Mitie share price rises after revealing "first wave" of 160 job cuts and extent of accounting review

Oliver Gill
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Mitie launched an accounting review into "all major balance sheet items" in January (Source: Mitie)

Outsourcing giant Mitie will take a hit of up to £50m after an accounting review unearthed issues with the way it was booking its costs.

The firm also revealed "the first wave of a new cost reduction programme" with 160 jobs already removed, a move that would cost the firm between £5m and £15m.

The writedown of between £40m and £50m relates to the year ending March 2016 and will require financial statements to be restated.

Shares in the FTSE 100 firm jumped over five per cent in early trading. Investors were buoyed by news Mitie was able to draw a line under its accounting discrepancy and on guidance the firm's full-year figures will not reveal further surprises.

Read more: The Mitie short: Hedge funds bet on more share price falls at outsourcer

Mitie announced in January it was undertaking an accounting review into "all major balance sheet items" and drafted in KPMG to help.

The review concluded that although Mitie had complied with accounting standards, the "application of percentage of completion accounting and costs of contract mobilisation is less conservative, albeit still justifiable, than others in the market".

'Slightly larger than expected'

Today's writedown news was "slightly larger than expected" according to analyst Rory McKenzie of UBS.

Meanwhile, Andrew Brooke, an analyst at RBC, said the review was "not a disaster" and highlighted the cash impact will be only £6m.

Read more: Mitie flogs its healthcare business for just £2

Mitie said its net debt position at the end of March was £146m, a fall from £178m.

Brooke added: "Whilst clearly Mitie was in a mess, the key with this statement is that trading is in line, the full-year net debt position is better than expected and the balance sheet review has been completed without any significant negative cashflow or ongoing impacts."

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