TIDMMTO
RNS Number : 2975B
MITIE Group PLC
06 June 2019
LEI number: 213800MTCLTKEHWZMJ03
06 June 2019
Mitie Group plc
Full-year results for the year ended 31 March 2019
Strengthening the business, in a challenging market
Mitie Group plc ("Mitie" or "the Group") (LSE: MTO), the UK's
leading facilities management and professional services company,
today announces its financial and operational results for the year
ended 31 March 2019 ("FY 18/19"). All numbers in this announcement
are reported on an IFRS 15 basis.
Financial highlights (continuing operations)
* Revenue up 9.4% to GBP2.2bn (FY 17/18: GBP2.0bn) with
organic growth at 5.5% reflecting strong performance
from top strategic accounts
* Operating profit before other items up 6.0% to
GBP88.2m (FY 17/18: GBP83.2m)
* Operating profit up to GBP50.2m (FY 17/18: GBP1.1m)
* Final dividend recommendation of 2.67p, making the
total full-year dividend of 4.0p per share (FY 17/18:
4.0p)
* Leverage multiple reduced to 1.33x net debt/EBITDA
(FY 17/18: 1.98x, covenant
Operational highlights
* Core businesses performing strongly
* Project Helix largely complete with exit run-rate
savings of c.GBP45m; Project Forte (Phase II of Mitie
transformation) now launched with primary focus on
Engineering Services
* Order book from continuing operations stable at
GBP4.1bn with pipeline growing to GBP10.2bn on the
back of inclusion onto the Crown Commercial Services
Framework
* Net Promoter Score up 22 points to +12 (FY 17/18:
-10)
* Employee engagement up 12 ppts to 45%
* Paying our suppliers faster (50 supplier payment days
down from 58 days in FY 17/18)
Phil Bentley, Chief Executive, Mitie Group plc, commented:
"Our strategy of focusing on our larger businesses and strategic
accounts where our technology offer is a true differentiator is
beginning to deliver value for shareholders. Over FY 18/19 we
sharpened our focus by continuing to invest in customer service and
technology and by exiting non-core businesses.
"Project Helix has provided solid foundations for Mitie's future
growth, enabling investments in our people, customers and
technology. With the foundations now built, we are now moving to
Project Forte focused primarily on driving simplicity and
efficiency in Engineering Services. Together with our focus on
strategic accounts and larger businesses, we should see continued
improvement in the Group's profits. At the same time, we are making
good progress in strengthening our balance sheet."
Financial summary
GBPm unless otherwise specified FY 18/19 FY 17/18
----------------------------------------- --------- -------- --------- --------
Before Before
other other
items(2) Total items(2) Total
----------------------------------------- --------- -------- --------- --------
Revenue(1) 2,221.4 2,221.4 2,030.6 2,030.6
Operating profit(1) 88.2 50.2 83.2 1.1
Operating profit margin(1) 4.0% 2.3% 4.1% 0.1%
Profit/(loss) before tax(1) 74.4 36.4 66.7 (15.4)
Profit/(loss) for the year 63.7 30.9 61.2 (26.0)
Basic earnings/(loss) per share 16.8p(1) 8.6p 15.2p(1) (7.6)p
Full-year total dividend per share 4.0p 4.0p
----------------------------------------- --------- -------- --------- --------
FY 18/19 FY 17/18
--------- -------- --------- --------
Cash generated from/(used in) operations 47.5 (7.9)
Period end net debt 140.7 193.5
Order book(1) 4,147.3 4,186.0
----------------------------------------- --------- -------- --------- --------
Notes:
1. From continuing operations.
2. Other items are as described in Note 4.
[A reconciliation of the Group's performance measures to its
statutory results is provided in the Appendix - Alternative
Performance Measures.]
Mitie will be holding an analyst presentation today with Phil
Bentley, CEO, and Paul Woolf, CFO, at 09:30am BST. A live video
webcast of the presentation will be available to view online at
www.mitie.com/investors at 09:30am BST. A recorded webcast of the
presentation and a copy of the accompanying slides will also be
available on the website later in the day.
For further information please contact:
Anna Gavrilova
Head of Investor Relations
M: +44 (0)738 443
T: +44 (0)203 123 8675 9112 E: anna.gavrilova@mitie.com
Claire Lovegrove
Head of Media Relations
M: +44 (0)790 027
T: +44 (0)203 123 8716 6400 E: claire.lovegrove@mitie.com
About Mitie
Founded in 1987, Mitie is the UK's leading facilities management
and professional services company. It offers a range of specialist
services, including Engineering Services, Security, Professional
Services, Cleaning and Environmental Services, Care and Custody,
and Catering.
Mitie employs 52,500 people across the country, looking after a
large, diverse, blue-chip customer base, from banks and retailers,
to hospitals, schools and government offices. It takes care of its
customers' people and buildings, by delivering the basics
brilliantly and by deploying advanced technology. It is pioneering
the Connected Workspace, using smart analytics to provide valuable
insight and deliver efficiencies to create outstanding work
environments for customers.
Find out more at www.mitie.com.
Legal disclaimer
This announcement may contain certain forward-looking
statements, beliefs or opinions, including statements with respect
to Mitie's business, financial condition and results of operations.
These forward-looking statements can be identified by the use of
words such as 'anticipate', 'expect', 'estimate', 'intend', 'will',
'may', 'project', 'plan', 'target' 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 5 June 2019 and
reflect the Group plc Directors' beliefs and expectations. These
statements, by their nature, involve risk and uncertainty because
they relate to events and depend upon circumstances that may or may
not occur in the future. A number of factors could cause actual
results and developments to differ materially from those expressed
or implied by the forward-looking statements in this announcement
and accordingly all such statements should be treated with caution.
Nothing in this announcement should be construed as a profit
forecast.
Except as required by law or regulation, Mitie is under no
obligation to update or keep current the forward-looking statements
contained in this announcement or to correct any inaccuracies which
may become apparent in such forward-looking statements.
This announcement contains inside information.
STRATEGIC OVERVIEW
Two years into our transformation journey we are already seeing
the benefits of our strategy to focus on our larger businesses and
strategic accounts where our technology offer is a true
differentiator to ensure long-term sustainable growth, delivery of
our vision of 'The Exceptional, Every Day' and creation of value
for all our stakeholders through our four strategic pillars of
customer, people, cost and technology.
Over FY 18/19 we sharpened the focus by continuing to invest in
customer service and technology and by changes to our portfolio of
businesses. This has enabled us to grow revenue and profits.
We see our larger businesses and strategic clients as offering
the best opportunities for growth and margin expansion as we deepen
our capabilities and relationships. These are also areas where we
are best able to deploy technology.
Project Helix has provided solid foundations for Mitie's future
growth, enabling investments in our people, customer and
technology. With the foundations now built, we are now moving to
Project Forte focused primarily on driving simplicity and
efficiency in Engineering Services. Together with our focus on
strategic accounts and larger businesses, we should see improvement
in the Group's profits. At the same time, we are making good
progress in strengthening our balance sheet.
Business performance
It has been another challenging year with the FM sector
remaining firmly in the spotlight. Despite this, we grew our
revenues and top strategic accounts, reduced our period-end net
debt and qualified for Phases I and II of the Crown Commercial
Services (CCS) FM Marketplace Framework thereby positioning
ourselves to win more government work.
Revenue from continuing operations was 9.4% up on the previous
year, at GBP2.2bn, with organic growth at 5.5%. Operating profit
before other items from continuing operations increased to GBP88.2m
from GBP83.2m in FY 17/18. Operating profit for FY 18/19 was up to
GBP50.2m from GBP1.1m a year earlier and basic earnings per share
were 8.6p, from a loss of 7.6p in FY 17/18. Basic earnings per
share before other items from continuing operations were 16.8p (FY
17/18: 15.2p).
The fixed-term order book from continuing operations was broadly
flat at GBP4.1bn, benefiting from VSG's order book and significant
contract wins towards the end of the year. Following the successful
reorganisation of our sales team and the introduction of strategic
account managers, we have seen a steady flow of wins and
retentions. The pipeline of GBP10.2bn includes significant
opportunities on the CCS Framework.
Our balance sheet health remains a key focus. We are committed
to further reducing customer invoice discounting, normalising
creditor days, asking clients for fairer payment terms,
streamlining our billing processes and delivering faster cash
collection. Our efforts have seen a decline in average daily net
debt in H2 18/19 to GBP286.5m from GBP317.4m in H1 18/19 as we
resolved working capital impacts following the outsourcing of
transactional processing to India in early FY 18/19. Overall,
average daily net debt for FY 18/19 was GBP15.9m higher than prior
year at GBP302.0m. Our medium-term objective is to continue to
reduce the average daily net debt. The period end net debt was
GBP140.7m versus GBP193.5m a year earlier as we make continuing
improvements to the cash collection cycle; the net debt position
also includes proceeds from two disposal transactions effected
during FY 18/19. We are operating comfortably within debt covenants
with period-end net debt to EBITDA of 1.33x.
Focusing our business
In FY 18/19, we also focused our business by selling our Pest
Control and Social Housing businesses and acquiring the Vision
Security Group (VSG). The first two transactions simplified our
operations; they also provided funds to strengthen the balance
sheet and accelerate partial repayment of the deficit under the
Group's defined benefit pension scheme. The VSG acquisition
strengthens our position as one of the UK's largest providers of
security services to businesses.
Customer focus
Listening to clients is essential as we focus on delivering
services that our customers need. By taking on board feedback from
last year's customer survey and continuing to invest in customer
service, we have secured an impressive improvement in our NPS
score, which increased from -10 to +12 in FY 18/19. A follow-up
programme for account directors will ensure we improve our score
further still, helping us to win and retain more business.
Mitie's success rests on growing our largest strategic accounts
and deepening our relationship with them. It was pleasing to see
that these accounts grew revenues by 8% in FY 18/19, which
demonstrates that our biggest clients are trusting us with more of
their business.
We have recently secured a place on several key government
frameworks, giving us an opportunity to become a strategic partner
for the UK government in outsourced FM, defence, security and
custody.
A great place to work
Supporting our people to be the best they can be is one of our
core objectives. We do more than just provide the tools required
for the job; we are making Mitie a great place to work through
various initiatives.
Our online People Hub, supported by SAP SuccessFactors, is a
single point of access for anything HR-related. The recently
launched Learning Hub offers a cloud-based pool of 2,500
instructor-led courses.
Mitie Exceptionals is a diverse employee consulting group which
liaises with our Non-Executive Director, Jennifer Duvalier, on the
interests of the wider workforce. In April 2018, we launched
Upload, a people survey providing the opportunity to feedback on
working with Mitie. We launched a 'You Said, We Did' campaign to
address employees' feedback throughout the year. It was therefore
very encouraging to see that the employee engagement score went up
to 45% from 33% in the prior year.
In addition, we were the only FM company to be recognised by two
prestigious awarding bodies. We were certified a 2019 Top Employer
by the Top Employer Institute Certification Programme. And we came
17(th) on the Inclusive Top 50 UK Employers list for promoting
diversity and inclusion.
Cost discipline
In June 2017 our cost programme, Project Helix, was launched to
kickstart Mitie's transformation. Two years on, we have largely
achieved our aims, exiting FY 18/19 with run-rate cost savings of
c.GBP45m. We started by delayering and removing central management
heads both at Group level and within the divisions. We standardised
and centralised our IT, HR and Finance functions. For IT and
Finance we also offshored the majority of back-office processes. In
HR, we introduced SAP SuccessFactors to manage all people-related
matters, as well as temporary and permanent hiring solutions.
The final elements of this project will continue throughout FY
19/20, with expected run-rate cost benefits - these are annual cost
savings to the cost base following the finalisation of currently
running programmes at the end of Project Helix - of c.GBP50m by
March 2020.
The next phase of transformation is Project Forte, aimed at
changing the processes and technology underpinning our largest
division, Engineering Services.
Project Forte will include a full roll-out of the 'Click'
dynamic scheduling and deployment system and implementing a new
case management and billing application. It will result in improved
engineer productivity and back office efficiencies. Project Forte
will also include further Group-wide organisational consolidation
and additional cost reductions by automating manual and paper-based
processes and migration of our accounting system to a Mitie-wide
SAP solution.
It is a two-year programme with estimated gross run-rate cost
benefits of c.GBP30m by March 2021 and associated one-off cost of
change of c.GBP30m.
Technology at our core
Mitie's use of technology sets us apart from the competition and
is at the core of customer satisfaction and retention success. Our
clients need and expect high-performance facilities that not only
provide the right work environment but operate efficiently and
support their sustainability agenda. Our skilled resources,
nationwide reach and experience of managing different types of
facilities give us unparalleled capabilities to help clients
achieve these objectives.
For example, our Connected Workspace solutions include a
sophisticated service operations centre (SOC) that provides remote
monitoring of buildings and facilities. SOC uses advanced
algorithms to detect anomalies and trigger corrective actions prior
to an asset failing. We are also able to reduce energy consumption
for buildings, plant and equipment. We call this 'Monitoring as a
Service' and it is the core of our predictive maintenance
offering.
Other fast-growing technology applications include our MiTec
centre, Fire & Security systems and our security operations
centre. Our approach isn't just transforming clients'
organisations, it is transforming Mitie and consolidating our
position as the UK's leader in FM.
Outlook
We expect to continue to grow revenue organically at 3%-4% in
the medium term. For FY 19/20 we expect operating profit to grow at
mid-single digits - with revenue growth and cost savings partially
offset by the dilutive effect of the FY 18/19 contract renewals and
continued reinvestment in our business. Project Forte and focus on
strategic accounts and larger businesses should drive operating
profit margin in the medium term to our target of 4.5%-5.5%.
Looking ahead
Mitie's transformation continues at pace. Our strength is
supported by great customers and loyal staff. Through our use of
technology and expertise, we are leading the field, transforming
our operations and how we interact with our clients. Change has
been challenging at times, but our progress and performance to date
are encouraging. Revenue is growing, Project Helix has allowed us
to lay solid foundations for the business and in addition to wins
across the business, the CCS Framework presents a considerable
opportunity. Mitie is in a strong position for future growth and we
look forward to the year ahead.
Phil Bentley
Chief Executive Officer
Dividend
The Board has recommended a final dividend of 2.67p in respect
of FY 18/19, making the total full-year dividend 4.0p per share (FY
17/18: 4.0p per share). We expect to hold the dividend flat at
least until the completion of the transformation programme when we
will review the policy.
The following is the dividend timetable for shareholders'
information:
Ex-dividend date: 27 June 2019
Record date: 28 June 2019
Drip election date: 15 July 2019
AGM: 30 July 2019
Payment date: 9 August 2019
Reporting schedule
We will be providing updates for Q1 at the AGM and Q3 in January
in lieu of pre-close statements. We will be reporting H1 results in
November and full-year results in June.
FINANCE REVIEW
Whilst we have accomplished a great deal during this second year
of our transformation, there remains more to do as we continue our
journey towards a One Mitie way of delivering our products and
services. Following the centralisation of our core support
functions last year, the majority of the transactional activity for
IT and Finance is now being undertaken offshore by global process
experts and we have introduced new systems across the business,
including recruitment platforms for temporary and permanent
staff.
Our revenues and profits are growing, both at a headline level,
and also on an organic basis excluding the impact of M&A. We
have started to focus our business through the acquisition of the
VSG Security business and the sale of our Pest Control and Social
Housing businesses.
We have again made progress in reducing our leverage and
strengthening our balance sheet with further reductions in
off-balance sheet finance, improved supplier payment performance
and proceeds from our disposals programme. Going forward, we expect
to continue to reduce leverage.
Following the transfer of our finance transactional processing
to Genpact (a business process outsourcing provider, operating out
of Kolkata, India) in April/May 2018 we have now initiated a
broader finance modernisation programme. The initial Genpact move
entailed a lift-and-shift approach which caused issues in the first
few months due to the multiplicity of processes used across Mitie.
These issues have now been largely resolved and we have turned our
attention to ongoing improvement in the function through our
finance modernisation programme. This is focused on finance process
simplification and standardisation, cleansing our master data and
upgrading finance systems and tools across the business with a view
to paying our suppliers quicker, reducing our processing costs
through automation and further accelerating our order-to-cash
cycle.
Reported financial performance
Reported revenue and reported operating profit from continuing
operations are set out below:
GBPm FY 18/19 FY 17/18 Change, %
Revenue 2,221.4 2,030.6 9.4
------------------------------------- --------- --------- ----------
Operating profit before other items 88.2 83.2 6.0
========= ========= ==========
Other items (38.0) (82.1) nm
------------------------------------- --------- --------- ----------
Operating profit 50.2 1.1 nm
========= ========= ==========
Reported revenue from continuing operations was GBP2,221.4m
compared with GBP2,030.6m in FY17/18. The Group reported an
operating profit before other items from continuing operations of
GBP88.2m (FY 17/18: GBP83.2m).
Reported balance sheet
GBPm FY 18/19 FY 17/18 Change, GBPm
Goodwill and intangible assets 344.5 347.9 (3.4)
========= ========= =============
Property, plant and equipment 29.0 33.6 (4.6)
========= ========= =============
Working capital balances (216.9) (198.2) (18.7)
========= ========= =============
Net debt (140.7) (193.5) 52.8
========= ========= =============
Retirement benefit liabilities (63.8) (56.8) (7.0)
========= ========= =============
Deferred tax 35.8 35.9 (0.1)
========= ========= =============
Other net (liabilities)/assets (0.3) 7.1 (7.4)
-------------------------------- --------- --------- -------------
Total net (liabilities)/assets (12.4) (24.0) 11.6
========= ========= =============
The Group is reporting net liabilities at 31 March 2019 of
GBP12.4m (FY 17/18: GBP24.0m), with an improvement in net debt,
offset by a larger negative working capital balance and an increase
in retirement benefit liabilities.
New accounting standards
The Group adopted IFRS 15, 'Revenue from Contracts with
Customers' in FY 17/18, as previously described in the Annual
Report and Accounts 2018.
IFRS 9
IFRS 9 'Financial instruments' became effective for the Group
starting 1 April 2018 and replaced the requirements of IAS 39
'Financial instruments: recognition and measurement'. The main
changes introduced by the new standard are new classification and
measurement requirements for certain financial assets, a new
Expected Credit Loss (ECL) model for the impairment of financial
assets, revisions to the hedge accounting model, and amendments to
disclosures. The Group elected, from 1 April 2018, to continue to
apply the hedge accounting guidance in IAS 39.
With respect to loss allowances for trade receivables, IFRS 9
replaced the 'incurred loss' model in IAS 39 with an ECL model. The
Group, from 1 April 2018, measures loss allowances for trade
receivables and accrued income at an amount equal to lifetime
expected credit losses using both quantitative and qualitative
information and analysis based on the Group's historical experience
and forward-looking information. The Group has determined that the
transition to IFRS 9 resulted in an additional loss allowance for
trade receivables and accrued income as at 1 April 2018 of GBP2.5m
and gave rise to a tax credit of GBP0.4m. The additional loss
allowance has been applied as an adjustment to opening retained
earnings at 1 April 2018 and therefore, the prior year comparative
information is not restated.
Future accounting standards - IFRS 16
IFRS 16 'Leases' became effective for the Group from 1 April
2019 and replaces the requirement of IAS 17 'Leases'. An asset
representing the Group's right as a lessee to use a leased item,
and a liability for future lease payments, will be recognised for
all leases, subject to limited exemptions for short-term leases and
low-value lease assets. The costs of leases will be recognised in
the consolidated income statement split between depreciation of the
lease asset and a finance charge on the lease liability. This is
similar to the accounting for finance leases under IAS 17, but
substantively different to the accounting for operating leases
(under which no lease asset or lease liability was recognised, and
rentals payable were charged to the consolidated income statement
on a straight-line basis).
As a result of adopting the new rules, for the year ending 31
March 2020, the Group expects net profit before tax to increase by
between GBPnil and GBP3m. Operating profit is expected to increase
by between GBP24m and GBP29m as the operating lease rentals payable
which were previously included in operating profit are excluded
from this measure. In addition, operating cash flows are expected
to increase by between GBP24m and GBP29m as repayment of the lease
liabilities is reclassified as cash used in financing activities
and net debt will increase by between GBP81m and GBP86m.
Alternative Performance Measures (APM)
The Group presents its key financial analysis as the results of
continuing operations before other items as the Directors believe
this is most useful for users of the financial statements in
helping to provide a balanced view of, and relevant information on,
the Group's financial performance. Accordingly, the Group
separately reports the impairment of goodwill, the cost of
restructuring programmes, acquisition and disposal costs (including
the write-off and amortisation of acquisition related intangible
assets) as 'other items'.
Divisional breakdown of financial performance
Revenue, GBPm FY 18/19 FY 17/18 Change, %
Engineering Services 905.7 886.3 2.2
========= ========= ==========
Security 536.5 432.0 24.2
========= ========= ==========
Professional Services 131.4 131.2 0.2
========= ========= ==========
Cleaning & Environmental Services 404.4 384.1 5.3
========= ========= ==========
Care & Custody 107.3 59.9 79.1
========= ========= ==========
Catering 136.1 137.1 (0.7)
----------------------------------- --------- --------- ----------
Total 2,221.4 2,030.6 9.4
========= ========= ==========
The Group's revenue increased in the year, from GBP2,030.6m to
GBP2,221.4m. This was principally due to a significant contract win
in Care & Custody, the acquisition of VSG in Security and good
underlying growth in our Engineering Services strategic accounts
and in Security and Cleaning. Organic revenue growth was 5.5%.
Operating profit before other items, GBPm FY 18/19 FY 17/18 Change, %
Engineering Services 58.7 54.1 8.5
========= ========= ==========
Security 30.7 27.5 11.6
========= ========= ==========
Professional Services 5.6 5.6 0.0
========= ========= ==========
Cleaning & Environmental Services 17.5 19.6 (10.7)
========= ========= ==========
Care & Custody 3.9 1.9 105.3
========= ========= ==========
Catering 5.2 5.6 (7.1)
========= ========= ==========
Corporate centre (33.4) (31.1) 7.4
------------------------------------------- --------- --------- ----------
Total 88.2 83.2 6.0
========= ========= ==========
Operating profit before other items increased by 6.0% in the
year from GBP83.2m to GBP88.2m, reflecting good growth in strategic
accounts and projects in Engineering, the significant contract win
in Care & Custody, strong underlying growth in Security in
addition to the impact of the acquisition of VSG, partly offset by
ongoing investment in customer service and the reinstatement of
staff incentives.
Other items
Other items, GBPm FY 18/19 FY 17/18
Restructure costs (15.1) (47.0)
========= =========
Acquisition and disposal related costs (8.7) (8.4)
========= =========
Gain on bargain purchase of VSG 8.8 -
========= =========
Pension scheme Section 75 debt (20.0) -
Impairment of goodwill - (22.7)
Other (3.0) (4.0)
---------------------------------------- --------- ---------
Total other items before tax (38.0) (82.1)
========= =========
Tax credit on other items 7.4 10.0
---------------------------------------- --------- ---------
Other items after tax (30.6) (72.1)
========= =========
Disappointingly, other items before tax remain high at a charge
of GBP38.0m, albeit significantly lower than last year (FY 17/18:
GBP82.1m). The main components are restructure costs and a
provision for the Section 75 debt on the plumbers' pension scheme.
The tax credit on these other items was GBP7.4m (FY 17/18:
GBP10.0m).
Tax contribution
The Group manages both direct and indirect taxes to ensure that
it pays the appropriate amount of tax in each country whilst
respecting the applicable tax legislation, where appropriate
utilising any legislative reliefs available. The strategy is
reviewed regularly and is endorsed by the Board.
Mitie is a significant contributor of revenues to the UK
Exchequer, paying GBP529.3m in the year ended 31 March 2019 (FY
17/18: GBP481.2m). This comprised GBP534.3m (FY 17/18: GBP492.8m)
of indirect taxes including business rates, VAT and payroll taxes
paid and collected less a GBP4.7m (FY 17/18: GBP11.6m) refund of UK
corporation tax. The tax refund was due to the utilisation of
losses resulting from the accounting adjustments in earlier years'
accounts. As Mitie's business is primarily based in the UK, the
effective tax rate should track the UK statutory tax rate.
There was a tax charge of GBP6.4m (FY 17/18: GBP1.1m) on the
profit before tax of GBP36.4m (FY 17/18: loss before tax
GBP15.4m).
Discontinued operations
During the year, Mitie sold its Social Housing business to
Mears, with the sale completing on 30 November 2018. As a result,
the business is classified as a discontinued operation as at 31
March 2019. This business formed part of the Property Management
division. Following this sale, the roofing and painting businesses
of the former Property Management division were integrated into the
Projects business of Engineering Services.
In addition, Mitie disposed of its Pest Control business
(previously included in the Cleaning & Environmental Services
division) to Rentokil Group plc, with the sale completing on 30
September 2018. This is also consequently classified as a
discontinued operation as at 31 March 2019.
Discontinued operations contributed a profit after tax before
other items of GBP3.1m (FY 17/18: GBP5.6m). Other items before tax
were a charge of GBP6.0m (FY 17/18: GBP15.8m) and included a gain
on disposal of Pest Control of GBP27.6m, a loss on disposal of the
Social Housing business of GBP11.7m and a GBP20.5m charge for
various remediation and rectification liabilities associated with
the Social Housing business. The tax credit on other items was
GBP3.8m (FY 17/18: GBP0.7m).
Dividends
The full-year dividend is 4.0p per share (FY 17/18: 4.0p per
share), comprising an interim dividend of 1.33p per share and a
final dividend recommended by the Board of 2.67p per share.
Goodwill and intangible assets
Goodwill and intangible assets of GBP344.5m (FY 17/18:
GBP347.9m) were held on the balance sheet at 31 March 2019. The
small reduction can be explained by a reduction in goodwill due to
disposals of the Social Housing and Pest Control businesses during
the year, largely offset by an increase in intangible assets from
the recognition of a customer relationships intangible asset on the
acquisition of VSG and additional internally generated intangible
assets from software development to enhance customer
experience.
Cash flow
The Group continued to strengthen its balance sheet during the
year, assisted by two business disposals. Utilisation of
non-recourse invoice discounting was reduced slightly during the
year, while supplier payment performance was improved.
Overall operating cash inflow, before movements in working
capital was GBP39.5m (FY 17/18: GBP67.2m). This includes defined
benefit pension contributions of GBP11.6m (FY 17/18: GBP4.7m). Cash
generated from operations during the year was GBP47.5m (FY 17/18:
GBP7.9m used in operations) including a working capital inflow of
GBP8.0m (FY 17/18: outflow of GBP75.1m). The working capital
movement is explained in more detail below.
After paying interest of GBP12.4m (FY 17/18: GBP13.5m) and
receiving corporation tax refunds of GBP4.7m (FY 17/18: GBP11.6m),
net cash inflow from operating activities was GBP39.8m (FY 17/18:
outflow of GBP9.8m). Capital expenditure reduced by GBP1.5m
compared to the prior year to GBP23.3m (FY 17/18: GBP24.8m), while
the business generated GBP43.5m from the proceeds of disposals net
of acquisitions. Dividends of GBP14.4m were paid in the year (FY
17/18: GBP4.8m).
Overall this resulted in a reduction of the Group's net debt of
GBP52.8m (FY 17/18: GBP46.3m increase) to GBP140.7m (FY 17/18:
GBP193.5m).
Working capital
Working capital movements resulted in an inflow for the year of
GBP8.0m. The complex process of outsourcing transactional
processing activities in April 2018 caused trade and other
receivable balances to increase, resulting in a working capital
outflow of GBP34.0m in the first half. The situation has now been
addressed. Working capital reduced by GBP42.0m in the second half
of the year.
Whilst the Group has been focused on improving its working
capital cycle it has also considered its responsibilities to the
supply chain by being fair in respect of payment performance.
Supplier payment terms were reduced by eight days over the full
year, with the improvement taking place skewed to the second half.
This was partially achieved by unilaterally reducing payment terms
for a number of our suppliers meaning that they have now reduced
their need for supply chain finance. Consequently, the use of the
supply chain finance facility reduced by GBP25.1m. The working
capital outflow associated with this reduction in payment terms was
offset by an increase in provisions of GBP25.5m. These provisions
predominantly relate to the now disposed Social Housing business.
Along with other M&A related working capital balances, they are
expected to result in a cash outflow of c. GBP40m over the next two
years.
The Group also marginally reduced its utilisation of
non-recourse customer invoice discounting by GBP3.1m to GBP73.2m
(FY 17/18: GBP76.3m). The invoice discounting facilities are
non-recourse and are therefore netted off against trade and other
receivables within the balance sheet.
Net debt
Net debt is the aggregation of the Group's borrowings net of
cash in hand. The Group's net debt reduced by GBP52.8m to GBP140.7m
as at 31 March 2019 (FY 17/18: GBP193.5m). After a poor start to
the year following the outsourcing of finance transactional
processing, Q4 showed positive progress on our journey to reduce
the volatility of working capital. Average daily net debt in Q4 was
GBP31m lower than the same period last year with average daily
borrowings of GBP278m (Q4 17/18: GBP309m). This improved position
was largely achieved through a combination of business disposal
proceeds and improved customer cash collection performance, at the
same time as paying our suppliers more quickly. The net debt
position benefited from disposal proceeds, net of acquisitions and
acquisition and disposal related costs, of GBP40.9m.
Liquidity and covenants
As at 31 March 2019, the Group had GBP466.5m of committed
funding arrangements (FY 17/18: GBP466.5m). The GBP275m
multi-currency Revolving Credit Facility (RCF) matures in July
2021. The GBP191.5m of US Private Placement notes are spread over
three maturities: December 2019 GBP40.0m; December 2022 GBP121.5m;
and December 2024 GBP30.0m.
Mitie's two key covenant ratios are leverage (ratio of net debt
to covenant EBITDA to be no more than 3 times) and interest cover
(ratio of covenant EBITDA to net finance costs to be no less than 4
times). As at 31 March 2019, we were operating comfortably within
these ratios at 1.33x for leverage and 8.8x for interest cover.
The principal financial covenant ratios (leverage and interest
cover) for our committed funding arrangements are tested every six
months. Following an amendment agreed on 29 March 2019, all future
covenant calculations will be on an IFRS 15 basis. The covenants
continue to exclude the future impact of IFRS 16.
As is usual for corporate facilities, the definition of key
metrics in Mitie's finance agreements is somewhat different to its
reported numbers and this is outlined in the table below. This
table shows that Mitie remains comfortably within its covenant
requirements. In this instance, the prior year comparatives are not
provided, as while Mitie had adopted IFRS 15 in FY 17/18, its
covenant reporting at that time remained on a pre-IFRS 15 basis,
making comparison unhelpful.
Banking covenant calculations
GBPm FY 18/19
Continuing operations 88.2
Discontinued operations 4.0
--------------------------------------------------- -------------------------------
Operating profit before other items 92.2
Add: depreciation & amortisation 20.8
--------------------------------------------------- -------------------------------
Headline EBITDA 113.0
--------------------------------------------------- ----- ------------------------
Deduct: covenant adjustments (7.1)
--------------------------------------------------- ----- ------------------------
Consolidated EBITDA (a) 105.9
--------------------------------------------------- ----- ------------------------
Full-year effect of acquisitions & disposals (2.3)
---------------------------------------------------------- ------------------------
Adjusted consolidated EBITDA (b) 103.6
--------------------------------------------------- ----- ------------------------
Net finance costs (13.8)
Less: covenant adjustments 1.7
Consolidated net finance costs (c) (12.1)
--------------------------------------------------- ----- ------------------------
Interest cover (ratio of (a) to (c) must exceed 4.0x) 8.8x
---------------------------------------------------------- ------------------------
Net debt (140.7)
Impact of hedge accounting & upfront fees 3.0
---------------------------------------------------------- ------------------------
Consolidated total net borrowings (d) (137.7)
--------------------------------------------------- ----- ------------------------
Leverage (ratio of (d) to (b) must not exceed 3.0x) 1.33x
---------------------------------------------------------- ------------------------
Mitie's intention is to consistently maintain adequate headroom
within its committed facilities. In addition to its committed
funding, the Group utilises ancillary facilities, including invoice
discounting of GBP73.2m (FY 17/18: GBP76.3m). The Group's trade
creditors include amounts due to UK suppliers which make use of
supply chain finance arranged by Mitie of GBP20.0m (FY 17/18:
GBP45.1m).
Retirement benefit schemes
The net defined benefit pension liability at 31 March 2019 for
the Mitie Group scheme was GBP61.4m (FY 17/18: GBP54.8m). The
increase in the deficit is principally due to a 20bps decrease in
the discount rate driven by reductions in corporate bond rates
since 31 March 2018. The latest valuation of the Mitie Group scheme
as at 31 March 2017, indicated an actuarial deficit of GBP74.0m (31
March 2014: GBP6.0m), largely due to a fall in discount rates since
2014. The Group has agreed a deficit recovery plan with the Trustee
for further payments totalling GBP64.8m in instalments until 31
March 2025.
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. As at 31 March 2019, Mitie's
net defined pension liability in respect of these schemes, which it
is committed to funding, amounted to GBP2.4m (FY 17/18:
GBP2.0m).
In addition, the Group also participates in four industry
multi-employer defined benefit pension schemes, including the
Plumbing & Mechanical Services (UK) Industry Pension Scheme.
These schemes are accounted for as defined contribution schemes,
either because the assets and liabilities cannot be apportioned
among employers or the amounts involved are not significant.
Contributions to these schemes for FY 19/20 are expected to be
approximately GBP0.1m. The Group is exposed to Section 75 employer
debts in respect of two of these schemes. These liabilities
crystallise when the Group ceases to have any active employees in
the schemes. In the last few months, the Group received a Section
75 demand in respect of the plumbers' pension scheme for GBP20.0m.
This has been provided for in full.
OPERATING REVIEW
Engineering Services
GBPm FY 18/19 FY 17/18 Change, %
---------------------------------------- --------- --------- ----------
Revenue 905.7 886.3 2.2
Operating profit before other items 58.7 54.1 8.5
Operating margin before other items, % 6.5 6.1 0.4 ppt
======================================== ========= ========= ==========
Order book 1,802.7 2,039.2 (11.6)
---------------------------------------- --------- --------- ----------
Performance highlights
-- Good growth of operating profit before other items driven by
a strong performance in the major accounts
-- Encouraging improvements in engineer productivity
-- Phase I of Engineering Services transformation under Project Helix completed
-- Engineering Services transformation is moving into Project Forte
Operational performance
Engineering Services had another year of good operating profit
growth driven by a strong performance in the major accounts. The
business focused on reducing layers and increasing spans of
control, whilst continuing to invest in customer service and
technology to enhance the quality and efficiency of the service we
provide. We have also listened to and acted upon customer feedback.
We are clearly seeing the impact of our investment into service
with our divisional NPS up 30 points year-on-year.
Another area of focus was the productivity of our engineers
where we have seen encouraging improvements in utilisation with a
7% increase in productivity, a 3% (c.GBP3m) reduction in core
subcontractor spend and a subsequent increase in profitability.
This increased productivity has been partly driven by a 20%
reduction in travel time which has in turn allowed us to reduce the
backlog in jobs by 20% and therefore provide a better service to
our customers. Additional year-on-year indirect cost reductions
included a 12% (c.GBP2m) decrease in vehicle costs and a 4%
(c.GBP0.1m) drop in staff travel expenses. We have created a data
hub which allows benchmarking, best practice and standardisation to
enable these improvements.
We also took steps to reduce complexity in our business. On the
customer front we actively focused on revenue quality by serving
our top clients better. We made a decision to no longer pursue
smaller and less profitable opportunities and to proactively exit
low-margin contracts. With regard to the supply chain, we reduced
our supplier base by 25% by migrating to fewer strategic partners,
enabling meaningful economies of scale. There is further
opportunity in these areas.
Under Project Helix, we have now completed Phase 1 of the
Engineering Services transformation. This included the roll-out of
PDAs to our engineers and related training; the introduction of a
dashboard enabling better performance management of all
organisational levels including engineers; and launching our Click
pilot (automated engineer scheduling and deployment tool). We also
introduced incentive schemes for engineers to aim for
first-time-fix and greater efficiencies.
The next phase of transformation for Engineering Services is
grouped under Project Forte and will include changes to the
culture, processes and technology underpinning the business. This
will include the scheduling and deployment system roll-out and a
new case management and billing application. The objective is to
drive further improvements for our customers and our staff by using
technology to improve productivity and service delivery.
The programme will also include Group-wide initiatives aimed at
organisational consolidation and further cost reductions by
automating manual and paper-based processes. Project Forte is
expected to run for approximately two years with associated cost of
implementation of c.GBP30m and estimated exit gross run-rate
benefits of c.GBP30m by March 2021.
In FY 18/19 Mitie Property Management's roofing and painting
businesses were integrated into Engineering Services following the
sale of the Social Housing business in November 2018. Incorporating
these two business units into the ES projects business broadened
the overall offering under the projects umbrella and boosted
cross-selling opportunities across Mitie. It also allowed the sales
teams to share leads and be proactive in capturing opportunities
with customers. Overall, this combination is starting to gain
traction in the market and is helping to make Mitie known as a
one-stop projects business.
From the start of FY 19/20 several business units of the current
Professional Services division will be incorporated into an
enlarged Engineering Services division. These include Connected
Workspace, International Services, Occupier Services and
Sustainability. The logic behind the move is that these services
are closely aligned to our largest integrated accounts where
engineering services are central to our offer. We will therefore be
able to improve and broaden our customer product offering in a
manner that more closely aligns with our customers' needs. To
facilitate these changes we have strengthened the Engineering
Services leadership team with senior appointments in mobile
engineering, strategic accounts and critical infrastructure.
Engineering Services revenue comprises fixed contract work and
variable work. During the year we broadened the capability of our
commercial team by setting up a new dedicated sales team focused on
winning more variable and project-based work with our existing and
potential clients. The order book declined 11.6% to GBP1,802.7m in
the year as the unwinding of existing contracts exceeded new wins
and renewals underpinned by more disciplined bidding.
We extended a number of contracts, including a five-year
contract worth GBP17m with Gatwick Airport and a two-year extension
with Vodafone. We won new business as part of integrated FM
contracts with a major UK retailer, a major infrastructure company,
Connect Group and Yorkshire Building Society. We also won several
single service contracts, including a contract with construction
firm Willmott Dixon to provide mechanical and electrical services
for Bournemouth University.
We also enhanced our focus on the government sector enabling us
to qualify as a supplier of M&E services on the CCS FM
Marketplace Framework which offers UK-wide facilities management
opportunities across numerous public sector entities.
Financial performance
Revenue from continuing operations in the Engineering Services
division was up 2.2% to GBP905.7m (FY 17/18: GBP886.3m), with
growth in top accounts and related project work offsetting the
impact of contracts lost during the prior year and a slower year in
terms of contract wins. The top 50 Engineering Services contracts
continued to deliver good growth in both volumes and profitability
on the back of project and variable work volumes with revenue
growth of 8% and 70 basis points improvement in gross profit
margin. Our projects business, which includes fire protection,
painting and roofing, as well as project work within top accounts,
grew its revenue by 4% and saw operating profit margin expansion of
80 basis points.
Operating profit for continuing operations before other items
increased 8.5% to GBP58.7m (FY 17/18: GBP54.1m). This was due to a
combination of strong performance in our largest accounts, exit
from low-margin contracts and cost savings from the transformation
programme, partly offset by the impact of contracts lost in the
prior year and incremental investments into improving service
levels.
Outlook
As we deepen our relationships with our largest customers we are
increasingly seeing the demand for a broader service offering which
includes the use of predictive maintenance technology, improved
facilities performance management information and more energy
efficiency from assets and buildings. By combining several existing
Mitie businesses from the Professional Services division into one
enlarged Engineering Services division, we will be able to meet
these demands better. The market for Engineering Services remains
fragmented but is still showing modest growth. We are optimistic
about our future performance as we broaden our offering,
particularly focusing on technology, and as we embark on a
transformation of the business through Project Forte that will
improve the customer experience whilst reducing our
cost-to-serve.
Security
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 536.5 432.0 24.2
--------- --------- ----------
Operating profit before other items 30.7 27.5 11.6
--------- --------- ----------
Operating margin before other items, % 5.7 6.4 (0.7) ppt
--------- --------- ----------
Order book 971.5 640.8 51.6
---------------------------------------- --------- --------- ----------
Performance highlights
-- Strong year with a good performance across all business units
together with a positive contribution from the acquisition of
VSG
-- Significant progress made in integrating VSG following its acquisition in October 2018
-- Technology solutions playing a greater role in contributing to the overall profit growth
Operational performance
Security enjoyed another strong year with a good performance
across all its major business units, together with a positive
contribution from the acquisition of Vision Security Group Limited
(VSG) in October 2018. The largest part of our security business is
manned guarding where we saw good growth across all regions as we
continue to develop our presence in the retail, logistics and
critical security environment sectors.
The VSG acquisition strengthened the position of Mitie's
Security business as one of the leading providers of integrated and
risk-based security services in the UK. The combination offers
opportunities to accelerate the growth of Mitie's premium systems
and technology-enabled and intelligence-led security solutions.
Significant progress has already been made in integrating VSG,
aligning both operations and technology capabilities. We have
consolidated operations into our new global security operations
centre (GSOC), a single hub, located in Northampton. It will serve
as a centre for intelligence and security industry experts with
cutting-edge software tools to capture, translate, geolocate and
alert to any major global incidents. This will become a hub for
development of our intelligence cell and house our interactive
customer control centre where we undertake live CCTV monitoring. In
addition, we are employing innovative and unique methods of
collating actual incidents and crime reports overlaid with national
crime statistics to dynamically risk-rate individual locations to
drive the efficient deployment of security resources for our
customer sites.
Our industry-leading 24/7 communications and technology centre
MiTec will be retained as our primary alarm receiving centre (ARC)
responsible for delivering a wide range of remote services
including CCTV, intruder, fire, access control and lone worker
monitoring and dedicated client helpdesks. We are also creating a
secondary ARC location at our Northampton GSOC to provide MiTec
with added resilience. We will continue to focus on the growth of
our Fire & Security Systems business as one of the leading
providers of life safety solutions and innovative security systems
in the UK. Through the integration of VSG's systems team, we have
expanded our geographical footprint, increased our technical
expertise levels and strengthened our operational model which is
enabling us to deliver larger-scale projects and contracts for
clients.
Mitie is a significant Front of House service provider through
our Signature business. There are opportunities for growth,
especially in major city conurbations and in particular the premium
and London-centric corporate market.
Mitie's employee vetting business, Procius, continues to hold a
strong position in the aviation industry whilst we are also seeing
traction within commercial sectors. The focus here is on developing
further technology-led solutions to automate, facilitate and speed
up vetting processes.
In Document Management we continue to grow our customer base,
attracting high-end law firms and corporate clients by offering
technology-enabled document management and document processing
outsourcing among other services. Through recent wins, we are
expanding to include the delivery of our services to clients'
regional offices.
The divisional NPS score improved by 15 points as we expand and
enhance our offer and embed more technology solutions in our
services. The secured order book before the impact from the VSG
acquisition was up by 19%, with the unwinding of contracts more
than offset by significant contract wins and successful retenders.
We won a three-year contract with a multinational retail group and
extended a contract with Springfields for a further three years. We
also had a strong year for retaining clients, including two
contract extensions for travel clients, Strathclyde Partnership for
Transport (a further five years) and Eurostar (for two years). We
successfully extended a contract with Belfast City Airport and won
a high-profile contract from the CCS Framework. The total secured
order book benefited from the acquisition of VSG and grew overall
by 51.6% to GBP971.5m.
Financial performance
The Security division delivered a strong financial performance,
with good organic growth together with a positive contribution from
the VSG acquisition. Organic revenue grew by 5.8%, and overall
revenue, including VSG, grew 24.2% to GBP536.5m (FY 17/18:
GBP432.0m). Manned guarding, technology solutions including vetting
services, and Document Management all delivered good growth
following new sales wins and higher volumes of project and variable
work. Front of House performance was impacted by loss of key
contracts in the prior year.
Operating profit before other items increased 11.6% to GBP30.7m
(FY 17/18: GBP27.5m) driven by contract wins and operational
efficiency initiatives as well as a positive contribution from
VSG's performance.
VSG enjoyed a very encouraging start under Mitie's ownership.
After taking over a business which was trading at close to
break-even, we are seeing a faster improvement in margins than
originally planned at the initial integration stage. VSG's gross
margin increased from 5% pre-takeover to 8% over its first trading
period under Mitie's ownership.
Technology solutions are increasingly contributing to the
overall revenue growth of the division and now account for 13% (FY
17/18: 12%) of the revenue (excluding VSG), driven by growth in
Fire & Security systems, MiTec and vetting. MiTec is benefiting
from the Detention & Escorting Services contract, won by the
Care & Custody division in December 2017, while vetting is
moving into the corporate space on top of its strong position in
aviation.
The division finished the year with good momentum following
successful contract wins towards the end of FY 18/19.
Outlook
The overall security market remains fragmented and manned
guarding remains competitive and highly commoditised. In this
context, Mitie's ability to provide a broader range of services
gives a competitive advantage when bidding for and winning
business. Retention is then enhanced through application of
technology. We will continue to derive benefits from the VSG
acquisition where the performance of major contracts will continue
to benefit from ongoing price renegotiations, reducing revenue
leakage, walking away from substandard arrangements and re-aligning
the cost base.
Professional Services
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 131.4 131.2 0.2
--------- --------- ----------
Operating profit before other items 5.6 5.6 0.0
--------- --------- ----------
Operating margin before other items, % 4.3 4.3 0.0 ppt
--------- --------- ----------
Order book 86.9 144.9 (40.0)
---------------------------------------- --------- --------- ----------
Performance highlights
-- Divisional revenue performance was impacted by the exit from
two loss-making international contracts and renewed focus on
internal projects to support Mitie key accounts
-- The Waste Management business retained two significant
contracts and won the first phase of a significant contract with
NHS Improvement
-- Sustainability delivered a stable performance for the year
-- The International business focused on re-balancing its portfolio towards higher-margin work
Operational performance
Whilst the Professional Services division showed a flat trading
performance year-on-year, it recorded a high-profile win with NHS
Improvement for Waste Management and it repositioned several of the
other operating units to focus on driving overall Mitie performance
by supporting key accounts. The benefits of these activities fall
outside the division.
The Waste Management business retained two significant contracts
during the year with a pharmaceuticals company and the UK branch of
a global consumer goods company, both for a further two years.
Contract wins during FY 18/19 included Bidfood, a commercial real
estate services company and the first phase of a significant
contract with NHS Improvement won from the CCS Framework, which was
mobilised in October 2018.
The Sustainability business, including Energy, had a slow start
to the year but gained momentum on the back of project work. The
Water business was fully integrated during the year into the
Sustainability business, which now encompasses all key utilities,
enabling it to build a broader proposition for our customers.
The International business focused on re-balancing its portfolio
towards higher-margin work and, as a consequence, we proactively
exited two loss-making international contracts. At the same time,
Mitie secured a facilities management and property services
contract with Ahlsell - a hardware retailer - to manage and
maintain all its stores in Norway. The order book declined 40% as
contract wins and renewals only partly offset the delivery of
contracts.
Financial performance
Professional Services, excluding the International business,
delivered revenue growth in FY 18/19. However, the overall
divisional performance was impacted by the reduction in revenue as
we exited loss-making contracts in the International business.
Overall revenue for the division was flat at GBP131.4m (FY 17/18:
GBP131.2m). Waste grew strongly by 14%, including the new NHS
Improvement contract. Sustainability delivered a stable performance
for the year.
At the operating profit level, we benefited from exiting the
loss-making international contracts, good cost discipline across
the division and re-balancing our activities to target
higher-margin work. Profitability was partly held back by a renewed
focus on projects to support key Mitie strategic accounts and
investments into Connected Workspace. Operating profit before other
items was GBP5.6m (FY 17/18: GBP5.6m).
Outlook
Our Connected Workspace solutions are increasingly being focused
on monitoring the critical environments of our largest clients,
where we provide maintenance and engineering solutions. Given the
close link between the client solutions required within our
Engineering business, and several elements of the Professional
Services division, we are embedding Connected Workspace, Occupier
Services, International and Sustainability under Engineering
Services from April 2019. We see this as an opportunity to enhance
and improve our core engineering offering by using technology to
monitor critical assets, thereby allowing us to deliver a proactive
service. We also see the opportunity to improve the quality of
information that customers receive to manage their facilities and
their assets.
As part of these changes, Waste Management is moving to Cleaning
& Environmental Services, and Risk Advisory Services is
transferring into the Security division.
Cleaning & Environmental Services
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 404.4 384.1 5.3
--------- --------- ----------
Operating profit before other items 17.5 19.6 (10.7)
--------- --------- ----------
Operating margin before other items, % 4.3 5.1 (0.8) ppt
--------- --------- ----------
Order book 663.1 656.3 1.0
---------------------------------------- --------- --------- ----------
Performance highlights
-- The division delivered good revenue growth in a
highly-competitive market environment; however, profits were
negatively impacted by the dilutive effect of contracts won in
prior years
-- On 30 September 2018, we sold the Mitie Pest Control business
unit to Rentokil Initial plc and entered into a preferred supplier
partnership covering a range of services
Operational performance
On 30 September 2018, we sold the Mitie Pest Control business
unit to Rentokil Initial plc and entered into a preferred supplier
partnership covering a range of services. These services will be
provided as part of an integrated facilities management offering to
Mitie's wide range of customers. The transaction enables us to
continue to provide specialist services to our clients whilst
focusing on our core competencies.
Cleaning & Environmental Services (CES) delivered good
revenue growth from continuing operations in a highly-competitive
market environment where outsourcing remains a compelling option
for clients. Margins still remain low. However, the division was
negatively impacted by historical contracts with low margin.
Offsetting this were cost savings arising from various delayering
exercises to remove managerial roles.
In addition to our core Cleaning business, there are two
significant stand-alone business units within the CES division. Our
Landscape business is a specialist service where we enjoy a
balanced mix of fixed and pay-as-you-go work throughout the year.
This ensures a broadly stable performance with further upside
during harsh winters. Mitie Healthcare provides a multi-service
offering looking after a broad portfolio of NHS clients and has
recently introduced a range of technology features to its offer,
including dynamic performance dashboards, electronic meal ordering
and the trialling of an intelligent automated portering system.
The division was successful in retaining a number of large
clients as well as winning new clients partly as a consequence of a
much improved NPS score, up 26 points year-on-year. The CES order
book for continuing operations was up 1% to GBP663.1m. We extended
our services with Epsom & St Helier University Hospital NHS
Trust for cleaning and with Whitbread for landscaping. We also won
a five-year landscaping contract with NHS/South Western Ambulance.
Towards the end of FY 18/19, the division was successful in
securing an extension to its 10-year partnership with St George's
University Hospitals NHS Foundation Trust until 2030, which is
worth GBP150 million and covers a range of services including
cleaning, patient catering and facilities helpdesk services; the
extension will also include waste management duties at one of the
sites. At the same time, we have also taken steps to reduce the
margin drag of new contracts by introducing tighter bidding
discipline. As a consequence, growth in the near term will be
slower.
Financial performance
CES revenues for continuing operations grew by 5.3% to GBP404.4m
(FY 17/18: GBP384.1m) driven by the impact of prior year contract
wins. However, operating profit for continuing operations before
other items was down 10.7% to GBP17.5m (FY 17/18: GBP19.6m) due to
unfavourable contract mix versus last year, only partly offset by
savings from Project Helix. Within the division, Healthcare grew
strongly on the back of the prior year wins, however, first-year
mobilisation factors impacted profitability; this has now been
addressed. Landscapes delivered a strong performance despite a
particularly mild winter, with operating profit protected by a
well-balanced portfolio of work, which hedges pay-as-you-go with
fixed-price contracts.
Outlook
Over the next couple of years we expect steady growth in our
Healthcare and Landscapes businesses. Cleaning is not expected to
grow as we work on improving margins through disciplined bidding
and re-balancing of the contract base.
Care & Custody
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 107.3 59.9 79.1
--------- --------- ----------
Operating profit before other items 3.9 1.9 105.3
--------- --------- ----------
Operating margin before other items, % 3.6 3.2 0.4 ppt
--------- --------- ----------
Order book 596.6 670.1 (11.0)
---------------------------------------- --------- --------- ----------
Performance highlights
-- Excellent year following the successful mobilisation and
commencement of operations for the Detention & Escorting
Services (D&E) Home Office contract and a strong delivery from
existing contracts
-- The division continues to expand its offering as it
diversifies into adjacent areas to complement its core
capabilities
Operational performance
The Care & Custody division had an excellent year, having
almost doubled in size on the back of the successful mobilisation
and commencement of operations for the sizeable D&E contract
won in December 2017. In addition, the division benefited from
strong delivery of existing contracts with police forces, custody
support and Forensic Medical Examiner (FME) services. The D&E
contract, the largest ever contract for the division, reinforces
our role as the largest supplier of immigration detention services
to the UK Government.
It is also allowing us to expand and gain expertise in areas
adjacent to the core immigration detention and movement services.
During the year, we won an electronic tagging of offenders contract
in Northern Ireland. This opportunity is an entry point into
electronic monitoring within the criminal justice system in other
parts of the UK, where we are able to leverage Mitie Security's
MiTec facility. Other wins included the Nottinghamshire FME
services contract.
The order book declined 11% to GBP596.6m as the unwinding of
long-term contracts was only partially offset by contract wins and
renewals.
Following an announcement in November 2018 the Home Office
unexpectedly closed Campsfield IRC, which was managed by Mitie. The
contract expired in early 2019.
Financial performance
Care & Custody's revenues grew by 79.1% to GBP107.3m (FY
17/18: GBP59.9m) following the win and successful mobilisation of
the D&E contract and good growth from existing contracts.
Operating profit before other items increased by 105.3% to GBP3.9m
(FY 17/18: GBP1.9m) driven by performance of the D&E contract
and other contracts won in the prior year and includes the
expensing of a net GBP3.3m of mobilisation costs for the D&E
contract. Amounts related to these mobilisation activities were
paid by the customer and will be released from deferred income over
the term of the contract.
Outlook
As the division grows its core competencies and expands into
adjacent services, the pipeline has expanded to include large
opportunities such as the latest cycle of Prisoner Escort and Court
Services contracts (PECS4). These are long-term cyclical
opportunities with lengthy bidding lead times. Our clients are UK
Government departments which are increasingly evaluating bids
against surety of delivery, sustainability and quality of outcomes,
all of which play well to Care & Custody's proposition. In a
competitive market place, Care & Custody is well positioned to
win contracts because we are growing in scale, enjoy a solid
reputation with our public sector commissioners and clients, and
continue to expand our offering as we diversify into adjacent areas
(such as custodial movements) to complement our core
capabilities.
Catering
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 136.1 137.1 (0.7)
--------- --------- ----------
Operating profit before other items 5.2 5.6 (7.1)
--------- --------- ----------
Operating margin before other items, % 3.8 4.1 (0.3) ppt
--------- --------- ----------
Order book 26.5 34.7 (23.6)
---------------------------------------- --------- --------- ----------
Performance highlights
-- The division delivered broadly flat performance at the
revenue level and a decline at the operating profit level
-- Growth in Gather & Gather was offset by weaker results in
external events and venues through Creativevents
-- Gather & Gather's differentiated wellbeing and
sustainability-focused offer continues to gain traction in the
market
Operational performance
Our Gather & Gather brand is a niche player in the catering
sector with a well-articulated and differentiated offer which
continues to gain traction. During FY 18/19, we saw further
increases in the adoption of our wellbeing-led food concepts and
consumer technology solutions. We also launched The Gathered Table
- a unique collaboration between culinary, technology and
sustainability experts to help fuel the continued development of
Gather & Gather's innovative offer. The Gathered Table delivers
pop-ups, menu content, training and client appearances to amplify
Gather & Gather's influence on the health, productivity and
engagement of the customers we serve every day.
During the year, Gather & Gather also qualified onto the
London University Purchasing Consortium (LUPC), the largest higher
education purchasing consortium in the UK. As a consequence, we won
a significant GBP10-million 3+2-year contract with Edinburgh
College - our first on the framework and our first in the further
and higher education sector. This provides an opportunity to
transform the catering experience for students and staff by
bringing a contemporary approach to food, service and consumer
technology.
Gather & Gather also secured other significant new wins in
the year, including Dropbox. We were also successful in securing
the opportunity to roll out a new café concept across some of
Primark's UK and Ireland retail estate. The division also won work
for Yorkshire Building Society and a major UK retailer as part of
new or expanded integrated FM contracts.
The secured order book for the division declined 23.6% to
GBP26.5m. The secured order book only includes fixed contract work,
while c.96% of the divisional revenue in FY 18/19 came from
point-of-sale contracts and variable work.
Financial performance
In FY 18/19, the Catering division delivered broadly flat
revenue at GBP136.1m (FY 17/18: GBP137.1m) with improved momentum
in H2 largely offsetting the contraction in H1. The core Gather
& Gather workplace offering grew revenue and operating profit
whilst the overall divisional performance was held back by weaker
results in external events and venues through Creativevents.
Against an inflationary backdrop, gross profit was stable as we
partially mitigated food price inflation, reduced the use of
consumables and disposables - reducing the overall cost to the
business and improving our environmental footprint - and improved
labour management discipline. Overall, operating profit before
other items declined by 7.1% to GBP5.2m (FY 17/18: GBP5.6m) due to
weaker performance in Creativevents.
Outlook
Whilst the catering sector remains under pressure from food
price and labour inflation, the market offers opportunity for a
well-respected brand such as Gather & Gather. Clients
increasingly seek to enhance their catering facilities as key
contributors to their talent attraction and retention strategies,
by improving the customer experience, improving wellbeing and
increasing sustainability. Gather & Gather has continued to
demonstrate its ability to anticipate and satisfy these demands as
the industry changes.
In this context, we expect a good year from Catering in FY 19/20
on the back of the annualisation of significant recent wins with
90% of revenue already secured. The Gather & Gather brand
continues to offer a distinctive quality alternative to the large
corporate caterers who dominate the mass market.
Discontinued operations
Below are the results of discontinued operations up to the date
of disposal.
Pest Control
GBPm FY 18/19 FY 17/18 Change, %
--------- --------- ----------
Revenue 11.9 22.3 nm
--------- --------- ----------
Operating profit before other items 2.4 2.6 nm
--------- --------- ----------
Operating margin before other items, % 20.2 11.7 8.5 ppt
---------------------------------------- --------- --------- ----------
On 30 September 2018, Mitie completed the sale of the entire
issued share capital of Mitie Pest Control Limited to Rentokil
Initial plc. Mitie separately entered into a preferred supplier
partnership with Rentokil Initial plc, covering a range of services
(including pest services) to be provided as part of integrated
facilities management offerings to Mitie's wide range of
customers.
Pest Control reported revenues of GBP11.9m (FY 17/18: GBP22.3m)
and its operating profit before other items was GBP2.4m (FY 17/18:
GBP2.6m). Pest Control was previously part of the Cleaning &
Environmental Services division.
Social Housing
GBPm FY 18/19 FY 17/18 Change %
--------- --------- ----------
Revenue 89.1 150.8 nm
--------- --------- ----------
Operating profit before other items 1.6 3.8 nm
--------- --------- ----------
Operating margin before other items, % 1.8 2.5 (0.7) ppt
---------------------------------------- --------- --------- ----------
In November 2018, the Group sold the Social Housing business to
Mears Group plc. The Social Housing business was previously part of
the Property Management division, together with the roofing and
painting business units which have been integrated into the
Engineering Services division.
The consideration comprised an initial payment of GBP22.5m,
which was paid in cash at completion. No fair value was recognised
on the further contingent consideration of up to GBP12.5m, payable
in cash after two years post completion which is subject to the
achievement of certain performance milestones. The Group has
retained liabilities for a number of legacy contracts in the Social
Housing business.
In FY 18/19 the Social Housing business reported revenues of
GBP89.1m (FY 17/18: GBP150.8m) and operating profit before other
items of GBP1.6m (FY 17/18: GBP3.8m).
Corporate overheads
Corporate overheads represent the costs of running the Group
function and include costs for the commercial, financial,
marketing, legal and HR teams. Corporate overheads have increased
as we continue to invest in the foundations to deliver 'The
Exceptional, Every Day'; leadership in the Connected Workspace; and
accelerated growth. We also reinstated certain staff incentive
schemes in FY 18/19 after suspending them for two years during the
early stages of the Mitie turnaround. The main investments were
into our commercial capability, upweighting our marketing, and
strengthening our technology underpin. Corporate overheads
increased by 7.4% to GBP33.4m (FY 17/18: GBP31.1m).
Public sector
Given the significant opportunities available in the public
sector, we have recently set up a new public sector centre of
excellence. This team will be responsible for assisting in any
public sector work across Mitie as well as owning the overall
relationship with the UK Government. During the year, we qualified
as a supplier on Phase 1 of the Crown Commercial Service (CCS) FM
Marketplace Framework, which will allow us to bid for facilities
management contracts for UK Government departments, as well as
Phase II, which will allow us to bid for defence facilities
management as well as for security services and technical security
contracts. Qualification as a supplier on the CCS Framework has
added large opportunities to our pipeline. We have established a
new public sector sales team who will coordinate bids from across
the divisions into these key public sector accounts.
Consolidated income statement
For the year ended 31 March 2019
2019 2018(1,2)
========= ========= ========= ========= ====================
Before Before
other Other other Other
items items(3) Total items items(3) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================================= ===== ========= ========= ========= ========= ========= =========
Continuing operations
Revenue 3 2,221.4 - 2,221.4 2,030.6 - 2,030.6
Cost of sales (1,923.9) - (1,923.9) (1,762.8) - (1,762.8)
================================= ===== ========= ========= ========= ========= ========= =========
Gross profit 297.5 - 297.5 267.8 - 267.8
================================= ===== ========= ========= ========= ========= ========= =========
Administrative expenses (209.3) (38.0) (247.3) (184.6) (82.1) (266.7)
================================= ===== ========= ========= ========= ========= ========= =========
Operating profit/(loss) 3 88.2 (38.0) 50.2 83.2 (82.1) 1.1
================================= ===== ========= ========= ========= ========= ========= =========
Finance income 0.2 - 0.2 0.1 - 0.1
Finance costs (14.0) - (14.0) (16.6) - (16.6)
================================= ===== ========= ========= ========= ========= ========= =========
Net finance costs (13.8) - (13.8) (16.5) - (16.5)
================================= ===== ========= ========= ========= ========= ========= =========
Profit/(loss) before tax 3 74.4 (38.0) 36.4 66.7 (82.1) (15.4)
================================= ===== ========= ========= ========= ========= ========= =========
Tax 6 (13.8) 7.4 (6.4) (11.1) 10.0 (1.1)
================================= ===== ========= ========= ========= ========= ========= =========
Profit/(loss) from continuing
operations after tax 60.6 (30.6) 30.0 55.6 (72.1) (16.5)
================================= ===== ========= ========= ========= ========= ========= =========
Discontinued operations
Profit/(loss) from discontinued
operations 5 3.1 (2.2) 0.9 5.6 (15.1) (9.5)
================================= ===== ========= ========= ========= ========= ========= =========
Profit/(loss) for the year 63.7 (32.8) 30.9 61.2 (87.2) (26.0)
================================= ===== ========= ========= ========= ========= ========= =========
Attributable to:
Equity holders of the parent 63.7 (32.8) 30.9 60.1 (87.2) (27.1)
Non-controlling interests - - - 1.1 - 1.1
================================= ===== ========= ========= ========= ========= ========= =========
63.7 (32.8) 30.9 61.2 (87.2) (26.0)
================================= ===== ========= ========= ========= ========= ========= =========
Earnings/(loss) per share
(EPS) attributable to equity
holders of the parent
From continuing operations:
Basic 8 16.8p 8.3p 15.2p (4.9)p
Diluted 8 16.7p 8.3p 15.1p (4.9)p
From continuing and discontinued
operations:
Basic 8 17.7p 8.6p 16.8p (7.6)p
Diluted 8 17.5p 8.5p 16.7p (7.6)p
================================= ===== ========= ========= ========= ========= ========= =========
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Re-presented to classify the Pest Control and Social Housing
businesses as discontinued operations. See Note 1.
3. Other items are as described in Note 4.
Consolidated statement of comprehensive income 2019 2018(1)
For the year ended 31 March 2019 Notes GBPm GBPm
======================================================= ===== ====== ========
Profit/(loss) for the year 30.9 (26.0)
======================================================= ===== ====== ========
Items that will not be reclassified subsequently
to profit or loss
Re-measurement of net defined benefit pension
liability 21 (13.9) 19.7
Income tax credit/(charge) relating to items not
reclassified 6 2.4 (3.4)
======================================================= ===== ====== ========
(11.5) 16.3
======================================================= ===== ====== ========
Items that may be reclassified subsequently to
profit or loss
Exchange differences on translation of foreign
operations (0.3) 0.1
Gains on hedge of a net investment taken to equity 0.1 0.4
Net gains on cash flow hedges arising during the
year 2.2 0.1
Income tax (charge)/credit relating to items that
may be reclassified 6 (0.3) 0.1
======================================================= ===== ====== ========
1.7 0.7
======================================================= ===== ====== ========
Other comprehensive (expense)/income for the financial
year (9.8) 17.0
======================================================= ===== ====== ========
Total comprehensive income/(expense) for the financial
year 21.1 (9.0)
======================================================= ===== ====== ========
Attributable to:
Equity holders of the parent 21.1 (10.1)
Non-controlling interests - 1.1
======================================================= ===== ====== ========
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
Consolidated balance sheet
As at 31 March 2019
2019 2018(1)
Notes GBPm GBPm
========================================== ===== ======= ========
Non-current assets
Goodwill 9 293.8 309.6
Other intangible assets 10 50.7 38.3
Property, plant and equipment 29.0 33.6
Interest in joint ventures and associates - 0.8
Derivative financial instruments 18 16.4 6.1
Contract assets 12 4.5 1.8
Deferred tax assets 16 38.7 36.7
========================================== ===== ======= ========
Total non-current assets 433.1 426.9
========================================== ===== ======= ========
Current assets
Inventories 5.6 6.9
Trade and other receivables 11 435.2 386.0
Contract assets 12 1.6 0.4
Current tax assets - 6.3
Cash and cash equivalents 108.4 59.8
========================================== ===== ======= ========
Total current assets 550.8 459.4
========================================== ===== ======= ========
Total assets 983.9 886.3
========================================== ===== ======= ========
Current liabilities
Trade and other payables 13 (533.9) (496.8)
Deferred income 14 (54.9) (46.2)
Current tax liabilities (0.3) -
Financing liabilities 17 (40.7) (0.8)
Provisions 15 (50.6) (25.2)
========================================== ===== ======= ========
Total current liabilities (680.4) (569.0)
========================================== ===== ======= ========
Net current liabilities (129.6) (109.6)
========================================== ===== ======= ========
Non-current liabilities
Deferred income 14 (18.4) (18.8)
Financing liabilities 17 (224.8) (258.6)
Provisions 15 (6.0) (6.3)
Retirement benefit liabilities 21 (63.8) (56.8)
Deferred tax liabilities 16 (2.9) (0.8)
========================================== ===== ======= ========
Total non-current liabilities (315.9) (341.3)
========================================== ===== ======= ========
Total liabilities (996.3) (910.3)
========================================== ===== ======= ========
Net liabilities (12.4) (24.0)
========================================== ===== ======= ========
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
Consolidated balance sheet
As at 31 March 2019
2019 2018(1)
GBPm GBPm
==================================================== ======= ========
Equity
Share capital 9.3 9.3
Share premium account 130.6 130.6
Merger reserve 104.2 104.2
Own shares reserve (38.1) (43.4)
Other reserves 10.3 11.3
Hedging and translation reserve (5.6) (7.3)
Retained losses (223.1) (228.7)
===================================================== ======= ========
Equity attributable to equity holders of the parent (12.4) (24.0)
===================================================== ======= ========
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
Consolidated statement of changes in equity
As at 31 March 2019
Hedging
Share Own and
Share premium Merger shares Other translation Retained Non-controlling Total
capital account reserve reserve reserves(1) reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Adjusted balance
at 1 April 2017 9.2 130.6 91.8 (42.2) 10.3 (8.0) (212.4) (20.7) 2.3 (18.4)
----------------- ------- ------- ------- ------- --------------- ----------- -------- ------ --------------- ------
Loss for the year - - - - - - (27.1) (27.1) 1.1 (26.0)
Other
comprehensive
income - - - - - 0.7 16.3 17.0 - 17.0
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Total
comprehensive
expense - - - - - 0.7 (10.8) (10.1) 1.1 (9.0)
Dividends paid - - - - - - (4.8) (4.8) - (4.8)
Share-based
payments - - - 6.9 1.0 - 0.3 8.2 - 8.2
Acquisitions and
other movements
in
non-controlling
interests 0.1 - 12.4 (8.1) - - (1.0) 3.4 (3.4) -
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
At 31 March 2018 9.3 130.6 104.2 (43.4) 11.3 (7.3) (228.7) (24.0) - (24.0)
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
At 1 April 2018 9.3 130.6 104.2 (43.4) 11.3 (7.3) (228.7) (24.0) - (24.0)
Impact of change
in accounting
policy(2) - - - - - - (2.1) (2.1) - (2.1)
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Adjusted balance
at 1 April 2018 9.3 130.6 104.2 (43.4) 11.3 (7.3) (230.8) (26.1) - (26.1)
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Profit for the
year - - - - - - 30.9 30.9 - 30.9
Other
comprehensive
(expense)/income - - - - - 1.7 (11.5) (9.8) - (9.8)
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Total
comprehensive
income - - - - - 1.7 19.4 21.1 - 21.1
Dividends paid - - - - - - (14.4) (14.4) - (14.4)
Share-based
payments - - - 5.3 (1.0) - 0.9 5.4 - 5.4
Other movements - - - - - - 1.8 1.8 - 1.8
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
At 31 March 2019 9.3 130.6 104.2 (38.1) 10.3 (5.6) (223.1) (12.4) - (12.4)
================= ======= ======= ======= ======= =============== =========== ======== ====== =============== ======
Notes:
1. Other reserves include the share-based payments reserve, the
revaluation reserve and the capital redemption reserve.
2. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impacts as an adjustment to opening retained earnings at the date
of initial application. Under this option, the comparative
information is not restated.
Consolidated statement of cash flows
For the year ended 31 March 2019
2019 2018
Notes GBPm GBPm
======================================================= ===== ======= ======
Continuing operations - operating profit before
other items(1) 88.2 83.2
Continuing operations - other items(1) 4 (38.0) (82.1)
Discontinued operations - operating loss after
other items(1) (2.0) (9.4)
Adjustments for:
Share-based payments expense 5.0 4.6
Defined benefit pension costs 21 1.8 3.1
Past service costs and curtailments 21 1.6 1.9
Defined benefit pension contributions 21 (11.6) (4.7)
Depreciation of property, plant and equipment 11.6 12.8
Amortisation of intangible assets 10 9.0 13.5
Amortisation of contract assets 12 0.8 0.1
Share of profit of joint ventures and associates 5 (0.5) (0.8)
Impairment of goodwill 9 - 34.6
Impairment of intangible assets 10 1.1 10.4
Gain on bargain purchase 20 (8.8) -
Gain on disposal of property, plant and equipment (0.8) (0.1)
(Gain)/loss on disposal of subsidiaries 5 (17.9) 0.2
Other - (0.1)
======================================================= ===== ======= ======
Operating cash flows before movements in working
capital 39.5 67.2
Decrease/(increase) in inventories 0.4 (0.1)
Increase in receivables (51.7) (43.2)
Increase in contract assets (4.7) (2.3)
Increase/(decrease) in deferred income 5.1 (12.8)
Increase/(decrease) in payables 33.4 (21.2)
Increase in provisions 25.5 4.5
======================================================= ===== ======= ======
Cash generated from/(used in) operations 47.5 (7.9)
Income taxes received 4.7 11.6
Interest paid (12.4) (13.5)
Net cash generated from/(used in) operating activities 39.8 (9.8)
======================================================= ===== ======= ======
Investing activities
Acquisition of subsidiaries, net of cash acquired(2) 20 (9.3) -
Disposal of subsidiaries, net of cash disposed(2) 5 52.8 (9.7)
Dividends received from joint ventures and associates - 0.6
Interest received 0.2 0.2
Purchase of property, plant and equipment (12.1) (15.8)
Purchase of other intangible assets 10 (11.2) (9.0)
Disposal of property, plant and equipment 4.7 1.6
Net cash generated from/(used in) investing activities 25.1 (32.1)
======================================================= ===== ======= ======
Notes:
1. Re-presented to classify the Pest Control and Social Housing
businesses as discontinued operations. See Note 1.
2. Disposal of subsidiaries, net of cash disposed of GBP52.8m is
stated net of GBP5.3m of transaction costs (see Note 5). The net
cash inflow from acquisition and disposal of subsidiaries was
GBP40.9m (2018: GBP9.7m outflow) including costs of GBP2.6m related
to the VSG acquisition (see Note 4).
Consolidated statement of cash flows
For the year ended 31 March 2019
2019 2018
Notes GBPm GBPm
===================================================== ===== ====== ======
Financing activities
Increase/(repayments) of obligations under finance
leases 0.2 (1.5)
Private placement notes repaid and associated
hedges settled - (60.2)
(Repayments of)/proceeds from bank loans (2.1) 38.3
Proceeds from re-issue of treasury shares - 3.4
Purchase of non-controlling interests - (3.0)
Equity dividends paid 7 (14.4) (4.8)
===================================================== ===== ====== ======
Net cash used in financing activities (16.3) (27.8)
===================================================== ===== ====== ======
Net increase/(decrease) in cash and cash equivalents 48.6 (69.7)
Net cash and cash equivalents at beginning of
the year 59.8 129.1
Effect of foreign exchange rate changes - 0.4
===================================================== ===== ====== ======
Net cash and cash equivalents at end of the year 108.4 59.8
===================================================== ===== ====== ======
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 5.
Reconciliation of net cash flow to movements in Notes 2019 2018
net debt GBPm GBPm
===================================================== ===== ======= =======
Cash drivers
Net increase/(decrease) in cash and cash equivalents 48.6 (69.7)
Decrease/(increase) in bank loans 2.1 (38.3)
Private placement notes repaid and associated
hedges settled - 60.2
(Increase)/repayments of obligations under finance
leases (0.2) 1.5
Non-cash drivers
Non-cash movement in bank loans (0.2) (0.7)
Non-cash movement in private placement notes and
associated hedges 2.2 0.3
Effect of foreign exchange rate changes 0.3 0.4
===================================================== ===== ======= =======
Decrease/(increase) in net debt during the year 52.8 (46.3)
Opening net debt (193.5) (147.2)
===================================================== ===== ======= =======
Closing net debt 19 (140.7) (193.5)
===================================================== ===== ======= =======
1. Basis of preparation and significant accounting policies
The financial information presented in this preliminary
announcement has been extracted from the Group's Annual Report and
Accounts for the year ended 31 March 2019 and is prepared in
accordance with the recognition and measurement requirements of
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and as adopted by
the EU and those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. With the exception of IFRS 9
Financial Instruments, the principal accounting policies adopted in
the preparation of the financial information in this preliminary
announcement are unchanged from those used in the Company's
financial statements for the year ended 31 March 2018 and are
consistent with those that the Company has applied in its financial
statements for the year ended 31 March 2019. The Group adopted IFRS
9 Financial Instruments with effect from 1 January 2019 and has
taken the transitional option not to restate comparative
information, which is presented under the formerly adopted IAS 39
accounting policies. Details of the Group's transition to IFRS 9
are presented in Note 1.
The financial information set out above does not constitute the
Company's statutory accounts for the current or prior year.
Statutory accounts for the years ended 31 March 2019 and 31 March
2018 have been reported on by the Independent Auditor. The
independent auditor's report for the year ended 31 March 2019 was
unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under Section 498(2) or
498(3) of the Companies Act 2006.
The independent auditor's report for the year ended 31 March
2018 was qualified on the basis that the Financial Statements did
not agree with the requirement contained in IAS 1 to present a
third balance sheet for the year ended 31 March 2016. Subsequently,
the auditors were unable to determine the financial impact of any
line item reclassification adjustment that may have arisen from
this re-presentation to the income statement for the year ended 31
March 2017. Notwithstanding the foregoing, had these adjustments
been presented in accordance with IAS 1, they would have had no
impact on the reported net assets for the year ended 31 March 2016
or the reported loss for the year ended 31 March 2017. The
independent auditor's report for the year ended 31 March 2018 did
not draw attention to any matters by way of emphasis and, other
than in relation to the matter identified above, did not contain a
statement under Section 498(2) or 498(3) of the Companies Act
2006.
Statutory accounts for the year ended 31 March 2018 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 March 2019 will be delivered to the Registrar
following the Company's AGM.
(a) Basis of preparation
The Group's financial statements for the year ended 31 March
2019 have been prepared in accordance with International Financial
Reporting Standards (IFRS) adopted for use in the European Union
and therefore the Group's financial statements comply with Article
4 of the EU IAS Regulation.
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.
Going concern
The Directors acknowledge the Financial Reporting Council's
'Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting' issued in September 2014. The
Directors have considered principal risks and uncertainties
affecting the Group which are described in the Annual Report and
Accounts for the year ended 31 March 2019.
The Group currently operates well within the financial covenants
associated with its committed funding lines. These include
GBP191.5m (being the repayment amount based on the original dollar
exchange rates when issued) of US Private Placement debt maturing
in December 2019, December 2022 and December 2024 and a committed
multi-currency revolving credit facility of GBP275.0m which will
expire in July 2021. These facilities give the Group total
committed funding of GBP466.5m, of which GBP221.9m was undrawn at
31 March 2019.
The key ratios in these financial covenants are net debt to
covenant EBITDA and covenant EBITDA to net finance costs. These
covenants are tested on a rolling 12-month basis as at the
September and March reporting dates. At 31 March 2019, both
covenant tests were passed. The Group is forecasting to remain
within its banking covenants over the next twelve months and has
stress-tested these calculations for reasonable possible adverse
variances in trading and cash performance.
Supported by the liquidity provided by committed banking
facilities, notwithstanding the Group is in a net current liability
position, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, the Group continues to
adopt the going concern basis of accounting in preparing the
condensed consolidated financial statements.
Discontinued operations
On 30 September 2018, the Group completed the sale of Mitie Pest
Control Limited (Pest Control) which previously formed a separate
major line of business of the Group as part of the Cleaning &
Environmental Services division. As a result of the disposal, the
results of the Pest Control business have been classified as
discontinued operations and comparative information has been
restated.
On 19 November 2018, the Group entered into an agreement to sell
Mitie Property Management Limited and MPS Housing Limited, together
the Social Housing business, which previously formed a separate
major line of business of the Group as part of the Property
Management division. As a result of the disposal which was
completed on 30 November 2018, the results of the Social Housing
business have been classified as discontinued operations and
comparative information has been restated. The remaining roofing
and painting activities of the former Property Management division
have been integrated into the Engineering Services division.
Accounting standards that are newly effective in the current
year
With the exception of the adoption of IFRS 9 which is discussed
below, none of the new standards and amendments that are effective
for the first time this year have had a material effect on the
Group.
IFRS 9 'Financial instruments' became effective for the Group
starting 1 April 2018 and replaces the requirements of IAS 39
'Financial instruments: recognition and measurement'. The main
changes introduced by the new standard are new classification and
measurement requirements for certain financial assets, a new
Expected Credit Loss (ECL) model for the impairment of financial
assets, revisions to the hedge accounting model, and amendments to
disclosures. The Group elected, from 1 April 2018, to continue to
apply the hedge accounting guidance in IAS 39 'Financial
instruments: recognition and measurement'.
With respect to loss allowances for trade receivables, IFRS 9
replaces the 'incurred loss' model in IAS 39 with an ECL model. The
Group, from 1 April 2018, measures loss allowances for trade
receivables and accrued income at an amount equal to lifetime
expected credit losses using both quantitative and qualitative
information and analysis based on the Group's historical experience
and forward-looking information. The Group has determined that the
transition to IFRS 9 resulted in an additional loss allowance for
trade receivables and accrued income as at 1 April 2018 of GBP2.5m
and gave rise to a deferred tax credit of GBP0.4m. The additional
loss allowance has been applied as an adjustment to opening
retained earnings at 1 April 2018 and therefore, the prior year
comparative information is not restated.
Other than as stated above, the accounting policies and methods
of calculation adopted in the preparation of these Group
consolidated financial statements are consistent with those
followed in the preparation of the Group's consolidated financial
statements for the year ended 31 March 2018, which were prepared in
accordance with IFRS as issued by the International Accounting
Standards Board and as adopted by the EU.
Accounting standards that are not yet mandatory and have not
been applied by the Group
With the exception of IFRS 16 which is discussed below, none of
the new standards and amendments that are not yet effective are
expected to have a material effect on the Group.
IFRS 16 'Leases' became effective for the Group from 1 April
2019 and replaces the requirements of IAS 17 'Leases'. An asset
representing the Group's right as a lessee to use a leased item,
and a liability for future lease payments, will be recognised for
all leases, subject to limited exemptions for short-term leases and
low-value lease assets. The costs of leases will be recognised in
the consolidated income statement split between depreciation of the
lease asset and a finance charge on the lease liability. This is
similar to the accounting for finance leases under IAS 17, but
substantively different to the accounting for operating leases
(under which no lease asset or lease liability was recognised and
rentals payable were charged to the consolidated income statement
on a straight-line basis).
During the year, management set up a project team to review the
Group's leasing arrangements in light of the new lease accounting
rules in IFRS 16. At 31 March 2019, the Group has non-cancellable
operating lease commitments of GBP72.0m. Of these commitments,
GBP1.4m relates to short-term leases and GBP0.1m to low-value
leases which will be recognised on a straight-line basis as an
expense in the consolidated income statement. For the remaining
lease commitments, the Group expects to recognise, at 1 April 2019,
right-of-use assets in the range of GBP82.0m to GBP87.0m, and lease
liabilities in the range of GBP81.0m to GBP86.0m (after adjustments
for prepayments and accrued lease payments recognised as at 31
March 2019). Overall net assets will be in the range of GBP4.0m
lower to GBP6.0m higher and net current liabilities will be higher
by between GBP21.0m and GBP26.0m due to the presentation of a
portion of lease liabilities as a current liability.
As a result of adopting the new rules, for the year ending 31
March 2020, the Group expects net profit before tax to increase by
between GBPnil and GBP3.0m. Operating profit is expected to
increase by between GBP24.0m and GBP29.0m as the operating lease
rentals payable which were previously included in operating profit
are excluded. In addition, operating cash flows are expected to
increase by between GBP24.0m and GBP29.0m as repayment of the lease
liabilities is reclassified as cash used in financing
activities.
The Group's activities as a lessor are not material and
therefore, there is no significant impact from these activities on
the consolidated financial statements as a result of adopting IFRS
16. However, certain additional disclosure may be required in the
notes to the consolidated financial statements.
(b) Significant accounting policies
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 FRS 101 'Reduced disclosure framework' in the
preparation of its individual financial statements. FRS 101 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 equity holders of the parent.
Statutory and non-statutory measures of performance
In the financial statements, the Group has elected to provide
some further disclosures and performance measures, reported as
'before other items', in order to present its financial results in
a way that demonstrates the performance of continuing
operations.
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. The Group separately reports the
impairment of goodwill, the cost of restructuring programmes,
acquisition and disposal costs including the write-off and
amortisation of acquisition related intangible assets, the results
of and costs associated with disposals, and other exceptional items
and their related tax effect as Other Items. Should these items be
reversed, disclosure of this would also be as other items.
Separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the
period and the extent to which results are influenced by material
unusual and/or non-recurring items. Further detail of other items
is set out in Note 4.
In addition, following the guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authorities (ESMA), the Group has included an APM appendix to the
financial statements.
Revenue recognition policy
The Group operates contracts with a varying degree of complexity
across its service lines, so a range of methods is used for the
recognition of revenue based on the principles set out in IFRS 15.
Revenue represents income recognised in respect of services
provided during the period based on the delivery of performance
obligations and an assessment of when control is transferred to the
customer.
IFRS 15 provides a single, principles based five-step model to
be applied to all sales contracts as outlined below. It is based on
the transfer of control of goods and services to customers and
replaces the separate models for goods, services and construction
contracts
Step 1 - Identify the contract(s) with a customer
For all contracts with customers, the Group determines if the
arrangement creates enforceable rights and obligations. This
assessment results in certain Framework arrangements or Master
Service Agreements (MSAs) not meeting the definition of contracts
under IFRS 15 unless they specify the minimum quantities to be
ordered. Usually the work order and any change orders together with
the Framework or MSA will constitute the IFRS 15 contract.
Duration of contract
The Group frequently enters into contracts with customers which
contain extension periods at the end of the initial term, automatic
annual renewals, and/or termination for convenience and break
clauses that could impact the actual duration of the contract. As
the term of the contract impacts the period over which amortisation
of contract assets and revenue from performance obligations may be
recognised, the Group applies judgement to assess the impact that
such clauses have in determining the relevant contract term. In
forming this judgement, management considers certain influencing
factors including the amount of discount provided, the presence of
significant termination penalties in the contract, and the
relationship, experience and performance of contract delivery with
the customer and/or the wider industry, in understanding the
likelihood of extension or termination of the contract.
Contract modifications
The Group's contracts are frequently amended for changes to
customer requirements such as change orders and variations. A
contract modification takes place when the amendment creates new
enforceable rights and obligations or changes the existing price or
scope (or both) of the contract, and the modification has been
approved. Contract modifications can be approved in writing, by
oral agreement, or implied by customary business practices.
If the parties to the contract have not approved a contract
modification, revenue is recognised in accordance with the existing
contractual terms. If a change in scope has been approved but the
corresponding change in price is still being negotiated, the Group
estimates the change to the total transaction price.
Contract modifications are accounted for as a separate contract
if the contract scope changes due to the addition of distinct goods
or services and the change in contract price reflects the
standalone selling price of the distinct goods or services. The
facts and circumstances of any modification are considered in
isolation as these are specific to each contract and may result in
different accounting outcomes.
Step 2 - Identify the performance obligations in the
contract
Performance obligations are the contractual promises by the
Group to transfer distinct goods or services to a customer. For
arrangements with multiple components to be delivered to customers
such as in the Group's integrated facilities management contracts,
the Group applies judgement to consider whether those promised
goods or services are:
i. distinct and accounted for as separate performance obligations;
ii. combined with other promised goods or services until a
bundle is identified that is distinct; or
iii. part of a series of distinct goods or services that are
substantially the same and have the same pattern of transfer over
time i.e. where the customer is deemed to have simultaneously
received and consumed the benefits of the goods or services over
the life of the contract, the Group treats the series as a single
performance obligation.
Step 3 - Determine the transaction price
At contract inception, the total transaction price is
determined, being the amount to which the Group expects to be
entitled and has rights under the contract. This includes the fixed
price stated in the contract and an assessment of any variable
consideration, up or down, resulting from e.g. discounts, rebates,
service penalties. Variable consideration is typically estimated
based on the expected value method and is only recognised to the
extent it is highly probable that a subsequent change in its
estimate would not result in a significant revenue reversal.
Step 4 - Allocate the transaction price to the performance
obligations in the contract
The Group allocates the total transaction price to the
identified performance obligations based on their relative
stand-alone selling prices. This is predominantly based on an
observable price or a cost plus margin arrangement.
Step 5 - Recognise revenue when or as the entity satisfies its
performance obligations
For each performance obligation, the Group determines if revenue
will be recognised over time or at a point in time. Where revenue
is recognised over time, the Group applies the relevant output or
input revenue recognition method for measuring progress that
depicts the Group's performance in transferring control of the
goods or services to the customer.
Certain long-term contracts use output methods based upon
surveys of performance completed, appraisals of results achieved,
or milestones reached which allow the Group to recognise revenue on
the basis of direct measurements of the value to the customer of
the goods or services transferred to date relative to the remaining
goods or services under the contract.
Under the input method, measured progress and revenue are
recognised in direct proportion to costs incurred where the
transfer of control is most closely aligned to the Group's efforts
in delivering the service.
Where deemed appropriate, the Group will utilise the practical
expedient within IFRS 15, allowing revenue to be recognised at the
amount which the Group has the right to invoice, where that amount
corresponds directly with the value to the customer of the Group's
performance obligations completed to date.
If performance obligations do not meet the criteria to recognise
revenue over time, revenue is recognised at the point in time when
control of the goods or services passes to the customer. This may
be at the point of physical delivery of goods and acceptance by a
customer or when the customer obtains control of an asset or
service in a contract with customer-specified acceptance criteria.
Sales of goods are recognised when goods are delivered and control
has passed to the customer.
Long-term complex contracts
The Group has a number of long-term complex contracts which are
predominantly integrated facilities management arrangements.
Typically, these contracts involve the provision of multiple
service lines, with a single management team providing an
integrated service. Such contracts tend to be transformational in
nature where the business works with the customer to identify and
implement cost saving initiatives across the life of the
contract.
The Group considers the majority of services provided within
integrated facilities management contracts meet the definition of a
series of distinct goods or services that are substantially the
same and have the same pattern of transfer over time. The series
constitutes services provided in distinct time increments (e.g.
monthly or quarterly) and therefore the Group treats the series of
such services as one performance obligation.
The Group also delivers major project-based services under
long-term complex contracts that include performance obligations
under which revenue is recognised over time as value from the
service is transferred to the customer. This may be where the Group
has a legally enforceable right to remuneration for the work
completed to date, and therefore revenue will be recognised in line
with the associated transfer of control.
Repeat service-based contracts (single and bundled
contracts)
The Group operates a number of single or joint-service line
arrangements where repeat services meet the definition of a series
of distinct services that are substantially the same (e.g. the
provision of cleaning, security, catering, waste, and landscaping
services). They have the same pattern of transfer of value to the
customer as the series constitutes core services provided in
distinct time increments (e.g. monthly or quarterly). The Group
therefore treats the series of such services as one performance
obligation.
Short-term service-based arrangements
The Group delivers a range of other short-term service based
performance obligations and professional services work across
certain reporting segments for which revenue is recognised at the
point in time when control of the service has transferred to the
customer. This may be at the point when the customer obtains
control of the service in a contract with customer-specified
acceptance criteria e.g. the delivery of a strategic operating
model or report.
Other revenue
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.
Contract costs
The Group incurs pre-contract expenses (e.g. legal costs) when
it is expected to enter into a new contract. The incremental costs
to obtain a contract with a customer are recognised within contract
assets if it is expected that those costs will be recoverable.
Costs to obtain a contract that would have been incurred regardless
of whether the contract was obtained are recognised as an expense
in the period.
Contract fulfilment costs
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 contract fulfilment costs. Only costs which meet all
three of the criteria below are included within contract assets on
the balance sheet:
i. the costs directly relate to the contract (e.g. direct labour, materials, subcontractors);
ii. the Group is building an asset that will subsequently be
used to deliver contract outcomes; and
iii. the costs are expected to be recoverable i.e. the contract
is expected to be profitable after amortising the capitalised
costs.
Contract fulfilment costs covered within the scope of another
accounting standard, such as inventories, intangible assets, or
property, plant and equipment are not capitalised as contract
fulfilment assets but are treated in accordance with the other
standard.
Amortisation and impairment of contract assets
The Group amortises contract assets (pre-contract costs and
contract fulfilment costs) on a systematic basis that is consistent
with the entity's transfer of the related goods or services to the
customer. The expense is recognised in the income statement in the
period.
A capitalised pre-contract cost or contract fulfilment cost is
derecognised either when it is disposed of or when no further
economic benefits are expected to flow from its use.
The Group is required to determine the recoverability of
contract related assets at each reporting date. An impairment
exists if the carrying amount of any asset exceeds the amount of
consideration the entity expects to receive in exchange for
providing the associated goods and services, less the remaining
costs that relate directly to providing those goods and services
under the relevant contract. In determining the estimated amount of
consideration, the Group uses the same principles as it does to
determine the contract transaction price which includes estimates
around variable consideration. An impairment is recognised
immediately where such losses are forecast.
Accrued income and deferred income
The Group's customer contracts include a diverse range of
payment schedules which are often agreed at the inception of
long-term contracts under which it receives payments throughout the
term of the arrangement. Payments for goods and services
transferred at a point in time may be at the delivery date, in
arrears or part payment in advance.
Where revenue recognised at the period end date is more than
amounts invoiced, the Group records accrued income for the
difference. Where revenue recognised at the period end date is less
than amounts invoiced, the Group recognises deferred income for the
difference.
Certain arrangements with customers include a contractual
obligation to make redundancies for which the Group is reimbursed
for the costs incurred. Revenue is not recognised on these
transactions. Instead, the Group expenses all redundancy costs in
the period they are incurred and any reimbursement credit is
matched against the associated cost included in the income
statement up to the value of the redundancy cost incurred. Any cash
payments received from the customer in excess of the associated
cost of redundancy are deferred over the contract term and unwound
in line with the other services being delivered.
Where price step-downs are required in a contract and output is
not decreasing, revenue is deferred from initial periods to
subsequent periods in order for revenue to be recognised on a
consistent basis.
Providing the option for a customer to obtain extension periods
or other services at a significant discount may lead to a separate
performance obligation where a material right exists. Where this is
the case, the Group allocates part of the transaction price from
the original contract to deferred income which is then amortised
over the discounted extension period or recognised immediately when
the extension right expires.
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 recognised directly in equity.
On consolidation, the assets and liabilities of the Group's
foreign 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.
Finance costs
Finance costs consist of interest and other costs that are
incurred in connection with the borrowing of funds. Finance costs
are recognised in the income statement 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.
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. Negative goodwill representing a gain from
a bargain purchase, is recognised directly 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 the income
statement, in accordance with IFRS 9. 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 IFRS
9, when applicable, of an investment in an associate or a joint
venture.
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, liabilities and contingent 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.
Other intangible assets
Other intangible assets identified in a business acquisition are
capitalised at fair value as at the date of acquisition.
Customer relationships are amortised over their useful lives
based on the period of time over which they are anticipated to
generate benefits. Other acquisition related intangibles include
acquired software and technology which are amortised over their
useful lives.
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. Software and development expenditure includes internally
generated intangible assets and is amortised over its useful life
once it has been brought into use.
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.
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
===================================== ===================
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.
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.
Financial assets comprise trade and other receivables and cash
and cash equivalents. The classification of financial assets under
IFRS 9 is generally based on the business model in which a
financial asset is managed and its contractual cash flow
characteristics. All of the Group's cash flows from customers are
solely payments of principal and interest, and do not contain a
significant financing component. Financial assets generated from
all of the Group's revenue streams are therefore initially measured
at their transaction price (as defined in IFRS 15) and are
subsequently remeasured at amortised cost. 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.
The assessment of impairment of trade receivables and accrued
income from 1 April 2018 is in accordance with IFRS 9. The Group
recognises a loss allowance for expected credit losses (ECL) on all
receivable balances from customers subsequently measured at
amortised cost, using the 'simplified approach' permitted under
IFRS 9. In the prior year under IAS 39, appropriate allowances for
estimated irrecoverable amounts were recognised including where
there was objective evidence that the asset was impaired.
The Group uses a non-recourse customer invoice discounting
facility (CID facility) under which certain trade receivable
balances are sold to the Group's relationship banks. The
arrangement with the banks is such that the customers remit cash
directly to the Group and the Group transfers the collected amounts
to the banks. The trade receivables are sold without recourse to
the Group, and therefore the trade receivable balance is
derecognised.
Financial liabilities comprise trade payables, financing
liabilities, bank and other borrowings, deferred consideration and
contingent consideration. These are measured at initial recognition
at fair value and subsequently at amortised cost with the exception
of contingent consideration which is measured at fair value through
profit or loss. 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.
Included within the Group's trade creditors balance are amounts
relating to payments due to UK suppliers which make use of bank
provided supply chain finance arrangements to allow supplier early
payment by the bank. Amounts are settled by the Group in accordance
with each supplier's normal payment terms and payments continue to
be classified within cash generated by operations. The Group does
not receive any additional guarantees and does not pay any interest
in relation to these amounts.
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.
Onerous contract provisions (OCPs) arise when the unavoidable
costs of meeting contractual obligations exceed the remuneration
expected to be received. Unavoidable costs include total contract
costs together with a rational allocation of shared costs that can
be directly linked to fulfilling contractual obligations which have
been systematically allocated to OCPs on the basis of key cost
drivers, except where this is impracticable and contract revenue is
used as a proxy for activity. The provision is calculated as the
lower of the termination costs payable for an early exit and the
expected net cost to fulfil the Group's unavoidable contract
obligations. Where a customer has an option to extend a contract
and it is likely that such an extension will be made, the expected
net cost arising during the extension period is included within the
calculation. However, where a profit can be reasonably expected in
the extension period, no credit is taken on the basis that such
profits are uncertain given the potential for the customer to
either not extend or offer an extension under lower pricing
terms.
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 grants of share options and awards, the
fair value as at the date of grant is calculated using the
Black-Scholes model, Monte Carlo model or the share price at grant
date, 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.
Restricted shares are issued as part of the consideration for
acquisitions made by the Company attached with a condition that the
relevant recipient continues their employment with the Group for a
fixed vesting period of time. Restrictions will remain attached to
the shares if the recipient leaves employment with the Group prior
to completion of the vesting period of the shares. The fair value
of the restricted shares is the share price at the date the
acquisition agreement was signed.
The credits in respect of the amounts charged are included
within the share-based payment reserve in equity until such time as
the vesting periods or share restrictions expire.
The own shares reserve in equity includes the shares owned by
the Employee Trust, treasury shares and restricted shares issued as
part of the consideration for acquisitions. When shares are
transferred to employees upon exercise of options and awards or
when restricted shares held by employees are released from their
restrictions, the own shares reserve is reduced by the relevant
cost or value.
Retirement benefit costs
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.
In addition, the Group operates and participates in a number of
defined benefit schemes. In respect of the schemes in which the
Group makes contributions under Admitted Body status to clients'
defined benefit schemes in respect of certain employees who
transferred to the Group under TUPE, the Group accounts for its
legal and constructive obligations over the period of its
participation which is for a fixed period only.
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 on obligations, the return on scheme
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.
Defined benefit pension costs (including curtailments) are
recognised in the income statement, in either administrative
expenses or other items, whilst the net interest cost is recognised
in finance costs.
The retirement benefit liability 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.
The Group participates in four multi-employer defined benefit
pension schemes. For three of these schemes the Group's share of
the assets and liabilities is minimal. The fourth scheme is the
Plumbing & Mechanical Services (UK) Industry Pension Scheme
(the Plumbing Scheme), a funded multi-employer defined benefit
scheme. The Plumbing Scheme was founded in 1975 and to date has had
over 4,000 employers, with circa 400 remaining. Historically, the
size and complexity of the Plumbing Scheme has meant the trustee is
unable at this time to identify the assets and liabilities of the
scheme which are attributable to the Group. The Group has recently
received a Section 75 employer debt notice in respect of the
participation of Robert Prettie & Co Limited in the Plumbing
Scheme (refer to Note 15 and Note 21). One Group company, Mitie
Property Services (UK) Limited, continues to participate in the
Plumbing Scheme, however no apportionment of the assets and
liabilities attributable to this company is available and
consequently, the Group accounts for its contributions as if they
were paid to a defined contribution scheme.
For schemes where sufficient information is not available to use
defined benefit accounting, no liability is recognised on the
balance sheet, however, the obligations are disclosed as contingent
liabilities in Note 22.
2. Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group's accounting
policies
The preparation of consolidated financial statements under IFRS
requires management to make judgements, estimates and assumptions
that affect amounts recognised for assets and liabilities at the
reporting date and the amounts of revenue and expenses incurred
during the reporting period. Actual results may differ from these
judgements, estimates and assumptions.
The judgements and estimates which have the most significant
effect on the reported result for the year ended 31 March 2019 and
upon the carrying value of assets and liabilities of the Group as
at 31 March 2019 are described below.
Revenue recognition
The Group's revenue recognition policies, which are set out
under Revenue recognition in Note 1, are central to how the Group
measures the work it has performed in each financial year.
For certain contracts, key judgements were made concerning
contract extensions and amendments which, for example, directly
impact the timing of revenue recognition in addition to the phasing
of upfront payments to, or from customers which are deferred to the
balance sheet and unwound over the expected contract term. The
Group has deferred pre-contract costs of GBP2.2m to the balance
sheet within contract assets following its assessment of contract
modifications during the year (refer to Note 12). Management
considers this to be an area of judgement due to the determination
of whether a modification represents a separate contract based on
its assessment of the stand-alone selling price, rather than a
termination of the existing contract and establishment of a new
contract for which the revised contract price would be recognised
from the date of modification.
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
should be classified within other items requires judgement as to
whether an item is or is not part of the underlying performance of
the Group.
Other items after tax of GBP32.8m (2018: GBP87.2m) were charged
to the income statement for the year ended 31 March 2019. An
analysis of the amounts included in other items is detailed in Note
4.
Recoverability of aged debtors and accrued income
The Group has material amounts of billed and unbilled work
outstanding at year end as outlined in Note 18. Where balances
become subject to dispute, the risk of recoverability increases. As
a consequence, there is significant management judgement involved
in assessing whether these balances have been earned and in
assessing the recoverability of these balances which involves
consideration of the Group's contractual rights and work performed
as well as the status of ongoing commercial negotiations. The
judgement as to whether an amount has become irrecoverable is an
assessment made by the Directors in the determination of the total
expected credit loss recognised by the Group under IFRS 9. The
Group has recognised a total loss allowance of GBP19.2m (2018:
GBP17.3m) in respect of both aged and disputed trade and other
receivable balances at 31 March 2019.
Key sources of estimation uncertainty
Revenue recognition, contract assets and contract
liabilities
Due to the size and complexity of the Group's contracts,
management is required to form a number of key judgements and
estimates in the determination of the amount of revenue and profits
to record, and related balance sheet items such as contract assets,
accrued income and deferred income to recognise (refer to Note 1).
This includes an assessment of the costs the Group incurs to
deliver the contractual commitments and whether such costs should
be expensed as incurred or capitalised. These judgements are
inherently subjective and may cover future events such as the
achievement of contractual performance targets and planned cost
savings or discounts. The Directors do not consider that any
reasonable foreseeable change in this source of estimation would
have a material impact on the Group's financial statements.
Provisions and contingent assets and liabilities
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.
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 2019 of
GBP56.6m (2018: GBP31.5m). Further details are included in Note
15.
The Directors are working to ensure that, through a combination
of insurance claims and recourse to suppliers a proportion of the
GBP16.1m costs (refer to Note 4) incurred in respect of
rectification works for the Social Housing property maintenance
contracts, including the GBP12.1m recorded in provisions (refer to
Note 15), are recovered. The amount and timing of any recoveries is
yet to be determined.
Measurement of defined benefit pension obligations
The net pension liability at 31 March 2019 was GBP63.8m (2018:
GBP56.8m).
The measurement of defined benefit obligations requires
judgement. It is dependent on material key assumptions including
discount rates, life expectancy rates, and future contribution
rates. See Note 21 for further details and a sensitivity analysis
for the key assumptions.
The Group also participates in four multi-employer defined
benefit pension schemes, including the Plumbing & Mechanical
Services (UK) Industry Pension Scheme (the Plumbing Scheme). A
provision of GBP20.0m has been made for Section 75 employer debts
in respect of the participation of Robert Prettie & Co. Limited
in the Plumbing Scheme. The Group has a further potential exposure
to Section 75 employer debts in respect of the participation of
Mitie Property Services (UK) Limited in the Plumbing Scheme, which
has been disclosed as a contingent liability due to the inherent
uncertainty regarding the amount of any liability.
Gain on bargain purchase
The Group has recognised an GBP8.8m gain on the purchase of
Vision Security Group Limited. The value of this gain is subject to
the assessment of the fair value of the acquired assets and
liabilities and the finalisation of the consideration to be paid
through agreement of the completion accounts with the seller of the
business. See Note 20 for further details.
The fair value of the acquired assets includes GBP14.9m
representing the value of intangible assets associated with
customer relationships acquired. This valuation is based upon
forecast cash flows which are subject to significant management
judgement and estimation.
Allocation of goodwill to discontinued operations
The Directors have made a judgement to determine the allocation
of goodwill to the discontinued operations to arrive at the
gain/loss on disposal. This allocation was carried out with
reference to the forecast performance of those activities compared
to the forecast performance of the cash-generating units the
activities were previously part of.
Gain/(loss) on disposal of discontinued operations
The Group has recognised a gain of GBP26.7m on the disposal of
Mitie Pest Control Limited and a loss of GBP11.7m on the disposal
of the Social Housing business, refer to Note 5.
The value of these gains and losses is subject to finalisation
of the consideration to be paid through agreement of the completion
accounts with the purchasers of these businesses. The Directors
have made a judgement as to the likely outcome of each completion
accounts settlement.
Deferred tax assets
The Group has recognised deferred tax assets of GBP38.7m (2018:
GBP36.7m), refer to Note 16. The Directors have assessed recovery
of these assets with reference to the Group's medium-term
forecasts. Recovery of these assets is subject to the Group
generating taxable profits in future years.
Impairment of goodwill
In assessing the key sources of estimation uncertainty, the
Directors no longer consider impairment of goodwill as a key source
of estimation. The Directors do not consider that any reasonable
foreseeable change in this source of estimation would have a
material impact on the Group's financial statements.
3. Business segment information
The Group manages its business on a service division basis. At
31 March 2019, the Group has six strategic divisions which are its
reportable segments and the information, as reported, is consistent
with information presented to the Board. Revenue, operating profit
before other items and operating profit margin before other items
are the primary measures of performance that are reported to and
reviewed by the Board, which is the Group's chief operating
decision maker.
The information presented for the year ended 31 March 2018 has
been restated to reflect the changes in management reporting,
implemented in the year ended 31 March 2019, of certain business
unit activities transferring between Engineering Services,
Professional Services and Corporate centre, the integration into
Engineering Services of the roofing and painting activities which
previously formed part of Property Management, and the
classification of Pest Control and Social Housing as discontinued
operations.
2019 2018(1)
======= =============== ========== ======= =============== ==========
Operating Operating
profit/(loss) Operating profit/(loss) Operating
margin before margin
before before other before
other other other
Revenue items(2) items(2) Revenue items(2) items(2)
GBPm GBPm % GBPm GBPm %
=================================== ======= =============== ========== ======= =============== ==========
Engineering Services 905.7 58.7 6.5 886.3 54.1 6.1
Security 536.5 30.7 5.7 432.0 27.5 6.4
Professional Services 131.4 5.6 4.3 131.2 5.6 4.3
Cleaning & Environmental Services 404.4 17.5 4.3 384.1 19.6 5.1
Care & Custody 107.3 3.9 3.6 59.9 1.9 3.2
Catering 136.1 5.2 3.8 137.1 5.6 4.1
Corporate centre - (33.4) - - (31.1) -
=================================== ======= =============== ========== ======= =============== ==========
Total from continuing operations 2,221.4 88.2 4.0 2,030.6 83.2 4.1
=================================== ======= =============== ========== ======= =============== ==========
Pest Control 11.9 2.4 20.2 22.3 2.6 11.7
Social Housing 89.1 1.6 1.8 150.8 3.8 2.5
=================================== ======= =============== ========== ======= =============== ==========
Total from discontinued operations 101.0 4.0 4.0 173.1 6.4 3.7
=================================== ======= =============== ========== ======= =============== ==========
Total 2,322.4 92.2 4.0 2,203.7 89.6 4.1
=================================== ======= =============== ========== ======= =============== ==========
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Other items are as described in Note 4.
3. No single customer accounted for more than 10% of external
revenue in 2019 or 2018.
A reconciliation of segment operating profit/(loss) before other
items to total profit/(loss) before tax is provided below:
2019 2018(1)
GBPm GBPm
==================================== ====== =======
Operating profit before other items 88.2 83.2
Other items(2) (38.0) (82.1)
Net finance costs (13.8) (16.5)
===================================== ====== =======
Total from continuing operations 36.4 (15.4)
===================================== ====== =======
Operating profit before other items 4.0 6.4
Other items(2) (6.0) (15.8)
Net finance income 0.1 0.1
===================================== ====== =======
Total from discontinued operations (1.9) (9.3)
===================================== ====== =======
Profit/(loss) before tax 34.5 (24.7)
===================================== ====== =======
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Other items are as described in Note 4.
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
2019 2018(1)
======= =============== ========== ======= =============== ==========
Operating Operating Operating Operating
profit/(loss) margin profit/(loss) margin
before before before before
other other other other
Revenue items(2) items(2) Revenue items(2) items(2)
GBPm GBPm % GBPm GBPm %
======================== ======= =============== ========== ======= =============== ==========
United Kingdom 2,122.2 85.6 4.0 1,920.6 82.9 4.3
Other countries 99.2 2.6 2.6 110.0 0.3 0.3
======================== ======= =============== ========== ======= =============== ==========
Continuing operations 2,221.4 88.2 4.0 2,030.6 83.2 4.1
======================== ======= =============== ========== ======= =============== ==========
United Kingdom 101.0 4.0 4.0 173.1 6.4 3.7
Other countries - - - - - -
======================== ======= =============== ========== ======= =============== ==========
Discontinued operations 101.0 4.0 4.0 173.1 6.4 3.7
======================== ======= =============== ========== ======= =============== ==========
Total 2,322.4 92.2 4.0 2,203.7 89.6 4.1
======================== ======= =============== ========== ======= =============== ==========
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Other items are as described in Note 4.
Supplementary information
2019 2018
================================================== ==================================================
Depreciation Depreciation
of property, Amortisation of property, Amortisation
plant of Amortisation plant of Amortisation
and intangible of contract Other and intangible of contract Other
equipment assets assets items(1) equipment assets assets items(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ============ ============ ============ ======== ============ ============ ============ ========
Engineering
Services 0.9 0.5 - 6.2 1.2 2.5 - 3.7
Security 1.5 0.2 - 1.6 1.8 0.9 - 0.4
Professional
Services 0.2 0.1 0.2 0.8 0.3 0.7 - 0.6
Cleaning &
Environmental
Services 4.1 1.0 - 2.0 4.0 0.3 - 1.1
Care & Custody 0.4 - 0.6 0.1 0.3 - 0.1 0.1
Catering 1.0 0.1 - 0.1 1.5 0.2 - -
Corporate
centre 3.2 7.0 - 27.2 3.2 8.6 - 76.2
============== ============ ============ ============ ======== ============ ============ ============ ========
Continuing
operations 11.3 8.9 0.8 38.0 12.3 13.2 0.1 82.1
============== ============ ============ ============ ======== ============ ============ ============ ========
Healthcare - - - (2.0) - - - -
Pest Control 0.1 - - (27.6) 0.2 0.1 - -
Social Housing 0.2 0.1 - 35.6 0.3 0.2 - 15.8
============== ============ ============ ============ ======== ============ ============ ============ ========
Discontinued
operations 0.3 0.1 - 6.0 0.5 0.3 - 15.8
============== ============ ============ ============ ======== ============ ============ ============ ========
Total 11.6 9.0 0.8 44.0 12.8 13.5 0.1 97.9
============== ============ ============ ============ ======== ============ ============ ============ ========
Note:
1. Other items are as described in Note 4.
Disaggregated revenue
The Group disaggregates revenue from contracts with customers by
sector (government and non-government) and by contract duration
(contracts with a duration from inception of less than two years,
and contracts with a duration from inception of more than two
years). The Group believes this best depicts how the nature, timing
and amount of revenue and cash flows are affected by economic
factors. The following table includes a reconciliation of
disaggregated revenue with the Group's reportable segments.
2019
========== ============== ==============================================
Contract duration for
Sector(1) timing of revenue recognition
========== ============== ========== ==================================
Less than More than
Government Non-government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========== ============== ========== =========== ========== =========
Engineering Services 368.3 537.4 905.7 122.4 783.3 905.7
Security 88.3 448.2 536.5 80.1 456.4 536.5
Professional Services 21.5 109.9 131.4 5.4 126.0 131.4
Cleaning & Environmental Services 109.2 295.2 404.4 - 404.4 404.4
Care & Custody 107.3 - 107.3 - 107.3 107.3
Catering 5.7 130.4 136.1 17.4 118.7 136.1
================================== ========== ============== ========== =========== ========== =========
Continuing operations 700.3 1,521.1 2,221.4 225.3 1,996.1 2,221.4
================================== ========== ============== ========== =========== ========== =========
Pest Control - 11.9 11.9 - 11.9 11.9
Social Housing 89.1 - 89.1 54.1 35.0 89.1
================================== ========== ============== ========== =========== ========== =========
Discontinued operations 89.1 11.9 101.0 54.1 46.9 101.0
================================== ========== ============== ========== =========== ========== =========
Total 789.4 1,533.0 2,322.4 279.4 2,043.0 2,322.4
================================== ========== ============== ========== =========== ========== =========
Note:
1. Sector is defined by the end customer on any contract e.g. if
the Group is a sub-contractor to a construction company for the
building of a public hospital, then the contract would be
classified as government.
2018
========== =========== ==============================================
Sector(1) Contract duration for
timing of revenue recognition
========== =========== ========== ==================================
Non- Less than More than
Government government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========== =========== ========== =========== ========== =========
Engineering Services 368.4 517.9 886.3 137.4 748.9 886.3
Security 83.9 348.1 432.0 55.7 376.3 432.0
Professional Services 13.8 117.4 131.2 8.9 122.3 131.2
Cleaning & Environmental Services 89.8 294.3 384.1 - 384.1 384.1
Care & Custody 59.9 - 59.9 - 59.9 59.9
Catering 4.6 132.5 137.1 1.6 135.5 137.1
================================== ========== =========== ========== =========== ========== =========
Continuing operations 620.4 1,410.2 2,030.6 203.6 1,827.0 2,030.6
================================== ========== =========== ========== =========== ========== =========
Pest Control - 22.3 22.3 - 22.3 22.3
Social Housing 150.8 - 150.8 91.6 59.2 150.8
================================== ========== =========== ========== =========== ========== =========
Discontinued operations 150.8 22.3 173.1 91.6 81.5 173.1
================================== ========== =========== ========== =========== ========== =========
Total 771.2 1,432.5 2,203.7 295.2 1,908.5 2,203.7
================================== ========== =========== ========== =========== ========== =========
Note:
1. Sector is defined by the end customer on any contract e.g. if
the Group is a sub-contractor to a construction company for the
building of a public hospital, then the contract would be
classified as government.
Transaction price allocated to the remaining performance
obligations
The table below shows the forward order book for each segment at
the reporting date with the time bands of when the Group expects to
recognise secured revenue on its contracts with customers. Secured
revenue corresponds to fixed work contracted with customers and
excludes the impact of any anticipated contract extensions, and new
contracts with customers.
2019 2018
============================== ==============================
Total Total
Less than More than secured Less than More than secured
1 year 1 year revenue 1 year 1 year revenue
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========= ========= ======== ========= ========= ========
Engineering Services 360.4 1,442.3 1,802.7 390.7 1,648.5 2,039.2
Security 478.3 493.2 971.5 300.1 340.7 640.8
Professional Services 29.7 57.2 86.9 45.8 99.1 144.9
Cleaning & Environmental Services 275.5 387.6 663.1 276.0 380.3 656.3
Care & Custody 100.8 495.8 596.6 100.8 569.3 670.1
Catering 7.2 19.3 26.5 8.2 26.5 34.7
================================== ========= ========= ======== ========= ========= ========
Continuing operations 1,251.9 2,895.4 4,147.3 1,121.6 3,064.4 4,186.0
================================== ========= ========= ======== ========= ========= ========
Pest Control - - - 3.0 2.0 5.0
Social Housing - - - 76.3 228.0 304.3
================================== ========= ========= ======== ========= ========= ========
Discontinued operations - - - 79.3 230.0 309.3
================================== ========= ========= ======== ========= ========= ========
Total 1,251.9 2,895.4 4,147.3 1,200.9 3,294.4 4,495.3
================================== ========= ========= ======== ========= ========= ========
4. 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.
The Group separately reports the impairment of goodwill, the
cost of restructuring programmes, acquisition and disposal costs
including the write-off and amortisation of acquisition related
intangible assets, the results of and costs associated with
disposals, and other exceptional items and their related tax effect
as Other Items:
2019
============ =========== ============================================================
Acquisition
& disposal Other
Impairment Restructure related Gain Gain/(loss) exceptional
of goodwill costs costs on bargain on disposal items Total
Continuing operations GBPm GBPm GBPm purchase GBPm GBPm GBPm
======================== ============ =========== =========== =========== ============ ============ ======
Administrative expenses - (15.1) (8.7) 8.8 - (23.0) (38.0)
======================== ============ =========== =========== =========== ============ ============ ======
Other items before tax - (15.1) (8.7) 8.8 - (23.0) (38.0)
Tax - 2.8 0.6 - - 4.0 7.4
======================== ============ =========== =========== =========== ============ ============ ======
Other items after tax - (12.3) (8.1) 8.8 - (19.0) (30.6)
======================== ============ =========== =========== =========== ============ ============ ======
Discontinued operations
======================== ============ =========== =========== =========== ============ ============ ======
Other items before tax - (0.8) - - 17.9 (23.1) (6.0)
Tax - 0.2 - - (0.9) 4.5 3.8
======================== ============ =========== =========== =========== ============ ============ ======
Other items after tax - (0.6) - - 17.0 (18.6) (2.2)
======================== ============ =========== =========== =========== ============ ============ ======
Total - (12.9) (8.1) 8.8 17.0 (37.6) (32.8)
======================== ============ =========== =========== =========== ============ ============ ======
2018
============ =========================================================
Acquisition
& disposal Other
Impairment Restructure related Gain on exceptional
of goodwill costs costs disposal items Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
======================== ============ =========== =========== ========= ============ ======
Administrative expenses (22.7) (47.0) (8.4) - (4.0) (82.1)
======================== ============ =========== =========== ========= ============ ======
Other items before tax (22.7) (47.0) (8.4) -- (4.0) (82.1)
Tax - 8.7 0.4 - 0.9 10.0
======================== ============ =========== =========== ========= ============ ======
Other items after tax (22.7) (38.3) (8.0) - (3.1) (72.1)
======================== ============ =========== =========== ========= ============ ======
Discontinued operations
======================== ============ =========== =========== ========= ============ ======
Other items before tax (11.9) (0.3) - - (3.6) (15.8)
Tax - 0.1 - - 0.6 0.7
======================== ============ =========== =========== ========= ============ ======
Other items after tax (11.9) (0.2) - - (3.0) (15.1)
======================== ============ =========== =========== ========= ============ ======
Total (34.6) (38.5) (8.0) - (6.1) (87.2)
======================== ============ =========== =========== ========= ============ ======
Impairment of goodwill
No charges In respect of the impairment of goodwill have been
made In the year ended 31 March 2019.
During the year ended 31 March 2018, the Directors assessed the
recoverability of the goodwill allocated to the former Property
Management CGU and recorded an impairment charge of GBP34.6m.
Following the disposal of the Social Housing business, the
remaining goodwill of the roofing and painting activities
previously reported in Property Management, has been integrated
into the Engineering Services CGU. See Note 9.
Restructure costs
The restructure costs relate to costs of organisational change
associated with the Group's Project Helix transformation programme
including the transition costs associated with the outsourcing of
certain back-office transactional processes.
These costs are analysed below:
2019 2018
=========== ============ ======== =========== ============ =========
Continuing Discontinued Continuing Discontinued
operations operations Total(1) operations operations Total(1)
GBPm GBPm GBPm GBPm GBPm GBPm
=================================== =========== ============ ======== =========== ============ =========
Redundancy payments(2) (4.2) (0.5) (4.7) (4.5) (0.3) (4.8)
Cost of change team(3) (0.7) - (0.7) (0.7) - (0.7)
Expenditure and provisions
in respect of property closure(4) (0.2) - (0.2) (4.8) - (4.8)
Expenditure in respect of
Project Helix transformation
activities(5) (10.0) - (10.0) (26.6) - (26.6)
Expenditure in respect of
other transformation projects - (0.3) (0.3) - - -
Impairment of intangible assets(6) - - - (10.4) - (10.4)
=================================== =========== ============ ======== =========== ============ =========
Restructuring costs (15.1) (0.8) (15.9) (47.0) (0.3) (47.3)
Taxation 2.8 0.2 3.0 8.7 0.1 8.8
=================================== =========== ============ ======== =========== ============ =========
Restructuring costs net of
taxation (12.3) (0.6) (12.9) (38.3) (0.2) (38.5)
=================================== =========== ============ ======== =========== ============ =========
Notes:
1. Includes GBP13.5m (2018: GBP34.8m) in respect of the Project
Helix transformation activities.
2. Costs in respect of roles made redundant as a result of the
Project Helix transformation and other projects to restructure the
Group's activities.
3. Incremental costs of teams involved in the management of
Project Helix transformation activities.
4. Costs in respect of property dilapidations, lease
termination, and asset impairments crystalised following decisions
to vacate certain of the Group's properties as part of the overall
Project Helix transformation.
5. Expenditure in respect of Project Helix transformation
projects includes GBP0.3m (2018: GBP0.6m) of recruitment costs in
respect of achieving the new target operating model, GBP1.6m (2018:
GBP8.2m) related to dual running and knowledge transfer costs as
part of the transfer of the transactional back-office activities to
a third-party provider, GBP6.3m (2018: GBP4.8m) of transformation
project delivery costs, GBP1.8m in respect of Genpact mobilisation
(2018: GBPnil) and GBPnil (2018: GBP13.0m) of professional fees in
respect of advice and consultancy activities associated with the
design and execution of the Project Helix transformation
activities.
6. Impairment of intangible assets relates to systems and
processes which are redundant due to the changes to the Group's
strategy including the outsourcing of certain back-office
transactional processes. See Note 10.
Gain/(loss) on disposal
During the year ended 31 March 2019, the Group completed the
sale of the Pest Control and Social Housing businesses. See Note 5
for further details.
Acquisition and disposal related costs
Acquisition and disposal related costs from continuing
operations include the impairment and amortisation charge for
acquisition related intangibles GBP1.5m (2018: GBP2.6m), the charge
for restricted shares issued of GBP3.9m (2018: GBP3.4m), costs of
GBP2.6m (2018: GBPnil) related to the VSG acquisition, costs of
GBP0.4m (2018: GBPnil) related to the settlement of claims
associated with previous acquisitions, costs of GBP0.3m (2018:
GBP2.2m) relating to the aborted disposal of the former Property
Management division, and GBPnil (2018: GBP0.2m) related to the
disposal of the Healthcare division.
Gain on bargain purchase
A credit of GBP8.8m (2018: GBPnil) representing a gain on
bargain purchase in respect of the acquisition of Vision Security
Group Limited (VSG) has been recognised from continuing operations.
See Note 20.
Other exceptional items
Other exceptional items are analysed below:
2019 2018
=========== ============ ====== =========== ============ =====
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm
======================================== =========== ============ ====== =========== ============ =====
Regulatory investigation(1) (1.1) - (1.1) (2.3) - (2.3)
IFRS 9/15/16 adoption project(2) (0.7) - (0.7) (0.8) - (0.8)
Costs incurred and provision
for settlement of contractual
disputes(3) - (20.5) (20.5) - (3.3) (3.3)
Provision for indemnified
costs(4) - (2.6) (2.6) - - -
Contract termination receipt(5) - - - 2.0 - 2.0
Pension scheme past service
costs (including curtailments)(6) - - - (1.9) - (1.9)
Cost of equalising Guaranteed
Minimum Pensions(7) (1.6) - (1.6) - - -
Pension scheme Section 75
debt(8) (20.0) - (20.0) - - -
Gain on closure of Mitie Reinsurance(9) 0.4 - 0.4 - - -
Property dilapidations(10) - - - (1.0) (0.3) (1.3)
======================================== =========== ============ ====== =========== ============ =====
Other exceptional items (23.0) (23.1) (46.1) (4.0) (3.6) (7.6)
Taxation 4.0 4.5 8.5 0.9 0.6 1.5
======================================== =========== ============ ====== =========== ============ =====
Other exceptional items net
of taxation (19.0) (18.6) (37.6) (3.1) (3.0) (6.1)
======================================== =========== ============ ====== =========== ============ =====
Notes:
1. Legal and professional costs of GBP1.1m (2018: GBP2.3m) have
been incurred in respect of the closed FRC investigation into the
Company's treatment of healthcare goodwill and accrued income in
the Company's audited accounts for the year ended 31 March 2016,
the closed FCA investigation in connection with the timeliness of a
profit warning announced by the Company on 19 September 2016, the
manner of preparation and content of the Company's financial
information, position and results for the period ended 31 March
2016, and regarding the Company's own investigation into the same
matters, facts and circumstances which were subject to FCA and FRC
investigation.
2. Professional fees and interim staff costs of GBP0.7m (2018:
GBP0.8m) have been incurred in respect of the projects to adopt
IFRS 9 'Financial Instruments', IFRS 15 'Revenue from contracts
with customers', and IFRS 16 'Leases',
3. The GBP20.5m charge for the year ended 31 March 2019 (2018:
GBP3.3m) relates to the Social Housing business and includes
GBP3.4m in respect of the settlement of a contract dispute,
GBP16.1m for the estimated costs of rectification works and legal
advice associated with certain of the Group's property maintenance
contracts, of which GBP12.1m is included in provisions at 31 March
2019, and GBP1.0m for other contractual disputes. This amount is
disclosed separately due to the size of the potential cost and the
fact that they arise from closed contracts.
4. The GBP2.6m charge for the year ended 31 March 2019
represents the estimated costs arising from certain indemnities
provided in relation to the disposal of the Social Housing
business. This amount is included in provisions at 31 March
2019.
5. The loss of two major contracts in the year ended 31 March
2018 resulted in a one-off termination receipt amounting to
GBP2.0m. These amounts are disclosed separately due to the size of
the payments received and the fact that the loss of contracts of
this size is an unusual event for the Group.
6. As a result of the closure of the Mitie Group Plc Pension
Scheme to future accrual from October 2017, a past service cost
(including curtailments) of GBP1.9m was incurred in the year ended
31 March 2018. See Note 21 for further details.
7. Following judgment Issued by the High Court on 26 October
2018 in the case involving Lloyds Banking Group relating to the
equalisation of Guaranteed Minimum Pensions (GMP) the Group has
recognised additional retirement benefit liabilities for the
estimated financial impact of this ruling on the Group scheme. The
effect of GMP equalisation has been recognised in the income
statement as a plan amendment; the charge has been includeed within
other items due to the size and non-recurring nature of the amount.
See Note 21 for further details.
8. Estimated Section 75 debt in relation to the participation of
Robert Prettie & Co Limited in the Plumbing & Mechanical
Services (UK) Industry Pension Scheme. See Note 21 for further
details.
9. During the year ended 31 March 2019 the Group liquidated its
captive insurance company Mitie Reinsurance Company Limited
resulting in a net income of GBP0.4m after settling all outstanding
liabilities.
10. As part of the rationalisation of the Group's property
portfolio a review of the potential liabilities for leasehold
property dilapidation costs was carried out and resulted in a
one-off GBP1.3m charge in the year ended 31 March 2018.
5. Discontinued operations and disposal of subsidiaries
On 30 September 2018, the Group completed the sale of Mitie Pest
Control Limited (Pest Control) for cash consideration of GBP40.0m
before tax and transaction costs. The results of the Pest Control
business have been classified as discontinued operations and
comparative information has been restated. The Group recognised a
net gain on disposal of GBP26.7m, reported in profit from
discontinued operations and recognised in Other Items (see Note
4).
On 19 November 2018, the Company signed an agreement for the
sale of Mitie Property Management Limited and MPS Housing Limited
(together the Social Housing business) and this transaction was
subsequently completed on 30 November 2018. The results of the
Social Housing business have been classified as discontinued
operations and comparative information has been restated. The Group
has retained liability, and made provisions where appropriate, for
certain legacy contracts of the Social Housing business so these
are not included within liabilities held for sale. The Group
recognised a net loss on disposal of GBP11.7m, reported in profit
from discontinued operations and recognised in other items (see
Note 4).
The Group has determined that the Healthcare Indemnity provision
should be partly released by GBP2.0m. This has been recorded as a
gain on disposal.
The results of these discontinued operations are detailed
below.
There were no disposals in the financial year ended 31 March
2018.
Income statement of discontinued operations
2019
================== ======
Pest Social Total
Control Housing GBPm
GBPm GBPm
================================================= ======== ======== ======
Revenue 11.9 89.1 101.0
Cost of sales (6.7) (72.9) (79.6)
================================================= ======== ======== ======
Gross profit 5.2 16.2 21.4
Administrative expenses (2.8) (15.1) (17.9)
Share of profit of joint ventures and associates - 0.5 0.5
================================================= ======== ======== ======
Operating profit before other items(1) 2.4 1.6 4.0
Other items(3) - (23.9) (23.9)
Net finance income 0.1 - 0.1
================================================= ======== ======== ======
Profit/(loss) before tax 2.5 (22.3) (19.8)
================================================= ======== ======== ======
Tax (0.3) 4.0 3.7
================================================= ======== ======== ======
Profit/(loss) from discontinued operations 2.2 (18.3) (16.1)
================================================= ======== ======== ======
2018
======== =================
Pest Social Total
Control Housing GBPm
GBPm GBPm
================================================= ======== ======== =======
Revenue 22.3 150.8 173.1
Cost of sales (16.2) (115.8) (132.0)
================================================= ======== ======== =======
Gross profit 6.1 35.0 41.1
Administrative expenses (3.5) (32.0) (35.5)
Share of profit of joint ventures and associates - 0.8 0.8
================================================= ======== ======== =======
Operating profit before other items(2) 2.6 3.8 6.4
Other items(3) (0.1) (15.7) (15.8)
Net finance income 0.1 - 0.1
================================================= ======== ======== =======
Profit/(loss) before tax 2.6 (11.9) (9.3)
================================================= ======== ======== =======
Tax (0.5) 0.3 (0.2)
================================================= ======== ======== =======
Profit/(loss) from discontinued operations 2.1 (11.6) (9.5)
================================================= ======== ======== =======
Note:
1. The GBP1.6m operating profit before other items in Social
Housing for the year ended 31 March 2019 includes a GBP1.4m loss in
respect of a contract which has been terminated and GBP2.6m of
recharges in respect of Group central services.
2. The GBP3.8m operating profit before other items in Social
Housing for the year ended 31 March 2018 includes an increased debt
provision of GBP1.2m in addition to GBP2.3m of recharges in respect
of Group central services.
3. Other items are as described in Note 4.
Gain/(loss) on disposal of discontinued operations
2019 2018
========== =============== -------------- ====== =============
Healthcare Pest Control(1) Social Housing Total Healthcare(2)
GBPm GBPm GBPm GBPm GBPm
========================================== ========== =============== ============== ====== =============
Total consideration - 38.4 22.5 60.9 (0.2)
Net assets disposed - (8.6) (31.1) (39.7) -
Release of indemnity provision 2.0 - - 2.0 -
Transaction costs - (2.2) (3.1) (5.3) -
------------------------------------------ ---------- --------------- -------------- ------ -------------
Total gain/(loss) on disposal before
tax 2.0 27.6 (11.7) 17.9 (0.2)
Taxation - (0.9) - (0.9) -
========================================== ========== =============== ============== ====== =============
Net gain/(loss) on disposal of
discontinued
operations 2.0 26.7 (11.7) 17.0 (0.2)
========================================== ========== =============== ============== ====== -------------
Notes:
1. Total consideration of GBP39.2m has been received in cash,
but GBP0.8m is expected to be returned through agreement of the
completion accounts with the purchaser of the business.
2. Deferred contribution of GBP0.2m in the year to 31 March 2018
was payable to to the purchaser.
3. Includes goodwill of GBP3.3m relating to Pest Control and
GBP12.5m relating to Social Housing and cash balances of
GBP3.6m.
Profit for the year from discontinued operations
2019 2018
GBPm GBPm
======================================================== ====== =====
Loss for the year from discontinued operations (16.1) (9.5)
Gain on disposal of discontinued operations 17.0 -
======================================================== ====== =====
Profit/(loss) for the year from discontinued operations 0.9 (9.5)
======================================================== ====== =====
Total comprehensive income/(expense) for the year from
discontinued operations
2019 2018
GBPm GBPm
================================ ===== =====
Equity holders income/(expense) 0.9 (9.5)
================================ ===== =====
Cash flows from discontinued operations
2019 2018
GBPm GBPm
================================================= ===== =====
Net cash used in operating activities (9.4) (9.0)
Net cash generated from investing activities 52.6 0.2
Net cash generated from financing activities - 1.3
================================================= ===== =====
Increase/(decrease) in cash and cash equivalents 43.2 (7.5)
================================================= ===== =====
Earnings/(loss) per share from discontinued operations
2019 2018
p p
================================================= ==== =====
Basic earnings before other items per share(1) 0.9 1.6
Basic earnings/(loss) per share 0.2 (2.7)
Diluted earnings before other items per share(1) 0.9 1.6
Diluted earnings/(loss) per share 0.2 (2.7)
================================================= ==== =====
Note:
1. Other items are as described in Note 4.
Joint ventures and associates of discontinued operations
The Social Housing disposal group included a 30% interest in an
associate, Pyramid Plus South LLP, a limited liability partnership
registered in the United Kingdom. The Group's interest in the
associate was accounted for in the consolidated financial
statements using the equity method.
The summarised financial information set out below for the year
ended 31 March 2019 has been taken from unaudited management
accounts of the associate.
2019 2018
GBPm GBPm
===================================================== ===== =====
Revenue 9.3 12.2
Operating profit 1.8 2.6
===================================================== ===== =======
Group's share of profit of associate in discontinued
operations 0.5 0.8
===================================================== ===== =======
2019 2018
GBPm GBPm
======================================= ===== =====
Current assets - 3.8
Current liabilities - (1.2)
======================================= ===== =====
Net assets - 2.6
======================================= ===== =====
Group's share of interest in associate - 0.8
======================================= ===== =====
During the 2019 financial year the Group received dividends from
Pyramid Plus South LLP of GBPnil (2018: GBP0.6m).
6. Tax
Continuing and discontinued operations 2019 2018(1)
GBPm GBPm
--------------------------------------- ----- -------
Current tax(1) 3.4 (5.6)
Deferred tax (Note 16) 0.2 6.9
--------------------------------------- ----- -------
Tax charge for the year 3.6 1.3
--------------------------------------- ----- -------
Continuing operations 6.4 1.1
Discontinued operations (2.8) 0.2
======================================= ===== =======
Tax charge for the year 3.6 1.3
======================================= ===== =======
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated. The Group recognised a current tax asset of
GBP0.4m on transition to IFRS 9.
Corporation tax is calculated at 19% (2018: 19%) of the
estimated taxable profit for the year. A reconciliation of the tax
charge to the elements of profit before tax per the consolidated
income statement elements is as follows:
2019 2018(1)
======================== =========================
Before Before
other Other other Other
Continuing and discontinued items items(2) Total items items(2) Total
operations GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ====== ========= ===== ====== ========= ======
Profit/(loss) before tax 78.5 (44.0) 34.5 73.2 (97.9) (24.7)
=============================== ====== ========= ===== ====== ========= ======
Tax at UK rate of 19% (2018:
19%) 14.9 (8.4) 6.5 13.9 (18.6) (4.7)
Reconciling tax charges for:
Non-tax deductible charges 0.9 - 0.9 0.5 1.1 1.6
Share-based payments 0.3 0.7 1.0 (0.1) - (0.1)
Gain on disposal of businesses - (4.0) (4.0) - - -
Impairment of goodwill - - - - 6.6 6.6
Overseas tax rates (0.2) - (0.2) (0.3) - (0.3)
Impact of change in statutory
tax rates (0.4) 0.5 0.1 0.1 0.2 0.3
Prior year adjustments (0.7) - (0.7) (2.1) - (2.1)
=============================== ====== ========= ===== ====== ========= ======
Tax charge/(credit) for the
year 14.8 (11.2) 3.6 12.0 (10.7) 1.3
=============================== ====== ========= ===== ====== ========= ======
Effective tax rate for the
year 18.9% 25.5% 10.4% 16.4% 10.9% (5.3)%
=============================== ====== ========= ===== ====== ========= ======
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Other items are as described in Note 4.
In addition to the amounts charged to the consolidated income
statement, tax relating to retirement benefit costs amounting to a
GBP2.4m credit (2018: GBP3.4m charge) has been taken directly to
the statement of comprehensive income together with a GBP0.3m
charge relating to share-based payments and hedged items (2018:
GBP0.1m credit).
The UK corporation tax rate will reduce from 19% 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
2019 reflect this change. 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.
7. Dividends
2019 2018
GBPm GBPm
========================================================= ===== ======
Amounts recognised as distributions in the year:
Second interim dividend for the year ended 31 March 2018
of 2.67p (2017 final dividend: nil) per share(1) 9.6 -
Interim dividend for the year ended 31 March 2019 of
1.33p (2018: 1.33p) per share 4.8 4.8
========================================================= ===== ======
Amounts paid in 2019 and 2018 14.4 4.8
========================================================= ===== ======
Proposed final dividend for the year ended 31 March 2019
of 2.67p (2018: 2.67p) per share 9.6 9.6
========================================================= ===== ======
Note:
1. On 7 June 2018, the Company announced its Final Results for
the year ended 31 March 2018. The announcement included a
recommendation by the Board of a final dividend of 2.67p per share
payable on 6 August 2018. On 28 June 2018 the Company circulated
its Notice of 2018 Annual General Meeting (the Notice). The Notice
omitted a resolution seeking shareholder approval of the final
dividend. In order for the dividend to be paid to shareholders on 6
August 2018 in accordance with the previously published timetable,
on 31 July 2018 the Board declared a second interim dividend of
2.67p per share in place of the proposed final dividend.
8. Earnings per share
Basic and diluted earnings per share have been calculated in
accordance with IAS 33 'Earnings per share'.
The calculation of the basic and diluted EPS is based on the
following data:
2019 2018(1)
From continuing operations GBPm GBPm
======================================================== ====== =======
Net profit before other items attributable to equity
holders of the parent 60.6 54.5
Other items net of tax(2) (30.6) (72.1)
======================================================== ====== =======
Net profit/(loss) attributable to equity holders of the
parent 30.0 (17.6)
======================================================== ====== =======
2019 2018(1)
From continuing and discontinued operations GBPm GBPm
======================================================== ====== =======
Net profit before other items attributable to equity
holders of the parent 63.7 60.1
Other items net of tax(2) (32.8) (87.2)
======================================================== ====== =======
Net profit/(loss) attributable to equity holders of the
parent 30.9 (27.1)
======================================================== ====== =======
2019 2018
Number of shares million million
============================================================ ======== ========
Weighted average number of ordinary shares for the purpose
of basic EPS 360.8 357.9
Effect of dilutive potential ordinary shares: share options 2.2 1.9
============================================================ ======== ========
Weighted average number of ordinary shares for the purpose
of diluted EPS 363.0 359.8
============================================================ ======== ========
2019 2018(1)
p p
================================================= ==== =======
From continuing operations:
Basic earnings before other items per share(2) 16.8 15.2
Basic earnings/(loss) per share 8.3 (4.9)
Diluted earnings before other items per share(2) 16.7 15.1
Diluted earnings/(loss) per share 8.3 (4.9)
From continuing and discontinued operations:
Basic earnings before other items per share(2) 17.7 16.8
Basic earnings/(loss) per share 8.6 (7.6)
Diluted earnings before other items per share(2) 17.5 16.7
Diluted earnings/(loss) per share 8.5 (7.6)
================================================= ==== =======
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Other items are as described in Note 4.
The weighted average number of ordinary shares in issue during
the year excludes those accounted for in the own shares
reserve.
The dilutive potential ordinary shares relate to instruments
that could potentially dilute basic earnings per share in the
future, such as share options. The loss for the year ended 31 March
2018 means that the identified potentially dilutive shares are
anti-dilutive for the purposes of calculating diluted earnings per
share.
9. Goodwill
GBPm
================================ ======
Cost
At 1 April 2017 358.9
Impact of foreign exchange 0.3
================================ ======
At 31 March 2018 359.2
================================ ======
Disposal of subsidiaries (32.9)
At 31 March 2019 326.3
================================ ======
Accumulated impairment losses
At 1 April 2017 15.0
Impairment of property goodwill 34.6
================================ ======
At 31 March 2018 49.6
================================ ======
Disposal of subsidiaries (17.1)
================================ ======
At 31 March 2019 32.5
================================ ======
Carrying amount
At 31 March 2019 293.8
================================ ======
At 31 March 2018 309.6
================================ ======
At 1 April 2017 343.9
================================ ======
Acquisition of Vision Security Group
On 26 October 2018 the Group acquired Vision Security Group
Limited (VSG). There is no goodwill recognised on acquisition as
the consideration paid was less than VSG's net assets at the
acquisition date, giving rise to a gain on bargain purchase, see
Note 20.
Disposal of Social Housing
On 19 November 2018, the Company signed an agreement for the
sale of Mitie Property Management Limited and MPS Housing Limited
(together, the Social Housing business). This transaction completed
on 30 November 2018 and the associated carrying amount of goodwill
of GBP12.5m has been included in net assets disposed. See Note
5.
Disposal of Pest Control
On 30 September 2018, the Group completed the sale of Mitie Pest
Control Limited (Pest Control) and the associated goodwill of
GBP3.3m has been included in net assets disposed. See Note 5.
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.
Goodwill has been allocated to CGUs, which align with the
business segments, as this is how goodwill is monitored by the
Group internally. The GBP23.1m net carrying value of goodwill
associated with the roofing and painting activities which
previously formed part of Property Management has been transferred
into the Engineering Services CGU.
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 the discount rates used
to assess the forecast cash flows from each CGU are as follows:
Pre-tax Post-tax Goodwill Goodwill
discount discount 2019 2018
rate rate GBPm GBPm
% %
================================== ========== ========= ========= ========
Engineering Services(1) 10.1 9.3 130.9 130.9
Security 10.1 9.3 101.7 101.7
Professional Services 13.3 10.3 15.7 15.7
Cleaning & Environmental Services 11.9 9.3 29.8 33.1
Catering 12.1 9.8 15.7 15.7
Social Housing - 12.5
Total 293.8 309.6
================================== ========== ========= ========= ========
Note:
1. The information presented for the year ended 31 March 2018
has been restated to reflect the integration into Engineering
Services of the roofing and painting activities previously reported
in Property Management.
Key assumptions
The recoverable amounts for each CGU are determined by the value
in use which is derived from discounted cash flow 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 forecast 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 long-term growth rates are based on
forecast inflation. Changes in revenue and direct costs are based
on past performance and expectations of future changes in the
market, operating model, and cost base.
Growth rates and terminal values
For all CGUs the Group prepares cash flow forecasts derived from
the most recent budgets for the year ending 31 March 2020 and the
Group medium term plan to 31 March 2024 which have been approved by
the Board and a terminal value using a long-term growth assumption
of 1.5%.
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 8.8% at 31 March 2019 (2018:
7.7%), 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 Group's CGUs.
10. Other intangible assets
Acquisition related
=====================
Total Software
Customer acquisition and development
relationships Other related expenditure Total
GBPm GBPm GBPm GBPm GBPm
======================================= ============== ===== ============ ================ ======
Cost
At 1 April 2017 88.4 10.9 99.3 97.3 196.6
Additions - - - 9.0 9.0
======================================= ============== ===== ============ ================ ======
At 31 March 2018 88.4 10.9 99.3 106.3 205.6
Additions - - - 11.2 11.2
Acquisition of subsidiaries 14.9 - 14.9 - 14.9
Disposals - - - (31.3) (31.3)
Disposal of subsidiaries - - - (6.0) (6.0)
======================================= ============== ===== ============ ================ ======
At 31 March 2019 103.3 10.9 114.2 80.2 194.4
======================================= ============== ===== ============ ================ ======
Amortisation
At 1 April 2017 83.4 9.6 93.0 50.4 143.4
Charge for the year 2.2 0.4 2.6 10.9 13.5
Impairment of software and development
expenditure - - - 10.4 10.4
======================================= ============== ===== ============ ================ ======
At 31 March 2018 85.6 10.0 95.6 71.7 167.3
Charge for the year 1.2 0.3 1.5 7.5 9.0
Impairment of software and development
expenditure - - - 1.1 1.1
Disposals - - - (31.3) (31.3)
Disposal of subsidiaries - - - (2.4) (2.4)
======================================= ============== ===== ============ ================ ======
At 31 March 2019 86.8 10.3 97.1 46.6 143.7
======================================= ============== ===== ============ ================ ======
Carrying amount
At 31 March 2019 16.5 0.6 17.1 33.6 50.7
======================================= ============== ===== ============ ================ ======
At 31 March 2018 2.8 0.9 3.7 34.6 38.3
======================================= ============== ===== ============ ================ ======
At 1 April 2017 5.0 1.3 6.3 46.9 53.2
======================================= ============== ===== ============ ================ ======
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 ended 31 March 2018, the Group impaired GBP10.4m
of software and development expenditure related to intangible
assets with the impairment recognised within restructuring costs in
other items (see Note 4).
11. Trade and other receivables
2019 2018(1)
GBPm GBPm
------------------------------- ----- -------
Trade receivables 233.6 205.0
Accrued income 132.6 131.4
Prepayments 27.1 21.3
Other receivables(2) 41.9 28.3
=============================== ===== =======
Total 435.2 386.0
=============================== ===== =======
Included in current assets 435.2 386.0
Included in non-current assets - -
=============================== ===== =======
Total 435.2 386.0
=============================== ===== =======
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
2. Within other receivables for the year ended 31 March 2019 is
GBP4.5m relating to the acquisition of VSG (see Note 20). This
balance represents amounts expected to be recovered following
finalisation of the consideration to be paid, and is subject to
agreement of the completion accounts with the seller of the
business.
The Group makes use of a non-recourse customer invoice
discounting facility under which certain trade receivable balances
are sold to the Group's relationship banks. As these trade
receivables are sold without recourse, the Group has derecognised
them, and so they are not included within trade receivables. The
Group has reduced the amount of invoice discounting from GBP76.3m
as at 31 March 2018 to GBP73.2m as at 31 March 2019.
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
Information about the Group's exposure to credit risk and its
loss allowance against the balance of trade receivables and accrued
income, is provided in Note 18.
12. Contract assets
Contract
Pre-contract fulfilment
costs costs Total
GBPm GBPm GBPm
------------------------------- ------------ ------------ ------
At 1 April 2017 - - -
Additions - 2.3 2.3
Amortised in the period - (0.1) (0.1)
=============================== ============ ============ ======
At 31 March 2018 - 2.2 2.2
Additions 2.2 2.5 4.7
Amortised in the period - (0.8) (0.8)
=============================== ============ ============ ======
At 31 March 2019 2.2 3.9 6.1
=============================== ============ ============ ======
Included in current assets 0.7 0.9 1.6
Included in non-current assets 1.5 3.0 4.5
=============================== ============ ============ ======
Total 2.2 3.9 6.1
=============================== ============ ============ ======
Contract assets are amortised on a straight-line basis over the
contract life which is consistent with the transfer of services to
the customer to which the asset relates. Management has determined
that no impairment of contract assets is required as at 31 March
2019.
13. Trade and other payables
2019 2018
GBPm GBPm
------------------------------------ ----- -----
Payments received on account 0.6 0.2
Trade creditors 160.3 191.3
Other taxes and social security 97.1 79.9
Other creditors 45.0 29.2
Accruals 230.9 196.2
==================================== ===== =====
Total 533.9 496.8
==================================== ===== =====
Included in current liabilities 533.9 496.8
Included in non-current liabilities - -
==================================== ===== =====
Total 533.9 496.8
==================================== ===== =====
Trade creditors at 31 March 2019 represents 50 days credit on
trade purchases (2018 restated: 58 days).
Included within the Group's trade creditors balance is GBP20.0m
(2018: GBP45.1m) relating to payments due to UK suppliers which
make use of bank provided supply chain finance arrangements. During
the year ended 31 March 2019 these arrangements were used by c.200
suppliers, with a maximum facility available of GBP50.0m. The Group
settles these amounts in accordance with each supplier's agreed
payment terms.
The Directors consider that the carrying amount of trade and
other payables approximates their fair value.
14. Deferred income from contracts with customers
The significant changes in deferred income are as follows:
2019 2018
GBPm GBPm
============================================================ ====== ======
At 1 April 65.0 30.1
Revenue recognised that was included in the deferred
income balance at the beginning of the year (44.9) (15.9)
Increase due to cash received, excluding amounts recognised
as revenue during the year 50.0 50.8
Acquisition of subsidiaries 4.9 -
Disposal of subsidiaries (1.7) -
============================================================ ====== ======
At 31 March 73.3 65.0
============================================================ ====== ======
2019 2018
GBPm GBPm
======================================== ===== =====
Included within current liabilities 54.9 46.2
Included within non-current liabilities 18.4 18.8
======================================== ===== =====
Total 73.3 65.0
======================================== ===== =====
Deferred income relating to customer contracts mobilising in the
year amounted to GBP5.8m (2018: GBP2.6m). For any amounts which do
not relate to specific contractual performance obligations, the
income is deferred to the balance sheet and amortised over the
period to which the contracted services are delivered to the
customer.
15. Provisions
Deferred Contract Pension
Legal Disposal contingent Insurance specific GBPm
costs indemnities Restructuring consideration reserve costs Dilapidations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
At 1 April 2017 2.0 6.0 - 0.3 12.5 5.8 - - 26.6
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
Amounts
recognised
in the balance
sheet - - - - - - - 3.4 3.4
Amounts
recognised
in the income
statement 3.2 - 1.2 - 4.0 (1.3) - - 7.1
Utilised within
captive
insurance
subsidiary - - - - (0.1) - - - (0.1)
Unwinding of
discount - - - - - - - 0.2 0.2
Utilised in the
year (1.1) (1.1) - (0.3) (1.1) (2.1) - - (5.7)
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
At 31 March 2018 4.1 4.9 1.2 - 15.3 2.4 - 3.6 31.5
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
Amounts
recognised
in the income
statement 0.2 0.6 - - 2.5 11.5 20.0 - 34.8
Utilised within
captive
insurance
subsidiary - - - - (0.1) - - - (0.1)
Unwinding of
discount - - - - - - - 0.1 0.1
Utilised in the
year (4.0) (0.2) (1.2) - (3.3) (0.6) - (0.4) (9.7)
Reclassification - - - - 0.6 (0.6) - - -
At 31 March 2019 0.3 5.3 - - 15.0 12.7 20.0 3.3 56.6
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
Included in
current
liabilities 0.3 5.3 - - 9.0 12.7 20.0 3.3 50.6
Included in
non-current
liabilities - - - - 6.0 - - - 6.0
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
Total 0.3 5.3 - - 15.0 12.7 20.0 3.3 56.6
----------------- ----- ----------- ------------- ------------- --------- -------- -------- ------------- -----
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 Group. The utilisation of the provision represents the
settlement of a contractual claim related to a contract of the now
discontined Social Housing business.
The disposal indemnities provision relates to indemnities
provided following the disposal by the Group of the Healthcare and
Social Housing businesses from the Group. The amount recognised in
the income statement represents a GBP2.6m charge in respect of
Social Housing net of a GBP2.0m release in respect of
Healthcare.
The restructuring provision relates to costs of organisational
change associated with the Group's Project Helix transformation
programme including the transition costs associated with the
outsourcing of certain back-office transactional processes.
The insurance reserve provides for the self-insured element of
fleet and liability claims that will typically settle over three to
five years. This includes a provision for claims that are expected
but have not yet been reported.
The contract specific cost provisions relate to various
obligations arising in the ordinary course of providing services in
line with commercial contracts. The GBP11.5m charge for the year
ended 31 March 2019 includes the GBP12.1m estimated costs of
rectification works associated with certain property maintenance
contracts of the now discontinued Social Housing business, all of
which are included within other items. Refer to Note 4 for further
details.
The pension provision relates to the Section 75 employer debt
liabilities of Robert Prettie & Co Limited as a result of that
company's participation in the Plumbing Scheme. This liability is
expected to be settled during the year ended 31 March 2020. See
Notes 21 and 22.
The provision for dilapidations relates to the legal obligation
for leased properties to be returned to the landlord in the
contracted condition at the end of the lease period. This cost
would include repairs of any damage and wear and tear.
Contingent asset
The Directors are working to ensure that, through a combination
of insurance claims and recourse to suppliers a proportion of the
GBP16.1m costs incurred in respect of rectification works for the
Social Housing property maintenance contracts, including the
GBP12.1m recorded in provisions above, are recovered. The amount
and timing of any recoveries is yet to be determined.
16. Deferred tax
The following are the major deferred tax assets and liabilities
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 liabilities acquired options differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ====== ============= ============ ========== ======== ============ =====
At 1 April 2017 25.8 6.5 12.6 (1.1) 0.7 1.6 46.1
============================ ====== ============= ============ ========== ======== ============ =====
(Charge)/credit to
income (7.0) (0.3) 0.3 0.3 (0.1) (0.1) (6.9)
(Charge)/credit to
equity and the
statement of comprehensive
income - - (3.4) - 0.1 - (3.3)
============================ ====== ============= ============ ========== ======== ============ =====
At 31 March 2018 18.8 6.2 9.5 (0.8) 0.7 1.5 35.9
============================ ====== ============= ============ ========== ======== ============ =====
Acquisition of subsidiaries - 0.3 - (2.5) - 0.2 (2.0)
Disposal of subsidiaries - (0.3) - 0.5 - (0.2) -
(Charge)/credit to
income (1.5) (1.2) 2.3 (0.1) 0.4 (0.1) (0.2)
Credit/(charge) to
equity and the
statement of comprehensive
income - - 2.4 - (0.3) - 2.1
============================ ====== ============= ============ ========== ======== ============ =====
At 31 March 2019 17.3 5.0 14.2 (2.9) 0.8 1.4 35.8
============================ ====== ============= ============ ========== ======== ============ =====
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:
2019 2018
GBPm GBPm
========================= ===== =====
Deferred tax assets 38.7 36.7
Deferred tax liabilities (2.9) (0.8)
========================= ===== =====
Net deferred tax asset 35.8 35.9
========================= ===== =====
The Group has unutilised income tax losses of GBP102.3m (2018:
GBP112.8m) that are available for offset against future profits. In
addition, the Group has GBP0.8m (2018: GBP0.8m) of capital losses.
A deferred tax asset has been recognised in respect of GBP92.8m
(2018: GBP102.7m) of losses to the extent that it is probable that
taxable profits will be generated in the future and be available
for utilisation. Deferred tax has been calculated using the
corporation tax rate disclosed in Note 6.
17. Financing liabilities
2019 2018
GBPm GBPm
======================================== ===== ======
Bank loans - under committed facilities 52.1 54.3
Private placement notes 211.9 203.8
Obligations under finance leases 1.5 1.3
======================================== ===== ======
Total 265.5 259.4
======================================== ===== ======
Included in current liabilities 40.7 0.8
Included in non-current liabilities 224.8 258.6
======================================== ===== ======
Total 265.5 259.4
======================================== ===== ======
The GBP275.0m bank facility and the private placement notes are
unsecured but have financial and non-financial covenants and
obligations commonly associated with these arrangements. The final
maturity dates of all facilities remained unchanged. The Group was
in compliance with these covenants as at 31 March 2019 and hence
all amounts are classified in line with repayment dates.
Included in current financing liabilities are GBP0.7m (2018:
GBP0.8m) of obligations under finance leases.
With the exception of derivative financial instruments, all
financing liabilities are held at amortised cost. 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 18).
At 31 March 2019, the Group had available GBP221.9m (2018:
GBP219.3m) 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 the applicable LIBOR.
Details of the Group's contingent liabilities are provided in
Note 22.
The weighted average interest rates paid during the year on
overdrafts and loans outstanding were as follows:
2019 2018
% %
======================== ==== ====
Overdrafts 2.7 2.0
Bank loans 1.6 1.5
Private placement notes 4.1 3.9
======================== ==== ====
Private placement notes
Following the issue on 16 December 2010 of US$96.0m and GBP40.0m
of private placement (PP) notes in the United States Private
Placement market, the Group issued a further US$153.0m and GBP55.0m
of PP notes on 13 December 2012. 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. US$96.0m of these PP notes were settled in
December 2017 upon maturity, along with the associated swaps which
had been designated as fair value hedges. The amount, maturity and
interest terms of the remaining PP notes are shown below.
Tranche Maturity date Amount Interest terms Swap interest
======= ================ ======== ================== ==================
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 4.02%
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 4.00% n/a
======= ================ ======== ================== ==================
18. Financial 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 held and measured at
amortised cost.
The Group's principal financial liabilities are trade and other
payables and financing liabilities. All financial liabilities are
held and measured at amortised cost.
Derivative financial instruments 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.
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 department 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 to not 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, as appropriate,
enter into derivative financial instruments in order to manage
interest rate risk.
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. All financial liabilities,
other than financing liabilities, are interest free.
If underlying 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 2019 and reserves would
decrease/increase by GBP0.8m (2018: GBP0.7m).
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
foreign operations. The Group considers the need to hedge its
exposures as appropriate 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 private placement notes into sterling using cross-currency
interest rate swaps (see Hedging activities below).
At 31 March 2019 GBP9.2m (2018: GBP9.3m) of cash and cash
equivalents were held in foreign currencies. Included in bank loans
were GBP13.1m (2018: GBP15.7m) 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
loans under committed 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 17.
The tables below summarise the maturity profile (including both
undiscounted interest and principal cash flows) of the Group's
financial liabilities:
In the
second After
Within to fifth five
one year years years Total
Financial liabilities at 31 March 2019 GBPm GBPm GBPm GBPm
======================================= ========= ========= ====== =====
Trade creditors 160.1 - - 160.1
Other creditors 40.9 - - 40.9
Financing liabilities 102.0 162.6 30.9 295.5
======================================= ========= ========= ====== =====
Financial liabilities(1) 303.0 162.6 30.9 496.5
======================================= ========= ========= ====== =====
In the
second After
Within to fifth five
one year years years Total
Financial liabilities at 31 March 2018 GBPm GBPm GBPm GBPm
======================================= ========= ========= ====== =====
Trade creditors 191.3 - - 191.3
Other creditors 29.2 - - 29.2
Financing liabilities 65.6 198.9 31.5 296.0
======================================= ========= ========= ====== =====
Financial liabilities(1) 286.1 198.9 31.5 516.5
======================================= ========= ========= ====== =====
Note:
1. Financial liabilities maturity profile is exclusive of the
GBP16.4m (2018: GBP6.1m) derivative asset which would naturally
offset the settlement value of the maturing private placement notes
in financing liabilities.
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 external counterparties are
banks with high credit ratings assigned by international credit
rating agencies and are managed through regular review.
The Group's credit risk is primarily attributable to its
receivable balances from customers. 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.
The maximum exposure to credit risk in relation to trade
receivables and accrued income at the balance sheet date is the
fair value of trade receivables and accrued income. 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.
The amounts presented in the balance sheet in relation to the
Group's trade receivables and accrued income balances are presented
net of loss allowances. The Group measures loss allowances at an
amount equal to lifetime expected credit losses (ECLs) using both
quantitative and qualitative information and analysis based on the
Group's historical experience, and forward-looking information.
The following table provides information about the Group's
exposure to credit risk and ECLs against customer balances as at 31
March 2019 under IFRS 9:
2019
GBPm
================================
Gross Net
carrying Loss carrying
Trade receivables at 31 March 2019 amount allowance amount
=================================== ========= ========== =========
Current (not overdue) 210.3 (11.9) 198.4
1-30 days overdue 26.4 (1.9) 24.5
31-60 days overdue 6.5 (0.5) 6.0
61-90 days overdue 1.7 (0.3) 1.4
More than 90 days overdue 7.9 (4.6) 3.3
=================================== ========= ========== =========
Total 252.8 (19.2) 233.6
=================================== ========= ========== =========
Trade receivables at 31 March 2019 represents 29 days revenue
(2018 restated: 26 days).
The following table provides information about the ageing of
trade receivables as at 31 March 2018 under IAS 39:
2018(1)
GBPm
================================================ =======
Neither impaired nor past due 163.6
Not impaired and less than three months overdue 37.4
Not impaired and more than three months overdue 21.3
Provision for doubtful debts (17.3)
================================================ =======
Total 205.0
================================================ =======
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
The following table provides the movement in the allowance for
impairment in respect of trade receivables and accrued income:
2019 2018(1)
GBPm GBPm
===================== =====================
Trade Accrued Trade Accrued
receivables income receivables income
====================================== ============ ======= ============ =======
At 1 April 17.3 6.5 16.2 4.5
Impact of change in accounting policy 1.5 1.0 - -
Impairment losses/(gains) recognised 1.1 (1.6) 2.3 2.0
Amounts written off as uncollectable (1.5) - (1.2) -
Acquisition of subsidiaries 1.9 0.1 - -
Disposal of subsidiaries (1.1) (0.4) - -
====================================== ============ ======= ============ =======
At 31 March 19.2 5.6 17.3 6.5
====================================== ============ ======= ============ =======
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the
transition option available in the standard by disclosing the
impact as an adjustment to opening retained earnings at the date of
initial application. Under this option, the comparative information
is not restated.
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 19 and equity per the consolidated statement of changes in
equity.
The Group is not subject to externally imposed regulatory
capital requirements.
Hedging activities
Cash flow hedges
The Group holds a number of cross-currency interest rate swaps
designated as cash flow hedges on US$153.0m of PP notes. Biannual
fixed interest cash flows denominated in US dollars arising over
the periods to December 2022 from the US Private Placement market
are exchanged for fixed interest cash flows denominated in
sterling. All cash flow hedges were assessed as being highly
effective as at 31 March 2019.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2019 was a borrowing of
EUR9.5m (2018: EUR9.5m) which has been designated as a hedge of the
net investment in the Republic of Ireland business of Dalkia FM,
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
2019 2018
GBPm GBPm
=========================================================== ====== ======
Derivative financial instruments hedging private placement
notes(1) 16.4 6.1
=========================================================== ====== ======
Total 16.4 6.1
=========================================================== ====== ======
Included in current assets - -
Included in non-current assets 16.4 6.1
=========================================================== ====== ======
Total 16.4 6.1
=========================================================== ====== ======
Note:
1. Derivative financial instruments hedging private placement
notes comprise cross-currency interest rate swaps designated as
cash flow hedges.
Derivative financial instruments are measured at fair value.
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 Group's derivative financial
instruments fall into Level 2. There were no transfers between
levels during the year. Fair values of these instruments are
calculated based on a discounted cash flow analysis using
appropriate market information for the duration of the instruments.
All contracts are gross settled.
19. Analysis of net debt
2019 2018
GBPm GBPm
=========================================================== ======= =======
Cash and cash equivalents 108.4 59.8
Bank loans (Note 17) (52.1) (54.3)
Private placement notes (Note 17) (211.9) (203.8)
Derivative financial instruments hedging private placement
notes (Note 18) 16.4 6.1
=========================================================== ======= =======
Net debt before obligations under finance leases (139.2) (192.2)
Obligations under finance leases (1.5) (1.3)
=========================================================== ======= =======
Net debt (140.7) (193.5)
=========================================================== ======= =======
Net debt excludes amounts in respect of Customer Invoice
Discounting referred to in Note 11 and amounts in respect of Supply
Chain Financing referred to in Note 13.
20. Acquisitions
Current year acquisitions - purchase of Vision Security
Group
On 26 October 2018, the Group acquired a 100% shareholding in
Vision Security Group Limited (VSG). VSG is a leading security
services provider offering integrated security systems, manned
guarding and key holding services, with a team of approximately
6,000 employees servicing more than 1,400 guarding locations and
over 5,000 systems locations across the UK and Ireland.
The acquisition of VSG further strengthens the position of
Mitie's Total Security Management business (Mitie TSM) as one of
the leading providers of integrated and risk-based security
services in the UK. In particular, the combination will offer
opportunities to accelerate the growth of Mitie's premium
technology-enabled and intelligence-led security solutions.
Consideration of GBP12.7m (on a debt free, cash free basis) was
paid in cash at completion, and funded through Mitie's own cash
resources. GBP4.5m of the cash consideration paid is expected to be
to be returned through agreement of the completion accounts with
the seller of the business.
The Group's provisional assessment of the fair values of the
assets and liabilities recognised as a result of the acquisition
has been based on total consideration of GBP8.2m following expected
adjustments to the completion accounts. The purchase price
allocation is as follows:
Provisional
fair
Book value
value adjustment Fair value
GBPm GBPm GBPm
============================================== ======= ============ ==========
Software and development expenditure 0.1 (0.1) -
Property, plant and equipment 0.5 (0.3) 0.2
Customer relationships - 14.9 14.9
Current tax assets 0.5 - 0.5
Inventories 0.7 (0.2) 0.5
============================================== ======= ============ ==========
Trade and other receivables 41.5 (4.2) 37.3
Cash and cash equivalents 1.6 - 1.6
Trade and other payables (29.8) (1.2) (31.0)
Deferred income from contracts with customers (4.0) (0.9) (4.9)
Current tax liabilities (0.1) - (0.1)
Deferred tax liabilities - (2.0) (2.0)
---------------------------------------------- ------- ------------ ----------
Net identifiable assets acquired 11.0 6.0 17.0
============================================== ======= ============ ==========
Less: bargain purchase in other items (8.8)
============================================== ======= ============ ==========
Consideration 8.2
============================================== ======= ============ ==========
The Group concluded that the the value of the order backlog and
the customer relationships to drive renewal of the contracts held
by VSG was an intangible asset which has been valued at GBP14.9m at
acquisition and has been recorded as a non-current intangible asset
under the caption 'Customer relationships'. The asset will amortise
to the income statement in line with the forecast expiry of the
underlying customer relationships over a 10-year period.
The Group has recorded a bargain purchase gain of GBP8.8m in the
consolidated income statement within other items. This represents
the excess of net identifiable assets acquired of GBP17.0m over the
consideration of GBP8.2m.
Acquired receivables
The fair value of acquired trade and other receivables was
GBP37.3m. The gross contractual amount for trade and other
receivables due was GBP39.3m, against which GBP2.0m is the expected
credit loss.
Revenue and profit contribution
The acquired business contributed revenues of GBP79.6m and net
profit of GBP1.4m to the Group for the period from 26 October 2018
to 31 March 2019. If the acquisition had occurred on 1 April 2018,
consolidated pro-forma revenue and profit before tax for continuing
operations for the year ended 31 March 2019 would have been
GBP2,332.1m and GBP31.9m respectively. These amounts have been
calculated using the subsidiary's results and adjusting them
for:
-- differences in the accounting policies between the Group and
the subsidiary; and
-- the additional depreciation and amortisation that would have
been charged assuming the fair value adjustments to property, plant
and equipment and intangible assets had applied from 1 April 2018,
together with the consequential tax effects.
Purchase consideration - cash outflow
Outflow of cash to acquire subsidiaries, net of cash
acquired:
2019
GBPm
=========================================== =====
Cash consideration 12.7
Less: cash balance acquired (1.6)
Add: recovery of consideration(1) (1.8)
Net outflow of cash - investing activities 9.3
=========================================== =====
Note:
1. Recovery of consideration amounting to GBP1.8m was in respect
of the purchase of certain non-controlling interests in the year
ended 31 March 2017.
Acquisition related costs
Acquisition related costs of GBP2.6m are included in
administrative expenses and recognised in other items (see Note 4)
in the income statement and in operating cash flows in the
statement of cash flows.
Prior year acquisitions - purchase of non-controlling
interests
On 19 July 2017, the Company purchased the minority 49%
shareholding in Source Eight Limited. The consideration paid was
GBP4.0m, satisfied with GBP3.0m in cash and GBP1.0m in unrestricted
shares. A further GBP5.1m of shares were issued which were subject
to sale restrictions related to continuing employment. Regarding
shares issued, 2,196,708 ordinary shares were issued, with a
nominal value of 2.5p per share in Mitie Group plc (Mitie shares)
at a fair value of 278.8p, of which 1,838,028 Mitie shares were
subject to sale restrictions related to continuing employment.
In addition, on 20 October 2017 the Company purchased the
remaining minority shareholdings in five Mitie Model companies.
The consideration paid was GBP3.4m, satisfied through the issue
of unrestricted shares. A further GBP3.0m of shares were issued
which were subject to sale restrictions related to continuing
employment. Regarding shares issued, 2,396,381 Mitie shares were
issued
at a fair value of 266.3p, of which 1,139,697 Mitie shares were
subject to sale restrictions related to continuing employment.
The shareholdings purchased, primarily held by certain of the
employees and senior management of the relevant subsidiary
companies, are detailed below:
-- Mitie Care and Custody Limited (MCCL) - 6.86% of the issued
share capital, comprising 42,505 B ordinary shares of GBP0.01 each,
for a consideration of GBP0.4m satisfied by the issue of 169,328
Mitie shares;
-- Mitie Events & Leisure Services Limited (MELSL) - 24.08%
of the issued share capital, comprising 205,000 B ordinary shares
of GBP0.01 each,
for a consideration of GBP0.4m satisfied by the issue of 144,555
Mitie shares;
-- Mitie Facilities Management Limited (Ireland) (MFML) - 5.63%
of the issued share capital, comprising 146,000 B ordinary shares
of EUR0.01 each, for a consideration of GBP0.2m satisfied by the
issue of 72,228 Mitie shares;
-- Mitie Catering Services Limited (MCSL) - 18.55% of the issued
share capital, comprising 333,677 D ordinary shares of GBP0.01
each, for a consideration of GBP2.9m satisfied by the issue of
1,072,416 Mitie shares; and
-- Mitie Waste & Environmental Services Limited (MWESL) -
27.71% of the issued share capital, comprising 332,500 B ordinary
shares of GBP0.01 each, for a consideration of GBP2.5m satisfied by
the issue of 937,854 Mitie shares;
The above acquisitions have been completed based on transfer of
consideration of the fair value of the shareholdings of the
respective entities. As part of the above transactions Mitie
Group issued unrestricted and restricted shares. The restricted
shares are attached with a condition that the relevant recipient
continues in employment with the Group for a fixed vesting period
of time. Restrictions will remain attached to the shares if the
recipient leaves employment with the Group prior to completion of
the vesting period of the shares.
As a result of the acquisitions outlined above Mitie Group owns
100% of the issued share capital of all of the above entities.
21. Retirement benefit schemes
The Group has a number of pension arrangements for
employees:
-- Defined contribution schemes for the majority of its
employees; and
-- 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) or through the acquisition of
subsidiary companies.
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 an 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 GBP8.0m (2018: GBP9.0m) and
contributions to the auto-enrolment scheme of GBP8.6m (2018:
GBP4.3m), which are included in the income statement charge. The
Group expects to make contributions of a similar amount in the year
ending 31 March 2020.
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.
The main Group scheme was closed with effect from October
2017.
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
2017 and was concluded in March 2019.
The 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.
Multi-employer schemes
As a result of historic acquisition activity and staff transfers
following contract wins, the Group participates in four
multi-employer pension schemes. The total contributions to these
schemes for the financial year ending 31 March 2020 are anticipated
to be GBP0.1m. For three of these schemes, the Group's share of the
assets and liabilities is minimal.
The fourth scheme is the Plumbing & Mechanical Services (UK)
Industry Pension Scheme (the Plumbing Scheme) a funded
multi-employer defined benefit scheme. The Plumbing Scheme was
founded in 1975 and to date has had over 4,000 employers, with
circa 400 remaining. Historically, the size and complexity of the
Plumbing Scheme has meant the trustee is unable at this time to
identify the assets and liabilities of the scheme which are
attributable to the Group. The Group has recently received a
Section 75 employer debt notice in respect of the participation of
Robert Prettie & Co Limited in the Plumbing Scheme (refer to
Note 15 and Note 22). One Group company, Mitie Property Services
(UK) Limited, continues to participate in the Plumbing Scheme,
however no apportionment of the assets and liabilities attributable
to this company is available and consequently, the Group accounts
for its contributions as if they were paid to a defined
contribution scheme.
The April 2014 valuation of the Plumbing Scheme indicated a
surplus on technical provisions basis of GBP19.0m, on liabilities
of GBP1.47bn. The Annual Member update issued by the Plumbing
Scheme in October 2018 stated that the draft triennial valuation as
at 5 April 2017 showed a surplus on a technical provisions
basis.
As set out in Note 15, a provision of GBP20.0m has been made for
Section 75 employer debts in respect of the participation of Robert
Prettie & Co. Limited in the Plumbing Scheme.
As set out in Note 22 the Group has a further potential exposure
to Section 75 employer debts in respect of the participation of
Mitie Property Services (UK) Limited in the Plumbing Scheme, which
has been disclosed as a contingent liability.
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 2017.
Following the GBP3.0m paid in November 2017, the Group paid
additional contributions of GBP10.5m to the Group scheme during the
year ended 31 March 2019, including amounts of GBP3.8m and GBP1.8m
in respect of the disposals of the Pest Control business and Social
Housing business.
Under the concluded schedule for payments, a further GBP64.8m is
payable in instalments by 31 March 2025, which, if the assumptions
above are borne out in practice, should eliminate the deficit by 31
March 2025.
The Group made contributions to the Other schemes of GBP0.3m in
the year (2018: GBP0.3m). The Group expects to make contributions
of around GBP0.3m to the Other schemes in the year ending 31 March
2020.
Details of latest funding valuation
Group scheme
===================================== ================
Date of latest funding valuation 31 March 2017
Assets at valuation date GBP178.7 million
Funding liabilities at valuation date GBP252.7 million
Deficit at valuation date GBP74.0 million
===================================== ================
The total contribution rate was set at between 40.1% and 45.0%
of annual pay for the remaining active members. The employer
contribution rate is the balance of the total cost after the
deducting the employee rate, which ranges depending on status and
earnings. The total contribution excludes any allowances for
expenses met by the scheme.
The following table sets out details of the membership of the
Group scheme at 31 March 2017:
Group scheme
========================================================= ============
Active members - by number 182
Active members - by proportion of funding liability 19.8%
Total pensionable salary roll p.a. GBP8.4m
========================================================= ============
Deferred members - by number 853
Deferred members - by proportion of funding liability 53.9%
Total deferred pensions p.a. (at date of leaving scheme) GBP4.6m
========================================================= ============
Pensioner members - by number 640
Pensioner members - by proportion of funding liability 26.3%
Total pensions in payment p.a. GBP2.7m
========================================================= ============
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.
A UK High Court judgement was issued on 26 October 2018 relating
to Guaranteed Minimum Pensions (GMP). Although the ruling relates
to Lloyds Banking Group pension schemes, it is expected to create a
precedent for other UK defined benefit pension schemes. The ruling
requires the equalisation of member benefits earned between 1990
and 1997 to address gender inequality in instances where GMP
benefits are currently unequal. Whilst there remains some
uncertainty, the Group has made a provision for the estimated
financial impact of this ruling on the Group scheme, based on a
comparison of the cumulative value of members' benefits with the
benefits of a notional member of the opposite gender (method C2
under the terminology of the High Court Judgement). A past service
cost of GBP1.6m based on the broad profile of the fund (i.e. age
profile, service profile and GMP proportion) has been recognised
within other items in the year ended 31 March 2019.
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
=========================================== ============== ===============
2019 2018 2019 2018
% % % %
=========================================== ====== ====== ======= ======
Key assumptions used for IAS 19 valuation:
Discount rate 2.40 2.60 2.40 2.60
Expected rate of pensionable pay increases 3.20 3.10 3.20 3.10
Retail price inflation 3.20 3.10 3.20 3.10
Consumer price inflation 2.20 2.10 2.20 2.10
Future pension increases 3.50 3.40 3.50 3.40
=========================================== ====== ====== ======= ======
Group scheme
---------------------------------- --------------
2019 2018
Years Years
================================== ====== ======
Post retirement life expectancy:
Current pensioners at 65 - male 88.0 88.0
Current pensioners at 65 - female 89.0 89.0
Future pensioners at 65 - male 89.0 89.0
Future pensioners at 65 - female 90.0 90.0
================================== ====== ======
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) Increase/(decrease)
Change in in obligations in obligations
assumption % GBPm
============================ =========== =================== ===================
Increase in discount rate 0.1% (2.0)% (4.9)
Increase in RPI inflation* 0.1% 0.8% 2.0
Increase in CPI inflation
(excluding pay) 0.1% 0.7% 1.7
Increase in salary growth 0.1% 0.0% --
Increase in life expectancy 1 year 4.0% 10.4
============================ =========== =================== ===================
* Including other inflation-linked assumptions (CPI inflation,
pension increases and 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.
2019 2018
==================================== ========================= =========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======= ========= ===== ======= ========= =====
Current service cost (0.4) (0.3) (0.7) (1.7) (0.3) (2.0)
Total administration expense (1.1) - (1.1) (1.1) - (1.1)
==================================== ======= ========= ===== ======= ========= =====
Amounts recognised in operating
profit (1.5) (0.3) (1.8) (2.8) (0.3) (3.1)
Past service cost (including
curtailments) (1.6) - (1.6) (1.9) - (1.9)
Net interest cost (1.2) (0.1) (1.3) (1.9) (0.1) (2.0)
==================================== ======= ========= ===== ======= ========= =====
Amounts recognised in profit/(loss)
before tax (4.3) (0.4) (4.7) (6.6) (0.4) (7.0)
==================================== ======= ========= ===== ======= ========= =====
The past service cost (including curtailments) in the year ended
31 March 2019 was the cost of equalising Guaranteed Minimum
Pensions and in the year ended 31 March 2018 was a result of an
increase in liabilities driven by the closure of the main Group
scheme.
Amounts recognised in the consolidated statement of
comprehensive income are as follows:
2019 2018
=================================== ========================= ========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ======= ======== ====== ======= ======== =====
Actuarial (losses)/gains arising
due to changes in
financial assumptions (13.6) (0.9) (14.5) 8.6 0.8 9.4
Actuarial (losses)/gains arising
from liability experience (1.3) - (1.3) (1.1) 0.8 (0.3)
Actuarial gains due to changes
in demographic assumptions - 0.1 0.1 5.9 0.2 6.1
Movement in asset ceiling - - - - (0.5) (0.5)
Return on scheme assets, excluding
interest income 1.3 0.5 1.8 4.6 0.4 5.0
=================================== ======= ======== ====== ======= ======== =====
(13.6) (0.3) (13.9) 18.0 1.7 19.7
=================================== ======= ======== ====== ======= ======== =====
The amounts included in the consolidated balance sheet in
respect of the Group's defined benefit retirement benefit schemes
are as follows:
2019 2018
================================= ========================== ==========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ======= ======== ======= ======= ======== =======
Fair value of scheme assets 190.5 13.1 203.6 182.3 12.1 194.4
Present value of defined benefit
obligations (251.9) (15.5) (267.4) (237.1) (14.1) (251.2)
================================= ======= ======== ======= ======= ======== =======
Net pension liability (61.4) (2.4) (63.8) (54.8) (2.0) (56.8)
================================= ======= ======== ======= ======= ======== =======
All figures above are shown before deferred tax.
Movements in the present value of defined benefit obligations in
the year in respect of both the Group and other schemes were
as follows:
2019 2018
================================= ======================== ========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ======= ======== ===== ======= ======== =====
At 1 April 237.1 14.1 251.2 248.5 14.8 263.3
Current service cost 0.4 0.3 0.7 1.7 0.3 2.0
Interest cost 6.0 0.4 6.4 6.5 0.4 6.9
Contributions from scheme
members - 0.1 0.1 - 0.1 0.1
Actuarial losses/(gains) arising
due to changes in financial
assumptions 13.6 0.9 14.5 (8.6) (0.8) (9.4)
Actuarial losses/(gains) arising
from experience 1.3 - 1.3 1.1 (0.8) 0.3
Actuarial gains due to changes
in demographic assumptions - (0.1) (0.1) (5.9) (0.2) (6.1)
Movement in asset ceiling - - - - 0.5 0.5
Benefits paid (8.1) (0.2) (8.3) (8.1) (0.2) (8.3)
Past service cost (including
curtailments) 1.6 - 1.6 1.9 - 1.9
================================= ======= ======== ===== ======= ======== =====
At 31 March 251.9 15.5 267.4 237.1 14.1 251.2
================================= ======= ======== ===== ======= ======== =====
The defined benefit obligations of the Group scheme are analysed
by participant status as at 31 March 2017 below:
2019 2018
GBPm GBPm
============ ===== =====
Active 51.4 48.3
Deferred 131.0 123.3
Pensioners 69.5 65.5
============ ===== =====
At 31 March 251.9 237.1
============ ===== =====
Movements in the fair value of scheme assets were as
follows:
2019 2018
================================== ======================== ========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ======== ===== ======= ======== =====
At 1 April 182.3 12.1 194.4 177.8 11.3 189.1
Interest income 4.8 0.3 5.1 4.6 0.3 4.9
Actuarial gains on assets 1.3 0.5 1.8 4.6 0.4 5.0
Contributions from the sponsoring
companies 11.3 0.3 11.6 4.4 0.3 4.7
Contributions from scheme
members - 0.1 0.1 - - -
Expenses paid (1.1) - (1.1) (1.0) - (1.0)
Benefits paid (8.1) (0.2) (8.3) (8.1) (0.2) (8.3)
================================== ======= ======== ===== ======= ======== =====
At 31 March 190.5 13.1 203.6 182.3 12.1 194.4
================================== ======= ======== ===== ======= ======== =====
The history of experience adjustments is as follows:
Group scheme
==================================== ===========================================
2019 2018 2017 2016 2015
GBPm GBPm GBPm GBPm GBPm
==================================== ======= ======= ======= ======= =======
Fair value of scheme assets 190.5 182.3 177.8 156.9 162.2
Present value of defined benefit
obligations (251.9) (237.1) (248.5) (191.3) (197.1)
==================================== ======= ======= ======= ======= =======
Deficit in the scheme (61.4) (54.8) (70.7) (34.4) (34.9)
==================================== ======= ======= ======= ======= =======
Experience (losses)/gains on scheme
liabilities (1.3) (1.1) 0.8 3.1 1.2
Percentage of scheme liabilities 0.5% 0.5% (0.3)% (1.6)% (0.6)%
Experience gains/(losses) on scheme
assets 1.3 4.6 18.7 (6.2) 13.0
Percentage of scheme assets 0.7% 2.5% 10.5% (4.0)% 8.0%
==================================== ======= ======= ======= ======= =======
Other schemes
==================================== ======================================
2019 2018 2017 2016 2015
GBPm GBPm GBPm GBPm GBPm
==================================== ====== ====== ====== ====== ======
Fair value of scheme assets 13.1 12.1 11.3 9.5 9.5
Present value of defined benefit
obligations (15.5) (14.1) (14.8) (10.6) (10.4)
==================================== ====== ====== ====== ====== ======
Deficit in the scheme (2.4) (2.0) (3.5) (1.1) (0.9)
==================================== ====== ====== ====== ====== ======
Experience gains/(losses) on scheme
liabilities - 0.8 - - (0.1)
Percentage of scheme liabilities - (5.6)% - - 0.9%
Experience gains/(losses) on scheme
assets 0.5 0.4 1.3 (0.6) 0.8
Percentage of scheme assets 4.0% 3.3% 11.5% (6.1)% 8.4%
==================================== ====== ====== ====== ====== ======
Fair values of the assets held by the schemes were as
follows:
2019 2018
=========================== ======================== ========================
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ======= ======== ===== ======= ======== =====
Equities 51.7 7.5 59.2 66.3 7.0 73.3
Government bonds 27.1 4.0 31.1 26.9 - 26.9
Corporate bonds 51.9 0.1 52.0 22.0 3.8 25.8
Property 16.8 1.0 17.8 9.5 0.9 10.4
Diversified growth fund 37.0 - 37.0 45.6 - 45.6
Cash 6.0 0.5 6.5 12.0 0.4 12.4
=========================== ======= ======== ===== ======= ======== =====
Total fair value of assets 190.5 13.1 203.6 182.3 12.1 194.4
=========================== ======= ======== ===== ======= ======== =====
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 56% (2018: 67%) of the assets are held in equities,
property and pooled investment vehicles which seek a higher
expected level of return over the long term.
The property assets represent quoted property investments.
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
(56%) 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 the scheme holds a significant
proportion
of these types of asset. However, the scheme's assets are well-diversified by investing in
a range of asset classes, including property, government bonds and corporate bonds. The Group
scheme holds 19% 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 scheme's 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.
Certain benefits payable on death before retirement are
insured.
22. Contingent liabilities
Contractual disputes, guarantees and indemnities
The Company and various of its subsidiaries are, from time to
time, party to contractual disputes that arise in the ordinary
course of business. The Directors do not anticipate that the
outcome of any of these disputes will have a material adverse
effect on the Group's financial position, other than as already
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 Company and its subsidiaries have provided
guarantees and indemnities in respect of performance, issued by
financial institutions on its behalf, amounting to GBP23.0m (2018:
GBP21.7m) in the ordinary course of business. These are not
expected to result in any material financial loss.
Multi-employer pension schemes
The Group participates in several industry multi-employer
defined benefit schemes, including the Plumbing & Mechanical
Services (UK) Industry "Pension Scheme" (Plumbing Scheme). The
total contributions to these schemes for the financial year ending
31 March 2020 are anticipated to be GBP0.1m. The size and
complexity of the Plumbing Scheme has meant the trustee is unable
at this time to identify the assets and liabilities of the scheme
which are attributable to the Group. Consequently, the Group
accounts for its contributions as if they were paid to a defined
contribution scheme.
When the Group (or a subsidiary of the Group) exits such schemes
(typically by ceasing to have any active employees in the scheme),
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 under the Pensions Act 1995).
On 27 March 2018, the trustee of the Plumbing Scheme provided
participating employers with a summary of the draft actuarial
valuation of the Plumbing Scheme as at 5 April 2017. That
summary detailed the results of the valuation on three
measures:
-- technical provisions - the amount of money the Plumbing
Scheme needs to meet all its obligations and pay benefits in
respect of
past service as they fall due, based on the scheme assets and
the economic position as at 5 April 2017. This measure showed a
surplus of GBP45m on liabilities of GBP1.885bn;
-- Pension Protection Fund (PPF) - the amount used to set the
Plumbing Scheme's PPF levies. The benefits under this basis are
lower
than the scheme's own benefits and the assumptions are
prescribed by the Pension Regulator. This measure showed a deficit
of
GBP412m on liabilities of GBP2.342bn; and
-- solvency - this is an estimate of the cost of insuring all of
the Plumbing Scheme's benefits as at 5 April 2017 with an insurer
and is
the basis required for Section 75 debt calculations. This
measure showed a deficit of GBP658m on liabilities of
GBP2.588bn.
On 23 April 2019 the trustee of the Plumbing Scheme issued a
Section 75 debt estimate to Robert Prettie & Co Limited. A
provision for this debt has been made. See Note 15.
The Group continues to have an exposure to Section 75 debts in
respect of the participation of Mitie Property Services (UK)
Limited in the Plumbing Scheme, however no event has occurred to
trigger this debt.
Employment claims
The Company and its subsidiaries are, from time to time, party
to employment disputes, claims, and other potential liabilities
which arise in the ordinary course of business. The Directors do
not anticipate that any of the current matters will give rise to
settlements, either individually or in aggregate, which will have a
material adverse effect on the Group's financial position.
23. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation
and are not disclosed in this Note.
During the year, the Group derived GBP0.5m (2018: GBP0.8m) of
revenue from contracts with joint ventures and associated
undertakings and received GBPnil (2018: GBP0.6m) of dividends. At
31 March 2019 trade and other receivables from joint ventures and
associates of GBPnil (2018: GBP0.2m) were outstanding and loans to
joint ventures and associates of GBPnil (2018: GBPnil) were
included in financing assets.
Mitie Group plc has a related party relationship with the Mitie
Foundation, a charitable company. During the year, the Group made
donations and gifts in kind of GBP0.4m (2018: GBP0.3m) to the
Foundation.
No material contract or arrangement has been entered into during
the year, nor existed at the end of the year, in which a Director
had a material interest.
The Company's preferred supplier for delivering apprenticeships
to its employees is Aspire Achieve Advance Ltd (3aaa), a company
whose chairman is also Mitie Group plc's Non-Executive Chairman.
The Company pays into a government mandated Apprenticeship Levy
Fund, and 3aaa withdraw from that fund to provide the
apprenticeship training. On 11 October 2018, the directors of 3aaa
presented a petition to the Court for the compulsory winding up of
the company. This petition was accepted by the Court and the
Official Receiver was appointed as liquidator on 24 October 2018.
During the year ended 31 March 2019, 3aaa withdrew GBP0.6m (2018:
GBP0.2m) from the fund in respect of training provided or to be
provided.
24. Events after the reporting period
There are no material post balance sheet events that require
adjustment or disclosure in the annual report.
Alternative Performance Measures (APMs)
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.
In assessing its performance, the Group has adopted certain
non-statutory measures because, unlike its statutory measures,
these cannot be derived directly from its financial statements. The
Group commonly uses the following measures to assess its
performance:
Performance before other items
The Group adjusts the statutory income statement for certain
other items which, in the Directors' judgement, need to be
disclosed separately 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.
These other items include the impairment of goodwill,
amortisation of acquisition related intangible assets, acquisition
and disposal costs, the gain or loss on business disposals, the
cost of restructuring programmes and other exceptional items.
Further details of these other items are provided in Note 4.
Operating profit/(loss) from 2019 2018
operations GBPm GBPm
------------------------------------- --------------------------- ------ -----
Operating profit from continuing Face of the consolidated
operations income statement 50.2 1.1
Adjust for: impairment of goodwill Note 4 - 22.7
Adjust for: restructure costs Note 4 15.1 47.0
Adjust for: acquisition and disposal
related costs Note 4 8.7 8.4
Adjust for: gain on bargain purchase Note 4 (8.8) -
Adjust for: other exceptional
items Note 4 23.0 4.0
Operating profit before other
items from continuing operations Performance measures 88.2 83.2
===================================== =========================== ====== =====
Operating loss from discontinued
operations(1) (2.0) (9.4)
Adjust for: impairment of goodwill Note 4 - 11.9
Adjust for: restructure costs Note 4 0.8 0.3
Adjust for: gain on disposal Note 4 (17.9) -
Adjust for: other exceptional
items Note 4 23.1 3.6
Operating profit before other
items from discontinued operations Performance measures 4.0 6.4
===================================== =========================== ====== =====
Operating profit before other
items - Group Performance measures 92.2 89.6
===================================== =========================== ====== =====
Note:
1. Operating loss for discontinued operations comprises the loss
before finance income and tax of GBP19.9m (2018: GBP9.4m) and the
gain on disposal before tax of GBP17.9m (2018: GBPnil). See Note
5.
Reconciliations are provided below to show how the Group's
segmental statutory results are adjusted to exclude other
items.
Operating profit/(loss) 2019 2018
from operations GBPm GBPm
------------------------- --------- --------------------- -------- -------
Reported Other Performance Reported Other Performance
results items measures results items measures
(Note (Note
4) 4)
------------------------- --------- ------- ------------ -------- ------- ------------
Segment
Engineering Services 52.5 6.2 58.7 50.4 3.7 54.1
Security 29.1 1.6 30.7 27.1 0.4 27.5
Professional Services 4.8 0.8 5.6 5.0 0.6 5.6
Cleaning & Environmental
Services 15.5 2.0 17.5 18.5 1.1 19.6
Care & Custody 3.8 0.1 3.9 1.8 0.1 1.9
Catering 5.1 0.1 5.2 5.6 - 5.6
Corporate centre (60.6) 27.2 (33.4) (107.3) 76.2 (31.1)
-------------------------- --------- ------- ------------ -------- ------- ------------
Total from continuing
operations 50.2 38.0 88.2 1.1 82.1 83.2
-------------------------- --------- ------- ------------ -------- ------- ------------
Healthcare 2.0 (2.0) - - - -
Pest Control 30.0 (27.6) 2.4 2.6 - 2.6
Social Housing (34.0) 35.6 1.6 (12.0) 15.8 3.8
Total from discontinued
operations (2.0) 6.0 4.0 (9.4) 15.8 6.4
========================== ========= ======= ============ ======== ======= ============
Total - Group 48.2 44.0 92.2 (8.3) 97.9 89.6
========================== ========= ======= ============ ======== =======
In line with the Group's measurement of profit/(loss) from
operations before other items, the Group also presents its basic
earnings per share before other items for continuing operations.
The table below reconciles this to the statutory basic earnings per
share.
Earnings per share 2019 2018
p p
---------------------------------------- ---------------------- ----- -----
Statutory basic earnings/(loss)
per share Statutory measures 8.6 (7.6)
Adjust for: losses from discontinued
operations (0.3) 2.7
Statutory basic earnings/(loss)
per share from continuing operations 8.3 (4.9)
Adjust for: other items per share 8.5 20.1
Basic earnings per share before
other items from continuing operations Performance measures 16.8 15.2
Organic revenue and order book
The Group adjusts revenue and order book from continuing
operations for the impact of acquisitions to show organic measures
in order for users of the financial statements to obtain a proper
understanding of the underlying movements in these business
measures.
Organic revenue by segment for continuing 2019 2018
operations GBPm GBPm
Reported Adjust Organic Reported
revenue for: revenue revenue
acquisition (performance
of subsidiaries measures)
Segment
Engineering Services Note 3 905.7 - 905.7 886.3
Security Note 3 536.5 (79.6) 456.9 432.0
Professional Services Note 3 131.4 - 131.4 131.2
Cleaning & Environmental
Services Note 3 404.4 - 404.4 384.1
Care & Custody Note 3 107.3 - 107.3 59.9
Catering Note 3 136.1 - 136.1 137.1
Total for continuing
operations 2,221.4 (79.6) 2,141.8 2,030.6
The Group's disclosure of its order book is aimed to provide
insight into its future revenue and performance. The Group's order
book represents the transaction price allocated to the remaining
performance obligations on its contracts with customers. This
secured revenue corresponds to fixed work contracted with customers
and excludes the impact of any anticipated contract extensions, and
new contracts with customers.
Organic order book for continuing operations 2019 2018
GBPm GBPm
Reported Adjust Organic Reported
order for: order order book
book acquisition book
of subsidiaries (performance
measures)
Segment
Engineering Services Note 3 1,802.7 - 1,802.7 2,039.2
Security Note 3 971.5 (209.0) 762.5 640.8
Professional Services Note 3 86.9 - 86.9 144.9
Cleaning & Environmental
Services Note 3 663.1 - 663.1 656.3
Care & Custody Note 3 596.6 - 596.6 670.1
Catering Note 3 26.5 - 26.5 34.7
Total for continuing
operations 4,147.3 (209.0) 3,938.3 4,186.0
Net debt
The Group includes the carrying value of its derivative
financial instruments in its balance sheet in its performance net
debt measure as this carrying value represents the fair value of
cross-currency interest rate swaps on the US$ private placement
notes which form part of the Group's financing liabilities.
The table below shows the reconciliation of statutory net debt
to the performance net debt measure.
Net debt 2019 2018
GBPm GBPm
--------------------------------- ---------------------- ------- -------
Cash and cash equivalents 108.4 59.8
Financing liabilities Note 17 (265.5) (259.4)
Net debt Statutory measures (157.1) (199.6)
Derivative financial instruments
hedging private placement notes Note 18 16.4 6.1
Net debt Performance measures (140.7) (193.5)
The Group uses an average net debt measure as this reflects its
financing requirements throughout the period. The Group calculates
its average net debt based on the daily closing figures, including
its foreign currency bank loans translated at the closing exchange
rate for the previous month end. In line with the performance net
debt measure, the average net debt includes the fair value of
cross-currency interest rate swaps on the US$ private placement
notes. This performance measure shows average net debt of GBP302.0m
for the year ended 31 March 2019, compared with GBP286.1m for the
year ended 31 March 2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR VELFBKQFFBBV
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