GOING GREEN may not be the most original of strategies but that doesn’t make it any less lucrative. So Mitie Ruby McGregor-Smith’s decision to bet the future of her support services giant on cashing in on the trend for all things environmental has gone down well with investors.
The FTSE 250 company is still busy integrating last August’s £120m acquisition of energy management business Dalkia, which is the largest purchase the fast growing firm has made since it was founded in 1987. Despite the stalled talks at last month’s climate change conference in Copenhagen Indian-born McGregor-Smith, who moved to the UK from Lucknow in northern India when she was two, says that UK government legislation in this area will push energy efficiency up the agenda for all kinds of firms.
She says: “Dalkia is a strong player in the energy management business. This area will grow in importance in the UK as firms have to by law report and manage their carbon output. The government is designing a range of incentives that affect bottom line costs to encourage low energy use. Dalkia will be able to advise business how to cut its energy use.”
McGregor-Smith, who has led the group since March 2007, squeezed City A.M. in between a day of meetings in Boardroom One at The Churchill Hyatt Regency hotel just behind Selfridges, off Oxford Street. At 46, she is an energetic chief executive who finds it easy to make conversation.
This must stand her in good stead in an organisation that employs 54,000 people, many of whom are receptionists, cleaners, security guards and maintenance staff for the hundreds of contracts it runs across the country. These include maintaining Barclays’ and HSBC’s UK buildings, as well as the House of Commons, BAA and Eurostar. You get the impression the breezy and confident McGregor-Smith is equally at home talking to one of her cleaners as she is chatting to a board member of one the client firms Mitie works for. She describes herself as “hands on” and often joins new business pitches.
McGregor-Smith explains how the Dalkia acquisition fits into the new strategy the group has adopted over the last five years. The firm had originally operated an unusual model. It encouraged entrepreneurs to bring it ideas and if a business plan could be agreed, Mitie would take a 51 per cent stake in the business providing the financial controls and other support systems needed to run the unit.
But as Mitie ?– which is pronounced Mighty and stands for Management Incentive Through Investment Equity – grew larger and won more nationwide contracts it found it difficult to sustain such a patchwork structure.
McGregor-Smith says: “The group hit on this structure when it started. Back then, we worked on a lot of smaller local single service contracts and this way of working made sense. But now we work on a lot of national contracts and so we predominantly make traditional acquisitions.”
She explains how Dalkia fits this new criteria. She says: “We don’t look for turnaround firms. We want well-run companies with a good management. We want the management to stay with the businesses we buy. Much of the outsourcing business is built around establishing good relationships with clients. Replacing a good management team is costly and takes a lot of time.”
Mitie also bought Environmental Property Services, which repairs social housing, last November for £35m. McGregor-Smith says this fits in with her desire to boost its expertise in its public sector business, which accounts for 40 per cent of revenues. She says: “Environmental Property Services concentrates on repairing social housing. We had no such company in the south east of the country.”
Because she is busy digesting these takeovers, the Mitie boss does not see her firm making any more acquisitions until the second half of this year at the earliest. Whoever wins the election next year, she expects much more outsourcing by the public sector. In this area, Mitie operates across healthcare, education and social housing; she wants to be ready for these contracts when they come up for tender.
The Mitie way of working has added up to an impressive set of full-year results when one considers the battering the UK economy has taken. For the year to last March pre-tax profits rose 11 per cent to £78.4m on sales up eight per cent to £1.5bn. The firm said its order book now stands at £4.9bn and even managed to boost its profit margins from 5.1 per cent in 2008 to 5.3 per cent last year due to efficiencies in its largest unit: facilities management. Its two other units are property and asset management.
The firm has grown profits and sales for each of the last 22 years, and McGregor-Smith is keen not to drop the ball. She says: “We did not see much of a slowdown last year, because most of the work we do is essential.”
But she did add that over the last 12 months “there was some evidence of delayed projects in the private sector, but this has largely stabilised in recent months. However, so far there is little sign of a marked upturn this year”.
One of the things that has added to the firm’s profits is the bundling of the services it sells. Clients that take, say, its cleaners may also take its security guards for a discounted fee.
“Bundling services is about good relationships. If you do a good job in one area, that client may come back and ask you about others. If you have a new boiler fitted in your own house and that person does a good job, you are likely to ask his advise about some plumbing work you might need later.”
Currently one third of Mitie’s sales come through bundled work, McGregor-Smith says she wants to increase this to half in three years.
And despite the downturn McGregor-Smith is keen to stick to her timetable of following her international clients abroad within 18 months. But she is adamant that this will come through organic growth rather than a foreign acquisition.
McGregor-Smith says she is unfazed that the bulk of her contracts are blue collar, largely unskilled work, compared to larger rivals such as Carillion, VT Group and Serco, who take on more white collar technical work at higher margins of around eight to nine per cent. She says: “We like the blue collar end. It is day-to-day work that needs to be done.”
She takes the conversation back to her Dalkia energy management acquisition, which has boosted Mitie’s white-collar profile. With all the new green rules coming in, the idea is that the greening of UK?plc will allow her growth rates to remain strong.?If she is right, it would certainly make her the uncontested Queen of support services.
CV | RUBY MCGREGOR-SMITH
Work: Mitie: chief executive, 2007 to present; chief operating officer, 2005
to 2007; finance director 2002 to 2005.
SGI, which was subsequently sold to Babcock International, 2000 to 2002.
Serco 1991 to 2000.
BDO Stoy Hayward, starting as a trainee accountant, 1985 to 1991: “I met my husband-to-be on my first day of work there.”
Education: Kingston Polytechnic,
where she read economics
Family: Married, two children
Lives: Englefield Green, Surrey