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A Mitie push to escape stench from Carillion collapse

Tough questions are being asked of the outsourcing sector in the wake of Carillion's collapse.
Capita, the best-known player in the field, has recently tapped shareholders for €681m to pay down its debts while other operators have also found themselves under scrutiny, notably Interserve, which has also been laid low by spiralling contract costs and which in March this year extended its overdraft facility to stave off disaster.The truth, though, is that the sector is extremely diverse.The likes of Capita, much of whose contracts involve providing IT services, has very little in common with a company like Carillion or Interserve.:: Carillion liquidation to cost taxpayers €148mOr, for that matter, Mitie Group, a specialist in facilities management that employs 49,000 people in this country and whose eclectic mix of contracts includes supplying the cleaners at the House of Commons, Birmingham Airport and Celtic FC.It has been under a cloud since a profits warning in September 2016 which was followed by the appointment as chief executive of Phil Bentley, formerly CEO of the telecoms company Cable & Wireless Communications and, before that, managing director of British Gas.He has faced a number of challenges.The first and most pressing was to convince City investors Mitie's accounting practices were not bogus.
A Mitie push to escape stench from Carillion collapse

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Is Capita another Carillion?
Many of its City followers suspect it often painted too rosy a picture of the likely profitability of their contracts.Thursday was his chance to update the market on progress.
The positive news was that full year sales edged by 3.8%, to €2.2bn, while operating losses fell from €42.9m to €8.3m.It suggests, as Mr Bentley claimed, much of the heavy lifting is done and that Mitie is working harder to ensure it is paid properly for its work.The company was also frank about the ongoing challenges it faces: the days of simply growing for the sake of it, because it offered 'economies of scale', in the jargon, are over.Contracts it has had for a number of years, which have been rolled over three, four or even five times, are less profitable than they used to be as customers negotiated better terms, chipping away at Mitie's profit margin.The company has also in the recent past not been correctly assessing the risk involved with certain contracts - a key failing of Carillion's - and especially in the facilities management field in which it specialises.
A Mitie push to escape stench from Carillion collapse

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Counting the political and financial cost of Carillion's collapse
One of those challenges has been persuading customers, particularly the Government, that simply accepting the lowest bid for work merely results in a race to the bottom - and risks them without a contractor to do the work if that contractor cannot make the work pay.Or as Mr Bentley himself put it: "My sense is there's a little bit of understanding that, in the long run, it doesn't serve anyone well if the industry's on its knees."To that end, it is just possible that Carillion's collapse has concentrated the minds of ministers and civil servants that they need to pay a more realistic sum for some of the contracts they have outsourced to the private sector, or risk seeing more corporate casualties.
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Mr Bentley's longer-term challenge is to convince the City that Mitie is a more sophisticated player in outsourcing than many investors give it credit for - that it is more than just a cheapjack supplier of Mrs Mopps and can also provide more specialised, higher-margin services such as data management, lighting solutions, ensuring the resilience of IT systems.Succeed in that and Mr Bentley really will have a business to shout about.
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