REG - MITIE Group PLC - Interim Results
23/11/2023 07:00
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RNS Number : 3881U MITIE Group PLC 23 November 2023
23 November 2023
Mitie Group plc
Interim results for the six months to 30 September 2023
Good H1 performance
Revenue +11%; Operating profit +24%; EPS +39%
On track to deliver at least £190m full year operating profit
Highlights
· Revenue(1) increased 11% to £2,132m (H1 FY23: £1,923m), reflecting contract
re-pricing, continued growth in Key Accounts, Projects upsell and infill
M&A, partially offset by contract scope reductions
· Total contract value (TCV) of £2.4bn wins/renewals/extensions; renewal rates
of 88%; book to bill ratio of 111%(4)
· Operating profit before other items(1,2,3) increased 24% to £85m (H1 FY23:
£68m); operating profit margin(3) increased 50bps to 4.0% (H1 FY23: 3.5%)
· Basic EPS before other items increased 39% to 5.0p (H1 FY23: 3.6p), reflecting
the increase in operating profit, reduction in net finance costs and benefit
from share buybacks
· Operating profit after other items of £57m (H1 FY23: £51m) and basic EPS of
3.3p (H1 FY23: 2.6p); Other items increased to £28m (H1 FY23: £18m)
reflecting costs to deliver margin enhancement initiatives and acquisition
costs
· Free cash inflow of £48m (H1 FY23: £5m outflow)
· Five acquisitions completed for a net cash consideration of £46m, extending
our capabilities in high growth markets
· Average daily net debt of £156m (H1 FY23: £62m), reflecting M&A spend
and ongoing shareholder returns; Closing net debt of £113m (H1 FY23: £64m)
· Strong balance sheet with leverage of 0.6x (average net debt/EBITDA(5))
· Interim dividend increased 43% to 1.0p per share (H1 FY23: 0.7p)
· First £25m tranche of the current £50m share buyback programme completed;
second £25m tranche launched on 11 October. 34m shares purchased to date, of
which 28m shares held in treasury to satisfy 2020 SAYE scheme
· The Group remains on track to deliver recently raised guidance for operating
profit before other items of at least £190m in FY24 (FY23: £162m)
Results for the six months ended 30 September 2023
Six months to 30 September 2023 Six months to 30 September 2022
Before other items(2,5) Other items(2) Total Before other items(2,5) Other items(2) Total
£m unless otherwise specified
Revenue including share of JVs & associates 2,132.4 - 2,132.4 1,922.9 - 1,922.9
Group revenue 2,083.3 - 2,083.3 1,874.3 - 1,874.3
Operating profit/(loss)(3) 84.6 (27.8) 56.8 68.0 (17.5) 50.5
Operating profit margin(3) 4.0% - 2.7% 3.5% 2.6%
Profit/(loss) before tax 80.1 (27.8) 52.3 60.6 (17.5) 43.1
Profit/(loss) for the period 64.8 (21.9) 42.9 49.1 (13.8) 35.3
Basic earnings per share 5.0p 3.3p 3.6p 2.6p
Interim dividend per share 1.0p 0.7p
Cash generated from operations 73.0 19.5
Free cash inflow / (outflow)(5,6) 47.9 (5.0)
Average daily net debt(5) (156.1) (62.0)
Closing net debt(5) (112.7) (64.0)
Total order book(4) £9.9bn £9.6bn
Return on invested capital(5) 24.6% 22.8%
1. Including share of joint ventures (JVs) and associates.
2. Other items are described in Note 3 to the condensed
consolidated financial statements. In H1 FY24 £11.4m relates to non-cash
amortisation of acquired intangible assets (H1 FY23: £10.6m).
3. Operating profit includes share of profit after tax from JVs
and associates. Operating profit margin is operating profit as a percentage of
revenue including share of JVs 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 during the period and
revenue recognised for the period.
5. Performance before other items, 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.
6. Prior year comparative restated to exclude the cash outflow
relating to share purchases to satisfy share awards. An explanation is
provided in the Alternative Performance Measures in the Appendix to the
condensed consolidated financial statements.
Commenting on the first six months and the outlook, Phil Bentley, Group Chief
Executive, said:
"We had a good first half with revenue, profits and earnings per share all up
strongly. Our strategy of focusing on Key Accounts growth and Projects
upsell, combined with contract re-pricing and infill M&A, drove an 11%
increase in revenue. The Group's operating margin before other items
increased by 50bps to 4.0%, as a result of the ongoing delivery of margin
enhancement initiatives and careful management of inflation.
"Our divisions are performing well, and I'm particularly encouraged by our
performance in Technical Services and Central Government & Defence. My
appreciation goes to our 65,000 colleagues for their amazing commitment.
Through their hard work, allied to our technology-led approach, Mitie is
transforming the built environment and the lived experience for our c.3,000
customers.
"The Group is on track to have met, or significantly exceeded, all of our
previous medium-term financial targets and guidance for FY24, the final year
of our current Three-Year Plan (FY22-FY24).
"At our Capital Markets Event in October we introduced our new Three-Year Plan
(FY25-FY27): From Facilities Management to Facilities Transformation, which
sets out ambitious financial targets. Our Facilities Transformation strategy
will enhance the built environment of our customers by improving productivity,
working environments, security and cleanliness, whilst reducing their carbon
intensity. This strategy will extend Mitie's market leadership positions in
the UK - the largest and most dynamic FM market in Europe - and will enable
Mitie to reach its full potential, both financially and through our positive
contribution to the environment and society. I am proud to be leading the
Group through this next stage of our development.
"Looking ahead, we are encouraged by new Key Account wins, increased revenues
from Projects upsell, and the positive momentum from cost savings initiatives
implemented in the first half. The Group remains on track to deliver
recently raised guidance for operating profit before other items of at least
£190m in FY24".
-END-
Analyst Presentation and Q&A
Phil Bentley (CEO) and Simon Kirkpatrick (CFO) will host a presentation and
Q&A session today (23 November 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) .
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 and transformation company in the UK.
We offer a range of services to the public sector through our Central
Government & Defence and Communities (Local Government & Education,
Healthcare and Care & Custody) divisions. Our Technical Services
(Engineering Services) and Business Services (Security, Cleaning, Landscapes,
Spain and Waste) divisions serve private sector customers in areas such as
Financial & Professional Services, Industrials, Retail and Transport, and
increasingly the public sector.
Mitie employs 65,000 people. 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 delivered a good financial performance and further strategic progress in
the six months to 30 September 2023 (H1 FY24), the final year of our current
Three-Year Plan (FY22 - FY24). With these H1 results, the Group remains on
track to meet, or significantly exceed, all of its previously set medium-term
guidance and targets in the current financial year.
Shortly after the period end, at our Capital Markets Event on 12 October 2023,
Mitie introduced its new Three-Year Plan for FY25 to FY27: From Facilities
Management to Facilities Transformation. The event outlined how customers'
needs for the built environment and lived experience are changing to meet
increasing demand for asset optimisation; a reduced carbon footprint; higher
levels of assurance for security and cleanliness; whilst embracing
hybrid-working and creating a 'Great Place to Work'.
The plan sets out ambitious new financial targets for the Group, to measure
success and reward shareholders through enhanced returns over the coming three
years, as summarised below.
Metric FY22 - FY24: Targets / guidance FY25 - FY27: New targets
Annual revenue growth Mid-to-high single digit High single digit
Operating profit margin 4.5% to 5.5% 5% by FY27
EBITDA £200m >£300m by FY27
Annual EPS growth n/a - no target set Higher than revenue growth despite higher corporation tax rates
Free cash flow £100m per annum £150m per annum by FY27
Average leverage 1.0x maximum 0.75x to 1.5x
ROIC >20% c.20%
Mitie's journey over recent years has been transformative. We are the clear
market leader in our industry, overall and in our core service lines -
Cleaning & Hygiene, Security and Engineering. The new Three-Year Plan and
financial targets continue to build upon our strategic progress and our
ambition for the business to reach its full potential, not just financially
but through its positive contribution to the environment and society.
The recording and presentations from our Capital Markets Event are available
at: https://www.mitie.com/capital-markets-day/
(https://www.mitie.com/capital-markets-day/)
Accelerating growth
Our technology-led facilities transformation strategy is expected to deliver
accelerated growth through the key pillars of: 1) Key Accounts growth; 2)
Projects upsell to existing customers; and 3) infill M&A to add new
capabilities. We are targeting high single digit revenue growth annually.
During the period, organic growth through Key Accounts (net contract wins and
losses and contract growth) and Projects upsell contributed 9.2% to revenue
growth, inclusive of contract re-pricing of 4.8%. Infill M&A completed
since 1 April 2022 contributed a further 1.7% of inorganic growth.
We were awarded new contract wins and extensions/renewals of £2.4bn TCV in H1
FY24. New Key Accounts included further Amazon sites, the Defence
Infrastructure Organisation in Germany, the Home Office and Phoenix Group.
Notable extensions/renewals included the Foreign Commonwealth and Development
Office, Lloyds Banking Group, the Ministry of Justice, Network Rail, and Sky.
Mitie's renewal rate of 88% (H1 FY23: +90%) is testament to the strength of
our customer relationships, quality of service and competitiveness on pricing.
We have a large, diversified portfolio of blue-chip customers, and contract
renewals are therefore completed on a rolling basis throughout each year.
During the period, one c.£35m per annum Government contract was not renewed
(as a result of pricing) and will be handed over at the end of FY24. An
additional c.£55m per annum contract for a private sector customer with
international operations will be transitioned to a global facilities
management provider in H2. However, Mitie will continue to deliver higher
margin projects work for this customer in the UK.
Projects upsell to existing customers remained robust, with projects work
being delivered across Mitie's divisions in the key areas of Buildings
Infrastructure, Decarbonisation, Telecoms Infrastructure and Fire &
Security. Demand in each of these market segments is supported by attractive
macro-trends, as set out at our recent Capital Markets Event. Overall,
Projects revenue across the Group increased by c.45% to £437m in the period,
boosted by strong performances in CG&D and Technical Services, and the
contribution from recent acquisitions. Divisional performance is set out in
more detail in the 'Operating Review'.
During the period, Mitie completed five acquisitions for a combined
consideration of £46m, net of cash acquired and excluding deferred
performance-linked consideration and earnouts.
Our position as the leader in the intelligence and technology-led Fire &
Security market has been enhanced by the acquisitions of Linx International
(April) - a leading risk management and consulting business; RHI Industrials
(May) - a leading installer of high-tech security and access controls; and
Biservicus (September) - a Spanish security business.
Enhancing our Mechanical & Electrical (M&E) engineering credentials,
within the Buildings Infrastructure segment of our Projects business, we
acquired JCA Engineering (September) - a leading principal contractor for
complex engineering projects across the UK, with a particular focus on
critical environments such as data centres, healthcare and life sciences. We
also purchased, via a liquidation process, the assets of G2 Energy (July) - a
leading high voltage and battery energy storage contractor.
After the period end, we acquired Cliniwaste (October) - a specialist in
treating plastic waste, and GBE Converge Group (November) - a leading
independent provider of fire, security and information and communications
technology (ICT) solutions, for a total consideration of £21m (excluding
performance-linked earnouts). GBE has the potential to provide complementary
services to JCA Engineering in critical environments.
Mitie has also reached agreement with its joint venture partner in the
'Landmarc' military training estate to amend the shareholders' agreement and
received clearance following mandatory notification under the UK National
Security and Investment Act 2021 on 16 November 2023. This will result in
Landmarc being consolidated as a subsidiary of Mitie from this date and will
enable Landmarc to benefit from the wider capabilities of our business. As
highlighted in Mitie's H1 Trading Update (11 October 2023), the consolidation
of Landmarc is expected to add c.£40m to Mitie's revenue including share of
joint ventures and associates and c.£5m to operating profit in H2 FY24. EPS
is not impacted.
Operating margin progression
We are targeting an operating profit margin, before other items, of at least
5% by FY27. This will be achieved through our ongoing programme of margin
enhancement initiatives and operational leverage, alongside the contribution
from acquisitions, and an increase in higher margin projects works. We expect
these management actions to more than offset the continued impact of inflation
and pressure on contract pricing in a highly competitive environment.
During the period, the Group achieved an operating profit margin before other
items of 4.0%, an increase of 50 bps on the same period in the prior year (H1
FY23: 3.5%). This increase reflects improved underlying trading and the
delivery of £21m of savings through margin enhancement initiatives, more than
offsetting the net impact of cost inflation that we were unable to pass
through to customers (£3m), an additional provision made against one specific
contract (£5m) in Communities (explained further in the Communities Operating
Review), the wind down of the Afghan Relocations and Assistance contract
(£6m) and the completion of Covid contracts (£3m).
Approximately £12m of these savings were delivered through our Target
Operating Model (TOM) programme, which is optimising our organisational
structure, centralising transactional finance teams, outsourcing certain
back-office functions and consolidating systems and processes.
For example, in Mitie Shared Services various HR support functions, such as
'right to work' vetting, have been outsourced with transferred services
already delivering productivity improvements. Within Group Operations,
analytical tools and operational excellence activities are delivering
productivity benefits to contracts, and technology solutions are being rolled
out to our helpdesk to drive efficient workforce management. We have also been
extending lease periods and rolling out dash cams across our electric vehicle
(EV) fleet, helping to reduce incidents and fines.
The balance of savings in the period were delivered through further Interserve
synergies, Operational Excellence initiatives, and the continued roll out of
Coupa, our digital supplier platform, across the divisions. The costs
associated with the delivery of margin enhancement initiatives are included in
'cash other items'.
Looking ahead the focus will shift from overheads to operations and contract
efficiencies. There are savings opportunities in areas such as contract
productivity, where we are increasingly using AI analysis, from our new
Workplace App to drive efficiencies in how we deploy resources, and in the
technologies that are helping to reduce vehicle accidents and repair costs.
Free cash flow generation
Mitie's free cash flow generation has improved materially over the past three
years, driven by increased EBITDA combined with tight control over capex and
working capital. In H1 FY24, the Group generated a free cash inflow of £48m
compared with an outflow of £5m in the same period last year, reflecting
strong operating profit generation and a reduced working capital outflow in H1
FY24, following the closure of the customer invoice discounting facility in H1
FY23. The Group remains on track to generate at least £100m of free cash flow
in FY24, in line with guidance. This underpins the delivery of our capital
allocation policy, which sets out the proactive but disciplined use of our
financial resources.
Capital allocation
As set out at our recent Capital Markets Event, we will maintain a progressive
dividend policy, targeting a payout ratio of 30-40%, and we will continue to
purchase shares for all employee share schemes to mitigate shareholder
dilution. We will also pursue infill M&A, primarily targeting higher
growth, higher margin projects businesses in the key areas of Buildings
Infrastructure, Decarbonisation, Telecoms Infrastructure and Fire &
Security. Excess funds will be returned to shareholders through share
buybacks.
The Board has declared an interim dividend of 1.0p per share (H1 FY23: 0.7p
per share), consistent with our policy of setting the interim dividend at one
third of the prior year total dividend (FY23: 2.9p per share). The interim
dividend will be paid on 31 January 2024 to all shareholders that are on the
register at the close of business on 15 December 2023. Shares in Mitie will be
quoted ex-dividend on 14 December 2023 and the dividend reinvestment plan
election date is 5 January 2024.
During the period, we purchased 7m shares for £7m for employee incentive
schemes (FY24 guidance c.15m shares), and we spent £46m on the five
acquisitions outlined above (FY24 guidance c.£75m, depending on the pipeline
of opportunities).
The first £25m tranche of the current £50m share buyback programme was
completed in H1 FY24, with the purchase of 26m shares at an average price of
96p. Within this tranche, 5m shares were cancelled and the balance held in
treasury to satisfy the 2020 SAYE scheme vesting in December 2023 (30m shares
required in total). The second £25m tranche was launched after the period
end, on 11 October 2023. To date, 34m shares have been purchased in total at
an average price of 97p.
Technology leadership
Mitie continues to invest in technology to enhance its unique Mitie Digital
Platform and maintain its position as a leading provider of technology-led
solutions. During the period, Azure ChatGPT was fully integrated into
Aria/ESME (which allows customers to report issues via an app), delivering
improved customer communications and raising case accuracy to 97%.
Artificial Intelligence / Machine Learning (AI / ML) trials have been carried
out on HVAC units with two of our Key Accounts, including the introduction of
Anomaly Detection and Predictive Maintenance models to improve energy
efficiency and manage remedial works, with encouraging early results.
Internally, Mitie ChatGPT is now being used for all sales bids to improve
quality and response times.
Mitie is the first in the industry to fully integrate Secure Government Maximo
7.6, Coupa (digital supplier platform) and SAP, providing a seamless
purchase-to-pay (P2P) suite of products in our Central Government &
Defence division. This has enabled electronic invoice posting and data
/document exchange between the three key systems. During H1, acquired
companies (including RHI Industrials, Rock, Custom Solar, DAEL, P2ML and
8point8) were fully migrated onto SAP and Coupa.
Strategic partnerships with global IT companies such as Microsoft, Vodafone,
ServiceNow and Wipro are integral to Mitie's technology progression. Shortly
after the period end, we entered a strategic go-to-market partnership with
Salesforce.com to provide carbon reporting and pathway to Net Zero solutions
to our customers.
Environment, Social and Governance (ESG)
Mitie is recognised as a leader in ESG among global industry peers, with these
initiatives forming a key part of how we do business and ensuring we grow
sustainably and responsibly. Our leading credentials also position us well to
work with our customers to realise their own sustainability and Net Zero
ambitions across their built estates.
In April 2023, we received validation from the prestigious Science Based
Targets Initiative (SBTi) following a robust assessment process, demonstrating
our commitment to reducing our carbon footprint. Our largest carbon emissions
relate to our vehicles and during the period we transitioned a further c.500
from diesel to electric vehicles (EVs). Our fleet of over 3,800 EVs is one of
the largest in the UK. During the period we won Environment awards for Net
Zero Strategy of the Year (edie); Best Climate Transition Plan (ESG
Investing); and Net Zero Strategy of the Year (Energy Managers' Association).
We continue to offer career development opportunities and industry-leading
benefits to our colleagues to attract and retain the best talent. We launched
'Action Now', which is a training programme aimed at embedding sustainability
throughout the business - from frontline to Boardroom and we embedded the
Social Value platform, 'Thrive', to measure Social Value across our Key
Accounts.
During the period, 60 new apprentices joined the business in engineering,
project management and data analyst roles. We now have over 1,100 apprentices
across the business, enrolled on more than 90 courses, and we were named in
the top 100 Apprenticeship Employers for the second consecutive year. We also
joined the 5% Club, showing our commitment to getting 5% of our workforce onto
'earn and learn' programmes, including apprenticeships.
Our employee listening sessions led by Jennifer Duvalier, our Non-Executive
Director responsible for workforce engagement, with wider Board member
participation, continued in the first half of the year with seven visits
across different parts of the business, both in the UK and overseas.
Financial highlights
Our good financial results for the six months ended 30 September 2023
demonstrate the resilience of the business, our continued strategic progress
and track record for delivery.
Revenue
Revenue, including share of joint ventures and associates, increased by 10.9%
to £2,132m (H1 FY23: £1,923m).
Organic growth accounted for 9.2% of the 10.9%, with 4.4% coming from Key
Accounts (net contract wins and losses and contract growth) and Projects
upsell, partially offset by scope reductions (such as for the Afghan
Relocations and Assistance contract in Business Services). The remaining
4.8% of organic growth came from contract re-pricing. Infill M&A
contributed 1.7% of inorganic growth.
Profitability
Operating profit before other items increased by 24% to £84.6m (H1 FY23:
£68.0m) and the operating profit margin before other items increased by 50
bps to 4.0% (H1 FY23: 3.5%), reflecting improved underlying trading and the
delivery of savings through margin enhancement initiatives, more than
offsetting the net impact of inflation, the provision made against one
specific contract in Communities, the wind down of the Afghan Relocations and
Assistance contract and the completion of Covid contracts.
Basic earnings per share before other items increased by 39% to 5.0p (H1 FY23:
3.6p). Basic earnings per share after other items increased by 27% to 3.3p (H1
FY23: 2.6p), reflecting improved profitability partially offset by an £8.1m
increase in other items after tax to £21.9m (H1 FY23: £13.8m), primarily
driven by costs associated with delivering the TOM programme.
Financial position
£73.0m of cash from operations (H1 FY23: £19.5m) was generated, leading to a
£47.9m free cash inflow (H1 FY23: £5.0m outflow). This helped to maintain a
strong balance sheet, with average leverage (average net debt/EBITDA) of 0.6x.
Average net debt was £156.1m in H1 FY24 (H1 FY23: £62.0m), and closing net
debt at 30 September 2023 was £112.7m, an increase of £68.6m from £44.1m at
31 March 2023. This increase since the year end reflects the free cash
inflow being more than offset by capital allocations totalling £107m and a
£10m increase in lease obligations.
Operating review
As previously announced, from the start of FY24 Spain, Waste and Landscapes
are reported within Business Services and Care & Custody is reported
within Communities. These businesses had previously been reported within the
now redundant Specialist Services division. Restated prior year comparatives
are provided below.
Business Services
Business Services delivers technology-led Security and Cleaning & Hygiene
services alongside Landscaping and Waste Management across c.2,000 contracts,
with sector expertise in Retail, Transport, Central Government and Financial
& Professional services. Mitie Spain is also reported within the division.
Business Services, £m H1 FY24 Restated(1) Change Restated(1)
H1 FY23 FY23
Revenue 719 708 2% 1,414
Security 408 398 3% 782
Cleaning 194 194 - 390
Spain 51 54 (6)% 102
Waste 38 37 3% 74
Landscapes 28 25 12% 66
Operating profit before other items 41.7 40.5(2) 3% 92.2(3)
Operating profit margin before other items 5.8% 5.7%(2) 0.1ppt 6.5%(3)
Total order book £2.1bn £2.1bn - £1.8bn
(1) Restated to reflect the change to divisional reporting from H1 FY24
(2) Includes £2.6m from Covid contracts. Excluding this, underlying operating
profit was £37.9m, and the operating profit margin was 5.4%
(3) Includes £7.0m from Covid contracts. Excluding this, underlying operating
profit was £85.2m, and the operating profit margin was 6.1%
Performance highlights
· Revenue increased by 2% to £719m (H1 FY23: £708m), reflecting increased
projects and variable works, acquisitions and contract re-pricing, offset by
scope reductions, Covid work completion and net contract losses
· Operating profit before other items increased by 3% to £41.7m (H1 FY23:
£40.5m)
· £1.1bn TCV contract wins and renewals/extensions
· Five acquisitions completed (including two after the period end), building on
our leading position in the UK intelligence and technology-led Fire &
Security market and expanding our security offering in Spain
· Awards include Best Team, Security Manager of the Year, and Service to the
Customer - British Security Awards 2023; Highly commended for Security
Installation Company of the Year and Security Team of the Year - Fire &
Security Matters Awards 2023; Retailer & Policing Collaboration and
Physical Risk Management Team of the Year - Retail Risk, Fraud Awards 2023
Operational performance
Business Services delivered an encouraging performance, benefiting from
increased projects and variable works (largely driven by elevated levels of
crime in the Retail sector), the contribution from recent acquisitions, and
contract re-pricing (combined revenue benefit of 8%). This was partially
offset by scope reductions, such as for the Afghan Relocations and Assistance
contract and the completion of Covid work in FY23 (combined revenue impact of
6%).
The division secured £1.1bn TCV of contract wins and
renewals/extensions, including wins for Amazon, ASDA, Heathrow Airport,
National Portrait Gallery, Phoenix Group, Reach plc, and Thales. The largest
extension was for four years with Network Rail, while other renewals and
extensions included the British Broadcasting Corporation, Civilian Guard
Force, Lloyds Banking Group and Sky.
Margin enhancement initiatives continued at pace, offsetting the completion of
higher margin Covid work and scope reductions. The initiatives primarily
focused on operational excellence and improvements in productivity. The
division is continuing to leverage the Workplace+ workforce management app to
optimise workforce productivity and improve workflows across core services.
Retail is the division's largest sector, with c.£300m in core revenue
annually, over 7,000 Mitie colleagues, and a blue-chip customer base of
national retailers and flagship shopping centres. Our retail customers are
facing unprecedented pressures, driven by changing buying behaviours, rising
costs and intense competition; whilst at the same time being impacted by well
publicised increases in crime - with an estimated £1bn annual loss due to
in-store customer theft.
As the market leader in this sector, Mitie has created a connected security
model including bespoke security operations centres, dynamic risk-based
deployment of resources, and end-to-end crime management solutions delivered
through our dedicated crime analyst teams. Two pivotal initiatives that have
gathered momentum in the period and demonstrate our transformative approach
are: 1) Operation Alliance - the UK's first direct data sharing agreement,
allowing Mitie to aggregate evidence against offenders from multiple retailers
and disrupt organised gangs; and 2) Pegasus - Mitie has taken the lead in
securing funding from multiple retailers and the Home Office to establish the
first police unit solely dedicated to combating organised retail crime.
Mitie added to its position as the leader in the intelligence and
technology-led Fire & Security market through the acquisition of three
businesses in this area during the period, and a further acquisition after the
period end. Acquisitions included Linx International (April), RHI Industrials
(May), Biservicus in Spain (September) and GBE Converge Group (November).
Mitie also acquired Cliniwaste (October), a specialist in treating plastic
waste, after the period end.
Spain revenue reduced by 6%, due to new contract wins (+7%) being offset by
the completion of Covid work (-17%) in H1 FY23. New contract wins included
Ajuntament de Cornellà de Llobregat (municipal governing body) and EMT Madrid
(bus company).
Waste revenue increased by 3%, primarily through organic contract growth.
Waste has been successful in extending its contracts with a major global
pharmaceutical company and two major property management companies, in
addition to supporting wider Group Key Accounts such as BAE.
Landscapes revenue increased by 12%. £5.7m TCV of new wins included Co-op,
National Grid, Phoenix Group and Yorkshire Water whilst extensions were
secured with both NHS Property Services and Amazon. Within Landscapes,
Biotecture (living walls specialist) secured projects with Mace, McLaughlin
& Harvey and Rybrook Group. Mitie Landscapes won Pro Landscaper
Sustainable Company of the Year, reinforcing its strong reputation within the
industry.
Technical Services
Technical Services is the UK's largest provider of Engineering services to
manage facilities and critical assets across c.350 contracts. Through existing
capabilities and infill M&A, the division delivers projects in the high
growth areas of Buildings Infrastructure, Decarbonisation and Telecoms
Infrastructure to support customers in the transformation of their built
estates.
Technical Services, £m H1 FY24 H1 FY23(1) Change FY23(1)
Revenue 636 526 21% 1,154
Maintenance(1) 411 388 6% 808
Projects(1) 225 138 63% 346
Operating profit before other items 19.5 14.1 38% 34.1
Operating profit margin before other items 3.1% 2.7% 0.4ppt 3.0%
Total order book £1.5bn £1.7bn (12)% £1.6bn
(1) Projects revenue restated to include projects delivered for customers as
part of large FM contracts (previously reported in Maintenance).
Performance highlights
· Revenue increased by 21% to £636m (H1 FY23: £526m), benefitting from
continued growth in projects and variable works, contract re-pricing,
acquisitions and net new wins
· Operating profit before other items increased by 38% to £19.5m (H1 FY23:
£14.1m), reflecting underlying contract growth and margin enhancement
initiatives, partially offset by non-recoverable cost inflation
· £0.5bn TCV of wins and extensions/renewals
· JCA Engineering and G2 Energy acquired, expanding our projects capabilities
· Awards include Project of the Year - CN Specialist Awards (Custom Solar);
People Management and Talent Retention - IWFM Awards 2023
Operational performance
During the period Technical Services benefited from continued growth in
projects and variable works, in particular across larger IFM contracts,
alongside growth from acquisitions since 1 April 2022 and net new contract
wins.
Significant new contracts won in H1 included Amazon, Ladbrokes Coral, Pandora
and Phoenix Group, whilst those won in the prior year (Dublin Airport
Authority, NATS and Rivus Fleet Solutions) continued to perform well. National
Grid was won in late FY23 and mobilised at the end of H1 FY24. The division
also secured a contract extension with Mitie's largest private sector
customer, Lloyds Banking Group, in the period and benefitted from work related
to its branch refurbishment programme.
Following the implementation of Forté, the digital platform to automate
scheduling in Technical Services, efficiency gains are being delivered in
helpdesk services through the launch of a new Optimiser tool. This enables the
system to automatically plan and deploy engineers in the most effective
manner, increasing frontline productivity, whilst also prioritising jobs so
that emergency requirements are dealt with ahead of standard tasks. The
Optimiser tool will be rolled out to all mobile engineers during H2.
The uptake of Aria, which allows customers to report issues via an app,
continues to reduce helpdesk call volumes. Wider deployment of the app
presents an opportunity for faster response time and straight through
processing of jobs to engineers via the Optimiser tool.
Overall, the Technical Services operating margin increased by 40bps to 3.1%
(H1 FY23: 2.7%). It remains below that of the Group due to factors including:
1) the division absorbing the management cost of IFM contracts; 2) a higher
depreciation charge relating to investments in technology; 3) exposure to
non-recoverable cost inflation; and 4) the investment required in recent
bolt-on acquisitions, the majority of which have been integrated into the
Technical Services division to date.
Approximately half of Mitie's projects revenue is delivered through the
Technical Services division. During the period, capability has been added in
design, mechanical and engineering work, and high-tech building infrastructure
such as data centres through the acquisitions of JCA Engineering and G2 Energy
(assets purchased through a voluntary liquidation process).
Within the area of Decarbonisation, a range of customers have engaged Rock
Power to deploy ultra-rapid charger hubs, such as MOTO, the motorway service
station provider. Rock Power and Custom Solar have joined forces to deliver
the Lakeside solar power project for Portsmouth City Council, starting in
October 2023.
Technical Services continues to lead through the implementation of new
technologies to deliver facilities transformation to customers. Smart
Workplaces was launched in H1 to consult, design and deliver projects services
and optimise facilities management. More customers are adopting Mitie's
digital twin technology through 3D visualisation and building information
modelling (BIM) to help them reimagine their workplaces of the future.
Connected Workspace technologies such as Digital Maintenance are key to
asset optimisation, improving engineering productivity as well as achieving
energy savings to support customers' Net Zero goals. With more than 20,000
sensors and 700 'connected' buildings, Connected Workspace continues to be a
focus for customers who recognise the need to implement digital solutions to
improve the lived experience.
Central Government and Defence (CG&D)
The CG&D division provides facilities management services across central
government and defence contracts. CG&D employs 5,600 employees across 24
contracts and 27 government departments and agencies, at over 3,000 locations
across the UK and overseas.
CG&D, £m H1 FY24 H1 FY23(1) Change FY23(1)
Revenue including share of joint ventures and associates 406 355 15% 828
Central Government 218 198 10% 439
Defence 188 157 20% 389
Operating profit before other items 34.0 25.5 33% 59.8
Operating profit margin before other items 8.4% 7.2% 1.2ppt 7.2%
Total order book £2.6bn £1.8bn 44% £2.4bn
(1) No change following the change to divisional reporting effective from H1
FY24
Performance highlights
· Revenue increased by 15% to £406m (H1 FY23: £355m), benefiting from growth
in projects and variable works, contract re-pricing and a new contract
mobilised in the prior year
· Operating profit before other items increased by 33% to £34.0m (H1 FY23:
£25.5m), largely reflecting the delivery of margin enhancement initiatives,
contract re-pricing and projects and variable work
· £0.6bn TCV of new wins and extensions/renewals
· Awards include 8(th) consecutive Gold Award (Ascension Island and Gibraltar),
12(th) consecutive President Award (Cyprus) - RoSPA Awards 2023; 17(th)
consecutive Gold award - Project Armada 2023
Operational performance
The strong performance in CG&D continued into the first half of FY24, with
growth in revenue and operating profit driven by contract re-pricing,
sustained demand for projects and variable work delivered across government
departments such as the Department for Work and Pensions (DWP) and for Future
Defence Infrastructure Services (FDIS), and a full period of the RAF
Mildenhall contract which mobilised in H2 FY23.
During the period £216m TCV of contract extensions were awarded, including
for the DWP, the Foreign and Commonwealth Office and the Ministry of Justice.
£352m TCV of new contract wins included the Defence Infrastructure
Organisation overseas estate in Germany, and soft services for the Government
Property Agency Central region.
Projects work across the division continued to grow, with the most significant
being to support the DWP Critical Security Infrastructure (CSI) project to
upgrade all security related assets at 597 sites across their estate.
CG&D will deliver c.£70m of building infrastructure works, such as to
install new and replacement Mechanical & Electrical equipment, during FY24
and into FY25. Mitie continues to support the UK Government in achieving its
2050 decarbonisation target through various initiatives and technologies,
including the refurbishment of accommodation blocks for the Ministry of
Defence to incorporate low carbon features and energy usage optimisation.
During the period, CG&D continued to roll out and benefit from the new
technologies introduced in FY23, such as Aria and Mozaic, and expects to
complete the roll out of Mitie's new Azure Secure Cloud infrastructure in H2
FY24. CG&D has built on the operational excellence initiatives implemented
in the prior year, continuing to improve the utilisation levels of mobile
engineers and increase the proportion of self-delivered work.
The 'Mitie First' strategy to insource services formerly provided by third
parties resulted in an additional £6m of cross-selling revenue synergies in
H1 FY24 compared to the same period in the prior year. The division also
started introducing the Coupa digital supplier platform across contracts to
deliver a more streamlined purchasing process.
Communities
The Communities division delivers sustainable outcomes as a trusted partner to
the public sector across Local Government & Education, Healthcare and Care
& Custody. The division operates over 100 PFI and traditional commercial
contracts.
Communities, £m H1 FY24 Restated(1) Change Restated(1)
H1 FY23 FY23
Revenue including share of joint ventures and associates 371 334 11% 659
Local Government & Education 142 130 9% 240
Healthcare 135 124 9% 250
Care & Custody 94 80 18% 169
Operating profit before other items 13.8 15.8 (13)% 31.5
Operating profit margin before other items 3.7% 4.7% (1.0)ppt 4.8%
Total order book £3.7bn £4.0bn (8)% £3.9bn
(1) Restated to reflect the change to divisional reporting from H1 FY24. Local
Government & Education was previously reported as Education and Campus
& Critical.
Performance highlights
· Revenue increased by 11% to £371m (H1 FY23: £334m), benefiting from contract
re-pricing, growth in projects work and scope changes to existing contracts
· Operating profit before other items of £13.8m (H1 FY23: £15.8m) reflected
reduced losses in our most challenging PFI contract, underlying contract
growth and margin enhancement initiatives, offset by one contract specific
provision
· £0.2bn TCV of contract wins, extensions and scope changes; good pipeline
progression
· Awards include Estates & Facilities Team of the Year and Highly Commended
for Healthcare Supplier of the Year - Institute of Healthcare Engineering
& Estates Management (IHEEM)
Operational performance
Communities delivered good revenue growth, but a 13% reduction in operating
profit. Positively, profits grew on most contracts, losses reduced on a large
PFI contract, and margin enhancement initiatives improved profitability.
However, these improvements were more than offset by a £4.7m provision on a
PFI contract, where Mitie is liable for rectifying latent defects in fire
stopping arising from original flaws in construction by a third party.
The division secured £0.2bn TCV of contract wins, extensions and scope
changes to existing contracts, including an increase in the provision of
services for the Immigration Escorting Services contract, and contract
extensions at the Heathrow Immigration Removal Centre, and King George's
Hospital.
Projects work included supporting schools affected by Reinforced Autoclaved
Aerated Concrete (RAAC), through remedial works and the provision of temporary
classroom accommodation. Communities also delivered a number of Public Sector
Decarbonisation Scheme (PSDS) funded green energy schemes, including the
provision of air source heat pumps, variable refrigerant flow (VRF) systems,
and solar panel installations.
Communities has continued to invest in its technical and technological
capabilities. Trials of Mitie's Merlin for Cleaning application have been
successfully completed in a mental health facility, improving soft services
productivity and innovation. A pilot has been launched using the Internet of
Things (IoT) to track the location of non-static assets, such as wheelchairs,
at a major acute hospital in partnership with Vodafone.
The division is also continuing to make progress in driving transformation and
margin enhancement initiatives across the business. This helped to deliver an
improved performance in its most challenging contract, reducing losses to
£2.8m in H1 FY24 (H1 FY23: £4.7m). We continue to expect the contract to
achieve profitability in FY26, after further productivity improvements and
re-sets to pricing.
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 by
12.5% to £24.4m (H1 FY23: £27.9m), reflecting overhead savings across
functions and shared services.
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, the 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 is set out below:
£m unless otherwise specified H1 FY24 H1 FY23
Revenue including share of joint ventures and associates 2,132.4 1,922.9
Group revenue 2,083.3 1,874.3
Operating profit before other items 84.6 68.0
Other items (27.8) (17.5)
Operating profit 56.8 50.5
Net finance costs (4.5) (7.4)
Profit before tax 52.3 43.1
Tax (9.4) (7.8)
Profit after tax 42.9 35.3
Basic earnings per share before other items 5.0p 3.6p
Basic earnings per share 3.3p 2.6p
Revenue
Revenue for H1 FY24 of £2,132m, including share of revenue from joint
ventures and associates, has increased by 11% compared to the same period last
year (H1 FY23: £1,923m). This growth has been driven by increased project and
variable works, contract re-pricing, and acquisitions, partially offset by the
completion of Covid contracts in Q1 FY23 and scope reductions. Scope
reductions include the wind down of the Afghan Relocations and Assistance
contract which reduced revenue by £16m.
We estimate that the impact of inflation on revenue in H1 FY24 was £93m
(+4.8%) (H1 FY23: £82m), and inorganic revenue from acquisitions accounted
for £32m of growth (+1.7%).
Operating profit
Operating profit before other items was £84.6m (H1 FY23: £68.0m), an
increase of £16.6m (+24.4%), largely driven by margin enhancement initiative
savings (£20.7m), and net wins, projects and other trading (£12.2m),
partially offset by unrecovered inflation (-£3.0m), the wind down of the
Afghan Relocations and Assistance contract (-£6.0m), a contract specific
provision in Communities (-£4.7m) and the completion of Covid contracts in Q1
FY23 (-£2.6m).
Of the incremental £20.7m of profit from margin enhancement initiatives in
H1, £12.1m came from the TOM programme, where savings from initiatives such
as the outsourcing of finance activities, optimisation of the Group's
organisational structure, and restructuring of the projects business, grew
significantly during the period. As a result of these initiatives, the Group
has removed a further 300 roles during the period. £3.8m of incremental
savings from Interserve synergies were realised in the period, taking the
total savings from this programme to £55m. The continued rollout of Coupa,
our digital supplier platform, generated further incremental savings of
£1.6m, and the Operational Excellence programme also delivered an additional
£3.2m of savings.
Projects contributed £12.0m of the profit growth in H1 FY24, with the most
significant organic contribution coming from Technical Services, predominantly
through infrastructure and engineering works, followed by CG&D. Within
this, acquisitions contributed £2.6m of incremental projects profit,
including current year acquisitions (RHI Industrials and JCA Engineering) and
some inorganic growth from prior year acquisitions (Custom Solar and 8Point8).
The £3.0m negative impact on operating profit from inflation in H1 FY24
represents a 97% recovery rate of cost inflation in the period. This
recovery rate is a reflection of the contractual protections in place, and is
better than expected due to strong customer relationships.
A provision of £4.7m was made in H1 FY24 in Communities for construction
defects on a PFI contract where Mitie did not undertake the construction, but
is nevertheless liable for the remedial works.
After accounting for £27.8m of other items (H1 FY23: £17.5m), operating
profit was £56.8m (H1 FY23: £50.5m).
Other items
£m H1 FY24 H1 FY23
Target Operating Model (TOM) (10.2) (1.2)
Digital supplier platform (DSP) (1.8) (2.1)
Margin enhancement initiatives (12.0) (3.3)
Earnout charges (2.6) 0.5
Other acquisition related costs (1.8) (1.7)
Acquisition related costs before amortisation (4.4) (1.2)
Amortisation of acquisition related intangible assets (11.4) (10.6)
Acquisition related costs (15.8) (11.8)
Workflow optimisation (Project Forté) - (2.4)
Total other items before tax (27.8) (17.5)
Tax 5.9 3.7
Total other items after tax (21.9) (13.8)
The Group incurred £27.8m of other items before tax in H1 FY24 (H1 FY23:
£17.5m), of which £11.4m (H1 FY23: £10.6m) was the non-cash impact of the
amortisation of acquisition related intangible assets.
The increase in other items primarily relates to the TOM programme, reflecting
the ramp up of activities in H1 FY24, which has driven the increased level of
savings delivered to date. Savings for FY24 are expected to be at least
£35m (previous guidance c.£30m), and costs to deliver for FY24 will be in
the range of £15m-£20m.
The largest element of acquisition related costs before amortisation relates
to earnout charges, where payments will only be made if post acquisition
performance targets are hit and employment conditions are satisfied. Based
on the acquisitions completed to date, acquisition related costs before
amortisation for FY24 are expected to be c.£10m-£15m, with the increased H2
costs being driven by earnout charges on the JCA Engineering acquisition,
which was completed towards the end of H1.
Net finance costs
Net finance costs improved (decreased) by 39% to £4.5m compared to the same
period last year (H1 FY23: £7.4m). The decrease was primarily driven by the
improved terms negotiated for the US Private Placement (USPP) notes, which
became effective from December 2022, together with the amendment fees from the
June 2020 refinancing (during Covid) becoming fully paid (by June 2022)
(combined £0.9m benefit), and the termination of the Group's customer invoice
discounting facility (£0.5m benefit). Finance income also improved by
c.£1m due to increased interest rates on deposited funds.
Tax
The tax charge for the period was £9.4m (H1 FY23: £7.8m), comprising a tax
charge on profit before other items of £15.3m (H1 FY23: £11.5m) and a tax
credit for other items of £5.9m (H1 FY23: £3.7m). The tax charge represents
an effective tax rate of 18.0% (H1 FY23: 18.1%), which includes an effective
tax rate on profit before other items of 19.1% (H1 FY23: 19.0%) offset by a
higher effective rate for the tax credit in other items.
The effective tax rate on profit before other items for H1 FY24 includes the
benefit of recognising deferred tax assets related to the losses acquired with
the Interserve business. Excluding the impact of this benefit, the effective
tax rate on profit before other items would be 24.1%.
The Group made cash payments for corporation tax of £6.3m in the period (H1
FY23: £9.0m), of which £5.1m (H1 FY23: £6.8m) was paid in the UK, and
£1.2m (H1 FY23: £2.2m) overseas.
Joint ventures and associates
Operating profit includes Mitie's share of the profit after tax for its joint
ventures and associates of £4.2m (H1 FY23: £3.6m), primarily relating to
Landmarc.
Earnings per share
Basic earnings per share before other items increased to 5.0p (H1 FY23:
3.6p). This improvement is due to the increase in operating profit in the
period, the reduction in net finance costs, and the reduction in the weighted
average share count, as a result of the ongoing share buyback programme, to
1,290.6m shares (H1 FY23: 1,375.2m shares).
Basic earnings per share was 3.3p (H1 FY23: 2.6p) with the improvement
reflecting the factors outlined above, partially offset by the higher levels
of other items. As noted above, the increase in other items was primarily
driven by costs associated with delivering the TOM programme, which has driven
additional margin enhancement initiative savings in the period.
Return on invested capital (ROIC)
£m unless otherwise specified H1 FY24 H1 FY23
(R12M)(1) (R12M)(1)
Operating profit before other items 178.7 149.6
Tax(2) (30.3) (23.6)
Operating profit before other items after tax 148.4 126.0
Invested capital 602.8 551.8
ROIC % 24.6% 22.8%
(1) R12M represents a rolling 12-month basis
(2) Tax charge has been calculated on operating profits before other items
using the effective tax rate of 16.9% (H1 FY23: 15.8%)
ROIC (before other items) on a rolling 12-month basis has increased by 180 bps
to 24.6% in H1 FY24 (H1 FY23: 22.8%) as a result of the increase in operating
profit before other items for the last 12-month period, partially offset by an
increase in invested capital. The increase in invested capital has been driven
by the acquisitions completed in H1 FY24.
Balance sheet
£m H1 FY24 FY23
Goodwill and intangible assets 606.4 564.9
Property, plant and equipment 163.3 156.9
Interests in joint ventures and associates 6.1 8.8
Working capital balances (158.4) (179.2)
Provisions (114.2) (111.4)
Net debt (112.7) (44.1)
Net retirement benefit liabilities (0.8) (0.2)
Deferred tax 19.7 20.4
Other net assets 2.2 5.6
Total net assets 411.6 421.7
The Group's reported net assets stood at £411.6m at 30 September 2023, a
reduction of £10.1m since 31 March 2023. Net debt increased to £112.7m
(FY23: £44.1m), mainly as a result of the planned capital allocation actions
undertaken and working capital movements, both of which are discussed further
below (in the 'Cash flow and net debt' section).
Goodwill and intangible assets have increased by £41.5m since 31 March 2023,
predominantly as a result of acquisitions undertaken during the period. The
in-year acquisitions resulted in additional goodwill of £26.1m and acquired
customer lists of £27.2m, with the increase partially offset by the
amortisation of intangible assets.
Property, plant and equipment increased by £6.4m, due to the continued
expansion of our leased electric vehicle (EV) fleet, with approximately 500
vehicles added in the six months since the year-end.
The net deferred tax asset balance has remained broadly unchanged compared to
year-end. The deferred tax assets include those related to losses acquired
with the Interserve business.
Provisions
Provisions at 30 September 2023 of £114.2m (FY23: £111.4m) largely comprise
contract specific costs of £52.7m (FY23: £49.3m), the insurance reserve of
£26.3m (FY23: £26.2m), and pension provisions of £21.7m (FY23: £21.7m)
which mainly relate to Section 75 pension liabilities. The net movement
included £14.4m of additional provisions, primarily related to construction
defects on a PFI contract in Communities and insurance reserve movements,
largely offset by utilisations of £9.9m. See Note 10 to the condensed
consolidated financial statements for further details on provisions.
Retirement benefit schemes
Net retirement benefit liabilities are broadly unchanged at £0.8m (FY23:
£0.2m) as measured on an IAS 19 basis. Whilst an increase in yields on
corporate bonds has reduced the present value of schemes' pension obligations,
this is largely offset by a fall in the value of the schemes' assets also due,
primarily, to rising bond and gilt yields.
The net liabilities at 30 September 2023 include an accounting surplus of
£1.4m (FY23: £2.4m) for the main Group scheme, which includes a separate
section for the main scheme acquired with the Interserve business. The
remaining accounting deficit within net retirement benefit liabilities of
£2.2m (FY23: £2.6m) relates to a number of smaller defined benefit schemes,
including some Local Government pension schemes. There is also an accounting
surplus related to the Landmarc joint venture, Mitie's £1.5m (FY23: £1.5m)
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 agreed a
deficit recovery plan with the trustees totalling £93m over seven years, of
which £42m had been paid up to 30 September 2023, including £7m paid during
H1 FY24.
The next triennial valuation for the main Group scheme, as at 31 March 2023,
will conclude in H2 FY24.
Cash flow and net debt
£m H1 FY24 H1 FY23
Operating profit before other items 84.6 68.0
Add back: depreciation, amortisation & impairment 26.3 24.6
EBITDA before other items 110.9 92.6
Other items(1) (12.2) (7.4)
Other operating movements (3.2) (0.7)
Operating cash flows before movements in working capital 95.5 84.5
Working capital movements(2) (22.5) (47.4)
Capex and capital element of lease payments (20.8) (30.7)
Net interest payments (4.9) (7.7)
Tax payments (6.3) (9.0)
Dividends from joint ventures 6.9 5.3
Free cash inflow/(outflow) 47.9 (5.0)
Share buybacks (25.2) (50.7)
Market purchase of own shares (7.1) (5.7)
Acquisitions and disposals(3) (45.7) (20.2)
Dividends paid (28.6) (19.5)
Lease liabilities and other(4) (9.9) 10.4
Increase in net debt during the period (68.6) (90.7)
Closing net debt (112.7) (64.0)
Average daily net debt (156.1) (62.0)
Leverage (average daily net debt/EBITDA before other items)(5) 0.6x 0.1x
(1) Other items exclude the non-cash amortisation of acquired intangible
assets and items that will be settled in future periods such as earnout
charges.
(2) Working capital movements have been 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)
(3 )Acquisitions and disposals are shown on a net cash/net debt basis
(4 )Lease liabilities and other includes an increase in lease liabilities in
H1 FY24 due to the expansion of the EV fleet. H1 FY23 includes £6.0m which
was received in respect of the expert's determination on the Interserve
acquisition completion accounts
(5)( ) Leverage is calculated on a 12-month rolling basis, and uses post-IFRS
16 net debt
The Group generated a free cash inflow of £47.9m for H1 FY24, which was an
increase of £52.9m compared with H1 FY23, due to the strong operating profit
before other items in H1 FY24 (+£16.6m), and a reduced working capital
outflow (+£24.9m) as explained below.
Other items are explained above, but the cash component shown excludes
non-cash amortisation of acquisition related intangible assets and items that
will be settled in future periods such as earnout charges.
The working capital outflow of £22.5m is a result of the investment required
in working capital to support the growth in the projects business, and the
seasonal outflow in H1 as suppliers are paid for the works performed in the
final quarter of the previous year when volumes peak. The impact of this
seasonal outflow was more significant in H1 FY24 than in the prior period, due
to the particularly high volume of project works completed in Q4 FY23. The
working capital movement in the prior period also included a £45m outflow
related to the termination of the customer invoice discounting facility.
Capex and the capital element of lease payments also decreased compared to the
first six months of FY23 (by £9.9m), with spend on other intangible assets
£5.8m lower as a result of Forté going live in H1 FY23, and the receipt of a
lease incentive which was agreed as part of extending the relationship with
our lease provider.
Additionally, both interest and tax payments were lower in H1 FY24, with the
decrease in net interest of £2.8m predominantly a result of the improved
rates achieved through the refinancing of the Revolving Credit Facility (RCF)
and USPP notes in FY22, and closure of the customer invoice discounting
facility in FY23. Tax payments were lower by £2.7m, with the utilisation of
losses reducing the tax due.
The first £25m tranche of share buybacks announced in June 2023 was completed
in H1, resulting in the repurchase of 26.2m shares, of which 4.9m have been
cancelled. The remaining 21.3m shares acquired have been retained in
treasury in order to satisfy the 2020 SAYE scheme. A further £7.1m has been
spent making market purchases of 7.3m shares into employee trusts to satisfy
share schemes.
The acquisitions of Linx International, RHI Industrials, JCA Engineering and
Biservicus in H1 FY24 have increased net debt by £45.7m, comprising cash
consideration of £66.6m partially offset by net cash of £20.9m acquired with
these businesses.
The final FY23 dividend of £28.6m was paid in August 2023, with the higher
cash outflow reflecting the increased final dividend per share of 2.2p for
FY23 (FY22: 1.4p).
Net debt
Average daily net debt of £156.1m for H1 FY24 was £71.8m higher than in FY23
(£84.3m) and £94.1m higher than H1 FY23 (£62.0m). This resulted in an
average leverage ratio (average daily net debt / EBITDA before other items
from continuing operations) of 0.6x for H1 FY24, compared with 0.1x for H1
FY23. The Group reported closing net debt of £112.7m as at 30 September
2023 (FY23: £44.1m).
The increases since FY23 are mainly due to the planned capital allocation
activities, totalling £106.6m. These activities relate to the acquisitions
completed in the period (£45.7m), shares bought back (£25.2m), share
purchases for employee incentive schemes (£7.1m) and dividends paid
(£28.6m).
Total Financial Obligations (TFO)
£m H1 FY24 FY23
Net debt 112.7 44.1
Net retirement benefit liabilities 0.8 0.2
Total Financial Obligations (TFO) 113.5 44.3
TFO at 30 September 2023 increased broadly in line with the movement in net
debt.
Liquidity and covenants
As at 30 September 2023, the Group had £400m of committed funding
arrangements, comprising a £250m RCF and £150m of USPP notes. In
September 2023, the RCF was increased by £100m from £150m to £250m, and its
maturity was extended to October 2027, with a further one year extension
option at the mutual agreement of all parties. In December 2022, £121.5m of
USPP notes matured and were replaced by £120m of new notes, issued on more
favourable terms, with maturities in December 2030 through to 2034. The
remaining £30m of USPP notes are due to mature in December 2024.
On 28 July 2023, 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 adjustments for leases, being primarily the exclusion
of lease liabilities from net debt and the inclusion of a charge equivalent to
lease payments against EBITDA.
As at 30 September 2023, the Group was operating well within these ratios at
<0x covenant leverage and 56.7x interest cover. A reconciliation of the
calculations is set out in the table below:
£m H1 FY24 H1 FY23
(R12M)(5) (R12M)(5)
Operating profit before other items 178.7 149.9
Add: depreciation, amortisation & impairment 54.1 51.5
Headline EBITDA 232.8 201.4
Add: covenant adjustments(1) 21.5 20.8
Leases adjustment(2) (39.0) (38.6)
Consolidated EBITDA (a) 215.3 183.6
Full-year effect of acquisitions & disposals 9.1 2.2
Adjusted consolidated EBITDA (b) 224.4 185.8
Net finance costs 8.6 17.2
Less: covenant adjustments (0.1) (0.8)
Leases adjustment(3) (4.7) (4.2)
Consolidated net finance costs (c) 3.8 12.2
Interest cover (ratio of (a) to (c)) 56.7x 15.0x
Net debt 112.7 64.0
Impact of hedge accounting & upfront fees 2.6 1.3
Leases adjustment(4) (139.1) (118.5)
Consolidated total net cash (d) (23.8) (53.2)
Covenant leverage (ratio of (d) to (b)) < 0x < 0x
(1) Covenant adjustments for EBITDA relate to share-based payments charges,
and pension administration expenses and past service costs
(2) Leases adjustment for EBITDA relates to depreciation charge for leased
assets and interest charge for lease liabilities (i.e. application of a charge
equivalent to lease payments)
(3) Leases adjustment for net finance costs relates to interest charge for
lease liabilities (i.e. removal of lease interest)
(4) Leases adjustment for net cash relates to lease liabilities (i.e. removal
of lease liabilities)
(5) R12M represents a rolling 12-month basis
Key risk factors and uncertainties affecting the business
There continue to be risks and uncertainties that may influence the Group's
financial performance and overall success. Our strategies to counteract these
challenges are detailed in the Group's Annual Report and Accounts 2023 on
pages 73 to 82. Although these risks have not materially changed since the
report's publication, the Group is constantly assessing macro-economic
conditions, currently focused on inflation, rising interest rates, potential
supply chain disruptions, and labour relations in an inflation driven
environment. The Group is diligently monitoring the repercussions of these
events on our employees' wellbeing, aiming to minimise any consequences
concerning mental health, productivity, and absenteeism. The Group continues
to consider emerging risks and is presently concentrating on addressing both
threats and opportunities in relation to the upcoming general election, the
current retail sector landscape, and the impact of artificial intelligence.
Responsibility statement
The Directors of Mitie Group plc confirm that, to the best of their knowledge:
· the unaudited condensed consolidated financial statements have been prepared
in accordance with UK-adopted International Accounting Standard 34 Interim
Financial Reporting; and
· the interim management report, as required by rules 4.2.7R and 4.2.8R of the
Disclosure Guidance and Transparency Rules, includes a fair review of:
- important events during the six months ended 30 September 2023 and their
impact on the unaudited condensed consolidated financial statements;
- a description of the principal risks and uncertainties for the second half
of the year; and
- related parties' transactions and changes therein.
The names and functions of the Directors of Mitie Group plc are available on
the Group's website:
www.mitie.com/investors/corporate-governance/our-board.
On behalf of the Board
Phil Bentley
Chief Executive Officer
22 November 2023
INDEPENDENT REVIEW REPORT TO MITIE GROUP PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with UK-adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 which comprises the condensed consolidated income statement,
the condensed consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed consolidated
statement of changes in equity, the condensed consolidated statement of cash
flows and the related notes 1 to 19.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of
interim financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in
scope than an audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1(a), the annual financial statements of the Group are
prepared in accordance with UK-adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK-adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
22 November 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Condensed consolidated income statement
For the six months ended 30 September 2023
30 September 2022
30 September 2023
Notes Before Other Total Before Other Total
Other items
items(1
£m
Other items
items(1
£m
£m ) £m
£m ) £m
Revenue including share of joint ventures and associates 2 2,132.4 - 2,132.4 1,922.9 - 1,922.9
Less: share of revenue of joint ventures and associates 2 (49.1) - (49.1) (48.6) - (48.6)
Group revenue 2 2,083.3 - 2,083.3 1,874.3 - 1,874.3
Cost of sales (1,861.4) - (1,861.4) (1,667.6) - (1,667.6)
Gross profit 221.9 - 221.9 206.7 - 206.7
Administrative expenses (142.8) (27.8) (170.6) (142.3) (17.5) (159.8)
Other income 1.3 - 1.3 - - -
Share of profit of joint ventures and associates 4.2 - 4.2 3.6 - 3.6
Operating profit(2) 2 84.6 (27.8) 56.8 68.0 (17.5) 50.5
Finance income 1.8 - 1.8 0.8 - 0.8
Finance costs (6.3) - (6.3) (8.2) - (8.2)
Net finance costs (4.5) - (4.5) (7.4) - (7.4)
Profit before tax 80.1 (27.8) 52.3 60.6 (17.5) 43.1
Tax 4 (15.3) 5.9 (9.4) (11.5) 3.7 (7.8)
Profit after tax 64.8 (21.9) 42.9 49.1 (13.8) 35.3
Profit for the period attributable to 64.8 (21.9) 42.9 49.1 (13.8) 35.3
owners of the parent
Earnings per share (EPS) attributable to
owners of the parent
Basic 6 5.0p 3.3p 3.6p 2.6p
Diluted 6 4.6p 3.0p 3.3p 2.3p
Notes:
1. Other items are as described in Note 3.
2. Including impairment losses on trade receivables, other receivables and
accrued income of £1.4m (2022: £1.1m).
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
Notes 30 September 2023 30 September 2022
£m
£m
Profit for the period 42.9 35.3
Items that will not be reclassified to profit or loss in subsequent periods
Remeasurement of retirement benefit assets/obligations 16 (7.3) 6.4
Share of other comprehensive income of joint ventures - 0.1
Tax credit/(charge) relating to items that will not be reclassified to profit 0.3 (0.8)
or loss in subsequent periods
(7.0) 5.7
Items that may be reclassified to profit or loss in subsequent periods
Exchange differences on translation of foreign operations (0.4) 1.4
Loss on hedge of a net investment taken to equity - (0.3)
Net losses on cash flow hedges taken to equity (0.1) (0.3)
Tax credit relating to items that may be reclassified to profit or loss in 0.1 -
subsequent periods
(0.4) 0.8
Other comprehensive (expense)/income for the period (7.4) 6.5
Total comprehensive income for the period attributable to owners of the parent 35.5 41.8
Condensed consolidated statement of financial position
As at 30 September 2023
Notes 30 September 2023 31 March
£m
2023
£m
Non-current assets
Goodwill 7 338.4 312.3
Other intangible assets 268.0 252.6
Property, plant and equipment(1,2) 163.3 156.9
Interests in joint ventures and associates 6.1 8.8
Trade and other receivables 8 23.5 23.5
Contract assets 0.4 0.8
Retirement benefit assets 16 1.4 2.4
Deferred tax assets 19.7 20.4
Total non-current assets 820.8 777.7
Current assets
Inventories 14.4 13.5
Trade and other receivables 8 768.6 786.8
Contract assets 0.9 1.1
Cash and cash equivalents 11 180.2 248.3
Total current assets 964.1 1,049.7
Total assets 1,784.9 1,827.4
Current liabilities
Trade and other payables 9 (853.5) (899.5)
Deferred income (88.5) (83.3)
Current tax payable (4.2) (0.8)
Financing liabilities 12 (36.0) (32.0)
Provisions 10 (57.7) (54.2)
Total current liabilities (1,039.9) (1,069.8)
Net current liabilities (75.8) (20.1)
Non-current liabilities
Trade and other payables 9 (3.8) (2.3)
Deferred income (20.4) (19.8)
Financing liabilities 12 (250.5) (254.0)
Provisions 10 (56.5) (57.2)
Retirement benefit liabilities 16 (2.2) (2.6)
Total non-current liabilities (333.4) (335.9)
Total liabilities (1,373.3) (1,405.7)
Net assets 411.6 421.7
Notes:
1. Includes right-of-use assets of £128.5m (31 March 2023: £123.8m).
During the six months ended 30 September 2023, right-of-use assets increased
due to vehicles lease additions of £25.7m, property lease additions of £0.4m
and £1.5m arising on acquisition of businesses, partially offset by
depreciation of £16.9m, lease modifications and reassessments of £5.1m,
property lease terminations of £0.2m and plant and vehicles lease
terminations of £0.7m.
2. Includes owned property, plant and equipment of £34.8m (31 March 2023:
£33.1m). During the six months ended 30 September 2023, owned property, plant
and equipment assets increased due to asset additions of £5.2m and £1.0m
arising on acquisition of businesses, partially offset by depreciation of
£4.8m. Owned property, plant and equipment also increased by £0.3m as a
result of movements in exchange rates.
Condensed consolidated statement of financial position continued
For the six months ended 30 September 2023
30 September 2023 31 March
£m
2023
£m
Equity
Share capital 33.9 34.0
Share premium 131.9 131.5
Merger reserve 157.0 157.0
Own shares reserve (75.5) (59.0)
Share-based payments reserve 37.1 33.7
Capital redemption reserve 2.7 2.6
Hedging and translation reserve (1.8) (1.4)
Retained profits 126.3 123.3
Equity attributable to owners of the parent 411.6 421.7
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2023
30 September 2023
Share capital Share Merger Own shares Share-based payments reserve Capital redemption reserve Hedging and Retained Total equity
£m premium reserve(1) reserve
translation profits
£m
£m
£m
£m £m £m
reserve
£m
£m
At 1 April 2023 34.0 131.5 157.0 (59.0) 33.7 2.6 (1.4) 123.3 421.7
Profit for the period - - - - - - - 42.9 42.9
Other comprehensive expense - - - - - - (0.4) (7.0) (7.4)
Total comprehensive income - - - - - - (0.4) 35.9 35.5
Transactions with owners
Dividends paid - - - - - - - (28.6) (28.6)
Purchase of own shares(2) - - - (7.1) - - - - (7.1)
Share buybacks(3) (0.1) - - (20.4) - 0.1 - (4.8) (25.2)
Share-based payments - 0.4 - 11.0 3.4 - - (2.8) 12.0
Tax on share-based payments - - - - - - - 3.3 3.3
Total transactions with owners (0.1) 0.4 - (16.5) 3.4 0.1 - (32.9) (45.6)
At 30 September 2023 33.9 131.9 157.0 (75.5) 37.1 2.7 (1.8) 126.3 411.6
Notes:
1. The merger reserve represents amounts relating to premiums arising on
shares issued subject to the provisions of Section 612 of the Companies Act
2006.
2. During the period the Employee Benefit Trust acquired 6.9m ordinary
shares through market purchases for a consideration of £6.7m and the Share
Incentive Plan Trust acquired 0.4m shares for a consideration of £0.4m.
3. The share buyback resulted in market purchases of 26.2m ordinary shares,
of which 4.9m shares were subsequently cancelled and 21.3m shares were placed
into the Treasury share reserve.
30 September 2022
Share capital Share Merger Own shares Share-based payments reserve Capital redemption reserve Hedging and Retained Total equity
£m premium reserve(1) reserve
translation (losses)/profits
£m
£m
£m
£m £m £m reserve
£m
£m
At 1 April 2022 35.7 130.6 358.6 (36.9) 27.5 0.9 (2.6) (89.1) 424.7
Profit for the period - - - - - - - 35.3 35.3
Other comprehensive income - - - - - - 0.8 5.7 6.5
Total comprehensive income - - - - - - 0.8 41.0 41.8
Transactions with owners
Dividends paid - - - - - - - (19.5) (19.5)
Purchase of own shares(2) - - - (5.7) - - - - (5.7)
Realisation of merger reserve(1) - - (184.5) - - - - 184.5 -
Share buybacks(3) (1.7) - - - - 1.7 - (50.7) (50.7)
Share-based payments - - - 3.0 4.6 - - 1.5 9.1
Tax on share-based payments - - - - - - - 1.5 1.5
Total transactions with owners (1.7) - (184.5) (2.7) 4.6 1.7 - 117.3 (65.3)
At 30 September 2022 34.0 130.6 174.1 (39.6) 32.1 2.6 (1.8) 69.2 401.2
Notes:
1. 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 six months ended 30 September 2022, the realisation of the
merger reserve included £153.2m related to intercompany loans that were
settled as qualifying consideration in connection with the rights issue during
the year ended 31 March 2021, which utilised a cashbox structure.
2. During the period the Employee Benefit Trust acquired the 2.9m ordinary
shares committed to in the year ended 31 March 2022 as well as a further 10.4m
ordinary shares through market purchases for a consideration of £5.7m.
3. The share buyback resulted in market purchases of 68.8m ordinary shares
which were subsequently cancelled during the six months ended 30 September
2022.
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
Notes 30 September 2023 30 September 2022
£m
£m
Operating profit before Other items 2 84.6 68.0
Other items 3 (27.8) (17.5)
Adjustments for:
Share-based payments expense 11.6 9.1
Defined benefit pension costs 16 1.9 1.6
Defined benefit pension contributions 16 (8.3) (8.3)
Depreciation of property, plant and equipment 21.7 21.3
Amortisation of intangible assets 15.6 13.2
Share of profit of joint ventures and associates (4.2) (3.6)
Amortisation of contract assets 0.4 0.5
Impairment of non-current assets - 0.2
Operating cash flows before movements in working capital 95.5 84.5
Increase in inventories (0.8) -
Decrease/(increase) in receivables 35.1 (4.3)
Increase in contract assets (0.1) (0.2)
Increase/(decrease) in deferred income 2.3 (4.5)
Decrease in payables (61.2) (55.5)
Increase/(decrease) in provisions 2.2 (0.5)
Cash generated from operations 73.0 19.5
Income taxes paid 4 (6.3) (9.0)
Interest paid(1) (6.8) (8.5)
Net cash generated from operating activities 59.9 2.0
Investing activities
Acquisition of businesses, net of cash acquired(2) 15 (45.7) (16.6)
Interserve completion accounts settlement(3) - 6.0
Interest received 1.9 0.8
Purchase of property, plant and equipment (5.2) (4.5)
Dividends received from joint ventures and associates 6.9 5.3
Purchase of other intangible assets (3.5) (9.3)
Disposal of property, plant and equipment 0.1 -
Net cash used in investing activities (45.5) (18.3)
Notes:
1. Interest paid includes £2.6m (2022: £2.1m) in relation to lease
liabilities.
2. Acquisition of businesses is net of cash acquired of £20.9m (2022:
£2.1m). Refer to Note 15.
3. Following the expert's determination on the Interserve acquisition
completion accounts, for which the expert sought a legal opinion in relation
to the interpretation of the complex SPA requirements, an agreement was
reached and £6.0m was received in May 2022.
Condensed consolidated statement of cash flows continued
For the six months ended 30 September 2023
Notes 30 September 2023 30 September 2022
£m
£m
Financing activities
Purchase of own shares (7.1) (5.7)
Shares bought back (25.2) (50.7)
Capital element of lease rentals (17.9) (16.9)
Lease incentives received 5.7 -
Repayment of bank loans (8.3) (4.1)
Payment of arrangement fees (1.1) (0.3)
Proceeds received on settlement of share-based payment transactions 0.4 -
Equity dividends paid 5 (28.6) (19.5)
Net cash used in financing activities (82.1) (97.2)
Net decrease in cash and cash equivalents (67.7) (113.5)
Net cash and cash equivalents at beginning of the period 248.3 345.2
Effect of foreign exchange rate changes (0.4) 1.2
Net cash and cash equivalents at end of the period 11 180.2 232.9
Notes to the condensed consolidated financial statements
For the six months ended 30 September 2023
1. Basis of preparation and significant accounting policies
(a) Basis of preparation
Mitie Group plc (the Company) is a company incorporated in the United Kingdom
and registered in Scotland. The Company's registered office is at 35 Duchess
Road, Rutherglen, Glasgow, G73 1AU. The Group comprises the Company and all
its subsidiaries.
These unaudited condensed consolidated financial statements (the 'condensed
consolidated financial statements') for the six months ended 30 September 2023
have been prepared in accordance with UK-adopted International Accounting
Standard (IAS) 34 Interim Financial Reporting, and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The condensed consolidated financial statements have been reviewed by BDO LLP
but have not been audited. They do not include all the information and
disclosures required in the annual financial statements, and therefore should
be read in conjunction with the Group's Annual Report and Accounts for the
year ended 31 March 2023 (Annual Report and Accounts 2023).
These condensed consolidated financial statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006. A copy
of the statutory accounts for the year ended 31 March 2023 has been delivered
to the Registrar of Companies and is available upon request from the Company's
registered office or at mitie.com/investors. The independent auditor's report
for the year ended 31 March 2023 was unqualified and did not contain a
statement under Section 498(2) or 498(3) of the Companies Act 2006.
The condensed consolidated financial statements were approved by the Board of
Directors on 22 November 2023.
Going concern
The condensed consolidated financial statements for the six months ended 30
September 2023 have been prepared on a going concern basis. In adopting the
going concern basis, the Directors have considered the Group's business
activities as set out on pages 6 to 72 of the Annual Report and Accounts 2023
and the principal risks and uncertainties as set out on pages 73 to 82 and the
viability statement on page 84 of the same.
The Directors have carried out an assessment of the Group'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 over the Going Concern Assessment Period.
The Group's principal debt financing arrangements as at 30 September 2023 were
a £250m Revolving Credit Facility (RCF), which was undrawn as at 30 September
2023, and £150m 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, as set out in the Finance review on
page 72 of the Annual Report and Accounts 2023.
The RCF was put in place in October 2021, and matures in October 2027. In
September 2023, the Group increased the RCF from £150m to £250m and its
maturity date was extended for one year to October 2027, with an option to
extend for a further one year period.
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 its agreements with its lenders,
with consolidated net cash (i.e. net cash adjusted for covenant purposes,
primarily by the exclusion of lease liabilities) of £23.8m at 30 September
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 potential
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 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 40% by 30 September 2024 (H1 FY25), 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 a COVID-hit
year ended 31 March 2021, Mitie's revenue excluding Interserve declined by
only 1.6%; and
• 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 has 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.
(b) Significant accounting policies
In preparing these condensed consolidated financial statements for the six
months ended 30 September 2023, the Group's accounting policies and methods of
computation are consistent with those applied in the preparation of the
Group's annual consolidated financial statements for the year ended 31 March
2023, which were prepared in accordance with UK-adopted International
Accounting Standards in conformity with the requirements of the Companies Act
2006.
None of the new or amended standards and interpretations below that are
effective for the first time for the year ending 31 March 2024 have had a
material effect on the Group.
• Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
• Definition of Accounting Estimates (Amendments to IAS 8)
• IFRS 17 Insurance Contracts
On 23 May 2023, the International Accounting Standards Board issued
International Tax Reform - Pillar Two Model Rules - Amendments to IAS 12. The
Group has applied the mandatory temporary exception to the accounting for
deferred taxes arising from the jurisdictional implementation of the Pillar
Two rules set out therein.
None of the new standards and amendments that are not yet effective are
expected to have a material effect on the Group.
Statutory and non-statutory measures of performance
As a result of the non-statutory measures of performance presented in the
condensed consolidated financial statements, the accounting policy used in
determining the non-statutory measures of performance, which has remained
unchanged in the six months ended 30 September 2023, is set out below.
In the condensed consolidated financial statements, the Group has elected to
provide some further disclosures and performance measures, reported as 'before
Other items', in order to present its financial results in a way that
demonstrates the performance of its operations.
Other items are items of financial performance which management believes
should be separately identified on the face of the condensed consolidated
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 costs, gain or loss on business disposals,
cost of restructuring programmes and other exceptional items and their related
tax effect as Other items. Should these items be reversed, disclosure of this
would also be as Other items.
Separate presentation of these items is intended to enhance understanding of
the financial performance of the Group in the period and the extent to which
results are influenced by material unusual and/or non-recurring items. Further
detail of Other items is set out in Note 3.
In addition, following the guidelines on Alternative Performance Measures
(APMs) issued by the European Securities and Markets Authority (ESMA), the
Group has included an APM appendix to the condensed consolidated financial
statements.
(c) Critical accounting judgements and key sources of estimation uncertainty
In preparing these condensed consolidated financial statements, with the
exception of judgements relating to the provisional fair value assessments of
assets and liabilities recognised as a result of the business combinations in
Note 15, the significant estimates and judgements made by management in
applying the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the Annual Report and
Accounts 2023.
Critical judgements in applying the Group's accounting policies
Business combinations - purchase price allocation
When the Group completes a business combination, the fair values of the
identifiable assets and liabilities acquired are recognised through a purchase
price allocation process, the determination of which requires management
judgement.
During the six months ended 30 September 2023, the Group completed the
acquisitions of Linx International Group Limited (Linx International), R H
Irving Industrials Limited (RHI Industrials), JCA Engineering Limited (JCA
Engineering) and Biservicus Sistemas De Seguridad, S.A.(Biservicus). The most
significant fair value adjustments arising on the acquisitions related to
attributing value to the acquired intangible assets recognised in the form of
customer contracts and relationships.
In determining the fair value of customer contracts and relationships, the
Group used forecast customer cash flows from the contracts and expected
renewal rates and applied an appropriate discount rate. In determining the
cash flows, management used judgement to estimate revenue growth, profit
margins, contract renewal probability and the average contract duration
remaining as well as the discount rate. Based on management's judgement,
provisional fair values for customer contracts and relationships of £21.1m
for JCA Engineering, £5.3m for RHI Industrials, and £0.8m for Biservicus,
with corresponding provisional fair values for deferred tax liabilities in
relation to those intangible assets of £5.3m, £1.3m and £0.2m respectively
have been recognised.
2. Business segment information
The Group's operating segments are established on the basis of those
components of the Group that are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Group has determined the chief operating decision maker to be
its Board of Directors. 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.
The Group manages its business on a service division basis. For the year
ending 31 March 2024, the Group has four reportable segments (2023: eight
reportable segments). This follows the reorganisation of the Group's
Specialist Services division, as a result of which the Landscapes, Spain, and
Waste divisions were moved into the Business Services division, and the Care
& Custody division was moved into the Communities division. The change in
operating segments reflects how the chief operating decision maker evaluates
the divisions and their performance, and decides on resource allocation.
The comparatives for the six months ended 30 September 2022 have been restated
for the change in the composition of reportable segments.
Income statement information
Restated(1)
Six months ended 30 September 2023 Six months ended 30 September 2022
Revenue(2) Operating profit/(loss) before Other items(3 Operating margin before Other items(3 Revenue(2) Operating profit/(loss) before Other items(3) Operating
£m ) £m ) %
£m
£m
margin before Other items(3)
%
Business Services 719.0 41.7 5.8 708.3 40.5 5.7
Technical Services 635.9 19.5 3.1 526.3 14.1 2.7
Central Government and Defence (CG&D)(2) 406.6 34.0 8.4 354.7 25.5 7.2
Communities(2) 370.9 13.8 3.7 333.6 15.8 4.7
Corporate centre - (24.4) - - (27.9) -
Total for the Group 2,132.4 84.6 4.0 1,922.9 68.0 3.5
Notes:
1. The comparatives for the six months ended 30 September 2022 have been
restated for the change in the composition of reportable segments.
2. Revenue includes share of joint ventures and associates, of which £43.7m
(2022: £43.0m) is included within CG&D and £5.4m (2022: £5.6m) within
Communities.
3. Other items are as described in Note 3.
4. No single customer accounted for more than 10% of external revenue in the
six months ended 30 September 2023 or in the comparative period. The UK
Government is not considered a single customer.
A reconciliation of operating profit before Other items to total profit before
tax is provided below:
Six months ended 30 September 2023 Six months ended 30 September 2022
£m £m
Operating profit before Other items 84.6 68.0
Other items(1) (27.8) (17.5)
Net finance costs (4.5) (7.4)
Profit before tax 52.3 43.1
Note:
1. Other items are as described in Note 3.
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.
Six months ended 30 September 2023
Sector(1) Contract duration for timing of revenue recognition
Government Non-government Total Less than 2 years More than 2 years Total
£m
£m
£m
£m
£m
£m
Business Services 208.2 510.8 719.0 122.3 596.7 719.0
Technical Services 120.1 515.8 635.9 51.7 584.2 635.9
CG&D 406.6 - 406.6 0.8 405.8 406.6
Communities 370.0 0.9 370.9 - 370.9 370.9
Revenue including joint ventures and associates 1,104.9 1,027.5 2,132.4 174.8 1,957.6 2,132.4
Less: share of joint ventures and associates(2) (49.1) - (49.1) - (49.1) (49.1)
Group revenue 1,055.8 1,027.5 2,083.3 174.8 1,908.5 2,083.3
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. Share of revenue from joint ventures and associates includes £43.7m and
£5.4m within the CG&D and Communities segments respectively.
Restated(1)
Six months ended 30 September 2022
Sector(2) Contract duration for timing of revenue recognition
Government Non-government Total Less than 2 years More than 2 years Total
£m
£m
£m
£m
£m
£m
Business Services 235.1 473.2 708.3 126.1 582.2 708.3
Technical Services 105.3 421.0 526.3 58.5 467.8 526.3
CG&D 354.7 - 354.7 0.7 354.0 354.7
Communities 332.4 1.2 333.6 0.4 333.2 333.6
Revenue including joint ventures and associates 1,027.5 895.4 1,922.9 185.7 1,737.2 1,922.9
Less: share of joint ventures and associates(3) (48.6) - (48.6) - (48.6) (48.6)
Group revenue 978.9 895.4 1,874.3 185.7 1,688.6 1,874.3
Notes:
1. The comparatives for the six months ended 30 September 2022 have been
restated for the change in the composition of reportable segments.
2. 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.
3. Share of revenue from joint ventures and associates includes £43.0m and
£5.6m within the CG&D and Communities segments respectively.
3. Other items
Other items are items of financial performance which management believes
should be separately identified on the face of the condensed consolidated
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:
Six months ended 30 September 2023
Restructure costs Acquisition and disposal Other exceptional Total
£m
related costs
items
£m
£m
£m
Other items before tax (10.2) (15.8) (1.8) (27.8)
Tax 2.6 2.9 0.4 5.9
Other items after tax (7.6) (12.9) (1.4) (21.9)
Six months ended 30 September 2022
Restructure costs Acquisition and disposal Other exceptional Total
£m
related costs
items
£m
£m
£m
Other items before tax (3.6) (11.8) (2.1) (17.5)
Tax 0.7 2.6 0.4 3.7
Other items after tax (2.9) (9.2) (1.7) (13.8)
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:
Six months ended Six months ended
30 September 2023 30 September 2022
£m £m
Group transformation programme:
Project Forté(1) - (2.4)
Target Operating Model(2) (10.2) (1.2)
Restructure costs (10.2) (3.6)
Tax 2.6 0.7
Restructure costs net of tax (7.6) (2.9)
Notes:
1. Project Forté was launched in 2019, primarily focusing on re-engineering
the Technical Services division to modernise and optimise workflow processes.
The project was completed during the year ended 31 March 2023.
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 2025.
The costs associated with the Group transformation programme include £2.9m of
external consultancy costs (2022: £1.0m), fixed-term staff costs of £3.3m
(2022: £2.1m) to manage and implement changes, redundancy costs of £1.4m
(2022: £0.5m), dual-run licence costs in relation to decommissioned operating
system of £2.3m (2022: £nil) and onerous lease costs of £0.3m (2022:
£nil).
Acquisition and disposal related costs
Six months ended Six months ended
30 September 2023 30 September 2022
£m £m
Interserve integration costs - (0.6)
Other acquisition related costs(1) (4.4) (0.6)
Amortisation of acquisition related intangible assets (11.4) (10.6)
Acquisition and disposal costs (15.8) (11.8)
Tax 2.9 2.6
Acquisition and disposal costs net of tax (12.9) (9.2)
Note:
1. Comprises professional fees of £1.6m (2022: £1.1m), performance-based
employment-linked earnout charges and adjustments to contingent consideration
after the measurement period of 12 months from the acquisition date had ended
of £2.6m (2022: £0.5m credit) and fixed-term staff costs of £0.2m (2022:
£nil).
Other exceptional items
Other exceptional items of £1.8m (2022: £2.1m) relate to 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
£1.3m (2022: £1.4m) and third-party implementation costs of £0.5m (2022:
£0.7m). This implementation, which is transformational in nature, is expected
to be completed during the year ending 31 March 2025. Cumulative cash costs of
£9.6m have been recognised within the condensed consolidated income statement
and classified as Other items since its launch in 2022.
4. Tax
The tax charge for the period has been calculated based upon the effective tax
rate expected to apply to the Group for the year ending 31 March 2024 using
rates substantively enacted by 30 September 2023. The rate of tax on profit
before Other items for the period was 19.1% (2022: 19.0%). The effective rate
of tax on profit before Other items is principally influenced by the
recognition, in accordance with the Group's accounting policy, of deferred tax
assets related to losses acquired with the Interserve Facilities Management
business (Interserve). Other factors are recurring non-tax deductible expenses
and a lower effective tax rate on overseas profits. The effective tax rate
would be 24.1% if the tax credit arising on the recognition of Interserve
losses was excluded.
The rate of tax on Other items was 21.2% (2022: 21.1%) which was primarily
affected by non-tax deductible expenses.
The Group expects its sustainable effective tax rate to continue to be
approximately equal to the UK statutory rate, which increased from 19% to 25%
with effect from 1 April 2023.
Corporation tax payments for the period amounted to £6.3m (2022: £9.0m), of
which £5.1m (2022: £6.8m) was paid in the UK and £1.2m (2022: £2.2m) was
paid overseas.
The Group has unutilised income tax losses of £197.3m (31 March 2023:
£222.3m) that are available for offset against future profits. A deferred tax
asset has been recognised in respect of £151.4m (31 March 2023: £158.4m) of
these losses to the extent that it is probable that taxable profits will be
generated in the future and be available for utilisation. Management has
assessed 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. It is expected that a further deferred tax asset in
respect of £18.0m of losses is likely to be recognised in the remainder of
the financial year ending 31 March 2024. A deferred tax asset has not been
recognised on the remaining £27.9m of unrecognised losses at 30 September
2023 because recoverability is uncertain.
The Group has unutilised capital losses of £6.2m (31 March 2023: £6.2m) on
which no deferred tax has been recognised. The Group expects no future capital
profits to arise that would enable the utilisation of the existing capital
losses.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities; or when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
5. Dividends
During the six months ended 30 September 2023, the Group paid £28.6m in
respect of the final dividend for the year ended 31 March 2023 of 2.2p per
share (31 March 2022: 1.4p). The Board has declared an interim dividend for
the year ending 31 March 2024 of 1.0p per share (31 March 2023: 0.7p per
share) which will be paid on 31 January 2024 to all shareholders on the
register at the close of business on 15 December 2023.
6. Earnings per share
The calculation of the basic and diluted EPS is based on the following data:
Six months ended Six months ended
30 September 2023 30 September 2022
£m £m
Profit before Other items attributable to owners of the parent 64.8 49.1
Other items net of tax(1) (21.9) (13.8)
Profit attributable to owners of the parent 42.9 35.3
Note:
1. Other items are as described in Note 3.
Number of shares Six months ended Six months ended
30 September 2023
30 September 2022
million
million
Weighted average number of ordinary shares for the purpose of basic EPS(1) 1,290.6 1,375.2
Effect of dilutive potential ordinary shares 127.0 133.2
Weighted average number of ordinary shares for the purpose of diluted EPS 1,417.6 1,508.4
Note:
1. The weighted average number of ordinary shares in issue during the period
excludes those accounted for in the own shares reserve.
Six months ended Six months ended
30 September 2023 30 September 2022
pence per share pence per share
Basic EPS before Other items(1) 5.0 3.6
Basic EPS 3.3 2.6
Diluted EPS before Other items(1) 4.6 3.3
Diluted EPS 3.0 2.3
Note:
1. Other items are as described in Note 3.
7. Goodwill
£m
Cost
At 31 March 2023 344.8
Arising on business combinations(1) 26.1
At 30 September 2023 370.9
Accumulated impairment losses
At 31 March 2023 32.5
At 30 September 2023 32.5
Net book value
At 31 March 2023 312.3
At 30 September 2023 338.4
Note:
1. The Group acquired Linx International, RHI Industrials, JCA Engineering
and Biservicus during the six months ended 30 September 2023. Refer to Note
15.
8. Trade and other receivables
30 September 31 March
2023 2023
£m £m
Trade receivables 408.8 450.8
Accrued income 294.8 278.9
Prepayments 44.4 40.2
Other receivables 44.1 40.4
Total 792.1 810.3
Included in current assets 768.6 786.8
Included in non-current assets 23.5 23.5
Total 792.1 810.3
Trade receivables at 30 September 2023 represent 30 days credit on sales (31
March 2023: 31 days). Management considers that the carrying amount of trade
and other receivables approximates their fair value.
9. Trade and other payables
30 September 31 March
2023 2023
£m £m
Trade payables 215.2 230.5
Other taxes and social security 147.7 123.0
Other payables 39.8 22.7
Accruals 454.6 525.6
Total 857.3 901.8
Included in current liabilities 853.5 899.5
Included in non-current liabilities(1) 3.8 2.3
Total 857.3 901.8
Note:
1. Non-current other payables mainly comprise contingent consideration and
performance-based employment-linked earnouts arising on the acquisitions of
RHI Industrials, Biservicus, JCA Engineering, Rock, Custom Solar and Esoteric.
Trade payables at 30 September 2023 represent 35 days credit on trade
purchases (31 March 2023: 32 days). Management considers that the carrying
amount of trade and other payables approximates their fair value.
10. Provisions
Contract Insurance Pension Dilapidations Restructuring Other Total
specific
reserve
£m
£m
£m
£m
£m
costs
£m
£m
At 31 March 2023 49.3 26.2 21.7 8.0 2.5 3.7 111.4
Additional provisions 9.7 3.7 - 0.4 0.3 0.3 14.4
Released to the income statement (1.0) (0.4) - - - (0.3) (1.7)
Utilised (5.3) (3.2) - (0.1) (1.0) (0.3) (9.9)
At 30 September 2023 52.7 26.3 21.7 8.3 1.8 3.4 114.2
Included in current liabilities 23.3 7.8 21.7 0.1 1.8 3.0 57.7
Included in non-current liabilities 29.4 18.5 - 8.2 - 0.4 56.5
Total 52.7 26.3 21.7 8.3 1.8 3.4 114.2
Contract specific costs
Contract specific costs provisions of £52.7m (31 March 2023: £49.3m)
comprise onerous contract provisions of £11.3m (31 March 2023: £10.5m) and
other contract specific provisions of £41.4m (31 March 2023: £38.8m).
Onerous contract provisions are made where the forecast direct costs of
completing a contract exceed the forecast income from the contract. These
provisions relate mainly to 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, as disclosed in
the Annual Report and Accounts 2023. The Group recognised additional
provisions of £4.7m on a PFI contract, where Mitie is liable for rectifying
latent defects in fire stopping arising from original flaws in construction by
a third party, and utilised £3.9m in the period 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, and a £5.8m provision relating to a
commercial settlement dispute for a certain contract. The value of these
provisions reflects the single most likely outcome and is expected to be
utilised over a maximum period of eight years. Given the complex nature of
these contracts, the calculation of contract specific provisions is a key
source of estimation uncertainty, as disclosed in the Annual Report and
Accounts 2023. The remaining provision relates to other potential commercial
claims and rectification work for other contracts. The Group recognised
additional provisions of £5.0m, released to the condensed consolidated income
statement £1.0m and utilised £1.4m in the period with respect to 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 statement of financial position
date. The provision includes claims incurred but not yet reported and is based
on information available at the statement of financial position date. The
provision is expected to be utilised over five years.
The insurance reserve of £26.3m is presented gross of an insurer
reimbursement asset of £4.2m (31 March 2023: £4.0m), which represents the
amount the Group is virtually certain to recover for claims under its
insurance policies. Of this other receivable, £2.8m is presented as
non-current.
Pension
The pension provision balance at 30 September 2023 includes £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 period longer than one year.
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 over the next fourteen years.
Restructuring
The restructuring provision as at 30 September 2023 includes £1.3m of
redundancy 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.
11. Cash and cash equivalents
30 September 31 March
2023 2023
£m £m
Cash and cash equivalents 180.2 248.3
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. The
carrying amount of the assets approximates their fair value.
At 30 September 2023, included within cash and cash equivalents is £6.4m (31
March 2023: £6.4m) 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.
12. Financing liabilities
30 September 31 March
2023
2023
£m
£m
Bank loans - under committed facilities - 8.4
Private placement notes 150.0 150.0
Lease liabilities 139.1 129.4
Prepaid arrangement fees (2.6) (1.8)
Total 286.5 286.0
Included in current liabilities 36.0 32.0
Included in non-current liabilities 250.5 254.0
Total 286.5 286.0
In September 2023, the Group increased its revolving credit facility from
£150m to £250m, and the maturity date was extended by one year from October
2026 to October 2027, with an option to extend for a further one year period.
All other terms remain unchanged and the facility was undrawn at the time of
the modification.
In December 2022, the Group issued £120.0m of new US private placement notes
(USPP), 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. A further £30.0m of USPP notes with a coupon of 4.04%
are due to mature in December 2024.
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 30 September 2023 and hence all amounts are classified in line
with repayment dates.
At 30 September 2023, the Group had available £250.0m (31 March 2023:
£141.6m) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met.
13. Financial instruments
Fair value estimation
The vast majority of financial instruments are held at amortised cost.
However, the Group holds certain financial instruments on the statement of
financial position at their fair value. Fair value measurements are classified
into three levels, depending on the degree to which the fair value is
observable:
Level 1 fair value measurements are those derived from quoted prices in active
markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from other observable inputs
for the asset or liability; and
Level 3 fair value measurements are those derived from valuation techniques
using inputs that are not based on observable market data.
The following table categorises the Group's financial assets and liabilities
included on the Group's condensed consolidated statement of financial position
which are measured at fair value. There were no transfers between levels
during the period.
30 September 2023 31 March 2023
£m £m
Level 1 Level 3 Total Level 1 Level 2 Level 3 Total
Level 2
Financial assets held at fair value through other comprehensive income
Other - 0.9 - 0.9 - 1.0 - 1.0
receivables(1)
Assets measured at fair value - 0.9 - 0.9 - 1.0 - 1.0
Financial liabilities held at fair value through profit and loss
Other payables - - 1.5 1.5 - - 0.5 0.5
Liabilities measured at fair value - - 1.5 1.5 - - 0.5 0.5
Note:
1. Other receivables measured at FVTOCI of £0.9m (31 March 2023: £1.0m)
relate to a defined benefit reimbursement asset. This is considered to fall
under level 2 of the fair value hierarchy.
Certain other payables, which fall into level 3, comprise contingent
consideration of £1.5m (31 March 2023: £0.5m) on the acquisitions of
Esoteric, RHI Industrials and Biservicus. The fair value has been determined
based on management's best estimate of achieving future targets or conditions
to which the consideration relates. The most significant unobservable input
used in the fair value measurements is the future forecast performance of the
acquired businesses. A reasonable change in key unobservable inputs will not
have a material impact on the Group.
Credit risk
The Group's credit risk is monitored on an ongoing basis and formally reported
quarterly. The value of business placed with financial institutions is
reviewed on a daily basis. The Group's credit risk on liquid funds is limited
because the external counterparties are banks with high credit ratings
assigned by international credit rating agencies and are managed through
regular review.
The maximum exposure to credit risk on cash and cash equivalents at the
statement of financial position date is £180.2m (31 March 2023: £248.3m).
The Group's credit risk is primarily attributable to its receivable balances
from customers. Before accepting a new customer, the Group uses external
credit scoring systems to assess the potential customer's credit quality and
define an appropriate credit limit which is reviewed regularly.
The maximum exposure to credit risk in relation to trade receivables, other
receivables and accrued income at the statement of financial position date is
their fair value. The Group's customer base is large and unrelated and,
accordingly, the Group does not have a significant concentration of credit
risk with any one counterparty or group of counterparties.
The amounts presented in the condensed consolidated statement of financial
position in relation to the Group's trade receivables, other receivables and
accrued income balances are presented net of combined loss allowances of
£31.3m (31 March 2023: £31.1m). The Group performs an impairment analysis at
each reporting date and measures loss allowances at an amount equal to
lifetime expected credit losses (ECLs) using both quantitative and qualitative
information and analysis based on the Group's historical experience and
forward-looking information. No material changes to credit risk have been
noted since 31 March 2023.
14. Analysis of net debt
30 September 2023 31 March
£m 2023
£m
Cash and cash equivalents (Note 11) 180.2 248.3
Adjusted for: restricted cash(1) (6.4) (6.4)
Bank loans - under committed facilities (Note 12) - (8.4)
Private placement notes (Note 12) (150.0) (150.0)
Prepaid arrangement fees (Note 12) 2.6 1.8
Net cash before lease obligations 26.4 85.3
Lease liabilities (139.1) (129.4)
Net debt (112.7) (44.1)
Note:
1. Restricted cash 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.
Reconciliation of net cash flow to movements in net debt Six months ended 30 September 2023 Six months ended
£m 30 September 2022
£m
Net decrease in cash and cash equivalents (67.7) (113.5)
Decrease in restricted cash and other adjustments(1) - 17.6
Net decrease in unrestricted cash and cash equivalents (67.7) (95.9)
Cash drivers
Repayment of bank loans 8.3 4.1
Payment of arrangement fees 1.1 0.3
Capital element of lease rentals 17.9 16.9
Non-cash drivers
Non-cash movement in bank loans (0.1) (0.2)
Non-cash movement in private placement notes and associated hedges - (0.5)
Non-cash movement in lease liabilities(2) (27.6) (12.9)
Effect of foreign exchange rate changes (0.5) 1.1
Increase in net debt during the period (68.6) (87.1)
Opening net (debt)/ cash (44.1) 26.7
Debt acquired as part of business combinations - (3.6)
Closing net debt (112.7) (64.0)
Notes:
1. Amounts for the six months ended 30 September 2022 include a decrease
of £12.9m in restricted cash and a decrease of £20.0m in relation to 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. This is
partially offset by certain payments totalling £15.3m which were initiated on
30 September 2022 but which settled the following working day and in
accordance with the Group's accounting policy were not derecognised from cash
and cash equivalents until the settlement date.
2. Includes lease liabilities in relation to vehicles lease additions of
£26.7m, property lease additions of £0.2m, £1.5m arising on acquisition of
businesses and modification of lease terms of £0.1m, partially offset by
lease terminations of £0.9m.
15. Acquisitions
Linx International
On 5 April 2023, the Group completed the acquisition of the entire issued
share capital of Linx International Group Limited (Linx International) for
cash consideration of £1.1m. Linx International is a leading provider of
security consultancy and technical and management training services.
Linx International contributed £1.7m of revenue and £0.4m of operating
profit before Other items to the Group's results during the six months ended
30 September 2023. Goodwill on the acquisition of Linx International
represents the premium associated with taking over the operations which are
considered to strengthen Mitie's intelligence-led security and risk management
offering.
The Group's assessments of the fair values of the assets and liabilities
recognised as a result of the acquisition are provisional and will be
finalised within 12 months of the acquisition date. The provisional purchase
price allocation is as follows:
Book value Fair value adjustments Provisional fair value
£m
£m
£m
Other intangible assets 0.3 - 0.3
Trade and other receivables 0.1 - 0.1
Cash and cash equivalents 0.2 - 0.2
Trade and other payables (0.2) - (0.2)
Current tax liabilities (0.1) - (0.1)
Net identifiable assets acquired 0.3 - 0.3
Goodwill 0.8
Total cash consideration 1.1
RHI Industrials
On 2 May 2023, the Group completed the acquisition of the entire issued share
capital of R H Irving Industrials Limited (RHI Industrials), a
long-established specialist designer, manufacturer and installer of security
systems and solutions, as well as earthing services and all associated civil
engineering works.
The transaction consideration comprises an initial cash consideration of
£19.1m and contingent consideration with a fair value of £1.2m. The maximum
value of contingent consideration is £1.5m.
RHI Industrials contributed £7.4m of revenue and £0.6m of operating profit
before Other items to the Group's results during the six months ended 30
September 2023. Goodwill on the acquisition of RHI Industrials represents the
premium associated with taking over the operations which are considered to
strengthen the Group's existing fire and security system capabilities.
The Group's assessments of the fair values of the assets and liabilities
recognised as a result of the acquisition are provisional and will be
finalised within 12 months of the acquisition date. The provisional purchase
price allocation is as follows:
Book value Fair value adjustments Provisional fair value
£m
£m
£m
Customer contracts and relationships - 5.3 5.3
Property, plant and equipment 0.4 - 0.4
Right-of-use assets 0.7 0.4 1.1
Inventories 0.2 - 0.2
Trade and other receivables 4.6 - 4.6
Cash and cash equivalents 1.4 - 1.4
Trade and other payables (2.5) - (2.5)
Provisions - (0.1) (0.1)
Lease liabilities (0.7) (0.4) (1.1)
Deferred tax liabilities (0.1) (1.3) (1.4)
Net identifiable assets acquired 4.0 3.9 7.9
Goodwill 12.4
Total consideration 20.3
Initial cash consideration 19.1
Contingent consideration 1.2
Total consideration 20.3
JCA Engineering
On 3 September 2023, the Group completed the acquisition of the entire issued
share capital of JCA Engineering Limited (JCA Engineering), a leading critical
environment project designer and principal contractor for mechanical and
electrical works, asset upgrades and replacements, and office fitouts.
The transaction consideration comprises an initial cash consideration of
£43.8m.
Amounts up to a maximum of £10.5m 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 individuals'
continued employment within the Mitie Group. These amounts are payable based
on three performance periods for the years ending 31 March 2024, 2025 and 2026
up to a maximum of £10.5m in total. Once the £10.5m maximum has been reached
nothing further will be payable in any future performance period. 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
30 September 2023, £0.8m was included in other payables relating to these
transactions and the expense has been included in administrative expenses and
classified as Other items within the condensed consolidated income statement.
JCA Engineering contributed £11.9m of revenue and £0.9m of operating profit
before Other items to the Group's results during the six months ended 30
September 2023. Goodwill on the acquisition of JCA Engineering represents the
premium associated with taking over the operations which are considered to
strengthen the Group's critical environment capabilities.
The Group's assessments of the fair values of the assets and liabilities
recognised as a result of the acquisition are provisional and will be
finalised within 12 months of the acquisition date. The provisional purchase
price allocation is as follows:
Book value Fair value adjustments Provisional fair value
£m
£m
£m
Customer contracts and relationships - 21.1 21.1
Property, plant and equipment 0.1 - 0.1
Right-of-use assets - 0.4 0.4
Trade and other receivables 11.6 - 11.6
Deferred tax asset 2.9 - 2.9
Cash and cash equivalents 19.2 - 19.2
Trade and other payables (12.8) - (12.8)
Deferred income (3.3) - (3.3)
Provisions (0.1) - (0.1)
Current tax liabilities (0.7) - (0.7)
Lease liabilities - (0.4) (0.4)
Deferred tax liabilities - (5.3) (5.3)
Net identifiable assets acquired 16.9 15.8 32.7
Goodwill 11.1
Total cash consideration 43.8
Biservicus
On 7 September 2023, the Group completed the acquisition of the entire issued
share capital of Biservicus Sistemas De Seguridad, S.A. (Biservicus), a
security business in Spain specialising in the installation, maintenance,
surveillance and operation of fire, security, and alarm systems.
The transaction consideration comprises an initial cash consideration
equivalent to £2.6m and contingent consideration with a fair value of £0.2m,
which is also the maximum contingent consideration payable.
Biservicus contributed £0.5m of revenue and £0.1m of operating profit before
Other items to the Group's results during the six months ended 30 September
2023. Goodwill on the acquisition of Biservicus represents the premium
associated with taking over the operations which are considered to strengthen
the Group's existing fire and security system capabilities.
The Group's assessments of the fair values of the assets and liabilities
recognised as a result of the acquisition are provisional and will be
finalised within 12 months of the acquisition date. The provisional purchase
price allocation is as follows:
Book value Fair value adjustments Provisional fair value
£m
£m
£m
Customer contracts and relationships - 0.8 0.8
Other intangibles 0.1 - 0.1
Property, plant and equipment 0.5 - 0.5
Inventories 0.1 - 0.1
Trade and other receivables 0.7 - 0.7
Cash and cash equivalents 0.1 - 0.1
Trade and other payables (0.7) - (0.7)
Deferred income (0.3) - (0.3)
Current tax liabilities (0.1) - (0.1)
Deferred tax liabilities - (0.2) (0.2)
Net identifiable assets acquired 0.4 0.6 1.0
Goodwill 1.8
Total consideration 2.8
Initial cash consideration 2.6
Contingent consideration 0.2
Total consideration 2.8
Based on estimates made of the full period impact of the above noted
acquisitions, Group revenue and operating profit for the six months ended 30
September 2023 would have increased by approximately £63.6m and £4.9m
respectively, if the businesses had been acquired on 1 April 2023. This would
have resulted in Group revenue of £2,146.9m, Group operating profit before
Other items of £89.5m and Group operating profit of £61.7m.
Three of the four acquisitions made during the period have been integrated
into the Business Services division (Linx International, RHI Industrials and
Biservicus) and JCA Engineering has been integrated into the Technical
Services division.
Cash flows on acquisitions
Six months ended Six months ended
30 September 2023 30 September 2022
£m
£m
Cash consideration 66.6 18.7
Less: cash balance acquired (20.9) (2.1)
Net outflow of cash - investing activities 45.7 16.6
G2 Energy Limited asset purchase
On 28 July 2023, Mitie acquired a portfolio of assets from the liquidators of
G2 Energy Limited for cash consideration of £0.6m. The purchase enhances
Mitie's high voltage electrical and civil engineering capabilities. This has
been accounted for as an asset purchase.
16. 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. During the six months ended 30 September 2023, the Group
made a total contribution to defined contribution schemes of £7.5m (2022:
£6.9m) and contributions to the auto-enrolment scheme of £10.9m (2022:
£10.1m), which are included in the income statement charge.
The defined benefit schemes include the Mitie Group plc Pension Scheme (Group
scheme). During the year ended 31 March 2023, 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 Group also operates a number of smaller defined benefit 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, the Group participates in the Landmarc joint venture scheme.
Mitie's share of the surplus in this scheme at 30 September 2023 was £1.5m
(31 March 2023: £1.5m) and this is reported within interest in joint ventures
and associates on the condensed consolidated statement of financial position.
Principal accounting assumptions at statement of financial position date
Group section/scheme Interserve section/scheme Other schemes
30 September 2023 31 March 2023 30 September 2023 31 March 30 September 2023 31 March 2023
%
%
%
%
%
2023
%
Key assumptions used for IAS 19 valuation:
Discount rate 5.60 4.75 5.50 4.80 5.50 - 5.60 4.80
Expected rate of pensionable pay increases 3.30 3.25 3.40 3.40 3.30 - 3.40 3.40
Retail price inflation 3.30 3.25 3.30 3.40 3.30 - 3.40 3.40
Consumer price inflation 2.55 2.50 2.90 2.90 2.55 - 2.90 2.90
Future pension increases 3.35 3.25 3.40 3.40 3.35 - 3.40 3.40
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 Increase/(decrease) Increase/(decrease)
assumption
in obligations
in obligations
%
£m
Increase in discount rate 0.1% (1.3) (3.2)
Increase in inflation-linked assumptions 0.1% 0.8 1.9
Increase in consumer price inflation (excluding pay) 0.1% 0.7 1.6
Increase in life expectancy 1 year 2.5 6.4
Some of the above changes in assumptions may have an impact on the value of
the scheme's investment holdings, such as a change in discount rates as a
result of a change in UK corporate bond yields.
Amounts recognised in financial statements
Amounts recognised in the condensed consolidated income statement are as
follows:
30 September 2023 30 September 2022
Group Interserve Other Total Group Interserve Other Total
section
section
schemes
£m
scheme
scheme
schemes
£m
£m
£m
£m
£m
£m
£m
Current service cost - (0.3) (0.5) (0.8) (0.1) (0.4) (0.9) (1.4)
Past service cost - - (0.2) (0.2) - - - -
Total administration expense (0.9) - - (0.9) (0.2) - - (0.2)
Amounts recognised in operating profit (0.9) (0.3) (0.7) (1.9) (0.3) (0.4) (0.9) (1.6)
Net interest income/(cost) 0.1 0.1 - 0.2 (0.1) - - (0.1)
Amounts recognised in profit before tax (0.8) (0.2) (0.7) (1.7) (0.4) (0.4) (0.9) (1.7)
Amounts recognised in the condensed consolidated statement of comprehensive
income are as follows:
30 September 2023 30 September 2022
Group Other Total Group Other Total
section
schemes
£m
scheme
£m
£m Interserve
£m
£m Interserve schemes
section
scheme
£m
£m £m
Actuarial gains arising due to changes 21.4 2.0 9.2 32.6 89.4 11.1 23.9 124.4
in financial assumptions
Actuarial losses arising from liability experience (4.9) (0.3) (0.1) (5.3) (11.2) (1.3) (1.8) (14.3)
Movement in asset ceiling, excluding interest - - (2.3) (2.3) - - (5.6) (5.6)
Return on scheme assets, excluding interest income (23.1) (3.2) (5.9) (32.2) (76.3) (9.9) (11.7) (97.9)
Return on reimbursement asset(1) - - (0.1) (0.1) - - (0.2) (0.2)
Amounts recognised in condensed consolidated statement of comprehensive income (6.6) (1.5) 0.8 (7.3) 1.9 (0.1) 4.6 6.4
Note:
1. Included within the consolidated statement of comprehensive income is
£0.1m loss related to a reimbursement asset. The reimbursement asset of
£0.9m at 30 September 2023 (31 March 2023: £1.0m) is recorded within other
receivables.
The amounts included in the condensed consolidated statement of financial
position are as follows:
30 September 2023 31 March 2023
Group Interserve Other Total Group Interserve Other Total
section
section
schemes
£m
section
section
schemes
£m
£m
£m
£m
£m
£m
£m
Fair value of scheme assets 155.0 21.8 71.7 248.5 170.3 24.2 77.1 271.6
Present value of defined benefit obligations(1) (154.0) (21.4) (53.8) (229.2) (169.6) (22.5) (62.2) (254.3)
Surplus without restriction 1.0 0.4 17.9 19.3 0.7 1.7 14.9 17.3
Effect of asset ceiling - - (20.1) (20.1) - - (17.5) (17.5)
Net pension asset/(liability) 1.0 0.4 (2.2) (0.8) 0.7 1.7 (2.6) (0.2)
Note:
1. The 31 March 2023 comparatives have been restated to increase the asset
ceiling by £8.8m and reduce the present value of the defined benefit
obligation by £8.8m in order to properly show the full effect of the asset
ceiling separately. Some of the effect of the asset ceiling had been
previously included within the defined benefit obligation. There is no impact
on the net retirement benefit liabilities recognised on the statement of
financial position.
All figures above are shown before deferred tax.
Movements in the present value of defined benefit obligations were as follows:
Group Interserve Other Total
section
section
schemes
£m
£m
£m
£m
At 31 March 2023(1) 169.6 22.5 62.2 254.3
Current service cost - 0.3 0.5 0.8
Interest cost 4.0 0.5 1.6 6.1
Actuarial gains arising due to changes in financial assumptions (21.4) (2.0) (9.2) (32.6)
Actuarial losses arising from experience 4.9 0.3 0.1 5.3
Benefits paid (3.1) (0.2) (1.1) (4.4)
Past service cost - - (0.3) (0.3)
At 30 September 2023 154.0 21.4 53.8 229.2
Note:
1. The 31 March 2023 comparatives have been restated to increase the asset
ceiling by £8.8m and reduce the present value of the defined benefit
obligation by £8.8m in order to properly show the full effect of the asset
ceiling separately. Some of the effect of the asset ceiling had been
previously included within the defined benefit obligation. There is no impact
on the net retirement benefit liabilities recognised on the statement of
financial position.
Movements in the fair value of scheme assets were as follows:
Group Interserve Other Total
section
section
schemes
£m
£m
£m
£m
At 31 March 2023 170.3 24.2 77.1 271.6
Interest income 4.1 0.6 1.6 6.3
Actuarial losses on assets (23.1) (3.2) (5.9) (32.2)
Contributions from the sponsoring companies 7.7 0.4 0.2 8.3
Contributions from scheme members - - 0.3 0.3
Expenses paid (0.9) - - (0.9)
Benefits paid (3.1) (0.2) (1.1) (4.4)
Past service cost - - (0.5) (0.5)
At 30 September 2023 155.0 21.8 71.7 248.5
17. Contingent liabilities
Contractual disputes
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
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.
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.
18. 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 six months ended 30 September 2023, the Group
made donations and gifts in kind of £0.1m (2022: £nil) to the Foundation.
During the period ended 30 September 2023, the Group recognised revenue from
transactions with joint ventures or associates of £1.4m (2022: £1.4m). The
amounts due from joint ventures and associates at 30 September 2023 was £0.2m
(31 March 2023: £0.4m) and no expense has been recognised in the period for
bad or doubtful debts in respect of the amounts owed by joint ventures and
associates (2022: £nil).
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 period ended 30 September 2023 meet the
definition of related party transactions.
19. Events after the reporting period
Landmarc - amendment to shareholders' agreement
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. As at 30 September 2023,
management considered Landmarc to be a joint venture despite the Group having
majority voting rights. This is because, under the terms of the shareholders'
agreement prevalent at that date, joint agreement was required with the other
party to pass resolutions for all significant activities. Accordingly, the
Group did not control Landmarc and did not recognise it as a subsidiary as at
30 September 2023.
On 10 October 2023, Mitie entered into an agreement with Mitie's joint venture
partner to amend the Landmarc shareholders' agreement. The change of control
in relation to Landmarc required a mandatory notification under the UK
National Security and Investment Act 2021 due to Landmarc's business of
providing services for the management and operation of the UK Defence Training
Estate. Clearance was granted on 16 November 2023 at which point the
amendments to the shareholders' agreement became effective. Landmarc will be
consolidated as a subsidiary of Mitie from that date. Given the proximity of
the clearance to the reporting date, management has provided information
available at the time of approval of the condensed consolidated financial
statements. Further disclosures will be made within the Group's Annual Report
and Accounts 2024.
Cliniwaste acquisition
On 10 October 2023, the Group acquired Cliniwaste Holdings Limited
(Cliniwaste) for cash consideration of £1.0m. Cliniwaste specialises in
treating plastic waste generated by the NHS and pharmaceutical manufacturers,
turning it into a reusable resource. This acquisition is part of Mitie's
strategy of providing sustainable waste management solutions to its clients,
particularly in the healthcare and pharmaceutical sectors. Given the proximity
of the acquisition to the reporting date, management has provided information
available at the time of approval of the condensed consolidated financial
statements. Further disclosures will be made within the Group's Annual Report
and Accounts 2024.
Share buyback
On 11 October 2023, the Group announced the launch of the second £25m tranche
of the current share buyback programme.
GBE Converge Group acquisition
On 2 November 2023 the Group announced the acquisition of GBE Converge Group
Ltd (GBE), a leading independent provider of fire, security and information
and communications technology (ICT) solutions, for a maximum cash
consideration of £27m (comprising an initial payment of £20m and contingent
payments of up to £7m over three years, linked to performance). Given the
proximity of the acquisition to the reporting date, management has provided
information available at the time of approval of the condensed consolidated
financial statements. Further disclosures will be made within the Group's
Annual Report and Accounts 2024.
Appendix - Alternative Performance Measures
The Group presents various Alternative Performance Measures (APMs) as
management believes that these are useful for users of the financial
statements in helping to provide a balanced view of, and relevant information
on, the Group's financial performance.
In assessing its performance, the Group has adopted certain non-statutory
measures which, unlike its statutory measures, cannot be derived directly from
its financial statements. The Group commonly uses the following measures to
assess its performance:
Performance before Other items
The Group adjusts the statutory income statement for 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 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 3.
Operating profit Six months ended 30 September 2023 Six months ended 30 September 2022
£m
£m
Operating profit Statutory measures 56.8 50.5
Adjust for: restructure costs Note 3 10.2 3.6
Adjust for: acquisition and disposal related costs Note 3 15.8 11.8
Adjust for: other exceptional items Note 3 1.8 2.1
Operating profit before Other items Performance measures 84.6 68.0
Reconciliations are provided below to show how the Group's segmental reported
results are adjusted to exclude Other items.
Six months ended 30 September 2023 Six months ended 30 September 2022(1)
£m
£m
Operating profit/(loss) Reported Adjust for: Performance measures Reported Adjust for: Performance
results
Other items
results
Other items
measures
(Note 3)
(Note 3)
Segment
Business Services 40.3 1.4 41.7 40.0 0.5 40.5
Technical Services 15.8 3.7 19.5 12.2 1.9 14.1
CG&D 34.0 - 34.0 25.5 - 25.5
Communities 13.8 - 13.8 15.7 0.1 15.8
Corporate centre (47.1) 22.7 (24.4) (42.9) 15.0 (27.9)
Total 56.8 27.8 84.6 50.5 17.5 68.0
Note:
1. The comparatives for the six months ended 30 September 2022 have been
restated for the change in the composition of reportable segments.
In line with the Group's measurement of profit from operations before Other
items, the Group also presents its basic EPS before Other items. The table
below reconciles this to the statutory basic EPS.
Earnings per share Six months ended Six months ended
30 September 2023
30 September 2022
pence
pence
Statutory basic earnings per share Statutory measures 3.3 2.6
Adjust for: Other items per share 1.7 1.0
Basic earnings per share before Other items Performance measures 5.0 3.6
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 Six months ended 30 September 2023 Six months ended 30 September 2022
£m £m
Group revenue Statutory measures 2,083.3 1,874.3
Adjust for: share of revenue of joint ventures and associates Note 2 49.1 48.6
Revenue including share of joint ventures and associates Performance measures 2,132.4 1,922.9
Adjust for: revenue from short-term COVID-related contracts(1) - (12.6)
Revenue excluding short-term COVID-related contracts Performance measures 2,132.4 1,910.3
Note:
1. In 2022, includes £11.7m attributable to the Business Services
segment.
Operating profit Six months ended 30 September 2023 Six months ended 30 September 2022
£m £m
Operating profit Statutory measures 56.8 50.5
Adjust for: Other items Note 3 27.8 17.5
Operating profit before Other items Performance measures 84.6 68.0
Adjust for: operating profit from short-term COVID-related contracts(1) - (2.6)
Operating profit excluding short-term COVID-related contracts Performance measures 84.6 65.4
Note:
1. In 2022, includes £2.6m attributable to the Business Services segment.
Net debt and total financial obligations
Net debt 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 measure.
Total financial obligations (TFO) is defined as the Group's net debt including
net retirement benefit liabilities. TFO represents all debt-like financing
items the Group has made use of at period end.
A reconciliation from reported figures is presented below:
Net debt 30 September 2023 31 March 2023 30 September
£m
£m 2022
£m
Cash and cash equivalents Statutory measures 180.2 248.3 232.9
Adjusted for: restricted cash and other adjustments(1) Note 14 (6.4) (6.4) (19.9)
Financing liabilities Note 12 (286.5) (286.0) (318.1)
Derivative financial instruments hedging Private Placement notes - - 41.1
Net debt Performance measures (112.7) (44.1) (64.0)
Net retirement benefit liabilities Note 16 (0.8) (0.2) 1.1
TFO Performance measures (113.5) (44.3) (62.9)
Note:
1. Included within these amounts is restricted cash of £6.4m (31 March 2023:
£6.4m; 30 September 2022: £4.6m). Amounts at 30 September 2022 also included
certain payments totalling £15.3m which were initiated on 30 September 2022
but which settled the following working day and in accordance with the Group's
accounting policy were not derecognised from cash and cash equivalents until
settlement date.
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 £156.1m for the six months ended 30
September 2023, compared with £84.3m for the year ended 31 March 2023 and
£62.0m for the six months ended 30 September 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/(outflow).
Free cash flow Six months ended Restated(1)
30 September 2023
£m Six months ended
30 September 2022
£m
Net cash generated from operating activities Statutory measures 59.9 2.0
Add: net decrease in restricted cash and other adjustments - 17.6
Interest received 1.9 0.8
Dividends received from joint ventures and associates 6.9 5.3
Purchase of property, plant and equipment (5.2) (4.5)
Purchase of other intangible assets (3.5) (9.3)
Disposal of property, plant and equipment 0.1 -
Lease incentives received 5.7 -
Capital element of lease rentals paid (17.9) (16.9)
Free cash inflow/(outflow) Performance measures 47.9 (5.0)
Note:
1. During the year ended 31 March 2023, management updated its definition of
free cash flow to exclude cash outflow on purchase of own shares. This was due
to a change in management's policy on satisfying share awards to purchasing
shares rather than issuing new shares and was consistent with the exclusion of
cash outflow on share buybacks from free cash flow. The prior year comparative
has been restated to reflect this change.
Earnings before interest, tax, depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation (EBITDA) is a
measure of the Group's profitability. EBITDA is measured as profit before tax
excluding the impact of net finance costs, Other items, depreciation on
property, plant and equipment, amortisation and impairment of non-current
assets and amortisation of contract assets.
EBITDA Six months ended Six months ended
30 September 2023 30 September 2022
£m
£m
Profit before tax Statutory measures 52.3 43.1
Add: net finance costs 4.5 7.4
Operating profit 56.8 50.5
Add: Other items Note 3 27.8 17.5
Operating profit before Other items 84.6 68.0
Add:
Depreciation of property, plant and equipment 21.7 21.3
Amortisation of non-current assets(1) 4.2 2.6
Amortisation of contract assets 0.4 0.5
Impairment of non-current assets(1) - 0.2
EBITDA Performance measures 110.9 92.6
Note:
1. Excludes amounts classified in the condensed consolidated income
statement as Other items.
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, based on a 12-month rolling operating profit before Other items after
tax.
30 September 2023 31 March
£m
2023 30 September 2022
£m
£m
Net assets Statutory measures 411.6 421.7 402.3
Add:
Non-current liabilities 333.4 335.9 211.8
Current provisions 57.7 54.2 57.3
Current Private Placement notes - - 162.6
Deduct:
Current derivative financial assets - - (41.1)
Non-current deferred tax assets (19.7) (20.4) (8.2)
Cash and cash equivalents (180.2) (248.3) (232.9)
Invested capital Performance measures 602.8 543.1 551.8
Operating profit before Other items(1) 178.7 162.1 149.6
Tax(2) (30.3) (24.3) (23.6)
Operating profit before Other items after tax(1) 148.4 137.8 126.0
ROIC %(3) Performance measures 24.6% 25.4% 22.8%
Notes:
1. Operating profit is presented on a rolling 12-month basis.
2. The tax charge has been calculated at the effective tax rate on pre-tax
profits before other items of 16.9% (31 March 2023: 15.0%, 30 September 2022:
15.8%).
3. 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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