost efficiency.

It said its operating profit forecast, which is in-line with management’s expectations, would also be hit by a softer performance in its social housing business, an unfavourable contract mix in its cleaning business and a write-off.

The company said it expects net debt to be in the range of 230 million pounds to 250 million pounds at Sept. 30, compared with 193.5 million pounds as at March 31.

And it forecast average daily net debt to be about 40 million pounds higher for the first half from 278 million pounds, a year earlier, as it paid out suppliers more quickly.

ORDER BOOK DECLINE

Bristol-based Mitie said its restructuring plan was on track and it forecast revenue growth of 2 to 3 percent for the six months to Sept. 30. However, its order book had declined slightly, as contract wins and retentions were partly offset by the delivery of long-term contracts.

Rival Carillion’s collapse in January intensified uncertainty about the future of the fiercely competitive outsourcing sector, where Mitie vies for contracts for basic services, some of the largest of which are awarded by British government bodies.

The company said it had secured contracts from local authorities, banking, industrial, transport and retail clients, and well as the NHS, Britain’s state health service.

Mitie maintained its full-year 2018-2019 expectations of “modest” revenue growth. In June, it said that growth would be less than 5 percent. It maintained its target of improving operating profit margins of 4.5 to 5.5 in the medium term.

Mitie shares were down 6.6 percent to 143.9 pence at 0819 GMT.

Reporting by Arathy S Nair in Bengaluru; Editing by Edmund Blair and Alexander Smith

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