UPDATE 1-Mitie expects flat organic revenue growth as public sector work slows

(Adds detail on results, background)

Jan 30 (Reuters) - British outsourcing firm Mitie Group Plc said on Thursday it expects annual organic revenue growth to be flat as public sector activity slowed and it reduced spending on its largest division.

In November, Mitie had warned of an impact to its revenue growth due to economic uncertainty induced by Brexit and December elections, prompting clients to hold back on committing to new projects.

Mitie, recently deemed an approved government supplier, said public sector work, which contributes about 30% of revenue, has been “comparatively softer”.

In the first nine months of the fiscal year, organic revenue growth was flat as it reduced footprint in continental Europe and reduced spending in its technical services unit, which houses engineering services that manages some of London’s landmarks, high street buildings and homes.

Mitie is undergoing its second phase of transformation dubbed “project forte”, a two-year programme that is expected to deliver cost benefits, with particular focus on its largest revenue contributor — engineering services.

Under Chief Executive Officer Phil Bentley, who took charge at the end of 2016, Mitie has embarked on a cost-savings drive to revive its fortunes. It had reviewed its strategy and accounts after a string of profit warnings in 2016.

Earnings for 2020 and 2021 are expected to be in line with its prior forecast, Mitie said. Average daily net debt in the third quarter fell by 69 million pounds ($90.69 million) on a pre-IFRS16 basis. ($1 = 0.7608 pounds) (Reporting by Yadarisa Shabong in Bengaluru; editing by Uttaresh.V)