SMALLER COMPANIES: Service group set to clean up

THE building industry may be in the doldrums, but that has not prevented maintenance services group Mitie from putting together a remarkable sequence of sales and profit increases. Success has come from targeting the refurbishment market and from a highly effective system (not based on share options) for motivating management. Profits have risen seven- fold since 1990, with no sign of any loss of momentum. Rather the contrary with chairman David Telling commenting that there are signs of firming in parts of the market for the first time since the group went public at the end of the 1980s.

The business was formed in 1987 by Mr Telling, who had previously built up the HAT Group into a business with a pounds 240m turnover before it was taken over by BET in 1986. A stock market quote was obtained in 1988, when the group reversed into the cash-rich quoted "shell" company, Highgate & Job. The following year, the name was changed to Mitie.

At this stage, the business was still tiny; sales and profits for the year to 31 March 1989 were pounds l0m and pounds 353,000 respectively, against a just reported pounds 125m and pounds 4.6m. But the ambitions were already colossal, with Mr Telling nursing what, to almost anyone else, must have seemed the wildly improbable dream of building a group with a turnover of pounds 300m and 10 per cent profit margins.

Cleaning is not necessarily up there with architecture as a career choice to brag about to mates at the pub. But Mr Telling and his long-time colleague, managing director Ian Stewart, have had great success in putting together a highly motivated team that delivers high levels of service to a loyal customer base.

The key is a combination of autonomy and the ability to make serious money. Mitie (which stands for Management Incentive Through Investment in Equity) sets up private companies with groups of individuals who put in effort, contacts and cash in return for some 40 per cent of the company. Mitie holds the rest, giving it control. When the business starts to perform, the management can swap their minority for shares in Mitie, typically on a formula of 10.5 times post-tax earnings.

Some two thirds of the group's issued capital is held by management and employees, of whom 10 are paper millionaires. It is a caricature to describe what Mitie does as cleaning. It provides a whole range of maintenance, painting and engineering services for what can become sizeable clients - IBM spends approaching pounds 3m on a range of services supplied by Mitie.

Other clients, such as BHS, have also built strong relationships within the group, typically based on confidence from years of dealing with the same individuals. This can have slightly bizarre effects as nationwide customers insist on dealing with the same people - so Mitie South East can find itself called to refurbish stores in Scotland.

Much of the outperformance has come from targeting the refurbishment market. Changes of ownership, such as Sainsbury's Homebase buying Texas Homecare or legislation freeing up the betting industry to brighten up betting shops, all stimulates refurbishment spending and creates opportunities for groups such as Mitie.

A further boost should also come from the acquisition of Securicor's cleaning business, which has some pounds 10m of turnover. Mitie is notoriously lean on overheads and expects to be able to cut costs sharply at the Securicor operation.

The shares, at 238p, have already risen a long way from the low of around 70p in 1990 and may look demandingly priced on an historical p/e ratio of 19.5 and a yield of 1.6 per cent. However, the general air of confidence at board level suggests that there is still plenty of growth ahead.

Based on the first three months' trading, turnover is said to be running at pounds 160m with a further small improvement in margins expected. Last year, they rose from 3.4 per cent to 3.7 per cent. If they make it to 4 per cent, that would imply profits of pounds 6.4m for 1995/96, which is ahead of forecasts of around pounds 6.2m and would drop the p/e to 15.5.

Earnings quality is good with a solid base of recurring income and margins would still be way short of Mr Telling's targets. The shares could reach pounds 5 over the next two years.

Suggested Topics
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Life and Style
Couples have been having sex less in 2014, according to a new survey
Holly's review of Peterborough's Pizza Express quickly went viral on social media
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam