TIDMMTO
RNS Number : 9360Y
MITIE Group PLC
23 May 2016
Mitie Group plc
Preliminary announcement of results for the year ended 31 March
2016
Financial highlights
2016 2015 yoy %
change
-------------------------------- ----------- ----------- -------
Revenue GBP2,231.9m GBP2,273.8m -1.8
Operating profit before other
items* GBP128.9m GBP128.6m +0.2
Operating profit GBP112.5m GBP56.0m +100.9
Profit before tax GBP96.8m GBP41.5m +133.3
Earnings per share before other
items* 25.0p 24.8p +0.8
Basic earnings per share 21.3p 9.7p +119.6
Dividend per share 12.1p 11.7p +3.4
-------------------------------- ----------- ----------- -------
h Operating profit before other items of GBP128.9m, generating a
5.8% margin (2015: GBP128.6m, 5.7%)
h Operating profit has grown 100.9% to GBP112.5m, generating basic EPS growth of 119.6%
h Strong dividend growth of 3.4% to 12.1 pence per share
h Cash conversion of 75.2% (2015: 126.5%); five-year average 100.3%
h Net debt of GBP178.3m or 1.2x EBITDA (2015: GBP177.8m)
Good overall progress
h Good performance in Facilities Management business (84% of
group revenues); very strong operating profit margin of 6.3%
h Market leading integrated FM business accounts for one-third
of revenues and after a successful period of retentions and
extensions, have no major rebids until 2019; this underpins the
strength of our long-term prospects
h Revenue growth in FY16 was impacted by lower discretionary and
project spend, as well as some delayed starts on new contracts
h Recent flow of new FM contract awards will see a return to modest revenue growth in FY17
h Property Management business (13% of group revenues) delivered
good growth and substantial margin improvement
h Recovery underway in Healthcare business (3% of group revenues)
Capital allocation
h We prioritise the use of our cash to: invest for organic
growth; acquire small bolt-on businesses; grow dividends at least
in line with the underlying earnings of the group; and buy back
shares to offset share issues under share schemes and the Mitie
model
h In addition, we are initiating a buyback programme to return
surplus cash to shareholders whilst maintaining modest year-end
gearing levels of between 1 to 1.5x EBITDA; this will be up to
GBP20m in the financial year ending March 2017 and will be reviewed
annually going forward. Shares purchased will be cancelled
Well positioned for the future
h 82% of 2016/17 budgeted revenue secured (prior year: 85%)
h Sales pipeline buoyant at GBP9.1bn (2015: GBP9.7bn) and order
book remains strong at GBP8.5bn (2015: GBP9.0bn)
h We remain the number one FM provider in the UK and continue to
see a good range of opportunities, particularly in the private
sector where our partnership model and technology-led approach sets
us apart
Ruby McGregor-Smith, Chief Executive of Mitie Group plc,
commented:
"Mitie has had a good year, with strong margins and profits. I
am delighted that the dividend is increasing for the 27(th)
consecutive year.
"We are a pure services business with a strong position in our
chosen markets. We operate long-term contracts for a blue chip
client base and are well diversified across the private and public
sectors.
"Our business model is flexible, resilient, low risk and has
proven to be responsive to client needs and market conditions over
three decades.
"We continue to see a range of good outsourcing opportunities
across our key markets and anticipate modest growth in the coming
year. We remain positive about the group's prospects for the
future."
* Other items are described in Note 3
For further information please contact:
Erica Lockhart, Executive Affairs Director
M: +44 (0) 7979 784488 E: erica.lockhart@mitie.com
John Telling, Group Corporate Affairs Director
M: +44 (0) 7979 701006 E: john.telling@mitie.com
Mitie will be presenting its preliminary results for the year
ended 31 March 2016 at 09.30 on Monday 23 May 2016. A live webcast
of the presentation will be available online at
www.mitie.com/investors at 09.30. The recorded webcast of the
presentation and a copy of the accompanying slides will also be
available on our website later in the day. Mitie expects to publish
its Annual Report and Accounts (containing financial statements
that comply with IFRS) in June 2016 and copies will be available
from Mitie's registered office and on its website www.mitie.com.
Mitie's Annual General Meeting will take place at 11.30 on 12 July
2016.
Legal disclaimer
This announcement contains forward-looking statements. Such
statements do not relate strictly to historical facts and can be
identified by the use of words such as 'anticipate', 'expect',
'intend', 'will', 'project', 'plan', and 'believe' and other words
of similar meaning in connection with any discussion of future
events. These statements are made by the Directors of Mitie in good
faith based on the information available to them as at 23 May 2016
and will not be updated during the year. These statements, by their
nature, involve risk and uncertainty because they relate to, and
depend upon, events that may or may not occur in the future. Actual
events may differ materially from those expressed or implied in
this document and accordingly all such statements should be treated
with caution. Nothing in this document should be construed as a
profit forecast.
Except as required by law, Mitie is under no obligation to
update or keep current the forward-looking statements contained in
this report or to correct any inaccuracies which may become
apparent in such forward-looking statements.
High resolution images are available for the media to download
free of charge from www.flickr.com/Mitie_group_plc
Overview
This has been a year of good overall progress for Mitie. We have
had a steady flow of new contract awards and have now successfully
re-bid or extended all of our major integrated facilities
management contracts. Although we faced some unanticipated
macroeconomic headwinds that impacted sales growth, we have
maintained strong margins, and good operating profit before other
items. Cash conversion remains high and we have achieved
substantial growth in earnings per share.
The short-term momentum of the business has been impacted by a
number of economic pressures during the year. These include lower
UK growth rates, further government spending cuts, increasing
labour costs and uncertainty relating to the upcoming EU
referendum. Despite these economic pressures, we have made good
progress and demonstrated what a truly resilient business model we
have.
Our FM business continues to perform well, particularly in the
area of integrated FM where we have successfully re-bid or extended
all of our major integrated contracts until at least 2019.
Significant new contracts have also been secured with Deloitte,
Thales, dmg media, NHS Property Services, CTIL and Ladbrokes with a
combined annual value in excess of GBP80m. Revenues were slightly
lower than the prior year, partly due to new contract awards being
mobilised late in the financial year, and also as a result of some
project works being delayed or cancelled. However, with new
contracts starting in the new financial year, a good pipeline of
sales opportunities and a number one market position in the UK, we
are positive about the potential for long-term growth.
We have seen growth in our property management business and
although healthcare had a challenging year, we continue to see
positive long-term opportunities.
We have focused our efforts on what we do best. We have
supported our clients as times become tougher by innovating and
introducing new outsourcing models. Our customer proposition is
constantly evolving to meet client needs and we are adept at
incorporating technology to improve our management of property,
workplaces and people services.
Results
During the year, revenue decreased by 1.8% to GBP2,231.9m (2015:
GBP2,273.8m). Operating profit before other items increased by 0.2%
to GBP128.9m (2015: GBP128.6m), reflecting a margin of 5.8% (2015:
5.7%). Profit before tax increased by 133.3% to GBP96.8m (2015:
GBP41.5m) and earnings per share before other items increased by
0.8% to 25.0p (2015: 24.8p). Earnings per share has increased by
119.6% to 21.3p (2015: 9.7p).
Cash generation remained good, with cash inflows from operations
of GBP114.6m (2015: GBP113.2m), representing conversion of EBITDA
to cash of 75.2% (2015: 126.5%). The balance sheet is robust with
net debt at the year-end of GBP178.3m or 1.2x EBITDA before other
items (2015: GBP177.8m or 1.2x).
Our order book remains strong at GBP8.5bn (2015: GBP9.0bn). Our
sales pipeline currently stands at GBP9.1bn (2015: GBP9.7bn) and
our forward revenue visibility is good, with contracted revenue for
the year ending 31 March 2017 at 82% of budgeted revenue (prior
year: 85%).
Dividend
The Board's policy is to grow the dividend at least in line with
the underlying earnings of the group, while maintaining dividend
cover at a prudent level. The final dividend proposed by the Board
has increased by 3.1% to 6.7p per share (2015: 6.5p per share),
bringing the full year dividend to 12.1p per share (2015: 11.7p per
share), an increase of 3.4%. This represents 27 years of
consecutive dividend growth, demonstrating our resilient business
model and consistent cash generation. Subject to shareholder
approval at the Annual General Meeting, the dividend will be paid
on 4 August 2016 to shareholders on the register at 24 June
2016.
Capital allocation
We are focused on returning sustainable, long-term value for our
shareholders and as part of that we take a disciplined approach to
capital allocation. First and foremost, we invest in working
capital to support the organic growth of the business. We will also
continue to make small, bolt-on acquisitions that add capability to
our offering, as well as grow our dividend in line with the policy
outlined above. We have a track record of buying back shares to
offset share issues under share schemes and the Mitie model, and
this policy will continue in the future.
In addition, we are initiating a buyback programme to return
surplus cash to shareholders, whilst maintaining modest year end
gearing levels of 1 to 1.5x EBITDA. This will be up to GBP20m in
the current financial year and will be reviewed annually going
forward. Shares purchased will be cancelled.
Outlook
Mitie is in a strong position. Our business model is flexible
and resilient and has proven to be responsive to client needs and
market conditions over three decades. We have a blue chip client
base, are well diversified across the private and public sectors
and we have an experienced and stable management team.
Our focus remains on generating value for shareholders, with
profits backed by strong cash flows, whilst maintaining a robust
balance sheet and margins within our target range.
We have a substantial order book and sales pipeline. We continue
to see a range of good outsourcing opportunities across our key
markets and anticipate modest growth in the new financial year. We
remain positive about the prospects for the group's future.
Operating review
Facilities Management
Our FM business comprises two divisions. Soft FM includes
cleaning and environmental services, security, catering and front
of house services. Hard FM provides a range of technical, building
maintenance and energy services. We bring these services together
with property consultancy and data analysis in a single tailored
proposition that we call Integrated Facilities Management. As all
of the services in our integrated FM contracts are delivered by our
FM businesses, we include relevant revenue and profits on these
contracts within Hard and Soft FM below.
2016 2015 Growth
------------------------------------- ----------- ----------- -------
Revenue
------------------------------------- ----------- ----------- -------
Soft FM GBP1,255.1m GBP1,280.3m (2.0%)
------------------------------------- ----------- ----------- -------
Hard FM GBP618.4m GBP621.1m (0.4%)
------------------------------------- ----------- ----------- -------
GBP1,873.5m GBP1,901.4m (1.5%)
------------------------------------- ----------- ----------- -------
Operating profit before other items
------------------------------------- ----------- ----------- -------
Soft FM GBP85.4m GBP81.9m 4.3%
------------------------------------- ----------- ----------- -------
Hard FM GBP31.7m GBP31.4m 1.0%
------------------------------------- ----------- ----------- -------
GBP117.1m GBP113.3m 3.4%
------------------------------------- ----------- ----------- -------
Operating profit margin before other
items
------------------------------------- ----------- ----------- -------
Soft FM 6.8% 6.4% +0.4ppt
------------------------------------- ----------- ----------- -------
Hard FM 5.1% 5.1% -
------------------------------------- ----------- ----------- -------
6.3% 6.0% +0.3ppt
===================================== =========== =========== =======
Order book GBP7.2bn GBP7.6bn (5.3)%
------------------------------------- ----------- ----------- -------
Key contract awards:
Total Time
Client value frame
-------------------------------------------------- ------- --------
Dixons Carphone
A new FM service contract to provide premises
management, maintenance, cleaning, security
and front of house for key non-retail locations GBP10m 3 years
-------------------------------------------------- ------- --------
JLL - Property and Asset Management
Awarded multiple soft and hard FM contracts
for Investor Client property portfolios 3 +
across UK. GBP100m 2 years
-------------------------------------------------- ------- --------
Sky
Extended contract term by five years and
changed scope with Europe's leading entertainment
company. Mitie will continue to provide
a range of services including, mechanical
and electrical maintenance, and security,
front of house, cleaning, helpdesk, switchboard,
mailroom management and waste management. GBP190m 8 years
-------------------------------------------------- ------- --------
Deloitte LLP
Appointed to deliver the complete range
of FM services, including cleaning, security,
landscaping, pest control, waste management,
health and safety management, energy consultancy
and helpdesk services across Deloitte's
entire UK estate GBP40m 5 years
-------------------------------------------------- ------- --------
Developments during the year
Our FM businesses had a strong year, with a 93% contract
retention rate and some notable successes. We broadly maintained
revenues and profits despite a shortfall in project work, due to
our success in winning a number of new contracts.
The macroeconomic backdrop in the UK limited our growth during
the year, as clients changed their spending patterns. In the first
few months of the year, we saw organisations delaying decisions on
projects until after the UK general election. Following the
election, the private sector resumed activity at a healthy rate but
the public sector retained its focus on reducing the deficit and
cutting expenditure. In the second half of the year, our markets
experienced general uncertainty, following the Government's
decision to hold a referendum on the UK's membership of the EU.
Together, these factors combined to cause a number of our clients
to either delay or cancel projects until after the referendum.
While the day-to-day services that we provide continued as
expected, there was some reduction in discretionary spend and
projects. In response, we took prompt action and removed any
discretionary items of expenditure from our budgets, and also
delayed or cancelled some of our own projects. These actions
enabled us to maintain a healthy level of profitability across FM
as a whole.
Another major factor this year was the impact of a series of
initiatives by the UK Government that will result in significant
increases to the cost of employing people over the next few years,
especially people on lower incomes. Our response is to engage with
our clients and discuss the possible options in detail, before
implementing the necessary changes. The actions that we take vary
depending upon the circumstances of each individual client. While
some clients are able to afford and pass on any increases, many are
not able to do so. In these instances we work with them to identify
changes to either the quantity or scope of services that we
provide. Another option that we are finding increasingly
appropriate is to increase the extent to which we use technology to
support our service delivery. Recent innovations mean that we are
now able to track more accurately the needs of our clients, both in
terms of the buildings they occupy and the people who use them.
Integrated FM
Key contract awards:
Total Time
Client value frame
-------------------------------------------------- ------ -------
dmg media
Multi-year FM contract with increased scope
that will see Mitie add mechanical and electrical
maintenance, front of house, mailroom and
logistic services to its existing security
and cleaning service offering. GBP30m 5 years
-------------------------------------------------- ------ -------
Thales UK Ltd
New contract to deliver a range of IFM services
across Thales Group's entire UK estate. GBP40m 5 years
-------------------------------------------------- ------ -------
Rolls-Royce
Successfully re-bid the facilities management
of Rolls-Royce's UK and specific European
properties. ND ND
-------------------------------------------------- ------ -------
RWE npower
Successfully re-bid contract with leading
energy company to provide a number of services
including cleaning, security, waste management,
reprographics, space planning, mechanical
and electrical maintenance, pest control,
mailroom management and drink and snack 3+2
vending. ND years
-------------------------------------------------- ------ -------
In addition to providing services, our Integrated Facilities
Management (IFM) business manages and develops contracts where we
manage those services, using technology to analyse data in order to
improve efficiency and support our clients' property strategies. We
currently manage 19 IFM accounts in the public and private sector
across the UK and Ireland (with 4% of its revenue coming from the
rest of Europe), representing total revenue for Mitie of
GBP745m.
During the year we achieved excellent results in contract
retentions, where we have successfully extended all our major
private sector contracts over the last 12 months. There are no
significant re-bids in this portfolio over the medium term. In the
public sector, we extended our contract term and scope with the
Cumbrian Collaboration until 2019.
We successfully re-bid our contract to deliver pan-European
integrated FM services for Rolls-Royce. This was the largest
contract out to tender during this financial year and we are
delighted to be continuing a relationship that first began in 1992,
when we provided a single service to Rolls-Royce in the UK.
We also extended the term and scope of our integrated FM
contract with Sky for an additional five years. We have supported
Sky's operations since 2012 and the new agreement, under which we
will provide integrated FM across Sky's entire estate in the UK and
Ireland, will extend our partnership to 2021 and generate total
revenues of GBP190m.
In addition, we successfully re-bid our integrated FM contract
with RWE npower and were awarded a new contract to provide
integrated FM for dmg media, building on our existing work
providing security services to the group.
Our success in developing existing client relationships has been
complemented by a range of service contracts for new clients,
including three significant integrated FM contracts. Each of these
contracts is valued at around GBP40m over five years and includes
the potential for additional reactive and project works. In the
finance sector, we will deliver a wide range of services for
Deloitte, across 34 sites and over 1.3m square feet of office
space. We were also awarded a contract to provide services to over
300 UK branches of a new high street bank. In the industrial
sector, we have been awarded a new contract to provide services
across the UK estate of Thales Group.
Our approach to IFM is to be selective about the opportunities
we bid. We have a preference for the private sector due to the
greater volume of IFM opportunities, faster procurement turnarounds
and the sector's balanced approach to risk transfer, as well as its
ability to develop stable long-term relationships.
Our methodology is to:
1. Retain and expand service scope to current IFM clients
2. Develop single/ bundled current service provision into IFM
contracts
3. Identify and target new outsourcing clients in key
sectors
4. Develop our international capability to service current
clients overseas
Our IFM proposition is based on:
-- an experienced management team to integrate the contracts,
provide one point of contact and lead at a strategic level -
providing value-add advice beyond day-to-day operations and
enabling a thin client interface;
-- 95% in-house service delivery - offering expertise on tap,
consistency, flexibility and no people duplication or margin on
margin; and
-- quality technology and data to enable greater strategic
decision-making around the total cost of property ownership and
occupation.
Our IFM clients are at the heart of Mitie's future development
and we foster very strong relationships with them. Partnering and
relationship building are key aspects of our operational expertise,
reflecting the size and scope of the contracts we manage. In many
cases we see these relationships developing and leading to our team
being established as trusted advisors. Alongside the significant
investment of senior and experienced resource for our contracts, we
also carry out Miclient campaign reviews which support the
retention and extension of current relationships. These campaigns
help us focus on the importance of contract retention and ensure we
contribute to and improve our performance in this area. Each
contract features targets which we strive to achieve. In addition,
our award-winning top level executive relationship programme helps
establish and build relationships with property and facilities
directors from current clients as well as prospects at a strategic
level. We also conduct regular surveys that help us to gain a
deeper understanding of advocacy, pinch points and strengths and
weaknesses which are used as a robust feedback loop. Finally,
senior members of the IFM Board and Mitie's Executive Board
regularly spend time with our largest clients, developing strategic
relationships at the highest level and making sure that these
clients' concerns and priorities are understood.
We work hard to deepen our relationships with our IFM clients,
including through the services provided by our property consultancy
business, Source8. In addition to the advisory and business support
services Source8 provides to corporate and governmental
organisations on implementing real estate, technology and risk
management, the business is now supporting some of our IFM clients
across their global property portfolios. This is enabling us to
execute our strategy of following our clients internationally, and
will be an important area for us in the years to come.
Soft FM: Cleaning
Key contract awards:
Total Time
Client value frame
----------------------------------------------- -------- -------
Farnborough International Air Show
A new contract to provide cleaning services
at the Farnborough International Air Show GBP3m 5 years
----------------------------------------------- -------- -------
Chelsea Harbour Ltd
Secured a contract to provide manned security
and cleaning services across its large
estate. GBP7.5m 5 years
----------------------------------------------- -------- -------
Transport For London (TfL)
Successfully re-bid street furniture cleaning
and maintenance contract with Transport
for London. GBP16.5m 5 years
----------------------------------------------- -------- -------
St George's University Hospitals NHS Foundation
Trust
Extended the term and scope of our contract
to deliver a full suite of soft FM services
in-house and under one management team GBP33m 3 years
----------------------------------------------- -------- -------
The cleaning business has had a solid year, supported by the
benefits of shifting the business to a more innovative
technology-based service.
The structure of this business features regional operations
across the UK together with business units specialising in
different market sectors such as transport, leisure, retail,
manufacturing and healthcare. We are the largest daily office
cleaning business in the UK and also the number one events cleaning
business - in fact our people clean over 20 million square feet of
retail space every day.
In the healthcare sector we have over 3,000 people providing FM
services including domestic cleaning, clinical cleaning, patient
dining, portering, retail restaurants, linen, helpdesk, waste and
recycling, post room, materials, reception, grounds maintenance,
pest control and security. We prepare and serve over two million
patient meals a year.
The manufacturing team also employs around 3,000 people who
provide FM services, including heavy duty industrial cleaning and
window cleaning. The scope of the contracts operation includes
motor manufacturing, heavy engineering, food manufacturing and
distribution centres - all highly specialist areas that require
dedicated teams and management.
Our cleaning business is differentiated by the degree of
innovation that we bring to the market. For example, we were the
first to use microfibre technology, an early adopter of vacuum
back-packs and among the first to rigorously enforce ethical
procurement policies for uniform suppliers. We were the first to
set up independent lean Six Sigma applications, with our own lean
software and Lean Academy. We are now taking cleaning to the next
level of innovation by investing in and implementing automation,
wearable technology, apps focusing on quality, telemetrics,
intelligent sensors and real-time energy meterage together with
liquid glass and ozone technology.
All these technologies are brought together in our business
management system Workplace +, which links workplace planning,
traceability and accountability with cloud-based productivity,
auditing and reporting systems.
New contracts awarded during the year included Virgin Atlantic,
Westfield, Chelsea Harbour and TfL, while we extended the term and
scope of our contract with BMW and successfully re-bid Canary
Wharf.
For the year ahead, we will be launching a new technical
cleaning services business across the UK to expand our flooring,
windows and industrial cleaning offer - an area where we see good
potential for growth.
Soft FM: Environmental services
Key contract awards:
Client Total Time
value frame
---------------------------------------------- ------ -------
Network Rail Ltd ND 7 years
A new contract with Network Rail to provide
environmental on-track support services
which will see Mitie deliver a unique,
combined service incorporating trackside
pest control, fly tipping clearance and
sanitation support.
---------------------------------------------- ------ -------
Lucozade Ribena Suntory ND 3 years
Appointed by the soft drinks manufacturer
to provide complete waste management services
across its entire UK estate
---------------------------------------------- ------ -------
Hull and East Yorkshire Hospitals NHS Trust ND 5 years
Secured a contract to provide waste services
across the hospital
---------------------------------------------- ------ -------
Our environmental services comprise landscaping, pest control
and waste management.
Landscapes enjoyed a successful year, with highlights including
the implementation of a major contract with JLL, new contracts with
NHS Property Services and National Grid and the successful re-bid
of contracts with CBRE and BNP Paribas. The business also launched
a new look and feel for its brand and developed a customer portal.
Sectors targeted for the year ahead include managing agents,
retail, distribution, utilities and leisure.
Waste management made good progress, with its market-leading
offering that enables clients to realise significant cost benefits
at the same time as exceeding their sustainability objectives. It
benefits from a differentiated approach that blends waste
minimisation, reuse and resource resale, supported by efficient
disposal only where necessary. The business was awarded contracts
with Lucozade Ribena Suntory and Network Rail during the year and
successfully re-bid its biggest contract with Novartis. Target
sectors include FMCG, automotive, pharmaceuticals and retail.
Pest Control continues to innovate in its market, winning awards
for the high standard of its technicians as well as for quality.
Following investment in its PestAlert system, the business now uses
drones to survey some sites. Pest Control was awarded contracts
with Network Rail, NHS Property Services and Onestop during the
year while extending the term and scope of our contract with Bourne
Leisure. Target sectors include food manufacturing, retail and
distribution.
Soft FM: Security
Key contract awards:
Client Total Time
value frame
============================================ ====== =======
Aberdeen Harbour Ltd ND 3 years
A new contract to deliver security services
across four key areas of one of the busiest
ports in the UK.
============================================ ====== =======
NuGen ND 3 years
Appointed by the UK nuclear company to
provide security personnel at three of
its sites.
============================================ ====== =======
Belfast City Airport GBP6m 3 years
A new contract to deliver security services
at Belfast City Airport
============================================ ====== =======
Major retailer GBP50m 4 years
A new contract to provide security services
across a leading retailer's 500 stores.
============================================ ====== =======
Scottish & Southern Energy PLC ND 3 years
A new contract to provide 24 hour security
personnel across its UK wide portfolio.
============================================ ====== =======
Our security business performed well during the year. Although
margin pressure continued in the manned guarding market, we are
pleased that this was offset by the successful development of
technology, vetting, systems and mobile services. We expect this
change in mix to continue in the years ahead.
We have launched an emergency services business which will
provide emergency security and mobile services, and will be
introducing more technology driven services to detect security
threats and protect properties with either fixed or mobile CCTV. We
are also looking to develop our car park management services.
The year's major contract awards included an agreement with a
large food retailer, where we are adopting a risk-based deployment
model utilising software and handheld technology to capture
incidents and analyse data. The contract will have a dedicated pod
in our Mitec centre for remote CCTV and BMS monitoring. We will
also be providing protection for lone and vulnerable workers and
providing specialist risk management services. In line with our
commitment to greater use of technology, we will be using a mobile
and detection model for the contract with the National Grid, with
an emphasis on protecting unoccupied buildings.
The business successfully re-bid a number of contracts during
the year, including those with Citibank, Channel 4, Financial
Times, Pearson and Coventry University.
Procius, our employment screening business, continues to deliver
good growth and is now established as one of the UK's largest
providers of pre-employment screening, competency management and
criminal records checking services. Procius provides services
though a central software platform, MyCheck(TM), which has
increased productivity significantly and enabled us to attract new
clients such as New Look, Home Retail Group and Eversheds. We will
shortly be launching an online service to support organisations
seeking to provide references for ex-employees.
Our document management business made good progress in the year.
It started the first outsourced print room for a magic circle law
firm, delivering both hybrid and digital mail solutions from our
offsite facilities in London and Birmingham. We have rolled out our
new Pinpoint tracking software across multiple sites for both
public and private sector clients and, in addition, launched and
delivered our Lean consultancy services across a number of
customers and their portfolios.
Soft FM: Catering and front of house
Key contract awards:
Total Time
Client value frame
-------------------------------------------- ------- -------
Capita
Expanded the scope of a contract to provide
catering at Capita's key offices GBP2.3m 3 years
-------------------------------------------- ------- -------
Vodafone
New contract that will see Gather & Gather
cater for 9,000 Vodafone employees every
day across 12 locations across the UK. GBP40m 5 years
-------------------------------------------- ------- -------
LinkedIn
Gather & Gather awarded a new contract
to provide catering to LinkedIn's EMEA
Head Office in Dublin. ND 3 years
-------------------------------------------- ------- -------
London South Bank University
Successfully re-bid a contract to provide
reception and student information services
across the London campus. GBP2.5m 3 years
-------------------------------------------- ------- -------
Following two years of dramatic growth, the Gather & Gather
brand now has a substantial presence in the market. We were awarded
a new five-year, GBP40m contract with Vodafone, consolidating the
group's position as a leading IFM provider. Gather & Gather
also successfully expanded its catering operations in Europe,
including in Germany, following the successful re-bid of the
Rolls-Royce contract. In Ireland, the business grew revenues by
GBP7m, boosted by key new contracts such as LinkedIn and Eircom.
Other successes during the year included Laithwaites Wine and
Primark.
Our approach is to create food with personality and attitude,
served by people who are passionate about food as well as the
quality of service they provide. Sourcing of ingredients is a key
part of the Gather & Gather ethos, with local and sustainable
always being the preferred option. We pay particular attention to
how the food we serve impacts upon the productivity of the people
who eat it. We want to be a part of what makes a successful
productive workplace that helps our clients to attract and retain
the best people.
Sustainability is a big focus area for the business, and we
successfully moved from 2 stars to the maximum 3 star
sustainability champion rating from the Sustainable Restaurant
Association. We also made significant investments in driving
technology solutions across the business, including the launch of
the Gather & Gather app.
In 2015 we completed the full acquisition of Creativevents,
having initially acquired 51% of the business in 2012.
Creativevents provides food and beverage services at leisure and
entertainment venues, outdoor festivals and corporate events. It
reported a good year, securing a number of new events and
festivals, as well as a new visitor cafe at The Shard.
Client Services, our business specialising in front-of-house
reception services and switchboards, has enjoyed strong retention
successes and is looking forward to a successful 2016 under the
leadership of new MD Conrad Dean, who came through Mitie's highly
successful development academy.
Hard FM
Key contract awards:
Total Time
Client value frame
----------------------------------------------- ------- -------
Cornerstone Telecommunications Infrastructure
Ltd
A new contract to manage the network sites
for CTIL, a joint venture between Vodafone
UK and O2 (Telefonica), to consolidate
their sites to create a single grid. The
contract will see Mitie deliver FM maintenance
services to the network, covering the entire
UK. GBP70m 5 years
----------------------------------------------- ------- -------
Red Bull Racing
A new contract to provide hard FM services
to Red Bull Racing in Milton Keynes. ND ND
----------------------------------------------- ------- -------
NHS Property Services
Appointed by NHS Property Services to supply
its Hard FM services of Mechanical and
Electrical (M&E) and Building Fabric at 3+1+1
locations across England. GBP100m years
----------------------------------------------- ------- -------
The Hard FM business delivers a range of technical building and
maintenance services across most market sectors in the UK. We are
the largest such organisation in the UK and work closely with our
clients to manage their maintenance and energy expenditure.
The year saw a reduction in the number of projects, for reasons
previously outlined. Due to this change in business mix, with a
smaller proportion of revenues generated by higher-margin variable
project works, profitability of this division was negatively
impacted. However, we delivered revenues broadly in line with last
year due to a steady stream of contract successes.
We were recently awarded a contract worth up to GBP100m over
five years with NHS Property Services, a private company set up by
the Department of Health to manage all the ex-primary care trust
estates. Following a client-led rationalisation of suppliers, we
will be providing hard FM, security, landscaping and pest control.
We will be conducting extensive asset and facet surveys, and will
use our patented technology to manage, monitor and report on all
maintenance and project works.
We have also been awarded a five-year contract with Cornerstone
Telecommunications Infrastructure Ltd, a joint venture between
Vodafone UK and O2(Telefonica) to manage the network sites for both
companies, and consolidate a number of sites to create a single
grid. The contract is valued at more than GBP70m over five years
and will see Mitie deliver hard FM services to the network of over
20,000 cell mast sites across the UK. We will use our unique
dashboard asset management software, Direct Audits, to provide real
time contract and asset data.
We also successfully re-bid our contract with Ladbrokes during
the year, which is valued at more than GBP80m over five years. We
will provide a range of services including hard FM, complaint
management and other soft services to over 2,000 retail outlets and
offices. In addition, Dixons Carphone awarded us a five-year
bundled contract which includes hard FM and other soft
services.
Our energy consulting business, Utilyx, successfully re-bid
contracts with key clients including McDonalds, Barclays, HSBC and
John Lewis Partnership, and extended the term of its contracts with
Royal Mail and Virgin Active. It has also been awarded new work
with current clients including over 40 Energy Saving Opportunity
Scheme submissions. This has resulted in positive follow-on
projects with organisations including KFC and GLH Hotels.
Property Management
2016 2015 Growth
------------------------------------- --------- --------- -------
Revenue GBP280.4m GBP273.4m 2.6%
------------------------------------- --------- --------- -------
Operating profit before other items GBP15.8m GBP10.4m 51.9%
------------------------------------- --------- --------- -------
Operating profit margin before other
items 5.6% 3.8% +1.8ppt
------------------------------------- --------- --------- -------
Order book GBP0.8bn GBP1.0bn (20%)
------------------------------------- --------- --------- -------
Key contract awards:
Total Time
Client value frame
------------------------------------------ ------- -------
Home Group Ltd
Awarded a contract to provide cyclical
external redecorations and pre-painting 3+2
repairs GBP7m years
------------------------------------------ ------- -------
LHC Building Components & Services
New social housing contract ND 4 years
------------------------------------------ ------- -------
Greenfields Community Housing
New painting contract to provide cyclical
external and internal redecorations and
pre-painting Repairs GBP1.3m 2 years
------------------------------------------ ------- -------
The Property Management business provides a wide range of
services to predominantly social housing clients in the UK. It also
delivers claims handling and repair services to insurance companies
and is the largest commercial painting organisation in the UK.
Our social housing business experienced a year of two halves. In
the first half, buoyed by contract awards and increased spending
levels from existing clients, it recorded significant growth in
both revenue and profits. Over many years we have seen a marked
improvement in the second half as our clients look to deliver their
budget commitments. However, this was not the case this year, with
social housing landlords forced to reassess spending plans as a
result of the UK Government reducing rents by 1% a year for four
years from April 2016, in an attempt to reduce the housing benefit
bill. As social landlords had previously been able to increase
rents each year by CPI plus 1%, this equates to around a 12%
reduction over the four-year period. Consequently, a number of
social landlords are deferring project work and all are
concentrating on statutory maintenance work. The result is that the
second half saw reduced revenue and profit terms instead of the
traditional boost to performance typically achieved during those
months.
The Government's actions are driving social landlords to
consider different ways to look after their homes. Some are
re-tendering services in the traditional way, hoping that
competition will drive down prices, while others are looking at new
models where the range of services provided and the
responsibilities of partners vary. It is worth noting that a
feature of the current market is that we are being approached by
some of our clients to take over contracts from other providers
that are not meeting expectations.
Our response to the changes is to retain a flexible approach to
service delivery, enabling us to provide services locally,
regionally or nationally as well as either in single services,
bundles or in more integrated models.
We are currently expanding our service capability, with a focus
on providing an integrated property management solution. This will
mean that we will be able to provide clients with a total,
integrated service including call centres, property management,
responsive and planned maintenance, compliance and energy services,
property surveys, asset management consultancy and investment
planning across the UK.
As the market leader in painting and repair services, with
national coverage, we continued our strong growth trajectory during
the year. We secured notable new contracts with Semperian Group Ltd
(providing a re-decoration service nationally to schools, hospitals
and prisons), Taunton Deane Borough Council, Johnnie Johnson
Housing Trust, CityWest Homes, Wandsworth Borough Council, three
universities in Glasgow (Strathclyde/Glasgow/Glasgow Caledonian),
Heineken UK Ltd, Britannia Hotels and NHS Fife. We targeted
improved revenues and associated margins in the private sector,
while ensuring that we also secured a number of long-term public
sector contracts.
We were proud to win the most prestigious prize in the painting
and decorating industry - the Painting and Decorating Association's
Premier Trophy Special Award for Excellence. This showcased our
diversity of skills as well as the high levels of craftmanship that
our teams possess, keeping us ahead of our competition.
Healthcare
2016 2015 Growth
------------------------------------- --------- -------- -------
Revenue GBP78.0m GBP91.4m (14.7%)
------------------------------------- --------- -------- -------
Operating profit before other items (GBP4.0m) GBP4.9m nm
------------------------------------- --------- -------- -------
Operating profit margin before other
items (5.1%) 5.4% nm
------------------------------------- --------- -------- -------
Order book GBP0.5bn GBP0.4bn 25.0%
------------------------------------- --------- -------- -------
Key contract awards:
Total Time
Client value frame
-------------------------------------------- ------- -------
Hampshire County Council
A new contract to provide care at home
for residents in the Havant and Petersfield
area. GBP3.2m 4 years
-------------------------------------------- ------- -------
London Borough of Hammersmith & Fulham
and Royal Borough of Kensington & Chelsea
A new contract with the London Borough
of Hammersmith & Fulham and Royal Borough
of Kensington & Chelsea to deliver care
at home and specialist learning disability
support to the local residents. GBP36m 4 years
-------------------------------------------- ------- -------
Reading Borough Council
A new contract to deliver care in the home
to the residents of Reading including low
level continuing healthcare services. GBP4m 4 years
-------------------------------------------- ------- -------
Our healthcare business provides care at home for people who
need help and support due to illness, infirmity or disability. In
addition, we also provide nurse-led complex care solutions in the
home. The majority of these services are funded by local
authorities or the NHS, however we also have a service offering
that delivers privately-funded care.
This has been a challenging year for our healthcare business.
Our local authority clients have been faced with a multi-year
squeeze driven by reduced funding from central government,
increasing demand for services caused by demographic shifts and an
inability to increase council tax. This has been alleviated to some
extent by the UK Government's decision to allow an increase in
council tax of up to 2% to fund increasing social care costs.
However, most of this increase will be absorbed by wage increases
resulting from the new National Living Wage. In the longer term,
the funding crisis would be better solved by pooling health and
social care budgets and redesigning the commissioning of the
services.
During the year we reduced the scale of our operations in the
social care business, with MiHomecare reducing from 40 branches to
31 branches.
It is pleasing to see that the business is making progress and
achieving better quality scores. We now have a better care business
operating in areas where we can develop over the long term.
In future, our approach to the social care market will be highly
selective. We will only work with clients who are prepared to pay
sustainable rates for care, and this will in turn allow us to pay
wage rates which will support our drive to attract and retain
quality people. We want to develop long-term relationships with our
clients and are looking forward to working with them on developing
improved models for the delivery of social care in the future.
We are now seeing examples of our ability to retain existing
contracts and also win new contracts at the higher rates that will
allow the business to return to profitability over the medium term.
Recent awards include contracts with Devon County Council and the
London Borough of Barnet.
This has been a year of stability for our complex care business,
CompleteCare. The focus has been to consolidate its position as a
leading provider of nurse-led homecare by ensuring a pipeline of
quality care workers. In addition, we have worked to ensure that
the commercial arrangements of all CompleteCare contracts are
appropriate for the level of care being provided. The business is
now well placed to grow in the future.
Our Care Agency business delivers privately funded care. This
can range from the traditional domiciliary care and support to
providing carers who will live permanently at a service user's
home. Although the Care Agency is currently a relatively small part
of the business, the signs are encouraging for its future
prospects.
Other developments
To ensure that Mitie is best placed to respond to its changing
markets and remains a lean and efficient business, we have made
some changes to the way we operate. From 1 April 2016 parts of the
soft and hard FM businesses will be combined to operate under one
management structure. The management structures of our property
management and healthcare businesses will also be combined to
create one services business that faces our key public sector
markets of social housing, justice and healthcare. These changes
will allow us to optimise our back office and support functions,
ensuring we provide the best solutions and services to our
clients.
As a top ten private sector employer, we welcomed the
announcement that a new National Living Wage would be introduced in
the UK in April 2016. We are supportive of this move, which ensures
that those of our people who are affected are better rewarded and
feel more motivated to do the jobs they do. Since the minimum wage
was introduced in 1999, we have managed the impact from its annual
change as part of the normal course of our business. Having
completed discussions with our clients in relation to both the
regular annual increase in the minimum wage and the introduction of
the National Living Wage in April 2016, we remain confident that
our contractual protections ensure that it will not have a material
impact on our future earnings.
Financial Review
A strong financial position
Mitie is focused on delivering long term value for our
shareholders, our customers and our people. This year's financial
results show continued profit growth, improved margin, growth in
earnings per share and good cash generation. Mitie is in a strong
financial position with low leverage, a robust balance sheet and
long term committed financing facilities. These results enabled us
to increase our dividend, continuing our strong record of annual
dividend growth over each of the last 27 years.
Revenue
Revenue reduced by 1.8% to GBP2.23bn (2015: GBP2.27bn). New
contract awards towards the end of the year, along with a strong
pipeline of opportunities, support our expectation for a return to
revenue growth in the year to March 2017.
Operating Profit
Operating profit for the year saw a significant improvement
compared to the prior year, increasing by 101% to GBP112.5m (2015:
GBP56.0m). This improvement reflects both the completion of the
exit from the group's historic construction market exposures and an
improvement in the trading result from our continuing business
where operating profit before other items grew by 0.2% to
GBP128.9m. Our operating profit margin before other items improved
to 5.8%, in line with our target range of 5% to 6%, and an increase
of 10 bps over last year.
Other Items
Costs of GBP16.4m disclosed as other items represent the
amortisation of acquisition related intangible assets and
acquisition related costs. This included a write off of intangible
assets of GBP6.2m attributable to healthcare contracts exited
during the year on financial grounds. Last year we completed the
exit from our construction market exposures and there have been no
net residual charges arising from this activity in the current year
(2015: GBP61.6m). Further details of other items are set out in
Note 3.
Generating sustainable shareholder value
Profit before tax was GBP96.8m (2015: GBP41.5m). The effective
tax rate for the year was 19.9% (20.0% before other items). With
the majority of the Group's activities based in the UK, our
effective tax rate generally tracks the UK mainstream rate of
corporation tax, which was 20% in the year.
Profit after tax was GBP77.5m (2015: GBP35.7m) and following a
small reduction in the weighted average number of shares for the
year to 355.4 million (2015: 359.3 million), drove basic earnings
per share of 21.3p, an increase of 120% on the prior year (2015:
9.7p).
In 2013, the Board approved a policy to maintain share numbers
at a broadly consistent level year-on-year, with the aim of
ensuring that the interests of shareholders are not diluted by the
issue of shares that support the group's various share schemes, nor
by the issue of shares as consideration for earn outs under the
Mitie Model. To this end, in the year to March 2016, the group
purchased 2.3 million of its own shares (2015: 3.7 million) at a
cost of GBP6.6m; these shares are held in treasury. The group also
purchased 5.2 million of its own shares at a cost of GBP15.2m and
these shares were subsequently cancelled. At 31 March 2016, the
group held a total of 10.5 million shares in treasury.
Returning cash to shareholders
The group has a strong track record of dividend growth, having
increased dividends in each consecutive year since the group first
paid a dividend in 1990, following its listing on the London Stock
Exchange in 1987. Growing returns to our shareholders lies at the
core of our business model and we will continue our progressive
dividend policy to grow dividends at least in line with underlying
earnings of the group, while maintaining dividend cover at a
prudent level.
The full year dividend recommended by the Board is 12.1p per
share (2015: 11.7p per share), reflecting a cover of 2.1x (2015:
2.1x) earnings per share before other items. This year's dividend
to shareholders, which fully reflects our continued confidence in
the business, represents a dividend growth of 3.4%. During the
year, total dividends of GBP42.3m were paid to shareholders (2015:
GBP40.5m).
In addition to paying dividends, the Board has approved a share
buyback programme to further enhance returns to shareholders whilst
maintaining a modest year end gearing level of 1.0x-1.5x EBITDA.
This will initially be up to GBP20m in 2017 and will be reviewed
annually going forward. Shares purchased will be cancelled.
Return on capital employed
Our return on capital employed (ROCE) for the year is 17.5%
(2015: 18.6%). ROCE is calculated as operating profit after tax
before other items (adjusted for the pro-forma, full year effect of
acquisitions) divided by capital employed. Capital employed is
calculated as net assets excluding net debt less non--controlling
interests.
Our ROCE demonstrates our ability to generate returns from the
capital employed by our business. We focus on our ROCE through the
management of our asset base and profit streams and take into
consideration returns on capital when we invest to maximise the
profitability of the group. By generating returns that exceed our
weighted average cost of capital, currently 7.0%, we are ensuring
that our investment decisions add value to our business.
Balance sheet
At 31 March 2016, the Group had GBP415.1m of net assets.
Goodwill and other intangible assets of GBP532.4m (2015: GBP541.0m)
were held on the balance sheet at 31 March 2016; the reduction
during the year was driven by a GBP6.2m write off from the
Healthcare intangible assets, along with the usual charge for the
amortisation of intangible assets across the group.
This asset profile is typical of a business which is people
based and low in capital intensity, and of businesses growing
through acquisition.
Our group has a limited requirement for investment in property,
plant and equipment and in the technology based intangible assets
that support the group and accordingly capital expenditure as a
percentage of revenue is 1.1% (2015: 1.0%) and is expected to
remain below 2% of revenue going forward. This year we saw
increased investment in the technology assets to support the
development of our business model, where the provision of
technology led services, performance data and analytics are now a
core requirement of our larger contracts. This mix of tangible and
intangible asset investment will be a continuing feature of our
business.
Our principal investment requirement in capital terms is in
working capital which supports the group's proposition to our
markets. Working capital management is a key focus for the group as
is the targeted investment of working capital in key client
accounts where we believe that sustainable long term growth can be
attained. During the year we have actively invested working capital
in support of rebid and contract extension activity in support of a
small number of key contracts. This has resulted in an uplift in
trade and other receivables due after one year of GBP27.5m. The
return on capital employed for this investment in trade and other
receivables is enhancing to the group and offers higher returns at
lower risk than M&A activity. Investment in working capital in
this manner is in line with the Board's capital allocation strategy
in prioritising the investment of capital to support the long term
organic growth of the group.
Short term working capital balances at 31 March 2016 were
GBP(31.6m) (2015: GBP(48.5m)) or GBP54.4m (2015: GBP10.0m) after
the inclusion of non-current trade and other receivables.
Cash conversion
Our profits are strongly backed by cash flows. Cash conversion
measures our success in converting operating profit (measured by
earnings before interest, tax, depreciation and amortisation
'EBITDA') to cash and reflects both the quality of our earnings and
the effectiveness of our cash management activities. This year,
cash inflows from operations were GBP114.6m (2015: GBP113.2m),
representing cash conversion of 75.2% (2015: 126.5%). Our cash
conversion has been consistently strong and the average cash
conversion achieved by the group over the last five years is
100.3%. Before other items, cash conversion was 76.1% (2015:
95.1%). The calculation of cash conversion is set out in Note 18.
This strong cash performance has been achieved through a clear
strategy to actively manage our exposure to trade accounts
receivable.
Net debt
As at 31 March 2016, net debt was GBP178.3m, a small increase of
GBP0.5m on the prior year. Strong free cash flow of GBP63.1m has
enabled us to return GBP42.3m to shareholders in dividends.
We remain comfortably within each of our banking covenants. As
at 31 March 2016, net debt stood at 1.2x EBITDA (2015: 2.0x) and
1.2x EBITDA before other items (2015: 1.2x).
Committed facilities to fund future growth
In 2014, the group completed a refinancing of its revolving
credit facility through a syndicate of six banks which secured
facilities for a further five years at margins favourable to the
previous facility. The group now has committed funding of GBP527m
in place to support our future growth opportunities.
Our interest rate exposure is predominantly fixed, at around 4%
per annum.
The group has a centralised treasury function whose principal
role is to ensure that adequate liquidity is available to meet
funding requirements as they arise, and that financial risk is
effectively identified and managed. Treasury policies and
procedures are approved by the Board. No transactions of a
speculative nature are undertaken. Dealings are restricted to those
banks with suitable credit ratings and counterparty risk and credit
exposure is monitored frequently.
Acquisitions
On 29 January 2016, we acquired Tascor Medical Services Ltd, the
leading UK custodial medical services provider, for total
consideration of GBP0.6m. This business added an annualised GBP12m
to group revenue and an annualised GBP0.6m to group operating
profit, on a pro forma basis.
From the date of ownership, the acquired business has
contributed revenue of GBP2.1m and operating profit of GBP0.1m to
the group, which is in line with our expectations.
Driving entrepreneurialism through equity participation
Mitie operates an entrepreneurial investment programme known as
the Mitie Model. Investment companies are structured so that the
management team takes an equity stake of up to 49% in a business
which they grow over a five to ten-year period, and may eventually
be acquired by Mitie in full, should the acquisition criteria in
the respective Articles of Association and shareholder agreements
be met. Mitie has supported over 100 start-up businesses to grow
using the Mitie model. Currently, Mitie holds majority interests in
11 Mitie Model companies with a carrying value of GBP2.9m,
disclosed as non-controlling interests in the balance sheet.
On 24th November 2015 Mitie Group plc acquired the remaining 49%
share in Creativevents Limited. The total consideration was GBP4.7m
satisfied in cash paid during the year. The group also settled
remaining deferred consideration of GBP3.8m on the acquisition of
Direct Enquiries Holdings Ltd.
Tax contribution
We manage all taxes, both direct and indirect, to ensure that we
pay the appropriate amount of tax in each country whilst ensuring
that we respect the applicable tax legislation and utilise, where
appropriate, any legislative reliefs available. This tax strategy
is reviewed, regularly monitored and endorsed by the Board.
Mitie is a significant contributor of revenues to the UK
Exchequer, paying GBP507m in the year to March 2016 (2015:
GBP522m). This comprised GBP16m of UK corporation tax and GBP491m
of indirect taxes including business rates, VAT and payroll taxes
paid and collected.
The group's tax charge before other items was GBP22.7m (2015:
GBP24.1m). The effective rate of tax before other items was 20.0%
for the year (2015: 21.1%). As Mitie is predominantly UK based, our
effective rate of tax reflects the UK corporate rate of tax.
After adjusting for the tax credit of GBP3.4m (2015: GBP18.3m)
on other items, the income tax charge was GBP19.3m (2015: GBP5.8m),
an effective rate of 19.9% (2015: 14%).
Pensions
Our financial strength and balance sheet remain unaffected by
any significant pensions deficit, with the net deficit of all the
defined benefit pension arrangements included on the balance sheet
being GBP35.5m (2015: GBP35.8m).
During the year ended March 2014 we completed the actuarial
triennial valuation of the Mitie Group scheme. The scheme actuarial
deficit was GBP6.0m at 31 March 2014. We have agreed with the
trustees that no cash injection into the scheme is currently
required, but have committed to potential cash injections of up to
a total of GBP11.1m over ten years should the funding position
deteriorate materially.
The accounting deficit on Mitie Group plc's principal defined
benefit scheme at 31 March 2016 was GBP34.4m (2015: GBP34.9m). The
scheme's assets have generally performed in line with their
respective benchmarks, producing a slightly negative investment
return in the year. The valuation of the scheme's liabilities has
decreased slightly over the year due to marginally higher interest
rates used to value the future estimated cash flows of those
liabilities. These factors combined have resulted in a broadly
neutral effect on the reported scheme deficit.
The group also makes contributions to customers' defined benefit
pension schemes under Admitted Body arrangements as well as to
other arrangements in respect of certain employees who have
transferred to the group under TUPE. Mitie's net defined benefit
pension deficit in respect of schemes in which it is committed to
funding amounted to GBP1.1m (2015: GBP0.9m).
Consolidated income statement
For the year ended 31 March 2016
2016 2015
--------- --------- --------- --------- --------- ---------
Before Before
Other Other Other Other
Items Items(1) Total Items Items(1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Continuing operations
Revenue 2 2,231.9 - 2,231.9 2,266.2 7.6 2,273.8
Cost of sales (1,909.3) - (1,909.3) (1,928.3) (17.4) (1,945.7)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Gross profit 322.6 - 322.6 337.9 (9.8) 328.1
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Administrative expenses (194.3) (16.4) (210.7) (210.0) (62.8) (272.8)
Share of profit of
joint ventures and
associates 0.6 - 0.6 0.7 - 0.7
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Operating profit 2 128.9 (16.4) 112.5 128.6 (72.6) 56.0
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Investment revenue 4 0.1 - 0.1 0.3 - 0.3
Finance costs 5 (15.8) - (15.8) (14.8) - (14.8)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Net finance costs (15.7) - (15.7) (14.5) - (14.5)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Profit before tax 113.2 (16.4) 96.8 114.1 (72.6) 41.5
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Tax 6 (22.7) 3.4 (19.3) (24.1) 18.3 (5.8)
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Profit for the year 90.5 (13.0) 77.5 90.0 (54.3) 35.7
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Attributable to:
Equity holders of
the parent 88.7 (13.0) 75.7 89.3 (54.3) 35.0
Non-controlling interests 1.8 - 1.8 0.7 - 0.7
-------------------------- ----- --------- --------- --------- --------- --------- ---------
90.5 (13.0) 77.5 90.0 (54.3) 35.7
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Earnings per share
(EPS)
Basic 8 25.0p (3.7)p 21.3p 24.8p (15.1)p 9.7p
diluted 8 24.7p (3.6)p 21.1p 24.2p (14.7)p 9.5p
-------------------------- ----- --------- --------- --------- --------- --------- ---------
Notes:
1. Other items are as described in Note 3.
Consolidated statement of comprehensive income
For the year ended 31 March 2016
2016 2015
Notes GBPm GBPm
---------------------------------------------- ------ ----- ------
Profit for the year 77.5 35.7
------------------------------------------------------ ----- ------
Items that will not be reclassified
subsequently to profit or loss
Remeasurement of net defined benefit
pension liability 3.0 (15.0)
Income tax relating to items not reclassified (1.7) 3.0
------------------------------------------------------ ----- ------
1.3 (12.0)
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of foreign operations 0.2 (2.0)
Gains on hedge of a net investment taken
to equity (0.7) 1.1
Cash flow hedges:
Gains arising during the year 6.7 13.4
Reclassification adjustment for (losses)
included in profit and loss (4.4) (14.6)
Income tax(charge)/ credit relating
to items that may be reclassified (0.6) 0.2
------------------------------------------------------ ----- ------
1.2 (1.9)
Other comprehensive (expense)/income
for the financial year 2.5 (13.9)
------------------------------------------------------ ----- ------
Total comprehensive income for the financial
year 80.0 21.8
------------------------------------------------------ ----- ------
Attributable to:
Equity holders of the parent 78.2 21.1
Non-controlling interests 1.8 0.7
------------------------------------------------------ ----- ------
Consolidated balance sheet
At 31 March 2016
2016 2015
Notes GBPm GBPm
------------------------------------------ ----- ------- -------
Non-current assets
Goodwill 9 465.5 464.4
Other intangible assets 10 66.9 76.6
Property, plant and equipment 49.3 53.3
Interest in joint ventures and associates 0.6 1.1
Financing assets 14.4 8.0
Trade and other receivables 86.0 58.5
Deferred tax assets 10.0 13.4
------------------------------------------ ----- ------- -------
Total non-current assets 692.7 675.3
------------------------------------------ ----- ------- -------
Current assets
Inventories 9.9 11.0
Trade and other receivables 12 446.7 421.4
Cash and cash equivalents 93.1 96.4
------------------------------------------ ----- ------- -------
Total current assets 549.7 528.8
------------------------------------------ ----- ------- -------
Total assets 1,242.4 1,204.1
------------------------------------------ ----- ------- -------
Current liabilities
Trade and other payables (487.8) (476.0)
Current tax liabilities (10.4) (5.2)
Financing liabilities (1.9) (1.8)
Provisions 15 (0.4) (4.9)
------------------------------------------ ----- ------- -------
Total current liabilities (500.5) (487.9)
------------------------------------------ ----- ------- -------
Net current assets 49.2 40.9
------------------------------------------ ----- ------- -------
Non-current liabilities
Trade and other payables (2.5) (8.0)
Financing liabilities (283.9) (279.2)
Provisions 15 (0.5) (7.4)
Retirement benefit obligation (35.5) (35.8)
------------------------------------------ ----- ------- -------
Deferred tax liabilities (4.4) (7.5)
------------------------------------------ ----- ------- -------
Total non-current liabilities (326.8) (337.9)
------------------------------------------ ----- ------- -------
Total liabilities (827.3) (825.8)
------------------------------------------ ----- ------- -------
Net assets 415.1 378.3
------------------------------------------ ----- ------- -------
Equity
Share capital 9.3 9.4
Share premium account 127.7 122.6
Merger reserve 80.1 80.1
Share-based payments reserve 9.4 7.2
Own shares reserve (48.8) (47.5)
Other reserves 0.5 0.4
Hedging and translation reserve (4.6) (6.4)
Retained earnings 238.6 209.2
------------------------------------------ ----- ------- -------
Equity attributable to equity holders
of the parent 412.2 375.0
------------------------------------------ ----- ------- -------
Non-controlling interests 2.9 3.3
------------------------------------------ ----- ------- -------
Total equity 415.1 378.3
------------------------------------------ ----- ------- -------
Consolidated statement of changes in equity
For the year ended 31 March 2016
Attributable
Hedging to equity
Share Share-based Own and holders
Share premium Merger payments shares Other translation Retained of the Non-controlling
capital account reserve reserve reserve reserves reserve earnings parent interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
At 1 April
2014 9.3 118.9 101.2 2.6 (37.2) 0.4 (4.3) 210.0 400.9 3.0 403.9
Profit for
the year - 35.0 35.0 0.7 35.7
Other
comprehensive
expense - - - - - - (2.1) (11.8) (13.9) - (13.9)
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
Total
comprehensive
income - - - - - - (2.1) 23.2 21.1 0.7 21.8
Shares issued 0.1 3.7 - - - - - - 3.8 - 3.8
Dividends
paid - - - - - - - (40.5) (40.5) (0.1) (40.6)
Purchase of
own shares - - - - (10.7) - - - (10.7) - (10.7)
Share-based
payments - - - 4.6 0.4 - - 1.4 6.4 - 6.4
Tax on
share-based
payment
transactions - - - - - - - (0.1) (0.1) - (0.1)
Transfer between
reserves - - (21.1) - - - - 21.1 - - -
Acquisitions
and other
movements
in
non-controlling
interests - - - - - - - (5.9) (5.9) (0.3) (6.2)
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
At 31 March
2015 9.4 122.6 80.1 7.2 (47.5) 0.4 (6.4) 209.2 375.0 3.3 378.3
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
Profit for
the year - - - - - - - 75.7 75.7 1.8 77.5
Other
comprehensive
expense - - - - - - 1.8 0.7 2.5 - 2.5
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
Total
comprehensive
income - - - - - - 1.8 76.4 78.2 1.8 80.0
Shares issued - 5.1 - - - - - - 5.1 - 5.1
Dividends
paid - - - - - - - (42.2) (42.2) (0.2) (42.4)
Purchase of
own shares - - - - (6.6) - - - (6.6) - (6.6)
Share buybacks (0.1) - - - - 0.1 - (15.3) (15.3) - (15.3)
Share-based
payments - - - 2.2 5.3 - - 0.3 7.8 - 7.8
Tax on
share-based
payment
transactions - - - - - - - 0.1 0.1 - 0.1
Acquisitions
and other
movements
in
non-controlling
interests - - - - - - - 10.1 10.1 (2.0) 8.1
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
At 31 March
2016 9.3 127.7 80.1 9.4 (48.8) 0.5 (4.6) 238.6 412.2 2.9 415.1
---------------- ------- ------- ------- ----------- ------- -------- ----------- -------- ------------ --------------- ------
Consolidated statement of cash flows
For the year ended 31 March 2016
2016 2015
Notes GBPm GBPm
-------------------------------------------- ----- ------ ------
Operating profit 112.5 56.0
Adjustments for:
Share-based payment expense 5.2 6.5
Defined benefit pension charge 4.4 4.0
Defined benefit pension contributions (3.0) (3.1)
Acquisition costs 3 0.3 0.3
Depreciation of property, plant and
equipment 15.1 19.7
Amortisation of intangible assets 18.5 13.8
Write off of acquisition related intangible
assets 6.2 -
Other non-cash movement in Other items - 19.0
Share of profit of joint ventures and
associates (0.6) (0.7)
Profit on disposal of businesses (0.5) -
Loss on disposal of property, plant
and equipment - 0.3
-------------------------------------------- ----- ------ ------
Operating cash flows before movements
in working capital 158.1 115.8
-------------------------------------------- ----- ------ ------
Decrease/(Increase) in inventories 1.1 (3.8)
(Decrease)/increase in receivables (52.9) 53.4
Increase/(Decrease) in payables 8.7 (50.9)
Decrease in provisions (0.4) (1.3)
-------------------------------------------- ----- ------ ------
Cash generated by operations 114.6 113.2
-------------------------------------------- ----- ------ ------
Income taxes paid (15.7) (15.5)
Interest paid (13.4) (13.1)
Facility extension fees - (2.0)
Acquisition costs 3 (0.3) (0.3)
-------------------------------------------- ----- ------ ------
Net cash from operating activities 85.2 82.3
-------------------------------------------- ----- ------ ------
Investing activities
Interest received - -
Purchase of property, plant and equipment (15.7) (23.0)
Purchase of subsidiary undertakings,
net of cash acquired (8.0) (0.5)
Dividends received from joint ventures
and associates 0.7 0.5
Investment in financing assets 1.9 (0.3)
Purchase of other intangible assets (8.9) (3.9)
Disposals of property, plant and equipment 2.2 1.8
-------------------------------------------- ----- ------ ------
Net cash outflow from investing activities (27.8) (25.4)
-------------------------------------------- ----- ------ ------
Financing activities
Repayments of obligations under finance
leases (3.1) (2.0)
Proceeds on issue of share capital 5.0 3.8
Bank loans repaid (2.2) 0.6
Purchase of own shares (3.7) (10.7)
Share buybacks (14.4) -
Equity dividends paid (42.3) (40.5)
Non-controlling interests dividends
paid (0.2) (0.1)
-------------------------------------------- ----- ------ ------
Net cash outflow from financing (60.9) (48.9)
-------------------------------------------- ----- ------ ------
Net (decrease)/increase in cash and
cash equivalents (3.5) 8.0
-------------------------------------------- ----- ------ ------
Net cash and cash equivalents at beginning
of the year 96.4 89.1
-------------------------------------------- ----- ------ ------
Effect of foreign exchange rate changes 0.2 (0.7)
-------------------------------------------- ----- ------ ------
Net cash and cash equivalents at end
of the year 93.1 96.4
-------------------------------------------- ----- ------ ------
Net cash and cash equivalents comprise:
Cash at bank 93.1 96.4
-------------------------------------------- ----- ------ ------
93.1 96.4
-------------------------------------------- ----- ------ ------
Reconciliation of net cash flow to movements in net debt
2016 2015
Notes GBPm GBPm
---------------------------------------- ----- ------- -------
Net (decrease)/increase in cash and
cash equivalents (3.5) 8.0
Effect of foreign exchange rate changes 0.2 (0.7)
Decrease in bank loans 0.3 1.4
Non-cash movement in private placement
notes and associated hedges 3.0 (1.3)
Decrease in finance leases (0.5) 1.4
---------------------------------------- ----- ------- -------
(Increase)/decrease in net debt during
the year (0.5) 8.8
---------------------------------------- ----- ------- -------
Opening net debt (177.8) (186.6)
---------------------------------------- ----- ------- -------
Closing net debt 16 (178.3) (177.8)
---------------------------------------- ----- ------- -------
Notes to the consolidated financial statements
For the year ended 31 March 2016
1. Basis of preparation and significant accounting policies
The group's financial statements for the year ended 31 March
2016 have been prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted for use in the European Union
and therefore the group financial statements comply with Article 4
of the EU IAS Regulation.
The accounting policies adopted in the preparation of the
consolidated financial statements are consistent with those
followed in the preparation of the group's annual financial
statements for the year ended 31 March 2015 except for the
following amendments, which were effective for the first time in
the current period but had no impact on the results or financial
position of the group:
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions
Annual Improvements to IFRSs 2010 -2012 Cycle : the majority of
amendments are clarifications rather than substantive changes in
existing requirements apart from amendments to IFRS 8 Operating
Segments and IAS 24 Related Party Disclosures.
The directors have a reasonable expectation that the group has
adequate resources to continue in operational existence for the
foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the Annual Report and
Accounts.
The financial information set out in the preliminary
announcement does not constitute the company's statutory accounts
for the years ended 31 March 2016 or 2015, but is derived from
those accounts. Statutory accounts for 2015 have been delivered to
the Registrar of Companies and those for 2016 will be delivered
following the company's Annual General Meeting. The auditor has
reported on those accounts; the reports were unqualified, did not
draw attention to any matters by way of emphasis without qualifying
the reports and did not contain statements under Section 498(2) or
(3) Companies Act 2006.
2. Business and geographical segments
The group manages its business on a service division basis.
These divisions are the basis on which the group reports its
primary segmental information.
Business segments - structure during the year
2016 2015
--------------------------------------------------- ---------------------------------------------------
Profit Operating
Operating
Profit before Profit Profit
Operating
Revenue margin Revenue Profit margin
before before before before before
other other other other other before
Revenue items(1) items(1) tax Revenue items(1) items(1) items(1) tax
Operating
Profit
before
other
items(1)
GBPm GBPm GBPm % GBPm GBPm GBPm GBPm % GBPm
------------ ------- --------- --------- ---------- -------- ------- --------- --------- ---------- --------
Soft FM 1,255.1 1,255.1 85.4 6.8 87.5 1,280.3 1,280.3 81.9 6.4 79.6
Hard FM 618.4 618.4 31.7 5.1 18.5 621.1 621.1 31.4 5.1 24.2
Property
Management 280.4 280.4 15.8 5.6 15.8 273.4 273.4 10.4 3.8 9.9
Healthcare 78.0 78.0 (4.0) (5.1) (8.6) 91.4 91.4 4.9 5.4 0.4
Other Items
(Note 3) - - - - (16.4) 7.6 - - - (72.6)
------------ ------- --------- --------- ---------- -------- ------- --------- --------- ---------- --------
Total 2,231.9 2,231.9 128.9 5.8 96.8 2,273.8 2,266.2 128.6 5.7 41.5
------------ ------- --------- --------- ---------- -------- ------- --------- --------- ---------- --------
The revenue analysis above is net of inter-segment sales which
are not considered significant.
No single customer accounted for more than 10% of external
revenue in 2016 or 2015.
The Improvement to IFRS 8 issued in April 2009 clarified that a
measure of segment assets should be disclosed only if that amount
is regularly provided to the chief operating decision maker and
consequently no segment assets are disclosed.
Geographical segments
2016 2015
------- --------- --------- --------- ------- ------- --------- --------- --------- -------
Operating Operating
Operating Profit Operating Profit
Revenue Profit margin Revenue Profit margin
before before before Profit before before before Profit
other other other before other other other before
Revenue items(1) items(1) items(1) tax Revenue items(1) items(1) items(1) tax
GBPm GBPm GBPm % GBPm GBPm GBPm GBPm % GBPm
---------------- ------- --------- --------- --------- ------- ------- --------- --------- --------- -------
United Kingdom 2,156.5 2,156.5 129.2 6.0 97.4 2,190.7 2,183.1 126.8 5.8 40.0
Other countries 75.4 75.4 (0.3) (0.4) (0.6) 83.1 83.1 1.8 2.2 1.5
---------------- ------- --------- --------- --------- ------- ------- --------- --------- --------- -------
Total 2,231.9 2,231.9 128.9 5.8 96.8 2,273.8 2,266.2 128.6 5.7 41.5
---------------- ------- --------- --------- --------- ------- ------- --------- --------- --------- -------
Note:
1. Other items are described in Note 3.
3. Other items
During the year ended 31 March 2015, the group separately
reported as Other items the results of certain design and build
contracts and certain business activities in construction related
markets from which it was exiting. During the year ended 31 March
2016, no further net charges have arisen in respect of these
contracts and business activities. Net cash outflows of GBP1.5m
have been incurred in relation to the final close out of these
contracts and business activities.
2016 2015
--------------------------------- ---------------------------------
Restructuring Restructuring
and and
acquisition Businesses acquisition Businesses
related being Other related being Other
costs exited items costs exited items
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------- ---------- ------ ------------- ---------- ------
Revenue - - - - 7.6 7.6
Cost of Sales - - - - (17.4) (17.4)
Administrative expenses:
Administrative expenses - (2.2) (2.2) - (6.1) (6.1)
Exceptional credit/(charge)
in relation to design
and build Asset Management
contracts in Energy
Solutions 2.2 - 2.2 (45.7) - (45.7)
Restructuring costs
relating to the integration
of Complete Group - - - (0.6) - (0.6)
Acquisition costs (0.3) - (0.3) (0.3) - (0.3)
Amortisation of acquisition
related intangibles
(Note 10) (16.1) - (16.1) (10.1) - (10.1)
----------------------------- ------------- ---------- ------ ------------- ---------- ------
Other items before tax (14.2) (2.2) (16.4) (56.7) (15.9) (72.6)
----------------------------- ------------- ---------- ------ ------------- ---------- ------
Tax on other items 3.0 0.4 3.4 15.0 3.3 18.3
----------------------------- ------------- ---------- ------ ------------- ---------- ------
Other items net of tax (11.2) (1.8) (13.0) (41.7) (12.6) (54.3)
----------------------------- ------------- ---------- ------ ------------- ---------- ------
4. Investment revenue
2016 2015
GBPm GBPm
-------------------------- ----- -----
Interest on bank deposits 0.1 0.3
-------------------------- ----- -----
0.1 0.3
-------------------------- ----- -----
5. Finance costs
2016 2015
GBPm GBPm
--------------------------------------------- ----- -----
Interest on bank facilities 1.7 1.4
Interest on private placement loan notes 9.6 9.6
Bank fees 3.0 2.8
Interest on obligations under finance leases 0.2 0.2
Gain arising on derivatives in a designated
fair value hedge (0.8) (3.7)
Loss arising on adjustment for the hedged
item in a designated fair value hedge 0.9 3.8
Net interest on defined benefit pension
scheme assets and liabilities 1.2 0.7
--------------------------------------------- ----- -----
15.8 14.8
--------------------------------------------- ----- -----
6. Tax
2016 2015
GBPm GBPm
------------- ----- -----
Current tax 21.2 9.7
Deferred tax (1.9) (3.9)
------------- ----- -----
19.3 5.8
------------- ----- -----
Corporation tax is calculated at 20.0% (2015: 21.0%) of the
estimated taxable profit for the year.
A reconciliation of the tax charge to the elements of profit
before tax per the consolidated income statement elements is
as follows:
2016 2015
--------------------- ---------------------
Before Before
other Other other Other
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ----- ------ ------ -----
Profit before tax 113.2 (16.4) 96.8 114.1 (72.6) 41.5
Tax at UK rate of 20.0%
(2015: 21%) 22.7 (3.2) 19.5 23.9 (15.2) 8.7
Reconciling tax charges
for:
Non-tax deductible charges 0.9 - 0.9 0.7 0.1 0.8
Energy Solutions contract
exit costs - - - - (3.2) (3.2)
Overseas tax rates 0.2 - 0.2 0.1 - 0.1
Impact of change in statutory
tax rates (0.1) (0.2) (0.3) - - -
Prior year adjustments (1.0) - (1.0) (0.6) - (0.6)
Tax charge for the year 22.7 (3.4) 19.3 24.1 (18.3) 5.8
------------------------------ ------ ------ ----- ------ ------ -----
Effective tax rate for
the year 20.0% 20.7% 19.9% 21.1% 25.2% 14.0%
------------------------------ ------ ------ ----- ------ ------ -----
In addition to the amounts charged to the consolidated income
statement, a tax credit relating to retirement benefit costs and
hedged items amounting to GBP2.3m (2015: GBP3.2m charge) has been
taken directly to the statement of comprehensive income and GBP0.1m
relating to share-based payments has been charged (2015: GBP0.1m
credited) directly to equity.
The effective tax rate on profit before other items is generally
higher than the statutory tax rate due to entertaining costs,
commercial property depreciation and share-based payment charges
not being wholly tax deductible and tax losses incurred
overseas.
The UK corporation tax rate reduced from 21% to 20% on 1st April
2015. Further reductions to 19% (effective from April 2017) and
then 18% (effective from 1st April 2020) were substantively enacted
on 26th October 2015. This will reduce the Company's future current
tax charge accordingly. The UK deferred tax assets and liabilities
at 31st March 2016 have been calculated based on rates of 20%, 19%
and 18% in respect of deferred tax expected to reverse before 1st
April 2017, 1st April 2020 and after this date respectively.
7. Dividends
2016 2015
GBPm GBPm
---------------------------------------------- ----- -----
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 March
2015 of 6.5p (2014: 6.1p) per share 23.1 21.9
Interim dividend for the year ended 31 March
2016 of 5.4p (2015: 5.2p) per share 19.2 18.6
---------------------------------------------- ----- -----
42.3 40.5
---------------------------------------------- ----- -----
Proposed final dividend for the year ended
31 March 2016 of 6.7p (2015: 6.5p) per share 23.7 22.9
---------------------------------------------- ----- -----
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
8. Earnings per share
Basic and diluted earnings per share have been calculated in
accordance with IAS 33 'Earnings Per Share'.
The calculation of the basic and diluted EPS is based on the
following data:
2016 2015
GBPm GBPm
------------------------------------------- ------ ------
Net profit before other items attributable
to equity holders of the parent 88.7 89.3
Other items net of tax (13.0) (54.3)
Net profit attributable to equity holders
of the parent 75.7 35.0
------------------------------------------- ------ ------
2016 2015
Number of shares million million
---------------------------------------------- -------- --------
Weighted average number of Ordinary shares
for the purpose of basic EPS 355.4 359.3
Effect of dilutive potential Ordinary shares:
share options 4.1 10.4
Weighted average number of Ordinary shares
for the purpose of diluted EPS 359.5 369.7
---------------------------------------------- -------- --------
2016 2015
p p
----------------------------------------------- ---- ----
Basic earnings per share before other items(1) 25.0 24.8
Basic earnings per share 21.3 9.7
Diluted earnings per share before other
items(1) 24.7 24.2
Diluted earnings per share 21.1 9.5
----------------------------------------------- ---- ----
Notes:
1. Other items are as described in Note 3.
The weighted average number of Ordinary shares in issue during
the year excludes those accounted for in the Own shares
reserve.
9. Goodwill
Cost GBPm
------------------------------ -----
At 1 April 2014 459.6
Acquisition of subsidiaries 5.7
Impact of foreign exchange (0.9)
------------------------------ -----
At 1 April 2015 464.4
------------------------------ -----
Acquisition of subsidiaries 0.7
Impact of foreign exchange 0.4
------------------------------ -----
At 31 March 2016 465.5
------------------------------ -----
Accumulated impairment losses -
At 1 April 2014 -
At 1 April 2015 -
------------------------------ -----
At 31 March 2016 -
------------------------------ -----
Carrying amount
------------------------------ -----
At 31 March 2016 465.5
------------------------------ -----
At 31 March 2015 464.4
------------------------------ -----
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash-generating units (CGUs) that are expected
to benefit from that business combination. Additions during the
year relate to goodwill recognised on one acquisition.
Goodwill has been allocated to CGUs, which align with the
business segments, as this is how goodwill is monitored by the
group internally. Goodwill has arisen principally on the
acquisitions of Initial Security in 2006 (Soft FM), Dalkia
Technical Facilities Management in 2009 (Hard FM) and Enara
(Healthcare) in 2012.
Goodwill Goodwill
Discount Discount
rate rate
2016 2015 2016 2015
% % GBPm GBPm
-------------------- -------- -------- -------- --------
Soft FM 7.9 8.7 171.8 171.3
Hard FM 8.0 8.7 101.3 101.3
Property Management 9.2 10.0 85.2 85.2
Healthcare 9.1 10.0 107.2 106.6
465.5 464.4
-------------------- -------- -------- -------- --------
The group tests goodwill at least annually for impairment or
more frequently if there are indicators that goodwill may be
impaired.
Key assumptions
The recoverable amounts of the CGUs are determined from value in
use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates
and expected changes to revenue and direct costs during the period.
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risks specific to the CGUs. The growth rates are based on
industry growth forecasts. Changes in revenue and direct costs are
based on past practices and expectations of future changes in the
market.
Growth rates and terminal values
The group prepares cash flow forecasts derived from the most
recent one year financial budgets approved by the Board,
extrapolated for four future years by the expected growth
applicable to each unit with a terminal value using an inflationary
growth rate assumption in the range 2.0% - 2.5% dependent on the
CGU.
Discount rates
The pre-tax rates used to discount the forecast cash flows from
CGUs are derived from the Company's post-tax Weighted Average Cost
of Capital, which was 7.0% at 31 March 2016 (2015: 7.4%), and
adjusted for the risks specific to the market in which the CGU
operates. All CGUs have the same access to the group's treasury
functions and borrowing lines to fund their operations.
Sensitivity analysis
A sensitivity analysis has been performed and the Directors have
concluded that no reasonably foreseeable change in the key
assumptions would result in an impairment of the goodwill of any of
the Soft Facilities Management, Hard Facilities Management and
Property Management CGUs. In particular, a 1% increase in the
discount rate or a 1% decrease in the terminal value growth rate
would not result in impairment in any of these CGUs.
Review of the carrying value of goodwill in the Healthcare
CGU
The financial performance of the Healthcare business has
deteriorated in the last financial year and that division has
reported an operating loss before other items of GBP4.0m for that
period. Management have been taking positive action to reshape the
business during the year to meet future market opportunities and
are encouraged by contract awards which give confidence that
conditions are beginning to improve.
The Directors remain confident in the long-term prospects of the
healthcare sector and continue to closely monitor the financial
performance of the group's Healthcare cash-generating unit (CGU).
In light of recent trading performance a revised long-term business
plan for the Healthcare business has been developed with reductions
to forecast profits and cash flows. The Directors have reviewed the
revised long-term business plan for the Healthcare business and
believe that the assumptions on which it is based are reasonable
given current performance and market conditions. The Directors
continue to see long-term growth opportunities in the domiciliary
care and other related healthcare markets, especially in light of
the increasing political focus on the current funding of the sector
and the expected demographic shift in the UK.
The Directors recognise that there are risks and uncertainties
in its Healthcare CGU if the performance of the business does not
improve as expected over the longer term in line with the revised
business plan. Factors that could cause deterioration in the future
cash flows of the business compared to the plan include:
the inability to recruit and retain staff at appropriate wage
rates;
the inability to win new and retain existing contracts to
provide care hours at sustainable prices; and
an adverse structural change to outsourcing of care in the UK
caused by changes in UK Government policy.
The carrying value of goodwill relating to the Healthcare CGU of
GBP107.2m (2015: GBP106.6m) was GBP38.2m less than the recoverable
amount, being the net present value of the future cash flows that
are expected to be generated by the business. These cash flow
forecasts are derived from the detailed long term business plan,
with a terminal value using an inflationary growth rate assumption
of 2.5% based on industry growth forecasts and compound annual
revenue growth rates of 16% (using revenue of GBP78.0m reported for
the year ended 31 March 2016 as the reference point for the rate of
compound annual revenue growth) underpinning the growth in
operating profit in the first five years of the plan. The pre-tax
rate used to discount the forecast cash flows for the CGU is 9.1%,
which has been adjusted for the risks specific to the market in
which the CGU operates.
Further sensitivity testing was performed for the Healthcare CGU
as the Directors recognise that it is possible that an impairment
to the healthcare goodwill could be identified if the performance
of the business does not improve as expected over the longer term
in line with the business plan. They have considered the impact of
a range of sensitivities on the headroom between the recoverable
amount and the carrying value of the goodwill attributable to the
Healthcare CGU. The carrying value of goodwill (and other
intangible assets) becomes equal to its recoverable amount
following the application of the following sensitivities:
an increase in the pre-tax discount rate of 1.9%; or
a fall of 2.0% in the terminal value growth rate to a long-term
inflationary assumption of 0.5%; or
a 27% reduction in operating profit in year 5 and subsequent
years compared to the revised business plan.
Based on the commentary and analysis above, and considering
current market conditions, the Directors have concluded that the
value of goodwill of the Healthcare CGU is not impaired.
10. Other intangible assets
Acquisition
related
---------------------
Software
Total and
Customer acquisition development
relationships Other related expenditure Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------------- ----- ------------ ------------ -----
Cost
At 1 April 2014 86.8 10.5 97.3 46.6 143.9
Additions 1.6 0.4 2.0 3.9 5.9
Reclassifications from Property,
plant and equipment - - - 5.2 5.2
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2015 88.4 10.9 99.3 55.7 155.0
--------------------------------- -------------- ----- ------------ ------------ -----
Additions - - - 8.9 8.9
Reclassifications from Property,
plant and equipment - - - 8.5 8.5
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2016 88.4 10.9 99.3 73.1 172.4
--------------------------------- -------------- ----- ------------ ------------ -----
Amortisation
At 1 April 2014 41.7 8.2 49.9 14.7 64.6
Charge for the year 9.5 0.6 10.1 3.7 13.8
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2015 51.2 8.8 60.0 18.4 78.4
--------------------------------- -------------- ----- ------------ ------------ -----
Charge for the year 9.5 0.4 9.9 8.6 18.5
Write off of acquisition related
intangible assets 6.2 - 6.2 - 6.2
Reclassifications from Property,
plant and equipment - - - 2.4 2.4
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2016 66.9 9.2 76.1 29.4 105.5
--------------------------------- -------------- ----- ------------ ------------ -----
Carrying amount
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2016 21.5 1.7 23.2 43.7 66.9
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2015 37.2 2.1 39.3 37.3 76.6
--------------------------------- -------------- ----- ------------ ------------ -----
Customer relationships are amortised over their useful lives
based on the period of time over which they are anticipated to
generate benefits. These currently range from four to eight years.
Other acquisition related intangibles include acquired software and
technology which are amortised over their useful lives which
currently range from three to ten years. Software and development
costs are amortised over their useful lives of between five and ten
years, once they have been brought into use.
The customer relationships relating to the Healthcare business
have been impairment tested in accordance with IAS 36 following the
losses made by that business. As a result a write off of GBP6.2m
has been recognised as a result of healthcare contracts exited
during the year on financial grounds.
11. Financing assets
2016 2015
GBPm GBPm
--------------------------------------- ----- -----
Derivative financial instruments 14.4 6.8
Loans to joint ventures and associates - 1.2
--------------------------------------- ----- -----
14.4 8.0
--------------------------------------- ----- -----
Included in current assets - -
Included in non-current assets 14.4 8.0
--------------------------------------- ----- -----
14.4 8.0
--------------------------------------- ----- -----
12. Trade and other receivables
2016 2015
GBPm GBPm
---------------------------------------------- ----- -----
Amounts receivable for the sale of services 213.5 202.3
Allowance for doubtful debt (3.8) (8.4)
Trade receivables 209.7 193.9
Amounts recoverable on construction contracts 2.6 8.1
Mobilisation costs (Note 13) 28.6 30.6
Accrued income 236.2 192.6
Prepayments 36.4 38.2
Other debtors 19.2 16.5
---------------------------------------------- ----- -----
532.7 479.9
---------------------------------------------- ----- -----
Included in current assets 446.7 421.4
Included in non-current assets* 86.0 58.5
---------------------------------------------- ----- -----
532.7 479.9
---------------------------------------------- ----- -----
* Non-current trade and other receivables comprise Mobilisations
costs of GBP17.3m and accrued Income on long-term complex contracts
of GBP68.7m, which are further analysed in notes 13 and 14
respectively
Ageing of trade receivables:
2016 2015
GBPm GBPm
---------------------------------------- ----- -----
Neither impaired nor past due 158.4 149.7
Not impaired and less than three months
overdue 38.1 34.6
Not impaired and more than three months
overdue 14.4 13.5
Impaired receivables 2.6 4.5
Allowance for doubtful debt (3.8) (8.4)
---------------------------------------- ----- -----
209.7 193.9
---------------------------------------- ----- -----
Movement in the allowance for doubtful debt:
2016 2015
GBPm GBPm
------------------------------------- ----- -----
Balance at the beginning of the year 8.4 6.2
Impairment losses recognised 1.3 5.6
Amounts written off as uncollectable (4.3) (2.4)
Amounts recovered during the year (1.6) (1.0)
------------------------------------- ----- -----
3.8 8.4
------------------------------------- ----- -----
The average credit period taken on sales of services was 28 days
(2015: 26 days).
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
13. Mobilisation costs
2016 2015
GBPm GBPm
------------------------------------------- ------ ------
At 1 April 30.6 30.3
Additions 12.0 19.6
Amounts recognised in the income statement (14.0) (19.3)
------------------------------------------- ------ ------
At 31 March 28.6 30.6
------------------------------------------- ------ ------
Included in current assets 11.3 12.4
Included in non-current assets 17.3 18.2
------------------------------------------- ------ ------
28.6 30.6
------------------------------------------- ------ ------
14. Accrued Income on long-term complex contracts
2016 2015
GBPm GBPm
------------------------------------------- ----- -----
At 1 April 48.4 26.9
Amounts recognised in the income statement 28.7 21.5
At 31 March 77.1 48.4
------------------------------------------- ----- -----
Included in current assets 8.4 8.1
Included in non-current assets 68.7 40.3
------------------------------------------- ----- -----
77.1 48.4
------------------------------------------- ----- -----
15. Provisions
Deferred
contingent Insurance
consideration reserve Total
GBPm GBPm GBPm
-------------------------------------- -------------- --------- -----
At 1 April 2015 11.4 0.9 12.3
Amounts recognised in the income
statement
Amounts recognised through goodwill 0.1 - 0.1
Utilised within the captive insurance
subsidiary - (0.4) (0.4)
Deferred contingent consideration
settled in cash during the period (9.3) - (9.3)
Amounts recognised through equity (1.8) - (1.8)
-------------------------------------- -------------- --------- -----
At 31 March 2016 0.4 0.5 0.9
-------------------------------------- -------------- --------- -----
Included in current liabilities 0.4
Included in non-current liabilities 0.5
-------------------------------------- -------------- --------- -----
0.9
-------------------------------------- -------------- --------- -----
The provision for insurance claims represents amounts payable by
Mitie Reinsurance Company Limited in respect of outstanding claims
incurred at the balance sheet dates. These amounts will become
payable as each year's claims are settled.
Deferred contingent consideration settled in cash includes
GBP4.7m in respect of the remaining 49% in Creativevents Limited,
and GBP3.8m in respect of the prior year acquisition of the
remaining 49% of Direct Enquiries Holdings Limited.
16. Analysis of debt
2016 2015
GBPm GBPm
------------------------------------------ ------- -------
Cash and cash equivalents 93.1 96.4
Bank loans (13.6) (13.9)
Private placement notes (268.2) (263.6)
Derivative financial instruments hedging
private placement notes 14.4 6.8
------------------------------------------ ------- -------
Net debt before obligations under finance
leases (174.3) (174.3)
------------------------------------------ ------- -------
Obligations under finance leases (4.0) (3.5)
------------------------------------------ ------- -------
Net debt (178.3) (177.8)
------------------------------------------ ------- -------
17. Acquisitions
During the year a net cash outflow of GBP8.0m arose on the
acquisitions set out below:
GBPm
------------------------------------- -----
Procius Limited 0.3
Source Eight Limited 0.6
Direct Enquiries Holdings Limited 3.8
Creativevents Limited 4.7
Mitie Property Services (UK) Limited (1.1)
Tascor Medical Services Limited -
Other (0.3)
------------------------------------- -----
Net cash outflow on acquisitions 8.0
------------------------------------- -----
Current year acquisitions
Entities acquired during the year contributed GBP2.1m to revenue
and GBP0.1m to the group's operating profit before other items for
the period. If the acquisitions had taken place at the start of the
period, the group's revenue and operating profit before other items
would have been approximately GBP2,244m and GBP130m
respectively.
The acquisitions enhanced our overall offering to clients. The
goodwill arising on the acquisitions is attributable to the
underlying profitability of the companies in the acquired group,
expected profitability arising from new business and the
anticipated future operating synergies arising from assimilation
into Mitie. None of the goodwill recognised is expected to be
deductible for income tax purposes.
Purchase of Tascor Medical Services Limited
On 29 January 2016, Mitie acquired the leading UK Custodial
Medical Services provider for a total consideration of GBP0.6m
(GBPnil on a cash free basis), giving rise to goodwill of GBP0.7m.
The transaction has been accounted for by the acquisition method of
accounting in accordance with IFRS 3 (2008) and is not material to
the group.
Purchase of non-controlling interests
During the year Mitie purchased 49% of the share capital of
Creativevents Limited for a cash consideration of GBP4.7m of which
was paid in the year.
During 2016, Mitie reduced its original business valuation of
the acquisition of Mitie Property Services (UK) Limited in 2013
which resulted in a net cash inflow of GBP1.1m.
Prior year acquisitions
The provisional acquisition accounting for prior year
acquisitions as disclosed in the 2015 Annual Report and Accounts
was reviewed during the period resulting in a reduction of the fair
value of net assets acquired of GBP0.1m and an increase of goodwill
of GBP0.1m. These adjustments comprise an adjustment to estimates
made at the end of the prior year and within a year from the date
of acquisition in line with the requirements of IFRS 3 'Business
Combinations'. The adjustments have not materially changed the net
assets of the group and therefore the 2015 comparative information
has not been restated.
18. Notes to the consolidated statement of cashflows
2016 2015
----------------------------- ---------------------- ----------------------
Before Before
other Other other Other
items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------ ------ ------ ------ ------ ------
Cash conversion
Operating profit 128.9 (16.4) 112.5 128.6 (72.6) 56.0
Depreciation 15.1 - 15.1 19.7 - 19.7
Amortisation 8.6 16.1 24.7 3.7 10.1 13.8
Earnings before interest,
tax, depreciation and
amortisation (EBITDA) 152.6 (0.3) 152.3 152.0 (62.5) 89.5
----------------------------- ------ ------ ------ ------ ------ ------
Cash generated by operations 116.1 (1.5) 114.6 144.6 (31.4) 113.2
----------------------------- ------ ------ ------ ------ ------ ------
Cash conversion(1) 76.1% 75.2% 95.1% 126.5%
----------------------------- ------ ------ ------ ------ ------ ------
Free cash flow
Cash generated by operations 114.6 113.2
Purchase of property,
plant and equipment (15.7) (23.0)
----------------------------- ------ ------ ------ ------ ------ ------
Purchase of other intangible
assets (8.9) (3.9)
Disposals of property,
plant and equipment 2.2 1.8
Income taxes paid (15.7) (15.5)
Interest paid (including
facility extension fees) (13.4) (15.1)
Free cash flow 63.1 57.5
----------------------------- ------ ------ ------ ------ ------ ------
1. Cash conversion is calculated as cash generated by operations
as a percentage of EBITDA
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUMCAUPQGMU
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