TIDMMTO
RNS Number : 7441H
MITIE Group PLC
12 June 2017
Mitie Group plc
Moving "Beyond FM...to the Connected Workspace", following
a year of change
----------------------------------------------------------
Preliminary results for the year ended 31 March 2017
Group Results FY17 FY16 YoY change
Continuing operations Restated(1)
------------------------- ------------ ------------- ----------
Adjusted(2)
Revenue GBP2,140.0m GBP2,133.4m 0.3%
Operating profit GBP82.0m GBP95.2m -13.9%
Reported
Revenue GBP2,126.3m GBP2,146.9m -1.0%
Operating (loss)
/ profit before other
items GBP(6.3m) GBP113.9m -105.5%
Operating (loss)
/ profit GBP(42.9m) GBP107.6m -139.9%
Basic (loss) / earnings
per share (14.7p) 20.1p -173.1%
------------------------- ------------ ------------- ----------
Operating cash flow GBP151.1m GBP114.6m 31.8%
Net debt GBP147.2m GBP178.3m -17.4%
Dividend per share 4.0p 12.1p -66.9%
------------------------- ------------ ------------- ----------
Order book(3) GBP6.5bn GBP6.6bn -1.0%
Sales pipeline(4) GBP8.7bn GBP7.9bn 10.1%
------------------------- ------------ ------------- ----------
(1) FY16 numbers have been restated to correct material errors
found during the Accounting Review
(2) For this year an Alternative Performance Measure has been
provided to adjust for one-off items in both FY17 and FY16 to
reflect a more meaningful analysis of our Adjusted operating
performance before other items. For details see Financial
Review.
(3) Basis for calculation of order book changed to remove
anticipated unsecured work, now included in pipeline
(4) Basis for calculation of pipeline changed to include
anticipated unsecured work, no longer included in order book
Highlights
-- A strategic review has been conducted, a new strategy
("Beyond FM...to the Connected Workspace") launched and a major
GBP45m cost efficiency programme ("Project Helix") is underway, led
by a new management team and a refreshed Board
-- Adjusted Revenue of GBP2.14bn (FY16: GBP2.13bn) rose
marginally in a challenging year, with our core Facilities
Management business growing 3%
-- The Accounting Review has been completed with GBP34.5m of
prior periods adjustments* (of which GBP20.9m expenses were
restated in FY16). Within the reported operating loss, GBP88.3m of
one-off items were recognised in FY17
-- The reported operating loss of GBP(42.9)m (FY16: profit of
GBP107.6m) arises from the one-off accounting adjustments
-- Adjusted operating profit(2) , which provides a better
like-for-like performance comparison, fell by GBP13.2m to GBP82.0m
(FY16: GBP95.2m) due to lower gross margin (GBP10.7m) and increased
overheads (GBP2.5m)
-- Year-end net debt position at GBP147.2m (FY16: GBP178.3m) has
fallen; lender definition amendment agreed and covenants in
compliance
-- The exit from the domiciliary healthcare market has been
completed with a GBP132.3m loss from the discontinued
operations
-- The Board is not recommending a final dividend. Total
dividend for the year is 4.0p (FY16: 12.1p)
* Excluding healthcare goodwill of GBP26m
** Gross, before re-investments
Phil Bentley, Chief Executive of Mitie, commented:
"This has been a challenging year for Mitie. We have reported a
loss as a result of the one-off accounting adjustments arising from
the Accounting Review. We are now focused on the future of the
business and I am encouraged that our Order Book has held up and
our Pipeline is growing.
Following a full strategic review we are investing in technology
in the workspace to meet our customers' evolving needs and we are
embarking on a major cost reduction programme. With the support of
our 53,000 colleagues, we will take Mitie "Beyond FM...to the
Connected Workspace".
_________________________________
For further information please contact:
John Telling, Group Corporate Affairs Director. M: +44 (0) 7979
701006 E: john.telling@mitie.com
Anna Chen, IR Manager. M: +44 (0) 781 852 7265 E: anna.chen@mitie.com
Mitie will be presenting its preliminary results for the year
ended 31 March 2017 at 09.00 on Monday 12 June 2017. A live webcast
of the presentation will be available online at
www.mitie.com/investors at 09.00. The recorded webcast of the
presentation and a copy of the accompanying slides will also be
available on our website later in the day.
About Mitie
Mitie is a FTSE 250 business providing a wide range of
facilities management and professional services, from real estate
consultancy, project management, energy consultancy, compliance,
risk assessment and security systems to cleaning, catering,
engineering, technical and environmental services and a range of
specialist services.
We work in partnership with organisations to deliver long-term
savings, managing and maintaining some of the nation's most
recognised landmarks for a range of blue-chip public and private
sector customers.
We are the UK's largest Facilities Management Company employing
some 53,000 people across the country.
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 12 June 2017
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.
This statement contains insider information.
Overview
It has been a challenging year for Mitie. The Group reported a
statutory loss for FY17, impacted by one-off accounting adjustments
arising from the Accounting Review. The underlying business
remained resilient with Adjusted Revenue broadly unchanged despite
the challenges and wider economic uncertainties. The Board has
implemented its succession plans, with new and effective leadership
in place to guide Mitie through its next phase of growth and
development.
With refreshed leadership in place the business is in a strong
position to focus on the future. The Group has completed a
comprehensive, independent and management review of its accounting
policies, judgements made under those policies and the balance
sheet. Based on the results of the review, and the new information
available to the Board, the Board has taken the appropriate action
and agreed substantial balance sheet write-downs and prior year
adjustments. The balance sheet has now been addressed and a number
of measures implemented to strengthen the finance function and
financial disciplines within the business.
A decision was made during the year to focus on the core
business and against continuing to fund the ongoing losses and
long-term turnaround plan of our healthcare business. The
domiciliary healthcare business was exited in February 2017 and has
resulted in a substantial impairment of goodwill and loss on
disposal.
A strategic review was conducted at the end of FY17. We have
since developed a new strategy, paving the way forward to building
the foundations for shareholder value creation. The four strategic
imperatives are:
1. Put our customers at the heart of our business
2. Transform our cost base and restore our balance sheet strength
3. Build a winning culture and team, to develop and retain our people
4. Uplift our investment in technology to provide customer
insights and ease of doing business with
Mitie is a market leader in the provision of facilities
management ("FM") services and has a portfolio of blue chip
clients. Revenues, profits and cash flows have demonstrated their
resilience and net debt was lower than expected at the year end.
The Group plan to make significant investments in its people and
the transformation programme will deliver significant cost
efficiencies in the future. Leveraging technology and extending our
customer proposition into strategic consultancy will support our
future growth aspirations, as will our strong UK market
position.
It is the Group's intention to maximise the potential of its
core business in FM and address the longer term opportunity of
moving "Beyond FM... to the Connected Workspace".
Results
Although lower reported revenue, at GBP2.13bn (2016: GBP2.15bn),
reflects the revenue impact of the Accounting Review, adjusted
revenue at GBP2.4bn, was marginally ahead of last year. The
reported operating loss for the year was GBP(42.9)m (2016: profit
GBP107.6m) with basic earnings per share decreasing to (14.7)p
(2016: 20.1p). Adjusted profit, however, fell by only GBP15m to
GBP82.0m (2016: GBP95.2m).
Net debt at the year-end was GBP147.2m (2016: GBP178.3m). The
Group has agreed an amendment to its loan agreements with its debt
providers that has allowed it to make more conservative accounting
judgements and remain in compliance with its covenants. Net assets
of the group reduced by GBP271.7m to GBP89.8m, principally driven
by the losses on disposal of Healthcare.
During this period, our order book has remained flat at GBP6.5bn
(2016: GBP6.6bn). Our sales pipeline currently stands at GBP8.7bn
(2016: GBP7.9bn).
Dividend
Reflecting the lower earnings of the business and to improve our
balance sheet strength the Board has decided not to recommend a
final dividend this year, making the full year dividend 4.0p per
share (2016: 12.1p per share).
Board Changes
The Company implemented a succession plan: Ruby McGregor-Smith
left the business after nine years as Chief Executive and 15 years
on the Board and Suzanne Baxter left after 10 years as Finance
Director, with Phil Bentley (Chief Executive) and Sandip Mahajan
(Finance Director) appointed in December 2016 and February 2017
respectively. As previously announced, Derek Mapp joined the Board
as Chairman-elect on 9 May 2017 (and will take over from Roger
Mathews following the AGM on 26 July 2017) and Nivedita
Krishnamurthy joined the Board as a Non-Executive Director on 1
June 2017.
Outlook
It has been a challenging year but we are confident that our new
management team is capable of taking the business through its next
stage of growth and development. Mitie is a business with an
outstanding client base, great people and a diverse portfolio of
long-term FM contracts. We are investing in a major transformation
programme to improve our customer proposition, increase operational
efficiency, streamline processes, leverage technology and develop
and retain our people. We expect a return to modest growth in
underlying profits this year.
With our new investment-led strategy, we believe that there is a
significant opportunity to transform Mitie into a more focused,
higher growth/higher margin business which, in time, will result in
materially increased shareholder value.
Financial Review
Reported financial performance
Reported revenue was GBP2,126.3m (2016:GBP2,146.9m), a modest
decline due to the revenue impact of the Accounting Review, offset
by favourable currency movements. As a consequence of the
Accounting Review, prior year errors, goodwill impairments and
costs of change, Operating loss was GBP(42.9)m (2016: profit
GBP107.6m). Altogether this constitutes a disappointing year for
the Group.
Accounting Review
As announced in the January 2017 trading update, the new
Executive Management Team, with the approval of and working closely
with the Audit Committee, commissioned a wide-ranging Accounting
Review. This Accounting Review included independent support from
KPMG to review and advise management on the most material balance
sheet judgements in relation to long-term complex contracts,
accrued income, work in progress and mobilisation, as well as
providing support to management in considering some complex and
technical accounting analysis. The fieldwork concluded in May 2017
and its findings have since been approved by the Audit
Committee.
The Accounting Review identified a number of prior year errors
that, due to their materiality, required the restatement of results
for periods before 31 March 2017. The nature of these errors is
outlined in Note 1 and led to an error of GBP60.5m, of which
GBP26.0m is a restatement of goodwill impairment in 2016, GBP20.9m
relates to FY16 and GBP13.6m relates to earlier years. As a
consequence, the net impact of prior year adjustments in 2016 is
GBP20.9m before other items. Throughout this report, the 2016
comparatives are described as "Restated" which means they are
stated after adjustment for these errors.
In response to the Accounting Review, the Group has included
additional material balance sheet write-downs of GBP44.9m and has
created new provisions and accruals of GBP14.8m resulting in a
pre-tax adjustment to Net Assets of GBP59.7m. These are additional
to the GBP14.0m of one-off charges identified in the January 2017
trading update.
A key finding of the Accounting Review was that the Group's
accounting was less conservative than peers. In response, GBP39.7m
of additional asset write-downs were recognised which were more
judgemental in nature, and would result in no future cash
outflow.
Management considers that the Accounting Review and resulting
write-down of the balance sheet at 31 March 2017 reflects a fair
and balanced assessment process.
Alternative Performance Measure
The results of the Accounting Review, which led to both prior
year adjustments as well as asset write-downs of a non-recurring
nature, make it difficult to assess underlying operating
performance, which is a key focus for both investors and others
seeking to assess the group's performance. Therefore, for this year
(and for comparatives in the year ending 31 March 2018), an
Alternative Performance Measure has been provided to adjust for
both other items and one-off items in both FY17 and FY16, to
reflect more meaningful analysis of our like-for-like operating
performance (referred to as "Adjusted Revenue" and "Adjusted
Profit").
In considering its presentation of Adjusted Revenue and Adjusted
Profit, management has sought to ensure that items considered to be
non-recurring reflect a fair and balanced position. Reported
operating loss of GBP6.3m (2016: profit GBP113.9m) is increased to
an Adjusted Profit of GBP82.0m (2016: GBP95.2m) through recognition
of one off items of GBP88.3m (2016: GBP18.7m). Where appropriate,
management has sought to reflect a like-for-like position in
arriving at its Adjusted Revenue and Profit for 2016. The most
material items are as follows;
2017 2016
GBPm Restated
GBPm
---------------------------------------------------- ------- ---------
Revenue
Adjusted revenue 2,140.0 2,133.4
One offs:
Adjustment to accrued income on
long term complex contracts (20.4) 6.4
Accrued Income, debtors, prepayments
included in trade & other receivables (4.5) 8.3
Effects of foreign currency 11.3 -
Other one off items - (1.2)
Before Other Items 2,126.3 2,146.9
---------------------------------------------------- ------- ---------
Other Items - -
---------------------------------------------------- ------- ---------
Total revenue as reported 2,126.3 2,146.9
==================================================== ======= =========
Operating Profit
Adjusted Operating Profit 82.0 95.2
Impairment and amortisation of
intangible assets (note 15) (10.5) -
Adjustment to accrued income on
long term complex contracts (20.4) 6.4
Accrued Income, debtors, prepayments
included in trade & other receivables (36.4) 0.1
Impairment of mobilisation asset (5.7) -
Other provisions & Accruals (4.6) 7.6
Other one off items (10.7) 4.7
Before Other Items (6.3) 113.9
---------------------------------------------------- ------- ---------
Other Items (36.6) (6.3)
---------------------------------------------------- ------- ---------
Total operating (loss)/profit as
reported (42.9) 107.6
==================================================== ======= =========
A summary of material items is as follows:
Impairment and Amortisation of intangible assets
As part of the Accounting Review, management reassessed the
valuation of other intangible assets. This related to both the
ongoing usefulness and the useful life of each asset. The review
found that a GBP3.0m write down of software and development
expenditure was appropriate. In addition, a reduction in
anticipated useful life led to an increased amortisation charge of
GBP7.5m. Management does not consider these charges to reflect
adjusted performance and therefore has treated them as
non-recurring.
Adjustment to accrued income on long-term complex contracts
Long-term complex contracts accounted for under the percentage
of completion method involve a series of forward looking
assumptions and judgement is required to assess the balance of
those assumptions. In its review, management considered that it was
appropriate to exclude from the forecast anticipated but
uncontracted project work and anticipated energy savings. A total
of GBP20.4m (2016: credit GBP6.4m) has been written off the Accrued
Income balance on long term complex contracts. In calculating the
2016 Adjusted Revenue and Profit, the non-recurring increase in
lifetime margin recognised on a significant contract has been
excluded. Management does not consider these charges to reflect
current trading and therefore has treated them as
non-recurring.
Accrued income, debtors and prepayments included in trade and
other receivables
In its review of trading assets, management considered the
degree of judgement in the recognition of accrued income, the
recoverability of debtors, the appropriateness of prepayment assets
and the valuation of other receivables. Management concluded that
it was appropriate to either write off or increase the level of
provisions made against such items, totalling GBP36.4m (2016:
nil).
Further items recognised in other categories include impairment
of Mobilisation assets, other provisions and other one off items
totalling GBP20.0m (2016: GBP12.4m).
The group intends to revert to its usual presentation of profit
before other items next year as the Accounting Review is
anticipated to be a one off event. The Adjusted results are
presented after adding back the GBP88.3m (2016: credit GBP18.7m)
identified as part of the Accounting Review above.
Adjusted revenue and operating profit
The Group's Adjusted revenue increased marginally in the year,
from GBP2,133.4m to GBP2,140.0m. This was principally due to strong
revenue growth in Security offset by a significant volume decline
in Property Management. Adjusted operating profit has fallen by 14%
in the year from GBP95.2m to GBP82.0m, driven by volume decline in
Property Management and a difficult year for both Cleaning and
Engineering Services.
Other items before discontinued operations
Other items (with the exception of goodwill which is described
below) total GBP21.6m (2016: GBP6.3m). This includes GBP14.9m of
one-off costs of organisation change. The nature of these costs are
to support the group's cost efficiency and transformation
programmes and specifically relate to project management support
for the change process, together with the costs of redundancy for
people leaving the business. Secondly, GBP6.7m (2016: GBP6.3m)
relates to the amortisation of acquisition related intangible
assets. The tax credit on other items was GBP4.1m (2016: GBP1.3m)
resulting in other items after tax of GBP(32.5)m (2016:
GBP(5.0)m).
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 GBP534m in the year to March 2017 (2016:
GBP507m). This comprised GBP15m of UK corporation tax and GBP519m
of indirect taxes including business rates, VAT and payroll taxes
paid and collected. As our business is primarily based in the UK,
our effective tax rate should track the UK statutory tax rate. Due
to losses incurred during the year we do not expect to pay any
corporate tax in FY18 and will be obtaining a repayment of tax
overpaid in prior years. The amount due is shown as a current tax
asset on our balance sheet.
Discontinued Operations
In February 2017, Mitie completed the disposal of its UK social
care division comprising the domiciliary care and homecare
businesses, Enara Group Limited and Complete Care Holdings Limited,
to Apposite Capital LLP, a specialist healthcare investor, for a
cash consideration of GBP2.
The Group agreed to contribute GBP9.45m to the funding of
trading losses and the cost of the turnaround plan, payable in two
tranches. The first tranche (GBP5.4m) was paid on 1 April 2017 with
the second (GBP4.05m) to be paid on 1 July 2017. The total loss on
disposal was GBP30.4m.
The Audit Committee appointed KPMG to review the circumstances
surrounding the judgement made on Healthcare goodwill at 31 March
2016. As a result of the review the Audit Committee has considered
that one or more errors had been made in preparation of the plan
that was approved by the Board and formed the basis for impairment
testing of Healthcare goodwill. Correction of these errors reduces
the value in use by GBP64.0m which results in an impairment to
Healthcare of GBP26.0m at 31 March 2016, and this has been adjusted
in the prior year figures. The remaining GBP81.1m Healthcare
goodwill has been written off in the year ended 31 March 2017 along
with other intangible assets written off and amortised in the year
totalling GBP11.4m (2016: GBP10.1m). In addition GBP0.3m
restructure costs have been incurred. These other items, in
addition to the trading loss incurred for the period to disposal of
GBP12.0m, resulted in a total loss from discontinued operations of
GBP132.4m (2016: GBP39.0m), after tax credits of GBP2.8m (2016:
GBP3.0m).
Mitie Model
Mitie historically operated an investment programme known as the
Mitie Model. No new Mitie Model arrangements were created during
the year and this past construct will be replaced by a more
traditional Group LTIP Programme. At 31 March 2017, Mitie holds
majority interests in six Mitie Model companies with a carrying
value of GBP2.3m, disclosed as non-controlling interests in the
balance sheet.
The Group will be ceasing its practice of buying back shares to
offset shares issued under the Mitie Model or future LTIP
arrangements.
Balance sheet
The Group's net assets reduced significantly at 31 March 2017 to
GBP89.8m (FY16: GBP361.5m). The GBP271.7m reduction is principally
driven by GBP132.4m relating to the discontinued Healthcare
operations, along with GBP59.7m of adjustments relating to the
Accounting Review and GBP29.6m of net actuarial loss on the Group's
pension schemes.
Goodwill and intangible assets
Goodwill and other intangible assets of GBP397.1m (2016:
GBP504.1m) were held on the balance sheet at 31 March 2017.
Impairment of the goodwill in relation to Healthcare accounts for
GBP81.1m of this reduction, along with amortisation and impairment
charges totalling GBP36.9m.
In addition, the Board has carefully reviewed the carrying value
of goodwill in the Property Management CGU and while it considers
that the business plan is achievable, it has also come to the
conclusion that considering the balance of risks and opportunities,
a disappointing performance in FY17 and sensitivity analysis, an
impairment of GBP15.0m is appropriate, reducing that CGU's goodwill
to GBP70.2m (2016: GBP85.2m).
Other goodwill balances have been maintained and there were no
acquisitions during the year giving rise to goodwill.
Working capital & invoice discounting
Operating cash flow improved to GBP151.1m (2016: GBP114.6m). In
order to properly understand the true working capital performance,
it is helpful to strip out both the effects of the one-off
write-offs and the utilisation of invoice discounting.
The one-off write-offs either reduce debtors or increase
provisions, both of which have the effect of a one-time improvement
on working capital, which offsets the reported base level of
EBIT.
The Group has used non-recourse invoice discounting for a number
of years. During the year, our utilisation of invoice discounting
facilities increased by GBP28.5m (FY16 increase: GBP23.1m). Net
other trade payables/receivables increased by GBP18.0m, largely as
a consequence of extending credit terms.
After stripping out these effects, working capital from
continuing operations has improved by GBP18.0m (2016:
GBP(34.4)m).
Cash
As a result of the net working capital movement, net debt at 31
March 2017 was GBP147.2m (2016: GBP178.3m).
Net debt and lender covenants
As at 31 March 2017, the Group has GBP527m of committed funding
arrangements. In September 2016, we extended our GBP275m
multi-currency Revolving Credit Facility (RCF) for a further two
years to July 2021, with no change to terms. Our GBP252m of US
Private Placement notes are spread over four maturities between
December 2017 and 2024.
Mitie's two key covenant ratios are leverage cover (ratio of net
debt to EBITDA to be no more than 3x) and interest cover (ratio of
EBITDA to net finance costs to be no less than 4x). Following the
end of the year, the group approached its lenders to seek their
agreement to exempt further asset write-downs of GBP39.7m from
covenant calculations. These write-downs are judgemental in nature
and will not result in future cash outflows. Lender approval was
received and these write-downs are included in these accounts. Due
to the technical provisions of IAS1 and the timing of this approval
being received after the year end, it has been necessary to
classify the drawn amounts under the RCF and the US Private
Placement notes (total GBP300m) as current rather than non-current
liabilities.
Retirement benefit schemes
The net deficit on our defined benefit pension schemes was
GBP74.2m (2016: GBP35.5m). The increase has been principally driven
by a 95 basis point reduction in the discount rate used by the
Group to determine its pension obligations. This has been
principally driven by a reduction in corporate bond yields. The
accounting deficit on Mitie's principal defined benefit scheme at
31 March 2017 was GBP70.7m (2016: GBP34.4m). Whilst this deficit
has fallen since the half year by GBP10.5m, Mitie intends to
develop a deficit reduction plan in the autumn of 2017, once the
actuarial triennial valuation at 31 March 2017 is completed.
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 GBP3.5m (2016: GBP1.1m).
The Group has commenced consultation with those employees who
continue to accrue benefits under defined benefit arrangements with
a view to moving to a defined contribution basis in line with the
majority of employees in the Company and the wider market.
Articles - Borrowing Powers
Due to the reduction of net assets, it has become necessary to
address the borrowing powers limit contained in the Company's
Articles of Association. The borrowing powers limit is a
constitutional requirement and is not connected with the Group's
ability to borrow money from commercial lending markets but is an
internal constitutional constraint. The limit is currently set at
2x adjusted net assets, which the Board believes is insufficient
cover in light of the write-offs reported in the financial
statements, given the normal intra-year swings in net debt.
Therefore, the Company is holding an Extraordinary General Meeting
on 12 June 2017 to seek shareholders' permission to increase this
limit to a fixed amount of GBP1.5bn. This does not indicate that
the Company wishes to increase its level of indebtedness per se;
rather control over the Company's ability to raise funding
continues to be primarily limited through the application of lender
covenant ratio requirements, as detailed above. However, our
lenders do require the Group to be compliant with its Articles at
all times.
Operating Review
In January 2017, the Company announced a new organisation and a
new leadership team. The financial and operating performance of our
6 business units reflect this new organisation, and the way we run
the business.
All numbers here are reported on the 'Alternative Performance
Measure', which provides a better like-for-like performance
comparison.
Cleaning & Environmental Services
FY17 FY16
GBPm Restated
Revenue 395.4 408.7
Adjusted revenue 399.0 407.1
Operating profit before
other items 6.0 25.5
Adjusted operating profit 20.3 23.6
Order book 811 894
-------------------------- ----- ---------
We remain one of the largest cleaning services providers in the
UK, offering a full suite of cleaning services as well as
specialist services, such as pest control, landscaping, and
gritting. The new division unites our Cleaning business with our
Pest Control and Landscaping businesses (Environmental Services).
Waste Management, which previously sat within Environmental
Services, has been realigned with Professional Services due to the
advisory nature of its services.
The business reported GBP395.4m of revenue and GBP6.0m of
operating profit before other items. Adjusted operating profit was
down 14% year on year to GBP20.3m. The significant
under-performance in Cleaning was partly offset by the strong
performance from Environmental Services.
It was a difficult year for Cleaning, with revenues down 5% with
further deterioration in margins. The business faces significant
structural headwinds from service commoditisation, low barriers to
entry, and price competition.
Despite a difficult trading year, the business secured a number
of contracts with high-profile customers, including an expanded
street furniture cleaning and maintenance contract with Transport
for London (TfL), a renewal with Hinchingbrooke Health Care NHS
Trust and an expansion with Amazon.
Our client retention rate for FY17 was below expectations. Our
NPS score tells a similar story, with a slippage of 4 points, but
we anticipate an improvement as we realign our sales force and
bolster our proposition post the recent restructure.
We recognise the structural headwinds of the overall Cleaning
sector and we are responding to these pressures by: extending our
capabilities into more technical areas of work; simplifying our
overhead structure; and introducing improved technology for better
workforce management. To improve our workforce management and
employee engagement, we have accelerated the implementation of
Workplace+, a handheld-enabled, all-in-one operations portal for
scheduling, payslips and supplies. In FY16, there were no cleaning
operatives on Workplace+, at the end of FY17 there were 15%, and
our target is to have more than 80% of our operatives on the portal
by the end of FY18. The wide adoption of Workplace+ will also allow
the business to better communicate with our employees, measure and
analyse productivity patterns, and enable rapid roll-out of best
practices.
Technology has a key role to play in the shift towards a
demand-based workforce where cleaning is performed at optimal
efficiency. It will also allow us to improve employee engagement,
enhance our internal communications, cement the 'Mitie-way' of
doing things, and create genuine efficiencies through a 'connected'
workforce.
The Environmental Services segment has outperformed this year,
contributing c.50% to overall divisional adjusted operating
profits. We saw strong revenue growth of 23% and adjusted profit
growth of 4%.
The Pest Control business had a solid year with continued
organic profit growth. It renewed contracts with Mitchell &
Butler, Young's and Homeserve. The business continues to expand by
targeting growth in food manufacturing, retail and distribution, as
well as through innovative solutions such as drone technology. Used
with a number of our clients, drone technology enables safer and
more efficient inspections. The business has also invested
extensively in an operations platform, to improve the efficiencies
of our technicians, customer experience and reporting.
Landscaping has had an exceptional year following the successful
mobilisation of contracts secured at the end of FY16. The business
has commenced work on several new contracts: Merseyrail, NHS
Property Services, JPMorgan and The Southern Co-operative. However,
earnings from gritting were softer than expected due to a milder
than average winter in the UK.
Over the next 12 months, the focus will be on looking after our
customers better, by getting the basics right. This means
simplifying our business structure and making operations more
efficient and effective. Our goal is to transform our cost base by
eliminating role duplication and ineffective processes, and to
improve productivity by using existing toolkits and standardising
how we operate.
Security
FY17 FY16
GBPm Restated
-------------------------- ----- ---------
Revenue 404.2 364.4
Adjusted revenue 404.2 364.4
Operating profit before
other items 16.1 20.8
Adjusted operating profit 19.9 19.8
Order book 876 776
-------------------------- ----- ---------
We are currently the 2nd largest integrated security services
provider in the UK, uniquely delivering a full suite of services
and products, including security personnel, remote monitoring,
mobile response solutions, and fire and security systems - all
underpinned by a risk-based ethos. Working across all sectors we
are the leading provider in the transport and aviation and retail
sectors along with critical security environments.
The new Security division comprises Security Management, Front
of House, Document Management, and our employee vetting business -
Procius. The grouping of these businesses allows us to further
develop our technology capabilities and enhance solutions in a
collaborative and integrated way. Our goal is to build upon and
strengthen our market-leading position, continue to influence
buying behaviours, and cement long-term partnerships with our
customers through innovative operating models.
In a highly competitive market, our focus is to deliver
sustainable growth through a converged service offering,
challenging traditional procurement approaches by raising awareness
of risk-based, technology-driven solutions. We want to be known as
industry and thought leaders in risk-based deployment, across all
the sectors we operate in. We strive to attract and retain our
customers through the provision of exceptional service, and we are
pleased to report a 67% increase in our NPS score in FY17.
The division reported GBP404.2m of revenue and GBP16.1m of
operating profit before other items. Adjusted operating profit
remained relatively flat, margin deteriorated, impacted by contract
losses from Front of House. Strong sales performance has resulted
in 13% growth in our order book to GBP876m.
Earlier this year, we were awarded an expanded contract with
leading supermarket chain, Sainsbury's, where we have implemented a
risk-based deployment model, applying software and handheld
technology to capture incidents and analyse data to drive informed
decision making.
Over the last 12 months, the Security Management team has
renewed a number of major contracts, including Citigroup,
Technicolor, John Radcliffe Hospital, DP World and Strathclyde
Passenger Transport. Customer retention rate closed at 84% vs. 77%
in the prior year. In FY17, our new business wins came in at 30%
above the previous year. Notable contract awards include the
expansion of Sainsbury's, London City Airport, BNP Paribas and NHS
Property Services. Our sales pipeline has doubled year-on-year to
GBP1.2bn. We believe this is only the beginning of a paradigm shift
towards innovative risk-based solutions, and we will continue to
refine our proposition and look to gain further market share to
become the industry's leading security provider.
Our Document Management business had a solid year with 100%
client retention and organic growth across its portfolio. Similar
to security, the document management market is trending towards the
increased use of technology. The business has a national footprint
offering a full range of document process outsourcing services
ranging from managed print solutions and outsourcing of mail room
activities to a complete customised restructuring of document work
flows and processes. Recent deployments include the implementation
of hybrid mail into the second largest local authority in the UK as
well as one of the largest private sector landlords and new mail
tracking technology into clients including: PwC, Holman Fenwick
Willan and Herbert Smith Freehills.
Our front of house business was the recipient of the prestigious
Customer Focus Award at this year's UK Customer Satisfaction
Awards. However, our trading performance was significantly impacted
by contract losses. In FY18 the business will undergo a rebrand and
repositioning of its offering in the market, which will strengthen
its market position and ensure our delivery meets our customers'
needs. The business is looking to advance under new leadership and
move towards sustainable growth for the coming years.
Procius, our employee vetting business, which is one of the UK's
largest providers and the leader in the transport and aviation
sector of pre and post-employment screening and criminal records
checking services, continues to deliver strong growth. In FY17, we
saw an increasing demand for our services across existing customers
such as British Airways, Jet2 and EasyJet along with significant
contract wins, including Ovo Energy and Arsenal Football Club.
Procius has also widened its product offering to cover a broader
range of employment lifecycle services, which will deliver further
growth opportunities in FY18.
We expect further growth in FY18, supported by a solid delivery
model - combining risk analysis, technology deployment, off-site
monitoring and responsive services and we will continue to refine
our proposition in order to challenge and lead the market with our
approach to transformational client contracts.
Catering
FY17 FY16
GBPm Restated
-------------------------- ----- ---------
Revenue 134.3 126.6
Adjusted revenue 132.7 126.6
Operating profit before
other items 4.7 5.4
Adjusted operating profit 5.3 5.3
Order book 458 463
-------------------------- ----- ---------
Our goal is to be recognised as the UK and Ireland's most
distinctive, technology-enabled workplace catering experts, where
the "Well Being" of our clients' employees is high on the agenda.
We look to achieve this by concentrating on our core strength:
creating food with personality, served by people who are passionate
about delivering the highest quality of service. Our catering
division is comprised of Gather & Gather - our core brand, and
Creativevents - our specialist outdoor catering business.
Our people have always played a major part in our overall
proposition, and we are proud to report our staff retention rate
increased to 71% in FY17. In FY17, Gather & Gather received two
prestigious awards in recognition of its innovative approach. The
first award was the BIFM Brand Impact Award, recognising Gather
& Gather's founding mission of 'bringing food and people
together' to enhance the workplace. The second award was won by
head chef, Clark Crawley, who won Gold as part of the English
National Culinary team in the Culinary Olympics.
The business reported revenue of GBP134.3m and operating profit
before other items of GBP4.7m. Despite a solid 6% top line growth,
adjusted operating profit was flat due to contrasting performances
between Creative Events and Gather and Gather.
Gather & Gather delivered solid revenue growth, underpinned
by a number of new wins in Ireland, including a contract expansion
with LinkedIn. Our order book remains relatively stable at GBP458m.
We have also established a new baseline for NPS of 6.
External market forces such as food inflation have pushed up our
cost base and impacted our margin. Food inflation is an ongoing
factor. We believe that our core offering is attractive and
marketable, as we pay particular attention to the provenance of our
ingredients, how the food is served and how it impacts workplace
productivity. We continue to win contracts over competitors due to
our customised approach to service delivery.
Food is an integral driver of workplace productivity, and we are
engaging our own team and industry experts to develop technology
that will form a key pillar of Mitie's overall connected workspace
proposition. For example, Gather & Gather has introduced a
mobile application to improve the customer experience. The app is
live with a number of prestigious clients, allowing our customers
to pre-order, collect loyalty, leave feedback and receive targeted
push notifications.
Creativevents had a challenging year, impacted by external
factors such as adverse weather conditions and reduced attendances
at events following terrorism incidents in Europe. Furthermore, we
continued to exit non-profitable contracts after recent changes to
management. Despite the challenging backdrop of FY17, we continue
to provide retail bars, food and hospitality for a range of
prestigious clients, including Royal Ascot, the RHS Chelsea Flower
Show, the Farnborough Air Show and Lord's Cricket Ground.
The focus over the next 12 months is to fine-tune our offering,
and broaden the Gather & Gather brand and its reach. We have
established a strong presence in the media sector but there are
attractive opportunities in the financial and professional services
sector. Our goal is to build on our recent contract wins, and show
that we can adapt our style to suit professional services
firms.
Engineering Services
FY17 FY16
GBPm Restated
-------------------- ----- ---------
Revenue 797.4 800.3
Adjusted revenue 809.0 788.4
Operating profit
before other items 0.2 53.7
Adjusted operating
profit 37.9 42.0
Order book 3,259 3,325
-------------------- ----- ---------
*The difference between 'Reported' and 'Adjusted' revenue
relates largely to Adjustment to POC balances and accrued income as
part of the Accounting Review
We are one of the leading providers of engineering services in
the UK, delivering technical and building maintenance services
across a wide range of sectors and real estate assets. In addition
to our core maintenance offer, we provide critical specialist
services such as heating, cooling, lighting, water treatment and
building controls.
We have combined our Hard FM business, and the management team
of Integrated FM, into one division: Engineering Services.
Engineering services has historically been the service line with
the largest share of our integrated contracts; therefore, by
combining and streamlining operations, we can create financial and
operational synergies.
The overall business reported revenue of GBP797.4m and operating
profit before other items of GBP0.2m. The adjusted operating profit
declined 9.8% to GBP37.9m. Adjusted operating margin also declined
from 5.3% to 4.7%. The underlying trading performance has been
impacted by lower margin on chargeable works. Nevertheless with
contract extensions and new business wins our order book remains
steady at GBP3.3bn.
Despite the challenges above, we continued to pursue a number of
large opportunities and have delivered the following:
-- Extension and expansion of our contract with Thales
-- Retention of Allianz Insurance
-- Expansion of our contract at Heathrow Airport
-- An extension with the Scottish Parliament
-- Retention and expansion with Manchester Airport Group
-- An extension with Lakeside North Harbour business centre
The business also successfully mobilised contracts with NHS
Property Services and CTIL with combined revenue in excess of
GBP40m p.a. We see a significant amount of untapped potential in
both revenue and margins, given our critical mass in the UK. With
this in mind, we have fast-tracked the roll-out of a standardised
mobile workflow solution, MiJobs. Prior to MiJobs, the business had
several different mobile-enabled workflow solutions, and we have
migrated all mobile engineers to MiJobs over the last 12 months.
Our national footprint coupled with more effective workflow
management, will mean improved operational efficiency and superior
service delivery for our customers.
Over the next 12 months, our focus is on getting the basics
right. The business is embarking on a multi-year transformation
programme, designed to standardise and simplify our operations to
deliver the most efficient and effective service, at the lowest
cost to our clients.
This will begin with the integration of our core workforce, to
create a highly flexible and skilled team with the optimal support
systems. We will automate work flow management for scheduling,
tasking and billing. Our engineers will have the necessary training
and tools to operate in the safest and most effective manner and
deliver the highest quality of service for our customers.
Longer term, our vision is to use technology to link outputs to
the Connected Workspace, providing the most responsive and valued
service in the market. By using a combination of existing building
systems and environment sensors, along with energy data, asset
data, and workplace data, we will provide tailored solutions to
suit each client's unique requirements.
Professional Services & Connected Workspace
FY17 FY16
GBPm Restated
-------------------- ---- ---------
Revenue 90.9 97.9
Adjusted revenue 90.9 97.9
Operating profit
before other items 4.2 5.5
Adjusted operating
profit 6.7 5.6
Order book 221 190
-------------------- ---- ---------
Professional Services & Connected Workspace is our new
consultancy services division that thinks strategically, operates
collaboratively, and leverages technology to make a real difference
to our clients' real estate and facilities services. By combining
our consultancy capabilities with strategic account management, we
are advising our clients on how to save them money and improve
their working environments. Linking these capabilities with the new
technologies and analytics incorporated in our Connected Workspace
platform, we are very well placed to take our services Beyond FM.
Mitie has over 3,000 clients and a wide product offering, which
provides us with a wealth of opportunities to deliver more to our
clients by cross-selling and expanding service delivery.
The professional services team brings together our consultancy
businesses, including Source8, Mitie Waste and Utilyx (Energy
Services), allowing us to develop and provide comprehensive and
joined-up propositions for our clients. Our capabilities are
aligned with our Real Estate and Facilities Management offerings,
and include property and real estate, technology, risk management,
energy and sustainability. Our strategic sales and account
management team has been re-built under new leadership, with new
processes, to better target and manage our most important strategic
accounts.
Within this division we are building the Connected Workspace
solutions and capabilities. The Connected Workspace is a set of
evolving technology-driven solutions that will enable Mitie to
improve the delivery of facilities services and provide superior
value to our clients. For example, we are supporting a 20% estate
reduction target through design and smarter workplace management
for one of our largest customers. We are using real-time data
capture for analysis and monitoring to drive efficiencies through
occupancy-based energy controls and maintenance regimes.
The division reported GBP90.9m of revenue and GBP4.2m of
operating profit before other items. The adjusted operating profit
was up 22% from previous year. This is a relatively new division,
formed in the last quarter of FY17. Over the last 12 months, the
combined business saw a significant increase in consulting
activities with existing and new clients. Despite revenue decline
from the Waste business, it secured contracts with JLL, a large
national leisure operator, and expanded existing contracts with
Network Rail and Manchester Airport Group. The professional
services team was engaged to deliver strategic planning, real
estate reduction, and design and move projects for prestigious
clients such as ED&F Man.
Our focus is to differentiate Mitie's proposition in the market
through the provision of world-class professional services and
industry-leading Connected Workspace solutions. With the reach of
our products, the extent of our client base and our 53,000
colleagues, we will collect and analyse real-time data, and develop
targeted strategies that enhance the productivity and wellbeing of
our clients' workspaces.
Public Services - Property Management
FY17 FY16
GBPm Restated
-------------------- ----- ---------
Revenue 257.6 313.6
Adjusted revenue 257.7 313.5
Operating profit
before other items (4.5) 16.8
Adjusted operating
profit 12.3 16.2
Order book 663 639
-------------------- ----- ---------
The Property Management business provides a wide range of
maintenance services in the UK, predominantly to clients in the
social housing sector. The business also delivers claims handling
and repair services for insurance companies, and is the largest
painting and commercial refurbishment roofing provider in the
UK.
Property Management reported revenue of GBP257.7m and an
operating loss before other items of GBP4.5m. Adjusted operating
profit was disappointing at GBP12.3m down 25% year on year. This
was impacted by a shortfall of in-year project revenue, affecting
both top-line growth and the overall blended margin.
Revenue from the social housing business was negatively impacted
by delays in client capital spend, with its adjusted profit also
impacted by a reduction in higher margin project works. In adjusted
profit terms, the painting business had a positive year, and the
roofing business remained relatively flat versus previous year.
In light of the performance during the year, the Board has
carefully reviewed the carrying value of goodwill and while it is
confident that the business plan is deliverable, it has also come
to the conclusion that an impairment of GBP15.0m is appropriate,
reducing the goodwill to GBP70.2m (FY16: GBP85.2m).
The business has had a challenging trading year. Nevertheless,
our order book has remained buoyant, growing 4% to GBP663m. The
current order book contains over GBP100m of annual revenues held
within long-term (c.10yr) partnering contracts in housing, with a
blue chip client list.
Even though our NPS score declined marginally year-on year, we
did achieve a 100% success rate on long-term maintenance housing
contract re-bids.
Under new leadership, the sales and marketing team has
relaunched its value proposition to address the changing landscape
of the social housing market, developing two new propositions:
-- Integrated Property Management - bundling services to provide
enhanced asset management services
-- Partnership Solutions - to provide innovative long-term
solutions to address sector spending challenges
Our goal is to differentiate our offering in a relatively
commoditised market, by creating long-term partnerships, thinking
differently, and working innovatively to achieve our customer's
strategic goals.
We have seen some early traction, with notable wins including a
7+7yr Integrated Property Management contract with national social
housing provider, Home Group, worth GBP12.5m p.a; and a 5+5+5yr
Integrated Property Management contract with new client Islington
and Shoreditch Housing Association.
Technology has been an integral part of our integrated and
partnership offerings, as it brings efficiency and decision making
benefits to our clients. For example, the introduction of our
thermal-imaging drone service to help with home surveys. We will
continue to invest and deploy technology to improve the value we
provide to our customers.
The main focus for the next 12 months is to get the basics
right, invest in our people, deliver the highest quality service to
customers - at the right cost for our clients - and continue to
invest in the communities in which we work.
Public Services - Care & Custody
FY17 FY16
GBPm Restated
-------------------- ---- ---------
Revenue 46.4 35.6
Adjusted revenue 46.5 35.5
Operating profit
before other items 2.2 2.1
Adjusted operating
profit 2.9 2.7
Order book 244 310
-------------------- ---- ---------
Our Care & Custody business delivers a range of public
services for vulnerable adults in secure environments, on behalf of
the UK government. These include managing immigration detention
centres for the Home Office, forensic medical examiner (FME) and
custody support services for police forces across England and
Wales, and offender healthcare provision in two prisons on behalf
of NHS England.
Care & Custody had a good year, delivering revenue growth of
31% up from GBP35.6m in the previous year to GBP46.4m. Operating
profit was GBP2.1m in FY16 and GBP2.2m in FY17. Adjusted profit was
GBP2.9m up 7.4% year on year, despite building in some overhead
relating to upcoming bids.
Following the acquisition of Tascor Medical Services (now Care
& Custody Health), we have won c.GBP50m of new business over
the year. Expansion into the forensic medical services market
helped secure several flagship contract wins in the police FME
segment. We have also seen significant growth in the sales
pipeline, with an increase from GBP1.6bn to GBP2.9bn due to several
large Home Office contracts coming to market.
One of our flagship contract awards was for the provision of FME
services to Greater Manchester Police; a contract which also
includes liaison and diversion services, delivered through
partnerships with the NHS and the Cheshire and Greater Manchester
Community Rehabilitation Company. We envisage this model of
contract being adopted by other police forces, which should bolster
our pipeline in the future.
In order to deliver high-quality services, we need to attract
and retain the highest quality people. We have created specific
career paths and provide access to training and education. We are
currently pursuing a number of options to develop training and
apprenticeships for detention custody officers, clinicians and
managers, to upskill them and to create long-term careers for
ambitious and motivated individuals who want to join our team. We
see this approach as vital to helping secure a sustainable
recruitment pipeline; with an ageing and tightening labour market,
attracting and retaining talented individuals in this sector can be
difficult.
Our focus is to build on existing relationships, ensuring we
have a clear understanding of our clients' needs, and design
solutions that meet and exceed their expectations. This involves
maintaining the highest standards for those in our care. We
recognise that our policies and processes must reflect and respond
to relevant legislation, and actively embrace external regulatory
scrutiny. We underpin these principles by promoting a culture of
openness, transparency and high performance.
Consolidated income statement
For the year ended 31 March 2017
2017 2016 - Restated*(...)
--------- ---------------- --------- --------- -----------------------
Before Before
other Other other Other
items items(++) Total items items(++) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Continuing operations
Revenue 3,4 2,126.3 - 2,126.3 2,146.9 - 2,146.9
Cost of sales (1,896.5) - (1,896.5) (1,849.8) - (1,849.8)
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Gross profit 229.8 - 229.8 297.1 - 297.1
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Administrative expenses (236.7) (36.6) (273.3) (183.8) (6.3) (190.1)
Share of profit of joint ventures
and associates 17 0.6 - 0.6 0.6 - 0.6
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Operating (loss)/profit 4,7 (6.3) (36.6) (42.9) 113.9 (6.3) 107.6
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Investment revenue 9 - - - 0.1 - 0.1
Finance costs 10 (15.3) - (15.3) (15.8) - (15.8)
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Net finance costs (15.3) - (15.3) (15.7) - (15.7)
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
(Loss)/profit before tax (21.6) (36.6) (58.2) 98.2 (6.3) 91.9
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Tax 11 3.3 4.1 7.4 (19.5) 1.3 (18.2)
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
(Loss)/profit from continuing
operations
after tax (18.3) (32.5) (50.8) 78.7 (5.0) 73.7
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Discontinued operations
Loss from discontinued operations 6 (11.4) (121.0) (132.4) (5.0) (34.0) (39.0)
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
(Loss)/profit for the year (29.7) (153.5) (183.2) 73.7 (39.0) 34.7
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
Attributable to:
Equity holders of the parent (30.5) (153.5) (184.0) 71.6 (39.0) 32.6
Non-controlling interests 0.8 - 0.8 2.1 - 2.1
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
(29.7) (153.5) (183.2) 73.7 (39.0) 34.7
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
(Loss)/earnings per share (EPS)
attributable to equity shareholders
of the parent
From continuing operations:
* basic 13 (5.5)p (9.2)p (14.7)p 21.6p (1.5)p 20.1p
* diluted 13 (5.4)p (9.2)p (14.6)p 21.3p (1.4)p 19.9p
From continuing and discontinued
operations:
* basic 13 (8.7)p (43.7)p (52.4)p 20.1p (10.9)p 9.2p
* diluted 13 (8.6)p (43.3)p (51.9)p 19.9p (10.8)p 9.1p
----------------------------------- ----- --------- ---------------- --------- --------- ------------ ---------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
... See Note 6 for further detail on the re-presentation of the
prior year comparatives due to the treatment of the Healthcare
business as a discontinued operation.
++ Other items are as described in Note 5.
Consolidated statement of comprehensive income
For the year ended 31 March 2017
2017 2016
Restated*
Notes GBPm GBPm
---------------------------------------------- ----- ------- ----------
(Loss)/profit for the year (183.2) 34.7
---------------------------------------------- ----- ------- ----------
Items that will not be reclassified
subsequently to profit or loss
Remeasurement of net defined benefit
pension liability 38 (35.4) 3.0
Income tax relating to items not reclassified 5.5 (1.6)
---------------------------------------------- ----- ------- ----------
(29.9) 1.4
---------------------------------------------- ----- ------- ----------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of foreign operations 1.3 0.2
Gains/(losses) on hedge of a net investment
taken to equity 0.1 (0.7)
Cash flow hedges:
(Losses)/gains arising during the year 26.2 6.7
Reclassification adjustment for losses
included in profit and loss (21.4) (4.4)
Income tax charge relating to items
that may be reclassified 0.3 (0.7)
---------------------------------------------- ----- ------- ----------
(3.1) 1.1
---------------------------------------------- ----- ------- ----------
Other comprehensive (expense)/income
for the financial year (33.0) 2.5
---------------------------------------------- ----- ------- ----------
Total comprehensive (expense)/income
for the financial year (216.2) 37.2
---------------------------------------------- ----- ------- ----------
Attributable to:
Equity holders of the parent (217.0) 35.1
Non-controlling interests 0.8 2.1
---------------------------------------------- ----- ------- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
Consolidated balance sheet
At 31 March 2017
2017 2016 2015
Restated* Restated*
Notes GBPm GBPm GBPm
--------------------------------- ----- ------- ---------- ----------
Non-current assets
Goodwill 14 343.9 439.5 464.4
Other intangible assets 15 53.2 64.6 73.8
Property, plant and equipment 16 32.3 49.3 53.3
Interest in joint ventures and
associates 17 0.6 0.6 1.1
Derivative financial instruments 18 - 14.4 8.0
Trade and other receivables 19 50.3 84.8 58.5
Deferred tax assets 23 22.2 10.4 13.9
--------------------------------- ----- ------- ---------- ----------
Total non-current assets 502.5 663.6 673.0
--------------------------------- ----- ------- ---------- ----------
Current assets
Inventories 24 6.8 9.9 11.0
Trade and other receivables 19 381.0 432.1 416.8
Derivative financial instruments 18 35.8 - -
Current tax asset 12.1 - -
Cash and cash equivalents 25 129.1 93.1 96.4
Total current assets 564.8 535.1 524.2
--------------------------------- ----- ------- ---------- ----------
Total assets 1,067.3 1,198.7 1,197.2
--------------------------------- ----- ------- ---------- ----------
Current liabilities
Trade and other payables 26 (559.9) (496.1) (476.6)
Current tax liabilities - (3.9) (2.9)
Financing liabilities 27 (310.8) (1.9) (1.8)
Provisions 29 (20.4) (8.5) (10.5)
Total current liabilities (891.1) (510.4) (491.8)
--------------------------------- ----- ------- ---------- ----------
Net current (liabilities)/assets (326.3) 24.7 32.4
--------------------------------- ----- ------- ---------- ----------
Non-current liabilities
Trade and other payables 26 (3.4) (2.5) (8.0)
Financing liabilities 27 (1.3) (283.9) (279.2)
Provisions 29 (6.4) (0.5) (7.4)
Retirement benefit liabilities 38 (74.2) (35.5) (35.8)
Deferred tax liabilities 23 (1.1) (4.4) (7.5)
--------------------------------- ----- ------- ---------- ----------
Total non-current liabilities (86.4) (326.8) (337.9)
--------------------------------- ----- ------- ---------- ----------
Total liabilities (977.5) (837.2) (829.7)
--------------------------------- ----- ------- ---------- ----------
Net assets 89.8 361.5 367.5
--------------------------------- ----- ------- ---------- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016 and 1
April 2015.
Consolidated balance sheet continued
As at 31 March 2017
2017 2016 2015
Restated* Restated*
Notes GBPm GBPm GBPm
-------------------------------------- ----- ------- ---------- ----------
Equity
Share capital 32 9.2 9.3 9.4
Share premium account 33 130.6 127.7 122.6
Merger reserve 33 91.8 80.1 80.1
Own shares reserve 33 (42.2) (48.8) (47.5)
Other reserves 33 10.3 9.9 7.6
Hedging and translation reserve 33 (8.0) (4.6) (6.4)
Retained (losses)/earnings (104.2) 185.0 198.7
-------------------------------------- ----- ------- ---------- ----------
Equity attributable to equity holders
of the parent 87.5 358.6 364.5
-------------------------------------- ----- ------- ---------- ----------
Non-controlling interests 2.3 2.9 3.0
-------------------------------------- ----- ------- ---------- ----------
Total equity 89.8 361.5 367.5
-------------------------------------- ----- ------- ---------- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016 and 1
April 2015.
The consolidated financial statements of Mitie Group plc,
company registration number SC019230 were approved by the Board of
Directors and authorised for issue on 12 June 2017. They were
signed on its behalf by:
Phil Bentley Sandip Mahajan
Chief Financial
Chief Executive Officer
Consolidated statement of changes in equity
For the year ended 31 March 2017
Hedging
Share Own and
Share premium Merger shares Other translation Retained Non-controlling Total
capital account reserve reserve reserves reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
At 1 April 2015
-as reported 9.4 122.6 80.1 (47.5) 7.6 (6.4) 209.2 375.0 3.3 378.3
Restatements* - - - - - - (10.5) (10.5) (0.3) (10.8)
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
At 1 April 2015
- restated* 9.4 122.6 80.1 (47.5) 7.6 (6.4) 198.7 364.5 3.0 367.5
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
Profit for the
year - - - - - - 32.6 32.6 2.1 34.7
Other
comprehensive
expense - - - - - 1.8 0.7 2.5 - 2.5
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
Total
comprehensive
income - - - - - 1.8 33.3 35.1 2.1 37.2
Shares issued - 5.1 - - - - - 5.1 - 5.1
Dividends paid - - - - - - (42.2) (42.2) (0.2) (42.4)
Share buybacks (0.1) - - - 0.1 - (15.3) (15.3) - (15.3)
Purchase of
own shares - - - (6.6) - - - (6.6) - (6.6)
Share-based
payments - - - 5.3 2.2 - 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 -
restated* 9.3 127.7 80.1 (48.8) 9.9 (4.6) 185.0 358.6 2.9 361.5
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
Loss for the
year - - - - - - (184.0) (184.0) 0.8 (183.2)
Other
comprehensive
expense - - - - - (3.4) (29.6) (33.0) - (33.0)
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
Total
comprehensive
expense - - - - - (3.4) (213.6) (217.0) 0.8 (216.2)
Shares issued 0.1 2.9 11.7 - - - - 14.7 - 14.7
Dividends paid - - - - - - (37.4) (37.4) (0.1) (37.5)
Purchase of - - - - - - -
own shares - - -
Share buybacks (0.2) - - (0.2) 0.4 - (24.4) (24.4) - (24.4)
Share-based
payments - - - 6.8 - - 2.4 9.2 - 9.2
Acquisitions
and other
movements
in
non-controlling
interests - - - - - - (16.2) (16.2) (1.3) (17.5)
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
At 31 March
2017 9.2 130.6 91.8 (42.2) 10.3 (8.0) (104.2) 87.5 2.3 89.8
---------------- ------- ------- ------- ------- -------- ----------- -------- ------- --------------- -------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the profit for the
year ended 31 March 2016 and of retained earnings at 1 April
2015.
Consolidated statement of cash flows
For the year ended 31 March 2017
2017 2016
Restated*
Notes GBPm GBPm
------------------------ -------------------------- ----- ------- ----------
Operating (loss)/profit - continuing operations (42.9) 107.6
- discontinued operations (135.2) (42.0)
Adjustments for:
Share-based payment expense 37 6.2 5.2
Defined benefit pension charge 38 4.3 4.4
Defined benefit pension contributions 38 (2.4) (3.0)
Acquisition costs 5 1.2 0.3
Depreciation of property, plant and
equipment 16 14.1 15.1
Amortisation of intangible assets 15 23.8 17.0
Share of profit of joint ventures and
associates 17 (0.6) (0.6)
Impairment of goodwill and intangible
assets 109.2 33.2
Loss/(profit) on disposal of businesses 30.4 (0.5)
Loss on disposal of property, plant
and equipment 1.0 -
---------------------------------------------------- ----- ------- ----------
Operating cash flows before movements
in working capital 9.1 136.7
Decrease in inventories 3.2 1.1
Decrease/(increase) in receivables 74.8 (41.7)
Increase in payables 58.4 16.4
Increase in provisions 5.6 2.1
---------------------------------------------------- ----- ------- ----------
Cash generated by operations 40 151.1 114.6
Income taxes paid (15.3) (15.7)
Interest paid (12.7) (13.4)
Acquisition costs 5 (0.3) (0.3)
---------------------------------------------------- ----- ------- ----------
Net cash inflow from operating activities 122.8 85.2
---------------------------------------------------- ----- ------- ----------
Investing activities
Interest received 0.1 -
Purchase of property, plant and equipment (14.5) (15.7)
Purchase of subsidiary undertakings,
net of cash acquired 34 - (0.6)
Purchase of non-controlling interests 34 (1.4) (7.4)
Dividends received from joint ventures
and associates 0.6 0.7
Investment in derivative financial instruments - 1.9
Purchase of other intangible assets 15 (12.4) (8.9)
Disposals of property, plant and equipment 1.0 2.2
Disposal of subsidiaries, including
cash disposed (1.7) -
---------------------------------------------------- ----- ------- ----------
Net cash outflow from investing activities (28.3) (27.8)
---------------------------------------------------- ----- ------- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
Consolidated statement of cash flows continued
For the year ended 31 March 2017
2017 2016
Restated*
Notes GBPm GBPm
------------------------------------------- ----- ------ ----------
Financing activities
Repayments of obligations under finance
leases (1.6) (3.1)
Proceeds on issue of share capital 0.1 5.0
Bank loans repaid - (2.2)
Proceeds from new borrowings 1.7 -
Proceeds from re-issue of Treasury shares 33 2.4 (3.7)
Share buybacks 32 (24.4) (14.4)
Equity dividends paid 12 (37.4) (42.3)
Non-controlling interests dividends
paid (0.1) (0.2)
Other financing items 0.4 -
------------------------------------------- ----- ------ ----------
Net cash outflow from financing (58.9) (60.9)
Net increase/(decrease) in cash and
cash equivalents 35.6 (3.5)
Net cash and cash equivalents at beginning
of the year 93.1 96.4
Effect of foreign exchange rate changes 0.4 0.2
Net cash and cash equivalents at end
of the year 25 129.1 93.1
------------------------------------------- ----- ------ ----------
The above statement of consolidated cash flows includes cash
flows from both continuing and discontinued operations. Further
details of the cash flows relating to discontinued operations are
shown in Note 6.
2017 2016
Reconciliation of net cash flow to movements Restated*
in net debt Notes GBPm GBPm
----------------------------------------------- ----- ------- ----------
Cash drivers
Net increase/(decrease) in cash and
cash equivalents 35.6 (3.5)
(Increase)/decrease in bank loans (1.7) 0.3
Non-cash drivers
Non-cash movement in private placement
notes and associated hedges (4.4) 3.0
Effect of foreign exchange rate changes 0.4 0.2
Decrease/(increase) in finance leases 1.2 (0.5)
----------------------------------------------- ----- ------- ----------
Decrease/(increase) in net debt during
the year 31.1 (0.5)
Opening net debt (178.3) (177.8)
----------------------------------------------- ----- ------- ----------
Closing net debt 31 (147.2) (178.3)
----------------------------------------------- ----- ------- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
0B1. Basis of preparation and significant accounting
policies
(a) Basis of preparation
The group's financial statements for the year ended 31 March
2017 have been prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted for use in the European Union
and therefore the group's financial statements comply with Article
4 of the EU IAS Regulation.
As more fully detailed in the Directors' report, the group's
financial statements have been prepared on a going concern
basis.
The group's financial statements have been prepared on the
historical cost basis, except for certain financial instruments
which are required to be measured at fair value.
Accounting standards that are newly effective in the current
year
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 2016 except for the
following amendments, which were effective for the first time in
the current year but had no impact on the results or financial
position of the group:
- Amendments to IAS 1 'Presentation of financial statements' -
disclosure initiative
- Amendments to IAS 16 and IAS 38: Clarification of acceptable
methods of depreciation and amortisation
- Amendments to IFRS 11 'Joint Arrangements' - Accounting for
acquisitions of interests in joint operations; and
- Amendments resulting from annual improvements to IFRSs
2012-2014 and 2013-2015 cycle.
Accounting standards that are not yet mandatory and have not
been applied by the group
The following standards and interpretations have been issued but
are not yet mandatorily effective (and in some cases have not yet
been adopted by the EU) and have not been applied by the group:
- IFRS 9 'Financial instruments'
- IFRS 15 'Revenue from contracts with customers'
- IFRS 16 'Leases'
- Amendments to IFRS 2 'Share-based payment' - classification
and measurement of share-based payment transactions
- Amendments to IAS 7 'Cash flow statements' - disclosure
initiative
- Amendments to IAS 12 'Income taxes' - recognition of deferred
tax assets for unrealised losses
- Amendments to IFRS 10 'Consolidated financial statements' and
IAS 28 'Investments in associates and joint ventures'- sale or
contribution of assets between an investor and its associate or
joint venture.
The directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the group in future periods, except as noted
below:
- IFRS 9 will impact both the measurement and disclosures of
financial instruments
- IFRS 15 introduces a new revenue recognition model and is due
to be effective for periods beginning on or after 1 January 2018.
It will have a material impact on the reported assets and income
statement of the group. The group is conducting a detailed review
of IFRS 15 with the view to early adopting the standard for the
year ending 31 March 2018.
The review of the impact of IFRS 15 is continuing and will be
completed during 2017. The key impacts identified to date are:
Percentage of completion accounting on long-term complex
contracts -The 5 step model for revenue recognition contained in
IFRS15 introduces the concept of performance obligations.
Performance obligations are the contractual promise by an entity to
transfer goods or services to a customer. Percentage of completion
accounting does not provide an appropriate representation of the
satisfaction of performance obligations on these long-term complex
contracts and consequently will no longer be considered applicable
to these contracts. Therefore, it will not be appropriate to carry
forward accrued revenue in relation to percentage of completion
accounting on these contracts.
Mobilisation costs - under IFRS 15, costs of mobilising new
contracts will have to meet different criteria in order to be
classified as a cost of fulfilling a contract. This change will
materially affect both (i) the amount of costs capitalised on
long-term complex contracts that have been accounted for under the
percentage of completion method and (ii) the amount of costs that
have been capitalised previously as mobilisation costs.
- IFRS 16 Leases will require nearly all leases to be recognised
on the balance sheet as liabilities with corresponding assets being
created. It will be effective for periods beginning on or after 1
January 2019.
Beyond the information above, it is not practicable to provide a
reasonable estimate of the effect of these standards until detailed
reviews have been completed.
(b) Significant accounting policies under IFRS
The significant accounting policies adopted in the preparation
of the group's IFRS financial information are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of Mitie Group plc and all its subsidiaries.
The parent company has applied FRS101 - Reduced Disclosure
Framework in the preparation of its individual financial
statements. FRS101 applies IFRS as adopted by the European Union
with certain disclosure exemptions.
Subsidiaries are consolidated from the date on which control is
transferred to the group and cease to be consolidated from
the date on which control is transferred out of the group. The
results, assets and liabilities of joint ventures and associates
are accounted for under the equity method of accounting. Where
necessary, adjustments are made to the financial statements
of subsidiaries, joint ventures and associates to bring the
accounting policies used into line with those used by the
group.
All inter-company balances and transactions, including
unrealised profits arising from inter-group transactions, have been
eliminated in full.
Interests of non-controlling interest shareholders are measured
at the non-controlling interest's proportion of the net fair value
of the assets and liabilities recognised. Changes in a parent's
ownership interest in a subsidiary that do not result in a loss of
control are accounted for within shareholders' equity. No gain or
loss is recognised on such transactions and goodwill is not
re-measured. Any difference between the change in the
non-controlling interest and the fair value of the consideration
paid
or received is recognised directly in equity and attributed to
the owners of the parent.
Statutory and non-statutory measures of performance
The financial statements contain all the information and
disclosures required by the relevant accounting standards and
regulatory obligations that apply to the group.
The group has elected to provide some further disclosures and
performance measures, reported as "before other items", in order to
present our financial results in a way that demonstrates the
performance of continuing operations excluding the results from
restructuring and acquisition related costs, and the amortisation
or write off of acquired intangible assets and goodwill. Results
before other items are a non-statutory measure.
Other items are defined as items of income or expenditure which,
in the opinion of the Directors, are material or unusual in nature
or of such significance that they require separate disclosure on
the face of the income statement in accordance with IAS 1
'Presentation of Financial Statements'. Should these items be
reversed disclosure of this would also be as other items. Further
detail of other items is set out in Note 5 to the financial
statements.
Following the issuance of the Guidelines on Alternative
Performance Measures (APMs) by the European Securities and Markets
Authorities (ESMA) in June 2015, the Group has included a section
in its Annual Report with the aim of providing transparency and
clarity on the measures adopted internally to assess performance.
This section is included on Page [165] of the [Annual Report].
Foreign currency
The financial statements of each of the group's businesses are
prepared in the functional currency applicable to that business.
Transactions in currencies other than the functional currency are
recorded at the rate of exchange at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
at the balance sheet date are reported at the rates of exchange
prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included
in the income statement for the period. Exchange differences
arising on the retranslation of non-monetary items carried at fair
value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange component of that
gain or loss is also recognised directly in equity.
On consolidation, the assets and liabilities of the group's
overseas operations, including goodwill and fair value adjustments
arising on their acquisition, are translated into sterling at
exchange rates prevailing at the balance sheet date. Income and
expenses are translated into sterling at average exchange rates for
the period. Exchange differences arising are recognised directly in
equity in the group's hedging and translation reserve. On disposal
of a foreign operation, the deferred cumulative amount recognised
in equity relating to that particular foreign operation is
recognised in the income statement.
Revenue
Revenue represents income recognised in respect of services
provided during the period (stated net of sales taxes) and is
earned predominantly within the United Kingdom. Revenue is
recognised to the extent that it is probable that the economic
benefits will flow to the group and the revenue can be reliably
measured. When revenue is recognised but has not yet been billed
accrued income arises. Deferred income arises when the group has
billed clients in advance of recognising revenue.
All bid costs are expensed through the income statement up to
the point where contract award or full recovery of the costs is
virtually certain. The confirmation of the preferred bidder for a
contract by a client is the point at which the award of a contract
is considered to be virtually certain.
Revenue from a contract to provide services is recognised by
reference to the stage of completion of the contract at the balance
sheet date. Revenue from time and material contracts is recognised
at the contractual rates as labour hours and tasks are delivered
and direct expenses incurred. In other cases, the group
distinguishes between the following types of contract:
Revenue recognition: repeat service-based contracts (single and
bundled contracts)
Revenue is recognised on a straight-line basis unless this is
not an accurate reflection of the work performed. Where a
straight-line basis is not appropriate, for example if specific
works on contracts represent a significant element of the whole,
revenue is recognised based on the percentage of completion method,
based on the proportion of costs incurred at the balance sheet date
relative to the total estimated cost of completing the contracted
work.
Costs incurred, after the confirmation of preferred bidder, that
are specific costs incurred to ensure that the project or programme
has appropriate organisational, operational and technical
infrastructures and mechanisms in place to enable the delivery of
full services under the contract target operating model are defined
as mobilisation costs. These costs are included within trade and
other receivables on the balance sheet provided that the costs
relate directly to the contract, are separately identifiable, can
be measured reliably and that the future net cash inflows from the
contract are estimated to be no less than the amounts
capitalised.
Such costs may be incurred when a contract is awarded, or when
there is a subsequent change in the scope of contracted services.
The mobilisation costs are amortised over the contracted period
(including any contracted extension periods), generally on a
straight-line basis, or on a basis to reflect the profile of work
to be performed over the contracted period if the straight-line
basis is not considered to be appropriate for the specific contract
to which the costs relate. If the contract becomes loss making, any
unamortised costs are written off and the expected loss is provided
for immediately.
Revenue recognition: long-term complex contracts
The group has a number of long-term contracts for the provision
of complex project-based services, predominantly integrated
facilities management contracts. These are contracts which are
transformational in nature and usually five years in initial
duration.
In this context, transformational means that the cost to the
client over the life of the contract is reduced as a result of
significant transformations in service provision. Typically these
contracts are priced to average the annual charge to the client
over the contract period and involve the provision of multiple
service lines, with a single management team providing an
integrated service.
Where the outcome of such complex project-based contracts can be
measured reliably, revenue and costs are recognised by reference to
the stage of completion of the contract activity at the balance
sheet date. This is measured by the proportion of contract costs
incurred for work performed to date compared to the total estimated
contract costs using the percentage of completion methodology.
Contract costs used to determine the stage of completion are
recognised in the income statement as expenses in the period in
which they are incurred and include transition costs, which are
similar in nature to mobilisation costs under repeat service-based
contracts. Transition costs are expenses incurred in the
performance of transitioning services provided after confirmation
of preferred bidder and before commencement of full services under
the contract target operating model; no profit margin is recognised
for these transition costs.
Contract costs also include transition costs arising when there
is a subsequent change in the scope of contracted services and
include budgeted cost savings. Where the outcome of a complex
project-based contract cannot be estimated reliably, contract
revenue is recognised to the extent that it is probable that
contract costs will be recovered. Full provision is made for all
known or anticipated losses on each contract immediately as losses
are forecast. In a number of long-term complex contracts, the
achievement of certain key performance indicators (KPIs) is a
significant act which enables revenue to be recognised. KPIs are
generally measured contemporaneously with the performance of the
service, rather than being measured over a long period or
retrospectively.
Revenue recognition: other
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount.
Borrowing costs
Borrowing costs consist of interest and other costs that are
incurred in connection with the borrowing of funds. Borrowing costs
are recognised in profit or loss in the period in which they are
incurred, with the finance charges relating to the direct cost of
debt issue spread over the period to redemption using the effective
interest method.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
is realised, based upon tax rates and legislation that have been
enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities; or when they relate to income taxes levied
by the same taxation authority and the group intends to settle its
current tax assets and liabilities on a net basis.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the group's interest in the fair value
of the identifiable assets and liabilities of a subsidiary at
the date of acquisition.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less accumulated impairment losses.
It is reviewed for impairment at least annually. Any impairment is
recognised immediately in the income statement for the period and
is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to
each of the group's cash-generating units (CGUs) expected to
benefit from the synergies of the combination. CGUs to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the CGU is less than the
carrying amount of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro-rata on the basis of
the carrying amount of each asset in the unit. On disposal of a
subsidiary the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment in value. Depreciation is charged
so as to write off the cost less expected residual value of the
assets over their estimated useful lives and is calculated on a
straight-line basis as follows:
Freehold buildings and long
leasehold property 50 years
--------------------------- -------------------
Leasehold improvements period of the lease
--------------------------- -------------------
Plant and vehicles 3-10 years
--------------------------- -------------------
Annually the group reviews the carrying amounts of its tangible
assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of any impairment loss. Where the
asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the CGU to
which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount
of the asset (or CGU) is reduced to its recoverable amount. An
impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or
CGU) in prior years. A reversal of an impairment loss is recognised
as income immediately.
Intangible assets
Intangible assets identified in a business acquisition are
capitalised at fair value as at the date of acquisition.
Software and development expenditure is capitalised as an
intangible asset if the asset created can be identified, if it is
probable that the asset created will generate future economic
benefits and if the development cost of the asset can be measured
reliably.
Following initial recognition, the carrying amount of an
intangible asset is its cost less any accumulated amortisation and
any accumulated impairment losses. Intangible assets are reviewed
for impairment annually, or more frequently when there is an
indication that they may be impaired. Amortisation expense is
charged to administrative expenses in the income statement on a
straight-line basis over its useful life.
Joint ventures and associates
The group has an interest in joint ventures which are entities
in which the group has joint control. The group also has an
interest in associates which are entities in which the group has
significant influence.
The group accounts for its interest in joint ventures and
associates using the equity method. Under the equity method the
group's share of the post-tax result of joint ventures and
associates is reported as a single line item in the consolidated
income statement. The group's interest in joint ventures and
associates is carried in the consolidated balance sheet at cost
plus post-acquisition changes in the group's share of net
assets.
Inventories
Inventories are stated at the lower of cost and net realisable
value.
Costs represent materials, direct labour and overheads incurred
in bringing the inventories to their present condition and
location. Net realisable value is based on estimated selling price
less further costs expected to be incurred to completion and
estimated selling costs. Provision is made for obsolete, slow
moving or defective items where appropriate.
Financial instruments
Financial assets and financial liabilities are recognised on the
group's balance sheet when the group becomes a party to the
contractual provisions of the instrument. The group derecognises
financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Assets that are assessed not to be individually impaired are
subsequently assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables
includes the group's past experience of collecting payments,
the number of delayed payments in the portfolio past the average
credit period as well as observable changes in national or local
economic conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly with the exception of trade receivables
where the carrying amount is reduced through the use of an
allowance account. When a trade receivable is considered
uncollectable, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in the income
statement.
Financial assets comprise loans and receivables and are measured
at initial recognition at fair value and subsequently at amortised
cost. Appropriate allowances for estimated irrecoverable amounts
are recognised where there is objective evidence that the asset is
impaired. Cash and cash equivalents comprise cash in hand, demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes
in value.
Financial liabilities comprise trade payables, financing
liabilities, bank and other borrowings, put options on
non-controlling interests and deferred contingent consideration.
These are measured at initial recognition at fair value and
subsequently at amortised cost with the exception of derivative
financial instruments which are measured at fair value,
and deferred contingent consideration which is measured at the
Directors' best estimate of the likely future obligation.
Bank and other borrowings are stated at the amount of the net
proceeds after deduction of transaction costs. Finance charges,
including premiums payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the income
statement.
Equity instruments issued by the group are recorded at the
proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The group uses derivative financial instruments, including cross
currency interest rate swaps and forward foreign
exchange contracts, to manage the group's exposure to financial
risks associated with interest rates and foreign exchange.
Derivative financial instruments are initially recognised at fair
value at the date the derivative contract is entered into and
are subsequently remeasured to their fair value, determined by
reference to market rates, at each balance sheet date and included
as financial assets or liabilities as appropriate. The resulting
gain or loss is recognised in the income statement immediately
unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in the
income statement depends on the nature of the hedge
relationship.
The group may designate certain hedging instruments including
derivatives as either fair value hedges, cash flow hedges, or
hedges of net investments in foreign operations. Hedges of foreign
exchange risk on firm commitments are accounted for as cash flow
hedges. At the inception of the hedge relationship, the group
documents the relationship between the hedging instrument and the
hedged item, along with its risk management objectives and its
strategy for undertaking various hedge transactions. Furthermore,
at the inception of the hedge and on an ongoing basis, the group
documents whether the hedging instrument that is used in a hedging
relationship is highly effective in offsetting changes in fair
values or cash flows of the hedged item.
Fair value hedges
Hedges are classified as fair value hedges when they hedge the
exposure to changes in the fair value of a recognised asset
or liability. Changes in the fair value of derivatives that are
designated and qualify as fair value hedges are recorded in the
income statement immediately, together with any changes in the fair
value of the hedged item that are attributable to the hedged risk.
The change in the fair value of the hedging instrument and the
change in the hedged item attributable to the hedged risk are
recognised in the line of the income statement relating to the
hedged item. Hedge accounting is discontinued when the group
revokes the hedging relationship, the hedging instrument expires or
is sold, terminated, exercised, or no longer qualifies for hedge
accounting. The fair value adjustment to the carrying amount of the
hedged item arising from the hedged risk is amortised to the income
statement from that date.
Cash flow hedges
Hedges are classified as cash flow hedges when they hedge the
exposure to changes in cash flows that are attributable to
a particular risk associated with either a recognised asset or
liability or a forecast transaction. The effective portion of
changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recognised in other comprehensive
income and accumulated in equity within the group's translation and
hedging reserve. The gain or loss relating to any ineffective
portion is recognised immediately in the income statement.
Amounts previously recognised in other comprehensive income and
accumulated in equity are reclassified to the income statement in
the periods when the hedged item is recognised in the income
statement, in the same line as the recognised hedged item. However,
when the forecast transaction that is hedged results in the
recognition of a non-financial asset or a non-financial liability,
the gains and losses previously accumulated in equity are
transferred from equity and included in the initial measurement of
the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the group revokes the hedging
relationship, the hedging instrument expires or is sold,
terminated, exercised, or no longer qualifies for hedge accounting.
Any gain or loss recognised in other comprehensive income at that
time is accumulated in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When
a forecast transaction is no longer expected to occur, the gain or
loss accumulated in equity is recognised immediately in the income
statement.
Hedges of net investments in foreign operations
Hedges are classified as net investment hedges when they hedge
the foreign currency exposure to changes in the group's share in
the net assets of a foreign operation. Hedges of net investments in
foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the
effective portion of the hedge is recognised in other comprehensive
income and accumulated in the group's translation and hedging
reserve. The gain or loss relating to any ineffective portion is
recognised immediately in the income statement. Gains or losses on
the hedging instrument relating to the effective portion of the
hedge accumulated in equity are reclassified to the income
statement in the same way as exchange differences relating to the
foreign operation as described above.
Leasing
Finance leases, which transfer to the group substantially all
the risks and benefits incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of
the leased item or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly to the income
statement.
Capitalised leased assets are depreciated over the shorter of
the estimated life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and
benefits incidental to ownership of the asset are classified as
operating leases. Operating lease payments are recognised as an
expense in the income statement on a straight-line basis over the
lease term. Any lease incentives are amortised on a straight-line
basis over the non-cancellable period for which the group has
contracted to lease the asset, together with any further terms for
which the group has the option to continue to lease the asset if,
at the inception of the lease, it is judged to be reasonably
certain that the group will exercise the option.
Provisions
Provisions are recognised when the group has a present
obligation (legal or constructive) as a result of a past event and
it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the
group expects some or all of a provision to be reimbursed, for
example under an insurance contract, the reimbursement is
recognised as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a borrowing cost.
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the group in exchange for control of the acquiree.
Acquisition costs incurred are expensed. The acquiree identifiable
assets, liabilities and contingent liabilities that meet the
conditions for recognition are recognised at their fair value at
the acquisition date, except for non-current assets (or disposal
groups) that are classified as held for resale in accordance with
IFRS 5 'Non-Current Assets Held for Sale and Discontinued
Operations', which are recognised and measured at fair value less
costs to sell.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the group's
interest in the net fair value of the acquired identifiable assets,
liabilities and contingent liabilities exceeds the cost of the
business combination, the excess is recognised immediately in the
income statement.
Where applicable, the consideration for an acquisition includes
any assets or liabilities resulting from a contingent consideration
arrangement, measured at fair value at the acquisition date.
Subsequent changes in such fair values are adjusted against the
cost of acquisition where they result from additional information,
obtained within one year from the acquisition date, about facts and
circumstances that existed at the acquisition date. All other
subsequent changes in the fair value of contingent consideration
classified as an asset or liability are recognised in accordance
with IAS 39, either in the income statement or as a change to other
comprehensive income. Changes in the fair value of contingent
consideration classified as equity are not recognised.
Any business combinations prior to 1 April 2010 were accounted
for using the standards in place prior to the adoption of
IFRS 3 (revised 2008) which differ in the following respects:
transaction costs directly attributable to the acquisition formed
part of the acquisition costs; contingent consideration was
recognised if, and only if, the group had a present obligation, the
economic outflow was more likely than not and a reliable estimate
was determinable; and subsequent adjustments to the contingent
consideration were recognised as part of goodwill.
Changes in the Group's ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is
recognised in profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), and
liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognised in other comprehensive income in
relation to that subsidiary are accounted for as if the Group had
directly disposed of the related assets or liabilities of the
subsidiary (i.e. reclassified to profit or loss or transferred to
another category of equity as specified/permitted by applicable
IFRSs). The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair
value on initial recognition for subsequent accounting under IAS
39, when applicable, the cost on initial recognition of an
investment in an associate or a joint venture.
Share-based payments
The group operates a number of executive and employee share
option schemes. Equity-settled share-based payments to employees
are measured at the fair value of the equity instruments at the
grant date. The fair value excludes the effect of non-market based
vesting conditions. For all grants of share options and awards, the
fair value as at the date of grant is calculated using the
Black-Scholes or Monte Carlo models and the corresponding expense
is recognised on a straight-line basis over the vesting period
based on the group's estimate of shares that will eventually vest.
At each balance sheet date, the group revises its estimate of the
number of equity instruments expected to vest as a result of the
effect of non-market based vesting conditions. Save As You Earn
(SAYE) options are treated as cancelled when employees cease to
contribute to the scheme, resulting in an acceleration of the
remainder of the related expense.
Retirement benefit costs
The group operates and participates in a number of defined
benefit schemes. In respect of the schemes in which the group
participates, the group accounts for its legal and constructive
obligations over the period of its participation which is for a
fixed period only.
In addition, the group operates a number of defined contribution
retirement benefit schemes for all qualifying employees.
Payments to the defined contribution and stakeholder pension
schemes are charged as an expense as they fall due.
For the defined benefit pension schemes, the cost of providing
benefits is determined using the Projected Unit Credit Method, with
actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling (if applicable) are
recognised in full in the period in which they occur. They are
recognised in the statement of comprehensive income.
Current service cost and past service cost are recognised in the
income statement, in administrative expenses, whilst the net
interest cost is recognised in net finance costs.
The retirement benefit obligation recognised in the balance
sheet represents the present value of the defined benefit
obligation, as reduced by the fair value of scheme assets. Any
asset resulting from this calculation is limited to the present
value of available refunds and reductions in future contributions
to the plan.
(c) Prior year restatements
During the year there was an apparent significant shortfall in
the expected profitability of the group for the year ended 31 March
2017. New executive directors were appointed in December and
January and they immediately launched an accounting review process
to provide confidence that all relevant accounting standards were
appropriately reflected in its financial reporting.
Following additional information becoming available, the review
work has identified a number of prior year errors that, due to
their materiality, require the restatement of the results for the
year ended 31 March 2016, as well as the consolidated balance sheet
positions as at 31 March 2016 and at 31 March 2015.
These prior year restatements relate to the following areas:
Impairment of Healthcare goodwill
The Healthcare goodwill impairment testing for the year ended 31
March 2016 was carried out by reference to a business plan, which
incorrectly included within it an apprenticeships business and
certain other assumptions. Correcting for these errors in the
goodwill impairment model would have resulted in Healthcare
goodwill being impaired by GBP26.0m in the year ended 31 March
2016. This amount has now been written-off to the consolidated
income statement in the year ended 31 March 2016.
Additionally there was a material disclosure error in the 2016
Annual Report and Accounts, in that there was a failure to disclose
the significant judgements made on the inclusion of expansion plans
into other new service lines to the Healthcare business adjacent to
existing skills and assets already in the Business. See note 2 for
further details.
Intangible asset write off
Errors arising from the incorrect application of accounting
policies during the impairment testing of other intangible assets
for the year ended 31 March 2014 resulted in the carrying value of
capitalised software costs within intangible assets being
overstated at 31 March 2015 and 31 March 2016. At 31 March 2015
this resulted in a net asset value of GBP2.8m being written off to
the consolidated income statement together with a corresponding
increase in the deferred tax asset of GBP0.5m. In the consolidated
income statement for the year ended 31 March 2016 a credit for
GBP0.5m has now been included in respect of amortisation no longer
required, and a corresponding reduction in the deferred tax asset
of GBP0.1m.
Under-accrual of costs
A number of under-accruals, or under-provisions, of various
categories of costs have been identified in relation to prior
years. These costs have now been written off to the consolidated
income statement in the relevant years and were incurred in
relation to:
i) employee bonuses that were paid during the year ended 31
March 2017 but related to the financial years ended 31 March 2015
and 31 March 2016 totalling GBP8.3m (2015 - GBP0.6m and 2016 -
GBP7.7m).
ii) under-provision of insurance liabilities that were
outstanding at 31 March 2015 (GBP5.6m) and 31 March 2016 (GBP0.3m)
and contract related provisions of GBP2.2m in the year to 31 March
2016.
The tax impacts of these adjustments were credits to the
consolidated income statement of GBP1.3m in 2015 and GBP2.0m in
2016.
Overstatement of trade receivables and accrued income
Certain revenue recognition polices relating to the inclusion of
disputed items in project revenues, the deferral in recognition of
commercial claims and the recognition of profit margins on accrued
income balances were not applied correctly, resulting in an over
statement of trade receivables and accrued income at 31 March 2015
(GBP4.6m) and 31 March 2016 of (GBP11.2m). These amounts have now
been written off to the consolidated income statement along with a
corresponding credit to tax of GBP1.0m in 2015 and GBP2.2m in
2016.
Summary
A summary of the combined impact of the prior year adjustments
on the consolidated income statement and consolidated statement of
cash flow for the year ended 31 March 2016 as well as the
consolidated balance sheet as at 31 March 2016 arising from the
restatements is as follows:
Consolidated income statement for the year ended 31 March
2016
Over-statement
of trade
Impairment Intangible receivables
As As reported of asset and
previously Discontinued continuing healthcare write Under-accrual accrued
reported operations operations goodwill off of costs income Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------- ------------ ----------- ---------- ---------- ------------- -------------- --------
Continuing
operations
Revenue 2,231.9 (75.8) 2,156.1 - - - (9.2) 2,146.9
Gross profit 322.6 (15.1) 307.5 - - - (10.4) 297.1
Operating
profit/(loss) 112.5 16.0 128.5 - 0.5 (10.2) (11.2) 107.6
Profit before
tax 96.8 16.0 112.8 - 0.5 (10.2) (11.2) 91.9
Tax (19.3) (3.0) (22.3) - (0.1) 2.0 2.2 (18.2)
-------------- ---------- ------------ ----------- ---------- ---------- ------------- -------------- --------
Profit after
tax 77.5 13.0 90.5 - 0.4 (8.2) (9.0) 73.7
Loss from
discontinued
operations - (13.0) (13.0) (26.0) - - - (39.0)
-------------- ---------- ------------ ----------- ---------- ---------- ------------- -------------- --------
Profit for the
year 77.5 - 77.5 (26.0) 0.4 (8.2) (9.0) 34.7
-------------- ---------- ------------ ----------- ---------- ---------- ------------- -------------- --------
Consolidated statement of cash flow for the year ended 31 March
2016
Over-statement
of
trade
Intangible receivables
Impairment asset Under and
of healthcare write accrual accrued
As reported goodwill off of costs income Restated
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- -------------- ---------- --------- -------------- --------
Net cash flow from operating
activities 85.2 - - - - 85.2
Net cash outflow from
investing activities (27.8) - - - - (27.8)
Net cash outflow from
financing activities (60.9) - - - - (60.9)
------------------------------ ----------- -------------- ---------- --------- -------------- --------
Net (decrease)/increase
in cash and cash equivalents (3.5) - - - - (3.5)
Net cash and cash equivalents
at beginning of the year 96.4 - - - - 96.4
Effect of foreign exchange
rates 0.2 - - - - 0.2
------------------------------ ----------- -------------- ---------- --------- -------------- --------
Net cash and cash equivalents
at end of the year 93.1 - - - - 93.1
------------------------------ ----------- -------------- ---------- --------- -------------- --------
Consolidated balance sheet as at 31 March 2016
Over-statement
Intangible of trade
Impairment asset receivables
of healthcare write Under-accrual and accrued
As reported goodwill off of costs income Restated
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Non-current assets
Goodwill 465.5 (26.0) - - - 439.5
Other intangible assets 66.9 - (2.3) - - 64.6
Property, plant and
equipment 49.3 - - - - 49.3
Interest in joint
ventures and associates 0.6 - - - - 0.6
Derivative financial
instruments 14.4 - - - - 14.4
Trade and other receivables 86.0 - - - (1.2) 84.8
Deferred tax assets 10.0 - 0.4 - - 10.4
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total non-current
assets 692.7 (26.0) (1.9) - (1.2) 663.6
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Current assets
Inventories 9.9 - - - - 9.9
Trade and other receivables 446.7 - - - (14.6) 432.1
Cash and cash equivalents 93.1 - - - - 93.1
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total current assets 549.7 - - - (14.6) 535.1
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total assets 1,242.4 (26.0) (1.9) - (15.8) 1,198.7
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Current liabilities
Trade and other payables (487.8) - - (8.3) - (496.1)
Current tax liabilities (10.4) - - 3.3 3.2 (3.9)
Financing liabilities (1.9) - - - - (1.9)
Provisions (0.4) - - (8.1) - (8.5)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total current liabilities (500.5) - - (13.1) 3.2 (510.4)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Net current assets 49.2 - - (13.1) (11.4) 24.7
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Non-current liabilities
Trade and other payables (2.5) - - - - (2.5)
Financing liabilities (283.9) - - - - (283.9)
Provisions (0.5) - - - - (0.5)
Retirement benefit
liabilities (35.5) - - - - (35.5)
Deferred tax liabilities (4.4) - - - - (4.4)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total non-current
liabilities (326.8) - - - - (326.8)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total liabilities (827.3) - - (13.1) 3.2 (837.2)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Net assets 415.1 (26.0) (1.9) (13.1) (12.6) 361.5
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total equity 415.1 (26.0) (1.9) (13.1) (12.6) 361.5
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Consolidated balance sheet as at 1 April 2015
Over-statement
Intangible of trade
Impairment asset receivables
of healthcare write Under-accrual and accrued
As reported goodwill off of costs income Restated
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Non-current assets
Goodwill 464.4 - - - - 464.4
Other intangible assets 76.6 - (2.8) - - 73.8
Property, plant and
equipment 53.3 - - - - 53.3
Interest in joint
ventures and associates 1.1 - - - - 1.1
Derivative financial
instruments 8.0 - - - - 8.0
Trade and other receivables 58.5 - - - - 58.5
Deferred tax assets 13.4 - 0.5 - - 13.9
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total non-current
assets 675.3 - (2.3) - - 673.0
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Current assets
Inventories 11.0 - - - - 11.0
Trade and other receivables 421.4 - - - (4.6) 416.8
Cash and cash equivalents 96.4 - - - - 96.4
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total current assets 528.8 - - - (4.6) 524.2
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total assets 1,204.1 - (2.3) - (4.6) 1,197.2
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Current liabilities
Trade and other payables (476.0) - - (0.6) - (476.6)
Current tax liabilities (5.2) - - 1.3 1.0 (2.9)
Financing liabilities (1.8) - - - - (1.8)
Provisions (4.9) - - (5.6) - (10.5)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total current liabilities (487.9) - - (4.9) 1.0 (491.8)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Net current assets 40.9 - - (4.9) (3.6) 32.4
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Non-current liabilities
Trade and other payables (8.0) - - - - (8.0)
Financing liabilities (279.2) - - - - (279.2)
Provisions (7.4) - - - - (7.4)
Retirement benefit
liabilities (35.8) - - - - (35.8)
Deferred tax liabilities (7.5) - - - - (7.5)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total non-current
liabilities (337.9) - - - - (337.9)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total liabilities (825.8) - - (4.9) 1.0 (829.7)
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
-
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Net assets 378.3 - (2.3) (4.9) (3.6) 367.5
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
-
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
Total equity 378.3 - (2.3) (4.9) (3.6) 367.5
---------------------------- ----------- -------------- ---------- ------------- -------------- --------
2. 19BCritical accounting judgements and key sources
of estimation uncertainty
Critical judgements in applying the group's accounting
policies
In the process of applying the group's accounting policies,
which are described in Note 1 above, management has made the
following judgements that have the most significant effect on the
amounts recognised in the financial statements.
Revenue recognition
The group's revenue recognition policies, which are set out in
Note 1(b), are central to how the group measures the work it has
performed in each financial year, some of these could be considered
as key sources of estimation uncertainty.
The revenue recognised for certain long-term complex
project-based services is based on the stage of completion of the
contract activity. This is measured by comparing the proportion of
costs incurred, which include transition costs reflecting costs
incurred in the performance of transitioning services, against the
estimated whole-life contract costs. This requires significant
judgements to be made in forecasting the outcomes of the long-term
contracts.
Particular judgement is required in evaluating the operational
and financial business plans for these contracts to forecast the
expected whole-life contract billings, costs and margin and to
assess the recoverability of any resulting accrued income through
the life of the contract. In forming the judgement around expected
whole-life contract billings, account is taken of potential
deductions from and increments to revenue that may arise from the
application of performance related measures under contracts.
This requires management to apply judgements and estimates that
draw on the knowledge and experience of the group's project
managers and delivery teams together with the group's commercial
and finance professionals. Whilst there may be a broad range of
possible outcomes based on the relevant circumstances of the
individual contract, the group has controls in place whereby all
significant contracts are reviewed on a monthly basis and
reforecast quarterly.
The amounts recognised as revenue, profit and contract assets
are sensitive to changes in assumptions, for example:
1. Revenue measurement - in line with the group's revenue
recognition policy for long-term complex contracts, revenue is
recognised on these contracts to the extent that the outcome of the
project can be reliably measured. For long-term complex contracts
this requires judgements to be made on which elements of the
contract can be accurately forecast. These contracts will usually
comprise fixed revenue streams, variable works and project works.
Project works are not included as part of a long-term complex
contract on the basis that these amounts are discretionary and
consequently cannot be reliably forecast. Therefore these projects
are accounted for separately. The revenue streams that it is
considered can be reliably forecast will comprise the fixed
elements (for example for ongoing cleaning and security services)
and variable works.
2. Contract profitability and costs to complete - long-term
complex contracts are transformational in nature and there is a
commitment to work in partnership with the client from the outset
of the contract to drive significant cost savings and efficiencies
throughout the life of the contract. During the mobilisation of a
contract a target operating model is developed. This target
operating model shows how the services that are part of the
contract will be delivered during the contract and is subject to a
continuous review/improvement process throughout the duration of
the contract. The target operating model, cost saving initiatives
identified and revenue pipeline will be combined into a financial
plan for the individual contract. Only cost saving initiatives that
are considered to be reasonably certain in terms of timing and
scale are included in the plan. Management's ability to forecast
accurately the costs to complete the contract involves judgements
around cost savings to be achieved over time, anticipated
profitability of the contract, as well as contract specific
performance KPIs. Where a contract is anticipated to make a loss,
these judgements are also relevant in determining whether or not an
onerous contract provision is required and how this is to be
measured.
3. Renegotiation of terms - the group often enters into
renegotiations of existing contract terms such as the timing or the
specifications of the services to be delivered. Depending on the
outcome of such negotiations, the timing and amount of revenue
recognised may be different.
4. Recoverability of contract related assets - linked to the
profitability of contracts above, management is also required to
determine the recoverability of contract related assets, accrued
income and accounts receivable. Judgement is required in
determining whether or not the future economic benefits from
contracts are sufficient to recover these contract assets.
Review of accounting policies and estimates
The group has undertaken an accounting review process to provide
confidence that all relevant accounting standards were
appropriately reflected in its financial reporting. The review has
considered how the group's accounting policies have been applied
and interpreted, which has resulted in a number of more
conservative applications of accounting estimates and judgements in
the following areas:
1. Work in progress - For certain Engineering Services projects
profit margins on work in progress will only be recognised when the
project is complete
2. Transition costs on long-term complex contracts - the
methodology for recognising revenue on transition costs incurred at
the start of a contract has been changed. No gross profit margin
will be applied to the revenue attributable to these costs.
3. Uncontracted revenue streams on long-term complex contracts -
the approach to assessing the full life profitability of long-term
complex contracts has been revised. Uncontracted project works are
excluded from the percentage of completion calculation for these
contracts and instead accounted for as repeat service based
contracts.
4. Mobilisation costs incurred at the commencement of contracts
- the items incurred at the outset of the contract, which are
spread over the contract life, have been reassessed with more items
being expensed immediately.
Profit before other items
Other items are items of financial performance which the Group
believes should be separately identified on the face of the income
statement to assist in understanding the underlying financial
performance achieved by the Group. Determining whether an item is
part of other items or not requires judgement.
Other items after tax of GBP153.5m (2016 restated: GBP39.0m)
were charged to the income statement for the year ended 31 March
2017. An analysis of the amounts included in other items is
detailed in Note 5.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Assessment of a prior year error in relation to goodwill on the
Healthcare CGU
Healthcare goodwill at 31 March 2016 has a carrying value of
GBP107.2m, with value-in-use calculated at GBP145.4m; at 30
September 2016 it was determined that the carrying value of this
goodwill was fully impaired and written down to a nil value.
Subsequently a large proportion of the Healthcare Cash Generating
Unit ("CGU") was sold for a dowry payment of GBP9.5m (see Note 6
'Discontinued operations and disposal of subsidiaries' for further
details on the sale of the Healthcare division).
As explained in the Audit Committee report on page [.] the FRC's
Corporate Reporting Review Committee has an open enquiry in this
area. During the course of preparation of our response to its
February 2017 letter, new evidence came to light that had not
previously been provided to the external auditor, the Audit
Committee or the Board. The Audit Committee appointed KPMG to
review the circumstances surrounding the judgement made on
Healthcare Goodwill at 31 March 2016.
As a result of the review, the Audit Committee has considered
whether there were one or more errors, which in accordance with
IAS8, require a prior year adjustment.
As part of this assessment the Audit Committee considered the
further information that was available at 31 March 2016 but had not
been communicated to the external auditor, the Audit Committee or
the Board. It has concluded that:
-- One or more errors had been made in the preparation of the
plan that was approved by the Board and formed the basis for the
impairment testing of Healthcare goodwill. Correction of those
errors reduces the value in use by GBP64m which results in an
impairment to Healthcare goodwill of GBP26m as at 31 March 2016.
The Audit Committee believes that this is a prior period error in
accordance with IAS 8 and consequently a prior year adjustment is
made in these accounts to goodwill at 31 March 2016 (see Note 1(c)
'Prior year restatements' for further details on the prior year
restatements made).
-- A number of other judgements were made in respect of the
impairment testing of Healthcare goodwill at 31 March 2016, which
were impacted by the discovery of further information and has been
considered by the Board and Audit Committee as part of the
preparation of the 2017 Annual Report and Accounts.
These judgements relate to the inclusion in the plans for
Healthcare of expansion into new service lines to the Healthcare
business adjacent to existing skills and assets already in the
Business, namely provision of Telecare services, community
healthcare and supply of temporary staff on an agency basis.
Additionally, the inclusion of Tascor, acquired in January 2016,
subsequently renamed Care & Custody Health and retained by
Mitie following the disposal of the Healthcare business in February
2017, was regarded as part of the Healthcare CGU, rather than with
the CGU that included Care & Custody (Soft FM CGU).
Had these been regarded as prior year errors rather than changes
in judgement the amount of the prior year adjustment would have
increased by GBP44m.
The Directors have specifically reviewed the IAS8 'Accounting
Policies, Changes in Accounting Estimates and Errors' definition of
a change in accounting estimate which states "that changes in
accounting estimates result from new information or new
developments and, accordingly, are not corrections of errors". The
Committee has carefully reconsidered the judgements it made in the
light of the discovery of new information and notwithstanding this
becoming available and taken into account, considers that the
judgements made as to what should be classified as a prior year
error has been formed on a reasonable basis. However, the Committee
recognises that the failure to disclose these judgements in the
2016 Annual Report and Accounts was in itself a material disclosure
error.
Measurement and impairment of goodwill and other intangible
assets
The measurement of intangible assets other than goodwill on a
business combination involves estimation of future cash flows and
the selection of suitable discount rates. Determining whether
goodwill and other intangible assets are impaired requires an
estimation of the value in use of the CGUs to which the goodwill
has been allocated. The value in use calculation involves an
estimation of the future cash flows of CGUs and also the selection
of appropriate discount rates to use in order to calculate present
values.
The carrying value of goodwill and other intangible assets is
GBP397.1m (2016 restated: GBP504.1m) at the balance sheet date; see
Notes 14 and 15. A sensitivity analysis has been performed and the
Board has concluded that no reasonably foreseeable change in the
key assumptions would result in an impairment of the goodwill of
the Soft Facilities Management and Hard Facilities Management
CGUs.
Further sensitivity testing was performed for the group's
Property Management CGU where the financial performance of the
business has deteriorated during the year. On the basis of this
review the Board has concluded that an impairment of GBP15.0m is
required. A sensitivity analysis is included in Note 14.
Useful economic life of other intangible assets
The group holds GBP53.2m of other intangible fixed assets, of
which GBP46.6m is attributable to software and development
expenditure. Determining the appropriate useful economic life (UEL)
and amortisation profile for these assets requires a level of
judgement.
Following the review of accounting policies and estimates (as
discussed in the section above), a more accurate application of
accounting policy has been applied. The group has undertaken a
reassessment of the UEL of software related intangible assets and
has adopted a revised amortisation profile for these assets. This
change in estimate results in an additional GBP7.5m of amortisation
in the year ended 31 March 2016.
Provisions, contingent liabilities and onerous contracts
The Company and various of its subsidiaries are, from time to
time, party to legal proceedings and claims that are in the
ordinary course of business. Judgements are required in order to
assess whether these legal proceedings and claims are probable and
the liability can be reasonably estimated, resulting in a
provision. Or, alternatively, whether the items meet the definition
of contingent liabilities.
When a contract is expected to incur future unavoidable losses
and has therefore become onerous, judgment is required to assess
the future expected revenue and costs and hence to determine the
appropriate level of provision.
Provisions are liabilities of uncertain timing or amount and
therefore in making a reliable estimate of the quantum and timing
of liabilities judgement is applied and re-evaluated at each
reporting date. The Group recognised provisions at 31 March 2017 of
GBP26.8m (2016 restated: GBP9.0m). Further details are included in
Note 29.
Measurement of defined benefit pension obligations
The measurement of defined benefit obligations requires
judgement. It is dependent on material key assumptions including
discount rates, life expectancy rates, future returns on assets and
future contribution rates. The present value of defined benefit
obligations at the balance sheet date is GBP263.3m (2016:
GBP201.9m); see Note 38 for further detail and a sensitivity
analysis.
3. 23BRevenue
2017 2016
Restated*
Continuing operations GBPm GBPm
----------------------------------------------- ------- ----------
Rendering of services 2,124.6 2,141.9
Construction contracts 1.7 5.0
----------------------------------------------- ------- ----------
Total revenue as disclosed in the consolidated
income statement 2,126.3 2,146.9
Investment revenue (Note 9) - 0.1
----------------------------------------------- ------- ----------
Total revenue as defined in IAS 18 2,126.3 2,147.0
----------------------------------------------- ------- ----------
4. 25BBusiness and geographical segments
Revenue, operating profit before other items and operating
profit margin before other items are the primary measure of
performance that are reported to and reviewed by the Chief
Operating Decision Maker of the business.
Business segments - structure during the year
The group manages its business on a service division basis. With
effect from 1 April 2016, the divisional structure was reorganised
into three trading divisions being Facilities Management, Property
Management and Healthcare. These divisions are the basis on which
the group reported its primary segmental information and are
unchanged from the previous reporting period, with the exception of
Soft FM and Hard FM, which were previously reported separately and
then subsequently reported as one Facilities Management division,
and Tilley Roofing which transferred from Facilities Management to
Property Management.
2017 2016 - Restated*
---------------------------------------------------- ----------------------------------------------------
Operating Operating
Operating profit/(loss) Operating profit/(loss)
profit/(loss) margin profit/(loss) margin
before before Profit/(loss) before before Profit/(loss)
other other before other other before
Revenue items(1) items(1) tax Revenue items(1) items(1) tax
GBPm GBPm % GBPm GBPm GBPm % GBPm
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Facilities
management
++# 1,822.6 1.5 0.1 (13.9) 1,795.5 95.8 5.3 84.5
Property
management
++ 257.3 (9.2) (3.6) (9.3) 313.8 14.9 4.7 15.0
Healthcare 46.4 1.4 3.0 1.6 37.6 3.2 8.5 (1.3)
Other items+
(Note 5) - - - (36.6) - - - (6.3)
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Continuing
operations 2,126.3 (6.3) (0.3) (58.2) 2,146.9 113.9 5.3 91.9
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Healthcare# 59.2 (11.9) (20.1) (11.9) 75.8 (5.9) (7.8) (5.9)
Other items+ - - - (123.2) - - - (36.1)
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Discontinued
operations 59.2 (11.9) (20.1) (135.1) 75.8 (5.9) (7.8) (42.0)
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Total 2,185.5 (18.2) (0.8) (193.3) 2,222.7 108.0 4.9 49.9
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Note:
1. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
+ Other items can be analysed by business segment as follows:
Facilities Management GBP15.6m (2016: GBP4.7m); Property Management
GBP20.7m (2016: GBP1.6m); and Healthcare GBP0.3m (2016: nil). Other
items in respect of discontinued operations is comprised of amounts
in respect of the impairment of goodwill, loss on disposal of the
healthcare business, restructuring costs and acquisition related
items. All of these amounts are shown before tax. Impairments have
been recognised in the Property Management GBP15.0m (2016; GBPnil)
and the discontinued Healthcare GBP81.1m (2016: GBP26.0m)
segments.
++ Tilley Roofing has transferred from Facilities Management to
Property Management in the segments above. Tilley Roofing results
included in Property Management are as follows - Revenue GBP34.8m
(2016: GBP34.4m), Operating profit before other items GBP0.8m
(2016: GBP1.5m), and Profit before tax GBP0.7m (2016: GBP1.6m).
# Care and Custody (Health) has transferred from Facilities
Management to Healthcare in the segments above. Care and Custody
results included in Healthcare continuing operations are as follows
- Revenue GBP46.5m (2016: GBP35.5m). Operating profit before other
items GBP1.7m (2016: GBP1.5m) and profit before tax GBP1.9m (2016:
GBP1.6m).
Business segments - structure from 1 April 2017. The Property
Management division has been combined into a Public Services
division along with Care & Custody (Health) and Care &
Custody, which were previously included within the Healthcare and
Facilities Management divisions respectively. The Facilities
Management division has been split out into Cleaning &
Environmental Services, Security, Catering, Engineering Services
and Professional Services & Connected Workspace.
Business segments - structure from 1 April 2017
2017 2016 - Restated*
---------------------------------------------------- ----------------------------------------------------
Operating Operating
Operating profit/(loss) Operating profit/(loss)
profit/(loss) margin profit/(loss) margin
before before Profit/(loss) before before Profit/(loss)
other other before other other before
Revenue items(1) items(1) tax Revenue items(1) items(1) tax
GBPm GBPm % GBPm GBPm GBPm % GBPm
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Cleaning &
Environmental
Services 395.4 6.0 1.5 5.4 408.7 25.5 6.2 25.2
Security 404.2 16.1 4.0 17.0 364.4 20.8 5.7 21.7
Catering 134.3 4.7 3.5 4.4 126.6 5.4 4.3 5.1
Engineering
Services 797.4 0.2 0.0 (8.1) 800.3 53.7 6.7 45.2
Professional
Services &
Connected
Workspace 90.9 4.2 4.6 4.3 97.9 5.5 5.6 5.7
Public
Services++ 304.1 (2.3) (0.8) (1.5) 349.0 18.9 5.4 20.0
Corporate
overheads - (35.2) n/a (43.1) - (15.9) n/a (24.7)
Other items+
(Note 5) - - - (36.6) - - - (6.3)
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Continuing
operations 2,126.3 (6.3) (0.3) (58.2) 2,146.9 113.9 5.3 91.9
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Healthcare++ 59.2 (11.9) (20.1) (11.9) 75.8 (5.9) (7.8) (5.9)
Other items+ - - - (123.2) - - - (36.1)
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Discontinued
operations 59.2 (11.9) (20.1) (135.1) 75.8 (5.9) (7.8) (42.0)
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Total 2,185.5 (18.2) (0.8) (193.3) 2,222.7 108.0 4.9 49.9
-------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Note:
2. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
+ Other items can be analysed by business segment as follows:
Cleaning & Environmental Services GBP1.3m (2016: GBPnil),
Security GBP0.6m (2016: GBP0.2m), Catering GBP0.4m (2016: GBP0.3m),
Engineering Services GBP8.8m (2016: GBP3.5m), Professional Services
& Connected Workspace GBP1.5m (2016: GBP0.5m), Public Services
GBP17.9m (2016: GBP1.5m) and Corporate overheads GBP6.1m (2016:
GBP0.3m). Other items in respect of discontinued operations is
comprised of amounts in respect of the impairment of goodwill, loss
on disposal of the healthcare business, restructuring costs and
acquisition related items. All of these amounts are shown before
tax. Impairments have been recognised in the Public Services
GBP15.0m (2016; GBPnil) and the discontinued Healthcare GBP81.1m
(2016: GBP26.0m)
++ Care and Custody (Health) has transferred from Healthcare to
Public Services in the segments above. Care and Custody (Health)
results included in Public Services are as follows - Revenue
GBP46.5m (2016: GBP35.5m), Operating profit before other items
GBP2.2m (2016: GBP2.1m), and Profit before tax GBP2.4m (2016:
GBP2.3m).
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 2017 or 2016.
IFRS 8 requires 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
2017 2016 - Restated*
---------------------------------------------------- ----------------------------------------------------
Operating Operating
profit/(loss) Operating profit/(loss)
Operating margin profit/(loss) margin
profit/(loss) before Profit/(loss) before before Profit/(loss)
before other before other other before
Revenue other items(1) tax Revenue items(1) items(1) tax
GBPm items(1) % GBPm GBPm GBPm % GBPm
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
United
Kingdom 2,018.1 (4.8) (0.2) (54.8) 2,060.3 117.9 5.7 96.5
Other
countries 108.2 (1.5) (1.4) (3.4) 86.6 (4.0) (4.6) (4.6)
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Continuing
operations 2,126.3 (6.3) (0.3) (58.2) 2,146.9 113.9 5.3 91.9
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
United
Kingdom 59.2 (11.9) (20.1) (135.1) 75.8 (5.9) (7.8) (42.0)
Other - - - - - - - -
countries
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Discontinued
operations 59.2 (11.9) (20.1) (135.1) 75.8 (5.9) (7.8) (42.0)
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Total 2,185.5 (18.2) (0.8) (193.3) 2,222.7 108.0 4.9 49.9
------------- ------- ------------- ------------- ------------- ------- ------------- ------------- -------------
Note:
3. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
25. 27BOther items
The group separately reports the impairment of goodwill, the
write off and amortisation of acquisition related intangible
assets, the results of disposals, restructure costs, acquisition
costs and other exceptional items and their related tax effect as
other items:
2017
-----------------------------------------------------------
Acquisition
Impairment Healthcare Restructure related
of goodwill disposal costs items Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ---------- ----------- ----------- -------
Administrative expenses (15.0) - (14.9) (6.7) (36.6)
-------------------------- ------------ ---------- ----------- ----------- -------
Other items before tax (15.0) - (14.9) (6.7) (36.6)
Tax - - 3.0 1.1 4.1
-------------------------- ------------ ---------- ----------- ----------- -------
Other items after tax (15.0) - (11.9) (5.6) (32.5)
Discontinued operations
(Loss) from discontinued
operations net of tax (81.1) (30.4) (0.3) (9.2) (121.0)
-------------------------- ------------ ---------- ----------- ----------- -------
Total (96.1) (30.4) (12.2) (14.8) (153.5)
-------------------------- ------------ ---------- ----------- ----------- -------
2016 Restated*
------------ --------------------------------------------
Businesses Acquisition
Impairment being Restructure related
of goodwill exited credit items Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ ---------- ----------- ----------- ------
Administrative expenses - (2.2) 2.2 (6.3) (6.3)
------------------------------------ ------------ ---------- ----------- ----------- ------
Other items before tax - (2.2) 2.2 (6.3) (6.3)
Tax - 0.4 (0.4) 1.3 1.3
------------------------------------ ------------ ---------- ----------- ----------- ------
Other items after tax - (1.8) 1.8 (5.0) (5.0)
Discontinued operations
(Loss) from discontinued operations
net of tax (26.0) - - (8.0) (34.0)
------------------------------------ ------------ ---------- ----------- ----------- ------
Total (26.0) (1.8) 1.8 (13.0) (39.0)
------------------------------------ ------------ ---------- ----------- ----------- ------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
Impairment of goodwill
Following the Board's decision to withdraw from the domiciliary
healthcare market, the remaining carrying value of goodwill was
fully impaired during the year. In addition an impairment of
GBP15.0m has been recognised in relation to the Property Management
CGU. See Note 14 for further details.
Healthcare disposal
During the year the group decided to withdraw from the
domiciliary healthcare market and completed the sale of the
Healthcare division on 28 February 2017. See Note 6 for further
details.
Restructure costs
The restructure costs included in other items relate to one-off
costs of organisational change associated with the group's cost
efficiency and change programmes. These one-off incremental
expenses are analysed below:
Continuing Discontinued 2017 2016
operations operations GBPm GBPm
GBPm GBPm
-------------------------------------- ------------ ------------- ------ -----
Credit from design & build asset
management contracts in Energy
Solutions - - - 2.2
-------------------------------------- ------------ ------------- ------ -----
Redundancy payments (9.2) (0.3) (9.5) -
-------------------------------------- ------------ ------------- ------ -----
Cost of change team (3.4) - (3.4) -
-------------------------------------- ------------ ------------- ------ -----
Expenditure and provisions in respect
of property closure (2.3) (0.1) (2.4) -
-------------------------------------- ------------ ------------- ------ -----
Restructuring (costs)/credit (14.9) (0.4) (15.3) 2.2
-------------------------------------- ------------ ------------- ------ -----
Taxation 3.0 0.1 3.1 (0.4)
-------------------------------------- ------------ ------------- ------ -----
Restructuring (costs)/credit net
of taxation (11.9) (0.3) (12.2) 1.8
-------------------------------------- ------------ ------------- ------ -----
Acquisition related items
Acquisition related items include the write offs and
amortisation charge for acquisition related intangibles GBP5.5m
(2016: GBP6.0m), and the accrual of contingent consideration that
is required to be treated as remuneration GBP0.9m (2016: nil) and
acquisition costs GBP0.3m (2016: GBP0.3m). Acquisition related
items from discontinued operations relate to the impairment and
amortisation of acquisition related intangibles net of tax GBP9.2m
(2016: GBP8.0m). See Note 15 for further details.
26. Discontinued operations and disposal of subsidiaries
As a result of the Board's decision to withdraw from the
domiciliary healthcare market, the sale of the Healthcare division
completed on 28 February 2017. The disposal resulted in the control
of Enara Group Limited (Enara) and Complete Care Holdings Limited
(Complete Care) passing to Apposite Capital LLP (Apposite) for
GBP2. In addition the Group agreed to contribute a GBP9.5m "dowry
payment" to the funding of trading losses of the business and the
turnaround plan.
The trading results of the Healthcare business have been
classified as discontinued operations as defined by IFRS 5
'Non-current assets held for sale and discontinued operations'.
The net assets of Healthcare at the date of disposal were as
follows:
2017
GBPm
------------------------------------------- ------
Non-current assets
------------------------------------------- ------
Other intangible assets 1.5
------------------------------------------- ------
Property, plant and equipment 1.1
------------------------------------------- ------
Deferred tax assets 0.4
------------------------------------------- ------
Total non-current assets 3.0
------------------------------------------- ------
Current assets
------------------------------------------- ------
Trade and other receivables 14.7
------------------------------------------- ------
Cash and cash equivalents 1.7
------------------------------------------- ------
Total current assets 16.4
------------------------------------------- ------
Total assets 19.4
------------------------------------------- ------
Current liabilities
------------------------------------------- ------
Trade and other payables (5.3)
------------------------------------------- ------
Financing liabilities (0.1)
------------------------------------------- ------
Current tax liabilities (0.4)
------------------------------------------- ------
Total current liabilities (5.8)
------------------------------------------- ------
Net assets 13.6
------------------------------------------- ------
Deferred contribution payable to purchaser 9.5
------------------------------------------- ------
Other costs of disposal 7.3
------------------------------------------- ------
Total consideration -
------------------------------------------- ------
Loss on disposal (30.4)
------------------------------------------- ------
Net cash outflow arising on disposal:
------------------------------------------- ------
Consideration on disposal -
------------------------------------------- ------
Cash and cash equivalents disposed of 1.7
------------------------------------------- ------
1.7
------------------------------------------- ------
Of the GBP9.5m contribution to trading losses, nil was paid
during the financial year ended 31 March 2017. The group paid
GBP5.4m of the contribution to Apposite on 1 April 2017. The
remaining GBP4.1m is payable on 1 July 2017.
The results of the Healthcare discontinued operations in the
current and prior periods are presented below:
2017 2016
GBPm GBPm
-------------------------------------- ------- ------
Revenue 59.2 75.8
Cost of sales (48.8) (60.7)
--------------------------------------- ------- ------
Gross profit 10.4 15.1
Administrative expenses (22.4) (21.0)
--------------------------------------- ------- ------
Operating loss before other items (12.0) (5.9)
Other items (123.2) (36.1)
--------------------------------------- ------- ------
Operating loss before tax (135.2) (42.0)
Tax 2.8 3.0
--------------------------------------- ------- ------
Loss from discontinued operations for
the year (132.4) (39.0)
--------------------------------------- ------- ------
Of the GBP2.8m (2016: GBP3.0m) of tax credits included in the
above results, GBP2.2m (2016: GBP2.1m) relates to other items.
The effect of discontinued operations on segment results is
disclosed in Note 4.
Cash flows from discontinued operations included in the
consolidated cash flow statement are as follows:
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Net cash flows from operating activities
(after tax) (8.8) (9.4)
Net cash flows from investing activities (0.4) (0.4)
Net cash flows from financing activities - -
----------------------------------------- ----- -----
(9.2) (9.8)
----------------------------------------- ----- -----
37. 31BOperating profit
Operating profit has been arrived at after charging:
2017 2016
Restated*
Continuing and discontinued operations GBPm GBPm
------------------------------------------------ ----- ----------
Depreciation of property, plant and equipment
(Note 16) 14.1 15.1
Amortisation of intangible assets (Note
15) 23.8 17.0
Impairment of goodwill (Note 14) 96.1 26.0
Impairment of other intangible assets (Note
15) 3.0 1.0
Impairment of acquisition related intangible
assets (Note 15) 10.1 6.2
Loss on disposal of property, plant and
equipment 1.0 -
Loss on disposal of subsidiary (Note 6) 30.4 -
Impairment loss recognised on trade receivables 12.6 1.3
Write downs of inventories recognised as
an expense 1.4 -
Impairment loss recognised on accrued income 4.5 -
------------------------------------------------ ----- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
A detailed analysis of auditor's remuneration is provided
below:
2017 2016
GBP000 GBP000
----------------------------------------------- ------- -------
Fees payable to the company's auditor for
the audit of the Company's annual accounts 40 35
Fees payable to the company's auditor and
its associates for the audit of the Company's
subsidiaries pursuant to legislation 1,037 731
----------------------------------------------- ------- -------
Total audit fees 1,077 766
----------------------------------------------- ------- -------
Other audit related services to the group 70 59
Tax services* 85 74
Corporate finance service - 53
Other services 15 22
----------------------------------------------- ------- -------
Total non-audit fees 170 208
----------------------------------------------- ------- -------
Total 1,247 974
----------------------------------------------- ------- -------
* The tax services expense recognised in the year to 31 March
2017 relates to the financial years ended 31 March 2016 (GBP76k)
and 31 March 2015 (GBP9k).
348. 35BStaff costs
2016
Number of people 2017 Restated
--------------------------------------------- ------ ---------
The average number of people employed during
the financial year was:
Facilities Management 49,585 51,499
Property Management 2,354 2,498
Healthcare 4,340 5,335
--------------------------------------------- ------ ---------
Total group 56,279 59,332
--------------------------------------------- ------ ---------
The number of people employed at 31 March was:
Total group 52,798 59,591
------------ ------ ------
2016
2017 Restated
Their aggregate remuneration comprised: GBPm GBPm
---------------------------------------- ------- ---------
Wages and salaries 1,068.9 1,026.0
Social security costs 82.2 79.2
Other pension costs 16.7 21.3
Share-based payments (Note 37) 6.2 5.2
---------------------------------------- ------- ---------
1,174.0 1,131.7
---------------------------------------- ------- ---------
Details of Directors' remuneration and interests are provided in
the audited section of the Directors' remuneration report and
should be regarded as an integral part of this Note.
36B9. 37BInvestment revenue
2017 2016
Continuing operations GBPm GBPm
-------------------------- ----- -----
Interest on bank deposits - 0.1
-------------------------- ----- -----
- 0.1
-------------------------- ----- -----
38B10. 39BFinance costs
2017 2016
Continuing operations GBPm GBPm
--------------------------------------------- ----- -----
Interest on bank facilities 3.1 3.6
Interest on private placement loan notes 9.6 9.6
Bank fees 1.0 1.1
Interest on obligations under finance leases 0.2 0.2
Gain arising on derivatives in a designated
fair value hedge (4.9) (0.8)
Loss arising on adjustment for the hedged
item in a designated fair value hedge 5.0 0.9
Net interest on defined benefit pension
scheme assets and liabilities 1.3 1.2
--------------------------------------------- ----- -----
15.3 15.8
--------------------------------------------- ----- -----
411. 41BTax
2017 2016
Restated*
Continuing and discontinued operations GBPm GBPm
--------------------------------------- ------ ----------
Current tax (0.9) 17.0
Deferred tax (Note 23) (9.3) (1.8)
--------------------------------------- ------ ----------
(10.2) 15.2
--------------------------------------- ------ ----------
Continuing operations (7.4) 18.2
Discontinued operations (Note 6) (2.8) (3.0)
--------------------------------------- ------ ----------
(10.2) 15.2
--------------------------------------- ------ ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
Corporation tax is calculated at 20% (2016: 20%) of the
estimated taxable profit for the year. A reconciliation of the tax
charge to the elements of loss before tax per the consolidated
income statement elements is as follows:
2017 2016 - Restated*
------------------------ ---------------------
Before Before
other Other other Other
Continuing and discontinued items items Total items items Total
operations GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------- ------- ------ ------ -----
Loss before tax (33.6) (159.8) (193.4) 92.4 (42.4) 50.0
Tax at UK rate of 20%
(2016: 20.0%) (6.7) (32.0) (38.7) 18.5 (8.5) 10.0
Reconciling tax charges
for:
Non-tax deductible charges 0.4 0.3 0.7 0.2 - 0.2
Share-based payments 0.8 - 0.8 0.8 - 0.8
Loss on disposal of business - 6.1 6.1 - - -
Impairment of goodwill - 19.2 19.2 - 5.2 5.2
Overseas tax rates 0.1 - 0.1 0.2 - 0.2
Impact of change in statutory
tax rates 1.2 0.1 1.3 (0.1) (0.1) (0.2)
Prior year adjustments 0.3 - 0.3 (1.0) - (1.0)
Tax (charge)/credit for
the year (3.9) (6.3) (10.2) 18.6 (3.4) 15.2
------------------------------ ------ ------- ------- ------ ------ -----
Effective tax rate for
the year 11.5% 3.9% 5.3% 20.1% 8.0% 30.4%
------------------------------ ------ ------- ------- ------ ------ -----
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
In addition to the amounts charged to the consolidated income
statement, tax credits relating to retirement benefit costs and
hedged items amounting to GBP5.8m (2016: GBP2.3m charge) have been
taken directly to the statement of comprehensive income and nil
relating to share-based payments has been charged (2016: 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.
However, as losses were incurred in 2017 the effective rate is
lower than the statutory tax rate due to permanent differences such
as those described above and the impact of a change in tax
rates.
The UK corporation tax rate reduced from 20% to 19% from 1 April
2017 and will reduce to 17% from 1 April 2020. This will reduce the
group's future current tax charge accordingly. The UK deferred tax
assets and liabilities at 31 March 2017 have been adjusted to
reflect these changes. A current tax provision is recognised when
the group has a present obligation as a result of a past event and
it is probable that the group will be required to settle that
obligation.
412. 43BDividends
2017 2016
GBPm GBPm
--------------------------------------------- ----- -----
Amounts recognised as distributions in the
year:
Final dividend for the year ended 31 March
2016 of 6.7p (2015: 6.5p) per share 23.3 23.1
Interim dividend for the year ended 31 March
2017 of 4.0p (2016: 5.4p) per share 14.1 19.2
--------------------------------------------- ----- -----
37.4 42.3
--------------------------------------------- ----- -----
Proposed final dividend for the year ended
31 March 2017 of nil (2016: 6.7p) per share - 23.4
--------------------------------------------- ----- -----
413. 45BEarnings 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:
2017 2016
Restated*
From continuing operations GBPm GBPm
--------------------------------------------------- ------- ----------
Net (loss)/ profit before other items attributable
to equity holders of the parent (19.1) 76.6
Other items net of tax (32.5) (5.0)
--------------------------------------------------- ------- ----------
Net (loss)/ profit attributable to equity
holders of the parent (51.6) 71.6
--------------------------------------------------- ------- ----------
2017 2016
Restated*
From continuing and discontinued operations GBPm GBPm
--------------------------------------------------- ------- ----------
Net (loss)/profit before other items attributable
to equity holders of the parent (30.5) 71.6
Other items net of tax (153.5) (39.0)
--------------------------------------------------- ------- ----------
Net (loss)/profit attributable to equity
holders of the parent (184.0) 32.6
--------------------------------------------------- ------- ----------
2017 2016
Number of shares million million
---------------------------------------------- -------- --------
Weighted average number of Ordinary shares
for the purpose of basic EPS 351.0 355.4
Effect of dilutive potential Ordinary shares:
share options 3.7 4.1
---------------------------------------------- -------- --------
Weighted average number of Ordinary shares
for the purpose of diluted EPS 354.7 359.5
---------------------------------------------- -------- --------
2017 2016
Restated*
p p
--------------------------------------------- ------ ----------
From continuing operations:
Basic (loss)/ earnings before other items
per share (++) (5.5) 21.6
Basic (loss)/ earnings per share (14.7) 20.1
Diluted (loss)/ earnings before other items
per share(++) (5.4) 21.3
Diluted (loss)/ earnings per share (14.6) 19.9
From continuing and discontinued operations:
Basic (loss)/ earnings before other items
per share(++) (8.7) 20.1
Basic (loss)/ earnings per share (52.4) 9.2
Diluted (loss)/ earnings before other items
per share(++) (8.6) 19.9
Diluted (loss)/ earnings per share (51.9) 9.1
--------------------------------------------- ------ ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
++ Other items are as described in Note 5.
The weighted average number of Ordinary shares in issue during
the year excludes those accounted for in the own shares reserve
(see Note 33).
414. 47BGoodwill
GBPm
---------------------------------------------- -------
Cost
At 1 April 2015 464.4
Acquisition of subsidiaries 0.7
Impact of foreign exchange 0.4
---------------------------------------------- -------
At 1 April 2016 465.5
Change in consideration C&C Health (0.1)
Disposal of subsidiary (107.1)
Impact of foreign exchange 0.6
---------------------------------------------- -------
At 31 March 2017 358.9
---------------------------------------------- -------
Accumulated impairment losses
At 1 April 2015 -
Impairment of healthcare goodwill - restated* (26.0)
---------------------------------------------- -------
At 1 April 2016 - restated* (26.0)
Impairment of healthcare goodwill (81.1)
Impairment of property goodwill (15.0)
Disposal of subsidiary 107.1
---------------------------------------------- -------
At 31 March 2017 (15.0)
---------------------------------------------- -------
Carrying amount
At 31 March 2017 343.9
---------------------------------------------- -------
At 31 March 2016 - restated* 439.5
---------------------------------------------- -------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
Impairment of healthcare goodwill
As explained in Note 6 to these Financial Statements, during the
financial year the Board decided to withdraw from the domiciliary
healthcare market and the sale of the Healthcare division was
completed on 28 February 2017.
In light of the group's decision to withdraw from the
domiciliary healthcare market and the healthcare loss recorded in
the first half of the year, the group undertook an impairment
review of the goodwill and intangible assets associated with the
Healthcare business. This reassessment of the estimate of the
recoverable amount of the Healthcare CGU resulted in a full
impairment of the carrying value of goodwill and acquisition
related intangible assets for the Healthcare CGU.
Goodwill impairment testing
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. More details
are presented in Note 34.
Goodwill has been allocated to CGUs, which align with the
business segments, as this is how goodwill is monitored by the
group internally. The group tests goodwill at least annually for
impairment or more frequently if there are indicators that goodwill
may be impaired.
A summary of the goodwill balances and discount rates used to
assess the forecast cash flows from the CGUs is as follows:
Goodwill
Discount Discount
rate rate 2016
Goodwill
2017 2016 2017 Restated*
% % GBPm GBPm
----------------------------- -------- -------- -------- -----------
Facilities Management - Soft 8.4 7.9 172.4 171.8
Facilities Management - Hard 8.5 8.0 101.3 101.3
Property Management 12.1 9.2 70.2 85.2
Healthcare - 9.1 - 81.2
----------------------------- -------- -------- -------- -----------
343.9 439.5
----------------------------- -------- -------- -------- -----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of the year ended 31
March 2016.
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
forecast inflation. 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 of 2.0%.
Discount rates
The pre-tax discount rates used to assess the forecast cash
flows from CGUs are derived from the Company's post-tax Weighted
Average Cost of Capital, which was 7.3% at 31 March 2017 (2016:
7.0%), and is adjusted for the risks specific to the business being
assessed and 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 and Hard Facilities 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.
Impairment testing for new business segment structure
As detailed in Note 4 to the financial statements the business
segments structure has been amended from 1 April 2017. This
amendment to business segment structure has necessitated a
restructuring of the CGUs categorisation used for goodwill
impairment testing.
A summary of the goodwill balances and discount rates used to
assess the forecast cash flows from the CGUs within the new
business segment structure is as follows:
Pre-tax Post-tax
discount discount Goodwill
rate rate 2017
% % GBPm
-------------------------------------------- ---------- --------- --------
Cleaning & Environmental Services 8.4 7.3 33.1
Security 8.4 7.3 101.7
Catering 9.1 7.8 15.7
Engineering Services 8.4 7.3 107.5
Professional Services & Connected Workspace 10.3 8.8 15.7
Public Services 12.1 9.8 70.2
343.9
-------------------------------------------- ---------- --------- --------
Impairment testing and sensitivity analyses have been undertaken
for the CGUs in this new structure 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 Cleaning
& Environmental Services, Security, Catering, Engineering
Services or Professional Services & Connected Workspace
CGUs.
Review of the carrying value of goodwill in the Property
Management CGU
In the year the Property Management CGU (which now forms the
bulk of the Public Services CGU) reported a loss of GBP9.2m
principally from irrecoverable debts and accrued income in certain
contracts which are being exited. As part of its annual review of
impairment, the Group has updated its estimate of the recoverable
amount of the CGU, including various downside scenarios, which has
resulted in an impairment of GBP15.0m being taken resulting in a
goodwill carrying value of GBP70.2m at 31 March 2017.
Key assumptions
The key assumptions underpinning the calculations of the net
present value of future cash flows include:
- The calculations are based on a five year plan approved by the
Board
- Adjusted revenue of GBP267.4m in FY17 and compound annual
revenue growth of 2.9%
- Adjusted operating profit of GBP10.2m (after management
charges) underpinning the growth in operating margin of 1.3% over
the first five years of the plan. This includes the best estimate
of the outcome of contractual disputes discussed further in note
35
- A terminal value growth rate of 2.0%, based on inflationary
projections
- Pre-tax discount rate for the CGU of 12.1% which has been
adjusted for the risks specific to the market in which the CGU
operates
In reviewing the carrying value, the following factors have also
been considered:
- Circumstances surrounding the in-year loss and future trading
expectations
- The controls framework in the Property Management business
- Macro pressures in the social housing market
- Route to new sales
- Management resource to deliver the budget
Sensitivity analysis for Property Management CGU impairment
testing
The value in use conclusions are reliant on the accuracy of
managements forecasts and the assumptions that underlie them as
well as the discount rate and growth rates applied. Sensitivity
analysis was performed on the forecasts to consider the impact of
certain trading scenarios and changes in assumptions both
individually and in combination. A combination of these
sensitivities concluded that an impairment of GBP15.0m represented
the Audit Committee's best estimate. A 1.0% change in discount rate
would result in a GBP7.5m sensitivity. A GBP1.0m change in
operating profit would result in a GBP7.6m sensitivity.
15. 51BOther intangible assets
Acquisition
related
---------------------
Software
Total and
Customer acquisition development
relationships Other related expenditure Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------------- ----- ------------ ------------ -----
Cost
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 (Note
16) - - - 8.5 8.5
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2016 88.4 10.9 99.3 73.1 172.4
Additions - - - 12.4 12.4
Disposal of subsidiary - - - (2.9) (2.9)
Reclassifications from property,
plant and equipment (Note
16) - - - 14.5 14.5
Impact of foreign exchange - - - 0.2 0.2
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2017 88.4 10.9 99.3 97.3 196.6
--------------------------------- -------------- ----- ------------ ------------ -----
Amortisation
At 1 April 2015 - restated* 51.2 8.8 60.0 21.2 81.2
Charge for the year - restated* 9.5 0.4 9.9 7.1 17.0
Impairment of intangible asset
- restated* - - - 1.0 1.0
Impairment of acquisition
related intangible assets 6.2 - 6.2 - 6.2
Reclassifications from property,
plant and equipment (Note
16) - - - 2.4 2.4
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2016 - Restated 66.9 9.2 76.1 31.7 107.8
Charge for the year 6.4 0.4 6.8 17.0 23.8
Impairment of software and
development expenditure - - - 3.0 3.0
Impairment of acquisition
related intangible assets 10.1 - 10.1 - 10.1
Disposal of subsidiary - - - (1.4) (1.4)
Impact of foreign exchange - - - 0.1 0.1
At 31 March 2017 83.4 9.6 93.0 50.4 143.4
--------------------------------- -------------- ----- ------------ ------------ -----
Carrying amount
At 31 March 2017 5.0 1.3 6.3 46.9 53.2
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2016 - restated* 21.5 1.7 23.2 41.4 64.6
--------------------------------- -------------- ----- ------------ ------------ -----
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
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.
During the year the group has undertaken a reassessment of the
Useful Economic Life of software and development expenditure
related intangible assets and has adopted a revised amortisation
profile for these assets. This change in accounting estimate
resulted in an additional GBP7.5m of amortisation in the year ended
31 March 2017.
The customer relationships relating to the Healthcare business
were impairment tested at 30 September 2016 in accordance with IAS
36 following the decision to withdraw from the domiciliary
healthcare market and the healthcare loss recorded in the half
year. As a result, an impairment of GBP10.1m (2016: GBP6.2m) was
recognised.
Reclassifications from property, plant and equipment relate to
completed software and development expenditure which was held in
plant and vehicles whilst being developed.
516. 53BProperty, plant and equipment
Plant
Freehold Leasehold and
properties properties vehicles Total
GBPm GBPm GBPm GBPm
---------------------------------------- ----------- ----------- --------- ------
Cost
At 1 April 2015 2.7 18.0 109.4 130.1
Additions - 0.6 18.6 19.2
Acquired with subsidiaries - - 0.2 0.2
Reclassifications to intangible
assets (Note 15) - - (8.5) (8.5)
Reclassifications within property,
plant and equipment - 0.5 (0.5) -
Disposals (1.1) (0.3) (17.2) (18.6)
---------------------------------------- ----------- ----------- --------- ------
At 1 April 2016 1.6 18.8 102.0 122.4
Additions - 0.3 14.4 14.7
Reclassifications to intangible
assets (Note 15) - - (14.5) (14.5)
Disposals (0.3) (2.3) (25.3) (27.9)
Disposal of subsidiaries - (0.1) (5.3) (5.4)
Impact of foreign exchange - 0.1 0.2 0.3
At 31 March 2017 1.3 16.8 71.5 89.6
---------------------------------------- ----------- ----------- --------- ------
Accumulated depreciation and impairment
At 1 April 2015 0.6 8.4 67.8 76.8
Charge for the year 0.1 1.4 13.6 15.1
Reclassifications to intangible
assets (Note 15) - - (2.4) (2.4)
Reclassifications within property,
plant and equipment - 0.3 (0.3) -
Disposals (0.2) (0.3) (15.9) (16.4)
---------------------------------------- ----------- ----------- --------- ------
At 1 April 2016 0.5 9.8 62.8 73.1
Charge for the year - 1.5 12.6 14.1
Disposals (0.1) (0.7) (25.1) (25.9)
Disposal of subsidiaries - - (4.3) (4.3)
Impact of foreign exchange - - 0.3 0.3
---------------------------------------- ----------- ----------- --------- ------
At 31 March 2017 0.4 10.6 46.3 57.3
---------------------------------------- ----------- ----------- --------- ------
Carrying amount
At 31 March 2017 0.8 6.2 25.2 32.3
---------------------------------------- ----------- ----------- --------- ------
At 31 March 2016 1.1 9.0 39.2 49.3
---------------------------------------- ----------- ----------- --------- ------
The net book value of plant and vehicles held under finance
leases included above was GBP2.8m (2016: GBP4.0m).
Additions to plant and vehicles during the year amounting to
GBP0.2m (2016: GBP3.5m) were financed by new finance leases.
517. 55BInterest in joint ventures and associates
The group's interests in joint ventures and associates are
accounted for in the consolidated financial statements using the
equity method.
The group's share of result of joint ventures and associates
included in the consolidated income statement was as follows:
2017 2016
GBPm GBPm
------------------------------------------------- ----- -----
Revenue 3.7 3.9
------------------------------------------------- ----- -----
Operating profit 0.6 0.6
------------------------------------------------- ----- -----
Share of profit of joint ventures and associates 0.6 0.6
------------------------------------------------- ----- -----
The group's share of net assets of joint ventures and associates
as at 31 March 2017 was as follows:
2017 2016
GBPm GBPm
------------------------------------------ ----- -----
Non-current assets - -
Current assets 0.8 0.9
Current liabilities (0.2) (0.3)
Non-current liabilities - -
------------------------------------------ ----- -----
Interest in joint ventures and associates 0.6 0.6
------------------------------------------ ----- -----
Joint ventures and associate undertakings are not material to
the group. None have significant restrictions on the ability to
transfer funds to the group in the form of cash dividends, or to
repay loans or advances made by the group. These results have been
taken from unaudited management accounts.
58B18. Derivative financial instruments
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Derivative financial instruments (Note 28) 35.8 14.4
------------------------------------------- ----- -----
35.8 14.4
------------------------------------------- ----- -----
Included in current assets 35.8 -
Included in non-current assets - 14.4
------------------------------------------- ----- -----
35.8 14.4
------------------------------------------- ----- -----
0B19. 61BTrade and other receivables
2017 2016
Restated*
GBPm GBPm
---------------------------------------------- ------ ----------
Amounts receivable for the sale of services 201.8 212.8
Provision for doubtful debts (16.2) (4.6)
---------------------------------------------- ------ ----------
Trade receivables 185.6 208.2
Amounts recoverable on construction contracts
(Note 20) 0.1 2.6
Mobilisation costs (Note 22) 21.0 28.6
Accrued income 178.1 224.1
Prepayments++ 22.7 35.9
Other debtors# 23.8 17.5
---------------------------------------------- ------ ----------
431.3 516.9
---------------------------------------------- ------ ----------
Included in current assets 381.0 432.1
Included in non-current assets+ 50.3 84.8
---------------------------------------------- ------ ----------
431.3 516.9
---------------------------------------------- ------ ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
+ Non-current trade and other receivables comprise accrued
income on long-term complex contracts of GBP40.8m (2016 restated:
GBP67.5m) and mobilisation costs of GBP9.5m (2016 restated:
GBP17.3m) which are further analysed in Notes 21 and 22
respectively.
++ Prepayments include costs incurred for fixed price services
where income will be recognised over the contract period.
# Accrued income includes cost incurred for project and reactive
works in the Engineering Services division where income will be
recognised on completion.
At 31 March 2017 the group utilised GBP110.7m of invoice
discounting facilities (2016: GBP82.2m).
Ageing of trade receivables:
2017 2016
Restated*
GBPm GBPm
---------------------------------------- ------ ----------
Neither impaired nor past due 159.4 157.7
Not impaired and less than three months
overdue 26.8 38.1
Not impaired and more than three months
overdue 15.4 14.4
Impaired receivables 0.2 2.6
Provision for doubtful debts (16.2) (4.6)
---------------------------------------- ------ ----------
185.6 208.2
---------------------------------------- ------ ----------
Movement in the provision for doubtful debts:
2017 2016
Restated*
GBPm GBPm
------------------------------------- ----- ----------
Balance at the beginning of the year 4.6 8.4
Impairment losses recognised 13.9 2.1
Amounts written off as uncollectable (0.8) (4.3)
Amounts recovered during the year - (1.6)
Disposal of business (1.5) -
Impact of foreign exchange - -
------------------------------------- ----- ----------
16.2 4.6
------------------------------------- ----- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
The average credit period taken on sales of services was 27 days
(2016 restated: 29 days).
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
20. 65BAmounts recoverable on construction contracts
2017 2016
Restated*
GBPm GBPm
------------------------------------------------- ------ ----------
Construction contract costs incurred plus
recognised profits less recognised losses
to date 39.7 46.3
Less progress billings (39.6) (43.7)
------------------------------------------------- ------ ----------
Amounts due from construction contract customers
included in trade and other receivables 0.1 2.6
------------------------------------------------- ------ ----------
Included in current assets 0.1 2.6
Included in non-current assets - -
------------------------------------------------- ------ ----------
0.1 2.6
------------------------------------------------- ------ ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
At 31 March 2017, retentions held by customers for contract work
amounted to GBP2.3m (2016: GBP4.7m) and was held in accrued
income.
B21. 67BAccrued income on long-term complex contracts
2017 2016
Restated*
GBPm GBPm
------------------------------------------- ------ ----------
At 1 April 70.6 43.8
Amounts recognised in the income statement (20.4) 26.8
------------------------------------------- ------ ----------
At 31 March 50.2 70.6
------------------------------------------- ------ ----------
Included in current assets 9.4 3.1
Included in non-current assets 40.8 67.5
------------------------------------------- ------ ----------
50.2 70.6
------------------------------------------- ------ ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
GBP21.2m of the accrued income on long-term complex contracts is
attributable to transition costs (2016: GBP26.5).
The accrued income on long-term complex contracts balance at the
end of each subsequent financial year is projected to be:
2017 2018 2019 2020 2021 2022
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- ----- ----- ----- ----- -----
2017 n/a 40.8 27.8 16.9 8.8 3.2
2016 - Restated 67.5 54.3 36.8 24.4 14.1 5.5
---------------- ----- ----- ----- ----- ----- -----
22. 69BMobilisation costs
2017 2016
GBPm GBPm
------------------------------------------- ------ ------
At 1 April 28.6 30.6
Additions 12.4 12.0
Amounts recognised in the income statement (20.0) (14.0)
------------------------------------------- ------ ------
At 31 March 21.0 28.6
------------------------------------------- ------ ------
Included in current assets 11.5 11.3
Included in non-current assets 9.5 17.3
------------------------------------------- ------ ------
21.0 28.6
------------------------------------------- ------ ------
Under IFRS 15 mobilisation costs will be replaced by fulfilment
costs. The criteria for capitalising costs as a fulfilment cost
will be focussed on the individual task being performed. The
potential impact of this is being reviewed as part of the overall
IFRS 15 review project.
70B23. 71BDeferred tax
The following are the major deferred tax liabilities and assets
recognised by the group and movements thereon during the current
and prior reporting period:
Accelerated Retirement Intangible Short-term
tax benefit assets Share timing
Losses depreciation obligations acquired options differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ------------- ------------ ---------- -------- ------------ -----
At 1 April 2015 -
restated* - 1.0 7.1 (7.5) 1.9 3.9 6.4
Credit/(charge) to
income - 0.4 0.9 3.1 (0.4) (2.2) 1.8
(Charge)/credit to
equity and the
statement of comprehensive
income - - (1.6) - (0.2) (0.5) (2.3)
Acquisition of subsidiaries - - - - - 0.1 0.1
---------------------------- ------- ------------- ------------ ---------- -------- ------------ -----
At 1 April 2016 -
restated* - 1.4 6.4 (4.4) 1.3 1.3 6.0
Credit/(charge) to
income 0.8 5.1 0.7 3.3 (0.3) (0.3) 9.3
(Charge)/credit to
equity and the
statement of comprehensive
income - - 5.5 - (0.3) 0.6 5.8
Acquisition of subsidiaries - - - - - - -
---------------------------- ------- ------------- ------------ ---------- -------- ------------ -----
At 31 March 2017 0.8 6.5 12.6 (1.1) 0.7 1.6 21.1
---------------------------- ------- ------------- ------------ ---------- -------- ------------ -----
Certain deferred tax assets and liabilities have been offset.
The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
2016
2017 Restated*
GBPm GBPm
------------------------- ----- ----------
Deferred tax assets 22.2 10.4
Deferred tax liabilities (1.1) (4.4)
------------------------- ----- ----------
Net deferred tax asset 21.1 6.0
------------------------- ----- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
The group has unutilised income tax losses of GBP14.2m (2016:
GBP9.3m) that are available for offset against future profits. In
addition the group has GBP0.8m (2016: GBP0.8m) of capital
losses.
A deferred tax asset has been recognised in respect of certain
unutilised losses and allowances on the basis that there are
expected future profits to be generated. Deferred tax has been
calculated using the corporation tax rates disclosed in note
11.
72B24. 73BInventories
2017 2016
GBPm GBPm
----------------- ----- -----
Work-in-progress - 2.5
Materials 6.8 7.4
----------------- ----- -----
6.8 9.9
----------------- ----- -----
74B25. 75BCash and cash equivalents
2017 2016
GBPm GBPm
-------------------------- ----- -----
Cash and cash equivalents 129.1 93.1
-------------------------- ----- -----
Cash and cash equivalents comprise cash held by the group and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of the assets approximates their fair
value.
Included in cash and cash equivalents are deposits totalling
GBP0.6m (2016: GBP0.9m) held by the group's insurance subsidiary,
which are not readily available for the general purposes of the
group.
At 31 March 2017 the group utilised GBP110.7m of invoice
discounting facilities (2016: GBP82.2m).
76B26. 77BTrade and other payables
2017 2016
Restated*
GBPm GBPm
------------------------------------ ----- ----------
Payments received on account 1.8 0.1
Trade creditors 244.7 206.8
Other taxes and social security 84.3 82.7
Other creditors 24.5 9.6
Accruals 160.4 151.4
Deferred income 47.6 48.0
------------------------------------ ----- ----------
563.3 498.6
------------------------------------ ----- ----------
Included in current liabilities 559.9 496.1
Included in non-current liabilities 3.4 2.5
------------------------------------ ----- ----------
563.3 498.6
------------------------------------ ----- ----------
* See Note 1(c) for an explanation and analysis of the prior
year adjustments included above in respect of 31 March 2016.
Trade creditors, accruals and deferred income principally
comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases is 71 days
(2016: 40 days).
The Directors consider that the carrying amount of trade and
other payables approximates their fair value.
78B27. 79B Financing liabilities
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Bank loans - under committed facilities 15.3 13.6
Private placement notes 294.0 268.2
Obligations under finance leases (Note 30) 2.8 4.0
------------------------------------------- ----- -----
312.1 285.8
------------------------------------------- ----- -----
Included in current liabilities 310.8 1.9
Included in non-current liabilities 1.3 283.9
------------------------------------------- ----- -----
312.1 285.8
------------------------------------------- ----- -----
As discussed in Note 42, following the year end the Group's
lenders have agreed to an amendment to covenant calculation
definitions. In accordance with the requirements of IAS 1, it has
been necessary to classify the drawn amounts on the funding
arrangements as current rather than non-current liabilities. The
final maturity dates of all facilities remain unchanged.
The banking facilities and private placement notes are unsecured
but have financial and non-financial covenants and obligations
commonly associated with these arrangements. Included in current
financing liabilities are GBP1.5m (2016: GBP1.9m) of obligations
under finance leases (see Note 30).
With the exception of derivative financial instruments and the
private placement notes, all financing liabilities are held at
amortised cost. The Directors estimate that their carrying value
approximates their fair value. Derivative financial instruments are
initially recognised at fair value at the date the contract is
entered into and are subsequently remeasured to their fair value
through profit or loss unless they are designated as hedges for
which hedge accounting can be applied (see Note 28). The carrying
value of the private placement notes at 31 March 2017 includes a
fair value adjustment for interest rate and currency risk of
GBP0.2m (2016: GBP0.7m). The fair value of the private placement
notes is not significantly different from their carrying value.
At 31 March 2017, the group had available GBP257.9m (2016:
GBP259.4m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The facilities have an
expiry date of July 2021. The loans carry interest rates which are
currently determined at 1.0% over LIBOR. Details of the group's
contingent liabilities are provided in Note 35.
The weighted average interest rates paid during the year on the
overdrafts and loans outstanding were as follows:
2017 2016
% %
------------------------ ---- ----
Overdrafts 2.1 2.1
Bank loans 1.2 1.3
Private placement notes 3.8 3.8
------------------------ ---- ----
Private placement notes
On 13 December 2012, the group issued US$153.0m and GBP55.0m of
private placement (PP) notes in the United States Private Placement
market. This followed the issue on 16 December 2010 of US$96.0m and
GBP40.0m of PP notes in the United States Private Placement market.
The PP notes are unsecured and rank pari passu with other senior
unsecured indebtedness of the group. In order to manage the risk of
foreign currency fluctuations and to manage the group's finance
costs through a mix of fixed and variable rate debt, the group has
entered into cross currency interest rate swaps. The swap contracts
have the same duration and other critical terms as the borrowings
and are considered to be highly effective. The amount, maturity and
interest terms of the PP notes are as shown below:
Tranche Maturity date Amount Interest terms Swap interest
------- ---------------- -------- ------------------ ------------------
7 year 16 December 2017 US$48.0m US$ fixed at 3.39% GBP fixed at 3.88%
7 year 16 December 2017 US$48.0m US$ fixed at 3.39% GBP LIBOR + 1.26%
9 year 16 December 2019 GBP40.0m GBP fixed at 4.38% n/a
10 year 16 December 2022 US$76.0m US$ fixed at 3.85% GBP fixed at 4.05%
10 year 16 December 2022 US$77.0m US$ fixed at 3.85% GBP fixed at 4.02%
10 year 16 December 2022 GBP25.0m GBP fixed at 3.87% n/a
12 year 16 December 2024 GBP30.0m GBP fixed at 4.04% n/a
------- ---------------- -------- ------------------ ------------------
28. 83BFinancial instruments
Classification
The group's principal financial assets are cash and cash
equivalents, trade receivables and derivative financial
instruments. With the exception of derivative financial
instruments, all financial assets are classified as loans and
receivables.
The group's principal financial liabilities are trade payables,
financing liabilities and deferred contingent consideration. With
the exception of derivative financial instruments, private
placement notes and deferred contingent consideration, all
financial liabilities are held at amortised cost.
Derivative financial instruments and private placement loan
notes are measured initially at fair value at the date the contract
is entered into and are subsequently remeasured to their fair value
through the income statement unless they are designated as hedges
for which hedge accounting can be applied. Deferred contingent
consideration is measured at the Directors' best estimate of the
likely future obligation.
Details of the significant accounting policies and methods
adopted (including the criteria for recognition, the basis of
measurement and the bases for recognition of income and expense)
for each class of financial asset, financial liability and equity
instrument are disclosed in Note 1.
Risk management objectives
The group's treasury function monitors and manages the financial
risks relating to the operations of the group. These risks include
those arising from interest rates, foreign currencies, liquidity,
credit and capital management. The group seeks to minimise the
effects of these risks by using effective control measures and,
where appropriate, derivative financial instruments to hedge
certain risk exposures. The use of financial derivatives is
governed by group policies and reviewed regularly. Group policy is
not to trade in financial instruments. The risk management policies
remain unchanged from the previous year.
Interest rate risk
The group's activities expose it to the financial risks of
interest rates. The group's treasury function reviews its risk
management strategy on a regular basis and will appropriately enter
into derivative financial instruments in order to manage interest
rate risk. Having issued US$249.0m and GBP95.0m of notes in the US
PP fixed rate market, the group has swapped US$48.0m into floating
rate debt.
Interest rate sensitivity
The interest rate sensitivity has been determined based on the
exposure to interest rates for both derivative and non-derivative
instruments at the balance sheet date. For floating rate
liabilities, the analysis is prepared assuming the amount of
liability outstanding at the balance sheet date was outstanding for
the whole year. All financial liabilities, other than financing
liabilities, are interest free.
If interest rates had been 0.5% higher/lower and all other
variables were held constant, the group's profit after tax for the
year ended 31 March 2017 and reserves would decrease/increase by
GBP0.5m (2016: GBP0.4m).
Foreign currency risk
The group has limited exposure to transactional foreign currency
risk from trading transactions in currencies other than the
functional currency of individual group entities and some exposure
to translational foreign currency risk from the translation of its
operations in Europe. The group considers the need to hedge its
exposures appropriately and will enter into forward foreign
exchange contracts to mitigate any significant risks.
In addition, the group has fully hedged the US dollar exposure
on its PP notes into sterling using cross currency interest rate
swaps (see Hedging activities below).
At 31 March 2017 GBP6.9m (2016: GBP5.0m) of cash and cash
equivalents were held in foreign currencies. Included in bank loans
were GBP15.3m (2016: GBP13.6m) of loans denominated in foreign
currency.
Liquidity risk
The group monitors its liquidity risk using a cash flow
projection model which considers the maturity of the group's assets
and liabilities and the projected cash flows from operations. Bank
facilities, which allow for appropriate headroom in the group's
daily cash movements, are then arranged. Details of the group's
bank facilities can be found in Note 27.
The tables below summarise the maturity profile (including both
undiscounted interest and principal cash flows) of the group's
financial liabilities:
In the
second
Within to After
one fifth five
Financial liabilities at 31 March year years years Total
2017 GBPm GBPm GBPm GBPm
---------------------------------- ------ ------- ------ -----
Trade creditors 244.7 - - 244.7
Other creditors 24.5 - - 24.5
Financing liabilities 106.2 70.2 181.2 357.6
Deferred contingent consideration 0.3 - - 0.3
---------------------------------- ------ ------- ------ -----
Financial liabilities 375.7 70.2 181.2 627.1
---------------------------------- ------ ------- ------ -----
In the
second
Within to After
one fifth five
Financial liabilities at 31 March year years years Total
2016 GBPm GBPm GBPm GBPm
---------------------------------- ------ ------- ------ -----
Trade creditors 206.8 - - 206.8
Other creditors 9.6 - - 9.6
Financing liabilities 28.5 140.6 170.8 339.9
Deferred contingent consideration 0.4 - - 0.4
---------------------------------- ------ ------- ------ -----
Financial liabilities 245.3 140.6 170.8 556.7
---------------------------------- ------ ------- ------ -----
Credit risk
The group's credit risk is monitored on an ongoing basis and
formally reported quarterly. The value of business placed with
financial institutions is reviewed on a daily basis.
The group's credit risk on liquid funds and derivative financial
instruments is limited because the counterparties are banks with
high credit ratings assigned by international credit rating
agencies and are managed through regular review.
The amounts presented in the balance sheet in relation to the
group's trade receivables are net of provisions for doubtful
debts.
The group's credit risk is primarily attributable to its trade
receivables. Before accepting a new customer, the group uses
external credit scoring systems to assess the potential customer's
credit quality and define an appropriate credit limit which is
reviewed regularly.
In determining the recoverability of a trade receivable, the
group considers the credit quality of the counterparty. An
allowance for impairment is made where there is an identified loss
event which, based on previous experience, is evidence of a
reduction in the recoverability of the cash flows. The Directors
believe that there is no further provision required in excess of
the provision for doubtful debts at the balance sheet date.
The maximum exposure to credit risk in relation to trade
receivables at the balance sheet date is the fair value of trade
receivables. The group's customer base is large and unrelated and,
accordingly, the group does not have a significant concentration of
credit risk with any one counterparty or group of
counterparties.
Capital management risk
The group manages its capital to ensure that entities in the
group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and
equity. The capital structure of the group consists of net debt per
Note 31 and equity per the consolidated statement of changes in
equity.
The group's capital structure is reviewed regularly. In 2013,
the Board approved a share purchase 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. During the year, the group bought back 9.1m (2016:
5.2m) shares at a cost of GBP24.4m (2016: GBP15.2m) and
subsequently cancelled these shares. From time to time shares are
bought to be held in Treasury in order to offset shares issued
under various share schemes and to hedge against shares to be
issued in the future. During the year, nil (2016: 2.3m) shares were
bought to be held in Treasury at a total cost of GBPnil (2016:
GBP6.6m). Further details are provided in Notes 32 and 33.
The group is not subject to externally imposed regulatory
capital requirements with the exception of those applicable to the
group's captive insurance subsidiary, which is monitored on a
regular basis.
Hedging activities
Cash flow hedges
The group holds a number of cross currency interest rate swaps
designated as cash flow hedges on US$ 201.0m of PP notes. Biannual
fixed interest cash flows arising over the periods to December 2022
and denominated in US$ from the US Private Placement market are
exchanged for fixed interest cash flows denominated in sterling.
The group also holds a number of forward exchange currency
contracts designated as hedges of highly probable forecast
transactions. All cash flow hedges were assessed as being highly
effective as at 31 March 2017.
Fair value hedges
The group holds a number of cross currency interest rate swaps
designated as fair value hedges on US$ 48.0m of PP notes. Fixed
interest cash flows denominated in US$ from the US Private
Placement market are exchanged for floating interest cash flows
denominated in sterling. All fair value hedges were assessed as
being highly effective as at 31 March 2017.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2017 was a borrowing of
EUR9.5m (2016: EUR9.5m) which has been designated as a hedge of the
net investment in the Republic of Ireland business of Dalkia FM in
Ireland and is being used to hedge the group's exposure to foreign
exchange risk on this investment. Gains or losses on the
translation of the borrowing are transferred to equity to offset
gains or losses on the translation of the net investment.
Derivative financial instruments
The carrying values of derivative financial instruments at the
balance sheet date were as follows:
Assets Assets Liabilities Liabilities
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
----------------------------------- ------ ------ ----------- -----------
Cross currency interest rate swaps
designated as cash flow hedges 27.0 10.3 - -
Cross currency interest rate swaps
designated as fair value hedges 8.8 4.1 - -
----------------------------------- ------ ------ ----------- -----------
Derivative financial instruments
hedging private placement notes 35.8 14.4 - -
----------------------------------- ------ ------ ----------- -----------
Derivative financial instruments are measured at fair value.
Fair values of derivative financial instruments are calculated
based on a discounted cash flow analysis using appropriate market
information for the duration of the instruments.
Financial instruments fair value disclosure
Fair value measurements are classified into three levels,
depending on the degree to which the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets or liabilities;
- Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
- Level 3 fair value measurements are those derived from
valuation techniques using inputs that are not based on observable
market data.
The Directors consider that the derivative financial instruments
fall into Level 2 and that deferred contingent consideration falls
into Level 3.
Deferred contingent consideration is measured at the Directors'
best estimate of the likely future obligation based on the
attainment of certain profit targets. In assessing the likely
future obligation, the Directors have used their experience and
knowledge of market conditions, alongside internal business plans
and growth forecasts. Actual amounts payable may
vary up to a maximum of GBP0.3m (2016: GBP0.4m) dependent upon
the results of the acquired businesses.
The following table shows the reconciliation from the opening to
closing balances for Level 3 fair values:
Deferred
contingent
consideration
GBPm
--------------------------------------------- --------------
At 1 April 2016 0.4
Change in consideration C&C Health (Note 14) (0.1)
At 31 March 2017 0.3
--------------------------------------------- --------------
There were no transfers between levels during the year. All
contracts are gross settled.
829. 89BProvisions
Deferred
Legal Healthcare contingent Insurance Onerous Contract
costs provision consideration reserve leases costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ---------- -------------- --------- ------- -------- -----
At 1 April 2016 -
Restated - - 0.4 6.4 - 2.2 9.0
Amounts recognised
in the income statement 2.0 6.0 - 7.0 0.1 3.7 18.8
Amounts recognised
through goodwill - - (0.1) - - - (0.1)
Utilised within captive
insurance subsidiary - - - (0.1) - - (0.1)
Utilised in the period - - - (6.7) - - (6.7)
Reclassified from
accruals - - - 5.9 - - 5.9
------------------------- -------- ---------- -------------- --------- ------- -------- -----
At 31 March 2017 2.0 6.0 0.3 12.5 0.1 5.9 26.8
------------------------- -------- ---------- -------------- --------- ------- -------- -----
10.101.0 -
Included in current
liabilities 2.0 6.0 0.3 6.1 0.1 5.9 20.4
Included in non-current
liabilities - - - 6.4 - - 6.4
------------------------- -------- ---------- -------------- --------- ------- -------- -----
2.0 6.0 0.3 12.5 0.1 5.9 26.8
------------------------- -------- ---------- -------------- --------- ------- -------- -----
The provisions balance includes the following items:
The legal costs provision relates to professional fees payable
and the potential cost of settlement of outstanding claims against
the company.
The Healthcare provision relates to the anticipated costs of
separation of the Healthcare business from the group, that is
anticipated to crystallise over the next two years. See Note 6 for
more detail on disposal.
The insurance reserve provides for the self-insured element of
Fleet and Liability claims that will typically settle over 3-5
years. This includes a provision for claims that are expected but
have not yet been reported.
Contract cost provisions relate to various obligations arising
in the ordinary course of providing services in line with
commercial contracts that may require settlement largely over
periods up to two years.
930. 91BObligations under finance leases
Present value
Minimum lease of lease
payments payments
--------------- ---------------
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
--------------------------------------- ------- ------ ------- ------
Amounts payable under finance leases:
Within one year 1.7 2.0 1.5 1.9
In the second to fifth years inclusive 1.2 2.3 1.3 2.1
======================================= ======= ====== ======= ======
2.9 4.3 2.8 4.0
Less: future finance charges (0.1) (0.3) - -
--------------------------------------- ------- ------ ------- ------
Present value of lease obligations 2.8 4.0 2.8 4.0
Less: amount due for settlement
within 12 months (1.5) (1.9) (1.5) (1.9)
--------------------------------------- ------- ------ ------- ------
Amount due for settlement after
12 months 1.3 2.1 1.3 2.1
--------------------------------------- ------- ------ ------- ------
The average remaining lease term is 22 months (2016: 23 months).
For the year ended 31 March 2017, the average effective borrowing
rate was 1.8% (2016: 4.1%). Interest rates are fixed at the
contract date. All leases are on a fixed repayment basis and no
arrangements have been entered into for contingent rental payments.
All lease obligations are denominated in sterling.
The fair value of the group's lease obligations approximates
their carrying amount. The group's obligations under finance leases
are protected by the lessors' rights over the leased assets.
31. 93BAnalysis of net debt
2017 2016
GBPm GBPm
------------------------------------------- ------- -------
Cash and cash equivalents (Note 25) 129.1 93.1
Bank loans (Note 27) (15.3) (13.6)
Private placement notes (Note 27) (294.0) (268.2)
Derivative financial instruments hedging
private placement notes (Note 28) 35.8 14.4
------------------------------------------- ------- -------
Net debt before obligations under finance
leases (144.4) (174.3)
Obligations under finance leases (Note 30) (2.8) (4.0)
------------------------------------------- ------- -------
Net debt (147.2) (178.3)
------------------------------------------- ------- -------
932. 95BShare capital
Number
Ordinary shares of 2.5p million GBPm
---------------------------------- -------- -----
Allotted and fully paid
At 1 April 2015 375.2 9.4
Share buybacks (5.2) (0.1)
Issued under share option schemes 2.1 -
---------------------------------- -------- -----
At 1 April 2016 372.1 9.3
Share buybacks (9.1) (0.2)
Issued for acquisitions 6.0 0.1
Issued under share option schemes 0.1 -
---------------------------------- -------- -----
At 31 March 2017 369.1 9.2
---------------------------------- -------- -----
During the year 9.1m (2016: 5.2m) Ordinary shares of 2.5p were
purchased at a cost of GBP24.4m (2016: GBP15.2m) and subsequently
cancelled.
During the year 6.0m (2016: nil) Ordinary shares of 2.5p were
allocated in respect of the acquisition of non-controlling
interests at a mid-market price of 244.4p (2016: nil) giving rise
to share premium of GBP2.8m (2016: nil) and merger reserve of
GBP11.7m (2016: nil).
During the year 0.1m (2016: 2.1m) Ordinary shares of 2.5p were
allotted in respect of share option schemes at a price between
201.0p and 260.2p (2016: 162.0p and 318.6p) giving rise to share
premium of GBP0.1m (2016: GBP5.1m).
33. 97BReserves
Share premium account
The share premium account represents the premium arising on the
issue of equity shares (see Note 32).
Merger reserve
The merger reserve represents amounts relating to premiums
arising on shares issued subject to the provisions of Section 612
of the Companies Act 2006.
Own shares reserve
The group uses shares held in the Employee Benefit Trust and SIP
Trust to satisfy options under the group's LTIP and SIP share
option schemes respectively. During the year nil Treasury shares
were purchased (2016: 2.3m at a cost of GBP6.6m). Treasury shares
are held so that they can be reissued at a later date if required
(see details of Capital management risk in Note 27). Proceeds from
the issue of 1.2m (2016: 1.3m) Treasury shares to satisfy Group
share schemes in the year were GBP2.4m (2016: GBP3.7m) at a cost of
GBP3.4m (2016: GBP3.8m).
The own shares reserve at 31 March 2017 represents the cost of
15.2m (2016: 17.5m) shares in Mitie Group plc, with a weighted
average of 16.5m (2016: 18.8m) shares during the year.
Other reserves
Other reserves are comprised of the share-based payment reserve
of GBP9.4m (2016: GBP9.4m), the revaluation reserve of GBP(0.2)m
(2016: GBP(0.2)m), the capital redemption reserve of GBP0.9m (2016:
GBP0.5m) and other reserves of GBP0.2m (2016: GBP0.2m).
The share-based payment reserve represents credits relating to
equity-settled share-based payment transactions that have not yet
fully vested (see Note 37).
Hedging and translation reserve
The hedging and translation reserve of GBP(8.0)m (2016:
GBP(4.6)m) includes balances in respect of the group's cash flow
hedges
(see Note 28). The net cash flow hedge movement during the year
of GBP(4.8)m (2016: GBP2.3m) is included within Other comprehensive
income. The hedging and translation reserve also includes balances
arising on translation of the group's overseas operations and in
respect of net investment hedges.
34. 99BAcquisitions
Current year acquisitions - purchase of non-controlling
interests
On 24 August 2016, the group purchased employee minority
shareholdings of three of its successful 'Mitie Model' businesses:
Mitie Business Services UK Limited (MBSUKL), Mitie Technical
Facilities Management Limited (MTFML), and Mitie Care and Custody
Limited (MCCL) in accordance with the respective articles of
association and shareholders' agreements of those companies.
The total maximum consideration for all three purchases amounted
to GBP16.1m. This was be satisfied with GBP1.4m in cash and as to
the remaining GBP14.7m by the issue of 6,015,255 new ordinary
shares of 2.5p each in Mitie valued at 244.38 p per share. This is
the average of the closing middle market price for the five banking
days immediately preceding 26 July 2016. Earlier in this financial
year, Mitie purchased its own shares in the market to offset this
share issue. The purchased shares were cancelled following their
acquisition.
As a result of these acquisitions Mitie owns 100% of the issued
share capital of MBSUKL and MTFML, and 93.14% of the issued share
capital of MCCL. The shareholdings purchased, primarily held by
certain of the employees and senior management of the relevant
subsidiary companies, are detailed below:
- MBSUKL - 27.29% of the issued share capital, comprising
116,000 B ordinary shares of GBP0.01 each, for a consideration of
GBP0.8m. The consideration was satisfied by GBP0.1m in cash and
GBP0.7m by the issue of 275,428 new Mitie Shares;
- MTFML - 8.93% of the issued share capital, comprising 952,000
B ordinary shares of GBP0.01 each, for a consideration of GBP12.1m.
The consideration was satisfied by GBP1.0m in cash and GBP11.1m by
the issue of 4,563,029 new Mitie Shares; and
- MCCL - 27.42% of the issued share capital, comprising 170,022
B ordinary shares of GBP0.01 each, for a consideration of GBP3.2m.
The consideration was satisfied by GBP0.3m in cash and GBP2.9m by
the issue of 1,176,798 new Mitie Shares.
Prior year acquisitions - 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. The
business has been renamed Care and Custody (Health) Limited. The
transaction has been accounted for by the acquisition method of
accounting in accordance with IFRS 3 (2008). The provisional
acquisition accounting as disclosed in the 2016 Annual Report and
Accounts was reviewed during the year resulting in a GBP0.1m
reduction to the consideration payable and the value of
goodwill.
135. 105BContingent liabilities
The Company and various of its subsidiaries are, from time to
time, party to contractual disputes that arise in the ordinary
course of business. Specifically, there are three ongoing
contractual disputes with clients of Mitie's Property Management
business which are subject to claims or potential claims of a
material nature. In one instance, discussions are ongoing between
the Company and the counterparty, to determine both liability and
potential quantum. In relation to the other two matters,
arbitration proceedings have commenced. The Directors do not
anticipate that the outcome of these proceedings and claims, either
individually or in aggregate, will have a material adverse effect
on the group's financial position, other than as provided for in
the accounts. In appropriate cases, a provision is recognised based
on best estimates and management judgement but there can be no
guarantee that these provisions (which may be subject to
potentially material revision from time to time) will result in an
accurate prediction, due to the uncertainty of the actual costs and
liabilities that may be incurred. The Directors will continue to
monitor events as matters progress
In addition, the group and its subsidiaries have provided
guarantees and indemnities in respect of performance, issued by
financial institutions on its behalf, amounting to GBP23.8m (2016:
GBP23.6m) in the ordinary course of business. These are not
expected to result in any material financial loss.
The group participates in several industry multi-employer
defined benefit schemes. These multi-employer schemes have
historically not been able to calculate the group's share of net
liabilities and the group funds the schemes through paying employer
pension contributions. In the event that a multi-employer scheme is
able to calculate the group's share of net pension liability, then
this liability would then be recognised in the group's financial
statements. Where the group (or subsidiary of the group) exits such
schemes, pension legislation may require the group to fund the
group's share of the total amount of net liabilities with a one-off
cash payment (a section 75 debt). Contingent liabilities related to
the Retirement Benefit Schemes are disclosed in Note 38.
There is currently a specific National Minimum Wage enquiry
being undertaken by the government in relation to two individuals
in one Division. In respect of this enquiry the directors believe
their risk to be immaterial. Based on the outcome of this enquiry,
there is an uncertainty as to whether further enquiries could be
initiated over a wider population across the Group. At this stage,
due to the nature and complexity of assessing compliance, it is not
possible to estimate the potential economic exposure. In common
with other UK businesses with a large number of employees operating
near the minimum wage, the Group is at risk of potential deficiency
in respect of current and past employees. As part of a wider HR
transformation project, the Directors are reviewing the end to end
processes and systems. In the event that deficiency is found the
scope of the deficiency will be defined.
136. 107BOperating lease arrangements
The group as lessee
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Minimum lease payments under operating leases
recognised in income for the year 32.1 27.4
---------------------------------------------- ----- -----
At the balance sheet date, the group had total outstanding
aggregate commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
2017 2016
GBPm GBPm
--------------------------------------- ----- -----
Within one year 24.7 19.7
In the second to fifth years inclusive 30.6 30.5
After five years 7.6 5.4
--------------------------------------- ----- -----
62.9 55.6
--------------------------------------- ----- -----
Operating lease payments represent rentals payable by the group
for certain of its office properties and hire of vehicles and other
equipment. These leases have average durations ranging from three
to ten years. No arrangements have been entered into for contingent
rental payments.
137. 109BShare-based payments
The Company has six equity-settled share schemes. The group also
awards performance-related bonuses for Executive Directors which
are deferred in shares and are accounted for as a share-based
payment charge.
Discretionary share plans:
The Mitie Group plc Long Term Incentive Plan (LTIP)
The LTIP was introduced in 2007. The awards of shares or rights
to acquire shares (the awards) are offered to a small number of key
senior management. Where offered as options the exercise price is
GBPnil. The vesting period is three years, although for awards
granted in 2015 and subsequently some are subject to a holding
period of up to a further two years. If the awards remain
unexercised after a period of twelve months from the date of
vesting the awards expire. The awards may be forfeited if the
employee leaves the group. Before the awards can be exercised,
performance conditions must be satisfied which are based on
movements in a range of market and non-market measures over a three
year period.
The Mitie Group plc 2001 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the
average market value of the shares over the five day period
immediately preceding the date of grant. The vesting period is
three years. If the options remain unexercised after a period of
ten years from the date of grant the options expire. Options may be
forfeited if the employee leaves the group.
The Mitie Group plc 2011 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the
average market value of the shares on the business day preceding
grant or, if the Remuneration Committee decides, the average market
value of shares over a number of preceding business days (not to
exceed 20). The vesting period is three years. If the options
remain unexercised after a period of ten years from the date of
grant the options expire. Options may be forfeited if the employee
leaves the group. Before options can be exercised, a performance
condition must be satisfied; the performance condition is linked to
the percentage growth in earnings per share over a three year
period.
The Conditional share plan (CSP)
The CSP was introduced in 2014. The awards of shares or the
rights to acquire shares (the award) are offered to a small number
of key senior management. Where offered as options the exercise
price is GBPnil. The vesting period is determined at the discretion
of the Remuneration Committee and is generally two or three years.
If the awards remain unexercised after a period of ten years from
the date of grant the awards expire. The awards may be forfeited if
the employee leaves the group.
Non-discretionary share plans:
The Mitie Group plc 2011 SAYE scheme
The SAYE scheme is open to eligible UK resident employees. The
exercise price is not less than 80% of the market value of the
shares determined using either: the share price preceding the date
on which invitations to participate in the scheme are issued, or an
average share price over five days preceding the invitation date.
The vesting period is three years. If the options remain
unexercised after a period of six months from the date of vesting,
the options expire. Options may be forfeited if the employee leaves
the group.
The Share Incentive Plan (SIP)
The SIP was introduced in 2011 and is a open to all eligible UK
resident employees. Under the scheme, eligible employees are
invited to invest in partnership shares which are purchased in the
market on their behalf and held in a separate UK trust. One
Matching Share is awarded for every ten partnership shares
purchased and has a holding period of three years. Matching Shares
are funded by way of market purchases.
Details of the awards and share options outstanding during the
year are as follows:
2017 2016
--------------------- ---------------------
Number Weighted Number Weighted
of average of average
share exercise share exercise
options price options price
(million) (p) (million) (p)
----------------------------------- ---------- --------- ---------- ---------
Outstanding at 1 April 21.4 162 22.1 157
Granted during the year 7.5 87 8.1 170
Forfeited during the year (5.4) 178 (4.6) 130
Exercised during the year (2.6) 98 (4.2) 192
----------------------------------- ---------- --------- ---------- ---------
Outstanding at 31 March 20.9 141 21.4 162
----------------------------------- ---------- --------- ---------- ---------
Exercisable at the end of the year 3.5 213 2.2 216
----------------------------------- ---------- --------- ---------- ---------
The group recognised the following expenses related to
share-based payments:
2017 2016
GBPm GBPm
------------------------------ ----- -----
Discretionary share plans 4.8 4.0
Non-discretionary share plans 1.4 1.2
------------------------------ ----- -----
6.2 5.2
------------------------------ ----- -----
The movement on the share-based payment reserve, which is part
of other reserves, comprises the charge to the income statement for
the year of GBP6.2m (2017: GBP5.2m) net of the cumulative charge to
the income statement of GBP6.2m (2017: GBP3.0m) in respect of
schemes that have vested in the year, which is released to retained
earnings.
The share based payment entry in own share reserve of GBP6.8m
(2016: GBP5.3m) reflects the use of Treasury shares and shares held
by the Employee Benefit Trust in settlement of exercised share
options. The GBP2.4m (2016: GBP0.3m) in retained earnings includes
GBP6.2m relating to vesting schemes described above net of the cost
of shares used to settle options and dividend equivalents.
The weighted average share price at the date of exercise for
share options exercised during the year was 234p (2016: 313p). The
options outstanding at 31 March 2017 had exercise prices (other
than nil in the case of the LTIP, the CSP and the matching shares
under the SIP) ranging from 201p - 319p (2016: 191p - 319p) and a
weighted average remaining contractual life of 4.0 years (2016: 3.8
years). In the year ended 31 March 2017, options were granted in
June, July, December, January and March in respect of the SAYE,
LTIP, CSP and deferred bonus schemes. The aggregate of the
estimated fair values of the options granted on those dates was
GBP11.1m (2016: GBP6.9m).
The fair value of options is measured by use of the
Black-Scholes and Monte Carlo models.
The inputs into the Black-Scholes model are as follows:
2017 2016
------------------------ ------ ------
276 251
Share price (p) - 318 - 318
0 - 0 -
Exercise price (p) 319 319
23 - 25 -
Expected volatility (%) 30 30
3 - 3 -
Expected life (years) 4 5
0.13 0.13
Risk-free rate (%) - 1.1 - 1.1
3.5 3.5
Expected dividends (%) - 4.7 - 4.1
------------------------ ------ ------
The inputs into the Monte Carlo model are as follows:
2017 2016
--------------------------------------- ----------- -------
251 -
Share price (p) 247 - 319 319
Average correlation with TSR benchmark 26 -
(%) 26 - 35 32
18 -
Expected volatility (%) 18 - 23 24
Expected life (years) 3 3
0.64
Risk-free rate (%) 0.16 - 1.29 - 1.29
--------------------------------------- ----------- -------
Expected volatility was based upon the historical volatility
over the expected life of the schemes. The expected life is based
upon historical data and has been adjusted based on management's
best estimates for the effects of non-transferability, exercise
restrictions and behavioural considerations.
38. 113BRetirement benefit schemes
The group has a number of pension arrangements for
employees:
a) Defined contribution schemes for the majority of its
employees; and
b) Defined benefit schemes which include a group scheme and
other, smaller schemes.
The group operates a number of defined contribution pension
schemes for qualifying employees. The group has a defined benefit
pension scheme called the Mitie Group plc Pension Scheme (Group
scheme) where Mitie Group plc is the principal employer. The group
participates in a number of other defined benefit schemes (Other
schemes) in respect of certain employees who joined the group under
the Transfer of Undertakings (Protection of Employment) Regulations
2006 (TUPE).
Defined contribution schemes
A defined contribution scheme is a pension scheme under which
the group pays contributions to an independently administered fund
- such contributions are based upon a fixed percentage of
employees' pay. The group has no legal or constructive obligations
to pay further contributions to the fund once these contributions
have been paid. Members' benefits are determined by the amount of
contributions paid, together with investment returns earned on the
contributions arising from the performance of each individual's
chosen investments and the type of pension the member chooses to
take at retirement. As a result, actuarial risk (that pension will
be lower than expected) and investment risk (that the assets
invested in do not perform in line with expectations) are borne by
the employee.
The group's contributions are recognised as employee benefit
expense when they are due.
The group operates three separate schemes: a stakeholder defined
contribution plan, which is closed to new members; a self-invested
personal pension plan, which is closed to new members; and a group
personal pension (GPP) plan. Employer contributions are payable to
each on a matched basis requiring employee contributions to be
paid. Employees have the option to pay their share via a salary
sacrifice arrangement. The scheme used to satisfy auto-enrolment
compliance is a master trust, The People's Pension.
During the year, the group made a total contribution to the
defined contribution schemes of GBP13.7m (2016: GBP13.3m) and
contributions to the auto-enrolment scheme of GBP4.3m (2016:
GBP4.1m), which are included in the income statement charge. The
group expects to make contributions of a similar amount in the
coming year.
Defined benefit schemes
Group scheme
The Group scheme provides benefits to members in the form of a
guaranteed level of pension payable for life. The level of benefits
provided depends on members' length of service and their final
pensionable pay.
The Group scheme closed to new members in 2006, with new
employees able to join one of the defined contribution schemes.
Pensions in payment are generally increased in line with RPI
inflation, subject to certain caps and floors. Benefits are payable
on death and other events such as withdrawal from active
service.
The Group scheme is operated under the UK regulatory framework.
Benefits are paid to members from the trust-administered fund,
where the Trustee is responsible for ensuring that the scheme is
sufficiently funded to meet current and future benefit payments.
Plan assets are held in trust and are governed by pension
legislation. If investment experience is worse than expected or the
actuarial assessment of the scheme's liabilities increases, the
group's financial obligations to the scheme rise.
The nature of the relationship between the group and the Trustee
is also governed by regulations and practice. The Trustee must
agree a funding plan with the sponsoring company such that any
funding shortfall is expected to be met by additional contributions
and investment outperformance. In order to assess the level of
contributions required, triennial valuations are carried out with
the scheme's obligations measured using prudent assumptions (which
are determined by the Trustee with advice from the scheme actuary).
The most recent triennial valuation was carried out as at 31 March
2014.
The scheme Trustee's other duties include managing the
investment of the scheme's assets, administration of plan benefits
and exercising of discretionary powers. The group works closely
with the Trustee to manage the scheme.
Other defined benefit schemes
Grouped together under Other schemes are a number of schemes to
which the group makes contributions under Admitted Body status to
clients' (generally local government or government entities)
defined benefit schemes in respect of certain employees who
transferred to Mitie under TUPE. The valuations of the Other
schemes are updated by an actuary at each balance sheet date.
For the Admitted Body schemes, which are largely sections of the
Local Government Pension Scheme, the group will only participate
for a finite period up to the end of the relevant contract. The
group is required to pay regular contributions as decided by the
relevant scheme actuaries and detailed in each scheme's
Contributions Certificate, which are calculated every three years
as part of a triennial valuation. In a number of cases
contributions payable by the employer are capped and any excess is
recovered from the entity that the employees transferred from. In
addition, in certain cases, at the end of the contract the group
will be required to pay any deficit (as determined by the scheme
actuary) that is assessed for its notional section of the
scheme.
Further information in respect of the Group scheme and Other
schemes
The table below sets out the details of the latest funding
valuation of the Group scheme as at 31 March 2014.
The group made a total contribution to the Group scheme of
GBP2.0m during the year (2016: GBP2.5m). The group expects to make
contributions of around GBP2.0m to the Group scheme in the coming
year. Employees' contribution to the cost of the scheme (9.1% of
pensionable salaries) is generally paid through a salary sacrifice
arrangement.
The group made contributions to the Other schemes of GBP0.3m in
the year (2016: GBP0.4m). The group expects to make contributions
of around GBP0.3m to the Other schemes in the coming year.
Details of latest funding valuation
Group scheme
----------------------------------------------------------------------------------------- ---------------------------
Date of last formal funding valuation 31 March 2014
Assets at valuation date GBP143.6 million
Funding liabilities at valuation date GBP149.6 million
Deficit at valuation date GBP6.0 million
Contribution rate agreed to meet the cost of benefits accruing, including related
expenses 23.0% of pensionable salary
Employer contribution rate (including expenses) 13.9% of pensionable salary
Employee contribution rate 9.1% of pensionable salary
----------------------------------------------------------------------------------------- ---------------------------
To eliminate the funding deficit the Trustee and the group have
agreed that additional contributions (i.e. over and above those
required to cover benefits being accrued) will be paid into the
scheme of GBP11.1m by 31 March 2024 (or if less, the deficit at
that time). The group has provided security for this liability by a
UK clearing bank letter of credit building up to that value to
2024.
Under this recovery plan, if the assumptions made are borne out
in practice, the deficit would be eliminated by 31 March 2024.
Group scheme details
The following table sets out details of the membership of the
Group scheme:
Scheme details at last valuation date
Group scheme
------------------------------------------------------- ------------
Active members - by number 349
Active members - by proportion of funding liability 34%
Total pensionable salary roll pa GBP16.9m
------------------------------------------------------- ------------
Deferred members - by number 1,195
Deferred members - by proportion of funding liability 47%
Total deferred pensions pa (at date of leaving scheme) GBP3.6m
------------------------------------------------------- ------------
Pensioner members - by number 515
Pensioner members - by proportion of funding liability 19%
Total pensions in payment pa GBP1.9m
------------------------------------------------------- ------------
Accounting assumptions
The assumptions used in calculating the accounting costs and
obligations of the group's defined benefit pension schemes, as
detailed below, are set after consultation with independent,
professionally qualified actuaries.
The discount rate used to determine the present value of the
obligations is set by reference to market yields on high quality
corporate bonds. The assumptions for price inflation are set by
reference to the difference between yields on longer-term
conventional government bonds and index-linked bonds. The
assumption for increases in pensionable pay takes into account
expected salary inflation, the cap at CPI, and how often the cap is
likely to be exceeded.
The assumptions for life expectancy have been set with reference
to the actuarial tables used in the latest funding valuations, with
a lower 'best-estimate' allowance for future improvements to
mortality.
Principal accounting assumptions at balance sheet dates
Group scheme Other schemes
--------------------------------- -------------- ---------------
2017 2016 2017 2016
% % % %
--------------------------------- ------ ------ ------- ------
Key assumptions used for IAS 19
valuation:
Discount rate 2.65 3.60 2.65 3.60
Expected rate of pensionable pay
increases 2.00 1.70 3.40 3.10
Retail price inflation 3.40 3.10 3.40 3.10
Consumer price inflation 2.40 2.10 2.40 2.10
Future pension increases 3.40 3.10 3.40 3.10
--------------------------------- ------ ------ ------- ------
Group scheme
---------------------------------- --------------
2017 2016
Years Years
---------------------------------- ------ ------
Post retirement life expectancy:
Current pensioners at 65 - male 88.0 88.0
Current pensioners at 65 - female 90.0 89.0
Future pensioners at 65 - male 89.0 89.0
Future pensioners at 65 - female 91.0 91.0
---------------------------------- ------ ------
Life expectancy for the other schemes is that used by the
relevant scheme actuary.
The sensitivity of defined benefit obligations to changes in
principal actuarial assumptions is shown below.
Sensitivity of defined benefit obligations to key
assumptions
Impact on defined benefit obligations
------------------------------------------ -----------------------------------------------------------------------
Increase/(decrease) in
Change in obligations Increase/(decrease) in obligations
assumption % GBPm
------------------------------------------ ----------- ---------------------- ----------------------------------
Increase in discount rate 0.1% (2.1)% (5.5)
Increase in RPI inflation* 0.1% 1.6% 4.2
Increase in CPI inflation (excluding pay) 0.1% 0.5% 1.3
Increase in salary growth 0.1% 0.4% 1.1
Increase in life expectancy 1 year 4.0% 10.5
------------------------------------------ ----------- ---------------------- ----------------------------------
* Including other inflation-linked assumptions (CPI inflation,
pension increases, salary growth)
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the balance sheet date.
Some of the above changes in assumptions may have an impact on
the value of the scheme's investment holdings.
For example, the Group scheme holds a proportion of its assets
in UK corporate bonds. A fall in the discount rate as a result of
lower UK corporate bond yields would lead to an increase in the
value of these assets, thus mitigating the increase in the defined
benefit obligation to some extent.
The duration, or average term to payment for the benefits due,
weighted by liability, is around 22 years for the Group scheme.
Amounts recognised in financial statements
The table below outlines where the group's post-employment
amounts are included in the financial statements.
2017 2016
----------------------------- ------------------------ ------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- -------- ----- ------- -------- -----
Current service cost (3.2) (0.3) (3.5) (3.6) (0.3) (3.9)
Total administration expense (0.8) - (0.8) (0.5) - (0.5)
============================= ======= ======== ===== ======= ======== =====
Amounts recognised in
operating profit (4.0) (0.3) (4.3) (4.1) (0.3) (4.4)
Net interest cost (1.3) - (1.3) (1.2) - (1.2)
============================= ======= ======== ===== ======= ======== =====
Amounts recognised in
profit before tax (5.3) (0.3) (5.6) (5.3) (0.3) (5.6)
----------------------------- ------- -------- ----- ------- -------- -----
Amounts recognised in the consolidated statement of
comprehensive income are as follows:
2017 2016
----------------------------- ------------------------- ------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- -------- ------ ------- -------- -----
Actuarial (losses)/gains
due to changes in
financial assumptions (52.5) (3.7) (56.2) 6.3 0.4 6.7
Actuarial gains/(losses)
due to liability experience 0.8 - 0.8 3.1 - 3.1
Return on scheme assets,
excluding interest income 18.7 1.3 20.0 (6.2) (0.6) (6.8)
(33.0) (2.4) (35.4) 3.2 (0.2) 3.0
----------------------------- ------- -------- ------ ------- -------- -----
The amounts included in the balance sheet arising from the
group's obligations in respect of its defined benefit retirement
benefit schemes are as follows:
2017 2016
---------------------------- -------------------------- --------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- -------- ------- ------- -------- -------
Fair value of scheme assets 177.8 11.3 189.1 156.9 9.5 166.4
Present value of defined
benefit obligations (248.5) (14.8) (263.3) (191.3) (10.6) (201.9)
---------------------------- ------- -------- ------- ------- -------- -------
Net pension liability (70.7) (3.5) (74.2) (34.4) (1.1) (35.5)
---------------------------- ------- -------- ------- ------- -------- -------
All figures above are shown before deferred tax.
Reconciliation of group balance sheet
Movements in the present value of defined benefit obligations in
the year in respect of both the Group and Other schemes were as
follows:
2017 2016
--------------------------- ------------------------ ------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------- ----- ------- -------- -----
At 1 April 191.3 10.6 201.9 197.1 10.4 207.5
Current service cost 3.2 0.3 3.5 3.6 0.3 3.9
Interest cost 6.8 0.4 7.2 6.6 0.4 7.0
Contributions from scheme
members 0.1 0.1 0.2 0.1 0.1 0.2
Actuarial losses/(gains)
on liabilities arising
from changes in financial
assumptions 52.5 3.7 56.2 (6.3) (0.4) (6.7)
Actuarial (gains)/losses
on liabilities arising
from experience (0.8) - (0.8) (3.1) - (3.1)
Benefits paid (4.6) (0.3) (4.9) (6.7) (0.2) (6.9)
At 31 March 248.5 14.8 263.3 191.3 10.6 201.9
--------------------------- ------- -------- ----- ------- -------- -----
The defined benefit obligation of the Group scheme is analysed
by participant status below:
2017 2016
GBPm GBPm
------------ ----- -----
Active 85.0 62.2
Deferred 103.1 78.4
Pensioners 60.4 50.7
------------ ----- -----
At 31 March 248.5 191.3
------------ ----- -----
Movements in the fair value of scheme assets were as
follows:
2017 2016
--------------------------- ------------------------ ------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------- ----- ------- -------- -----
At 1 April 156.9 9.5 166.4 162.2 9.5 171.7
Interest income 5.5 0.4 5.9 5.4 0.3 5.7
Actuarial gains and losses 18.7 1.3 20.0 (6.2) (0.6) (6.8)
Contributions from the
sponsoring companies 2.0 0.3 2.3 2.5 0.4 2.9
Contributions from scheme
members 0.1 0.1 0.2 0.1 0.1 0.2
Expenses paid (0.8) - (0.8) (0.4) - (0.4)
Benefits paid (4.6) (0.3) (4.9) (6.7) (0.2) (6.9)
Contract transfers - - - - - -
--------------------------- ------- -------- ----- ------- -------- -----
At 31 March 177.8 11.3 189.1 156.9 9.5 166.4
--------------------------- ------- -------- ----- ------- -------- -----
The history of experience adjustments is as follows:
Group scheme
--------------------------------- -------------------------------------------
2017 2016 2015 2014 2013
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- ------- ------- -------
Fair value of scheme assets 177.8 156.9 162.2 143.8 134.0
Present value of defined benefit
obligations (248.5) (191.3) (197.1) (160.8) (163.7)
--------------------------------- ------- ------- ------- ------- -------
Deficit in the scheme (70.7) (34.4) (34.9) (17.0) (29.7)
Experience adjustments on
scheme liabilities 0.8 3.1 1.2 0.1 0.1
Percentage of scheme liabilities (0.3)% (1.6)% (0.6)% (0.1)% (0.1)%
Experience adjustments on
scheme assets 18.7 (6.2) 13.0 3.6 3.9
Percentage of scheme assets 10.5% (3.2)% 8.0% 2.5% 2.9%
--------------------------------- ------- ------- ------- ------- -------
Other schemes
--------------------------------- --------------------------------------
2017 2016 2015 2014 2013
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------ ------ ------
Fair value of scheme assets 11.3 9.5 9.5 16.2 7.9
Present value of defined benefit
obligations (14.8) (10.6) (10.4) (18.3) (8.1)
--------------------------------- ------ ------ ------ ------ ------
Deficit in the scheme (3.5) (1.1) (0.9) (2.1) (0.2)
Experience adjustments on
scheme liabilities - - (0.1) 0.3 0.2
Percentage of scheme liabilities - - 0.9% (1.8)% (2.8)%
Experience adjustments on
scheme assets 1.3 (0.6) 0.8 (0.3) 0.5
Percentage of scheme assets 11.5% (6.1)% 8.4% (1.9)% 6.1%
--------------------------------- ------ ------ ------ ------ ------
Fair values of the assets held by the schemes were as
follows:
2017 2016
--------------------------- ------------------------- -------------------------
Group Other Group Other
Schemes Schemes Total Schemes Schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- -------- ----- -------- -------- -----
Equities 66.4 7.6 74.0 56.9 6.0 62.9
Government bonds 26.8 1.6 28.4 22.3 1.4 23.7
Corporate bonds 21.7 0.8 22.5 19.2 0.7 19.9
Property 16.2 0.8 17.0 17.0 0.8 17.8
Diversified growth fund 46.6 - 46.6 40.2 - 40.2
Cash 0.1 0.5 0.6 1.3 0.6 1.9
--------------------------- -------- -------- ----- -------- -------- -----
Total fair value of assets 177.8 11.3 189.1 156.9 9.5 166.4
--------------------------- -------- -------- ----- -------- -------- -----
The investment portfolios are diversified, investing in a wide
range of assets, in order to provide reasonable assurance that no
single asset or type of asset could have a materially adverse
impact on the total portfolio. To reduce volatility, certain assets
are held in a matching portfolio, which largely consists of
government and corporate bonds, designed to mirror movements in
corresponding liabilities.
Around 73% (2016: 73%) of the assets are held in equities,
property and pooled investment vehicles which seek a higher
expected level of return over the long term.
GBP7m (2016: GBP7m) of the property assets represent freehold
property, the rest are quoted property investments.
The sensitivity of the defined benefit obligations for the Group
scheme to changes in the principal assumptions is shown in the
table below:
Sensitivity of defined benefit obligation to key assumptions is
as follows:
Impact on defined benefit obligation
----------------------------- -----------------------------------------------------
Change in Increase in
assumption assumption Decrease in assumption
----------------------------- ----------- ---------------- ----------------------
Discount rate 0.1% Decrease by 2.1% Increase by 2.2%
RPI inflation* 0.1% Increase by 1.6% Decrease by 1.6%
CPI inflation (excluding pay) 0.1% Increase by 0.5% Decrease by 0.4%
Pay increases 0.1% Increase by 0.4% Decrease by 0.4%
Life expectancy 1 year Increase by 4.0% -
----------------------------- ----------- ---------------- ----------------------
* Including other inflation-linked assumptions (CPI inflation,
pension increases, salary growth)
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the balance sheet date.
Some of the above changes in assumptions may have an impact on
the value of the scheme's investment holdings.
For example, the Group scheme holds a proportion of its assets
in UK corporate bonds. A fall in the discount rate as a result of
lower UK corporate bond yields would lead to an increase in the
value of these assets, thus mitigating the increase in the defined
benefit obligation to some extent.
The duration, or average term to payment for the benefits due,
weighted by liability, is around 22 years for the Group scheme.
Risks and risk management
The Group scheme, in common with the majority of UK plans, has a
number of risks. These areas of risk and the ways in which the
group has sought to manage them, are set out in the table
below.
The risks are considered from both a funding perspective, which
drives the cash commitments of the group, and from an accounting
perspective, i.e. the extent to which such risks affect the amounts
recorded in the group's financial statements:
Risk Description
---------------------- ----------------------------------------------------------------------------------------------
Asset volatility The funding liabilities are calculated using a discount rate set with reference to government
bond yields, with allowance for additional return to be generated from the investment
portfolio.
The defined benefit obligation for accounting is calculated using a discount rate set with
reference to corporate bond yields. The Group scheme holds a large proportion of its assets
(73%) in equities and other return-seeking assets (principally diversified growth funds (DGFs)
and property). The returns on such assets tend to be volatile and are not correlated to
government
bonds. This means that the funding level has the potential to be volatile in the short term,
potentially resulting in short-term cash requirements or alternative security offers, which
are acceptable to the Trustee and an increase in the net defined benefit liability recorded
on the group's balance sheet.. Equities and DGFs are considered to offer the best returns
over the long term with an acceptable level of risk and hence scheme holds a significant
proportion
of these types of asset. However, the schemes' assets are well-diversified by investing in
a range of asset classes, including property, government bonds and corporate bonds. The Group
scheme holds 26% of its assets in DGFs which seek to maintain high levels of return whilst
achieving lower volatility than direct equity funds. The allocation to return seeking assets
is monitored to ensure it remains appropriate given the scheme's long-term objectives. The
investment in bonds is discussed further below.
---------------------- ----------------------------------------------------------------------------------------------
Changes in bond yields Falling bond yields tend to increase the funding and accounting obligations. However, the
investment in corporate and government bonds offers a degree of matching, i.e. the movement
in assets arising from changes in bond yields partially matches the movement in the funding
or accounting obligations. In this way, the exposure to movements in bond yields is reduced.
---------------------- ----------------------------------------------------------------------------------------------
Inflation risk The majority of the scheme's benefit obligations are linked to inflation. Higher inflation
will lead to higher liabilities (although caps on the level of inflationary increases are
in place to protect the plan against extreme inflation). The majority of the Group scheme's
assets are either unaffected by inflation (fixed interest bonds) or loosely correlated with
inflation (equities), meaning that an increase in inflation will also increase the deficit.
---------------------- ----------------------------------------------------------------------------------------------
Life expectancy The majority of the schemes' obligations are to provide a pension for the life of the member,
so increases in life expectancy will result in an increase in the obligations.
---------------------- ----------------------------------------------------------------------------------------------
Areas of risk management
Although investment decisions in the scheme are the
responsibility of the Trustee, the group takes an active interest
to ensure that pension plan risks are managed efficiently. The
group and Trustee have agreed a long-term strategy for reducing
investment risk where appropriate.
Guaranteed Minimum Pension ("GMP") is a portion of pension that
was accrued by individuals who were contracted out of the State
Second Pension prior to 6 April 1997. At present there is an
inequality of benefits between male and female members who have
GMP. The UK Government intends to implement legislation to equalise
benefits, which could result in an increase in the value of GMP for
males. This would increase the defined benefit obligations. At this
stage, it is not possible to quantify the impact of this change,
and therefore no provision has been made.
Appendix - Alternative Performance Measures
The group presents various APMs as the Directors believe that
these are useful for users of the financial statements in helping
to provide a balanced view of, and relevant information on, the
group's financial performance, position and cash flows. These APMs
are mainly measures which disclose the Adjusted performance of the
group excluding specific items which are regarded as non-recurring.
The group separately reports acquisition costs, the amortisation of
acquisition related intangible assets, exceptional items and other
specific items in the income statement which, in the Directors'
judgement, need to be disclosed separately (see notes 5, 6 and 7)
by virtue of their nature, size and incidence in order for users of
the financial statements to obtain a proper understanding of the
financial information and the underlying performance of the
business.
2017
2016
Restated
APMs presented GBPm GBPm
------------------------------------------------ ------- ---------
Revenue
Adjusted revenue 2,140.0 2,133.4
One offs:
Adjustment to accrued income on long-term
complex contracts (20.4) 6.4
Accrued Income, debtors, prepayments included
in trade & other receivables (4.5) 8.3
Effects of foreign currency 11.3 -
Other one off items - (1.2)
Before Other Items 2,126.3 2,146.9
------------------------------------------------ ------- ---------
Other Items -
------------------------------------------------ ------- ---------
Total revenue as reported 2,126.3 2,146..9
================================================ ======= =========
Operating Profit
Adjusted Operating Profit 82.0 95.2
Impairment and amortisation of intangible
assets (note 15) (10.5) -
Adjustment to accrued income on long-term
complex contracts (20.4) 6.4
Accrued Income, debtors, prepayments included
in trade & other receivables (36.4) 0.1
Impairment of mobilisation asset (5.7) -
Other provisions & Accruals (4.6) 7.6
Other one off items (10.7) 4.7
Before Other Items (6.3) 113.9
------------------------------------------------ ------- ---------
Other Items (36.6) (6.3)
------------------------------------------------ ------- ---------
Total operating profit as reported (42.9) 107.6
================================================ ======= =========
The total adjustments presented above impact business segments
as follows;
2017
2016
Restated
Adjustments to Revenue GBPm GBPm
-------------------------------------------- ----- ---------
Cleaning and Environmental Services 3.6 (1.7)
Security - -
Catering (1.6) -
Engineering Services 11.7 (11.8)
Professional Services & Connected Workspace - -
Public Services - -
Total Adjustments 13.7 (13.5)
============================================ ===== =========
2017
2016
Restated
Adjustments to Operating Profit GBPm GBPm
-------------------------------------------- ----- ---------
Cleaning and Environmental Services 14.4 (1.9)
Security 3.8 (1.0)
Catering 0.7 -
Engineering Services 37.5 (11.6)
Professional Services & Connected Workspace 2.5 -
Public Services 17.4 -
Corporate Centre 12.0 (4.2)
Total Adjustments 88.3 (18.7)
============================================ ===== =========
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUQCQUPMPPG
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June 12, 2017 02:00 ET (06:00 GMT)
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