Investment: Mitie makes more millionaires

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THE MITIE GROUP, the building and support services provider, yesterday added another chapter to its success story by posting a 30 per cent-plus profits increase for the 10th year running.

The group, which specialises in contract work for engineering and services firms, said that a rampant outsourcing market led to the 32 per cent jump in first-half profits to pounds 6.3m.

John Clifford, who was yesterday appointed joint managing director, said Mitie's activities - which range from electrical engineering to cleaning - had been largely unaffected by the economic slowdown. "We haven't felt the recession yet. The outsourcing market is still buoyant," he said.

Mitie's strategy of not undercutting rivals on price also helped to boost margins to 5 per cent from 4.4 per cent a year ago and Mr Clifford said the company planned to increase them to 7 per cent in the near future.

The City welcomed the figures, which were ahead of most analysts' expectations, and dealers pushed the shares up 2.5p to 135p. The stock has been one of the great outperformers of recent times, rising more than 90 per cent since the company's float 11 years ago.

Industry experts maintain that one of the key reasons for Mitie's success has been its innovative approach to employee share ownership.

The company has a strategy of acquiring controlling stakes in small start- ups and subsequently buying out the minority shareholders, usually the management, by giving them Mitie shares.

This has left more than 45 per cent of the group's equity in the hands of its staff, many of which have become millionaires thanks to the shares' heady run. According to Mr Clifford, the high level of shareholding employees improves efficiency and helps the managers to keep a tight control on costs. The expansion drive has also helped Mitie to cross-sell its wide range of services, becoming an outsourcing "one-stop shop".

Looking to the future, City analysts expect Mitie's growth to slow down slightly over the next six months as recession starts to bite, especially in the building division.

Andrew Ripper at broker Merrill Lynch predicts that Mitie will not celebrate 10 years of over 30 per cent profit growth. He is forecasting a 23 per cent rise in full-year earnings to pounds 14m, leaving the shares on a forward multiple of 21. However, he still rates the shares a "buy".