REG - MITIE Group PLC - Full year results for the year ended 31 March 2023
08/06/2023 07:00
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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 £4,055m (FY22: £3,997m), 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 £4.3bn awarded in FY23; renewal rates remain
over 90%; book to bill ratio of 105%(4)
· Operating profit before other items(1,2,3) of £162m (FY22: £167m), versus
previous guidance for 'at least £155m', 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 £117m (FY22: £72m) and basic EPS of 6.8p (FY22: 2.2p),
reflecting lower other items
· Free cash flow of £66m (FY22: £147m), after closing the customer invoice
discounting facility (£45m impact)
· Average daily net debt of £84m (FY22: £25m), reflecting the capital
allocation policy announced last year. Closing net debt of £44m (FY22: £27m
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: £38m spent),
eliminating the otherwise dilutive effect of issuing new shares to fulfil
vesting awards
· New £50m share buyback programme announced in April 2023, with the first
£25m 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 March 2023 Twelve months to 31 March 2022
Before other items(2,5) Other items(2) Total Before other items(2,5) Other items(2) Total
£m unless otherwise specified
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) £9.7bn £9.5bn
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 £21.4m relates to non-cash amortisation of acquired
intangible assets (FY22: £21.9m).
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 £450m 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 £4bn 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 £5m of Interserve synergies, and therefore increase our guidance
for total synergies to £55m by the end of FY24, significantly ahead of our
initial expectation of £30m 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 £10m 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."
-END-
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
(mailto: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 (http://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 (mailto:kate.heseltine@mitie.com)
Group IR Director
Claire Lovegrove M: +44 (0)790 027 6400 E: claire.lovegrove@mitie.com (mailto: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
(http://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 £1.9bn TCV (FY22: £2.1bn).
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, £2.4bn
TCV of contracts were renewed or extended in FY23 (FY22: £1.7bn), 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 £3m 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, £43.5m 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 £0.8bn 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 £20m (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 £21m, 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 £98m 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 £41m of savings through our margin
enhancement initiatives. These cost-saving initiatives materially exceeded the
cost of the Winter Support package (£8m), the relatively limited inflationary
increases that we were unable to pass on to customers (£7m), and the delay in
achieving the full benefits from Forté (£4m).
A significant proportion of these savings has come from Interserve cost
synergies. In FY23, we delivered an incremental £21m of synergies, driven by
further reductions in headcount and procurement savings. In aggregate, since
December 2020, we now expect to deliver total synergies of £55m (previous
guidance £50m), significantly ahead of our initial expectation of £30m at
the time of acquisition.
Our operational excellence initiatives delivered an incremental £7m 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 £7m 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.
Forté 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 £9m in FY23, although we expect
to meet our full planned savings run rate of £15m 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 (£8.4m loss
in FY23 compared to £8.7m 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 £6m of savings in FY23 and are expected to deliver a
further £20m of savings in FY24.
The costs to deliver the margin enhancement initiatives outlined above are
reflected in 'cash other items' of £24m in FY23 (FY22: £27m), which include
£8m of costs associated with the Target Operating Model (for redundancies,
systems testing, project resources, and dual running).
Labour and third-party cost inflation totalled £170m. Approximately £163m 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 £66m, compared with £147m in
the prior year. This reduction reflects the £45m 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 £20m in acquisitions in the telecoms and decarbonisation
sectors and returned £117m to shareholders via dividends paid (FY22 final and
FY23 interim dividends), share buybacks and the purchase of 50m shares at a
total cost of £38m 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 £10m 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 £145m (FY22: £88m),
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 £450m 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 £4,055m was 1.5% better than the prior year (FY22:
£3,997m), even after the completion of short-term Covid work (FY22: £448m),
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 £162m compared with the prior year (FY22: £167m) 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 £60m
reduction in Other items after tax to £37m (FY22: £97m).
Financial position
We generated £117m of cash from operations (FY22: £264m), leading to £66m
of free cash flow (FY22: £147m) 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 £84m (FY22: £25m), 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 £44m (FY22: £27m 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 £38m 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 £50m share buyback programme for
FY24, following on from the initial £50m programme executed in the first half
of FY23. The first £25m 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, £m 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 £1.5bn £1.7bn (12)%
Number of employees 31,148 38,092 (18)%
Performance highlights
· Revenue reduced by 23% to £1,172m (FY22: £1,522m), largely due to
the completion of Covid work.
· Excluding £15m of revenue from Covid work in FY23 (FY22: £429m),
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 £68m (FY22:
£108m). Excluding the £7m contribution from Covid work in FY23 (FY22:
£60m), operating profit increased by 26%, and the operating margin increased
by 0.8ppt to 5.2%, driven by margin enhancement initiatives
· £1.0bn 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 £33m of annualised
revenue and TCV of up to £120m
· 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 £1.0bn 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
£21m. 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, £m 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 £1.6bn £1.7bn (6)%
Number of employees 9,841 9,029 9%
Performance highlights
· Revenue increased by 19% to £1,154m (FY22: £973m), 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 £34m (FY22: £30m),
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 Forté
· 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 £1,154m.
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 Forté (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 £1.0bn 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 £9m in FY23. The full planned savings run rate of £15m 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 £76m of revenue in FY23 (FY22: £31m) 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 £88m of revenue in FY22 to £145m 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, £m 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 £2.4bn £1.6bn 50%
Number of employees 5,576 5,578 -
Performance highlights
· Revenue increased by 24% to £828m (FY22: £669m), 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 £60m (FY22:
£38m), and the operating margin increased by 1.5ppt to 7.2%
· New wins of £0.3bn TCV, including for the Ministry of Defence (MOD)
overseas military base in Gibraltar and United States Visiting Forces
· Significant renewals or extensions of £1.4bn 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 £828m.
Operating profit before other items increased by 56% to £60m 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 £1.7bn 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 £20m 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, £m 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 £3.4bn £3.7bn (8)%
Number of employees 7,802 8,513 (8)%
Performance highlights
· Revenue increased by 7% to £490m (FY22: £460m), benefiting from
contract re-pricing and increased lifecycle and projects work across
Healthcare and Education
· Operating profit before other items increased by 7% to £21m (FY22:
£20m)
· 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 £5.8bn and
£300m 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 £0.2bn 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 (£8.4m loss
in FY23 compared with £8.7m 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, £m 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 £0.8bn £0.8bn -
Number of employees 9,808 10,118 (3)%
Performance highlights
· Revenue increased by 10% to £411m (FY22: £373m) and operating
profit before other items increased by 7% to £35m (FY22: £33m)
· Care & Custody revenue increased by 24% to £169m, driven by
contract wins, extensions and renewals, alongside additional project work in
escorting services
· Landscapes revenue increased by 20% to £66m, 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 £102m, mainly as a result of the
significant reduction in Covid work at airports
· Waste revenue reduced by 4% to £74m 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 £35m 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 £6m
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 £55.5m in FY23 (FY22: £61.4m), 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,
£m 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 £4,055.1m, including share of
revenue from joint ventures and associates, has increased by £58m compared
with the prior year.
Excluding revenue from short term, Covid-related contracts of £15m (FY22:
£448m), revenue from continuing operations has grown by £491m (+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 £163m in FY23.
Operating profit
Operating profit from continuing operations before other items was £162.1m
(FY22: £166.9m), a reduction of £4.8m, 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 £7m (FY22: £60m), operating
profit before other items increased by £48m (+44%) in FY23, largely driven by
margin enhancement initiative savings of £41m, projects work and contract
wins and extensions.
All divisions contributed positively to this 44% profit improvement.
CG&D made the greatest contribution (£21.4m) as a result of new wins,
pricing and increased projects work, with other notable increases in: Business
Services (£12.6m) from wins, projects work and margin enhancement
initiatives; Technical Services (£4.6m) from the post-Covid recovery in
variable works; and Corporate Centre (£4.1m) as a result of the ongoing
delivery of margin enhancement initiatives.
Inflation had a negative impact on operating profit of approximately £7m in
FY23, representing a 96% recovery of the £170m 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
(£1.9m), which is now complete, and from the Winter Support package (£7.9m).
After accounting for £45.1m of net charges in other items (FY22: £94.8m),
operating profit from continuing operations was £117.0m (FY22: £72.1m), a
year on year improvement of 62%.
Other items
£m 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 Forté 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 £6m to cost savings
in FY23 and, combined with further investment, is expected to drive £20m of
additional savings in FY24.
The £3.7m 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 42% to
£11.5m (FY22: £19.8m). The decrease was driven by the 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 £14.4m (FY22:
£21.0m), comprising a tax charge on operating profit before other items of
£22.6m (FY22: £19.0m) and a tax credit for other items of £8.2m (FY22: tax
charge of £2.0m). 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 £5.3m 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
£9.0m 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 £8.2m 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 £2.0m comprised a tax credit of £6.1m related to other
items before tax, and a tax charge of £8.1m 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
£850.1m of taxes in the year (FY22: £864.3m). Of this total, £158.5m
(FY22: £148.0m) relates to taxes borne by Mitie (principally UK corporation
tax and employer's National Insurance contributions) and £691.6m (FY22:
£716.3m) 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 £19.8m in the year (FY22: £16.2m), of
which £14.0m (FY22: £14.1m) was paid in the UK and £5.8m (FY22: £2.1m)
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 £8.3m (FY22: £4.2m).
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,
£m 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
£m 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 £421.7m at 31 March 2023 were broadly
unchanged compared with 31 March 2022.
Net debt increased to £44.1m (FY22: £26.7m 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 £45m, both of which are discussed further below
(under Cash flow and net debt).
Goodwill and intangible assets increased by £4.7m 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 £13.0m 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 £6.0m in May 2022 in respect of the expert's determination on the
Interserve acquisition completion accounts, and by £31.1m 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
£1.1m 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 £111.4m (FY22: £117.0m) largely comprise
contract specific costs of £49.3m (FY22: £56.3m), the insurance reserve of
£26.2m (FY22: £26.0m), and pension provisions of £21.7m (FY22: £23.7m),
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 £5.6m in the year, largely reflecting the
utilisation of contract specific provisions.
Retirement benefit schemes
Net retirement benefit liabilities have reduced to £0.2m at 31 March 2023
(FY22: £12.2m), 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
£2.4m (FY22: £1.6m) 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 £1.5m (FY22: £3.8m) 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 £92.1m. The Group has
agreed a deficit recovery plan with the trustees totalling £93m over seven
years, of which £35m had been paid to 31 March 2023, including £14m paid
during FY23. An initial funding valuation as at 31 December 2020 for the
main scheme acquired with Interserve indicated an actuarial deficit of £1.6m.
The next triennial valuation for the main Mitie scheme will take place during
FY24.
Cash flow and net debt
£m 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) Includes £3.6m of debt acquired with acquisitions (FY22: £nil)
(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 £65.7m for FY23, which was a
decrease of £80.9m compared with FY22. Within this cash inflow there was a
cash outflow from working capital of £38.8m, 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 £27.7m included a cash outflow from other items of
£23.7m, which is predominantly made up of the costs of completing Project
Forté, and the costs to achieve our margin enhancement initiatives. Capex
and the capital element of lease payments of £59.6m were £9.5m 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
£5.3m as a result of the refinancing actions implemented in FY22 and FY23,
whereas tax payments increased by £3.6m largely due to overseas tax payments
related to the Interserve pre-acquisition period.
The planned £50m share buyback programme was successfully completed in FY23,
resulting in the purchase and cancellation of 69m shares during the year. A
new £50m share buyback programme was announced on 18 April 2023, and an
initial £25m 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, £38m 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 £20.2m, comprising the proceeds paid (of £18.6m)
adjusted for the cash and debt acquired with these businesses (of £1.6m net
debt).
The final FY22 dividend of £19.5m and interim FY23 dividend of £9.4m
resulted in a cash outflow of £28.9m in FY23. The £5.7m 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 £19.7m during the year,
with the key drivers being the receipt of £6.0m in May 2022 in respect of the
expert's determination on the Interserve acquisition completion accounts, and
an £8.2m 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 £84.3m for FY23 was £60m higher than in FY22, due
mainly to the planned capital allocation activities, including the share
buyback programme (£50m), the termination of the Group's invoice discounting
facility (£45m), share purchases for the EBT (£38m), dividends paid (£29m)
and in-year acquisitions (£20m). 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 £44.1m as at 31 March 2023 (FY22: net
cash of £26.7m), again reflecting the planned capital allocation activities
outlined above.
Total Financial Obligations (TFO)
£m 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 £300.0m of committed funding
arrangements. These comprised a £150.0m RCF, for which a one year extension
was signed in September 2022, extending the maturity date to October 2026, and
£150.0m of USPP notes. In December 2022, £121.5m of USPP notes matured and
were replaced by £120.0m of new notes, issued on more favourable terms, with
8-12 year maturities. The remaining £30.0m 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:
£m 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
Notes 2023 2022
Before Other items Other items(1) Total Before Other items Other items(1) Total
£m
£m
£m
£m
£m
£m
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
£2.8m (2022: £0.8m).
Condensed consolidated statement of comprehensive income
For the year ended 31 March 2023
Notes 2023 2022
£m
£m
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 5 2.6 (3.8)
or loss in subsequent years
(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 5 - 0.1
subsequent years
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 £9.6m (2022: £5.1m) 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 £9.9m
(2022: £5.6m).
Condensed consolidated balance sheet
As at 31 March 2023
Notes 2023 2022(1)
£m
£m
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 £17.3m 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
Notes 2023 2022
£m
£m
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
Share capital Share premium Merger reserve Own shares reserve Other reserves(1) Hedging and translation reserve Retained profits/
£m
£m
£m
£m
£m
£m
Total equity
(losses)
£m
£m
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 £170.3m 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 £0.9m and £0.7m 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
Notes 2023 2022
£m
£m
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 10 2.4
arising on business combinations
-
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 £2.0m (2022:
£4.8m). Refer to Note 18.
Condensed consolidated statement of cash flows continued
For the year ended 31 March 2023
Notes 2023 2022
£m
£m
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
£150.0m revolving credit facility maturing in October 2026, of which £8.4m
was drawn as at 31 March 2023, and £150.0m 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, £120.0m were issued in December 2022 under a delayed
funding agreement to avoid any overlap with the £121.5m (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 £30.0m 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 £83.5m 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 £1.1m 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
£m £m £m
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
31 March 2021 As reported Reclassification As restated
£m £m £m
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 £14.0m.
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 £36.9m were charged (2022: £79.8m) 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 £2.8m 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 £111.4m (2022: £117.0m). Further details are
included in Note 13.
Onerous contract provisions
Onerous contract provisions totalling £10.5m have been recognised at 31 March
2023 (2022: £13.2m). 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 £5m to a further
increase of up to £10m being recognised.
An onerous contract provision has not been recognised on a certain contract
which made a loss of £8.4m in the year ended 31 March 2023 (2022: £8.7m) 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
£38.8m of contract specific provisions at 31 March 2023 (2022: £43.1m).
These have been recognised primarily to cover costs required to meet specific
contractual obligations.
Within this total, £14.7m 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 £4m or a further increase of up to £9m
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 £0.2m (2022: £12.2m), which
includes retirement benefit assets of £2.4m (2022: £1.6m).
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
£21.7m at 31 March 2023 (2022: £21.7m) 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 £20.4m (2022: £11.1m), which
include £39.6m (2022: £34.1m) 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 £39.6m 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
£63.9m have not been recognised as at 31 March 2023 (2022: £87.2m).
Sensitivity analysis has been undertaken which shows that a 10% increase or
decrease in profits over the forecast period would result in a £3m 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 £10m, whereas if a four year forecast was to be used, the deferred tax
asset would increase by £9m.
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
Revenue(1) Operating profit/(loss) before Other items(2) Operating margin before Other items(2) Revenue(1) Operating profit/(loss) before Other items(2) Operating margin before Other items(2)
£m
£m
%
£m
£m
%
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
£100.1m (2022: £85.1m) is included within CG&D and £10.0m (2022:
£8.4m) 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 and total Group From From discontinued operations Total Group
£m
continuing operations
£m
£m
£m
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
Revenue(1) Operating Operating margin before Other items(2) Revenue(1) Operating Operating margin before Other items(2)
£m
profit before Other items(2)
%
£m
profit before Other items(2)
%
£m
£m
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
£110.1m (2022: £93.5m) is included within the United Kingdom and £nil
(2022: £nil) 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)
£m
£m
United Kingdom 732.5 717.6
Other countries 16.0 14.8
Total 748.5 732.4
Note:
1. Trade and other receivables of £17.3m have been reclassified from
current assets to non-current assets. See Note 1.
Supplementary information
2023 2022
Depreciation of property, plant and equipment £m Amortisation Amortisation of contract assets Other items(1) Depreciation of property, plant and equipment Amortisation Amortisation of contract assets Other items(1)
of intangible assets
£m
£m
£m
of intangible assets
£m
£m
£m
£m
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
Sector(1) Con
tra
ct
dur
ati
on
for
tim
ing
of
rev
enu
e
rec
ogn
iti
on
Government Non-government Total Less than More than Total
£m
£m
£m
2 years
2 years
£m
£m
£m
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 £100.1m and
£10.0m within the CG&D and Communities segments respectively.
2022
Sector(1) Con
tra
ct
dur
ati
on
for
tim
ing
of
rev
enu
e
rec
ogn
iti
on
Government Non-government Total Less than More than Total
£m
£m
£m
2 years
2 years
£m
£m
£m
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 £85.1m and
£8.4m 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 than More than Total Less than More than Total
1 year
1 year
secured
1 year
1 year
secured
£m
£m
revenue
£m
£m
revenue
£m
£m
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.
Continuing operations and total Group 2023
Restructure costs Acquisition Other exceptional items Total
£m
and disposal related costs
£m
£m
£m
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)
Continuing operations 2022
Restructure costs Acquisition Other exceptional items Gain on disposal Total
£m
and disposal related costs
£m
£m
£m
£m
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 £8.1m 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 £m £m
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 £40.1m have been
recognised within the consolidated income statement and classified as Other
items on Project Forté since its launch in 2019, of which £6.5m 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 £6.9m of
external consultancy costs (2022: £4.1m), fixed-term staff costs of £6.9m
(2022: £5.2m) to manage and implement changes, redundancy costs of £2.1m
(2022: £nil) and dual-run licence costs in relation to decommissioned
operating systems of £0.7m (2022: £nil). In the year ended 31 March 2022,
the Group also recognised a right-of-use asset impairment of £0.1m, other
onerous lease costs of £0.2m and intangible asset impairments of £1.3m.
Acquisition and disposal related costs
2023 2022
Continuing operations and total Group Continuing operations Discontinued Total
£m
£m
operations
£m
£m
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 £1.2m 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 £0.7m release of an employer
liability insurance provision created on the acquisition of Interserve where
the Group anticipates no further claims, £0.9m professional fee accruals
release and derecognition of a £0.9m pre-acquisition contractual liability
originally recognised against goodwill. The year ended 31 March 2022 costs
comprised professional fees of £2.5m and an additional provision in respect
of parent company guarantees of £0.6m, partially offset by the release of
certain pre-acquisition net payable amounts in respect of Interserve of
£0.7m.
2. Comprises £3.4m of redundancy costs (2022: £1.8m), staff related
integration costs of £0.4m (2022: £3.1m) and professional fees of £1.7m
(2022: £5.3m). In the year ended 31 March 2022, the Group also incurred dual
running costs related to the transitional service arrangement of £1.9m, IT
integration costs of £1.6m, software impairments of £1.4m, rebranding costs
of £0.6m, other property related costs of £0.2m, right-of-use asset
impairments of £0.1m and other integration costs of £0.2m.
3. Includes £16.7m amortisation of customer contracts and relationships
acquired with Interserve (2022: £16.7m). In the year ended 31 March 2022,
amortisation of £2.4m 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 £1.7m (2022: £1.7m) and £0.2m of
performance-based employment-linked earnouts and adjustments to deferred
consideration (2022: £1.0m). The year ended 31 March 2022 also included
fixed-term staff costs of £0.3m, other acquisition costs of £0.1m and
redundancy costs of £0.1m relating to acquisitions other than Interserve.
5. In the year ended 31 March 2022, the Group recognised other disposal
income of £4.0m 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
£13.0m was recognised in Other items, comprising a net gain of £16.0m in
relation to the disposal of the Document Management business and a net loss on
disposal of £3.0m in relation to the disposal of the Nordics and Poland
operations.
Other exceptional items
2023 2022
Continuing operations and total Group Continuing operations and
£m
total Group
£m
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 £3.4m (2022: £4.4m) 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 £2.4m
(2022: £2.2m) and third-party implementation costs of £1.0m (2022: £2.2m).
This implementation, which is transformational in nature, is expected to be
completed during the year ending 31 March 2024. Cumulative cash costs of
£7.8m have been recognised within the consolidated income statement and
classified as Other items since its launch in 2022.
5. Tax
Total Group 2023 2022
£m
£m
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:
Total Group 2023 2022
Before Other items(1) Total Before Other items(1) Total
Other items
£m
£m
Other items
£m
£m
£m
£m
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
£1.1m credit for current tax (2022: £nil) and a £1.5m credit for deferred
tax (2022: £3.8m charge) relating to remeasurements of retirement benefit
liabilities have been taken directly to the statement of comprehensive income;
in the prior year a £0.1m credit for deferred tax relating to hedged items
was also taken directly to the statement of comprehensive income; and (ii) a
£1.1m credit for current tax (2022: £nil) and a £4.9m credit for deferred
tax (2022: £0.2m 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 2023 2022 2022
Pence
£m
Pence
£m
per share
per share
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
Continuing operations and total Group From From discontinued operations Total
£m
continuing operations
£m
Group
£m
£m
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.
Number of shares 2023 2022
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
Continuing operations and total Group From From discontinued operations Total Group pence
continuing operations
pence
per share
pence
pence
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
£m
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 £0.4m and £0.1m 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 rate Goodwill Goodwill
%
2023
2022
£m
£m
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 Total acquisition related Software and development expenditure Total
£m
£m
£m
Customer contracts and relationships Other
£m
£m
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: £3.5m).
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 relationship 2023 2022
£m
£m
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
Landmarc UK(1) Sussex(1) Other(1) Group share of joint ventures and associates Group share
£m
£m
£m
£m of joint
ventures and associates
£m
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 £nil for the year ended 31 March 2023 (2022:
£2.4m).
Summarised statement of total comprehensive income (100%)
2023 2022
Landmarc UK Sussex Other Total Landmarc UK Sussex Other Total
£m
£m
£m
£m
£m
£m
£m
£m
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 UK Sussex Other Total Landmarc UK Sussex Other Total
£m
£m
£m
£m
£m
£m
£m
£m
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)
£m
£m
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 £17.3m 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 £44.5m.
Management considers that the carrying amount of trade and other receivables
approximates their fair value.
12. Trade and other payables
2023 2022
£m
£m
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, £20.0m 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 costs Insurance reserve Pension Dilapidations Restructuring Other Total
£m
£m
£m
£m
£m
£m
£m
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 £49.3m (2022: £56.3m) comprises onerous
contract provisions of £10.5m (2022: £13.2m) and other contract specific
provisions of £38.8m (2022: £43.1m).
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 £1.4m, released £0.4m and utilised
£4.8m 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
£14.7m provision relating to a significant liability risk on a certain
contract which is subject to dispute, a £6.2m provision relating to a
commercial settlement dispute for a certain contract, and £1.7m 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
£4.7m, released £4.9m and utilised £4.1m 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 £26.2m is presented gross of an insurer
reimbursement asset of £4.0m (2022: £6.5m), 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 £21.7m 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 £0.8m and released £1.2m
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 £2.1m 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:
Losses Accelerated capital allowances Retirement benefit liabilities Intangible assets acquired Share options Short-term timing differences Total(1)
£m
£m
£m
£m
£m
£m
£m
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 £50.7m (2022: £52.7m) 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 £222.3m (2022: £223.5m) that
are available for offset against future profits. A deferred tax asset has been
recognised in respect of £158.4m (2022: £136.3m) 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 £63.9m
(2022: £87.2m) 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
£m
£m
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 £6.4m
(2022: £17.5m) 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, £20.0m 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
£m
£m
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 £150m revolving credit facility and
terminated the £250m 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 £120.0m of new US private placement notes in December 2022, avoiding
any overlap with the £121.5m (comprising of US$153.0m and £25.0m, and net of
the £29.2m 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 £141.6m (2022: £141.5m) 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 £55.0m of private placement notes on 13
December 2012, of which US$153.0m and £25.0m matured in December 2022 and
£30.0m is due to mature in December 2024. The Group has further issued
£120.0m 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 £30.0m £ fixed at 4.04%
8 year 16 December 2030 £40.0m £ fixed at 2.84%
10 year 16 December 2032 £40.0m £ fixed at 2.97%
12 year 16 December 2034 £40.0m £ fixed at 3.00%
17. Analysis of net debt
2023 2022
£m
£m
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 £6.4m (2022:
£17.5m). At 31 March 2022, £20.0m 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 net debt 2023 2022
£m
£m
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 £11.1m (2022: £1.2m) and a
decrease of £20.0m (2022: increase of £20.0m) 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 £2.8m. 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 £3.7m of revenue and £0.5m 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:
Book value Fair value adjustments Fair value
£m
£m
£m
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 £0.8m, 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
£8.0m. 8point8 is a leading provider of design and construction services in
the United Kingdom, predominantly for mobile telecoms tower infrastructure.
8point8 contributed £18.8m of revenue and £1.3m 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 £1.7m and operating profit before other items for the year
would have decreased by approximately £0.1m, resulting in total Group revenue
of £3,946.7m and total Group operating profit before other items of £162.0m.
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:
Book value Fair value adjustments Provisional
£m
£m
fair value
£m
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 £5.8m. The gross
contractual amount for trade and other receivables due is £5.9m, with a loss
allowance of £0.1m 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
£7.8m. Amounts totalling £2.6m 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 £4.4m
(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, £0.8m 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 £17.1m of revenue and £0.9m 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 £5.7m and £0.3m
respectively, resulting in total Group revenue of £3,950.7m and total Group
operating profit before Other items of £162.4m.
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:
Book value Fair value adjustments Provisional
£m
£m
fair value
£m
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 £7.1m, which
approximated the gross contractual amount.
Cash flows on acquisitions
2023 2022
£m
£m
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 £15.3m (2022: £14.8m) and contributions to the
auto-enrolment scheme of £20.4m (2022: £21.5m), 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 £92.1m. As a result, the Group has agreed a deficit
recovery plan with the trustees totalling £92.8m over seven years, which
should eliminate the deficit if the funding assumptions materialise in
practice. In this regard, £35.4m has been paid to 31 March 2023, which
includes £13.9m 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 £0.7m in the year (2022:
£0.8m). 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 £0.1m. 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 £21.7m 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
£2.4m 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
Change in assumption Increase/ Increase/
(decrease) in obligations
(decrease) in obligations
%
£m
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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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
£0.2m 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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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
£m
£m
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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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 section Interserve section Other schemes Total Group scheme Interserve scheme Other schemes Total
£m
£m
£m
£m
£m
£m
£m
£m
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 yields Falling bond yields tend to increase the funding and accounting obligations.
However, the investment in corporate and government bonds offers a degree of
matching, i.e. the movement in assets arising from changes in bond yields
partially matches the movement in the funding or accounting obligations. In
this way, the exposure to movements in bond yields is reduced.
Inflation risk The majority of the 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
£33.7m (2022: £29.2m) 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 £2.4m 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 £0.2m (2022: £0.2m) to the Foundation.
During the year ended 31 March 2023, the Group recognised revenue from
transactions with joint ventures or associates of £5.8m (2022: £1.6m). The
amount due from joint ventures and associates at the year end is £0.4m (2022:
£0.4m) and £0.1m (2022: £0.2m) 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 £9.4m (2022: £9.2m). 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
£m
£m
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 £1.8m 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 £50m 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
£19.1m 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.
Operating profit 2023 2022
£m
£m
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.
Operating profit/(loss) 2023 2022
£m
£m
Reported results Adjust for: Other items (Note 4) Performance measures Reported Adjust for: Performance measures
results
Other items (Note 4)
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 £nil (2022: £6.9m) and gain
on disposal before tax of £nil (2022: £13.0m).
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.
Earnings per share 2023 2022
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.
Revenue from continuing operations 2023 2022
£m
£m
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 £14.5m (2022: £428.7m) attributable to the Business
Services segment.
Operating profit from continuing operations 2023 2022
£m
£m
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 £7.0m (2022: £59.6m) 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:
Net (debt)/cash 2023 2022
£m
£m
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 £6.4m (2022:
£17.5m). Amounts at 31 March 2022 included £20.0m 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 £84.3m for the year ended 31 March
2023, compared with £24.7m 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.
Free cash flow 2023(1) 2022
£m
£m
Net cash generated from operating activities Statutory measures 83.0 230.2
Add: net decrease/(increase) in restricted cash and cash held on trust (18.8)
31.1
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.
EBITDA 2023 2022
£m
£m
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
£m
£m
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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