TIDMMTO
RNS Number : 0194C
MITIE Group PLC
08 June 2023
8 June 2023
Mitie Group plc
Full year results for the twelve months to 31 March 2023
"A record year and continued strategic progress; entering FY24
with confidence"
Highlights
-- Record revenue (1) of GBP4,055m (FY22: GBP3,997m), as wins, renewals,
acquisitions and inflationary contract re-pricing more than offset
contracts that were not renewed and the prior year benefit from short
term Covid work
-- Total contract value (TCV) of GBP4.3bn awarded in FY23; renewal rates
remain over 90%; book to bill ratio of 105% (4)
-- Operating profit before other items (1,2,3) of GBP162m (FY22: GBP167m),
versus previous guidance for 'at least GBP155m', and operating profit
margin (3) of 4.0% (FY22: 4.2%), with the prior year being boosted
by higher margin Covid work
-- Excluding Covid work, revenue and operating profit before other items
increased by 14% and 44% respectively
-- Basic EPS before other items increased by 3.3% to 9.5p (FY22: 9.2p),
benefiting from the refinancing of debt instruments and share buybacks
-- Operating profit of GBP117m (FY22: GBP72m) and basic EPS of 6.8p
(FY22: 2.2p), reflecting lower other items
-- Free cash flow of GBP66m (FY22: GBP147m), after closing the customer
invoice discounting facility (GBP45m impact)
-- Average daily net debt of GBP84m (FY22: GBP25m), reflecting the capital
allocation policy announced last year. Closing net debt of GBP44m
(FY22: GBP27m net cash)
-- Strong balance sheet with leverage of 0.4x (average net debt/EBITDA(5)
)
-- Recommended final dividend of 2.2p per share versus 1.4p last year;
total dividend up 61% to 2.9p (FY22: 1.8p), as payout ratio rises
to 30% (FY22: 20%)
-- Shares for all employee incentive schemes to be purchased (FY23:
GBP38m spent), eliminating the otherwise dilutive effect of issuing
new shares to fulfil vesting awards
-- New GBP50m share buyback programme announced in April 2023, with
the first GBP25m tranche underway
-- FY24 has started positively, and the Board is therefore confident
in meeting its growth expectations for the year
Results for the twelve months ended 31 March 2023
Twelve months to 31 Twelve months to 31 March
March 2023 2022
=========================================== ============================================
GBPm unless otherwise Before Before
specified other items(2,5) Other items(2) Total other items(2,5) Other items(2) Total
=========================== ================= ============== ======== ================= ============== =========
Continuing operations
Revenue including share
of JVs & associates 4,055 - 4,055 3,997 - 3,997
Group revenue 3,945 - 3,945 3,903 - 3,903
Operating profit/(loss)(3) 162 (45) 117 167 (95) 72
Operating profit margin
(3) 4.0% 2.9% 4.2% 1.8%
Profit/(loss) before tax 151 (45) 106 147 (95) 52
Profit/(loss) for the
year 128 (37) 91 128 (97) 31
Basic earnings per share 9.5p 6.8p 9.2p 2.2p
Dividend per share 2.9p 1.8p
=========================== ================= ============== ======== ================= ============== =========
Cash generated from
operations 117 264
Free cash inflow(5) 66 147
Average daily net (debt)(5) (84) (25)
Closing net (debt)/cash(5) (44) 27
Total order book(4) GBP9.7bn GBP9.5bn
Return on invested
capital(5) 25.4% 29.9%
--------------------------- ----------------- -------------- -------- ----------------- -------------- ---------
1. From continuing operations and including share of joint ventures and associates.
2. Other items are as described in Note 4 to the condensed
financial statements . In FY23 GBP21.4m relates to non-cash
amortisation of acquired intangible assets (FY22: GBP21.9m).
3. Operating profit includes share of profit after tax from
joint ventures and associates. Operating profit margin is operating
profit as a percentage of revenue including share of joint ventures
and associates.
4. Total order book includes secured fixed term contract work,
variable (including estimated variable work) and project work. Book
to bill ratio is the relationship between orders received and
revenue recognised for the year.
5. Performance before other items, performance excluding
Covid-related contracts, net debt, free cash flow, EBITDA and
return on invested capital are presented as Alternative Performance
Measures. Explanations as to why these measures are presented, and
reconciliations to the equivalent statutory measures, are set out
in the Appendix to the condensed consolidated financial
statements.
Commenting on the results, Phil Bentley, Group Chief Executive,
said:
"Mitie's performance in FY23 has surpassed the Board's
expectations. We entered the year with the challenge of replacing
almost GBP450m of short-term and higher margin Covid-related
contract revenue. Thanks to the hard work of our 64,000 colleagues
and our technology-led approach, we have achieved this, and
more.
"Group revenue in FY23 exceeded GBP4bn for the first time,
reflecting good momentum from our new contract wins, renewals and
extensions, alongside contributions from contract re-pricing and
acquisitions. Basic earnings per share grew by 3.3% to 9.5p,
benefiting from the refinancing of debt instruments and share
buybacks , despite operating profit being slightly lower than last
year due to the completion of the higher margin Covid work.
"When we exclude short-term Covid work, revenue and operating
profit before other items increased by 14% and 44% respectively.
Our operating margin excluding Covid work of 3.8% (FY22: 3.0%)
reflects growth in projects work and the focus on margin
enhancement initiatives. We expect to deliver an additional GBP5m
of Interserve synergies, and therefore increase our guidance for
total synergies to GBP55m by the end of FY24, significantly ahead
of our initial expectation of GBP30m at the time of
acquisition.
"Mitie has been transformed over the last six years, and we have
made further significant progress this year against each of our
strategic pillars. We are now the largest facilities management
business in the UK, and our unrelenting ambition is to drive the
business to reach its full potential, not just financially but also
through its positive contribution to the environment and
society.
"Thanks go to all of our colleagues for their hard work in
providing an exceptional service to our customers throughout the
year. Our Net Promoter Score (NPS) rose a further 3pt to +42 in our
survey conducted at the year end. Investing in our people and
ensuring that Mitie is an 'employer of choice' remain top
priorities. Our encouraging business performance during the year
enabled us to offer a GBP10m Winter Support package to help our
colleagues through the cost-of-living crisis. Our employee
engagement score rose by 7ppt to a record 57% of colleagues 'fully
engaged'.
"FY24 has started positively. Since the start of the year, we
have won and extended a number of significant new contracts and we
have a healthy pipeline of new opportunities, combined with the
full year benefit from major contracts won and extended in the
final months of FY23.
"We will continue our disciplined approach to bidding for
contracts, even if it is challenging to maintain renewal rates at
the current level, and we will continue to seek growth
opportunities, both organically and through strategic bolt-on
acquisitions in the decarbonisation, security technology and
telecoms infrastructure sectors. We have already completed two
acquisitions in FY24, both of which strengthen our capabilities as
the UK's leading intelligence and technology-led security
provider.
"We also expect to deliver further progress in FY24 on our
ongoing programme of margin enhancement initiatives, including
increased synergies from the Interserve acquisition, and
efficiencies across our labour, third-party and overhead cost base,
which will more than offset inflationary headwinds.
"This positive momentum carried forward into the new financial
year gives the Board confidence in meeting its growth expectations
for FY24. Mitie is cash generative and has a strong, stable, and
flexible balance sheet to support increased returns to shareholders
and future growth opportunities."
--
Analyst Presentation and Q&A
Phil Bentley (CEO) and Simon Kirkpatrick (CFO) will host a
presentation and Q&A session today (8 June 2023) at 9.30am at
The Shard and via a webcast. For dial in details please contact
kate.heseltine@mitie.com . A copy of the presentation will be
available on the company website in advance of the live
presentation, www.mitie.com/investors .
Capital Markets Event
Mitie will host a Capital Markets Event on Thursday 12 October
2023. Further details will be provided in due course.
For further information
Kate Heseltine M: +44 (0)738 443 9112 E: kate.heseltine@mitie.com
Group IR Director
Claire Lovegrove M: +44 (0)790 027 6400 E: claire.lovegrove@mitie.com
Director of Corporate
Affairs
Richard Mountain M: +44 (0)790 968 4466
FTI Consulting
About Mitie
Founded in 1987, Mitie's job is to look after places where
Britain works and it is the leading facilities management company
in the UK. We offer a range of services to the public sector
through our Central Government & Defence and Communities
(Healthcare, Education and Campus & Critical) divisions. Our
Technical Services (Engineering Services, Energy, Water and Real
Estate Services) and Business Services (Security, Cleaning and
Office Services) divisions serve private sector customers in
Telecoms, Financial & Professional Services, Transport and
Industrials and increasingly the public sector. Finally, our
Specialist Services (Care & Custody, Landscapes, Waste
Management and Spain) division serves both the public and private
sectors.
Mitie employs 64,000 people. We are the champion of the
'Frontline Heroes' who kept Britain working during the pandemic. We
take care of our customers' people and buildings, through the
'Science of Service', and we are transforming facilities to be more
flexible, safe, sustainable, and attractive to all. Mitie continues
to execute its technology-led strategy and in the past twelve
months has received multiple awards and validation for its
ambitious near and long-term science-based emissions reduction
targets from the Science Based Targets initiative (SBTi). Find out
more at www.mitie.com .
Chief Executive's strategic review
Overview
Mitie's journey over the past six years has been transformative.
The first few years focused on improving customer service,
increasing employee engagement, divesting non-core assets and
strengthening the balance sheet. Once achieved, these were the
foundations for the second phase of our strategy to build scale and
drive operational leverage from the Interserve acquisition in 2020.
Our strategic focus since then has been on delivering returns.
We are now the largest facilities management business in the UK,
and our unrelenting ambition is to drive the business to reach its
full potential, not just financially but also through its positive
contribution to the environment and society. Despite the
challenging macroeconomic environment, we have made significant
progress against our strategic priorities this year, delivering a
record level of revenue and growth in earnings per share, and
continuing to strengthen our ESG credentials. We have a strong
platform for future growth, and we are well-positioned to benefit
from the opportunities that lie ahead for the business.
Delivering on our strategic priorities
We have continued to make progress this year against each of the
strategic pillars we set out in June 2021: Grow Mitie, Enhance
Margins and Generate Cash, underpinned by our three Capability
Enablers - 'Science of Service', 'Great Place to Work' and
'Decarbonisation Delivered'.
Our strategy targets mid-to-high single digit revenue growth, an
operating margin before other items of 4.5%-5.5%, sustainable free
cash flow and a return on invested capital (ROIC) in excess of 20%
over the medium term. We will continue building our technology-led
offering across our three core business areas of Cleaning &
Hygiene, Security and Technical Services, where we already hold
market-leading positions, alongside complementary services such as
Landscapes, Waste and Care & Custody. We are also expanding our
presence in the high-growth areas of decarbonisation, security
technology and telecoms infrastructure, both through our in-house
capabilities and our acquisitions strategy.
Mitie's three capability enablers are our differentiators,
giving us a competitive edge to win new business, cross-sell our
services and continue to build strong, long-term relationships with
blue-chip customers across the public and private sectors. We
aspire to be a trusted partner to every single one of our
customers, and our talented colleagues are our ambassadors. That is
why we strive to ensure our 64,000-strong team has the skills,
expertise and resources to deliver The Exceptional, Every Day.
Grow Mitie
Our priority is to grow Mitie, both organically and through
targeted 'bolt-on' acquisitions focused on the higher-growth,
higher-margin sectors of decarbonisation, security technology and
telecoms infrastructure.
During FY23, we were awarded new contract wins of GBP1.9bn TCV
(FY22: GBP2.1bn). This included contracts with Dublin Airport, the
Department for Work and Pensions (DWP), Hammerson, the Home Office,
Lloyds Banking Group, National Air Traffic Services (NATS) and
National Grid.
Following a full and extensive re-tender process, we were
retained as the strategic partner to the Ministry of Defence (MOD)
for its overseas military base in Cyprus and the Landmarc 'Training
Estates' contract. In total, GBP2.4bn TCV of contracts were renewed
or extended in FY23 (FY22: GBP1.7bn), including with Deloitte, the
DWP, the MOD, Sainsbury's, Manchester Airport Group and Vodafone.
Our renewal rate was again over 90%, which is testament to the
strength of our customer relationships, quality of service and
competitiveness on pricing.
For any new or re-tendered contract, we have robust internal
bidding processes in place, including the review of all contracts
valued at more than GBP3m by our Bid Committee, comprising members
of the executive leadership team. We are continually improving our
approach to ensure our capabilities and the competitive
cost-to-serve afforded by our scale are reflected in our bids.
We also continue to leverage our expertise by cross-selling
services and insourcing work formerly contracted out to third
parties, wherever opportunities are identified. In FY23, GBP43.5m
of cross-selling revenue from projects was delivered by Technical
Services (including a number of decarbonisation projects), and by
Waste, Landscapes and Security.
Mitie's projects business brings together around 2,300
colleagues in our project delivery teams, predominantly across
Technical Services and Central Government & Defence, and
contributed GBP0.8bn to FY23 Group revenue, an 18% increase
compared with the prior year. Our projects capabilities extend
across all aspects of workplace effectiveness, including mechanical
and electrical packages, fire and security hardware, and energy
decarbonisation. There are significant growth opportunities in this
area, given the wider trend towards employers wanting to create
inspirational workplaces post Covid, and the regulatory
requirements for buildings to meet energy efficiency standards. The
projects business includes Mitie Telecoms and our decarbonisation
offering, as described below.
During FY22 and FY23, we completed seven strategic bolt-on
acquisitions, including three businesses at a total cost of GBP20m
(P2ML, 8point8 and Custom Solar) in FY23. We have completed two
further acquisitions since the year end, Linx International Group
and R H Irving Industrials, for a total consideration of GBP21m,
both of which strengthen our capabilities in the intelligence and
technology-led security market.
The acquisitions of P2ML and 8point8 in H1 FY23 were combined
with DAEL Telecoms (acquired in FY22) to create Mitie Telecoms, one
of the UK's largest telecoms infrastructure businesses , which is
benefiting from the roll-out of 5G and the decommissioning of
Huawei assets. Our services include both infrastructure projects
and network coverage for special events, such as music festivals.
During the year, we partnered with Cellnex, Digital Mobile Spectrum
Limited (DMSL) and H3G, and extended relationships with BT,
Vodafone and VMO2, such that we are now working with all of the
mobile network operators.
We are also focused on building on our Plan Zero offering
(Mitie's own Net Zero commitment) to deliver decarbonisation for
our customers. The acquisitions of Custom Solar in H1 FY23 and Rock
Power Connections (acquired in FY22) have facilitated the rapid
expansion of our capabilities in this area. We have been awarded
contracts from existing Mitie customers, including ABP, the DWP and
Amazon, for electric vehicle (EV) charging infrastructure and solar
panels.
The FY22 and FY23 acquisitions contributed GBP98m to Group
revenue in FY23 and approximately 2ppt of our underlying growth
(excluding Covid work). While these bolt-on acquisitions will
deliver future growth for the Group, they have required investment
during the year to win new contracts and are therefore only
expected to contribute to Group profitability from FY24.
Margin Enhancement
We are targeting an operating profit margin, before other items,
of 4.5%-5.5% in the medium term. This will be achieved through
growth in the higher margin projects business, as well as our
ongoing package of savings and efficiencies, from delivering the
Interserve synergies, driving operational excellence, rolling out
Coupa (our digital supplier platform), implementing Forté ( the
digital platform to automate scheduling in Technical Services) and
undertaking overhead cost savings.
Notwithstanding inflationary headwinds, we achieved an operating
margin of 4.0% in FY23 (3.8%, excluding Covid work), reflecting an
increase of 1.7ppt over the two-year period since acquiring
Interserve (which operated on a margin around 1.0ppt below that of
Mitie).
In FY23, we have delivered an incremental GBP41m of savings
through our margin enhancement initiatives. These cost-saving
initiatives materially exceeded the cost of the Winter Support
package (GBP8m), the relatively limited inflationary increases that
we were unable to pass on to customers (GBP7m), and the delay in
achieving the full benefits from Forté (GBP4m).
A significant proportion of these savings has come from
Interserve cost synergies. In FY23, we delivered an incremental
GBP21m of synergies, driven by further reductions in headcount and
procurement savings. In aggregate, since December 2020, we now
expect to deliver total synergies of GBP55m (previous guidance
GBP50m), significantly ahead of our initial expectation of GBP30m
at the time of acquisition.
Our operational excellence initiatives delivered an incremental
GBP7m of savings in FY23, largely from the portfolio of former
Interserve contracts where efficiencies are being delivered from
the roll-out of our workforce management system (Workplace+),
reduced agency cleaning hours and harmonising processes for mobile
technicians.
We have continued to digitalise, rationalise and simplify our
third-party supplier base. In FY23, we saved an incremental GBP7m
from the roll-out of Coupa to Business Services, Communities,
Landscapes, Care & Custody and the Corporate Centre, which
together account for 60% of our total third-party spend. We have
also reduced our supplier base, from 12,000 to 8,300 suppliers, and
we remain on track to meet our target of 6,000 suppliers in
FY24.
Fort é went live in the first half of the year. After an initial
period of stabilisation, which resulted in some short-term
operational challenges , service level performance has returned to
'pre-Forté' levels, and is improving daily. The delay in getting
the system to full capacity held back the cumulative benefit from
Forté savings to GBP9m in FY23, although we expect to meet our full
planned savings run rate of GBP15m in FY24, as previously
communicated.
We are also continuing to make progress with the handful of
under-performing contracts in Communities which we acquired with
Interserve. Six of the contracts showed improved performance during
the year, with two contracts now contributing to Group
profitability. One contract remains particularly challenging and
only showed a marginal improvement in performance (GBP8.4m loss in
FY23 compared to GBP8.7m in the prior year). The majority of the
remaining under-performing contracts will be at, or close to, break
even by the end of FY24, with the final contract expected to
achieve profitability in FY26, after productivity improvements and
re-sets to pricing.
During the second half of the year, we expanded our suite of
margin enhancement initiatives. This phase of the programme
addresses our Target Operating Model and includes the outsourcing
of further HR and Payroll, Finance and IT functions, consolidation
of systems and processes, and optimisation of our organisational
structure. The Target Operating Model initiatives delivered GBP6m
of savings in FY23 and are expected to deliver a further GBP20m of
savings in FY24.
The costs to deliver the margin enhancement initiatives outlined
above are reflected in 'cash other items' of GBP24m in FY23 (FY22:
GBP27m), which include GBP8m of costs associated with the Target
Operating Model (for redundancies, systems testing, project
resources, and dual running).
Labour and third-party cost inflation totalled GBP170m.
Approximately GBP163m of these rising costs were recovered from our
customer base via contract re-pricing.
Generate Cash
Our ability to translate revenue into earnings growth and free
cash flow is integral to the success of our strategy, including our
ability to reinvest for future growth and increase shareholder
returns while maintaining a robust balance sheet position.
During FY23, we generated a free cash inflow of GBP66m, compared
with GBP147m in the prior year. This reduction reflects the GBP45m
impact from the decision to terminate the invoice discounting
facility and a higher working capital outflow arising from
replacing Covid-related contracts on 30-day payment terms with
revenue on longer payment terms.
Our performance during the year, combined with our forecast
future cash flows, provides confidence in the delivery of our
capital allocation policy. This sets out a proactive but
disciplined use of resources to pursue bolt-on acquisition
opportunities, return cash to shareholders via share buybacks and
dividends, and purchase shares for our employee incentive schemes
to eliminate the otherwise dilutive effect of issuing new shares to
fulfil vesting awards.
In FY23, we invested GBP20m in acquisitions in the telecoms and
decarbonisation sectors and returned GBP117m to shareholders via
dividends paid (FY22 final and FY23 interim dividends), share
buybacks and the purchase of 50m shares at a total cost of GBP38m
for employee incentive schemes. Our leverage of 0.4x average net
debt/EBITDA gives us significant headroom within which to maintain
our capital allocation activities.
Capability Enablers
Our strategic pillars of growth, margin enhancement and cash
generation are underpinned by three capability enablers: the
Science of Service; creating a 'Great Place to Work'; and
Decarbonisation Delivered.
The Science of Service
Over the past five years, we have made substantial investments
to develop leading cloud-based platforms for facilities management.
Our 'Science of Service' approach allows us to put cutting-edge
technology at the forefront of all our services, providing
customers with innovative solutions to create safe, clean,
sustainable and energy efficient spaces. This technology sets Mitie
apart from its competitors and creates a strong platform from which
to win and retain customers, and to be recognised as a trusted
partner for their businesses.
Forté is our industry-leading digital platform to automate
workflow in Technical Services. Forté incorporates a suite of
Connected Workspace products, including ESME (our AI-driven
chatbot), Aria (our workplace app) and MOZAIC (our AI/Machine
Learning analytics suite), which are revolutionising the way our
people work by enabling our customers and their employees to
seamlessly connect to workplace services. They have been adopted by
40 customers to date, with over 14,000 registered users reporting
and tracking workflow across their estates.
We have developed an application, combining virtual reality and
the Internet of Things, which enables our remote and on-site
engineers to collaborate through our Connected Engineer headset.
This aims to improve fault detection and diagnosis, deliver cost
savings on planned maintenance activities and improve the overall
customer experience. We have also been expanding our use of Machine
Learning models to provide holistic digital solutions to support
our customers with their workplace and decarbonisation strategies,
using software such as Building Management Systems (BMS) and
Building Information Modelling (BIM).
We have introduced some of these technologies to customers such
as the BBC and Deloitte, where a 'partnership technology roadmap'
has been integral both to securing recent contract extensions and
to deploying our workplace consultancy services. We have also grown
our Connected Branches service for Lloyds Banking Group, with 460
branches having been fitted with our remote connectivity products
to reduce energy consumption, and a further 100 in progress. In the
public sector, customers such as Sellafield, the Department for
Transport (DfT), the DWP and Ofcom are implementing our technology
to improve the workplace experience for their employees and
increase productivity.
Mitie operates the UK's leading intelligence and technology-led
security business, identifying and assessing threats through its
intelligence network and dedicated Intelligence Hub in Northampton.
This technology provides significant advantages in winning,
transforming and retaining contracts across multiple sectors,
including the retail, financial services, and transport and
aviation sectors.
Furthermore, Mitie is at the forefront of the acceleration of
technology within the cleaning and hygiene sector. In early 2022,
we opened the Cleaning and Hygiene Centre of Excellence (CHCoE) in
Birmingham to showcase our tech-enabled solutions to existing and
potential customers. Our robotic cleaners deliver a consistent
level of cleaning, day and night, while reducing the use of water
and electricity by identifying the most efficient route around a
building. They are commonplace in high-traffic environments such as
railway stations, and in NHS settings, and can be combined with
footfall monitors to create a 'demand-led' pattern of cleaning
activity. We have also developed leading technology to improve the
air quality in a range of settings, including offices and transport
hubs, using UVC air disinfection systems.
Creating a 'Great Place to Work'
Our ambition is to be the destination 'employer of choice' in
the facilities management industry. We will achieve this by
creating a 'Great Place to Work', empowering our 64,000 colleagues
by developing their skills, providing meaningful career
opportunities and ensuring that they are suitably recognised and
rewarded for their contribution. This, in turn, enables us to
continue delivering outstanding customer service.
We are an industry leader in the provision of benefits to our
frontline colleagues. During the year we launched a GBP10m Winter
Support package of new benefits to help our colleagues through the
cost-of-living crisis, including one-off bonuses, the removal of
fees for using salary finance, retail discounts and additional free
shares. We have also expanded our 'Choices' platform to our
hourly-paid colleagues, so that they can take advantage of
discounts on everyday products and services.
The positive steps that we have taken to create a 'Great Place
to Work' have been reflected in the results of our latest annual
employee engagement survey. Some 84% of our full-time employees
participated (54% of all colleagues), our highest participation
rate to date. Our overall Mitie engagement score rose to a record
level of 57% of colleagues 'fully engaged', a 7ppt increase on last
year's score, and a 24ppt increase since we introduced an annual
survey in 2018.
Decarbonisation Delivered
The third enabler to our strategy is to support an increasing
number of public and private sector clients to define and deliver
their own Net Zero strategies through our growing decarbonisation
capabilities.
During H1 FY23, we completed the acquisition of Custom Solar,
which specialises in solar photovoltaic panel installation, further
strengthening our suite of decarbonisation services. This
complements our FY22 acquisitions of Rock Power Connections, which
delivers high-voltage power connections (including for electric
vehicles), and Biotecture, which installs living walls for interior
and exterior urban spaces.
Our decarbonisation business revenue increased by 65% to GBP145m
(FY22: GBP88m), through cross-selling these capabilities to
existing customers. Rock is now working with five of the UK's
leading sustainable energy providers, including Gridserve and
Roadchef, to install fast EV charging points in a variety of
settings, including motorway service stations, petrol stations and
destination hubs such as garden and shopping centres. In addition,
we continue to develop heat decarbonisation plans for five central
government bodies across over 100 buildings, and to provide other
services, such as LED lighting installation and energy consumption
management, for our customers.
Financial highlights
Our financial results for the year ended 31 March 2023 are
encouraging and we have made further progress against each of our
strategic priorities. We entered the year with the challenge of
replacing almost GBP450m of short-term and higher-margin
Covid-related contract revenue. Thanks to the hard work of our
64,000 colleagues and our technology-led approach, we have achieved
this, and more.
Group revenue
Group revenue, including share of joint ventures and associates,
from continuing operations of GBP4,055m was 1.5% better than the
prior year (FY22: GBP3,997m), even after the completion of
short-term Covid work (FY22: GBP448m), representing our highest
ever revenue. Excluding the Covid-related contracts, underlying
revenue growth was 14%. This increase is broadly attributable to
organic growth of 7% (including net contract wins and losses,
contract growth and projects), contract re-pricing of 5% and
acquisitions of 2%.
Profitability
Basic earnings per share before other items grew by 3.3% to 9.5p
(FY22: 9.2p). EPS benefited from the refinancing of debt
instruments and share buybacks , which more than offset the small
reduction in operating profit before other items to GBP162m
compared with the prior year (FY22: GBP167m) due to the completion
of the higher margin Covid work. Basic earnings per share after
other items more than tripled to 6.8p (FY22: 2.2p), reflecting a
GBP60m reduction in Other items after tax to GBP37m (FY22:
GBP97m).
Financial position
We generated GBP117m of cash from operations (FY22: GBP264m),
leading to GBP66m of free cash flow (FY22: GBP147m) in FY23, which
helped us to maintain a strong balance sheet with leverage (average
net debt/EBITDA) of only 0.4x.
Our average net debt was GBP84m (FY22: GBP25m), reflecting the
implementation of the capital allocation policy announced last year
and our decision to terminate the customer invoice discounting
facility. Closing net debt at 31 March 2023 increased to GBP44m
(FY22: GBP27m net cash).
Capital allocation
Mitie is cash generative and has a strong, stable and flexible
balance sheet to support future growth and increased returns to
shareholders.
The Group has made a number of targeted bolt-on acquisitions
over the last two years, focused on the higher-growth,
higher-margin sectors of decarbonisation, security technology and
telecoms infrastructure. The Board believes that value-accretive
acquisitions represent an increasingly important route through
which Mitie can accelerate growth and build on its earnings and
cash generation platform for the future.
Having reinstated the dividend last year, post Covid, the
Board's intention has been to increase the dividend payout ratio to
30%-40%, and thereafter deliver dividend growth in line with
earnings growth. In light of the Group's robust financial position
and continued progress against its strategy, the Board is therefore
recommending a final dividend of 2.2p per share which, when added
to the dividend paid in respect of the first six months of the
year, takes the total dividend for FY23 to 2.9p per share (FY22:
1.8p). This represents a payout ratio of 30% (FY22: 20% payout).
The final dividend will be paid on 4 August 2023.
In April 2023, the Board announced its decision to purchase
shares to satisfy all employee incentive schemes, eliminating the
otherwise dilutive effect of issuing new shares to fulfil vesting
awards. The majority of our share schemes are satisfied through the
Company's Employee Benefit Trust (EBT), while Save As You Earn
(SAYE) schemes are satisfied through treasury shares, in order to
mitigate unnecessary stamp duty costs for the employee.
Consistent with this approach, 50m shares were purchased through
the EBT, including 4m shares for our employee Winter Support
package, at a total cost of GBP38m in FY23. We expect share
purchases through the EBT to reduce significantly to c.15m shares
in FY24 and FY25, as specific incentives put in place in respect of
the Interserve acquisition mature.
The Board also announced in April 2023 a new GBP50m share
buyback programme for FY24, following on from the initial GBP50m
programme executed in the first half of FY23. The first GBP25m
tranche of the new programme is underway and includes the purchase
of 15m shares to be held in treasury for our 2020 SAYE scheme,
which vests in December 2023. The remaining shares purchased from
the first tranche will be cancelled. The timing of the second
tranche of the new programme will be dependent on M&A
opportunities and will include the additional 15m shares required
for the vesting of the 2020 SAYE scheme (30m shares in total), with
all remaining shares being cancelled.
Outlook
FY24 has started positively. Since the start of the year, we
have won and extended a number of significant new contracts and we
have a healthy pipeline of new opportunities, combined with the
full year benefit from major contracts won and extended in the
final months of FY23.
We will continue our disciplined approach to bidding for
contracts, even if it is challenging to maintain renewal rates at
the current level, and we will continue to seek growth
opportunities, both organically and through strategic bolt-on
acquisitions in the decarbonisation, security technology and
telecoms infrastructure sectors. We have already completed two
acquisitions in FY24, both of which strengthen our capabilities as
the UK's leading intelligence and technology-led security
provider.
We also expect to deliver further progress in FY24 on our
ongoing programme of margin enhancement initiatives, including
increased synergies from the Interserve acquisition, and
efficiencies across our labour, third-party and overhead cost base,
which will more than offset inflationary headwinds.
This positive momentum carried forward into the new financial
year gives the Board confidence in meeting its growth expectations
for FY24. Mitie is cash generative and has a strong, stable, and
flexible balance sheet to support increased returns to shareholders
and future growth opportunities.
Operating review
Business Services
Business Services delivers Intelligent Security, Cleaning and
Hygiene Services, and Office Services. During the pandemic,
Business Services was also primarily responsible for the delivery
of Mitie's short-term Covid-related contracts. These contracts
completed early in FY23.
Business Services, GBPm FY23 FY22 Change
-------------------------------- --------- --------- ---------
Revenue 1,172 1,522 (23)%
Security 782 1,127 (31)%
Cleaning 390 395 (1)%
Operating profit before other
items 68 108 (37)%
Operating profit margin before
other items 5.8% 7.1% (1.3)ppt
Total order book GBP1.5bn GBP1.7bn (12)%
Number of employees 31 ,148 38,092 (18)%
-------------------------------- --------- --------- ---------
Performance highlights
-- Revenue reduced by 23% to GBP1,172m (FY22: GBP1,522m),
largely due to the completion of Covid work.
-- Excluding GBP15m of revenue from Covid work in FY23 (FY22:
GBP429m), revenue increased by 6% largely driven by contract
re-pricing plus contributions from variable and project works.
-- Operating profit before other items reduced by 37% to GBP68m
(FY22: GBP108m). Excluding the GBP7m contribution from Covid work
in FY23 (FY22: GBP60m), operating profit increased by 26%, and the
operating margin increased by 0.8ppt to 5.2%, driven by margin
enhancement initiatives
-- GBP1.0bn TCV of new, renewed or extended contracts, including
for Eurostar, Hammerson, Home Office, National Grid, NATS and
Sainsbury's
-- Four significant contracts mobilised in early FY23 for BAE
Systems, Hammerson, John Lewis & Partners, and Poundland, worth
GBP33m of annualised revenue and TCV of up to GBP120m
-- Awards include: British Security Awards 2023 - Service to the
Customer and Best Team; Metsä Sustainability Awards 2023 - Team
Sustainability Excellence and Social Value Impact ; Cleaning
Excellence Awards 2022 - Cleaning & Hygiene Team of the Year;
Fire and Security Matters Awards 2022 - Security Guarding Company
of the Year and Security Team of the Year
Operational performance
Business Services delivered an encouraging performance, with the
continuation of the Afghan Relocations and Assistance contract,
increased variable and project work, and contract re-pricing,
alongside the delivery of margin enhancement initiatives, partially
offsetting the completion of higher margin short-term Covid work
that had benefited the prior year and a reduction in scope of the
Brexit security contract at UK ports. Excluding Covid work,
revenue, operating profit before other items and the operating
margin were all better than last year.
The division secured GBP1. 0bn TCV of new contract wins,
renewals and extensions, including wins for Hammerson, the Home
Office, John Lewis & Partners, National Grid, NATS and
Poundland. The largest extension was for three years with
Sainsbury's, while other renewals and extensions included Eurostar,
Hammerson and Manchester Airport Group.
Margin enhancement initiatives implemented during the year were
a key driver of growth in underlying operating profit and the
operating margin. The initiatives primarily focused on operational
excellence, the roll-out of the Coupa digital supplier platform and
leveraging the Workplace+ workforce management app to optimise
workforce productivity and workflows across the division's core
services.
Technology continues to drive change across the industry and
Mitie is a leader in this area. In Business Services, the 'Merlin
Protect 24/7' platform (business intelligence software for security
incident management) is being developed into a leading 'Merlin for
Cleaning' version to monitor and track responses to reactive tasks
such as spillages. Trials were carried out across several clients,
including Amazon, Co-op, Deloitte and Standard Life, with results
showing notable productivity improvements in frontline cleaning
operations.
The division also operates the UK's leading intelligence and
technology-led security business, including Mitie Intelligence
Services (MIS). MIS identifies and assesses threats through its
intelligence network and dedicated Intelligence Hub, and provides
significant advantages in winning, transforming and retaining
contracts across multiple sectors, including the retail, financial
services, and transport and aviation sectors. MIS is
well-positioned to work with customers when 'Martyn's Law'
(formerly the Protect Duty) comes into effect, setting out
requirements for venues and other organisations to ensure public
safety.
Since the year end, we have continued to build the division's
capabilities in intelligence and technology-led security through
the acquisitions of Linx International Group and R H Irving
Industrials, for a total consideration of GBP21m. These businesses
bring a range of complementary services and security infrastructure
technology to Mitie and will enhance the division's ability to
provide comprehensive support, including training, to our customers
as they prepare to meet the requirements of Martyn's Law.
Technical Services
Technical Services is a leading supplier of technical
engineering services and delivers projects to a range of
predominantly private sector customers. Through a series of
strategic acquisitions, the division is also focusing on the high
growth areas of telecoms infrastructure and innovative
decarbonisation solutions.
Technical Services, GBPm FY23 FY22 Change
-------------------------------- --------- --------- ---------
Revenue 1,154 973 19%
Maintenance 1,000 849 18%
Projects 154 124 24%
Operating profit before other
items 34 30 14%
Operating profit margin before
other items 3.0% 3.1% (0.1)ppt
Total order book GBP1.6bn GBP1.7bn (6)%
Number of employees 9,841 9,029 9%
-------------------------------- --------- --------- ---------
Performance highlights
-- Revenue increased by 19% to GBP1,154m (FY22: GBP973m),
benefiting from acquisitions, contract wins, renewals and
extensions, contract re-pricing and a full year of revenue from
significant wins in the prior year, in addition to the steady
recovery of the projects business post Covid
-- Operating profit before other items increased to GBP34m
(FY22: GBP30m), primarily driven by the uplift in revenue and
margin enhancement initiatives more than offsetting inflationary
cost increases and the impact of short-term operational
inefficiencies from Fort é
-- The creation of one of the UK's largest telecoms support
services companies, following the acquisitions of P2ML and 8point8
in FY23, combined with DAEL Telecoms (acquired in FY22)
-- Decarbonisation offering strengthened in FY23 through the
acquisition of Custom Solar, a specialist in the design and
installation of solar photovoltaic (PV) panels
-- Awards include: Commercial Solar Project of the Year (Custom
Solar); Computing News Digital Technology Leaders Awards 2022 -
Best Large Enterprise Digital Project (Aria); Edie Awards -
Net-Zero Carbon Strategy of the Year Award (Mitie Plan Zero); RoSPA
Gold Award for health and safety performance (Magnox contract);
Facilities Management Awards 2023 - Total FM Provider of the Year
(Mitie Ireland)
Operational performance
Technical Services continued to benefit from a steady recovery
in projects and variable works, increased demand from customers for
its technology-led solutions and growth in the telecoms
infrastructure and decarbonisation businesses. This, combined with
contract wins (which more than offset two notable losses), renewals
and extensions, contract re-pricing and a full year of revenue from
significant prior year wins (including BAE Systems and Legal &
General), contributed to a 19% increase in revenue to
GBP1,154m.
The operating margin remained broadly flat at 3.0%, due to the
benefits of the good underlying performance and margin enhancement
initiatives being offset by the impact of inflation, short-term
operational challenges following the going live in H1 of Fort é
(the digital platform to automate scheduling in Technical Services)
and the initial investment in recently acquired businesses.
During the year, the division won, renewed or extended GBP1.0bn
TCV of contracts, including wins with GSK, NATS, National Grid and
Sky, and renewals or extensions with Deloitte, E.ON and
Vodafone.
Technical Services is at the forefront of Mitie's 'Science of
Service' ambitions, using its leading-edge technology platforms to
optimise employee wellbeing, enhance estate intelligence and
provide smart decarbonisation and green energy solutions. Mitie's
Connected Workspace suite of products has been pivotal to the
division's new wins and scope expansions with existing customers,
as they adapt to new, hybrid ways of working. There are more than
18,000 sensors remotely monitoring occupancy and utilisation across
several new accounts, including the BBC. The Aria workplace app has
been adopted by 40 customers to date, with over 14,000 registered
users reporting and tracking workflow across their estates.
Reactive tasks are increasingly being logged in Chatbot ESME. In
addition, assets such as heating, ventilation and cooling systems
are managed remotely through Mitie's Technical Services Operations
Centre (TSOC) in Manchester, delivering both operational
efficiencies as well as energy savings for customers (16% energy
reduction, on average, through digital maintenance).
After an initial period of stabilisation for Forté , service
level performance is now at 'pre-Forté' levels and is improving
daily. The delay in getting the system to full capacity held back
the cumulative benefit from Forté savings to GBP9m in FY23. The
full planned savings run rate of GBP15m is expected to be achieved
in FY24, as previously communicated. The division also implemented
a number of overhead cost savings and operational excellence margin
enhancement initiatives during the year, as part of the wider Group
programme.
The acquisitions of P2ML (April 2022) and 8point8 (May 2022)
were combined with DAEL Telecoms (acquired in August 2021) to
create Mitie Telecoms, one of the UK's largest telecoms
infrastructure businesses. Mitie Telecoms' services include both
infrastructure projects and network coverage for special events,
such as music festivals and the funeral of HM Queen Elizabeth II in
September 2022. During the year, Mitie Telecoms partnered with
Cellnex, Digital Mobile Spectrum Limited and H3G, and extended its
relationships with Vodafone and VMO2, so is now working with all
the mobile network operators. The business contributed GBP76m of
revenue in FY23 (FY22: GBP31m) and is well-positioned to benefit
from the ongoing roll-out of 5G across the UK and the
decommissioning of Huawei assets.
Technical Services is also capitalising on increased demand for
decarbonisation services, including solar power, LED roll-outs, air
source heat pump installation and electric vehicle charging
projects. The decarbonisation business has grown from GBP88m of
revenue in FY22 to GBP145m in FY23, driven by the acquisitions of
Custom Solar (June 2022) and Rock Power Connections (November
2021).
Central Government & Defence (CG&D)
The CG&D division provides facilities management services
across central government and defence contracts. CG&D operates
across 21 contracts and 28 government departments and agencies, at
over 3,000 locations across the UK and overseas.
CG&D, GBPm FY23 FY22 Change
------------------------------------- --------- --------- -------
Revenue including share of joint
ventures and associates 828 669 24%
Central Government 439 379 16%
Defence 389 290 34%
Operating profit before other items 60 38 56%
Operating profit margin before
other items 7.2% 5.7% 1.5ppt
Total order book GBP2.4bn GBP1.6bn 50%
Number of employees 5,576 5,578 -
------------------------------------- --------- --------- -------
Performance highlights
-- Revenue increased by 24% to GBP828m (FY22: GBP669m),
benefiting from strong growth in projects and variable work,
contract re-pricing, scope increases and a full year of the Future
Defence Infrastructure Services (FDIS) contract
-- Operating profit before other items increased by 56% to
GBP60m (FY22: GBP38m), and the operating margin increased by 1.5ppt
to 7.2%
-- New wins of GBP0.3bn TCV, including for the Ministry of
Defence (MOD) overseas military base in Gibraltar and United States
Visiting Forces
-- Significant renewals or extensions of GBP1.4bn TCV ( 100%
retention rate), including for the MOD's overseas military bases in
Cyprus and the South Atlantic Islands and the Landmarc 'Training
Estate', the Department for Transport (DfT) and the Department for
Work and Pensions (DWP)
-- Projects included decarbonisation work across MOD/FDIS sites
and 'back to work' initiatives for the DWP
-- Awards include: MOD Heritage Award for refurbishment of
Gibraltar Tower, recognising the work of Mitie and the Defence
Infrastructure Organisation (DIO); Gold recognition by the RoSPA
for the Ascension Island team
Operational performance
CG&D had a strong year, driven by growth in higher-margin
projects work across the division (including for the MOD, FDIS, DIO
and through Landmarc for the UK Defence Training Estate), contract
re-pricing, scope increases and a full year of the FDIS contract,
which started to mobilise in December 2021. As a result, divisional
revenue increased by 24% to GBP828m.
Operating profit before other items increased by 5 6% to GBP60m
and the operating margin improved by 1.5ppt to 7.2%, reflecting
margin enhancement initiatives and revenue related to services
disrupted by the pandemic.
In total, CG&D secured GBP1.7bn of new contract wins,
renewals and extensions in FY23. The division was awarded and
mobilised new contracts for the MOD's overseas military base in
Gibraltar, and to support United States Visiting Forces . CG&D
has also been retained as strategic partner to the MOD for its
overseas military bases in Cyprus and the South Atlantic Islands,
and through Landmarc for the UK Defence Training Estate contract.
Other significant contract extensions included those for the DfT
and DWP.
Projects and scope increases included work for the DWP where
CG&D has continued to implement 'back to work' wellbeing
initiatives, and decarbonisation work to assist the UK Government
to achieve its 2050 Net Zero target. The latter includes the
refurbishment of the accommodation blocks across the MOD and FDIS
estates to incorporate low-carbon features, such as building energy
monitoring systems, heat pumps, solar power, thermal insulation and
other smart features to reduce energy consumption and automate
processes.
CG&D played an important role in the delivery of support for
the funeral of HM Queen Elizabeth II in September 2022 across
Whitehall and Westminster, including the provision of extensive
extra security and providing the facilities management for
rehearsals (across several defence training sites) and for the
ceremony.
Mitie's technology is a key differentiator, and the division has
continued to focus on the deployment of the secure asset management
system across the defence contracts with benefits such as MyJobs,
the fully mobile workflow application, 3D building scanning
capability and construction management software, Asite, which has
Building Information Modelling (BIM) capability.
The 'Mitie First' strategy, which is focused on insourcing
services formerly provided by third parties, resulted in an
additional GBP20m of cross-selling revenue synergies in FY23.
CG&D implemented operational excellence initiatives during
the year across eight of its largest contracts. These initiatives
are focused on improving the work order scheduling process, which
has led to improved utilisation of mobile engineers and an increase
in the proportion of work being self-delivered. In addition, the
implementation of the Workplace+ workforce management app has
enabled more effective scheduling of shift work.
Communities
The Communities division delivers sustainable outcomes as a
trusted partner to the public sector, across Healthcare, Education
and Campus & Critical Services. The division operates over 100
PFI and traditional commercial contracts.
Communities, GBPm FY23 FY22 Change
---------------------------------- --------- --------- -------
Revenue including share of joint
ventures and associates 490 460 7%
Healthcare 250 225 11%
Education 145 129 12%
Campus & Critical 95 106 (10)%
Operating profit before other
items 21 20 7%
Operating profit margin before
other items 4.3% 4.3% -
Total order book GBP3.4bn GBP3.7bn (8)%
Number of employees 7,802 8,513 (8)%
---------------------------------- --------- --------- -------
Performance highlights
-- Revenue increased by 7% to GBP490m (FY22: GBP460m),
benefiting from contract re-pricing and increased lifecycle and
projects work across Healthcare and Education
-- Operating profit before other items increased by 7% to GBP21m (FY22: GBP20m)
-- Communities secured a place on two significant procurement
frameworks : London Procurement Partnership (a four-year NHS
framework) and Everything FM (an education framework), which are
valued at up to GBP5.8bn and GBP300m respectively
-- Good pipeline progression in the Local Government and
Healthcare markets and successful mobilisation of the contract with
Kingston Council
Operational performance
The Communities division delivered an encouraging performance
during the year, with revenue and operating profit both 7% ahead of
the prior year and the operating margin maintained at 4.3%. The
division secured GBP0.2bn TCV of contract wins and extensions
including a new contract with Kingston Council and contract
extensions with Poole Hospital and West Herts Hospital.
Projects work included the installation of LED lighting in one
of the major London hospitals, and the delivery of improvement
programmes over the summer holiday period across six large schools.
The 10% reduction in Campus & Critical revenue reflected two
contract losses, of which one was insourced, and the other Mitie
declined to re-bid.
The Computer Aided Facility Management (CAFM) upgrade programme
across Healthcare was successfully completed by the year end,
having been rolled out across 24 sites. This included the
introduction of a new payment mechanism model at one hospital
trust. Technical operational performance has strengthened
materially as a result, with maintenance completion above 96%. In
healthcare environments, Mitie's Merlin for Cleaning application
has been piloted to improve soft services productivity and
innovation. Several other operational excellence margin enhancement
initiatives were implemented during FY23, including helpdesk
upgrades in Education, and the roll-out of the Coupa digital
supplier platform.
The division is also continuing to make progress in turning
around the handful of under-performing contracts which were
acquired with Interserve. Six of the contracts showed improved
performance during the year, with two contracts now contributing to
Group profitability. One contract remains particularly challenging
and only showed a marginal improvement in performance (GBP8.4m loss
in FY23 compared with GBP8.7m in the prior year). The majority of
the remaining under-performing contracts will be at, or close to,
break even by the end of FY24, with the final contract expected to
achieve profitability in FY26, after productivity improvements and
re-sets to pricing.
Specialist Services
The Specialist Services division encompasses Care & Custody,
Landscapes, Spain and Waste. From FY24, Landscapes, Spain and Waste
will be moved into the Business Services division and Care &
Custody will be moved into the Communities division.
Specialist Services, GBPm FY23 FY22 Change
-------------------------------- --------- --------- ---------
Revenue 411 373 10%
Care & Custody 169 136 24%
Landscapes 66 55 20%
Spain 102 105 (3)%
Waste 74 77 (4)%
Operating profit before other
items 35 33 7%
Operating profit margin before
other items 8.5% 8.7% (0.2)ppt
Total order book GBP0.8bn GBP0.8bn -
Number of employees 9,808 10,118 (3)%
-------------------------------- --------- --------- ---------
Performance highlights
-- Revenue increased by 10% to GBP411m (FY22: GBP373m) and
operating profit before other items increased by 7% to GBP35m
(FY22: GBP33m)
-- Care & Custody revenue increased by 24% to GBP169m,
driven by contract wins, extensions and renewals, alongside
additional project work in escorting services
-- Landscapes revenue increased by 20% to GBP66m, largely
reflecting a full year of revenue from the FDIS contract and the
acquisition of Biotecture, the living walls specialist (acquired in
January 2022)
-- Spain revenue reduced by 3% to GBP102m, mainly as a result of
the significant reduction in Covid work at airports
-- Waste revenue reduced by 4% to GBP74m due largely to the
closure of NHS Covid Test & Trace sites
-- Awards include: Seven Green Apple awards (Waste), Three Green
Apple awards (Landscapes), BALI National Landscape Award 2022
(Landscapes)
Operational performance
Care & Custody revenue was 24% ahead of the prior year,
mainly due to a full year of revenue from the Dungavel and
Derwentside Immigration Removal Centre contracts, alongside
additional escorting services project work, primarily at Manston.
Within Police Services, contracts with Cleveland, Greater
Manchester and Nottinghamshire Police were renewed during the year,
while extensions were secured for Cheshire, Northumbria, South
Wales and West Mercia Police. New contracts were awarded for
Lincolnshire, Derbyshire and South West Police consortium. Mitie is
a leading provider of forensic health and custodial support
services for the UK's police forces.
Landscapes revenue was 20% ahead of the prior year, primarily
driven by a full year of revenue from FDIS and Biotecture. In FY23,
Landscapes won GBP35m TCV of new and additional work, including
contracts with Busy Bee, Kew Green Hotels, Lidl, NATS and Savills.
Renewals and scope changes in the year totalled GBP6m TCV and
included BNP Paribas, Deloitte, E.ON, The Church of Jesus Christ of
Latter-day Saints, NHS Property Services, Vodafone and
Morrisons.
Biotecture performed well during the year and won the BALI
National Landscape Award 2022 for the exterior living wall
installation at Canary Wharf, which includes over 25,000 plants in
750m(2) of walls around the site, as well as three Green Apple
awards, including one for its sustainability credentials for work
on the Landscapes office in Hampshire.
Spain revenue reduced by 3%, due to new contract wins being
offset by a reduction in short-term Covid work at numerous
airports. New contract wins included those with EMT Madrid (public
bus transport), Ajuntament de Cornellà de Llobregat (municipal
governing body) and EYSA (mobility services).
Waste revenue reduced by 4% largely due to the closure of NHS
Covid Test & Trace sites. This reduction in revenue was
partially offset by the recovery of contracts impacted by previous
lockdowns, and new contract wins, including with Hammerson and
Covent Garden Market Authority. Waste has also been successful in
extending its contract with a major global FMCG manufacturer for a
further two years, and securing retenders with Hull and East Yorks
Hospitals, JLL and Manchester Airport Group.
Corporate overheads
Corporate overheads represent the costs of running the Group,
and include costs for central functions such as commercial and
business development, finance, marketing, legal and HR. Corporate
overhead costs have reduced significantly, by 10% to GBP55.5m in
FY23 (FY22: GBP61.4m), mainly as a result of cost-efficiencies
delivered from the margin enhancement initiatives.
Finance review
Alternative Performance Measures
The Group presents its results as those of continuing
operations, before other items. Management believes this is useful
for users of the financial statements, providing both a balanced
view of the financial statements, and relevant information on the
Group's financial performance. Accordingly, the Group separately
reports impairment of goodwill, cost of restructuring programmes,
acquisition and disposal related costs (including the impairment
and amortisation of acquisition related intangible assets), gains
or losses on business disposals and other exceptional items as
'other items'.
Financial performance
The reported Income Statement from continuing operations is set
out below:
Continuing operations,
GBPm unless otherwise specified FY23 FY22
----------------------------------------------------------- ------- -------
Revenue including share of joint ventures and associates 4,055.1 3,996.8
Group revenue 3,945.0 3,903.3
Operating profit before other items 162.1 166.9
Other items (45.1) (94.8)
Operating profit 117.0 72.1
Net finance costs (11.5) (19.8)
Profit before tax 105.5 52.3
Tax (14.4) (21.0)
Profit after tax 91.1 31.3
Basic earnings per share before other items 9.5p 9.2p
Basic earnings per share 6.8p 2.2p
----------------------------------------------------------- ------- -------
Revenue
Revenue from continuing operations for FY23 of GBP4,055.1m,
including share of revenue from joint ventures and associates, has
increased by GBP58m compared with the prior year.
Excluding revenue from short term, Covid-related contracts of
GBP15m (FY22: GBP448m), revenue from continuing operations has
grown by GBP491m (+14%) in FY23. This growth has been driven by new
contract wins (including the large FDIS contract in CG&D, and
the BAE Systems contract in Technical Services and Business
Services), growth in projects work (in particular in CG&D),
revenue from recent acquisitions (DAEL, P2ML, 8point8, Rock, Custom
Solar, Biotecture and Esoteric), and the impact of inflationary
price increases. The impact of inflation on revenue was
approximately GBP163m in FY23.
Operating profit
Operating profit from continuing operations before other items
was GBP162.1m (FY22: GBP166.9m), a reduction of GBP4.8m, which
arose primarily as a result of the reduction in contribution from
the short term, Covid-related contracts.
Excluding the contribution from Covid work of GBP7m (FY22:
GBP60m), operating profit before other items increased by GBP48m
(+44%) in FY23, largely driven by margin enhancement initiative
savings of GBP41m, projects work and contract wins and
extensions.
All divisions contributed positively to this 44% profit
improvement. CG&D made the greatest contribution (GBP21.4m) as
a result of new wins, pricing and increased projects work, with
other notable increases in: Business Services (GBP12.6m) from wins,
projects work and margin enhancement initiatives; Technical
Services (GBP4.6m) from the post-Covid recovery in variable works;
and Corporate Centre (GBP4.1m) as a result of the ongoing delivery
of margin enhancement initiatives.
Inflation had a negative impact on operating profit of
approximately GBP7m in FY23, representing a 96% recovery of the
GBP170m of cost inflation experienced in the year. This recovery is
better than expected due to the strong contractual protections in
place, and good customer relationships. There were also net
reductions in operating profit in the year from Project Forté
(GBP1.9m), which is now complete, and from the Winter Support
package (GBP7.9m).
After accounting for GBP45.1m of net charges in other items
(FY22: GBP94.8m), operating profit from continuing operations was
GBP117.0m (FY22: GBP72.1m), a year on year improvement of 62%.
Other items
GBPm FY23 FY22
------------------------------------------------------------- ------ ------
Workflow optimisation (Project Forté) (8.7) (10.2)
Target Operating Model (7.9) (0.3)
Property transformation - (0.4)
Restructuring (16.6) (10.9)
------------------------------------------------------------- ------ ------
Interserve acquisition related income/(costs) 3.7 (2.4)
Interserve integration costs (5.5) (16.2)
Interserve settlement of contractual disputes - 9.8
Interserve completion accounts adjustment to consideration - (45.6)
Interserve amortisation of acquisition related
intangible assets (16.7) (19.1)
------------------------------------------------------------- ------ ------
Interserve related other items (18.5) (73.5)
------------------------------------------------------------- ------ ------
Amortisation of non-Interserve acquisition related
intangible assets (4.7) (2.8)
Digital supplier platform (3.4) (4.4)
Other acquisition related costs (1.9) (3.2)
------------------------------------------------------------- ------ ------
Other exceptional items (10.0) (10.4)
------------------------------------------------------------- ------ ------
Total other items from continuing operations
before tax (45.1) (94.8)
------------------------------------------------------------- ------ ------
Gain on disposal of Document Management business - 16.0
Other items related to discontinued operations - 1.0
------------------------------------------------------------- ------ ------
Total other items before tax (45.1) (77.8)
Tax 8.2 (2.0)
------------------------------------------------------------- ------ ------
Total other items after tax (36.9) (79.8)
------------------------------------------------------------- ------ ------
Other items have reduced significantly in FY23, largely due to
the conclusion of the Interserve integration and completion
accounts process. This reduction has been partially offset by costs
associated with the Group's margin enhancement initiatives.
Project Fort é was completed in FY23, and therefore no further
other items costs will be incurred. The Target Operating Model
programme is the next phase of the Group's transformation, and
includes the further outsourcing of back office functions,
consolidating systems and processes, and optimising the
organisation structure. This programme has contributed GBP6m to
cost savings in FY23 and, combined with further investment, is
expected to drive GBP20m of additional savings in FY24.
The GBP3.7m Interserve acquisition related income for FY23
relates to the release of provisions established on the opening
balance sheet for contract specific matters, which are no longer
required because the matters have since been resolved.
Net finance costs
Net finance costs from continuing operations improved
(decreased) by 4 2% to GBP11.5m (FY22: GBP19.8m). The de crease was
driven by t he benefit of the improved terms negotiated as part of
the refinancing of the Revolving Credit Facility (RCF) (signed in
October 2021), and US Private Placement (USPP) notes (from December
2022 onwards), together with amendment fees from the June 2020
refinancing (during Covid) becoming fully amortised and the
termination of the Group's customer invoice discounting facility.
Finance income also improved due to increased interest rates on
deposited funds.
Tax
The tax charge for the year for continuing operations was
GBP14.4m (FY22: GBP21.0m), comprising a tax charge on operating
profit before other items of GBP22.6m (FY22: GBP19.0m) and a tax
credit for other items of GBP8.2m (FY22: tax charge of GBP2.0m).
The tax charge on continuing operations represents an effective tax
rate of 13.6% (FY22: 40.2%), which includes an effective tax rate
before other items of 15.0 % (FY22: 12.9%).
The effective tax rate before other items for FY23 includes the
benefit of a tax credit of GBP5.3m which primarily results from the
recognition, in accordance with the Group's accounting policy, of
deferred tax assets related to losses acquired with the Interserve
business. Excluding the impact of this tax credit, the effective
tax rate before other items would be 18.5%.
The lower effective tax rate before other items for FY22
reflected the increase in the rate of UK corporation tax from 19%
to 25%, with effect from 1 April 2023, which was substantively
enacted during FY22. This resulted in a GBP9.0m tax credit for FY22
related to the revaluation of deferred tax assets, which reduced
the effective tax rate before other items by c.6ppt.
The tax credit for other items for FY23 of GBP8.2m represents an
effective tax rate of 18.2%, which is slightly lower than the
standard tax rate due to the non-tax deductible nature of certain
other items charges. The equivalent charge for FY22 of GBP2.0m
comprised a tax credit of GBP6.1m related to other items before
tax, and a tax charge of GBP8.1m in respect of the revaluation of
deferred tax liabilities related to acquired intangible assets,
resulting from the UK corporation tax rate change enacted in
FY22.
Mitie is a significant contributor of revenues to the UK
Exchequer, paying GBP850.1m of taxes in the year (FY22: GBP864.3m).
Of this total, GBP158.5m (FY22: GBP148.0m) relates to taxes borne
by Mitie (principally UK corporation tax and employer's National
Insurance contributions) and GBP691.6m (FY22: GBP716.3m) relates to
taxes collected by Mitie on behalf of the UK Exchequer (principally
VAT, income tax under PAYE and employees' National Insurance
contributions).
The Group paid corporation tax of GBP19.8m in the year (FY22:
GBP16.2m), of which GBP14.0m (FY22: GBP14.1m) was paid in the UK
and GBP5.8m (FY22: GBP2.1m) overseas.
Joint ventures and associates
Operating profit for FY23 includes Mitie's share of the results
of joint ventures and associates that were acquired as part of the
Interserve transaction, net of tax, of GBP8.3m (FY22: GBP4.2m).
Earnings per share
Basic earnings per share before other items from continuing
operations increased to 9.5p (FY22: 9.2p). This is as a result of
the lower net finance costs and reduced number of shares in issue
following the share buyback programme, partially offset by the
higher effective tax rate.
Basic earnings per share from continuing operations was 6.8p
(FY22: 2.2p), with the significant improvement in FY23 reflecting
the factors outlined above, and the lower level of other items in
FY23.
Return on invested capital (ROIC)
Continuing operations,
GBPm unless otherwise specified FY23 FY22
--------------------------------- ------ ------------
Operating profit before other
items 162.1 166.9
Tax(1) (24.3) (21.5)
--------------------------------- ------ ------------
Operating profit before other
items after tax 137.8 145.4
--------------------------------- ------ ------------
Invested capital 543.1 486.6
--------------------------------- ------ ------------
ROIC % 25.4% 29.9%
--------------------------------- ------ ------------
(1) Tax charge has been calculated at the effective tax rate for
the year on pre-tax profits before other items for continuing
operations of 15.0% (FY22: 12.9%)
ROIC (before other items, on continuing operations) has
decreased to 25.4% in FY23 (FY22: 29.9%), due to a combination of
the completion of the short term, higher margin Covid work, the
higher effective tax rate and increased invested capital. The
higher invested capital relates to the investment in businesses
acquired in FY23, and the closure of the invoice discounting
facility.
Balance sheet
GBPm FY23 FY22
----------------------------------- ------- ------------
Goodwill and intangible assets 564.9 560.2
Property, plant and equipment 156.9 143.9
Interests in joint ventures and
associates 8.8 11.9
Working capital balances (179.2) (239.2)
Provisions (111.4) (117.0)
Net (debt)/cash (44.1) 26.7
Net retirement benefit liabilities (0.2) (12.2)
Deferred tax 20.4 11.1
Other net assets 5.6 40.4
----------------------------------- ------- ------------
Total net assets 421.7 425.8
----------------------------------- ------- ------------
The Group's reported net assets of GBP421.7m at 31 March 2023
were broadly unchanged compared with 31 March 2022.
Net debt increased to GBP44.1m (FY22: GBP26.7m of net cash), as
a result of the planned capital allocation actions and working
capital movements, including the impact of the decision to
terminate the invoice discounting facility which increased
receivables by GBP45m, both of which are discussed further below
(under Cash flow and net debt).
Goodwill and intangible assets increased by GBP4.7m as a result
of acquisitions during the year and investments in software, with
the increase partially offset by the amortisation of intangible
assets. Property, plant and equipment increased by GBP13.0m due to
the continued expansion of the fleet of leased electric vehicles,
as part of the programme to achieve the Group's decarbonisation
goals. Net retirement benefit liabilities benefited from the
increase in discount rates related to movements in corporate bond
yields, which is explained further below.
The net deferred tax asset balance has increased, primarily due
to the recognition of deferred tax assets related to losses
acquired with the Interserve business. Other net assets have
reduced as a result of the receipt of GBP6.0m in May 2022 in
respect of the expert's determination on the Interserve acquisition
completion accounts, and by GBP31.1m as a result of movements of
restricted cash, and the remittance of cash held on trust for the
invoice discounting facility provider.
Change in accounting policy
During FY23, Mitie has adopted the amendment to IAS 37 Onerous
Contracts - Cost of Fulfilling a Contract on 1 April 2022. The
amendment clarifies that for the purposes of an onerous contract
assessment, costs to fulfil a contract comprise both direct costs
that are specific to the contract but also an allocation of shared
direct costs that relate to fulfilling the contract. This has
resulted in a change in accounting policy for onerous contract
assessments in FY23, as the Group had previously (in common with
many other companies) included only direct costs that were specific
to the contract when determining whether a contract was onerous.
The change in accounting policy brings the Group policy in line
with the amendment to IAS 37.
As a result of the revised accounting policy, certain direct
supervision and management costs have been included in determining
the costs of fulfilling a contract, which has resulted in the
recognition of additional provisions of GBP1.1m for onerous costs
that existed at the start of the reporting period (see Note 13 to
the condensed consolidated financial statements). Under the
amendment to IAS 37, the changes apply prospectively and therefore
the Group has not restated comparative information.
Provisions
Provisions at 31 March 2023 of GBP111.4m (FY22: GBP117.0m)
largely comprise contract specific costs of GBP49.3m (FY22:
GBP56.3m), the insurance reserve of GBP26.2m (FY22: GBP26.0m), and
pension provisions of GBP21.7m (FY22: GBP23.7m), which mainly
relate to Section 75 pension liabilities. See Note 13 to the
condensed consolidated financial statements for further details on
provisions.
Provisions have reduced by GBP5.6m in the year, largely
reflecting the utilisation of contract specific provisions.
Retirement benefit schemes
Net retirement benefit liabilities have reduced to GBP0.2m at 31
March 2023 (FY22: GBP12.2m), principally due to an increase in
discount rates related to movements in corporate bond yields,
combined with Mitie's contributions. This is partially offset by an
adverse performance of plan assets, driven by the downturn in
financial markets.
The net liabilities at 31 March 2023 include a net accounting
surplus of GBP2.4m (FY22: GBP1.6m) for the main Group scheme, which
now includes a separate section for the main scheme acquired with
the Interserve business. There is also an accounting surplus
related to a joint venture acquired with Interserve, Mitie's
GBP1.5m (FY22: GBP3.8m) share of which is reported within interest
in joint ventures and associates on the balance sheet.
The latest funding valuation of the Mitie Group defined benefit
scheme, as at 31 March 2020, indicated an actuarial deficit of
GBP92.1m. The Group has agreed a deficit recovery plan with the
trustees totalling GBP93m over seven years, of which GBP35m had
been paid to 31 March 2023, including GBP14m paid during FY23. An
initial funding valuation as at 31 December 2020 for the main
scheme acquired with Interserve indicated an actuarial deficit of
GBP1.6m.
The next triennial valuation for the main Mitie scheme will take
place during FY24.
Cash flow and net debt
GBPm FY23 FY22
-------------------------------------------------- ------ ------
Operating profit before other items (continuing
operations) 162.1 166.9
Add back: depreciation, amortisation and
impairment 52.4 51.6
-------------------------------------------------- ------ ------
EBITDA before other items (continuing operations) 214.5 218.5
Other movements (including other items) (27.7) (14.6)
-------------------------------------------------- ------ ------
Operating cash flows before movements in
working capital 186.8 203.9
Working capital movements(1) (38.8) 41.2
Capex and capital element of lease payments (59.6) (69.1)
Interest payments (11.9) (17.2)
Tax payments (19.8) (16.2)
Dividends from joint ventures 9.0 4.0
-------------------------------------------------- ------ ------
Free cash inflow 65.7 146.6
Share buybacks (50.7) -
Market purchase of own shares for the EBT (37.7) (13.8)
Acquisitions and disposals(2) (20.2) 5.0
Dividends paid (28.9) (5.7)
Lease liabilities and other 1.0 (18.7)
-------------------------------------------------- ------ ------
(Increase)/decrease in net debt during the
year (70.8) 113.4
-------------------------------------------------- ------ ------
Closing net (debt)/cash (44.1) 26.7
Average daily net (debt) (84.3) (24.7)
Leverage(3) (average daily net debt/EBITDA
before other items) 0.4x 0.1x
-------------------------------------------------- ------ ------
(1) Adjusted to exclude movements in restricted cash and other
adjustments which do not form part of net debt (as explained in the
Alternative Performance Measures Appendix to the condensed
consolidated financial statements)
(2) I ncludes GBP3.6m of debt acquired with acquisitions (FY22:
GBPnil)
(3) Leverage is calculated on a 12-month rolling basis, and uses
post-IFRS 16 net debt
The Group generated a free cash inflow of GBP65.7m for FY23,
which was a decrease of GBP80.9m compared with FY22. Within this
cash inflow there was a cash outflow from working capital of
GBP38.8m, which was largely a result of the decision to terminate
the invoice discounting facility, investments required to support
the growth of the projects businesses, and the completion of the
Covid contracts, which were on more favourable payment terms than
the contracts that have replaced them.
Other movements of GBP27.7m included a cash outflow from other
items of GBP23.7m, which is predominantly made up of the costs of
completing Project Fort é, and the costs to achieve our margin
enhancement initiatives. Capex and the capital element of lease
payments of GBP59.6m were GBP9.5m lower than FY22, driven by capex
which reduced following the completion of the Interserve
integration and Forté projects in FY23. Net interest payments
reduced by GBP5.3m as a result of the refinancing actions
implemented in FY22 and FY23, whereas tax payments increased by
GBP3.6m largely due to overseas tax payments related to the
Interserve pre-acquisition period.
The planned GBP50m share buyback programme was successfully
completed in FY23, resulting in the purchase and cancellation of
69m shares during the year. A new GBP50m share buyback programme
was announced on 18 April 2023, and an initial GBP25m tranche has
already been launched, from which 15m of the shares purchased will
be held in treasury and used towards the vesting of the 2020 SAYE
share options. The remainder will be cancelled.
In addition, GBP38m has been invested in the acquisition of 50m
of Mitie's own shares for the Employee Benefit Trust (EBT), to
fulfil future vesting of all employee share incentives schemes,
including 4m shares for the Winter Support package. The decision to
purchase shares for all employee incentive schemes was made by the
Board in order to eliminate the otherwise dilutive effect to
shareholders of issuing new shares to fulfil the schemes. The 50m
shares purchased included a 'catch up' for schemes that have
already been running for two or three years. We expect share
purchases through the EBT to reduce significantly to c.15m shares
in FY24 and FY25, as specific incentives put in place in respect of
the Interserve acquisition mature.
The acquisitions of P2ML, 8point8 and Custom Solar in FY23
resulted in an increase in net debt of GBP20.2m, comprising the
proceeds paid (of GBP18.6m) adjusted for the cash and debt acquired
with these businesses (of GBP1.6m net debt).
The final FY22 dividend of GBP19.5m and interim FY23 dividend of
GBP9.4m resulted in a cash outflow of GBP28.9m in FY23. The GBP5.7m
of dividends paid in FY22 is much lower than in FY23, as it
included only the FY22 interim dividend, and no final dividend
payment from FY21, because dividend payments were only resumed in
FY22 following the Covid pandemic.
Lease liabilities and other cash flows reduced by GBP19.7m
during the year, with the key drivers being the receipt of GBP6.0m
in May 2022 in respect of the expert's determination on the
Interserve acquisition completion accounts, and an GBP8.2m
reduction in the value of new leases entered into during the year,
compared with FY22 which included a number of significant new and
renewed property leases.
Net debt
Average daily net debt of GBP84.3m for FY23 was GBP60m higher
than in FY22, due mainly to the planned capital allocation
activities, including the share buyback programme (GBP50m), the
termination of the Group's invoice discounting facility (GBP45m),
share purchases for the EBT (GBP38m), dividends paid (GBP29m) and
in-year acquisitions (GBP20m). This resulted in a leverage ratio
(average daily net debt post IFRS 16 / EBITDA before other items on
continuing operations) of 0.4x for FY23 (FY22: 0.1x).
The Group reported closing net debt of GBP44.1m as at 3 1 March
2023 (FY22: net cash of GBP26.7m), again reflecting the planned
capital allocation activities outlined above.
Total Financial Obligations (TFO)
GBPm FY23 FY22
------------------------------------- ---- ------
Net (cash)/debt 44.1 (26.7)
Customer invoice discounting - 44.5
Net retirement benefit liabilities 0.2 12.2
------------------------------------- ---- ------
Total Financial Obligations
(TFO) 44.3 30.0
------------------------------------- ---- ------
TFO at 31 March 2023 increased due to the net debt movements
outlined above (other than the termination of the invoice
discounting facility, which has a nil net effect on TFO), partially
offset by a reduction in net retirement benefit liabilities.
Liquidity and covenants
As at 31 March 2023, the Group had GBP300.0m of committed
funding arrangements. These comprised a GBP150.0m RCF, for which a
one year extension was signed in September 2022, extending the
maturity date to October 2026, and GBP150.0m of USPP notes. In
December 2022, GBP121.5m of USPP notes matured and were replaced by
GBP120.0m of new notes, issued on more favourable terms, with 8-12
year maturities. The remaining GBP30.0m of USPP notes are due to
mature in December 2024.
On 29 July 2022, DBRS Morningstar confirmed Mitie's credit
rating of BBB with a 'stable' outlook.
Mitie's two key covenant ratios are leverage (ratio of
consolidated total net borrowings to adjusted consolidated EBITDA)
and interest cover (ratio of consolidated EBITDA to consolidated
net finance costs), with a maximum of 3.0x and minimum of 4.0x
respectively. Covenant ratios are measured on a post-IFRS 16 basis
with appropriate adjustments for leases, being primarily the
exclusion of lease liabilities.
As at 31 March 2023, the Group was operating well within these
ratios at <0x covenant leverage and 28.1x interest cover. A
reconciliation of the calculations is set out in the table
below:
GBPm FY23 FY22
-------------------------------------------------------- ----- ------- -------
Operating profit before other items (1) 162.1 169.8
Add: depreciation, amortisation and impairment(1) 52.4 51.8
--------------------------------------------------------------- ------- -------
Headline EBITDA(1) 214.5 221.6
Add: covenant adjustments(2) 18.2 19.9
Leases adjustment (3) (38.6) (36.3)
--------------------------------------------------------------- ------- -------
Consolidated EBITDA (a) 194.1 205.2
Full-year effect of acquisitions and disposals 0.5 (2.0)
--------------------------------------------------------------- ------- -------
Adjusted consolidated EBITDA (b) 194.6 203.2
-------------------------------------------------------- ----- ------- -------
Net finance costs(1) 11.5 19.7
Less: covenant adjustments (0.4) (3.0)
Leases adjustment (4) (4.2) (4.0)
--------------------------------------------------------------- ------- -------
Consolidated net finance costs (c) 6.9 12.7
-------------------------------------------------------- ----- ------- -------
Interest cover (ratio of (a) to (c)) 28.1x 16.2x
--------------------------------------------------------------- ------- -------
Net debt/(cash) 44.1 (26.7)
Impact of hedge accounting and upfront fees 1.8 1.5
Leases adjustment (5) (129.4) (122.5)
Consolidated total net (cash) (d) (83.5) (147.7)
-------------------------------------------------------- ----- ------- -------
Covenant leverage (ratio of (d) to (b)) <0x < 0x
--------------------------------------------------------------- ------- -------
1 Continuing and discontinued operations
(2) Covenant adjustments to EBITDA relate to share-based
payments charges, and pension administration expenses and past
service costs
(3) Leases adjustment for EBITDA relates to depreciation charge
for leased assets and interest charge for lease liabilities
(4) Leases adjustment for net finance costs relates to interest
charge for lease liabilities
(5) Leases adjustment for net cash relates to lease
liabilities
Condensed consolidated income statement
For the year ended 31 March 2023
2023 2022
------------------------------- ----- -------------------------------- --------------------------------
Before Before
Other Other Other Other
items items(1) Total items items(1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Continuing operations
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Revenue including share of
joint ventures and associates 4,055.1 - 4,055.1 3,996.8 - 3,996.8
Less: share of revenue of
joint ventures and associates 10 (110.1) - (110.1) (93.5) - (93.5)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Group revenue 3 3,945.0 - 3,945.0 3,903.3 - 3,903.3
Cost of sales (3,508.5) - (3,508.5) (3,451.5) - (3,451.5)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Gross profit 436.5 - 436.5 451.8 - 451.8
Administrative expenses (282.7) (48.8) (331.5) (291.5) (102.2) (393.7)
Other income - 3.7 3.7 - 9.8 9.8
Share of profit/(loss) of
joint ventures and associates 10 8.3 - 8.3 6.6 (2.4) 4.2
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Operating profit/(loss)(2) 3 162.1 (45.1) 117.0 166.9 (94.8) 72.1
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Finance income 2.2 - 2.2 0.2 - 0.2
Finance costs (13.7) - (13.7) (20.0) - (20.0)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Net finance costs (11.5) - (11.5) (19.8) - (19.8)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Profit/(loss) before tax 150.6 (45.1) 105.5 147.1 (94.8) 52.3
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Tax 5 (22.6) 8.2 (14.4) (19.0) (2.0) (21.0)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Profit/(loss) from continuing
operations after tax 128.0 (36.9) 91.1 128.1 (96.8) 31.3
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Discontinued operations
Profit from discontinued
operations before tax - - - 3.0 17.0 20.0
Tax 5 - - - (0.6) - (0.6)
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Profit from discontinued
operations after tax - - - 2.4 17.0 19.4
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Profit/(loss) for the year
attributable to owners of
the parent 128.0 (36.9) 91.1 130.5 (79.8) 50.7
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Earnings per share (EPS)
attributable to owners of
the parent
From continuing operations:
Basic 7 9.5p 6.8p 9.2p 2.2p
Diluted 7 8.6p 6.2p 8.3p 2.0p
Total Group:
Basic 7 9.5p 6.8p 9.4p 3.6p
Diluted 7 8.6p 6.2p 8.5p 3.3p
------------------------------- ----- --------- ---------- --------- --------- ---------- ---------
Notes:
1. Other items are as described in Note 4.
2. Including net impairment losses on trade receivables and
accrued income of GBP2.8m (2022: GBP0.8m).
Condensed consolidated statement of comprehensive income
For the year ended 31 March 2023
2023 2022
Notes GBPm GBPm
-------------------------------------------------- ----- ----- -----
Profit for the year 91.1 50.7
Items that will not be reclassified to profit
or loss in subsequent years
Remeasurement of net defined benefit pension
liabilities 19 (0.9) 22.1
Share of other comprehensive (expense)/income
of joint ventures 10 (2.4) 0.7
Tax credit/(charge) relating to items that
will not be reclassified to profit or loss
in subsequent years 5 2.6 (3.8)
-------------------------------------------------- ----- ----- -----
(0.7) 19.0
-------------------------------------------------- ----- ----- -----
Items that may be reclassified to profit
or loss in subsequent years
Exchange differences on translation of foreign
operations 1.5 0.1
Net losses on cash flow hedges taken to equity(1) (0.3) (0.5)
Tax credit relating to items that may be
reclassified to profit or loss in subsequent
years 5 - 0.1
-------------------------------------------------- ----- ----- -----
1.2 (0.3)
-------------------------------------------------- ----- ----- -----
Other comprehensive income for the year 0.5 18.7
-------------------------------------------------- ----- ----- -----
Total comprehensive income for the year
attributable to owners of the parent 91.6 69.4
-------------------------------------------------- ----- ----- -----
Note:
1. Net losses on cash flow hedges taken to equity include fair
value gains of GBP9.6m (2022: GBP5.1m) on derivative financial
instruments used for hedging private placement notes. These gains
are reclassified to profit or loss and netted against foreign
exchange losses on private placement notes of GBP9.9m (2022:
GBP5.6m).
Condensed consolidated balance sheet
As at 31 March 2023
2023 2022(1)
Notes GBPm GBPm
------------------------------------------- ----- --------- ---------
Non-current assets
Goodwill 8 312.3 301.3
Other intangible assets 9 252.6 258.9
Property, plant and equipment 156.9 143.9
Interests in joint ventures and associates 10 8.8 11.9
Trade and other receivables 11 23.5 25.1
Contract assets 0.8 1.6
Retirement benefit assets 19 2.4 1.6
Deferred tax assets 14 20.4 11.1
------------------------------------------- ----- --------- ---------
Total non-current assets 777.7 755.4
------------------------------------------- ----- --------- ---------
Current assets
Inventories 13.5 11.9
Trade and other receivables 11 786.8 686.7
Contract assets 1.1 1.6
Derivative financial instruments - 19.6
Current tax receivable - 1.0
Cash and cash equivalents 15 248.3 345.2
------------------------------------------- ----- --------- ---------
Total current assets 1,049.7 1,066.0
------------------------------------------- ----- --------- ---------
Total assets 1,827.4 1,821.4
------------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 12 (899.5) (841.2)
Deferred income (83.3) (83.5)
Current tax payable (0.8) (4.1)
Financing liabilities 16 (32.0) (171.1)
Provisions 13 (54.2) (54.7)
------------------------------------------- ----- --------- ---------
Total current liabilities (1,069.8) (1,154.6)
------------------------------------------- ----- --------- ---------
Net current liabilities (20.1) (88.6)
------------------------------------------- ----- --------- ---------
Non-current liabilities
Trade and other payables 12 (2.3) (2.8)
Deferred income (19.8) (32.6)
Financing liabilities 16 (254.0) (129.5)
Provisions 13 (57.2) (62.3)
Retirement benefit liabilities 19 (2.6) (13.8)
Total non-current liabilities (335.9) (241.0)
------------------------------------------- ----- --------- ---------
Total liabilities (1,405.7) (1,395.6)
------------------------------------------- ----- --------- ---------
Net assets 421.7 425.8
------------------------------------------- ----- --------- ---------
Note:
1. Trade and other receivables of GBP17.3m have been
reclassified from current assets to non-current assets as at 31
March 2022. See Note 1.
Condensed consolidated balance sheet continued
As at 31 March 2023
2023 2022
Notes GBPm GBPm
-------------------------------------------- ------ ------ ------
Equity
Share capital 34.0 35.7
Share premium 131.5 130.6
Merger reserve 157.0 358.6
Own shares reserve (59.0) (36.9)
Other reserves(1) 36.3 28.4
Hedging and translation reserve (1.4) (2.6)
Retained profits/(losses) 123.3 (88.0)
---------------------------------------------------- ------ ------
Equity attributable to owners of the parent 421.7 425.8
---------------------------------------------------- ------ ------
Note:
1. Other reserves include the share-based payments reserve and the capital redemption reserve.
Condensed consolidated statement of changes in equity
For the year ended 31 March 2023
Hedging Retained
Share Share Merger Own shares Other and translation profits/ Total
capital premium reserve reserve reserves(1) reserve (losses) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
At 1 April 2021 35.6 130.6 358.6 (28.8) 14.5 (2.3) (150.7) 357.5
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Profit for the year - - - - - - 50.7 50.7
Other comprehensive
income/(expense) - - - - - (0.3) 19.0 18.7
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Total comprehensive
income/(expense) - - - - - (0.3) 69.7 69.4
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Transactions with
owners
Dividends paid - - - - - - (5.7) (5.7)
Issue of shares 0.1 - - (0.1) - - - -
Purchase of own shares - - - (13.8) - - - (13.8)
Share-based payments - - - 5.8 13.9 - (1.1) 18.6
Tax on share-based
payments - - - - - - (0.2) (0.2)
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Total transactions
with owners 0.1 - - (8.1) 13.9 - (7.0) (1.1)
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
At 31 March 2022 35.7 130.6 358.6 (36.9) 28.4 (2.6) (88.0) 425.8
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
At 31 March 2022 (as
reported) 35.7 130.6 358.6 (36.9) 28.4 (2.6) (88.0) 425.8
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Impact of change in
accounting policy
in the year(2) - - - - - - (1.1) (1.1)
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
At 1 April 2022 35.7 130.6 358.6 (36.9) 28.4 (2.6) (89.1) 424.7
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Profit for the year - - - - - - 91.1 91.1
Other comprehensive
income - - - - - 1.2 (0.7) 0.5
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Total comprehensive
income - - - - - 1.2 90.4 91.6
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Transactions with
owners
Dividends paid - - - - - - (28.9) (28.9)
Purchase of own shares - - - (37.7) - - - (37.7)
Realisation of merger
reserve(3) - - (201.6) - - - 201.6 -
Share buybacks(4) (1.7) - - - 1.7 - (50.7) (50.7)
Share-based payments(5) - 0.9 - 15.6 6.2 - (6.0) 16.7
Tax on share-based
payments - - - - - - 6.0 6.0
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Total transactions
with owners (1.7) 0.9 (201.6) (22.1) 7.9 - 122.0 (94.6)
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
At 31 March 2023 34.0 131.5 157.0 (59.0) 36.3 (1.4) 123.3 421.7
----------------------- -------- -------- -------- ---------- ------------ ---------------- --------- --------
Notes:
1. Other reserves include the share-based payments reserve and
the capital redemption reserve.
2. Retained losses as at 1 April 2022 have been adjusted for the
change in accounting policy for onerous contract assessments as a
result of the amendment to IAS 37 Onerous Contracts - Cost of
Fulfilling a Contract. Refer to Note 1.
3. The merger reserve represents amounts relating to premiums
arising on shares issued subject to the provisions of Section 612
of the Companies Act 2006. During the year ended 31 March 2023, the
realisation of the merger reserve included GBP170.3m related to
intercompany loans that have been settled as qualifying
consideration in connection with the rights issue during the year
ended 31 March 2021, which utilised a cashbox structure.
4. The share buyback resulted in the purchase of 68.8m ordinary
shares which have subsequently been cancelled during the year ended
31 March 2023.
5. Includes GBP0.9m and GBP0.7m in respect of new shares and
treasury shares respectively, which were issued on exercise of Save
As You Earn share options.
Condensed consolidated statement of cash flows
For the year ended 31 March 2023
2023 2022
Notes GBPm GBPm
------------------------------------------------------ ----- ------ ------
Continuing operations - operating profit before Other
items 3 162.1 166.9
Continuing operations - Other items 4 (45.1) (94.8)
Discontinued operations - operating profit after
Other items - 19.9
Adjustments for:
Share-based payments expense 17.3 18.6
Defined benefit pension costs 19 3.4 4.4
Defined benefit pension contributions 19 (16.5) (14.2)
Depreciation of property, plant and equipment 43.1 41.6
Amortisation of intangible assets 9 29.2 27.2
Amortisation of customer contracts and relationships
for joint ventures arising on business combinations 10 - 2.4
Share of profit of joint ventures and associates 10 (8.3) (6.6)
Amortisation of contract assets 1.3 1.7
Impairment of non-current assets 0.2 3.7
Loss on disposal of property, plant and equipment 0.1 0.5
Gain on disposal of businesses - (13.0)
Interserve completion accounts adjustment - 45.6
------------------------------------------------------ ----- ------ ------
Operating cash flows before movements in working
capital 186.8 203.9
(Increase)/decrease in inventories (0.9) 0.9
Increase in receivables (89.8) (66.0)
Increase in contract assets - (1.0)
Decrease in deferred income (15.5) (2.6)
Increase in payables 44.9 135.9
Decrease in provisions (8.6) (7.2)
------------------------------------------------------ ----- ------ ------
Cash generated from operations 116.9 263.9
Income taxes paid (19.8) (16.2)
Interest paid (14.1) (17.5)
------------------------------------------------------ ----- ------ ------
Net cash generated from operating activities 83.0 230.2
------------------------------------------------------ ----- ------ ------
Investing activities
Acquisition of businesses, net of cash acquired(1) 18 (16.6) (24.9)
Interserve completion accounts settlement 6.0 -
Disposal of businesses, net of cash disposed - 29.9
Interest received 2.2 0.3
Purchase of property, plant and equipment (10.9) (15.4)
Dividends received from joint ventures and associates 10 9.0 4.0
Purchase of other intangible assets 9 (14.3) (20.2)
Disposal of property, plant and equipment 0.1 0.4
------------------------------------------------------ ----- ------ ------
Net cash used in investing activities (24.5) (25.9)
------------------------------------------------------ ----- ------ ------
Note:
1. Acquisition of businesses is net of cash acquired of GBP2.0m
(2022: GBP4.8m). Refer to Note 18.
Condensed consolidated statement of cash flows continued
For the year ended 31 March 2023
2023 2022
Notes GBPm GBPm
------------------------------------------------------- ----- ------- ------
Financing activities
Purchase of own shares (37.7) (13.8)
Shares bought back and cancelled (50.7) -
Capital element of lease rentals (34.5) (33.9)
Proceeds from new private placement notes 16 120.0 -
Repayment of private placement notes (150.8) -
Settlement of derivative financial instruments 29.2 -
Repayment of bank loans (4.1) -
Payment of arrangement fees (0.5) (1.7)
Proceeds received on settlement of share-based payment
transactions 1.6 -
Equity dividends paid 6 (28.9) (5.7)
Net cash used in financing activities (156.4) (55.1)
------------------------------------------------------- ----- ------- ------
Net (decrease)/increase in cash and cash equivalents (97.9) 149.2
Net cash and cash equivalents at beginning of the
year 345.2 196.2
Effect of foreign exchange rate changes 1.0 (0.2)
------------------------------------------------------- ----- ------- ------
Net cash and cash equivalents at end of the year 15 248.3 345.2
------------------------------------------------------- ----- ------- ------
The above statement of condensed consolidated cash flows
includes cash flows from both continuing and discontinued
operations .
Notes to the condensed consolidated financial statements
For the year ended 31 March 2023
1. Basis of preparation and significant accounting policies
(a) Basis of preparation
The financial information in this announcement has been
extracted from the Group's Annual Report and Accounts for the year
ended 31 March 2023 and is prepared in accordance with UK-adopted
International Accounting Standards.
Whilst the financial information included in this preliminary
announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS and the financial information set out does not
constitute Mitie Group plc's (the Company) statutory accounts for
the current or prior years.
Statutory accounts for the years ended 31 March 2023 and 31
March 2022 have been reported on by the independent auditor.
The independent auditor's reports for the years ended 31 March
2023 and 31 March 2022 were unqualified and did not draw attention
to any matters by way of emphasis. The independent auditor's
reports for the years ended 31 March 2023 and 31 March 2022 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 2022 have
been filed with the Registrar and the statutory accounts for the
year ended 31 March 2023 will be delivered following the Company's
annual general meeting.
The condensed consolidated 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 condensed consolidated financial statements for the year
ended 31 March 2023 have been prepared on a going concern basis. In
adopting the going concern basis, the Directors have considered the
Group's business activities and the principal risks and
uncertainties.
The Directors have carried out an assessment of the Group's and
the Company's ability to continue as a going concern for the period
of at least 12 months from the date of approval of the condensed
consolidated financial statements (the Going Concern Assessment
Period). This assessment was based on the latest medium-term cash
forecasts from the Group's cash flow model (the Base Case
Forecasts), which is based on the Board approved budget. These Base
Case Forecasts indicate that the debt facilities currently in place
are adequate to support the Group and the Company over the Going
Concern Assessment Period.
The Group's principal debt financing arrangements as at 31 March
2023 were a GBP150.0m revolving credit facility maturing in October
2026, of which GBP8.4m was drawn as at 31 March 2023, and GBP150.0m
of US private placement (USPP) notes. These financing arrangements
are subject to certain financial covenants which are tested every
six months on a rolling 12-month basis.
Of the USPP notes, GBP120.0m were issued in December 2022 under
a delayed funding agreement to avoid any overlap with the GBP121.5m
(being the repayment amount after taking account of the
cross-currency interest rate swaps) of notes that matured in the
same month. The new notes are split equally between 8, 10 and 12
year maturities, and were issued with an average coupon of 2.94%
that is significantly below the coupon of the maturing notes. The
Base Case Forecasts assume that the remaining GBP30.0m of USPP
notes, which are due to mature in December 2024, will not be
replaced.
Mitie currently operates within the terms of the agreements with
its lenders, with consolidated net cash (i.e. net cash adjusted for
covenant purposes, primarily by the exclusion of lease liabilities)
of GBP83.5m at 31 March 2023. The Base Case Forecasts indicate that
the Group will continue to operate within these terms and that the
headroom provided by the Group's debt facilities currently in place
is adequate to support the Group over the Going Concern Assessment
Period.
The Directors have also completed a reverse stress test using
the Group cash flow model to assess the point at which the
financial covenants, or facility headroom, would be breached. The
sensitivities considered have been chosen after considering the
Group's principal risks and uncertainties.
The primary financial risks related to adverse changes in the
economic environment and/or a deterioration in commercial or
operational conditions are listed below. These risks have been
considered in the context of any further UK budgetary changes,
political uncertainty and the continued impact of the Russian
invasion of Ukraine, as well as an inflationary and potentially
recessionary economic environment:
-- A downturn in revenues: this reflects the risks of not being able
to deliver services to existing customers, or contracts being terminated
or not renewed;
-- A deterioration of gross margin: this reflects the risks of contracts
being renegotiated at lower margins, or planned cost savings not
being delivered;
-- An increase in costs: this reflects the risks of a shortfall in
planned overhead cost savings, including the margin enhancement
initiatives not being delivered, or other cost increases, such as
sustained higher cost inflation; and
-- A downturn in cash generation: this reflects the risks of customers
delaying payments due to liquidity constraints, the removal of ancillary
debt facilities or any substantial one-off settlements related to
commercial issues.
As a result of completing this assessment, the Directors
concluded that the likelihood of the reverse stress scenarios
arising was remote. In reaching the conclusion of remote, the
Directors considered the following:
-- All stress test scenarios would require a very severe deterioration
compared to the Base Case Forecasts. Revenue is considered to be
the key risk, as this is less within the control of management.
Revenue would need to decline by approximately 38% in the year ending
31 March 2024, compared to the Base Case Forecasts, which is considered
to be very severe given the high proportion of Mitie's revenue that
is fixed in nature and the fact that even in the Covid-hit year
ended 31 March 2021, Mitie's revenue excluding Interserve declined
by only 1.6%.
-- In the event that results started to trend significantly below those
included in the Base Case Forecasts, additional mitigation actions
have been identified that would be implemented, which are not factored
into the stress test scenarios. These include the short-term scaling
down of capital expenditure, overhead efficiency/reduction measures
including cancellation of discretionary bonuses and reduced discretionary
spend, asset disposals and reductions in cash distributions and
share buybacks.
Based on these assessments, the Directors have a reasonable
expectation that the Group and the Company have adequate resources
to continue in operational existence for a period of no less than
12 months from the date of approval of these condensed consolidated
financial statements. In addition, the Directors have concluded
that the likelihood of the reverse stress scenarios arising is
remote and therefore no material uncertainty exists.
Accounting standards that are newly effective in the current
year
The following amendments became effective during the year ended
31 March 2023:
Amendment to IAS 37 Onerous Contracts - Cost of Fulfilling a
Contract
The Group adopted the amendment to IAS 37 Onerous Contracts -
Cost of Fulfilling a Contract on 1 April 2022. The amendment
clarifies that costs to fulfil a contract comprise both incremental
costs of fulfilling a contract and an allocation of other direct
costs that relate to fulfilling contracts. This resulted in a
change in accounting policy when performing onerous contract
assessments. Previously, the Group included only incremental costs
to fulfil a contract when determining whether a contract was
onerous. The revised policy is to include both incremental costs
and an allocation of other direct costs.
As a result of the revised accounting policy, certain other
direct supervision and management costs have been included by the
Group in determining the costs of fulfilling a contract. The Group,
therefore, recognised additional provisions of GBP1.1m for costs
that existed at 1 April 2022 on onerous contracts (see Note
13).
The amendments apply prospectively to contracts at the date when
the amendments are first applied, and therefore the Group has not
restated comparative information.
Amendments to IAS 16 Property, Plant and Equipment: Proceeds
before Intended Use
In May 2020, the International Accounting Standards Board (IASB)
published amendments to IAS 16 Property, Plant and Equipment, which
require amounts received from selling items produced while the
Company is preparing the asset for its intended use to be
recognised in profit or loss, and not as an adjustment to the cost
of the asset as was previously the case. The Group has not
recognised any such amounts within property, plant and equipment
and thus the amendment has not had an impact on the condensed
financial statements.
Amendments to IFRS 3 Business Combinations: Reference to the
Conceptual Framework
The amendments replace a reference to a previous version of the
IASB's Conceptual Framework with a reference to the current version
issued in March 2018 without significantly changing its
requirements. The amendments add an exception to the recognition
principle of IFRS 3 Business Combinations to avoid the issue of
potential 'day 2' gains or losses arising for liabilities and
contingent liabilities that would be within the scope of IAS 37
Provisions, Contingent Liabilities and Contingent Assets or IFRIC
21 Levies, if incurred separately. The exception requires entities
to apply the criteria in IAS 37 or IFRIC 21, respectively, instead
of the Conceptual Framework, to determine whether a present
obligation exists at the acquisition date. The amendments also add
a new paragraph to IFRS 3 to clarify that contingent assets do not
qualify for recognition at the acquisition date. In accordance with
the transitional provisions, the Group applies the amendments
prospectively, i.e. to business combinations occurring after 1
April 2022; that being the financial year in which the Group has
first applied the amendments (the date of initial application).
These amendments had no impact on the condensed consolidated
financial statements of the Group as there were no contingent
assets, liabilities or contingent liabilities within the scope of
these amendments that arose during the year.
Accounting standards that are not yet mandatory and have not
been applied by the Group
At the date of authorisation of these condensed financial
statements, the Group has not applied the following new and revised
IFRS Accounting Standards that have been issued but are not yet
effective:
-- IFRS 17 Insurance Contracts
-- Amendments to IFRS 10 Consolidated Financial Statements and IAS
28 Investments in Associates and Joint Ventures - Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture
-- Amendments to IAS 1 Presentation of Financial Statements - Classification
of Liabilities as Current or Non-current
-- Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2 Making Materiality Judgements - Disclosure
of Accounting Policies
-- Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors - Definition of Accounting Estimates
-- Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets
and Liabilities arising from a Single Transaction
The Group is assessing the impact of these new standards, and
the Group's financial reporting will be presented in accordance
with these standards from the effective date.
(b) Classification of surplus on PFI lifecycle contracts
The Group has a number of long-term PFI lifecycle contracts to
maintain properties over periods of up to 30 years. A fund is
established at the start of the contract and amounts are drawn down
by the Group as maintenance work is performed. For certain
contracts, the Group is also entitled to share in any surplus left
in the fund. Revenue is recognised over time to reflect the
rendering of the service, including an assessment of the
appropriate proportion of the likely surplus in the fund, subject
to being highly probable not to reverse.
Historically the Group has classified receivables in respect of
the surplus on PFI lifecycle funds within current assets on the
balance sheet. During the year, following a review of these
contracts, management concluded that these assets should be
reclassified as non-current assets on the balance sheet, in order
to reflect the timing of cash realisation of receivables across the
Group's portfolio of contracts.
This change has been accounted for retrospectively and,
accordingly, the comparative information for 31 March 2022 has been
restated, which has resulted in a reclassification between current
and non-current 'trade and other receivables'. There has been no
impact on the income statement, earnings per share or net
assets.
31 March 2022 As reported Reclassification As restated
GBPm GBPm GBPm
---------------------------- ----------- ---------------- -----------
Trade and other receivables 7.8 17.3 25.1
---------------------------- ----------- ---------------- -----------
Total non-current assets 738.1 17.3 755.4
---------------------------- ----------- ---------------- -----------
Trade and other receivables 704.0 (17.3) 686.7
---------------------------- ----------- ---------------- -----------
Total current assets 1,083.3 (17.3) 1,066.0
---------------------------- ----------- ---------------- -----------
Total assets 1,821.4 - 1,821.4
---------------------------- ----------- ---------------- -----------
Net current liabilities (71.3) (17.3) (88.6)
---------------------------- ----------- ---------------- -----------
Net assets 425.8 - 425.8
---------------------------- ----------- ---------------- -----------
As reported Reclassification As restated
31 March 2021 GBPm GBPm GBPm
---------------------------- ----------- ---------------- -----------
Trade and other receivables 8.3 17.3 25.6
---------------------------- ----------- ---------------- -----------
Total non-current assets 735.3 17.3 752.6
---------------------------- ----------- ---------------- -----------
Trade and other receivables 678.8 (17.3) 661.5
---------------------------- ----------- ---------------- -----------
Total current assets 893.6 (17.3) 876.3
---------------------------- ----------- ---------------- -----------
Total assets 1,628.9 - 1,628.9
---------------------------- ----------- ---------------- -----------
Net current assets 19.0 (17.3) 1.7
---------------------------- ----------- ---------------- -----------
Net assets 357.5 - 357.5
---------------------------- ----------- ---------------- -----------
The impact as at 1 April 2020 would have been a reclassification
between current and non-current 'trade and other receivables' of
GBP14.0m.
2. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed 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.
Critical judgements in applying the Group's accounting
policies
The following are the critical judgements, made by management in
the process of applying the Group's accounting policies, that have
the most significant effect on the amounts recognised in the
Group's condensed financial statements.
Revenue recognition
The Group's revenue recognition policies are central to how the
Group measures the work it has performed in each financial
year.
Due to the size and complexity of the Group's contracts,
management is required to form a number of key judgements 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. 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.
Some of the Group's contracts, including PFI contracts, contain
variable consideration where management assesses the extent to
which revenue is recognised. For certain contracts, key judgements
were made on whether it is considered highly probable that a
significant reversal of revenue will not occur when the associated
uncertainty with the variable consideration is subsequently
resolved.
Profit before Other items
Other items are items of financial performance which management
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 GBP36.9m were charged (2022: GBP79.8m)
to the consolidated income statement for the year ended 31 March
2023. Included within the net charge were charges in respect of the
implementation of the digital supplier platform of GBP2.8m which,
in management's judgement, is a material programme delivering a
step change in the Group's supplier chain management capabilities
and therefore meets the Group's definition to be categorised as
Other items. A complete analysis of the amounts included in Other
items is detailed in Note 4.
Recoverability of trade receivables and accrued income
The Group has material amounts of billed and unbilled work
outstanding at 31 March 2023. Receivables are recognised initially
at cost (being the same as fair value) and subsequently at
amortised cost less any allowance for impairment, to ensure that
amounts recognised represent the recoverable amount. The Group
recognises a loss allowance for expected credit losses (ECLs) on
all receivable balances from customers using a lifetime credit loss
approach and includes specific allowance for impairment where there
is evidence that the Group will not be able to collect amounts due
from customers, subsequent to initial recognition. Management
applies judgement on specific allowances for impairment based on
the information available at each reporting date, which includes
information about past events, current conditions and forecasts of
the future economic condition of customers.
IFRS 16 - Determining the lease term of contracts with renewal
and termination options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any period covered by an option to terminate the lease if it is
reasonably certain not to be exercised.
The Group has several lease contracts that include extension and
termination options. Management applies judgement in evaluating
whether it is reasonably certain the option to renew or terminate
the lease will be exercised or not. That is, it considers all
relevant factors that create an economic incentive for the Group to
exercise either the renewal or termination option. After the
commencement date, the Group reassesses the lease term if there is
a significant event or change in circumstances that is within its
control and affects its ability to exercise or not to exercise the
option to renew or to terminate the lease.
Landmarc joint venture
The Group holds 51% of the equity shares in Landmarc Support
Services Limited (Landmarc), a jointly controlled entity. The
remaining 49% of the equity shares in Landmarc are held by a single
third party. Management considers Landmarc to be a joint venture
despite the Group having majority voting rights. This is because,
under the terms of the shareholder agreement, joint agreement is
required with the other party to pass resolutions for all
significant activities. Accordingly, the Group does not control
Landmarc and does not recognise it as a subsidiary.
The Group accounts for its investment in Landmarc using the
equity method. See Note 10.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed
below:
Provisions and contingent 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 2023 of
GBP111.4m (2022: GBP117.0m). Further details are included in Note
13.
Onerous contract provisions
Onerous contract provisions totalling GBP10.5m have been
recognised at 31 March 2023 (2022: GBP13.2m). These primarily arose
on the acquisition of Interserve.
Onerous contract assessments are performed by the Group at an
individual contract level at each reporting date. Determining the
carrying value of onerous contract provisions requires assumptions
and complex judgements to be made about the future performance of
the Group's contracts. The level of uncertainty in the estimates
made, either in determining whether a provision is required, or in
the measurement of a provision booked, is linked to the complexity
of the underlying contract.
The major sources of judgement when measuring the level of
provision to book are:
-- the level of accuracy in forecasting future variable revenue and
costs to complete the contract;
-- the ability of the Group to maintain or improve operational performance
to ensure cost assumptions are in line with expected levels, including
contract specific key performance indicators (KPIs);
-- identifying cost saving initiatives that are considered to be probable
in terms of timing and scale; and
-- expectations around the resolution of contract specific disputes
and the likelihood of incurring future costs associated with remediation
or reactive work.
The range of possible future outcomes in respect of judgements
and assumptions made to determine the carrying value of the Group's
onerous contract provisions could result in a material increase or
decrease in the value of the provisions, and hence, on the Group's
profitability in the next financial year. To mitigate this,
management regularly compares actual contract performance against
previous forecasts used to measure the onerous contract provisions
and considers if revised judgements are required.
The Directors have assessed the range of possible outcomes on
contracts requiring an onerous contract provision, based on facts
and circumstances that were present and known at the balance sheet
date. Sensitivities around the major sources of estimation
uncertainty, as identified above, indicate a possible range of
future outcomes on these contracts in the next financial year,
ranging from a reduction in the provision of up to GBP5m to a
further increase of up to GBP10m being recognised.
An onerous contract provision has not been recognised on a
certain contract which made a loss of GBP8.4m in the year ended 31
March 2023 (2022: GBP8.7m) and has 18 years remaining on the
contract. This contract was acquired as part of the acquisition of
Interserve, and a detailed turnaround plan is in the process of
being implemented. Based on the plan, including applying downside
scenarios, management expects that the contract will return to
profitability in the year ending 31 March 2026 and will record a
cumulative profit for the remaining term of the contract.
Other contract specific provisions
In addition to the onerous contract provisions, the Group has
recognised GBP38.8m of contract specific provisions at 31 March
2023 (2022: GBP43.1m). These have been recognised primarily to
cover costs required to meet specific contractual obligations.
Within this total, GBP14.7m relates to a certain contract where
a significant liability has been estimated in relation to a
commercial dispute. Management sought external assistance at the
time of Interserve's acquisition to value the potential risk
exposure to the Group and has periodically updated this assessment.
The actual exposure to the Group may differ from the amount
provided at 31 March 2023 due to the compounding effect of multiple
variables associated with the particular issues involved in the
dispute. The value of the provision represents management's best
estimate. Management considers that to the extent that it is agreed
or determined that the Group has a liability, the assessed range of
possible future outcomes could potentially lead to a reduction in
the provision of up to GBP4m or a further increase of up to GBP9m
being recognised, and other possible outcomes could increase the
liability further. Management will continue to assess the value of
the provision recorded in arriving at its best estimate of any
potential resolution at each subsequent reporting date.
Provisions in relation to certain contracts are also subject to
negotiation with the customers.
Measurement of defined benefit pension obligations
The net pension liability at 31 March 2023 was GBP0.2m (2022:
GBP12.2m), which includes retirement benefit assets of GBP2.4m
(2022: GBP1.6m).
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 19 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). The
Group has recognised provisions of GBP21.7m at 31 March 2023 (2022:
GBP21.7m) for Section 75 employer debts in respect of the
participation of Robert Prettie & Co Limited and Mitie FM
Limited in the Plumbing Scheme.
Deferred tax assets
The Group has recognised deferred tax assets of GBP2 0.4 m
(2022: GBP11.1m), which include GBP3 9 . 6 m (2022: GBP34.1m) in
respect of unused tax losses. The deferred tax asset on losses has
been recognised on the basis that the Group will continue to make
profits in the future against which the losses can be used. In
order to support the recognition of the GBP3 9.6 m deferred tax
asset on losses, management has assessed the recovery of this asset
with reference to the Group's three-year forecasts which in
management's judgement is the extent that it is probable that
future taxable profit will be available against which the unused
tax losses can be utilised. Management considers that a three-year
period is appropriate as it is supported by the Group's strategic,
budgeting and business planning cycles and is relevant to the
duration of the Group's existing contracts with customers, which is
typically around three years. It therefore represents a timeframe
over which management considers that it can reasonably forecast the
Group's performance. As a result, tax losses of GBP63.9m have not
been recognised as at 31 March 2023 (2022: GBP87.2m).
Sensitivity analysis has been undertaken which shows that a 10%
increase or decrease in profits over the forecast period would
result in a GBP3m increase or decrease to the deferred tax asset
respectively. If the deferred tax asset was to be based on two year
forecasts, the deferred tax asset would decrease by GBP10m, whereas
if a four year forecast was to be used, the deferred tax asset
would increase by GBP9m.
3. Business segment information
The Group manages its business on a service division basis. At
31 March 2023, the Group had eight reportable segments and the
information, as reported, is consistent with information presented
to the Board of Directors, which is the Group's Chief Operating
Decision Maker. Revenue including share of joint ventures and
associates, 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.
Segment assets and liabilities have not been disclosed as they
are not reviewed by the Board.
Consolidated income statement information
2023 2022
------------------------ -------------------------------------------- -------------------------------------------
Operating Operating
profit/(loss) Operating profit/(loss) Operating
before Other margin before before Other margin before
Revenue(1) items(2) Other items(2) Revenue(1) items(2) Other items(2)
GBPm GBPm % GBPm GBPm %
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Business Services 1,171.6 67.5 5.8 1,522.0 107.5 7.1
Technical Services 1,154.1 34.1 3.0 972.9 30.0 3.1
CG&D 828.3 59.8 7.2 669.4 38.4 5.7
Communities 490.2 21.3 4.3 460.0 19.9 4.3
Specialist Services 410.9 34.9 8.5 372.5 32.5 8.7
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Care & Custody 168.7 10.2 6.0 135.7 9.9 7.3
Landscapes 65.7 9.5 14.5 55.0 9.2 16.7
Waste 74.4 8.6 11.6 76.7 8.3 10.8
Spain 102.1 6.6 6.5 105.1 5.1 4.9
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Corporate centre - (55.5) - - (61.4) -
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Total from continuing
operations 4,055.1 162.1 4.0 3,996.8 166.9 4.2
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Document Management - - - 25.5 2.8 11.0
Nordics and Poland - - - 1.9 0.1 5.3
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Total from discontinued
operations - - - 27.4 2.9 10.6
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Total Group 4,055.1 162.1 4.0 4,024.2 169.8 4.2
------------------------ ----------- -------------- --------------- ---------- -------------- ---------------
Notes:
1. Revenue includes share of joint ventures and associates, of
which GBP100.1m (2022: GBP85.1m) is included within CG&D and
GBP10.0m (2022: GBP8.4m) within Communities.
2. Other items are as described in Note 4.
No single customer accounted for more than 10% of external
revenue in the year ended 31 March 2023 or in the comparative year.
The UK Government is not considered a single customer.
A reconciliation of segment operating profit before Other items
to total profit before tax is provided below:
2023 2022
----------- -------------------------------------------
Continuing
operations From
and total continuing From discontinued
Group operations operations Total Group
GBPm GBPm GBPm GBPm
------------------------------------ ----------- ----------- ----------------- -----------
Operating profit before Other items 162.1 166.9 2.9 169.8
Other items(1) (45.1) (94.8) 17.0 (77.8)
Net finance (costs)/income (11.5) (19.8) 0.1 (19.7)
------------------------------------ ----------- ----------- ----------------- -----------
Profit before tax 105.5 52.3 20.0 72.3
------------------------------------ ----------- ----------- ----------------- -----------
Note:
1. Other items are as described in Note 4.
Geographical segments
Revenue, operating profit and operating margin from external
customers by geographical segment are shown below:
2023 2022
----------------------- ---------------------------------------------- ---------------------------------------------
Operating Operating
Operating Operating
profit before margin before profit before margin before
Revenue(1) Other items(2) Other items(2) Revenue(1) Other items(2) Other items(2)
GBPm GBPm % GBPm GBPm %
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
United Kingdom 3,895.2 153.9 4.0 3,844.5 160.3 4.2
Other countries 159.9 8.2 5.1 152.3 6.6 4.3
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
Continuing operations 4,055.1 162.1 4.0 3,996.8 166.9 4.2
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
United Kingdom - - - 25.5 2.8 11.0
Other countries - - - 1.9 0.1 5.3
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
Discontinued operations - - - 27.4 2.9 10.6
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
Total Group 4,055.1 162.1 4.0 4,024.2 169.8 4.2
----------------------- ----------- ---------------- --------------- ---------- ---------------- ---------------
Notes:
1. Revenue includes share of joint ventures and associates, of
which GBP110.1m (2022: GBP93.5m) is included within the United
Kingdom and GBPnil (2022: GBPnil) in other countries.
2. Other items are as described in Note 4.
The carrying amount of non-current assets, excluding interest in
joint ventures and associates and deferred tax assets, by
geographical segment is shown below:
2023 2022(1)
GBPm GBPm
---------------- ----- -------
United Kingdom 732.5 717.6
Other countries 16.0 14.8
---------------- ----- -------
Total 748.5 732.4
---------------- ----- -------
Note:
1. Trade and other receivables of GBP17.3m have been
reclassified from current assets to non-current assets. See Note
1.
Supplementary information
2023 2022
------------- -------------------------------------------------- ---------------------------------------------------
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
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Business
Services 1.6 - - 0.9 1.9 2.3 - 17.6
Technical
Services 1.3 0.6 0.3 10.8 0.8 0.7 1.0 21.1
CG&D 0.4 - - (0.8) 0.3 0.2 - (3.5)
Communities 1.2 - - 0.4 0.9 - - 10.9
Specialist
Services 2.4 - 1.0 0.6 2.5 - 0.7 3.1
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Care &
Custody 0.1 - 1.0 - 0.3 - 0.7 1.2
Landscapes 1.2 - - 0.5 0.9 - - 0.6
Waste 0.2 - - 0.1 0.3 - - 0.9
Spain 0.9 - - - 1.0 - - 0.4
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Corporate
centre 36.2 28.6 - 33.2 35.0 24.0 - 45.6
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Continuing
operations 43.1 29.2 1.3 45.1 41.4 27.2 1.7 94.8
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Social
Housing - - - - - - - (4.0)
Document
Management - - - - 0.2 - - (16.0)
Nordics and
Poland - - - - - - - 3.0
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Discontinued
operations - - - - 0.2 - - (17.0)
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
Total Group 43.1 29.2 1.3 45.1 41.6 27.2 1.7 77.8
------------- ------------ ------------ ------------ -------- ------------ ------------ ------------ ---------
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). Management 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.
2023
------------------------------- -----------------------------------------------------------------------
Contract duration for timing
Sector(1) of revenue recognition
------------------------------------- --------------------------------
Less than More than
Government Non-government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Business Services 347.4 824.2 1,171.6 177.9 993.7 1,171.6
Technical Services 262.4 891.7 1,154.1 205.7 948.4 1,154.1
CG&D 828.3 - 828.3 2.2 826.1 828.3
Communities 487.9 2.3 490.2 - 490.2 490.2
Specialist Services 278.4 132.5 410.9 63.2 347.7 410.9
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Care & Custody 168.7 - 168.7 - 168.7 168.7
Landscapes 24.7 41.0 65.7 21.3 44.4 65.7
Waste 23.7 50.7 74.4 15.4 59.0 74.4
Spain 61.3 40.8 102.1 26.5 75.6 102.1
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Continuing operations
and total Group including
joint ventures and associates 2,204.4 1,850.7 4,055.1 449.0 3,606.1 4,055.1
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Less: Joint ventures
and associates(2) (110.1) - (110.1) - (110.1) (110.1)
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Continuing operations
and total Group excluding
joint ventures and associates 2,094.3 1,850.7 3,945.0 449.0 3,496.0 3,945.0
------------------------------- ---------- -------------- --------- ---------- --------- ---------
Notes:
1. Sector is defined by the end customer on any contract. For
example, if the Group is a subcontractor to a company repairing a
government building, then the contract would be classified as
government.
2. Revenue from joint ventures and associates includes GBP100.1m
and GBP10.0m within the CG&D and Communities segments
respectively.
2022
------------------------------- ---------------------------------------------------------------------
Contract duration for timing
Sector(1) of revenue recognition
----------------------------------- --------------------------------
Less than More than
Government Non-government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Business Services 686.6 835.4 1,522.0 682.0 840.0 1,522.0
Technical Services 258.9 714.0 972.9 79.2 893.7 972.9
CG&D 669.4 - 669.4 0.7 668.7 669.4
Communities 452.1 7.9 460.0 18.2 441.8 460.0
Specialist Services 259.5 113.0 372.5 59.9 312.6 372.5
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Care & Custody 135.7 - 135.7 - 135.7 135.7
Landscapes 20.0 35.0 55.0 18.5 36.5 55.0
Waste 31.0 45.7 76.7 14.1 62.6 76.7
Spain 72.8 32.3 105.1 27.3 77.8 105.1
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Continuing operations
including joint ventures
and associates 2,326.5 1,670.3 3,996.8 840.0 3,156.8 3,996.8
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Less: Joint ventures
and associates(2) (93.5) - (93.5) - (93.5) (93.5)
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Continuing operations
excluding joint ventures
and associates 2,233.0 1,670.3 3,903.3 840.0 3,063.3 3,903.3
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Document Management 1.7 23.8 25.5 0.1 25.4 25.5
Nordics and Poland - 1.9 1.9 - 1.9 1.9
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Discontinued operations 1.7 25.7 27.4 0.1 27.3 27.4
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Total Group excluding
joint ventures and associates 2,234.7 1,696.0 3,930.7 840.1 3,090.6 3,930.7
------------------------------- ---------- -------------- ------- ----------- ---------- -------
Notes:
1. Sector is defined by the end customer on any contract. For
example, if the Group is a subcontractor to a company repairing a
government building, then the contract would be classified as
government.
2. Revenue from joint ventures and associates includes GBP85.1m
and GBP8.4m within the CG&D and Communities segments
respectively.
Transaction price allocated to the remaining performance
obligations
The table below shows the secured 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 all fixed work contracted
with customers and excludes the impact of any anticipated contract
extensions, indexation and new contracts with customers.
2023 2022
---------------------- ---------------------------- ------------------------------
Less Total Total
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
---------------------- ------- --------- -------- --------- --------- --------
Business Services 554.8 787.3 1,342.1 638.8 805.5 1,444.3
Technical Services 482.6 678.0 1,160.6 443.9 779.9 1,223.8
CG&D(1) 503.8 1,263.3 1,767.1 346.3 502.8 849.1
Communities(1) 272.4 2,356.6 2,629.0 275.2 2,582.4 2,857.6
Specialist Services 173.7 396.8 570.5 194.7 484.4 679.1
---------------------- ------- --------- -------- --------- --------- --------
Care & Custody 105.1 330.9 436.0 120.1 397.8 517.9
Landscapes 28.2 52.5 80.7 32.1 68.8 100.9
Waste 8.2 6.0 14.2 7.0 8.6 15.6
Spain 32.2 7.4 39.6 35.5 9.2 44.7
---------------------- ------- --------- -------- --------- --------- --------
Continuing operations
and total Group 1,987.3 5,482.0 7,469.3 1,898.9 5,155.0 7,053.9
---------------------- ------- --------- -------- --------- --------- --------
Note:
1. Forward order book includes share of joint ventures and associates.
4. Other items
Other items are items of financial performance which management
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 impairment of goodwill, impairment
and amortisation of acquisition related intangible assets,
acquisition and disposal related costs, gain or loss on business
disposals, cost of restructuring programmes and other exceptional
items as Other items, together with their related tax effect.
2023
-------------------------------------- ------------------------------------------------
Acquisition
and disposal Other
Restructure related exceptional
costs costs items Total
Continuing operations and total Group GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ------------- ------------ ---------
Other items before tax (16.6) (25.1) (3.4) (45.1)
Tax 3.2 4.4 0.6 8.2
-------------------------------------- ----------- ------------- ------------ ---------
Other items after tax (13.4) (20.7) (2.8) (36.9)
-------------------------------------- ----------- ------------- ------------ ---------
2022
------------------------ ----------------------------------------------------------------------------
Acquisition
Restructure and disposal Other exceptional
costs related costs items Gain on disposal Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items before tax (10.9) (89.3) 5.4 - (94.8)
Tax(1) 2.1 (3.1) (1.0) - (2.0)
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items after tax (8.8) (92.4) 4.4 - (96.8)
------------------------ ----------- -------------- ----------------- ---------------- ----------
Discontinued operations
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items before tax - 4.0 - 13.0 17.0
Tax - - - - -
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items after tax - 4.0 - 13.0 17.0
------------------------ ----------- -------------- ----------------- ---------------- ----------
Total Group
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items before tax (10.9) (85.3) 5.4 13.0 (77.8)
Tax(1) 2.1 (3.1) (1.0) - (2.0)
------------------------ ----------- -------------- ----------------- ---------------- ----------
Other items after tax (8.8) (88.4) 4.4 13.0 (79.8)
------------------------ ----------- -------------- ----------------- ---------------- ----------
Note:
1. Includes GBP8.1m charge as a result of the increase in the
rate of UK corporation tax from 1 April 2023. This primarily
relates to the remeasurement of the deferred tax liability on the
customer contracts and relationships intangible arising on the
acquisition of Interserve. See Note 5.
Restructure costs
The Group has been undertaking a major transformation programme
involving the restructuring of operations to reposition the
business for its next phase of growth. The costs are analysed
below:
2023 2022
Continuing operations and total Group GBPm GBPm
-------------------------------------- ------ --------
Group transformation programme:
Project Forté(1) (8.7) (10.2)
Target Operating Model(2) (7.9) (0.3)
Property - (0.4)
====================================== ====== ========
Restructure costs (16.6) (10.9)
Tax 3.2 2.1
====================================== ====== ========
Restructure costs net of taxation (13.4) (8.8)
====================================== ====== ========
Notes:
1. Project Forté was launched in 2019, primarily focusing on
re-engineering the Technical Services business to modernise and
optimise workflow processes. The project has been completed in
FY23, and therefore no further Other items costs will be incurred.
The project has improved both the customer experience and
efficiency of internal operations. Cumulative costs of GBP40.1m
have been recognised within the consolidated income statement and
classified as Other items on Project Forté since its launch in
2019, of which GBP6.5m were non-cash costs.
2. The Target Operating Model is the next phase of the Group's
transformation, and includes the further outsourcing of back-office
functions, consolidating systems and processes, and optimising the
organisation structure. The programme is expected to complete by 31
March 2024.
The costs associated with the Group transformation programme
include GBP6.9m of external consultancy costs (2022: GBP4.1m),
fixed-term staff costs of GBP6.9m (2022: GBP5.2m) to manage and
implement changes, redundancy costs of GBP2.1m (2022: GBPnil) and
dual-run licence costs in relation to decommissioned operating
systems of GBP0.7m (2022: GBPnil). In the year ended 31 March 2022,
the Group also recognised a right-of-use asset impairment of
GBP0.1m, other onerous lease costs of GBP0.2m and intangible asset
impairments of GBP1.3m.
Acquisition and disposal related costs
2023 2022
--------------------------------------- ----------- ---------------------------------
Continuing
operations
and total Continuing Discontinued
Group operations operations Total
GBPm GBPm GBPm GBPm
--------------------------------------- ----------- ----------- ------------ ------
Interserve acquisition related
income/(costs)(1) 3.7 (2.4) - (2.4)
Interserve integration costs(2) (5.5) (16.2) - (16.2)
Interserve completion accounts
adjustment - (45.6) - (45.6)
Interserve amortisation of acquisition
related assets(3) (16.7) (19.1) - (19.1)
Total Interserve acquisition costs (18.5) (83.3) - (83.3)
Other amortisation of acquisition
related intangible assets (4.7) (2.8) - (2.8)
Other acquisition transaction costs(4) (1.9) (3.2) - (3.2)
Other disposal income(5) - - 4.0 4.0
----------------------------------------- ----------- ----------- ------------ ------
Acquisition and disposal costs (25.1) (89.3) 4.0 (85.3)
Tax 4.4 (3.1) - (3.1)
----------------------------------------- ----------- ----------- ------------ ------
Acquisition and disposal costs
net of taxation (20.7) (92.4) 4.0 (88.4)
----------------------------------------- ----------- ----------- ------------ ------
Notes:
1. Comprises a provision release of GBP1.2m for a certain
pension scheme where the Group recognised a provision on the
acquisition of Interserve for the scheme's exit payment, which has
been settled during the year ended 31 March 2023 (see Note 13).
Also includes a GBP0.7m release of an employer liability insurance
provision created on the acquisition of Interserve where the Group
anticipates no further claims, GBP0.9m professional fee accruals
release and derecognition of a GBP0.9m pre-acquisition contractual
liability originally recognised against goodwill. The year ended 31
March 2022 costs comprised professional fees of GBP2.5m and an
additional provision in respect of parent company guarantees of
GBP0.6m, partially offset by the release of certain pre-acquisition
net payable amounts in respect of Interserve of GBP0.7m.
2. Comprises GBP3.4m of redundancy costs (2022: GBP1.8m), staff
related integration costs of GBP0.4m (2022: GBP3.1m) and
professional fees of GBP1.7m (2022: GBP5.3m). In the year ended 31
March 2022, the Group also incurred dual running costs related to
the transitional service arrangement of GBP1.9m, IT integration
costs of GBP1.6m, software impairments of GBP1.4m, rebranding costs
of GBP0.6m, other property related costs of GBP0.2m, right-of-use
asset impairments of GBP0.1m and other integration costs of
GBP0.2m.
3. Includes GBP16.7m amortisation of customer contracts and
relationships acquired with Interserve (2022: GBP16.7m). In the
year ended 31 March 2022, amortisation of GBP2.4m was also charged
with respect to customer contracts and relationships arising on the
acquisition of Landmarc Support Services Limited, which has been
equity accounted. See Notes 9 and 10.
4. Comprises professional fees of GBP1.7m (2022: GBP1.7m) and
GBP0.2m of performance-based employment-linked earnouts and
adjustments to deferred consideration (2022: GBP1.0m). The year
ended 31 March 2022 also included fixed-term staff costs of
GBP0.3m, other acquisition costs of GBP0.1m and redundancy costs of
GBP0.1m relating to acquisitions other than Interserve.
5. In the year ended 31 March 2022, the Group recognised other
disposal income of GBP4.0m related to rectification works on
property maintenance contracts associated with the disposal of the
Social Housing business.
Gain on disposal
In the year ended 31 March 2022, a net gain on disposal of
businesses of GBP13.0m was recognised in Other items, comprising a
net gain of GBP16.0m in relation to the disposal of the Document
Management business and a net loss on disposal of GBP3.0m in
relation to the disposal of the Nordics and Poland operations.
Other exceptional items
2023 2022
----------------------------- ----------- --------------
Continuing Continuing
operations operations
and total and
Group total Group
GBPm GBPm
----------------------------- ----------- --------------
Settlement of contractual
disputes - 9.8
Digital supplier platform(1) (3.4) (4.4)
Other exceptional items (3.4) 5.4
Tax 0.6 (1.0)
------------------------------- ----------- ------------
Other exceptional items
net of taxation (2.8) 4.4
------------------------------- ----------- ------------
Note:
1. Costs of GBP3.4m (2022: GBP4.4m) incurred in the
implementation of a new digital supplier platform, resulting in a
step change in the Group's supply chain management capabilities.
These comprise fixed-term staff costs of GBP2.4m (2022: GBP2.2m)
and third-party implementation costs of GBP1.0m (2022: GBP2.2m).
This implementation, which is transformational in nature, is
expected to be completed during the year ending 31 March 2024.
Cumulative cash costs of GBP7.8m have been recognised within the
consolidated income statement and classified as Other items since
its launch in 2022.
5. Tax
2023 2022
Total Group GBPm GBPm
------------------------ ----- -----
Current tax 19.2 19.4
Deferred tax (Note 14) (4.8) 2.2
------------------------ ----- -----
Tax charge for the year 14.4 21.6
------------------------ ----- -----
Continuing operations 14.4 21.0
Discontinued operations - 0.6
------------------------ ----- -----
Tax charge for the year 14.4 21.6
------------------------ ----- -----
Corporation tax is calculated at 19% (2022: 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 is as follows:
2023 2022
------------------------------- ----------------------------------- -----------------------------------
Before Before
Other items Other items(1) Total Other items Other items(1) Total
Total Group GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ -------------- ----- ------------ -------------- -----
Profit/(loss) before tax 150.6 (45.1) 105.5 150.1 (77.8) 72.3
------------------------------- ------------ -------------- ----- ------------ -------------- -----
Tax at UK rate of 19%
(2022: 19%) 28.6 (8.5) 20.1 28.5 (14.8) 13.7
Reconciling tax charges
for:
Non-tax deductible charges (0.8) 0.3 (0.5) - 9.0 9.0
Share-based payments - - - (0.6) - (0.6)
Gain on disposal of businesses - - - - (2.5) (2.5)
Impact of equity accounted
investments (1.6) - (1.6) (1.7) 0.5 (1.2)
(Credit)/charge for losses
not previously recognised (5.3) - (5.3) 2.2 - 2.2
Overseas tax rates (0.3) - (0.3) (0.5) - (0.5)
Impact of change in statutory
tax rates - - - (9.0) 8.1 (0.9)
Prior year adjustments 2.0 - 2.0 0.7 1.7 2.4
------------------------------- ------------ -------------- ----- ------------ -------------- -----
Tax charge/(credit) for
the year 22.6 (8.2) 14.4 19.6 2.0 21.6
------------------------------- ------------ -------------- ----- ------------ -------------- -----
Effective tax rate for
the year 15.0% 18.2% 13.6% 13.1% (2.6%) 29.9%
------------------------------- ------------ -------------- ----- ------------ -------------- -----
Note:
1. Other items are as described in Note 4.
In addition to the amounts charged to the consolidated income
statement: (i) a GBP1.1m credit for current tax (2022: GBPnil) and
a GBP1.5m credit for deferred tax (2022: GBP3.8m charge) relating
to remeasurements of retirement benefit liabilities have been taken
directly to the statement of comprehensive income; in the prior
year a GBP0.1m credit for deferred tax relating to hedged items was
also taken directly to the statement of comprehensive income; and
(ii) a GBP1.1m credit for current tax (2022: GBPnil) and a GBP4.9m
credit for deferred tax (2022: GBP0.2m charge) relating to share
options have been taken directly to equity.
The UK corporation tax rate will increase from 19% to 25% from 1
April 2023. This change has been substantively enacted at the
balance sheet date and is therefore incorporated into the amounts
contained in this report.
6. Dividends
2023 2022
Pence 2023 Pence 2022
per share GBPm per share GBPm
------------------------------------------- ---------- ----- ---------- -----
Amounts recognised as distributions in the
year:
Final dividend for the prior year 1.4 19.5 - -
Interim dividend for the current year 0.7 9.4 0.4 5.7
------------------------------------------- ---------- ----- ---------- -----
2.1 28.9 0.4 5.7
------------------------------------------- ---------- ----- ---------- -----
Proposed final dividend for the year ended
31 March 2.2 28.7 1.4 19.5
------------------------------------------- ---------- ----- ---------- -----
Dividends are recognised as distributions in the year in which
they are paid. Subject to approval at the Annual General Meeting on
25 July 2023, the final dividend for the year ended 31 March 2023
will be paid on 4 August 2023 to holders on the register on 23 June
2023. The ordinary shares will be quoted ex-dividend on 22 June
2023.
7 . Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
2023 2022
------------------------------------------- --------------------- --------------------------------------
From
Continuing operations continuing From discontinued Total
and total Group operations operations Group
GBPm GBPm GBPm GBPm
------------------------------------------- --------------------- ----------- ----------------- ------
Net profit before Other items attributable
to owners of the parent 128.0 128.1 2.4 130.5
Other items net of tax(1) (36.9) (96.8) 17.0 (79.8)
------------------------------------------- --------------------- ----------- ----------------- ------
Net profit attributable to owners of
the parent 91.1 31.3 19.4 50.7
------------------------------------------- --------------------- ----------- ----------------- ------
Note:
1. Other items are as described in Note 4.
2023 2022
Number of shares million million
----------------------------------------------------------- --------- ---------
Weighted average number of ordinary shares for the purpose
of basic EPS(1) 1,348.4 1,395.4
Effect of dilutive potential ordinary shares(2) 132.9 143.2
----------------------------------------------------------- --------- ---------
Weighted average number of ordinary shares for the purpose
of diluted EPS(1,2) 1,481.3 1,538.6
----------------------------------------------------------- --------- ---------
Notes:
1. The weighted average number of ordinary shares in issue
during the year excludes those accounted for in the Own shares
reserve.
2. The dilutive potential ordinary shares relate to instruments
that could potentially dilute basic earnings per share in the
future, such as share-based payments. The diluted earnings per
share uses the weighted average number of shares adjusted for
potentially dilutive ordinary shares, unless it has the effect of
increasing the earnings per share.
2023 2022
--------------------------------------- --------------------- -------------------------------------------
From
Continuing operations continuing From discontinued
and total Group operations operations Total Group
pence pence pence pence
per share per share per share per share
--------------------------------------- --------------------- ----------- ----------------- -----------
Basic earnings before Other items(1) 9.5 9.2 0.2 9.4
Basic earnings 6.8 2.2 1.4 3.6
Diluted earnings before Other items(1) 8.6 8.3 0.2 8.5
Diluted earnings 6.2 2.0 1.3 3.3
--------------------------------------- --------------------- ----------- ----------------- -----------
Note:
1. Other items are as described in Note 4.
8. Goodwill
GBPm
------------------------------------ ------
Cost
At 1 April 2021 327.3
Arising on business combinations 22.3
Disposal of businesses (15.8)
------------------------------------ ------
At 31 March 2022 333.8
Arising on business combinations(1) 11.0
At 31 March 2023 344.8
------------------------------------ ------
Accumulated impairment losses
At 1 April 2021 32.5
------------------------------------ ------
At 31 March 2022 32.5
------------------------------------ ------
At 31 March 2023 32.5
------------------------------------ ------
Net book value
At 31 March 2023 312.3
------------------------------------ ------
At 31 March 2022 301.3
------------------------------------ ------
Note:
1. The Group acquired P2ML, 8point8 and Custom Solar during the
year ended 31 March 2023. Refer to Note 18. This balance also
includes measurement period adjustments resulting in increases of
GBP0.4m and GBP0.1m to the goodwill recognised in relation to the
DAEL and Biotecture acquisitions respectively.
Goodwill impairment testing
Goodwill acquired in a business combination is allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination. 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
discount Goodwill Goodwill
rate 2023 2022
% GBPm GBPm
------------------- --------- -------- --------
Technical Services 12.3% 116.8 105.9
Business Services 14.7% 105.1 105.1
Communities 13.8% 81.0 81.0
Landscapes 12.8% 6.7 6.6
CG&D 13.2% 2.7 2.7
------------------- --------- -------- --------
Total 312.3 301.3
------------------- --------- -------- --------
Key assumptions
The recoverable amounts for each CGU are based on value-in-use,
which is derived from discounted cash flow calculations. The key
assumptions applied in value-in-use calculations are those
regarding forecast operating profits, growth rates and discount
rates.
Forecast operating profits
For all CGUs, the Group prepared cash flow projections derived
from the most recent forecasts for the year ending 31 March 2024
and the Group's strategic plan to 31 March 2028. Forecast revenue
and direct costs are based on past performance and expectations of
future changes in the market, operating model and cost base
including the impact of inflation.
Growth rates and terminal values
Medium-term revenue growth rates applied to the value-in-use
calculations of each CGU reflect management's strategy for a period
of five years. Terminal values were determined using a long-term
growth assumption of 2.0% (2022: 2.0%).
Discount rates
The pre-tax discount rates used to assess the forecast cash
flows from CGUs are derived from the Group's post-tax weighted
average cost of capital, which was 9.8% as at the time of the
Group's annual impairment review (2022: 7.8%). These rates are
reviewed annually by external advisors and 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 management has
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.
9. Other intangible assets
Acquisition related
------------------------------- ------------------------- ----------------- ---------------- ---------------------
Customer Software
contracts Total acquisition and development
and relationships Other related expenditure Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
Cost
At 1 April 2021 321.1 14.3 335.4 61.9 397.3
Additions - - - 20.2 20.2
Arising on business
combinations 8.4 - 8.4 - 8.4
Disposals - - - (8.8) (8.8)
Reclassifications - (3.4) (3.4) 3.4 -
Effect of movements in exchange
rates - - - 0.1 0.1
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
At 31 March 2022 329.5 10.9 340.4 76.8 417.2
Additions - - - 14.3 14.3
Arising on business
combinations 8.7 - 8.7 - 8.7
Disposals - - - (0.3) (0.3)
At 31 March 2023 338.2 10.9 349.1 90.8 439.9
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
Amortisation and impairment
At 1 April 2021 94.5 10.6 105.1 31.2 136.3
Charge for the year 19.4 0.1 19.5 7.7 27.2
Impairments - - - 3.5 3.5
Disposals - - - (8.8) (8.8)
Effect of movements in exchange
rates - - - 0.1 0.1
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
At 31 March 2022 113.9 10.7 124.6 33.7 158.3
Charge for the year 21.3 0.1 21.4 7.8 29.2
Disposals - - - (0.3) (0.3)
Effect of movements in exchange
rates - - - 0.1 0.1
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
At 31 March 2023 135.2 10.8 146.0 41.3 187.3
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
Net book value
At 31 March 2023 203.0 0.1 203.1 49.5 252.6
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
At 31 March 2022 215.6 0.2 215.8 43.1 258.9
------------------------------- ------------------ ----- ----------------- ---------------- ---------------------
Customer contracts and relationships are amortised over their
useful lives based on the period of time over which they are
anticipated to generate benefits. These currently range over an
average of 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.
Following a review of the carrying amount of intangible assets,
no impairment indicators have been identified and no impairment has
been recorded in the year ended 31 March 2023 (2022: GBP3.5m).
10. Interests in joint ventures and associates
The Group has interests in joint ventures and associates, which
are all equity accounted entities. Landmarc Support Services
Limited (Landmarc UK) and Sussex Estates and Facilities LLP
(Sussex) are equity accounted entities that were material to the
Group. All equity accounted entities provide facilities management
services.
Interests in joint ventures and associates
Ownership Nature of 2023 2022
% relationship GBPm GBPm
------------ --------- -------------- ----- -----
Landmarc UK 51 Joint venture 7.9 10.5
Sussex 35 Associate 0.6 0.7
Other Joint ventures 0.3 0.7
------------ --------- -------------- ----- -----
At 31 March 8.8 11.9
------------ --------- -------------- ----- -----
2023 2022
---------------------------------------------- ----------------------------------------------- ---------------
Group share Group share
of joint of joint
Landmarc ventures ventures
UK(1) Sussex(1) Other(1) and associates and associates
GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- -------- --------- -------- ---------------- ---------------
At 1 April 10.5 0.7 0.7 11.9 11.0
Share of profit/(loss) before Other
items 7.9 0.8 (0.4) 8.3 6.6
Share of profit - Other items(2) - - - - (2.4)
Share of other comprehensive (expense)/income (2.4) - - (2.4) 0.7
Dividends (8.1) (0.9) - (9.0) (4.0)
---------------------------------------------- -------- --------- -------- ---------------- ---------------
At 31 March 7.9 0.6 0.3 8.8 11.9
---------------------------------------------- -------- --------- -------- ---------------- ---------------
Notes:
1. Net assets/results of the entity multiplied by the respective
proportion of the Group's ownership.
2. The Group's share of amortisation of customer contracts
arising on business combinations was GBPnil for the year ended 31
March 2023 (2022: GBP2.4m).
Summarised statement of total comprehensive income (100%)
2023 2022
------------------------------------- ------------------------------ ------------------------------
Landmarc Landmarc
UK Sussex Other Total UK Sussex Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Revenue 196.5 28.4 - 224.9 164.6 24.0 2.2 190.8
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Group's share of revenue
of joint ventures and
associates 100.2 9.9 - 110.1 84.0 8.4 1.1 93.5
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Depreciation and amortisation (1.4) - - (1.4) (0.9) - - (0.9)
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Operating profit/(loss) 18.8 3.0 (0.9) 20.9 13.3 2.8 0.2 16.3
Finance income 0.3 - - 0.3 0.1 - - 0.1
Tax (3.6) (0.6) - (4.2) (2.5) - - (2.5)
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Profit/(loss) for the
year 15.5 2.4 (0.9) 17.0 10.9 2.8 0.2 13.9
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Other comprehensive (expense)/income (4.7) - - (4.7) 1.3 - - 1.3
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Total comprehensive income/(expense)
(100%) 10.8 2.4 (0.9) 12.3 12.2 2.8 0.2 15.2
------------------------------------- -------- ------ ----- ----- -------- ------ ----- -----
Summarised balance sheet (100%)
2023 2022
-------------------------- ------------------------------- -------------------------------
Landmarc Landmarc
UK Sussex Other Total UK Sussex Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- ------ ----- ------ -------- ------ ----- ------
Non-current assets 5.8 - - 5.8 10.7 - - 10.7
Current assets 52.6 9.9 1.3 63.8 41.3 8.9 5.1 55.3
Current liabilities (43.0) (8.3) (0.8) (52.1) (31.4) (7.0) (3.6) (42.0)
-------------------------- -------- ------ ----- ------ -------- ------ ----- ------
Net assets (100%) 15.4 1.6 0.5 17.5 20.6 1.9 1.5 24.0
-------------------------- -------- ------ ----- ------ -------- ------ ----- ------
Group's share of net
assets 7.9 0.6 0.3 8.8 10.5 0.7 0.7 11.9
-------------------------- -------- ------ ----- ------ -------- ------ ----- ------
The above includes the
following:
Cash and cash equivalents
(100%) 35.4 5.3 1.3 42.0 28.7 7.4 0.4 36.5
-------------------------- -------- ------ ----- ------ -------- ------ ----- ------
The Group is not aware of any material commitments in respect of
its interests in joint ventures and associates. There are no
significant restrictions on the ability to transfer funds to the
Group in the form of cash dividends, or to repay loans or advances
made by the Group.
11. Trade and other receivables
2023 2022(1)
GBPm GBPm
------------------------------- ----- -------
Trade receivables 450.8 386.3
Accrued income 278.9 239.7
Prepayments 40.2 30.4
Other receivables 40.4 55.4
------------------------------- ----- -------
Total 810.3 711.8
------------------------------- ----- -------
Included in current assets 786.8 686.7
Included in non-current assets 23.5 25.1
------------------------------- ----- -------
Total 810.3 711.8
------------------------------- ----- -------
Note:
1. Trade and other receivables of GBP17.3m have been
reclassified from current assets to non-current assets. See Note
1.
Trade receivables at 31 March 2023 represent 31 days credit on
sales (2022: 28 days).
The Group has discontinued the use of a non-recourse customer
invoice discounting facility (CID) under which certain trade
receivable balances were sold to the Group's relationship banks. As
these trade receivables were sold without recourse, the Group
derecognised them, and so they were not included within trade
receivables. The amount of invoice discounting at 31 March 2022 was
GBP44.5m.
Management considers that the carrying amount of trade and other
receivables approximates their fair value.
12. Trade and other payables
2023 2022
GBPm GBPm
--------------------------------------- ----- -----
Trade payables 230.5 134.8
Other taxes and social security 123.0 117.7
Other payables(1) 22.7 57.2
Accruals 525.6 534.3
--------------------------------------- ----- -----
Total 901.8 844.0
--------------------------------------- ----- -----
Included in current liabilities 899.5 841.2
Included in non-current liabilities(2) 2.3 2.8
--------------------------------------- ----- -----
Total 901.8 844.0
--------------------------------------- ----- -----
Notes:
1. As at 31 March 2022, GBP20.0m cash was held across the
Group's bank accounts in respect of the CID facility, where cash
collected from the Group's customers was held on trust for the CID
facility provider. This cash was subsequently remitted to the CID
facility provider by 5 April 2022 and was included within current
other payables at 31 March 2022.
2. Non-current other payables mainly comprise contingent
consideration and performance-based employment-linked earnouts
arising on the acquisitions of Rock and Custom Solar. Refer to Note
18.
Trade creditors at 31 March 2023 represent 32 days credit on
trade purchases (2022: 23 days).
Management considers that the carrying amount of trade and other
payables approximates their fair value.
13. Provisions
Contract
specific Insurance
costs reserve Pension Dilapidations Restructuring Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
At 31 March 2022 (as reported) 56.3 26.0 23.7 6.5 1.9 2.6 117.0
Adoption of amendments
to IAS 37(1) 1.1 - - - - - 1.1
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
At 1 April 2022 57.4 26.0 23.7 6.5 1.9 2.6 118.1
Additional provisions
in the year 6.1 9.5 - 1.3 2.2 1.4 20.5
Released to the income
statement (5.3) - (1.2) - - - (6.5)
Unwinding of discount
and changes in the discount
rate - - - 0.2 - - 0.2
Utilised in the year (8.9) (9.3) (0.8) - (1.6) (0.3) (20.9)
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
At 31 March 2023 49.3 26.2 21.7 8.0 2.5 3.7 111.4
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
Included in current liabilities 17.5 8.8 21.7 0.4 2.4 3.4 54.2
Included in non-current
liabilities 31.8 17.4 - 7.6 0.1 0.3 57.2
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
Total 49.3 26.2 21.7 8.0 2.5 3.7 111.4
-------------------------------- --------- --------- ------- ------------- ------------- ----- ------
Note:
1. Contract specific provisions as at 1 April 2022 have been
adjusted for the change in accounting policy for onerous contract
assessments as a result of the amendment to IAS 37 Onerous
Contracts - Cost of Fulfilling a Contract. Refer to Note 1.
Contract specific costs
Contract specific costs provision of GBP49.3m (2022: GBP56.3m)
comprises onerous contract provisions of GBP10.5m (2022: GBP13.2m)
and other contract specific provisions of GBP38.8m (2022:
GBP43.1m).
Onerous contracts are mainly in respect of certain long-term PFI
contracts. It is expected that the majority of these provisions
will be utilised over a number of years. Given the long-term nature
of these contracts, the calculation of onerous contract provisions
is a key source of estimation uncertainty. Key judgements used in
the calculation of the provision and sensitivity to change in
assumptions are set out in Note 2. The Group recognised additional
provisions of GBP1.4m, released GBP0.4m and utilised GBP4.8m in the
year with respect to onerous contract provisions.
Contract specific provisions have been made primarily to cover
remedial and rectification costs required to meet clients' contract
terms, and include a GBP14.7m provision relating to a significant
liability risk on a certain contract which is subject to dispute, a
GBP6.2m provision relating to a commercial settlement dispute for a
certain contract, and GBP1.7m relating to costs of rectification
works associated with certain property maintenance contracts of the
discontinued Social Housing business. The value of these provisions
reflects the single most likely outcome and is expected to be
utilised over a maximum period of eight years. The remaining
provision relates to other potential commercial claims, legal
claims and rectification work for other contracts. During the year
the Group recognised additional provisions of GBP4.7m, released
GBP4.9m and utilised GBP4.1m of the contract specific
provisions.
Insurance reserve
The Group retains a portion of the exposure in relation to
insurance policies for employer liabilities and motor and fleet
liabilities. Judgement is involved in assessing outstanding
liabilities, the ultimate cost and timing of which cannot be known
with certainty at the balance sheet date. The provision includes
claims incurred but not yet reported and is based on information
available at the balance sheet date. The provision is expected to
be utilised over five years.
The insurance reserve of GBP26.2m is presented gross of an
insurer reimbursement asset of GBP4.0m (2022: GBP6.5m), which
represents the amount the Group is virtually certain to recover for
claims under its insurance policies. The asset is presented as
other receivables.
Pension
The pension provision balance at 31 March 2023 comprises
GBP21.7m for Section 75 employer debt liabilities of Robert Prettie
& Co Limited and Mitie FM Limited as a result of their
participation in the Plumbing Scheme. This amount has been recorded
as a current provision, however timing of outflows is dependent on
agreement with the trustee of the Plumbing Scheme and may occur
over a longer period than one year. See Note 19.
During the year the Group utilised provisions of GBP0.8m and
released GBP1.2m for a certain pension scheme where the Group
recognised a provision on the acquisition of Interserve for the
scheme's exit payment, which has been settled during the year ended
31 March 2023.
Dilapidations
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 and is
expected to be utilised in the next five years.
Restructuring
The restructuring provision as at 31 March 2023 includes GBP2.1m
of provision where a detailed formal plan is in place and a valid
expectation in those affected has been raised. The amount is
expected to be utilised within the next year.
14. Deferred tax
The following are the major deferred tax assets and liabilities
recognised by the Group and movements thereon:
Accelerated Retirement Intangible Short-term
capital benefit assets Share timing
Losses allowances liabilities acquired options differences Total(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ ----------- ------------ ---------- -------- ------------ --------
At 1 April 2021 29.8 15.7 12.2 (42.9) 2.1 2.9 19.8
Arising on business combinations - (0.2) - (2.0) - - (2.2)
Disposal of subsidiary undertakings - (0.4) - - - - (0.4)
Credit/(charge) to income
statement 4.3 (1.6) (5.8) (7.8) 4.6 4.1 (2.2)
(Charge)/credit to equity
and other comprehensive
income - - (3.8) - (0.2) 0.1 (3.9)
------------------------------------ ------ ----------- ------------ ---------- -------- ------------ --------
At 31 March 2022 34.1 13.5 2.6 (52.7) 6.5 7.1 11.1
Arising on business combinations - (0.2) - (2.1) - 0.4 (1.9)
Credit/(charge) to income
statement 5.5 (3.7) (3.6) 4.1 0.6 1.9 4.8
Credit to equity and other
comprehensive income - - 1.5 - 4.9 - 6.4
------------------------------------ ------ ----------- ------------ ---------- -------- ------------ --------
At 31 March 2023 39.6 9.6 0.5 (50.7) 12.0 9.4 20.4
------------------------------------ ------ ----------- ------------ ---------- -------- ------------ --------
Note:
1. Deferred tax liabilities of GBP50.7m (2022: GBP52.7m) are
offset against deferred tax assets as they relate to income taxes
levied by the same tax authority and the Group has the right to and
intends to settle its current tax assets and liabilities on a net
basis.
The Group has unutilised income tax losses of GBP222.3m (2022:
GBP223.5m) that are available for offset against future profits. A
deferred tax asset has been recognised in respect of GBP158.4m
(2022: GBP136.3m) of these losses to the extent that it is probable
that taxable profits will be generated in the future and be
available for utilisation. When considering the recoverability of
deferred tax assets, the taxable profit forecasts are based on the
same information used to support the going concern and goodwill
assessments.
No deferred tax asset has been recognised in respect of losses
of GBP63.9m (2022: GBP87.2m) because recoverability is uncertain.
All losses may be carried forward indefinitely. Deferred tax has
been calculated using tax rates that were substantively enacted at
the balance sheet date. Refer to Note 5
15. Cash and cash equivalents
2023 2022
GBPm GBPm
-------------------------- ----- -----
Cash and cash equivalents 248.3 345.2
-------------------------- ----- -----
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The Group operates cash-pooling arrangements with certain
banks for cash management purposes.
As at 31 March 2023, included within cash and cash equivalents
is GBP6.4m (2022: GBP17.5m) which is subject to various constraints
on the Group's ability to utilise these balances. These constraints
primarily relate to amounts held in project bank accounts and cash
held through a joint operation, where cash is not available for use
by the Group.
As at 31 March 2022, GBP20.0m was held across the Group's bank
accounts in respect of the CID facility, where cash collected from
the Group's customers was held on trust for the CID facility
provider. This cash was subsequently remitted to the CID facility
provider by 5 April 2022 and was not categorised as restricted
cash. The carrying amount of the assets approximates their fair
value.
16. Financing liabilities
2023 2022
GBPm GBPm
---------------------------------------- ----- -----
Bank loans - under committed facilities 7.2 7.1
Private placement notes 149.4 171.0
Lease liabilities 129.4 122.5
---------------------------------------- ----- -----
Total 286.0 300.6
---------------------------------------- ----- -----
Included in current liabilities 32.0 171.1
Included in non-current liabilities 254.0 129.5
---------------------------------------- ----- -----
Total 286.0 300.6
---------------------------------------- ----- -----
In October 2021, the Group signed a new GBP150m revolving credit
facility and terminated the GBP250m facility which was set to
mature in December 2022. The new facility expires in October 2026
following the exercise of an option to extend for a further year
from October 2025 as approved by the lenders in September 2022.
In November 2021, the Group agreed, under a delayed funding
arrangement, the issue of GBP120.0m of new US private placement
notes in December 2022, avoiding any overlap with the GBP121.5m
(comprising of US$153.0m and GBP25.0m, and net of the GBP29.2m
settlement of the cross-currency interest rate swaps in the same
period) of notes that matured in the same month. The new notes are
split equally between 8, 10 and 12 year maturities, and have an
average coupon of 2.94%.
The revolving credit facility and the US private placement notes
are unsecured but have financial and non-financial covenants and
obligations commonly associated with these arrangements. The Group
was in compliance with these covenants as at 31 March 2023 and
hence all amounts are classified in line with repayment dates.
At 31 March 2023, the Group had available GBP141.6m (2022:
GBP141.5m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met.
The weighted average interest rates paid during the year were as
follows:
2023 2022
% %
------------------------ ----- ----
Bank loans 2.9 2.4
Private placement notes 3.9 4.0
------------------------ ----- ----
Private placement notes
The Group issued US$153.0m and GBP55.0m of private placement
notes on 13 December 2012, of which US$153.0m and GBP25.0m matured
in December 2022 and GBP30.0m is due to mature in December 2024.
The Group has further issued GBP120.0m of new US private placement
notes on 16 December 2022. The USPP notes are unsecured and rank
pari passu with other senior unsecured indebtedness of the Group.
The amount, maturity and interest terms of these USPP notes as at
31 March 2023 are shown below.
Tranche Maturity date Amount Interest terms
------- ---------------- -------- ------------------
12 year 16 December 2024 GBP30.0m GBP fixed at 4.04%
8 year 16 December 2030 GBP40.0m GBP fixed at 2.84%
10 year 16 December 2032 GBP40.0m GBP fixed at 2.97%
12 year 16 December 2034 GBP40.0m GBP fixed at 3.00%
------- ---------------- -------- ------------------
17. Analysis of net debt
2023 2022
GBPm GBPm
----------------------------------------------------------- ------- -------
Cash and cash equivalents (Note 15) 248.3 345.2
Adjusted for: restricted cash and other adjustments(1) (6.4) (37.5)
Bank loans (Note 16) (7.2) (7.1)
Private placement notes (Note 16) (149.4) (171.0)
Derivative financial instruments hedging private placement
notes - 19.6
----------------------------------------------------------- ------- -------
Net cash before lease obligations 85.3 149.2
Lease liabilities (129.4) (122.5)
----------------------------------------------------------- ------- -------
Net (debt)/cash (44.1) 26.7
----------------------------------------------------------- ------- -------
Note:
1. Included within these amounts is restricted cash of GBP6.4m
(2022: GBP17.5m). At 31 March 2022, GBP20.0m cash which was held
across the Group's bank accounts in respect of the CID facility was
also included, where cash collected from the Group's customers was
held on trust for the CID facility provider. This cash was
subsequently remitted to the CID facility provider by 5 April 2022
and was not categorised as restricted cash.
Reconciliation of net cash flow to movements in 2023 2022
net debt GBPm GBPm
----------------------------------------------------- ------- ------
Net (decrease)/increase in cash and cash equivalents (97.9) 149.2
Decrease/(increase) in restricted cash and cash held
on trust(1) 31.1 (18.8)
------------------------------------------------------ ------- ------
Net (decrease)/increase in unrestricted cash and
cash equivalents (66.8) 130.4
------------------------------------------------------ ------- ------
Cash drivers
Proceeds from new private placement notes (120.0) -
Private placement notes repaid 150.8 -
Settlement of derivative financial instruments (29.2) -
Repayment of bank loans 4.1 -
Payment of arrangement fees 0.5 1.7
Capital element of lease rentals 34.5 33.9
Non-cash drivers
Non-cash movement in bank loans (0.4) (2.0)
Non-cash movement in private placement notes and
associated hedges (0.3) (0.7)
Non-cash movement in lease liabilities (41.4) (49.6)
Effect of foreign exchange rate changes 1.0 (0.3)
------------------------------------------------------ ------- ------
(Increase)/decrease in net debt during the year (67.2) 113.4
------------------------------------------------------ ------- ------
Opening net cash/(debt) 26.7 (86.7)
Debt acquired as part of business combinations (3.6) -
------------------------------------------------------ ------- ------
Closing net (debt)/cash (44.1) 26.7
------------------------------------------------------ ------- ------
Note:
1. Includes decrease in restricted cash of GBP11.1m (2022:
GBP1.2m) and a decrease of GBP20.0m (2022: increase of GBP20.0m) in
respect of the cash that was held across the Group's bank accounts
at 31 March 2022 in respect of the customer invoice discounting
(CID) facility where cash collected from the Group's customers was
held on trust for the CID facility provider and was subsequently
remitted to the CID facility provider by 5 April 2022.
18. Acquisitions
Current year acquisitions
P2ML
On 1 April 2022, the Group completed the acquisition of the
entire issued share capital of P2ML Ltd (P2ML), a specialist
telecoms tower design house, for total cash consideration of
GBP2.8m. P2ML has market leading expertise in providing design,
construction, inspection and maintenance services for cellular
telecoms infrastructure, enabling major network operators and tower
owners to facilitate upgrades to their estates.
P2ML contributed GBP3.7m of revenue and GBP0.5m of operating
profit before other items to the Group's results during the year
ended 31 March 2023. Goodwill on the acquisition of P2ML represents
the premium associated with acquiring the operations which are
considered to expand Mitie's Telecoms acquisition, design and
construction (ADC) capabilities.
The Group's final assessment of the fair values of the assets
and liabilities recognised as a result of the acquisition has been
based on the total fair value of the consideration. The purchase
price allocation is as follows:
Fair value
Book value adjustments Fair value
GBPm GBPm GBPm
------------------------------------- --------------------- ------------ ----------
Customer contracts and relationships - 1.0 1.0
Property, plant and equipment 0.1 - 0.1
Right-of-use assets - 0.1 0.1
Trade and other receivables 0.6 0.2 0.8
Cash and cash equivalents 0.8 - 0.8
Trade and other payables (0.5) - (0.5)
Lease liabilities - (0.1) (0.1)
Deferred tax liabilities - (0.2) (0.2)
------------------------------------- --------------------- ------------ ----------
Net identifiable assets acquired 1.0 1.0 2.0
Goodwill 0.8
------------------------------------- --------------------- ------------ ----------
Total cash consideration 2.8
------------------------------------- --------------------- ------------ ----------
The estimated fair value of trade and other receivables was
GBP0.8m, which approximated the gross contractual amount.
8point8
On 3 May 2022, the Group completed the acquisition of the entire
issued share capital of 8point8 Support Limited, 8point8 Training
Limited and Vantage Solutions Limited (collectively 8point8) for
total cash consideration of GBP8.0m. 8point8 is a leading provider
of design and construction services in the United Kingdom,
predominantly for mobile telecoms tower infrastructure.
8point8 contributed GBP18.8m of revenue and GBP1.3m of operating
loss before other items to the Group's results during the year
ended 31 March 2023.
Based on estimates made of the full year impact if the
acquisition had completed on 1 April 2022, Group revenue for the
year would have increased by approximately GBP1.7m and operating
profit before other items for the year would have decreased by
approximately GBP0.1m, resulting in total Group revenue of
GBP3,946.7m and total Group operating profit before other items of
GBP162.0m.
Goodwill on the acquisition of 8point8 represents the premium
associated with acquiring the operations which are considered to
enhance Mitie's offering as a telecoms support services
company.
The Group's final assessment of the fair values of the assets
and liabilities recognised as a result of the acquisition has been
based on the total fair value of the consideration. The purchase
price allocation is as follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
------------------------------------- ---------- ------------ -----------
Customer contracts and relationships - 1.9 1.9
Property, plant and equipment 0.9 - 0.9
Right-of-use assets - 0.5 0.5
Current tax asset 0.1 - 0.1
Inventories 1.6 (0.9) 0.7
Trade and other receivables 4.5 1.3 5.8
Overdrafts (0.1) 0.1 -
Trade and other payables (5.8) (0.6) (6.4)
Lease liabilities - (0.3) (0.3)
Deferred income (0.1) (2.3) (2.4)
Deferred tax liabilities (0.2) - (0.2)
------------------------------------- ---------- ------------ -----------
Net identifiable assets acquired 0.9 (0.3) 0.6
Goodwill 7.4
------------------------------------- ---------- ------------ -----------
Total cash consideration 8.0
------------------------------------- ---------- ------------ -----------
The fair value of acquired trade and other receivables is
GBP5.8m. The gross contractual amount for trade and other
receivables due is GBP5.9m, with a loss allowance of GBP0.1m
recognised on acquisition.
Custom Solar
On 30 June 2022, the Group completed the acquisition of the
entire issued share capital of Custom Solar Ltd (Custom Solar).
Custom Solar is a solar power solutions company specialising in the
development, design, installation and maintenance of solar power
systems for public and private sector clients. Custom Solar's
design and installation expertise, combined with Mitie's industry
leading project management and mobile engineering offering, will
support Mitie's ambition to be a leading provider of end to end
green energy solutions.
The transaction consideration comprises an initial cash
consideration of GBP7.8m. Amounts totalling GBP2.6m payable to the
former owners of the business have been treated as remuneration for
post acquisition employment services because a condition of
receiving the payment is the individual's continued employment
within the Mitie Group. Consideration treated as remuneration for
employment services has a maximum threshold of up to GBP4.4m
(undiscounted) by the end of FY25, linked to performance targets.
These payments are accrued over the period that the related
employment services are received up until the point at which the
consideration becomes payable. As at 31 March 2023, GBP0.8m was
included in other payables relating to these transactions, the
expense has been included in administrative expenses and classified
as Other items within the consolidated income statement.
Custom Solar contributed GBP17.1m of revenue and GBP0.9m of
operating profit before Other items to the Group's results during
the year ended 31 March 2023.
Based on estimates made of the full year impact if the
acquisition had completed on 1 April 2022, Group revenue and
operating profit before other items for the year would have
increased by approximately GBP5.7m and GBP0.3m respectively,
resulting in total Group revenue of GBP3,950.7m and total Group
operating profit before Other items of GBP162.4m.
Goodwill on the acquisition of Custom Solar represents the
premium associated with taking over the operations, which are
considered to enhance the Group's ability to better deliver across
the energy sector.
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 the total fair value of the consideration.
Management continues to seek further information to complete
accounting on the business combination within the 12-month
measurement period. The provisional purchase price allocation is as
follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
------------------------------------- ---------- ------------ -----------
Customer contracts and relationships - 5.8 5.8
Property, plant and equipment 0.2 - 0.2
Right-of-use assets - 0.1 0.1
Trade and other receivables 7.1 - 7.1
Cash and cash equivalents 1.2 - 1.2
Trade and other payables (3.4) - (3.4)
Lease liabilities - (0.1) (0.1)
Bank loans (3.6) - (3.6)
Current tax liability (0.3) - (0.3)
Deferred tax liabilities - (1.5) (1.5)
------------------------------------- ---------- ------------ -----------
Net identifiable assets acquired 1.2 4.3 5.5
Goodwill 2.3
------------------------------------- ---------- ------------ -----------
Total cash consideration 7.8
------------------------------------- ---------- ------------ -----------
The estimated fair value of trade and other receivables was
GBP7.1m, which approximated the gross contractual amount.
Cash flows on acquisitions
2023 2022
GBPm GBPm
------------------------------------------- ----- -----
Cash consideration 18.6 29.7
Less: cash balance acquired (2.0) (4.8)
------------------------------------------- ----- -----
Net outflow of cash - investing activities 16.6 24.9
------------------------------------------- ----- -----
19. 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 defined benefit schemes
include the Mitie Group plc Pension Scheme (Group scheme) and three
smaller schemes; MacLellan Group 2000 Retirement Benefit Scheme,
THK Insulation Limited Retirement Benefits Scheme and Cyprus
Provident Fund. Due to the size of the smaller schemes, the
Directors present the results and position of these schemes within
this Note within Other schemes with Admitted Body schemes, largely
sections of Local Government pension 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. In addition, Interserve Scheme
Part B (Landmarc) is held within interest in joint ventures and
associates.
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 four 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 two
Group personal pension (GPP) plans. 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 GBP15.3m (2022: GBP14.8m) and
contributions to the auto-enrolment scheme of GBP20.4m (2022:
GBP21.5m), which are included in the consolidated income statement
charge. The Group expects to make contributions of a similar amount
in the year ending 31 March 2024.
Defined benefit schemes
Mitie Group plc Pension Scheme
During the year, a scheme transfer took place whereby the assets
and liabilities of the Interserve Scheme Part C (Interserve scheme)
were transferred into a segregated section of the Group scheme. The
Group scheme now comprises two segregated sections: Part A (the
Group section) and Part B (the Interserve section). The assets and
liabilities of the two sections are ring-fenced, as such there is
no change in the accounting treatment compared with the position
when they were separate schemes.
The Group section 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 section closed to new members in 2006, with new
employees able to join one of the defined contribution schemes.
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
2020.
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.
The latest Group scheme funding valuation as at 31 March 2020
indicated an actuarial deficit of GBP92.1m. As a result, the Group
has agreed a deficit recovery plan with the trustees totalling
GBP92.8m over seven years, which should eliminate the deficit if
the funding assumptions materialise in practice. In this regard,
GBP35.4m has been paid to 31 March 2023, which includes GBP13.9m
paid during the year ended 31 March 2023.
The Interserve scheme was formed to take Support Services
members transferred out of the Interserve Group Pension Scheme as
part of the acquisition arrangements. The transfer was completed on
28 February 2020 via a flexible apportionment arrangement, which
was approved by The Pensions Regulator.
The Group has an unconditional right to refund of surplus
assuming the gradual settlement over time until all members have
left the section. Accordingly, there is no restriction on the
surplus.
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 the Group 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.
The Group made contributions to the Other schemes of GBP0.7m in
the year (2022: GBP0.8m). The Group expects to make contributions
of a similar amount in the year ending 31 March 2024.
Multi-employer schemes
As a result of 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 2024 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. The Group
has received a Section 75 employer debt notice in respect of the
participation of Robert Prettie & Co Limited in the Plumbing
Scheme.
As a result of the Interserve acquisition, the Group increased
its participation in the Plumbing Scheme and the Group has received
a Section 75 employer debt notice in respect of the participation
of Mitie FM Limited.
Provisions of GBP21.7m were held at 31 March 2023 for Section 75
employer debts in respect of the participation of Robert Prettie
& Co Limited and Mitie FM Limited in the Plumbing Scheme. See
Note 13.
One Group company, Mitie Property Services (UK) Limited,
continues to participate in the Plumbing Scheme. The Trustee has
provided an estimate of GBP2.4m for the potential Section 75 debt
in respect of the participation of Mitie Property Services (UK)
Limited in the Plumbing Scheme, however no event has occurred to
trigger this debt. As set out in Note 20, this potential exposure
has been disclosed as a contingent liability.
Accounting assumptions
The assumptions used in calculating the accounting costs and
obligations of the Group's defined benefit pension schemes, as
detailed below, are set after consultation with independent,
professionally qualified actuaries.
The discount rate used to determine the present value of the
obligations is set by reference to market yields on high-quality
corporate bonds. The assumptions for price inflation are set by
reference to the difference between yields on longer-term
conventional government bonds and index-linked bonds. The
assumption for increases in pensionable pay takes into account
expected salary inflation, the cap at CPI, and how often the cap is
likely to be exceeded.
The assumptions for life expectancy have been set with reference
to the actuarial tables used in the latest funding valuations.
Principal accounting assumptions at balance sheet date
Group section/scheme Interserve section/scheme Other schemes
----------------------------- ---------------------- --------------------------- ---------------
2023 2022 2023 2022 2023 2022
% % % % % %
----------------------------- ------------ -------- -------------- ----------- -------- -----
Key assumptions used
for IAS 19 valuation:
Discount rate 4.75 2.75 4.80 2.80 4.80 2.80
Expected rate of pensionable
pay increases 3.25 3.60 3.40 3.80 3.40 3.80
Retail price inflation 3.25 3.60 3.40 3.30 3.40 3.30
Consumer price inflation 2.50 2.85 2.90 2.85 2.90 2.85
Future pension increases 3.25 3.60 3.40 3.80 3.40 3.80
----------------------------- ------------ -------- -------------- ----------- -------- -----
Group section/scheme Interserve section/scheme
---------------------------------- ---------------------- ---------------------------
2023 2022 2023 2022
Years Years Years Years
---------------------------------- ---------- ---------- ------------- ------------
Post retirement life expectancy:
Current pensioners at 65 - male 87.5 87.6 86.0 86.2
Current pensioners at 65 - female 88.9 89.0 88.6 88.3
Future pensioners at 65 - male 88.5 88.7 87.0 87.3
Future pensioners at 65 - female 90.1 90.2 89.7 89.6
---------------------------------- ---------- ---------- ------------- ------------
Life expectancy for the Other schemes is that used by the
relevant scheme actuary.
Sensitivity of defined benefit obligations to key
assumptions
The sensitivity of defined benefit obligations to changes in
principal actuarial assumptions is shown below.
Impact on defined benefit obligations
----------------------------------------------------- ---------------------------------------------
Increase/ Increase/
(decrease) (decrease)
Change in in obligations in obligations
assumption % GBPm
----------------------------------------------------- ----------- --------------- ---------------
Increase in discount rate 0.1% (1.4) (3.8)
Increase in retail price inflation(1) 0.1% 0.9 2.5
Increase in consumer price inflation (excluding pay) 0.1% 0.7 1.9
Increase in life expectancy 1 year 2.4 6.4
----------------------------------------------------- ----------- --------------- ---------------
Note:
1. Including other inflation-linked assumptions (consumer price
inflation, pension increases and salary growth).
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, 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 20 years for
the Group scheme and around 19 years for the Interserve scheme.
Amounts recognised in condensed financial statements
Amounts recognised in the consolidated income statement are as
follows:
2023 2022
----------------------------- -------------------------------------- -------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- ---------- --------- ----- ------- ---------- --------- -----
Current service cost (0.2) (0.8) (1.5) (2.5) (0.2) (0.9) (2.0) (3.1)
Past service cost (including
curtailments) - - - - - - (0.5) (0.5)
Total administration
expense (0.9) - - (0.9) (0.4) (0.3) (0.1) (0.8)
----------------------------- -------- ---------- --------- ----- ------- ---------- --------- -----
Amounts recognised in
operating profit (1.1) (0.8) (1.5) (3.4) (0.6) (1.2) (2.6) (4.4)
Net interest income/(cost) - 0.1 (0.2) (0.1) (0.8) 0.1 (0.2) (0.9)
----------------------------- -------- ---------- --------- ----- ------- ---------- --------- -----
Amounts recognised in
profit/(loss) before
tax (1.1) (0.7) (1.7) (3.5) (1.4) (1.1) (2.8) (5.3)
----------------------------- -------- ---------- --------- ----- ------- ---------- --------- -----
Amounts recognised in the consolidated statement of
comprehensive income are as follows:
2023 2022
------------------------------- --------------------------------------- -------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
Actuarial gains/(losses)
arising due to changes
in financial assumptions 79.5 11.1 22.8 113.4 20.1 0.3 (0.8) 19.6
Actuarial (losses)/gains
arising from liability
experience (12.4) (1.6) 1.1 (12.9) (1.8) (1.9) - (3.7)
Actuarial gains/(losses)
due to changes in demographic
assumptions 1.2 0.2 0.7 2.1 (1.3) (0.8) - (2.1)
Movement in asset ceiling - - (8.7) (8.7) - - (5.1) (5.1)
Return on scheme assets,
excluding interest income (74.1) (9.8) (11.1) (95.0) 6.5 0.7 5.5 12.7
Return on reimbursement
asset(1) - - 0.2 0.2 - - 0.7 0.7
------------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
Amounts recognised in
consolidated statement
of comprehensive income (5.8) (0.1) 5.0 (0.9) 23.5 (1.7) 0.3 22.1
------------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
Note:
1. Included within the consolidated statement of comprehensive
income is GBP0.2m gain related to a reimbursement asset. The
reimbursement asset is recorded within other receivables.
The amounts included in the consolidated balance sheet are as
follows:
2023 2022
------------------------------ ---------------------------------------- ---------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ---------- --------- ------- ------- ---------- --------- -------
Fair value of scheme
assets 170.3 24.2 77.1 271.6 231.0 32.6 87.0 350.6
Present value of defined
benefit obligations (169.6) (22.5) (71.0) (263.1) (238.3) (31.0) (88.4) (357.7)
------------------------------ -------- ---------- --------- ------- ------- ---------- --------- -------
Surplus/(deficit) without
restriction 0.7 1.7 6.1 8.5 (7.3) 1.6 (1.4) (7.1)
Movement in asset ceiling - - (8.7) (8.7) - - (5.1) (5.1)
------------------------------ -------- ---------- --------- ------- ------- ---------- --------- -------
Net pension asset/(liability) 0.7 1.7 (2.6) (0.2) (7.3) 1.6 (6.5) (12.2)
------------------------------ -------- ---------- --------- ------- ------- ---------- --------- -------
All figures above are shown before deferred tax.
Movements in the present value of defined benefit obligations
were as follows:
2023 2022
------------------------------- ---------------------------------------- --------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ---------- --------- ------- ------- ---------- --------- ------
At 1 April 238.3 31.0 93.5 362.8 256.7 27.7 84.9 369.3
Current service cost 0.2 0.8 1.5 2.5 0.2 0.9 2.0 3.1
Interest cost 6.4 0.9 2.2 9.5 5.3 0.6 1.6 7.5
Contributions from scheme
members - 0.1 0.2 0.3 - 0.1 0.2 0.3
Actuarial (gains)/losses
arising due to changes
in financial assumptions (79.5) (11.1) (22.8) (113.4) (20.1) (0.3) 0.8 (19.6)
Actuarial losses/(gains)
arising from experience 12.4 1.6 (1.1) 12.9 1.8 1.9 - 3.7
Actuarial (gains)/losses
due to changes in demographic
assumptions (1.2) (0.2) (0.7) (2.1) 1.3 0.8 - 2.1
Benefits paid (7.0) (0.6) (1.6) (9.2) (6.9) (0.7) (1.0) (8.6)
Settlement gain - - (0.2) (0.2) - - (0.1) (0.1)
------------------------------- -------- ---------- --------- ------- ------- ---------- --------- ------
At 31 March 169.6 22.5 71.0 263.1 238.3 31.0 88.4 357.7
------------------------------- -------- ---------- --------- ------- ------- ---------- --------- ------
The defined benefit obligations of the Group section/scheme are
analysed by participant status as at the 31 March 2020 funding
valuation date below:
2023 2022
GBPm GBPm
------------ ----- -----
Active 3.1 2.2
Deferred 86.8 130.1
Pensioners 79.7 106.0
------------ ----- -----
At 31 March 169.6 238.3
------------ ----- -----
Movements in the fair value of scheme assets were as
follows:
2023 2022
----------------------------- --------------------------------------- -------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
At 1 April 231.0 32.6 87.0 350.6 215.3 30.7 80.8 326.8
Interest income 6.4 1.0 2.0 9.4 4.5 0.7 1.4 6.6
Actuarial (losses)/gains
on assets (74.1) (9.8) (11.1) (95.0) 6.5 0.7 5.5 12.7
Contributions from the
sponsoring companies 14.9 0.9 0.7 16.5 12.0 1.4 0.8 14.2
Contributions from scheme
members - - 0.1 0.1 - 0.1 0.2 0.3
Expenses paid (0.9) - - (0.9) (0.4) (0.3) (0.1) (0.8)
Benefits paid (7.0) (0.5) (1.6) (9.1) (6.9) (0.7) (1.0) (8.6)
Past service cost (including
curtailments) - - - - - - (0.6) (0.6)
----------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
At 31 March 170.3 24.2 77.1 271.6 231.0 32.6 87.0 350.6
----------------------------- -------- ---------- --------- ------ ------- ---------- --------- -----
Fair values of the assets held by the schemes were as
follows:
2023 2022
------------------------ -------------------------------------- -------------------------------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ---------- --------- ----- ------- ---------- --------- -----
Equities 28.3 3.6 48.1 80.0 64.3 15.1 49.6 129.0
Government bonds 67.9 10.5 1.7 80.1 82.2 - 1.0 83.2
Corporate bonds 50.5 2.6 9.8 62.9 18.2 3.4 14.6 36.2
Property 3.4 1.8 10.6 15.8 9.4 2.5 13.9 25.8
Commodities - - - - 3.8 - - 3.8
Diversified growth fund 9.5 5.1 1.5 16.1 23.0 11.1 3.4 37.5
Cash 10.7 0.6 5.4 16.7 30.1 0.5 4.5 35.1
------------------------ -------- ---------- --------- ----- ------- ---------- --------- -----
Total fair value of
assets 170.3 24.2 77.1 271.6 231.0 32.6 87.0 350.6
------------------------ -------- ---------- --------- ----- ------- ---------- --------- -----
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.
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 condensed 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 (27%) 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 8% 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 Falling bond yields tend to increase the funding and accounting
yields 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 Group 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 Group 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 Group scheme are the
responsibility of the Trustee, the Group takes an active interest
to ensure that pension plan risks are managed effectively. 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.
20. Contingent liabilities
Contractual disputes, guarantees and indemnities
The Group is, from time to time, party to contractual disputes
that arise in the ordinary course of business. Management does 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 condensed financial statements.
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 Group is currently aware of a possible liability relating to
a certain PFI contract. Management is in the process of
investigating whether a liability to provide rectification works
exists. At this stage of the investigation, no reliable estimate or
likely timing of any possible liability, if it exists, can be
determined at the reporting date.
The Company and its subsidiaries have provided performance and
financial guarantees, issued by financial institutions on its
behalf, amounting to GBP33.7m (2022: GBP29.2m) in the ordinary
course of business. These are not expected to result in any
material financial loss.
Multi-employer pension schemes
When the Group (or a subsidiary of the Group) exits
multi-employer pension schemes, pension legislation may require the
Group to fund the Group's share of the total amount of net
liabilities with a one-off cash payment (a Section 75 debt under
the Pensions Act 1995).
The Group continues to have an exposure to Section 75 employer
debts in respect of the participation of Mitie Property Services
(UK) Limited in the Plumbing Scheme, which have been estimated at
GBP2.4m by the Trustee, however no event has occurred to trigger
this debt.
Employment claims
The Group is, from time to time, party to employment disputes,
claims and other potential liabilities which arise in the ordinary
course of business. Management does 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.
21. 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.
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 GBP0.2m (2022: GBP0.2m) to the
Foundation.
During the year ended 31 March 2023, the Group recognised
revenue from transactions with joint ventures or associates of
GBP5.8m (2022: GBP1.6m). The amount due from joint ventures and
associates at the year end is GBP0.4m (2022: GBP0.4m) and GBP0.1m
(2022: GBP0.2m) expense has been recognised in the year for bad or
doubtful debts in respect of the amounts owed by joint ventures and
associates.
The Group's key management personnel include the Executive
Directors, Non-Executive Directors and members of the Mitie Group
Executive (MGX). The remuneration for the other members of the MGX,
including the share-based payments charge, is GBP9.4m (2022:
GBP9.2m). 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.
2023 2022
GBPm GBPm
------------------------------- ----- -----
Short-term employment benefits 3.7 4.0
Post-employment benefits 1.1 0.3
Share-based payments 4.6 4.9
------------------------------- ----- -----
At 31 March 9.4 9.2
------------------------------- ----- -----
All transactions with these related parties were made on terms
equivalent to those that prevail in arm's length transactions. No
other transactions during the year ended 31 March 2023 meet the
definition of related party transactions.
22. Events after the reporting period
On 6 April 2023, the Group announced that it had acquired the
entire issued share capital of Linx International Group Limited,
Arc Training International Limited, Perpetuity Training Limited and
Tavcom Limited (collectively Linx International Group), a highly
respected risk management consulting business which also provides
technical and management training to the security industry. Total
transaction consideration is GBP1.8m and the acquisition was funded
from the Group's existing facilities. The initial accounting for
the business combination had not been completed at the time the
condensed consolidated financial statements were authorised for
issue. Measurement is underway of the fair value of the net assets
acquired and any goodwill to be recognised as a result of the
acquisition. Linx International Group will be integrated into the
Business Services division.
On 18 April 2023, the Group announced its intention to undertake
a GBP50m share buyback programme over the next 12 months.
On 2 May 2023, the Group announced that it had acquired the
entire issued share capital of R H Irving Industrials Limited, a
specialist in security services, building on the Group's position
as the UK's leading intelligence and technology-led security
provider. Total transaction consideration is GBP19.1m and the
acquisition was funded from the Group's existing facilities. The
initial accounting for the business combination had not been
completed at the time the condensed consolidated financial
statements were authorised for issue. Measurement is underway of
the fair value of the net assets acquired and any goodwill to be
recognised as a result of the acquisition. R H Irving Industrials
Limited will be integrated into the Business Services division.
Appendix - Alternative Performance Measures
The Group presents various Alternative Performance Measures
(APMs) as management believes that these are useful for users of
the condensed 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 which, unlike its statutory measures, cannot
be derived directly from its condensed 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 Other items
which, in management's judgement, need to be disclosed separately
by virtue of their nature, size and incidence in order for users of
the condensed financial statements to obtain a proper understanding
of the financial information and the underlying performance of the
business.
These Other items include impairment of goodwill, impairment and
amortisation of acquisition related intangible assets, acquisition
and disposal related costs, gain or loss on business disposals,
cost of restructuring programmes and other exceptional items.
Further details of these Other items are provided in Note 4.
2023 2022
Operating profit GBPm GBPm
---------------------------------------------- --------------------- ----- ------
Operating profit from continuing operations Statutory measures 117.0 72.1
Adjust for: restructure costs Note 4 16.6 10.9
Adjust for: acquisition and disposal related
costs Note 4 25.1 89.3
Adjust for: other exceptional items Note 4 3.4 (5.4)
---------------------------------------------- --------------------- ----- ------
Operating profit before Other items from
continuing operations Performance measures 162.1 166.9
---------------------------------------------- --------------------- ----- ------
Operating profit from discontinued operations Statutory measures - 19.9
Adjust for: acquisition and disposal related
costs Note 4 - (4.0)
Adjust for: gain on disposal Note 4 - (13.0)
---------------------------------------------- --------------------- ----- ------
Operating profit before Other items from
discontinued operations Performance measures - 2.9
---------------------------------------------- --------------------- ----- ------
Operating profit before Other items - Group Performance measures 162.1 169.8
---------------------------------------------- --------------------- ----- ------
Reconciliations are provided below to show how the Group's
segmental reported results are adjusted to exclude Other items.
2023 2022
GBPm GBPm
------------------------ ----------------------------------- -----------------------------------
Adjust for: Adjust for:
Reported Other items Performance Reported Other items Performance
Operating profit/(loss) results (Note 4) measures results (Note 4) measures
------------------------ -------- ------------ ----------- -------- ------------ -----------
Segment
Business Services 66.6 0.9 67.5 89.9 17.6 107.5
Technical Services 23.3 10.8 34.1 8.9 21.1 30.0
CG&D 60.6 (0.8) 59.8 41.9 (3.5) 38.4
Communities 20.9 0.4 21.3 9.0 10.9 19.9
Specialist Services 34.3 0.6 34.9 29.4 3.1 32.5
------------------------ -------- ------------ ----------- -------- ------------ -----------
Care & Custody 10.2 - 10.2 8.7 1.2 9.9
Landscapes 9.0 0.5 9.5 8.6 0.6 9.2
Waste 8.5 0.1 8.6 7.4 0.9 8.3
Spain 6.6 - 6.6 4.7 0.4 5.1
------------------------ -------- ------------ ----------- -------- ------------ -----------
Corporate centre (88.7) 33.2 (55.5) (107.0) 45.6 (61.4)
------------------------ -------- ------------ ----------- -------- ------------ -----------
Total from continuing
operations 117.0 45.1 162.1 72.1 94.8 166.9
Social Housing - - - 4.0 (4.0) -
Document Management - - - 18.8 (16.0) 2.8
Nordics and Poland - - - (2.9) 3.0 0.1
------------------------ -------- ------------ ----------- -------- ------------ -----------
Total from discontinued
operations(1) - - - 19.9 (17.0) 2.9
------------------------ -------- ------------ ----------- -------- ------------ -----------
Total Group 117.0 45.1 162.1 92.0 77.8 169.8
------------------------ -------- ------------ ----------- -------- ------------ -----------
Note:
1. The reported operating profit from discontinued operations
comprises the profit before net finance income and tax of GBPnil
(2022: GBP6.9m) and gain on disposal before tax of GBPnil (2022:
GBP13.0m).
In line with the Group's measurement of profit 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.
2023 2022
Earnings per share pence pence
-------------------------------------- --------------------- ------ ------
Statutory basic earnings per share Statutory measures 6.8 3.6
Adjust for: earnings per share from
discontinued operations - (1.4)
------------------------------------------------------------- ------ ------
Statutory basic earnings per share
from continuing operations 6.8 2.2
Adjust for: Other items per share
from continuing operations 2.7 7.0
------------------------------------------------------------- ------ ------
Basic earnings per share before Other
items from continuing operations Performance measures 9.5 9.2
-------------------------------------- --------------------- ------ ------
Performance excluding Covid-related contracts
Reconciliations are provided below to show how the Group's
reported results are adjusted to exclude non-recurring short-term
Covid-related contracts.
2023 2022
Revenue from continuing operations GBPm GBPm
-------------------------------------------------- --------------------- ------- -------
Group revenue Statutory measures 3,945.0 3,903.3
Adjust for: share of revenue of joint ventures
and associates 110.1 93.5
------------------------------------------------------------------------- ------- -------
Revenue including share of joint ventures
and associates Performance measures 4,055.1 3,996.8
Adjust for: revenue from short-term Covid-related
contracts(1) (15.3) (448.5)
------------------------------------------------------------------------- ------- -------
Revenue excluding short-term Covid-related
contracts Performance measures 4,039.8 3,548.3
-------------------------------------------------- --------------------- ------- -------
Note:
1. Includes GBP14.5m (2022: GBP428.7m) attributable to the Business Services segment.
2023 2022
Operating profit from continuing operations GBPm GBPm
---------------------------------------------------- --------------------- ----- ------
Operating profit Statutory measures 117.0 72.1
Adjust for: Other items 45.1 94.8
--------------------------------------------------------------------------- ----- ------
Operating profit before other items Performance measures 162.1 166.9
Adjust for: operating profit from short-term
Covid-related contracts(1) (7.1) (59.6)
--------------------------------------------------------------------------- ----- ------
Operating profit excluding short-term Covid-related
contracts Performance measures 155.0 107.3
---------------------------------------------------- --------------------- ----- ------
Note:
1. Includes GBP7.0m (2022: GBP59.6m) attributable to the Business Services segment.
Net (debt)/cash and total financial obligations
Net (debt)/cash is defined as the difference between total
borrowings and cash and cash equivalents. It is a measure that
provides additional information on the Group's financial position.
Restricted cash which is subject to various constraints on the
Group's ability to utilise these balances has been excluded from
the net (debt)/cash measure.
Total financial obligations (TFO) is defined as the Group's net
(debt)/cash including the amount of invoice discounting under the
Group's customer invoice discounting (CID) facility and the net
retirement benefit liabilities. TFO represents all debt-like
financing items the Group has made use of at the year end.
A reconciliation from reported figures is presented below:
2023 2022
Net (debt)/cash GBPm GBPm
-------------------------------------------- --------------------- ------- -------
Cash and cash equivalents Statutory measures 248.3 345.2
Adjusted for: restricted cash and cash held
on trust(1) Note 15 (6.4) (37.5)
Financing liabilities Note 16 (286.0) (300.6)
Derivative financial instruments hedging
private placement notes - 19.6
------------------------------------------------------------------- ------- -------
Net (debt)/cash Performance measures (44.1) 26.7
Customer invoice discounting facility Note 11 - (44.5)
Net retirement benefit liabilities Note 19 (0.2) (12.2)
-------------------------------------------- --------------------- ------- -------
TFO Performance measures (44.3) (30.0)
-------------------------------------------- --------------------- ------- -------
Note:
1. Included within these amounts is restricted cash of GBP6.4m
(2022: GBP17.5m). Amounts at 31 March 2022 included GBP20.0m that
was held across the Group's bank accounts in respect of the
customer invoice discounting (CID) facility where cash collected
from the Group's customers was held on trust for the CID facility
provider. This cash was subsequently remitted to the CID facility
provider by 5 April 2022.
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. This measure showed average daily
net debt of GBP84.3m for the year ended 31 March 2023, compared
with GBP24.7m for the year ended 31 March 2022.
Free cash flow
Free cash flow is a measure representing the cash that the Group
generates after accounting for cash flows to support operations and
maintain its capital assets. It is a measure that provides
additional information on the Group's financial performance as it
highlights the cash that is available to the Group after operating
and capital expenditure requirements are met. The table below
reconciles net cash generated from operating activities to free
cash inflow.
2023(1) 2022
Free cash flow GBPm GBPm
--------------------------------------------- --------------------- ------- ------
Net cash generated from operating activities Statutory measures 83.0 230.2
Add: net decrease/(increase) in restricted
cash and cash held on trust 31.1 (18.8)
Interest received 2.2 0.3
Dividends received from joint ventures and
associates Note 10 9.0 4.0
Purchase of property, plant and equipment (10.9) (15.4)
Purchase of other intangible assets Note 9 (14.3) (20.2)
Disposal of property, plant and equipment 0.1 0.4
Capital element of lease rentals paid (34.5) (33.9)
-------------------------------------------------------------------- ------- ------
Free cash inflow Performance measures 65.7 146.6
--------------------------------------------- --------------------- ------- ------
Note:
1. During the year ended 31 March 2023, management has updated
its definition of free cash flow to exclude cash outflow on
purchase of own shares. This is due to a change in management's
policy on satisfying share awards to purchasing shares rather than
issuing new shares and is consistent with the exclusion of cash
outflow on share buybacks from free cash flow.
Earnings before interest, tax, depreciation and amortisation
Earnings from continuing operations before interest, tax,
depreciation and amortisation (EBITDA) is a measure of the Group's
profitability. EBITDA is measured as profit/(loss) before tax from
continuing operations excluding the impact of net finance costs,
Other items, depreciation of property, plant and equipment,
amortisation and impairment of non-current assets and amortisation
of contract assets.
2023 2022
EBITDA GBPm GBPm
-------------------------------------------------- --------------------- ----- -----
Profit/(loss) before tax from continuing
operations Statutory measures 105.5 52.3
Add: net finance costs from continuing operations 11.5 19.8
------------------------------------------------------------------------- ----- -----
Operating profit from continuing operations 117.0 72.1
Add: Other items from continuing operations Note 4 45.1 94.8
-------------------------------------------------- --------------------- ----- -----
Operating profit before Other items from
continuing operations 162.1 166.9
Add:
Depreciation of property, plant and equipment 43.1 41.4
Amortisation of non-current assets(1) Note 9 7.8 7.7
Amortisation of contract assets 1.3 1.7
Impairment of non-current assets(1) Note 9 0.2 0.8
-------------------------------------------------- --------------------- ----- -----
EBITDA Performance measures 214.5 218.5
-------------------------------------------------- --------------------- ----- -----
Note:
1. Excludes amounts classified in the consolidated income
statement as Other items and amounts for discontinued
operations.
Return on invested capital
Return on invested capital (ROIC) is a measure of how
efficiently the Group utilises its invested capital to generate
profits. The table below reconciles the Group's net assets to
invested capital and summarises how the ROIC is derived.
2023 2022
GBPm GBPm
----------------------------------------- --------------------- ------- -------
Net assets Statutory measures 421.7 425.8
Add:
Non-current liabilities 335.9 241.0
Current provisions Note 13 54.2 54.7
Current private placement notes Note 16 - 141.0
Deduct:
Current derivative financial assets - (19.6)
Non-current deferred tax assets Note 14 (20.4) (11.1)
Cash and cash equivalents Note 15 (248.3) (345.2)
----------------------------------------- --------------------- ------- -------
Invested capital Performance measures 543.1 486.6
----------------------------------------- --------------------- ------- -------
Continuing operating profit before Other
items 162.1 166.9
Tax(1) (24.3) (21.5)
---------------------------------------------------------------- ------- -------
Continuing operating profit before Other
items after tax(1) 137.8 145.4
---------------------------------------------------------------- ------- -------
ROIC %(2) Performance measures 25.4% 29.9%
----------------------------------------- --------------------- ------- -------
Notes:
1. Tax charge has been calculated at the effective tax rate for
the year on pre-tax profits before Other items for continuing
operations of 15.0% (2022: 12.9%).
2. The ROIC metric used for the purposes of the Enhanced
Delivery Plan (EDP) requires further adjustments under the detailed
rules agreed with shareholders.
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