Outsourcer Mitie (MTO) announced to the market on Tuesday that it is under investigation by the Financial Conduct Authority (FCA) for the timeliness of its profit warning in September last year. The FCA is also looking into the “manner of preparation and content of the company’s financial information, position and results” for its financial year ended March 2016. Mitie said it was "fully co-operating" with the investigation, and did not intend to comment further until the review was complete. The FCA declined to comment.
The announcement comes less than a month after it emerged the Financial Reporting Council is investigating accounting giant Deloitte’s audits of Mitie's financial statements for the 2015 and 2016 financial years.
Some background is useful. In March last year, Mitie warned FY2016 revenues would be below expectations as a result of increased economic pressure leading to delays and cancellations to work.
By the time the full-year results came around in May, however, the company released a fairly solid set of numbers, with the absence of one-off figures leading to a leap up in pre-tax profit.
Come September, the company warned again, saying low growth in the UK combined with labour policy and uncertainty around the EU referendum result had combined to leave the group expecting a small decline in first-half revenues, and operating profits “very significantly lower” against the historic comparative.
Since then, however, the group has carried out an accounting review, which found it was "less conservative than peers". In its FY2017 results the group reported £88m of exceptionals including restructuring costs and impairments. One of the concerns commentators, and our sell tip in August 2015, had voiced about the company was the high levels of exceptionals. Costs booked under “other items” on the balance sheet increased sharply between 2012 and 2015. Following the accounting review these have fallen, although restatements make it a complicated comparison.
The shares have since made up much of their lost ground, suggesting some support for the changes. But a degree of bearishness remains: with investors shorting at least 7 per cent of the company’s stock, according to recent FCA data.
