Balance Sheet reviews, £14m charges on contract assessments, and covenants reaffirmed
Companies: Mitie Group
Mitie has warned the market today in a Trading Update following a two-day strategy meeting held by the Board.
Client deferrals and investment plan delays have put a strain on the business and pushed into Q2 2017.
The Board have highlighted underperformance in the Cleaning Division and are taking the appropriate steps, i.e., "management changes are being implemented".
The group also confirm it is performing a Balance Sheet review and has decided to take a more conservative view of some of its contracts, leading to a £14m hit to earnings:
"a more conservative judgement on contractual positions, identifying an additional £14m of one-off charges in the year"
It is not clear what precisely is driving the reduced level of forward earnings booked on the Balance Sheet, but it is likely to be either a reduced scope of existing contracts with clients or an increase in the phasing of those contracts. Either way, Management do not feel they can hold as much on the Balance Sheet anymore.
Unhelpfully, the Management indicate the underlying FY operating profit is now expected to be £60-70m, but it doesn't tell us what previous expectations were.
Looking at the half year report back in November, no explicit mention is made of expectations. The first half saw an underlying operating profit of £40m, and the outlook suggested an improvement in H2, which implies a full year expectation of at least £80m.
Furthermore, looking at consensus EPS of 17.16p in the FT website, that converts to just under £100m operating profit expectations, based on my maths. Both of these rough estimates show a real fall to current expectations.
The Group reiterates it is trading within its contractual bank covenants.
The shares have been hit heavily since the start of the new year, off 17% since year-end, and today it opened down 17%, but has since quickly recovered to down 7%.