UPDATE 1-Mitie sells catering and hospitality unit, shares to rise

(Adds details on deal, background)

Aug 19 (Reuters) - British outsourcer Mitie Group Plc said on Monday it had agreed to sell its catering and hospitality business to CH&CO for up to 85 million pounds ($103.39 million) in cash, as it pushes ahead with moves to simplify its operations.

The sale to CH&CO, which provides catering services to Britain’s Queen Elizabeth, follows a strategic review of the business, Mitie said in a statement.

Shares in the company, going through a transformation under Chief Executive Phil Bentley after a series of profit warnings two years ago, were expected to rise 1% at opening, according to traders.

“Mitie’s strategy is to invest in our core technology-led facilities management services - such as security, cleaning and engineering services - where we have a leading market position,” Bentley said.

He said the deal with CH&CO would ensure competitive pricing for the catering unit’s customers and, for Mitie, would free up funds for reinvestment and strengthen its balance sheet.

“Net debt to core earnings should fall by 0.6 times, which is important as Mitie’s balance sheet has been a key share price driver over the past few years,” Jefferies analysts said.

Bentley has fathered a rationalisation and cost-saving drive at the company since he took over as CEO at the end of 2016.

The catering unit reported audited revenues of 136.1 million pounds and pretax profit of 4.1 million pounds in the year ended March. CH&CO will report revenue of about 300 million pounds for the year ended Dec. 31, 2018.

The staff and senior management team of Mitie Catering, will transfer to CH&CO and will continue to run the business, the company said.

The unit employs more than 3,600 people at about 330 sites across the UK and Ireland, while CH&CO employs about 6,500 people at more than 780 locations. ($1 = 0.8222 pounds) (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Arun Koyyur and Patrick Graham)