TIDMMTO
RNS Number : 6115Q
MITIE Group PLC
07 June 2018
LEI number: 213800MTCLTKEHWZMJ03
07 June 2018
Mitie Group plc
Full-year results for the year ended 31 March 2018
Mitie Group plc (Mitie) (Ticker: MTO), the UK's leading
facilities management and professional services company, today
announces its full-year 2017/18 (FY 17/18) financial and
operational results for the period ended 31 March 2018.
Highlights (pre-IFRS 15)
-- Adjusted revenue(1) growth, up 2.8% at GBP2.2bn
(FY 16/17: GBP2.1bn); reported revenue of GBP2.2bn,
up 3.8%
(FY 16/17: GBP2.1bn)
-- Adjusted operating profit(1) before other items
in line with guidance, down 6.0% at GBP77.1m
(FY 16/17: GBP82.0m), reflecting investments
made in customer service and internal capabilities
-- Reported operating profit before other items
of GBP89.6m (FY 16/17: GBP(6.3)m)
-- Connected Workspace in deployment and increasingly
impacting bid-wins
-- Transformation programme on track and progressing
well
-- Commercial reorganisation and finance transformation
complete; HR transformation ongoing;
IT and Engineering Services workflow technology
transformation begun
-- Cost of change is GBP35m for FY 17/18, with
associated in-year benefits of GBP13.2m, and
run rate benefits of GBP27m
-- Net Debt as at 31 March 2018 of GBP193.5m (31
March 2017: GBP147.2m); year-end leverage 1.98x,
operating
comfortably within debt covenants
-- Order book of GBP4.5bn, up 2.4%, reported under
IFRS 15 guidelines
-- Notable contract wins in the period include:
-- a Detention & Escorting contract for the Home
Office (worth GBP525m over 10 years)
-- a large integrated FM technology-led contract
with the Co-op
-- a 5-year contract with West Hertfordshire
Hospitals NHS Trust worth GBP55m
-- The Board is recommending a final dividend of
2.67p, making the total full-year dividend 4.0p
per share (FY 16/17: 4.0p)
Phil Bentley, Chief Executive of Mitie, commented:
"We are one year into our transformation programme and we are
where we need to be. It has been a year of discovery,
simplification and significant change, all set against a
challenging market. We have made much progress, building the
foundations that will ensure that Mitie is at the forefront of the
UK facilities management industry.
"Our core business has demonstrated its strength and resilience
and is performing well, our commitment to strong financial
management remains unwavering and our focus on costs, customers,
technology and our people is delivering tangible benefits.
"With an uptick in revenue, a normalising balance sheet, a good
order book, a focused execution plan, significant investment in
technology and a settled management team, I believe Mitie is well
positioned for growth."
Group results from continuing Year ended 31 March
operations
----------------------------------
2018 2017 Change
------------ ------------ ------
Adjusted(1)
Revenue GBP2,199.1m GBP2,140.0m 2.8%
Operating profit before
other items GBP77.1m GBP82.0m (6.0)%
Reported(2)
Revenue GBP2,203.7m GBP2,123.4m 3.8%
Operating profit/(loss) GBP89.6m GBP(6.3)m nm
before other items
Operating loss GBP(8.3)m GBP(42.9)m nm
Basic loss per share (7.6)p (14.7)p nm
------------------------------- ------------ ------------ ------
Net debt GBP193.5m GBP147.2m 31.5%
Dividends per share 4.00p 4.00p 0.0%
------------------------------- ------------ ------------ ------
Order book(3) GBP4.5bn GBP4.4bn 2.0%
------------------------------- ------------ ------------ ------
(1) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(2) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
For further information please contact:
Tori Cowley
Group Director of Investor Relations & Corporate Affairs
T: +44 (0) 203 M: +44 (0) 781
123 8705 852 8110 E: tori.cowley@mitie.com
Anna Gavrilova
Head of Investor Relations
T: +44 (0) 203 M: +44 (0) 738
123 8675 443 9112 E: anna.gavrilova@mitie.com
Mitie will be presenting its full-year results for the year
ended 31 March 2018 at 09:30am on Thursday, 7 June 2018. A live
webcast of the presentation will be available online at
www.mitie.com/investors at 09:30am. The recorded webcast of the
presentation and a copy of the accompanying slides will also be
available on our website later in the day.
About Mitie
Founded in 1987, Mitie is the UK's leading facilities management
and professional services company. We offer a range of specialist
services including engineering services, security, energy and
property consultancy within Professional Services, catering,
cleaning, pest control, landscaping, custody support services, and
property maintenance.
Mitie employs 49,000 people across the UK, looking after a
large, diverse blue-chip customer base, from banks and retailers,
to hospitals, schools and government departments. We take care of
our customers' people and buildings, by delivering the basics
brilliantly and by deploying advanced technology. We are pioneers
in the Connected Workspace, using smart analytics to provide
valuable insight and deliver efficiencies to create outstanding
work environments for our customers.
Find out more at www.mitie.com
Legal disclaimer
This announcement may contain certain forward-looking
statements, beliefs or opinions, including statements with respect
to Mitie business, financial condition and results of operations.
These forward-looking statements can be identified by the use of
words such as 'anticipate', 'expect', 'estimate', 'intend', 'will',
'may', 'project', 'plan', 'target' and 'believe' and other words of
similar meaning in connection with any discussion of future events.
These statements are made by the Directors of Mitie in good faith,
based on the information available to them as at 6 June 2018 and
reflect the Mitie Directors' beliefs and expectations. These
statements, by their nature, involve risk and uncertainty because
they relate to events and depend upon circumstances that may or may
not occur in the future. A number of factors could cause actual
results and developments to differ materially from those expressed
or implied by the forward-looking statements in this announcement
and accordingly all such statements should be treated with caution.
Nothing in this announcement should be construed as a profit
forecast.
Except as required by law or regulation, Mitie is under no
obligation to update or keep current the forward-looking statements
contained in this announcement or to correct any inaccuracies which
may become apparent in such forward-looking statements.
This announcement contains inside information.
Chairman's statement
Focused transformation in a challenging market
Overview
This has been a year of discovery, transformation and change for
Mitie, all set against a challenging and, at times, difficult
market. The outsourcing sector has been in the spotlight with the
demise of Carillion, and the challenges faced by many other firms
across the wider sector.
Outsourcing and, more specifically, Facilities Management, is a
relatively new industry where the early benefits derived from
economies of scale and expertise have now, largely, been eroded
away. Third, fourth and even fifth generation contracts have
resulted in low margins for providers and few cost give-aways for
customers. However, technology and scale remain opportunities for
the sector and what has become clear is that these need to be
delivered in tandem with a wholesale industry-wide correction in
the pricing of risk; contracts need to correctly account for price,
quality, certainty and timeliness of delivery. The collapse of
Carillion, the challenges faced by almost every other industry
participant, as well as the failure of many other individual
contracts to be delivered on budget, on time or at the quality
required, show that wholesale sector recalibration is needed for
the economics of FM to continue to be sustainable. We are pleased
to see that this is already happening; as we engage with
government, prospective customers and existing clients, the focus
is moving subtly away from just cost and towards value.
Strategy
Mite is a strong resilient business, with a broad and diverse
client base, and a frontline workforce with specialist skills,
expertise and experience. It is also now one year into a major
three-year transformation programme under the stewardship of CEO,
Phil Bentley. All discovery work has been completed and the
business is now firmly in execution and delivery mode.
The four-pillared strategy launched in June 2017 is shaping the
direction of the Group and the business is continuing to make
significant investments in technology, smart analytics and data-led
insight.
Operationally the business has made major strides forward in the
last 12 months, removing complexity, duplication, upgrading and
simplifying processes, professionalising and understanding the true
drivers and levers of the business.
The accounting review completed in June 2017. Recommended
changes to reporting and the control environment are progressing
and being monitored by the Audit Committee.
The Financial Reporting Council's (FRC) Corporate Reporting
Review of the annual report and accounts of Mitie for the year
ended 31 March 2016 completed in November 2017, with no further
action required of the Company. Although the FRC continue, under
the Accountancy Scheme, to investigate Members formerly involved
with Mitie, including Deloitte (the Company's former auditors),
neither the Group nor current management are the subject of this
investigation.
We have also provided extensive material for the Financial
Conduct Authority (FCA) investigation in connection with the
timeliness of a profit warning announced by the Company on 19
September 2016 and the manner of preparation and content of the
Company's financial information, position and results for the
period ending 31 March 2016. We are continuing to co-operate with
the FCA, but at this time have had no indication as to when their
investigation may be concluded.
People & Community
I would like to acknowledge that this has been a challenging
year for many of the people working at Mitie, especially for those
interacting every day with our customers. Our own transformation
programme, the volatility in the share price and wider sector
turbulence have fuelled the uncertainty that comes with change.
Yet, despite this, the team at Mitie have demonstrated an
unwavering commitment to providing exceptional customer service and
to going the extra mile, and I would like to personally thank them
for their dedication and hard work. The Board and I all joined the
Mitie management team in going 'back-to-the-floor' for a shift in
one of our businesses, and we were incredibly impressed by the
commitment and passion our colleagues have in all they do.
The Mitie Foundation, our charitable operation focusing on
employability, has had a good year. We continue to excel in getting
those in our society that are hard to reach, with disabilities,
with criminal convictions and with significant barriers to
employment, back into work. For the communities in which we work
the Foundation plays a very important role, and our people and our
customers can see the major impact it can have, both on the lives
of the individuals finding a job and on those who are engaged in
the process. During the year we have extended our programme with
Lloyds Bank plc in Scotland, we have engaged with the Co-op and
look forward to working in partnership with them to support
vulnerable people, and we have continued to work with a number of
schools, prisons and other charities. We believe that the
Foundation is vitally important to the sustainability of our
business and the continuing role that we wish to play in our
communities.
Results
Adjusted revenue grew by 2.8% - a solid result in the first year
of transformation, reflecting the good quality of our core
business, our market-leading positions and the strength of our
broad offering. Operating profit before other items, although lower
than the comparable FY 16/17 result, was in line with our
expectations and guidance. We delivered cost savings whilst
investing back into our core capabilities and customer service. We
continue to operate comfortably within our debt covenants and our
order book is strong.
Dividends
The Board has recommended a final dividend of 2.67p, taking the
total dividends for the year to 4.0p. Going forward we expect the
interim dividend to be approximately one third of the previous
full-year dividend. We expect to hold the dividend flat until, at
least, completion of the transformation programme when we will
review the dividend policy.
Board and Corporate Governance
Since the commencement of my role as Chairman in July 2017, the
composition of the Board has been further reviewed, leading to
several key appointments during the year.
In July 2017, we announced the appointments of Jennifer Duvalier
and Mary Reilly as Non--Executive Directors, joining the Board in
July and September respectively. In November, we welcomed Paul
Woolf as Chief Financial Officer and Philippa Couttie as a
Non--Executive Director.
Additionally, as announced in February 2018, we appointed Roger
Yates as a Non--Executive Director with effect from 1 March 2018.
Roger will succeed Larry Hirst as Senior Independent Director upon
Larry's retirement from the Board at the Annual General Meeting
(AGM) in July 2018 after more than eight years' service. I would
like to thank Larry for his long service to Mitie. Mark Reckitt
will stand down from the Board at the 2018 AGM after three years'
service. I would also like to thank Mark for his contribution to
Mitie. Mary Reilly will succeed Mark as Chair of the Audit
Committee.
Our new appointments have significantly strengthened and widened
the areas of expertise and experience on the Board.
Outlook
It has been a year of good progress at Mitie, though not without
its challenges. The magnitude of the internal restructuring and the
number of things that have needed to be 'fixed' are far more
significant than was earlier anticipated. However, much of the
heavy-lifting is now complete, and we are moving through each stage
of our transformation methodically and systemically.
As the Facilities Management sector slowly steadies itself, I am
confident that Mitie is increasingly well placed to be an active
and significant participant in the future of the industry. Our
clear strategy, our focus, our strong management team, our scale
and our market leading positions all play to our advantage. We are
pioneers in the roll-out of technology, and this is further
strengthening our leading positions in UK FM.
We expect to report modest top-line growth (pre-IFRS 15) next
year and we remain committed to medium-term margin improvement to
around 4.5-5.5% in the future. We remain confident in our ability
to build shareholder value.
Derek Mapp
Chairman
Chief Executive's review
Strategy and transformation
The strategy that we set out this time last year has provided a
strong framework for our actions in the last year. We are executing
a wholesale transformation of the Group in a challenging market. We
are actively engaging with our private and public sector customers,
our regulators and our other stakeholders to help bring about the
changes our sector needs to thrive, and there are a significant
number of projects and deliverables that we are driving forward. By
using the four strategic pillars of our overarching strategy -
customer, cost, technology and people - we have remained focused on
the task in hand and I am confident in our ability to deliver on
our ambitions.
-- Putting our customers at the heart of our business
We have put a major focus on our customers. Mitie has a diverse
and impressive list of over 3,000 major clients and we firmly
believe making them happy will drive our own business success.
Historically Mitie engaged with its customers in a somewhat
fragmented way, creating confusion for them and making client
servicing as well as cross-selling for us, more difficult. To
address this, we have undertaken a full audit of our customer
portfolio; we have centralised the commercial and sales function so
that our customers have one primary point of contact with the
business; we have implemented one CRM system that gives us
valuable, accurate insight across our business units; and we are
deploying a standardised internal approach to engagement, dataflow
and reporting. We have also centralised our bid processes and have
initiated a formal New Business Committee for all commercial
opportunities. And we have rolled out a Group-wide Net Promoter
Score programme to understand what our customers really think. The
outcome of this is that we have more efficient, less costly, more
customer-focused teams; and our customers are increasingly enjoying
simpler access, ease of navigation around Mitie and greater
visibility of their account team. We have more still to do but we
expect to reap further benefits from these actions in the year
ahead. Our Net Promoter Score across our top 100 accounts grew by
17 points and the revenue from our top 40 customers grew 9%
year-on-year.
-- Transforming our cost base
In June 2017, we launched Project Helix, to kick start changing
the DNA of Mitie. This ambitious three-year programme involves the
simplification of our structure, the standardisation of internal
processes, the rationalisation of our systems and the removal of
spans of management and layers of inefficiencies. We knew that
there was considerable work to be done, but we also knew that it
would deliver significant cost savings and operational upside. The
scale of the task is larger than we originally anticipated, but we
believe the upside will be greater too.
We have almost completed the full transformation of our Finance
function, including outsourcing our back-office processes to
Genpact in Kolkata. We are near completion of our HR restructure
with a new centralised HR organisational structure and a new
Group-wide HR operational system (SAP), replacing multiple legacy
systems. We have fully collapsed the highly fragmented 'Mitie
earn-out model' and we are intending to move from over 50 legal
entities towards one operational reporting entity in FY 18/19,
greatly simplifying our internal processes and systems, reducing
internal recharging and streamlining almost every aspect of the
business. We have built a small dedicated transformation project
office, tasked with the sequencing and coordination of the Group's
turnaround. Working closely with the Executive Leadership Team,
they will focus in the year ahead on our IT and Engineering
Services technology transformation programmes.
As at March 2018, this programme has delivered annualised cost
savings of GBP13.2m, and we expect this to rise to annualised cost
savings of GBP50m by March 2020.
We are one year into our three-year programme and we have more
to do here but our ambition remains to be the most efficient,
value-focused technology-led company in our industry.
Building a winning culture and developing and
-- retaining our people
Mitie is a people business, and our aim is to build a company
where each of us can thrive and be the best that we can be, every
day.
We have launched our new 'Vision, Purpose, Promises and Values'
across the organisation under the banner headline of 'The
exceptional, every day.' This articulates and embodies who we are,
what makes Mitie great and where we are taking the company. It
recognises the importance of our people, our culture, our
customers, the role technology plays in our future, and the journey
we are on. They articulate the glue that binds us. This is an
important step forward as we seek to deliver 'One Mitie'. Looking
ahead we will be embedding these new values in all aspects of our
organisation, including our annual performance review, our
recruitment, in all our marketing and customer communications and
in our external engagement.
In the last year, we relaunched our Group Leadership Team Forum
and we have overhauled our internal communications programme. We
were also delighted to partner with Salary Finance, launching an
innovative new loan scheme for our staff, which has had a
significant uptake with over 1,400 employees benefiting, helping
our people with financial management and removing the need for
staff to use pay day lenders. As part of the HR transformation, we
have appointed a leading third-party provider to manage the
end-to-end process for hiring temporary resources. We expect
efficiency improvements as well as cost savings from using the new
provider. Looking forward we will be rolling out a new Learning and
Development programme, an executive mentoring and development
scheme and we will be looking to simplify reward and recognition
across the Group.
In April 2018, we partnered with Aon Hewitt to run Mitie's 2018
People Survey to set the baseline of our employee engagement. I am
pleased to say that the completion rate was 30% against 19% the
year before - almost 15,000 Mitie employees have responded to the
survey. In a period of significant change, employee engagement
improved, but only marginally, and we have much to do. We have
evaluated the results and identified the priorities and will be
implementing action plans to drive the change needed to become a
great place to work.
Mitie champions apprenticeships, and this year we employed 555
apprentices across the Group, including 540 who were supported
through the Apprenticeship Levy. We believe we are well placed to
offer exceptional opportunities for those seeking apprenticeships
in a wide variety of roles, and we are planning to increase the
number and variety of apprenticeships that we offer.
Investing in technology to make Mitie the easiest
-- company to do business with
Technology will be a core enabler for Mitie and its customers in
the future. The FM industry is yet to capitalise fully on the
benefits of better technology, but Mitie is at the forefront of
early adoption.
Our Connected Workspace technology - our 'smart' proposition -
helps buildings and people perform better. It pioneers the combined
use of sensors, data, expertise and intelligent insight to give our
customers information that is invaluable, helping them improve for
improving the performance of their estates and their staff. In the
last 12 months Connected Workspace has been part of 29 successful
Mitie bids and there are 44 further connected workspace
propositions in the pipeline. Becoming a technology-enabled
business through our Connected Workspace offering, we believe, will
be transformational for Mitie.
Leadership
Our Executive Leadership Team is now almost complete with the
appointment in the last year of a new Group CFO, Group HR Director,
Group Head of Corporate Affairs & Investor Relations, Group
Marketing & Strategy Director and new MDs for our Engineering
Services and Cleaning & Environmental Services businesses.
These appointments have brought valuable blue-chip and change
skills to the senior team. We have also attracted a number of
experienced senior managers to the Group Leadership Team during the
year and the business is benefiting from their expertise, knowledge
and diversity.
Business performance
This, undoubtedly, has been a year of significant change for
Mitie. We are implementing a major transformation programme,
addressing challenges and opportunities as they arise, whilst
focusing on our medium-term strategic goals. This has all been set
against the backdrop of a challenged industry in the spotlight.
Despite this, we have grown our revenues, reduced our average daily
net debt position and won some major new customers and
contracts.
We are part way on our journey and we are making good progress.
Adjusted revenue was 2.8% up at GBP2.2bn, on the prior year
although adjusted operating profit before other items has reduced
to GBP77.1m from GBP82.0m. The order book grew 2% to GBP4.5bn and
is reported under IFRS 15 guidelines which mandate us to include
only fixed-term contracted work and exclude variable work.
Care & Custody has been the stand-out division this year,
winning a notable GBP525m 10-year contract to provide Detention and
Escorting services for the Home Office. Engineering Services and
Security have also had a good year in terms of revenues and
contract wins. Cleaning & Environmental Services, pleasingly
too, has stabilised sales after a recent decline. Property
Management has not performed as well as hoped, though this has in
part been a result of the distraction of a terminated sales
process; the business is beginning now to focus on key social
housing opportunities.
Professional Services continues to win consultancy and project
management work, though this has in part been offset by the
full-year impact of waste contract losses in the previous year. Of
particular note is the traction we are now seeing in our Connected
Workspace proposition, moving from pilot phase into expansion of
initial engagement with a number of customers, such as a European
financial services company, an energy drink company and a financial
services group. Our Technology and Remote Operating Centre in
Bracknell opened this year and provides a perfect forum to showcase
our own smart, connected technology to clients.
Balance sheet management has been a core focus for us this year
and will continue to be going forward. We are committed to reducing
our customer invoice discounting, normalising debtor and creditor
days, asking clients for fair payment terms, streamlining our
billing processes and delivering faster cash collection. Our
efforts have seen a notable decline in average daily net debt and
we are operating comfortably within our debt covenants.
Looking ahead
Change and transformation is never easy or without challenges.
Mitie is fundamentally a strong business, with great customers,
outstanding staff and a real opportunity ahead of it. We want to be
shaping the FM industry as it continues to evolve, using our
unrivalled expertise, our pioneering technology and our ambition to
propel ourselves forward. We have more to do, but we are on track
and I am pleased with the progress to date. With an uptick in
revenue, a normalising balance sheet, a good order book, a focused
execution plan and experienced leadership, I believe Mitie is well
positioned for growth in the upcoming years.
Phil Bentley
Chief Executive
Dividend
Reflecting the lower earnings of the business and to improve our
balance sheet strength the Board has recommended a final dividend
of 2.67p in respect of FY 17/18, making the total full-year
dividend 4.0p per share (FY 16/17: 4.0p per share).
The following is the dividend timetable for the shareholders'
information:
Ex-dividend date: 21 June 2018
Record date: 22 June 2018
Drip election date: 9 July 2018
Payment date: 6 August 2018.
Financial Review
We are pleased with progress one year into our three-year
transformation programme. Culturally and operationally we are
moving towards a One Mitie way of delivering our products and
services. This has enabled us to simplify and streamline
operational and financial processes across the organisation. We
have reduced ongoing costs by delayering management infrastructures
and centralising support functions such as IT, Finance and HR.
Adjusted operating profit before other items was impacted by the
investment of transformation cost savings into improved customer
service levels, technology and internal capabilities. These are the
building blocks of our future growth plans. To deliver these
transformation changes we have incurred a number of costs which are
shown in other items, along with various impairments and other
one-off charges.
We are operating comfortably within our financial covenants. In
particular, our leverage ratio has remained below 2,
notwithstanding a material reduction in our customer invoice
discounting programme and an improvement in our supplier payment
performance.
We have taken the decision to early-adopt IFRS 15, using the
cumulative retrospective method, which means we have restated
opening reserves rather than restating the prior year
comparatives.
Following on from the Accounting Review undertaken last year,
Mitie implemented a series of measures to strengthen its financial
control environment. Management now operates a structured process
for identifying material accounting judgements and a number of new
internal Group accounting policies were put in place in areas such
as trade receivables and accrued income provisioning. As part of
converting to IFRS 15, Mitie has adopted a conservative contract
asset accounting approach which will only enable certain strictly
defined assets to be recognised on the balance sheet, with the
remainder being expensed. We are also increasing the size of our
internal audit team to enable a broader selection of areas to be
audited each year.
During the year we have moved our finance transactional
processing operations to our partner Genpact. This entailed the
consolidation of activities in multiple locations across the UK
into a single operations centre in Kolkata. Genpact have deep
experience in improving efficiency, streamlining processes and
codifying controls for a global blue-chip customer base. We expect
to benefit from all these areas in the coming months once the
initial transfer is fully bedded down.
Reported financial performance
Reported revenue and reported operating profit are set out
below:
Restated
GBPm FY 17/18 FY 16/17 Change, %
------------------------------------------- -------- --------- ---------
Revenue 2,203.7 2,123.4 3.8
Operating profit/(loss) before other items 89.6 (6.3) (1,522.2)
Other items (97.9) (36.6) 167.5
Operating loss (8.3) (42.9) (80.7)
------------------------------------------- -------- --------- ---------
Reported revenue was GBP2,203.7m compared with GBP2,123.4m in FY
16/17. The Group reported an operating profit before other items of
GBP89.6m compared with a loss of GBP6.3m in FY 16/17 which was a
consequence of the Accounting Review carried out that year.
Note that the prior year comparatives have been restated due to
an accounting error in respect of an under accrual of costs with a
corresponding increase in accrued income and revenue. There was no
impact on total net assets or operating profit. We have disclosed
the impact of the restatement in Note 1 to the financial
statements.
Reported balance sheet
GBPm FY 17/18 FY 16/17 Change, %
------------------------------- -------- -------- ---------
Goodwill and intangible assets 347.9 397.1 (12.4)
Property, plant and equipment 33.6 32.3 4.0
Working capital balances (198.2) (152.0) 30.4
Net debt (193.5) (147.2) 31.5
Retirement benefit liabilities (56.8) (74.2) (23.5)
Deferred tax 35.9 21.1 70.1
Other net assets 7.1 12.7 (44.1)
------------------------------- -------- -------- ---------
Total net (liabilities)/assets (24.0) 89.8 (126.7)
------------------------------- -------- -------- ---------
The Group had reported net liabilities at 31 March 2018 of
GBP24.0m (2017: net assets GBP89.8m). The GBP113.8m reduction is
primarily driven by the adoption of IFRS 15, which is explained in
more detail later in this review.
Basis of comparatives - Alternative Performance Measures
(APMs)
To enable an effective comparison of our year-on-year
performance, FY 17/18 is shown pre-IFRS 15 and FY 16/17 is shown
for continuing operations on the previously reported APMs, per last
year's published Annual Report and Accounts, as restated. The APMs
are referred to as 'adjusted revenue', 'adjusted operating profit',
'adjusted other items', 'adjusted net assets' and 'adjusted cash
flows'. Further details can be found in Note 1 and the Appendix to
the financial statements.
FY 17/18 APMs: Mitie has adopted the IFRS 15 revenue recognition
accounting standard from 1 April 2017 using the cumulative
retrospective method. This leads to an adjustment to reserves on
the date of adoption rather than a restatement of the comparative
periods presented. As a consequence, unless otherwise stated, all
figures presented are presented pre-IFRS 15 adoption, in order to
retain comparability with prior year results. We have disclosed the
impact of IFRS 15 for each line item in the financial statements in
Note 1 to the consolidated financial statements. The FY 17/18 APMs
adjust for the impact of IFRS 15.
FY 16/17 APMs: As a result of the Accounting Review in FY 16/17,
which led to asset write-downs of a non-recurring nature, the FY
16/17 APMs have been provided to facilitate a comparative
assessment between FY 17/18 and FY 16/17. The FY 16/17 APMs adjust
for one-off items.
Adjusted financial performance
GBPm FY 17/18 FY 16/17 Change, %
------------------------------------ -------- -------- ---------
Revenue 2,199.1 2,140.0 2.8
Operating profit before other items 77.1 82.0 (6.0)
Operating margin 3.5% 3.8% (0.3ppt)
------------------------------------ -------- -------- ---------
Adjusted revenue was GBP2,199.1m (2017: GBP2,140.0m),
representing growth of 2.8% during Mitie's first year of
transformation. Adjusted operating profit before other items of
GBP77.1m represents a drop of 6.0%. This reduction is a consequence
of investment in customers, technology and capability more than
offsetting growth in the profitability of contracts and cost
savings from the transformation programme.
Adjusted balance sheet
GBPm FY 17/18 FY 16/17 Change, %
------------------------------- -------- -------- ---------
Goodwill and intangible assets 348.9 397.1 (12.1)
Property, plant and equipment 33.8 32.3 4.6
Working capital balances (83.8) (152.0) (44.9)
Net debt (193.5) (147.2) 31.5
Retirement benefit liabilities (56.8) (74.2) (23.5)
Deferred tax 16.9 21.1 (19.9)
Other net assets 4.3 12.7 (66.1)
------------------------------- -------- -------- ---------
Total net assets 69.8 89.8 (22.3)
------------------------------- -------- -------- ---------
The Group's adjusted net assets reduced at 31 March 2018 to
GBP69.8m (2017: GBP89.8m). The GBP20.0m reduction is primarily
driven by impairment and amortisation of goodwill and other
intangible assets of GBP58.5m and an increase in net debt of
GBP46.3m, partly offset by intangible asset additions of GBP10.1m,
a working capital movement of GBP68.2m, and a reduction in the net
deficit on defined benefit pension schemes of GBP17.4m. These
movements are explained in more detail later in the report.
IFRS 15
NO IMPACT KEY AREAS OF ADJUSTMENT
------------------------------------------------------------ ----------------------------------------------------------
* To lifetime revenue or lifetime profitability of * Derecognition of accrued income assets previously
contracts recognised on long-term complex contracts following
the elimination of percentage of completion
accounting
* To cash flows of contracts * Derecognition of mobilisation assets not meeting the
more stringent criteria under IFRS 15
* Derecognition of work in progress assets where
control of output is yet to pass to the customer on
contracts where revenue is recognised over time
* Higher deferred income recognised from customer
payments made in advance of delivering contract
outcomes and where significant contracted discounts
including extension discounts have been offered
------------------------------------------------------------ ----------------------------------------------------------
The Group has early adopted IFRS 15 effective from 1 April 2017
in line with its goal to simplify the business and improve
transparency. The adoption of IFRS 15 improves the alignment of
financial results with the cash flows of contracts. The effect of
adopting IFRS 15 is a reduction of GBP108.2m in the opening net
assets as at 1 April 2017 and an increase of GBP12.5m in reported
operating profit before other items for FY 17/18.
Our adoption process followed the principles set out in the
standard's five step model:
-- identify the contract(s) with a customer;
identify the performance obligations in the
-- contract;
-- determine the transaction price;
allocate the transaction price to the performance
-- obligations in the contract; and
recognise revenue when or as the entity satisfies
-- its performance obligations.
This process identified the following six key areas of
adjustment discussed in more detail below:
-- percentage of completion accounting;
-- mobilisation assets;
-- design and development and other upfront fees;
-- accrued income and contract assets;
-- work in progress; and
-- contracted discounts including extension discounts.
IFRS 15 gives rise to changes in the timing of revenue and cost
recognition but does not impact the lifetime profitability or the
cash flow of contracts. The main changes for Mitie from the
adoption of the accounting standard are on its long-term contracts.
In particular:
-- revenue is more evenly matched over the life
of contracts in line with the delivery of outcomes
to clients and, consequently, the timing of
profits is re-profiled;
-- in certain cases there will be lower profits,
or even losses, in the early years of contracts
where there are significant upfront restructuring
or mobilisation costs, with a compensating
increase in profits in later years;
-- the overall impact on the income statement
at Group level is a function of the balance
of contracts in the early or late stage of
their lifecycle. For FY 17/18, the impact is
a GBP12.5m increase in operating profit before
other items;
-- a number of contract related assets have been
derecognised, comprising of the accrued income
balance associated with percentage of completion
accounting, work in progress where control
is yet to pass to the client and cannot be
reliably estimated, and the elimination of
certain deferred mobilisation costs that do
not meet the more stringent criteria of recognition
as an asset under IFRS 15;
-- the Group's balance sheet under IFRS 15 includes
limited contract assets created in the process
of mobilising and transforming services;
-- there is an increase in the level of deferred
income in relation to contracts where advance
payments have been received from clients to
undertake work prior to the recognition of
revenue and planned outcomes being delivered.
Deferred income will unwind over the life of
contracts; and
-- due to the changes in the pattern and timing
of revenue and cost recognition under IFRS
15, and the resulting adjustment to opening
reserves on 1 April 2017, the principles of
IAS 12 give rise to a movement in deferred
tax, primarily an increase in the deferred
tax asset recognised.
The impact on reported net assets as at 1 April 2017 and on the
reported revenue and reported operating profit before other items
recognised for the year ended 31 March 2018 for the Group are as
follows:
Net
assets Revenue Operating profit before other items
GBPm 1 April 2017 FY 17/18 FY 17/18
----------------------------------------------------- ------------- --------- -----------------------------------
Pre-IFRS 15 89.8 2,199.1 77.1
IFRS 15 adjustments:
Percentage of completion accounting (50.2) 7.6 7.6
Mobilisation assets (24.9) (0.6) 4.4
Design and development and other upfront fees (30.1) 3.1 3.3
Accrued income and contract assets - - 1.0
Work in progress (26.5) (6.1) (4.6)
Contracted discounts including extension discounts (1.5) 0.6 0.8
----------------------------------------------------- -------------
Tax 25.0
----------------------------------------------------- ------------- --------- -----------------------------------
Total IFRS 15 adjustments (108.2) 4.6 12.5
----------------------------------------------------- ------------- --------- -----------------------------------
As reported under IFRS 15 (18.4) 2,203.7 89.6
----------------------------------------------------- ------------- --------- -----------------------------------
Divisional breakdown of adjusted financial performance
Adjusted revenue, GBPm FY 17/18 FY 16/17 Change, %
---------------------------------- -------- -------- ---------
Engineering Services 833.8 803.7 3.7
Security 431.7 403.7 6.9
Professional Services 90.8 96.6 (6.0)
Cleaning & Environmental Services 405.5 399.2 1.6
Care & Custody 62.3 46.4 34.3
Catering 137.1 132.7 3.3
Property Management 237.9 257.7 (7.7)
---------------------------------- -------- -------- ---------
Total 2,199.1 2,140.0 2.8
---------------------------------- -------- -------- ---------
Adjusted operating profit/(loss) before other items, GBPm FY 17/18 FY 16/17 Change, %
---------------------------------------------------------- -------- ---------- ---------
Engineering Services 35.5 33.0 7.6
Security 25.2 21.6 16.7
Professional Services 7.0 9.3 (24.7)
Cleaning & Environmental Services 19.8 20.9 (5.3)
Care & Custody 3.2 2.9 10.3
Catering 5.0 5.3 (5.7)
Property Management 7.9 12.3 (35.8)
Corporate centre (26.5) (23.3) (13.7)
---------------------------------------------------------- -------- ---------- ---------
Total 77.1 82.0 (6.0)
---------------------------------------------------------- -------- ---------- ---------
The Group's adjusted revenue increased in the year, from
GBP2,140.0m to GBP2,199.1m. This was principally due to good
revenue growth in Security, Care & Custody and Engineering
Services offset by significant volume declines in Property
Management and a smaller reduction in Professional Services.
Adjusted operating profit before other items fell by 6.0% in the
year from GBP82.0m to GBP77.1m, reflecting investments made to
enhance customer services, investment in technology and capability
in Professional Services and corporate centre, and the volume
declines in Property Management, partly offset by solid growth from
both the Security and Engineering Services divisions.
Adjusted other items before discontinued operations
Adjusted other items before tax total GBP103.0m (2017:
GBP36.6m). GBP34.6m (2017: GBP15.0m) relates to impairment of the
Property Management goodwill which is further described below.
GBP47.3m (2017: GBP14.9m) is related to organisational change, to
support the Group's cost efficiency and transformation programmes,
and specifically relates to consultancy and project management for
the change process, redundancy and double running costs, property
closure costs, and assets written off as a function of the
transformation programme. Of this, GBP34.7m relates to Project
Helix. GBP8.4m (2017: GBP6.7m) relates to the amortisation of
acquisition related intangible assets, business acquisition costs
and costs associated with the aborted disposal of Property
Management. Other exceptional items of GBP12.7m include GBP3.3m for
settlement of a contractual dispute, GBP3.1m in relation to
contract terminations and extensions, GBP2.3m in relation to costs
associated with various regulatory enquiries, GBP1.9m relating to
pension curtailments, GBP1.3m for property dilapidations, and
GBP0.8m of IFRS 15 adoption costs. The tax credit on other items
was GBP11.7m (2017: GBP4.1m) resulting in other items after tax of
GBP91.3m (2017: GBP32.5m). As noted above, as a result of the
Accounting Review, a number of one-off items in the FY 16/17
financial statements were included in the loss before other items
rather than in other items, and adjusted through the APMs to
provide a more meaningful comparison.
Tax contribution
The Group manages both direct and indirect taxes to ensure that
it pays the appropriate amount of tax in each country whilst
respecting the applicable tax legislation, where appropriate
utilising any legislative reliefs available. The strategy is
reviewed regularly and is endorsed by the Board.
Mitie is a significant contributor of revenues to the UK
Exchequer, paying GBP481.2m in the year ended 31 March 2018 (2017:
GBP534.4m). This comprised GBP492.8m of indirect taxes including
business rates, VAT and payroll taxes paid and collected, less an
GBP11.6m refund of UK corporation tax. The tax refund was due to
the utilisation of losses resulting from the accounting adjustments
in the prior year's accounts. As Mitie's business is primarily
based in the UK, the effective tax rate should track the UK
statutory tax rate. Losses reported as a consequence of the
adjustments to the balance sheet following the adoption of IFRS 15
will reduce the Group's corporation tax payments over the next few
years.
Discontinued operations
Following a strategic review of the operations of the Group
earlier in the year, a sale process was initiated in connection
with the Property Management business. It was therefore classified
as a discontinued operation in the half-yearly financial report for
the six months ended 30 September 2017. On 5 December 2017, Mitie
confirmed that it had withdrawn the Property Management business
from sale, as none of the indicative offers received were at an
acceptable level.
It has therefore been classified as a continuing operation as at
31 March 2018 and will now be integrated into the Engineering
Services division.
On 28 February 2017, the Group completed the sale of its
Healthcare division following the Board's decision to withdraw from
the domiciliary healthcare market. As a result of the disposal, the
Healthcare business was classified as a discontinued operation for
the year ended 31 March 2017.
Dividends
The full-year dividend is 4.0p per share (2017: 4.0p per share),
comprising an interim dividend of 1.33p per share and a final
dividend recommended by the Board of 2.67p per share.
Mitie Model
As previously signalled, the Group has ceased its past practice
of creating Mitie Model jointly held companies, with specific earn
out targets, and all remaining minority shareholder interests have
been bought out during the year.
Adjusted goodwill and intangible assets
Adjusted goodwill and other intangible assets of GBP348.9m
(2017: GBP397.1m) were held on the balance sheet at 31 March 2018.
As part of its annual review of impairment the Group has updated
its estimate of the recoverable amount of the Property Management
cash-generating unit (CGU), principally due to changes in broader
market conditions, which has resulted in an impairment charge of
GBP34.6m being taken in other items. In addition, other intangible
assets impairment charges, mainly relating to software development
assets that are no longer in use, were GBP10.4m, and other
intangible assets amortisation was GBP13.5m.
Other goodwill balances have been maintained and there were no
acquisitions during the year giving rise to goodwill.
Adjusted cash flow
The Group took steps to strengthen its balance sheet during the
year, including normalising its working capital position.
Utilisation of non-recourse invoice discounting was reduced at the
year-end and supplier payment performance was improved. Although
this negatively impacted cash flow during the year, it resulted in
a stronger underlying balance sheet position and an improved
position for suppliers.
The adjusted operating cash inflow, before movements in working
capital, was GBP49.6m (2017: GBP9.1m). This includes a cash outflow
of GBP27.5m relating to other items charged to the income statement
in FY 17/18.
Adjusted cash used in operations during the year was GBP6.6m
(2017: cash generated GBP151.1m), as a result of a working capital
outflow of GBP56.2m (2017: inflow GBP142.0m). The working capital
movement is explained in more detail below.
After paying interest of GBP13.5m (2017: GBP12.7m) and corporate
tax receipts of GBP11.6m (2017: paid GBP15.3m) the adjusted net
cash outflow from operating activities was GBP8.5m (2017: inflow
GBP122.8m). Capital expenditure reduced by GBP0.8m compared to the
prior year, to GBP26.1m (2017: GBP26.9m). Dividends of GBP4.8m were
paid in the year (2017: GBP37.4m). Other net cash outflows totalled
GBP6.9m, including the settlement of amounts owed in connection
with the disposal of Healthcare of GBP9.7m (2017: GBP27.4m,
including share buybacks of GBP24.4m).
Overall, this resulted in an increase in the Group's net debt of
GBP46.3m (2017: GBP31.1m decrease) to GBP193.5m (2017:
GBP147.2m).
Adjusted working capital
As highlighted above, the Group took steps to normalise its
working capital balances as part of a series of measures to
strengthen its balance sheet. There were two main drivers
explaining the working capital movement of GBP56.2m in FY
17/18.
Firstly, the Group reduced its non-recourse customer invoice
discounting by GBP34.4m to GBP76.3m. The invoice discounting
facilities are netted off against trade and other receivables
within the balance sheet and therefore led to a working capital
outflow from receivables of GBP34.4m (2017: GBP28.5m inflow).
Excluding the impact of invoice discounting, there was an
underlying decrease in receivables of GBP4.3m and total working
capital increased by GBP21.8m.
The second factor was the measures taken to improve our supplier
payment performance at the year end. Total payables reduced by
GBP30.3m over the year as the Group improved its supplier payment
days to 58 days (2017: 72 days).
Net debt
The Group's net debt increased by GBP46.3m to GBP193.5m as at 31
March 2018 (2017: GBP147.2m). However, average borrowings of
GBP286.1m were GBP49.8m lower than the prior year (2017:
GBP335.9m), of which GBP23.6m can be attributed to higher average
invoice discounting (in contrast to the lower year-end position).
As noted above, this increase in net debt can be attributed to the
measures taken to reduce the year-end use of invoice discounting
and to improve supplier payment performance. The Group is focused
on continuing to drive further sustainable improvements to its
average borrowings.
Liquidity and covenants
As at 31 March 2018, the Group had GBP466.5m of committed
funding arrangements (2017: GBP526.8m), compared to net debt of
GBP193.5m (2017: GBP147.2m). The GBP275m multi-currency Revolving
Credit Facility (RCF) matures in July 2021. The GBP191.5m of US
Private Placement notes are spread over three maturities: December
2019 GBP40.0m; December 2022 GBP121.5m; and December 2024 GBP30.0m.
In December 2017, GBP60.2m of US Private Placement notes matured
and this was funded as anticipated through existing facilities.
Mitie's two key covenant ratios are leverage (ratio of net debt
to covenant EBITDA to be no more than 3 times) and interest cover
(ratio of covenant EBITDA to net finance costs to be no less than 4
times). At the year end, we were operating comfortably within these
ratios at 1.98 for leverage and 6.8 for interest cover.
Mitie's intention is to consistently maintain adequate headroom
within its committed facilities. In addition to its committed
funding, the Group utilises ancillary facilities, including invoice
discounting of GBP76.3m (2017: GBP110.7m). The Group's trade
creditors include amounts due to UK suppliers which make use of
supply chain finance arranged by Mitie of GBP45.1m (2017:
GBP39.5m).
Retirement benefit schemes
The net defined benefit pension liability at 31 March 2018 was
GBP54.8m (2017: GBP70.7m) for the Mitie Group scheme. The reduction
in the deficit is principally due to a 5bps increase in the
discount rate driven by improvements in corporate bond rates since
31 March 2017. On 14 November 2017, the Group closed the final
salary section of the main Mitie Group scheme to future accrual and
the resulting annualised savings to the Group from FY 18/19 are
expected to be in the region of GBP0.8m per annum. The latest
valuation of the Mitie Group scheme as at 31 March 2017, indicated
an actuarial deficit of GBP46.6m (31 March 2014: GBP6.0m), largely
due to a fall in discount rates since 2014. The Group has
negotiated, subject to final approval, a deficit recovery plan with
the Trustee totalling GBP58.0m over 10 years, of which GBP3.0m was
paid in FY 17/18.
The Group also makes contributions to customers' defined benefit
pension schemes under Admitted Body arrangements as well as to
other arrangements in respect of certain employees who have
transferred to the Group under TUPE. At 31 March 2018, Mitie's net
defined benefit pension liability in respect of these schemes,
which it is committed to funding, amounted to GBP2.0m (2017:
GBP3.5m).
In addition, the Group also participates in four industry
multi-employer defined benefit pension schemes, including the
Plumbing & Mechanical Services (UK) Industry Pension Scheme.
These schemes are accounted for as defined contribution schemes,
either because the assets and liabilities cannot be apportioned
among employers or the amounts involved are not significant.
Contributions to these schemes for FY 18/19 are expected to be
approximately GBP0.1m. The Group is exposed to Section 75 employer
debts in respect of two of these schemes. These liabilities
crystallise when the Group ceases to have any active employees in
the schemes. Further details can be found in Notes 18 and 19.
Conclusion
In line with recent Financial Reporting Council guidance, we
will continue to simplify our operational and financial processes
as we increase transparency and improve our internal control
environment.
Operating Review
To enable an effective comparison of our performance, adjusted
revenue and adjusted operating profit are presented for both FY
17/18 and FY 16/17 as Alternative Performance Measures (APMs). FY
17/18 adjusted numbers are presented on pre-IFRS 15 basis. FY 16/17
adjusted numbers are presented as per last year's published APM,
for continuing operations, restated to reflect changes in
management reporting implemented in 2018 for certain business unit
activities transferring between segments. The order book is
presented for continuing operations in line with IFRS 15
requirements for both FY 17/18 and FY 16/17.
Engineering Services
Change,
GBPm FY 17/18 FY 16/17 %
------------------ ------------- --------- --------- --------
Revenue Reported(1) 840.7 789.1 6.5
------------------ ------------- --------- --------- --------
Adjusted(2) 833.8 803.7 3.7
-------------------------------- --------- --------- --------
Operating
profit / (loss)
before other
items Reported(1) 45.8 (4.5) nm
------------------ ------------- --------- --------- --------
Adjusted(2) 35.5 33.0 7.6
-------------------------------- --------- --------- --------
Order book(3) 2,064.2 2,095.2 (1.5)
--------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
In FY 17/18, we enhanced the quality and efficiency of the
service we provide to customers by creating more effective
operational teams and streamlining internal processes; in FY 18/19
we will be further investing in state-of-the-art technology to
continue this programme. As part of the overall re-shaping of the
Engineering Services business, we have focused on reducing layers
and increasing spans of control. As part of our One Mitie approach
we have centralised our Group Sales team, who service our key
national accounts, to ensure our customers receive the highest
quality of care and service.
During the year, we continued to invest in our key client
relationships. We also introduced Client Operations Executive roles
(aligned with the sales structure) to drive clear accountability
for the overall performance for our largest and most valuable
customers.
To support our growth strategy, we have embarked on a multi-year
transformation as part of the Mitie-wide Project Helix programme
and we are already beginning to see the benefits of this. In FY
17/18, we faced a number of challenges in our operational delivery,
but we are now starting to see major improvements in engineer
utilisation and service delivery. We have made notable progress in
the following focus areas:
-- clearly defining our core operational metrics;
sharing best practice on-job planning for our
-- mobile workforce;
redesigning the organisation for consistency
-- and standardisation; and
-- listening more to customer feedback.
As part of Engineering Services transformation programme, we
launched Mitie Innovate, which was introduced at the end of 2017. A
pilot region in London was chosen to test and improve initiatives
before rolling them out to the rest of our national team. As part
of the initial roll-out, we conducted 20+ ride-alongs with our
mobile and site-based engineers to understand how they went about
their day and how we could help provide a better experience for
customers and our frontline teams. In the eight-week period
following the launch of Mitie Innovate, we saw significant
improvements in operational KPIs from the frontline; for example,
our engineers were 6% more productive (completing more jobs per
productive hour), with some sub-regions improving by 20%. Their
travel time reduced by 12% with some sub-regions showing a decrease
by 30%; and the first-time fix rate improved by 4% with some
sub-regions improving the first-time fix rate by 13%.
The integration of our core workforce has created a highly
flexible and skilled team with optimal support systems. Workflow
management for scheduling, tasking and billing will start to be
introduced in FY 18/19 and our engineers will receive enhanced
training and tools to enable them to continue to deliver the
highest quality of service.
In the future, technology will be a key enabler for Engineering
Services. It will be deployed to link outputs to the Connected
Workspace, generating actionable data insights and providing the
most responsive and valued service in the market. By using a
combination of existing building systems and environment sensors,
along with energy, asset and workplace data, we are providing
tailored solutions to satisfy each client's unique
requirements.
This year, Engineering Services won a multi-year contract for
all Co-op's corporate sites, a 5.5-year extension with Heathrow
Airport and further work with the Scottish Government. We also
retained a significant contract with an NHS Trust. These wins and
extensions offset the previously announced loss of a top-20
contract and of another, due to a merger.
Financial performance
The Engineering Services division reported adjusted revenue of
GBP833.8m, an increase of 3.7% on the prior year of GBP803.7m,
driven by good performances from both its core customer contracts
(growth of 3%) as well as growth in its projects business. Adjusted
operating profit before other items was GBP35.5m (FY 16/17
GBP33.0m) reflecting revenue growth and higher gross margins on net
new contract wins versus losses. Cost savings from Project Helix
were largely reinvested back into improvement in customer service
levels, staff training and technology.
Notwithstanding the loss of an important top 20 contract, the
outlook remains positive. We achieved a number of contract
extensions and new business wins during the year, meaning the order
book remains relatively stable at GBP2.1bn (FY 16/17: GBP2.1bn).
The business is also planning a major investment into its workflow
technology over the next couple of years which will improve the
experience of our customers whilst also simplifying the business
enabling a reduction in costs to serve.
Outlook
The significant focus within the Engineering Services division
for FY 18/19 will be on our ongoing transformation. We have
commenced the scoping phase, looking into asset and workflow
scheduling. We are coming to the end of the discovery phase for the
workflow transformation programme.
The objective of this stage of the transformation is to fully
upgrade our end-to-end service delivery, from job receipts to
billing, via process re-engineering, operational restructure and
technology implementation. This will:
improve first-time fix and customer experience
-- by having the right details at enquiry;
increase efficiency through better resource
planning by matching right-skilled resource
-- to the job;
protect revenue and increase billing accuracy
through automating time-sheeting and proof
-- of work;
improve delivery through better engineering
-- capacity planning, upskilling labour and supply
chain management; and
-- better engage, inspire and manage our people.
Security
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 432.0 403.7 7.0
---------------- ------------- --------- --------- --------
Adjusted(2) 431.7 403.7 6.9
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 27.5 17.8 54.5
---------------- ------------- --------- --------- --------
Adjusted(2) 25.2 21.6 16.7
------------------------------ --------- --------- --------
Order book(3) 640.8 724.3 (11.5)
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
In FY 17/18, Mitie's Security division has renewed or expanded
several major contracts, including with DP World Southampton, a
major transport sector client, a major London Airport, Fujitsu,
Durham University, Springfields Fuels Limited and TNT. Customer
retention rate improved to 93.5% against 84% in the prior year.
Notable new contract awards in FY 17/18 include a UK retailer, a
global delivery services company and The Royal Academy of Arts.
Document Management has had another robust year, with client
retention running at 98% and good organic growth. Key new customers
include a global investment bank and an international law firm. We
have seen the document management business recognised with two
national PFM awards for work with our clients, PwC and Linklaters.
Document Management launched two new product lines in FY 17/18:
document production and examiner services, both focused on
servicing the legal sector. The business has continued to develop
its national coverage and now has a full-service offering ranging
from managed print solutions and outsourcing of mail room
activities, to a complete customised restructuring of document
workflows and processes.
Our Front of House business, Signature, has had a good year,
refocusing its market offering. The business has progressed under
new leadership and moved towards a closer alignment with our wider
security business, an example of this being the award of The Royal
Academy of Arts contract. Our new identity, Signature, signifies a
clear change in both the culture and future direction of the
business and is underpinned by several impactful programmes to
drive growth and sustainability, particularly in new business wins
and client retention.
Procius, our employee vetting business, which is one of the UK's
largest vetting providers, and the leader in the Transport and
Aviation Sectors for pre-employment screening and criminal records
checking services, continues to deliver strong growth. In FY 17/18,
we saw increasing demand for our services across existing key
customers in the Aviation Sector along with good contract wins,
including a market leading logistics company, a leading company in
the travel and tourism sector and a Premier League football
club.
The security market remains highly competitive. We continue to
focus on delivering sustainable growth through strong customer
engagement, the provision of a comprehensive service offering and
the promotion of the benefits of risk-based technology-led
solutions. We strive to attract and retain our customers through
the provision of exceptional service.
Financial performance
The Security division grew its adjusted revenue by 6.9% in FY
17/18 to GBP431.7m. This was achieved through new sales wins and
record low contract terminations (with a retention rate of 93.5%).
Adjusted operating profit before other items increased 16.7% to
GBP25.2m with operational efficiencies and the growing use of
technology adding to the impact of the improved top-line
performance. Outside the main security businesses, good
performances from Document Management and Front of House also
contributed to the overall profit growth.
Innovation remains a core focus in Security. In FY 17/18 we
developed and expanded our contract with a leading supermarket
chain, with the introduction of SMART risk technology and 5,000
lone worker devices, aiding the full implementation of a risk-based
deployment model. Technology-driven accounts now make up c.12% of
the business. The order book is GBP640.8m, down from GBP724.3m, as
the unwinding of large multi-year contracts more than offset new
wins.
Within the Security business, technology and the Connected
Workspace play an increasingly important role for both our existing
and future customers. We have secured several excellent
technology-enabled contracts from developing existing and new
customers, including contract wins with an engineering company and
a major UK retailer. The control centre for the 10-year Home Office
Detention & Escorting contract won within Care & Custody
will be located at MiTec in Belfast. We saw continued growth of
contracts with legacy Fire customers, a telecommunications company
and a leading financial services customer, and we also secured new
maintenance customers in the NHS and with Rexel.
Outlook
We are optimistic and ambitious for the year ahead. Our focus
continues to be on growing our Security business, offering
customers tailored solutions, increasing the use of technology to
ensure a safe environment and provide seamless operations and
utilising data and analytics generated through our proprietary
Connected Workspace offering.
Professional Services
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 90.2 96.6 (6.6)
---------------- ------------- --------- --------- --------
Adjusted(2) 90.8 96.6 (6.0)
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 6.5 6.7 (3.0)
---------------- ------------- --------- --------- --------
Adjusted(2) 7.0 9.3 (24.7)
------------------------------ --------- --------- --------
Order book(3) 75.5 81.5 (7.4)
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
During the year, within our recently established Professional
Services (PS) division, the focus has been to bring together and
align a number of businesses and service offerings, combining
technical skills and teams to lay the foundations for future
growth. This has included bringing in new senior leaders for our
Occupier Services, Risk and Resilience and Connected Workspace
businesses. In addition, we have added senior business development
staff to help drive sales actively across the division.
The division started FY 17/18 with the headwind of two contract
losses in Waste Management and the immediate focus was on replacing
these revenues. Contract wins during FY 17/18, most significantly
with two major manufacturing clients ensured that the Waste
Management business revenue returned to growth in 2H 17/18.
Notwithstanding the revenue impact from the prior year, the Waste
Management team has delivered improved operating profit through a
drive to simplify its cost structure and focus on profitable
revenues.
The Energy component of our Sustainability business has
performed well with significant wins, including a contract with a
major telecommunications provider and a ground-source heat-pump
project delivering significant carbon and cost savings to an
engineering client. Consequently, it grew revenue by 16%, also
demonstrating growth in operating profit and margin. Within the
year we have brought our Water Management business into the PS
division to complement our Sustainability offering. We are
restructuring this business to return it to growth following the
completion of a Mitie earn-out and the departure of the previous
management team at the end of FY 16/17.
We continue to win real estate consultancy and project
management work as demonstrated by the award of two new significant
international project management frameworks with global technology
businesses.
Our Connected Workspace offer has moved from early pilot into
deployment stages with a number of clients across Mitie and we are
pleased to report that we have opened our Innovation Centre in
Bracknell. Furthermore, we have agreed and implemented strategic
partnerships with various world-class technology partners,
including Microsoft and Vodafone. Working across the Group, the PS
division continues to define, design, trial and sell our Connected
Workspace technology solutions and capabilities to assist our
clients in improving the performance of their buildings and
people.
We have seen significant interest from existing and potential
customers in all areas of our business in our Connected Workspace
offering. We are now running nine live pilots at customer sites,
with another 14 currently in the pipeline. 5,000 sensors have been
deployed providing us with two million readings each day which are
fed into our data lake informing insight into building and people
performance and offering tangible solutions to our customers to
improve results and save money.
Mitie's commitment to transforming and improving customer
experience and service is further demonstrated by the investment in
consulting services and support by the PS division. During the
year, our professional services colleagues were deployed to work
with our account management teams to drive improvement in the
customer experience and service for many of our large FM clients.
Given the work carried out to date, we do not expect the same
volume of investment in internally focused engagement to be
required in FY 18/19.
Financial performance
The two major Waste contract losses in the prior financial
period saw the PS division start the year from a lower base, and
overall the PS division reported adjusted revenue of GBP90.8m, down
6.0%. Adjusted operating profit before other items dropped to
GBP7.0m (FY 16/17: GBP9.3m), with good performances in Waste &
Sustainability driven by operational efficiency measures more than
offset by investment in internal capabilities and in customer
service. During the year the business also built Real Estate, Risk
Management and International service capabilities further enhancing
our consultancy offering.
The order book stands at GBP75.5m against FY 16/17 of GBP81.5m
with this reduction driven mainly by a re-evaluation of our Water
Management order book and the unwinding of large multi-year
contracts, which have more than offset new wins.
Outlook
The division has recorded a number of contract wins at higher
margins during FY 17/18 and, with an energised sales drive to
generate new business in the year ahead, the division has closed
the year with strong momentum. The revenue pipeline in our Real
Estate Occupier Services consultancy, Connected Workspace and
International service lines has begun to show encouraging growth;
and our technology-led Connected Workspace strategy continues to
support growth opportunities across Mitie.
This momentum has delivered fourth quarter FY 17/18 revenues
8.9% higher than those in the first quarter, providing a better
trajectory into next year.
Our focus is to act as a trusted partner to our clients,
creating exceptional environments for their customers and people
and adding value every day. With the provision of world-class
professional services, allied to intelligent use of technologies in
our industry-leading Connected Workspace solutions, we create
insights and solutions that make a difference.
Cleaning & Environmental Services
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 406.4 395.6 2.7
---------------- ------------- --------- --------- --------
Adjusted(2) 405.5 399.2 1.6
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 21.5 6.5 230.8
---------------- ------------- --------- --------- --------
Adjusted(2) 19.8 20.9 (5.3)
------------------------------ --------- --------- --------
Order book(3) 661.3 736.0 (10.1)
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
This year the Cleaning & Environmental Services (CES)
division has stabilised following a period of decline; though it
continues to face significant structural headwinds from service
commoditisation, low barriers to entry and price competition.
During the second half of the year, we appointed a new Managing
Director for the division, Matthew Thompson, who has wide industry
leadership experience, including eight years at Compass Group where
he was Managing Director of the UK Sports & Leisure business,
covering sector services, from catering to cleaning. The division
is undergoing a significant restructuring, and we expect it to
stabilise further this year and see steady improvement
thereafter.
Despite a difficult trading year, the business continued to
secure contracts with high-profile customers, including a new major
multi-service contract with a major UK retailer and the West
Hertfordshire Hospital NHS Trust and taking on the cleaning
services from Carillion at Heathrow T5. This major contract was
mobilised smoothly at extremely short notice.
The new multi-service contract with the West Hertfordshire
Hospital NHS Trust, worth GBP55m over a five-year term with an
optional extension of a further two years, builds on Mitie's
existing strong portfolio of NHS clients. As part of the contract
Mitie will be investing in new technology, including new digital
software to enable the helpdesk to communicate more effectively
across its four sites, we will also be utilising 'Moptimus Prime',
the next generation in robot cleaning.
As part of the three-year integrated facilities contract with
the Co-op, Mitie will be providing cleaning and landscaping
services.
Our client retention rate for FY 17/18 was below expectations.
Our NPS score tells a similar story and, though showing an
improvement against the previous period, is still negative overall.
The margin challenge in Cleaning Services has been exacerbated by
an unfavourable change in contract mix during the year. We lost
some high-margin contracts and at the same time mobilised material
new contracts. In the short term this had an impact on the overall
profitability of the business.
In response to the challenging cleaning sector market
environment, we are simplifying our management and overhead
structure; focusing on delivering our basic service well; and
introducing improved technology for better workforce management. We
are in the process of implementing Workplace+, a handheld-enabled,
all-in-one operations portal for scheduling, payslips and supplies.
The wide adoption of Workplace+ will allow the business to better
communicate with our employees, measure and analyse productivity
patterns, and enable rapid roll-out of best practices.
Financial performance
The CES division reported adjusted revenues of GBP405.5m (FY
16/17: GBP399.2m) and adjusted operating profit before other items
of GBP19.8m (FY 16/17: GBP20.9m). After a period of decline,
overall revenue was up 1.6% versus prior year, but the operating
profit was down by 5.3%.
The industry backdrop for our core Cleaning business is one of
general margin pressure. In FY 17/18, we saw this in several new
contract wins which, whilst revenue enhancing, were margin
dilutive. We expect to reverse this trend through Project Helix
cost savings together with improved execution under new
management.
Our Landscape Services business had a good year with both
adjusted revenue and adjusted operating profit increasing. The
business retained existing contracts, and acquired new ones, with
particular success in the retail sector which has been a core
target over the past two years.
The Pest Control and Healthcare Services businesses also had a
solid year. Healthcare Services is a multi-service Mitie business,
providing not just cleaning services, but portering, helpdesk,
in-patient and retail catering. During the year, the Healthcare
business addressed a number of difficult contracts, so we expect it
to show growth over the coming years.
The CES order book stands at GBP661.3m (FY 16/17: GBP736.0m) as
the unwinding of large multi-year contracts more than offset new
wins.
Outlook
We believe that by focusing on the basics of delivery,
simplifying the division's structure, implementing new technology
that will enable us to improve our overall efficiency and
communicate better with our frontline, we will further stabilise
this business over the coming year. We are focused on delivering
profitable growth in the future. Cleaning is a highly competitive
low-margin mass-market business, but we believe that we can enjoy
slightly better margins than we have today. We also view cleaning
as a cornerstone of our FM offering in building our client
relationships and successfully introducing the breadth and depth of
our services, including our specialist services.
Care & Custody
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 59.9 46.4 29.1
---------------- ------------- --------- --------- --------
Adjusted(2) 62.3 46.4 34.3
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 1.9 2.2 (13.6)
---------------- ------------- --------- --------- --------
Adjusted(2) 3.2 2.9 10.3
------------------------------ --------- --------- --------
Order book(3) 670.1 210.4 218.5
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
In December 2017, we were pleased to report that Care &
Custody had been awarded a 10-year Detention & Escorting
contract with the Home Office to provide immigration services. It
is the largest ever contract for Care & Custody, worth an
estimated GBP525m. The award of such a significant contract
reinforces Mitie's role as the largest supplier of immigration
detention services to the UK Government and will double the
division's size in FY 18/19.
Mitie will be responsible for escorting immigration detainees,
both within the UK and overseas. The contract, which started on 1
May 2018, also includes the management of a number of fixed
facilities throughout the UK, including airport holding rooms,
reporting centres and two short-term holding facilities. Technology
development programmes will be at the heart of the partnership with
the Home Office, to transform the way that immigration escorting
services are delivered. This focus on the use of new and emerging
technologies will modernise working and operational practices to
improve efficiency and de-risk removals.
In order to deliver high-quality services, Care & Custody
needs to attract and retain high quality and talented people; it is
therefore important we seek to create specific career paths and
provide access to training and education. For example, we have
created a new nurse-led police Forensic Medical Examiner delivery
model where our lead nurses train to undertake over 90% of the role
previously delivered by general practitioners. This opens up an
opportunity for great career paths for our nurses and at the same
time our police clients have highly qualified clinical
professionals located permanently at their custody suite sites.
This has the added benefit of dramatically reducing the waiting
time for detainees before their healthcare needs are assessed,
creating better outcomes for the service user and the police.
The business has secured c.GBP520m of new orders in the year. As
well as the significant Home Office Detention & Escorting
contract win, Care & Custody secured new contracts with several
police forces, including Cleveland, West Mercia, Warwickshire,
Staffordshire and Nottinghamshire, further cementing Care &
Custody's position as the leading supplier of services in police
FME and related areas.
In FY 17/18, Care & Custody was awarded a three-year
contract by Nottinghamshire Police. Care & Custody will provide
medical support services across two custody suites in the county. A
24/7 team will operate at both Bridewell and Mansfield sites, which
include over 100 custodial cells. The specialist Mitie team will
provide clinical assessments, address the immediate health needs of
detainees and provide patients with onward referral pathways for
ongoing health and wellbeing following custody.
Care & Custody already delivers these services to 13 police
forces across the UK. These include six Sexual Assault Referral
Centres and a Short-Term Holding Facility in Northern Ireland. Care
& Custody's specialist teams conduct over 180,000 medical
interventions every year in 62 police custody facilities. This
expertise was instrumental during the Nottinghamshire Police tender
process, with scenario responses and the overall value of its
proposition setting Care & Custody apart from the
competition.
Not only does this contract build on the Care & Custody
team's strong track record, this new work with Nottinghamshire
Police establishes an East Midlands hub of expertise as it borders
with another existing Care & Custody contract in
Leicestershire.
Financial performance
Care & Custody had a good year, delivering growth of 34.3%
in adjusted revenue, up from GBP46.4m in the previous year to
GBP62.3m. This significant growth is a result of a solid stream of
contract wins in custodial and Forensic Medical Examiner services
throughout the year, as well as the mobilisation of the Home Office
Detention & Escorting contract. As the contract only went live
in May 2018, the main benefits will be realised in FY 18/19 and
beyond.
Adjusted operating profit before other items grew to GBP3.2m (FY
16/17: GBP2.9m). The growth was driven by the new contract wins
whilst the operating margin was diluted by business development
costs as we invested in building future growth.
The order book increased significantly to GBP670.1m (FY 16/17:
GBP210.4m) following the transformational Detention & Escorting
contract which will double the size of the Care & Custody
division.
Outlook
Our sales pipeline remains positive. There are major
opportunities with central government through the second half of
2018 with decisions due in early 2019. Care & Custody is well
placed to secure further growth as our scale and reach increase and
with few experienced competitors in our markets.
The success of the business is built upon our ability to deliver
outstanding value-for-money public services to the people in our
care, whilst maintaining the confidence of our commissioners,
inspectors, regulators, government and the general public. Our
leadership team is highly experienced, well-respected in the market
and focused upon building long-term relationships, ensuring we have
a clear understanding of our clients' needs, so we can develop
service design solutions that meet and exceed their expectations.
We recognise that our policies and processes must reflect and
respond to relevant legislation, and actively embrace external
regulatory scrutiny. We underpin these principles by promoting a
culture of openness, transparency and high performance.
Catering
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 137.1 134.3 2.1
---------------- ------------- --------- --------- --------
Adjusted(2) 137.1 132.7 3.3
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 5.6 4.7 19.1
---------------- ------------- --------- --------- --------
Adjusted(2) 5.0 5.3 (5.7)
------------------------------ --------- --------- --------
Order book(3) 34.7 29.4 18.0
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
Against the backdrop of continuing challenging sector dynamics,
including the continued impact of food price and labour inflation,
as well as a general reduction in discretionary spending across the
hospitality sector, our Catering division has delivered solid
revenue growth, developed its pipeline and secured some key new
contract wins during the period.
Gather & Gather continues to offer a differentiated
proposition within a market which has undergone further
consolidation over the last 12 months. We continue to be a
distinctive quality alternative to the large corporate caterers who
dominate the mass market. Specifically, our market-leading
technology continues to drive consumer behaviour in our contracts,
and as testament to this, we were delighted to be recognised with a
Best Use of Technology Award by the Restaurant Marketer &
Innovation Awards in January 2018. Gather & Gather is also
proud to have re-secured the maximum three-star rating from the
Sustainable Restaurant Association, recognising our positive
progress in three areas of sourcing, society and the
environment.
During FY 17/18, Catering won a contract with a major online
retailer in Ireland, as well as contracts within our integrated FM
offerings, such as the three-year integrated facilities contract
for all the Co-op's corporate sites to provide tailored catering
through Mitie's Gather & Gather business.
Mitie was awarded the three-year contract with the Co-op
following a competitive tender process. The contract covers
cleaning, landscaping, engineering services, security, front of
house, catering and waste. These services will be delivered in a
manner to fully reflect the Co-op's commitment to sustainability
and employee wellbeing.
Gather & Gather offers a fresh approach to food, working
closely with independent and local suppliers to stay ahead of
market trends. Its focus on sustainable sourcing and value for
money aligns with the Co-op's sustainability and diversity
ambitions. Gather & Gather will introduce pop-ups and food
truck events in partnership with local suppliers to bring
innovation and variety to lunchtime breaks. Further investments in
technology will enhance the experience for Co-op colleagues
purchasing beverages on site with a launch of a pre-order service
through a mobile app, as well as a daily menu microsite.
After two difficult years' trading, it is notable that
Creativevents has been successful in re-securing some prestigious
and long-standing clients such as RHS Chelsea Flower Show and Royal
Ascot. The business unit was also successful in winning some
high-volume concert and festival work at the end of April 2018.
Post the year-end the division won an exciting contract to
provide bar and food services at BBC Music's The Biggest Weekend.
Four festivals took place at four sites over the four days of the
late May Bank Holiday weekend (25-28 May 2018). The Biggest Weekend
saw BBC Radio 1, BBC Radio 2, BBC Radio 3 and BBC Radio 6 Music
stations bring live music to crowds of over 175,000. The financial
impact of this contract will be reported in FY 18/19.
Financial performance
Adjusted revenue grew by 3.3% to GBP137.1m (FY 16/17: GBP132.7m)
driven by the full-year impact of new contract wins in Ireland,
volume increases in new events at Creativevents, partially offset
by a shortfall in Gather & Gather UK.
The gross margin remained stable after a series of cost saving
measures were taken to offset food and labour input price
inflation. These included menu changes and tighter staffing
schedules.
Whilst the business turned around and exited less profitable
contracts in Creativevents and Gather & Gather Ireland, the
division's adjusted operating profit before other items decreased
by 5.7% to GBP5.0m (FY 16/17: GBP5.3m).
The order book for the Catering division increased from GBP29.4m
in FY 16/17 to GBP34.7m in FY 18/19 driven by contract wins.
Outlook
Having attracted some experienced new talent to the team,
momentum for the next 12 months is building. We continue to see
opportunities for organic growth through our customisable, modern
and high-quality offer, complemented by our market-leading approach
to wellbeing and our unique understanding of workplace dynamics and
the role of food and hospitality in boosting staff morale,
engagement and productivity. As a key component of Mite's Connected
Workspace strategy, the insights and data we collect and receive
are invaluable in helping us understand how best to add value to
our customers' working day.
Property Management
Change,
GBPm FY 17/18 FY 16/17 %
---------------- ------------- --------- --------- --------
Revenue Reported(1) 237.4 257.7 (7.9)
---------------- ------------- --------- --------- --------
Adjusted(2) 237.9 257.7 (7.7)
------------------------------ --------- --------- --------
Operating
profit before
other items Reported(1) 7.3 (4.5) (262.2)
---------------- ------------- --------- --------- --------
Adjusted(2) 7.9 12.3 (35.8)
------------------------------ --------- --------- --------
Order book(3) 348.7 515.0 (32.3)
------------------------------- --------- --------- --------
(1) FY 17/18 reported on post-IFRS 15 basis and FY 16/17 on a
reported basis.
(2) Presented on an Alternative Performance Measure (APM) basis:
FY 17/18 pre-IFRS 15; FY 16/17 per prior year APM.
(3) Order book for both years reported under IFRS 15 guidelines
which mandate us to include only fixed-term contracted work and
exclude variable work.
Operational performance
FY 17/18 has been a challenging year for Property Management.
The management team's attention was diverted whilst the division
was considered for sale; it was later withdrawn from sale in
December 2017. Now back in the Mitie portfolio, we have included
Property Management within our overall transformation
programme.
Within its core maintenance services operations, the business
has focused on investing in people, and delivering the best quality
service to customers at the right cost. Over the course of FY
17/18, Property Management was successful in winning a number of
new contracts in Scotland, expanding its operational and
geographical footprint. Of particular note was a contract with was
Aberdeenshire Council as part of their Housing Improvement Plan,
with a four-year strategic objective to improve the housing stock
in line with Scottish Housing Quality Standards and the energy
improvement objectives under the Energy Efficiency Standard for
Social Housing. Mitie is focused on delivering services worth
GBP40m over the four-year term. Other notable contract wins
included:
-- Maryhill Housing Association in Glasgow. This
contract will see Mitie deliver a range of
reactive repairs and maintenance works over
the three-year contract, which has an optional
two-year extension;
-- North Lanarkshire Council, with a contract
valued at GBP3.1m per annum;
-- The renewal of a partnership with Oak Tree
Housing Association will see Mitie deliver
the second phase of maintenance services to
300 properties;
-- A Paisley-based housing association, Williamsburgh,
and Sanctuary Scotland added to our growing
list of social housing customers. Williamsburgh
is a four-year contract worth GBP2.8m; and
-- The refurbishment of 150 homes for displaced
residents from Grenfell Tower under a contract
with the London Borough of Kensington and Chelsea.
Our goal is to differentiate our offering in a relatively
commoditised market, by creating long-term, sustainable
partnerships that offer our customers innovative solutions and
services. We have identified four key focus areas based upon client
needs: tackling fuel poverty, fire safety, innovation, and cost
planning efficiencies.
Technology has been an integral part of our integrated and
partnership offerings, as it brings efficiency and decision-making
benefits to our clients. The focus is on leveraging the Group's
technology capabilities to support our unique asset management
solution for Property Management, using it to build bespoke
solutions to reduce call handling requirements, associated costs
and to improve customer experience.
Financial performance
Property Management reported adjusted revenue of GBP237.9m (FY
16/17: GBP257.7m), down 7.7% year-on-year. This reduction dropped
through to adjusted operating profit before other items which was
down 35.8% to GBP7.9m (FY 16/17: GBP12.3m). In addition, there was
a bad debt charge relating to a prior year contract of GBP1.4m. The
division was impacted by a shortfall in capital spend by major
clients and lower high-margin project revenue.
In the post-Grenfell environment, one of our large customers has
delayed planned investment in its housing stock with the
expectation that funds will be diverted to risk and compliance
related improvements. This also impacted the division's
performance.
Difficult trading conditions defined by continued spending cuts
by customers impacted the order book which declined to GBP348.7m
(FY 16/17: GBP515.0m).
Outlook
Market conditions remain challenging and the main focus for the
next 12 months is to re-energise the business, get the basics
right, continue to invest in our people, deliver the highest
quality service to customers - at the right cost - and to invest in
the communities in which we work.
In FY 18/19, Mitie Property Management's businesses, comprising
roofing, painting and social housing, will be integrated into
Engineering Services. There are considerable synergistic benefits
to be achieved by combining Property Management into Engineering
Services which will enhance efficiency and customer service.
Consolidated income statement
For the year ended 31 March 2018
2018 Restated 2017(1,2)
--------- --------- --------- --------- --------------------
Before Before
other Other other Other
items items(1) Total items items(1) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----- --------- --------- --------- --------- --------- ---------
Continuing operations
Revenue 3 2,203.7 - 2,203.7 2,123.4 - 2,123.4
Cost of sales (1,894.8) - (1,894.8) (1,893.6) - (1,893.6)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Gross profit 308.9 - 308.9 229.8 - 229.8
------------------------ ----- --------- --------- --------- --------- --------- ---------
Administrative expenses (220.1) (97.9) (318.0) (236.7) (36.6) (273.3)
Share of profit
of joint ventures
and associates 0.8 - 0.8 0.6 - 0.6
------------------------ ----- --------- --------- --------- --------- --------- ---------
Operating (loss)/profit 3 89.6 (97.9) (8.3) (6.3) (36.6) (42.9)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Investment revenue 0.2 - 0.2 - - -
Finance costs (16.6) - (16.6) (15.3) - (15.3)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Net finance costs (16.4) - (16.4) (15.3) - (15.3)
------------------------ ----- --------- --------- --------- --------- --------- ---------
(Loss)/profit before
tax 3 73.2 (97.9) (24.7) (21.6) (36.6) (58.2)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Tax 5 (12.0) 10.7 (1.3) 3.3 4.1 7.4
------------------------ ----- --------- --------- --------- --------- --------- ---------
(Loss)/profit from
continuing operations
after tax 61.2 (87.2) (26.0) (18.3) (32.5) (50.8)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Discontinued operations
Loss from discontinued
operations - - - (11.4) (121.0) (132.4)
------------------------ ----- --------- --------- --------- --------- --------- ---------
(Loss)/profit for
the year 61.2 (87.2) (26.0) (29.7) (153.5) (183.2)
------------------------ ----- --------- --------- --------- --------- --------- ---------
Attributable to:
Equity holders of
the parent 60.1 (87.2) (27.1) (30.5) (153.5) (184.0)
Non-controlling
interests 1.1 - 1.1 0.8 - 0.8
------------------------ ----- --------- --------- --------- --------- --------- ---------
61.2 (87.2) (26.0) (29.7) (153.5) (183.2)
------------------------ ----- --------- --------- --------- --------- --------- ---------
(Loss)/earnings
per share (EPS)
attributable to
equity shareholders
of the parent
From continuing
operations:
basic 7 16.8p (7.6)p (5.5)p (14.7)p
diluted 7 16.8p (7.6)p (5.5)p (14.7)p
From continuing
and discontinued
operations:
Basic 7 16.8p (7.6)p (8.7)p (52.4)p
Diluted 7 16.8p (7.6)p (8.7)p (52.4)p
------------------------ ----- --------- --------- --------- --------- --------- ---------
Note:
1. Other items are as described in Note 4.
2. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
Consolidated statement of comprehensive income
For the year ended 31 March 2018
Restated
2018 2017(1)
Notes GBPm GBPm
-------------------------------------------- ----- ------ --------
Loss for the year (26.0) (183.2)
-------------------------------------------- ----- ------ --------
Items that will not be reclassified
subsequently to profit or loss
Re-measurement of net defined benefit
pension liability 19 19.7 (35.4)
Income tax (charge)/credit relating
to items not reclassified (3.4) 5.5
-------------------------------------------- ----- ------ --------
16.3 (29.9)
-------------------------------------------- ----- ------ --------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of foreign operations 0.1 1.3
Gains on hedge of a net investment
taken to equity 0.4 0.1
Net gains/(losses) on cash flow hedges
arising during the year 0.1 (4.8)
Income tax credit relating to items
that may be reclassified 0.1 0.3
-------------------------------------------- ----- ------ --------
0.7 (3.1)
-------------------------------------------- ----- ------ --------
Other comprehensive income/(expense)
for the financial year 17.0 (33.0)
-------------------------------------------- ----- ------ --------
Total comprehensive expense for the
financial year (9.0) (216.2)
-------------------------------------------- ----- ------ --------
Attributable to:
Equity holders of the parent (10.1) (217.0)
Non-controlling interests 1.1 0.8
-------------------------------------------- ----- ------ --------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
Consolidated balance sheet
As at 31 March 2018
Restated
2018 2017(1,2)
Notes GBPm GBPm
--------------------------------- ----- ------- ----------
Non-current assets
Goodwill 8 309.6 343.9
Other intangible assets 9 38.3 53.2
Property, plant and equipment 33.6 32.3
Interest in joint ventures and
associates 0.8 0.6
Derivative financial instruments 14 6.1 -
Trade and other receivables 10 - 50.3
Contract assets(2) 11 1.8 -
Deferred tax assets 12 36.7 22.2
--------------------------------- ----- ------- ----------
Total non-current assets 426.9 502.5
--------------------------------- ----- ------- ----------
Current assets
Inventories 6.9 6.8
Trade and other receivables 10 386.0 395.6
Contract assets(2) 11 0.4 -
Derivative financial instruments 14 - 35.8
Current tax assets 6.3 12.1
Cash and cash equivalents 16 59.8 129.1
Total current assets 459.4 579.4
--------------------------------- ----- ------- ----------
Total assets 886.3 1,081.9
--------------------------------- ----- ------- ----------
Current liabilities
Trade and other payables (496.8) (574.5)
Deferred income 13 (46.2) -
Financing liabilities (0.8) (310.8)
Provisions 15 (25.2) (20.4)
Total current liabilities (569.0) (905.7)
--------------------------------- ----- ------- ----------
Net current liabilities (109.6) (326.3)
--------------------------------- ----- ------- ----------
Non-current liabilities
Trade and other payables - (3.4)
Deferred income 13 (18.8) -
Financing liabilities (258.6) (1.3)
Provisions 15 (6.3) (6.4)
Retirement benefit liabilities 19 (56.8) (74.2)
Deferred tax liabilities 12 (0.8) (1.1)
--------------------------------- ----- ------- ----------
Total non-current liabilities (341.3) (86.4)
--------------------------------- ----- ------- ----------
Total liabilities (910.3) (992.1)
--------------------------------- ----- ------- ----------
Net (liabilities)/assets (24.0) 89.8
--------------------------------- ----- ------- ----------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. At 31 March 2018, contract assets comprise pre contract costs
and contract fulfilment costs capitalised in accordance with IFRS
15 and the Group's internal accounting policy.
Restated
2018 2017(1)
GBPm GBPm
-------------------------------------- ------- --------
Equity
Share capital 9.3 9.2
Share premium account 130.6 130.6
Merger reserve 104.2 91.8
Own shares reserve (43.4) (42.2)
Other reserves 11.3 10.3
Hedging and translation reserve (7.3) (8.0)
Retained losses (228.7) (104.2)
--------------------------------------- ------- --------
Equity attributable to equity holders
of the parent (24.0) 87.5
--------------------------------------- ------- --------
Non-controlling interests - 2.3
--------------------------------------- ------- --------
Total equity (24.0) 89.8
--------------------------------------- ------- --------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
The consolidated financial statements of Mitie Group plc,
company registration number SC019230 were approved by the Board of
Directors and authorised for issue on 6 June 2018. They were signed
on its behalf by:
Phil Bentley Paul Woolf
Chief Executive Chief Financial
Officer Officer
Consolidated statement of changes in equity
For the year ended 31 March 2018
Hedging
Share Own and
Share premium Merger shares Other translation Retained Non-controlling Total
capital account reserve reserve reserves(2) reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
At 1 April 2016 9.3 127.7 80.1 (48.8) 9.9 (4.6) 185.0 358.6 2.9 361.5
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Loss for the
year - - - - - - (184.0) (184.0) 0.8 (183.2)
Other
comprehensive
expense - - - - - (3.4) (29.6) (33.0) - (33.0)
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Total
comprehensive
expense - - - - - (3.4) (213.6) (217.0) 0.8 (216.2)
Shares issued 0.1 2.9 11.7 - - - - 14.7 - 14.7
Dividends paid - - - - - - (37.4) (37.4) (0.1) (37.5)
Share buybacks (0.2) - - (0.2) 0.4 - (24.4) (24.4) - (24.4)
Share-based
payments - - - 6.8 - - 2.4 9.2 - 9.2
Acquisitions
and other
movements
in
non-controlling
interests - - - - - - (16.2) (16.2) (1.3) (17.5)
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
At 31 March
2017 9.2 130.6 91.8 (42.2) 10.3 (8.0) (104.2) 87.5 2.3 89.8
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Balance at 1
April 2017 9.2 130.6 91.8 (42.2) 10.3 (8.0) (104.2) 87.5 2.3 89.8
Impact of change
in accounting
policy(1) - - - - - - (108.2) (108.2) - (108.2)
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Adjusted balance
at 1 April 2017 9.2 130.6 91.8 (42.2) 10.3 (8.0) (212.4) (20.7) 2.3 (18.4)
Loss for the
year - - - - - - (27.1) (27.1) 1.1 (26.0)
Other
comprehensive
income - - - - - 0.7 16.3 17.0 - 17.0
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Total
comprehensive
income - - - - - 0.7 (10.8) (10.1) 1.1 2.9
Dividends paid - - - - - - (4.8) (4.8) - (4.8)
Share-based
payments - - - 6.9 1.0 - 0.3 8.2 - 8.2
Acquisitions
and other
movements
in
non-controlling
interests 0.1 - 12.4 (8.1) - - (1.0) 3.4 (3.4) -
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
At 31 March
2018 9.3 130.6 104.2 (43.4) 11.3 (7.3) (228.7) (24.0) - (24.0)
---------------- ------- ------- ------- ------- ----------- ----------- -------- ------- --------------- -------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Other reserves include the share-based payments reserve, the
revaluation reserve and the capital redemption reserve.
Consolidated statement of cash flows
For the year ended 31 March 2018
Restated
2018 2017
Notes GBPm GBPm
--------------------------------------------------------------- ----- ------ --------
Operating loss - continuing operations (8.3) (42.9)
- discontinued operations - (135.2)
Adjustments for:
Share-based payments expense 4.6 6.2
Defined benefit pension charge 19 3.1 4.3
Past service cost and curtailments 19 1.9 -
Defined benefit pension contributions 19 (4.7) (2.4)
Acquisition costs 4 - 1.2
Depreciation of property, plant and
equipment 12.8 14.1
Amortisation of intangible assets 9 13.5 23.8
Share of profit of joint ventures
and associates (0.8) (0.6)
Impairment of goodwill and intangible
assets 8,9 45.0 109.2
Loss on disposal of businesses 0.2 30.4
(Gain)/loss on disposal of property,
plant and equipment (0.1) 1.0
Operating cash flows before movements
in working capital 67.2 9.1
(Increase)/decrease in inventories (0.1) 3.2
(Increase)/decrease in receivables (43.2) 60.2
(Increase)/decrease in contract assets (2.3) -
Decrease in deferred income arising
on contracts (12.8) -
(Decrease)/increase in payables (21.2) 73.0
(Decrease)/increase in provisions 4.5 5.6
--------------------------------------------------------------- ----- ------ --------
Cash (used in)/generated by operations (7.9) 151.1
Income taxes received/(paid) 11.6 (15.3)
Interest paid (13.5) (12.7)
Acquisition costs 4 - (0.3)
--------------------------------------------------------------- ----- ------ --------
Net cash (outflow)/inflow from operating
activities (9.8) 122.8
--------------------------------------------------------------- ----- ------ --------
Investing activities
Interest received 0.2 0.1
Purchase of property, plant and equipment (15.8) (14.5)
Dividends received from joint ventures
and associates 0.6 0.6
Purchase of other intangible assets 9 (9.0) (12.4)
Disposals of property, plant and
equipment 1.6 1.0
Disposal of subsidiaries, including
cash disposed (9.7) (1.7)
--------------------------------------------------------------- ----- ------ --------
Net cash outflow from investing activities (32.1) (26.9)
--------------------------------------------------------------- ----- ------ --------
Restated
2018 2017
Notes GBPm GBPm
------------------------------------------- ----- ------ --------
Financing activities
Repayments of obligations under finance
leases (1.5) (1.6)
Proceeds on issue of share capital - 0.1
Private placement notes repaid and
associate hedges settled (60.2) -
Proceeds from new borrowings 38.3 1.7
Proceeds from re-issue of treasury
shares 3.4 2.4
Purchase of non-controlling interests (3.0) (1.4)
Share buybacks - (24.4)
Equity dividends paid 6 (4.8) (37.4)
Non-controlling interests dividends
paid - (0.1)
Other financing items - 0.4
------------------------------------------- ----- ------ --------
Net cash outflow from financing activities (27.8) (60.3)
------------------------------------------- ----- ------ --------
Net (decrease)/increase in cash and
cash equivalents (69.7) 35.6
Net cash and cash equivalents at
beginning of the year 129.1 93.1
Effect of foreign exchange rate changes 0.4 0.4
Net cash and cash equivalents at
end of the year 59.8 129.1
------------------------------------------- ----- ------ --------
The above statement of consolidated cash flows includes cash
flows from both continuing and discontinued operations.
Reconciliation of net cash flow to 2018 2017
movements in net debt Notes GBPm GBPm
---------------------------------------- ----- ------- -------
Cash drivers
Net (decrease)/increase in cash and
cash equivalents (69.7) 35.6
Increase in bank loans (38.3) (1.7)
Movement in private placement notes
and associated hedges 60.2 -
Decrease in finance leases 1.5 1.2
Non-cash drivers
Non-cash movement in bank loans (0.7) -
Non-cash movement in private placement
notes and associated hedges 0.3 (4.4)
Effect of foreign exchange rate changes 0.4 0.4
(Increase)/decrease in net debt during
the year (46.3) 31.1
Opening net debt (147.2) (178.3)
---------------------------------------- ----- ------- -------
Closing net debt 16 (193.5) (147.2)
---------------------------------------- ----- ------- -------
Notes to the consolidated financial statements
For the year ended 31 March 2018
1. Basis of preparation and significant accounting
policies
The financial information presented in this preliminary
announcement has been extracted from the Group's Annual Report
& Accounts for the year ended 31(st) March 2018 and is prepared
in accordance with the recognition and measurement requirements of
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB") and as
adopted by the EU and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. With the exception of
IFRS 15 Revenue from contracts with customers, the details of which
are presented in note 1 the principal accounting policies adopted
in the preparation of the financial information in this preliminary
announcement are unchanged from those used in the company's
financial statements for the year ended 31 March 2017 and are
consistent with those that the company has applied in its financial
statements for the year ended 31 March 2018.
The financial information set out above does not constitute the
company's statutory accounts for the current or prior year.
Statutory accounts for the years ended 31 March 2018 and 31 March
2017 have been reported on by the Independent Auditors. The
Independent Auditors' Report on the Annual Report and Financial
Statements for the year ended 31 March 2018 was qualified on the
basis that the Financial Statements do not agree with the
requirement contained in IAS 1 to present a third balance sheet for
the year-ended 31 March 2016. The Directors consider that it is not
appropriate or meaningful to attempt to quantify or represent the
financial impact of any line item reclassification adjustment that
may have arisen from this re-presentation to the income statement
for the year ended 31 March 2017. Notwithstanding the foregoing, as
described in the prior year restatement note below, had these
adjustments been presented in accordance with IAS 1, they would
have had no impact on the reported net assets for the year ended 31
March 2016 or the reported loss for the year ended 31 March 2017.
The independent auditors report for the year ended 31 March 2017
was unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006.
Statutory accounts for the year ended 31 March 2017 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 March 2018 will be delivered to the Registrar
following the company's AGM.
(a) Basis of preparation
The Group's financial statements for the year ended 31 March
2018 have been prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted for use in the European
Union.
The Group's financial statements have been prepared on the
historical cost basis, except for certain financial instruments
which are required to be measured at fair value.
Whilst the Property Management business was previously
classified as a discontinued operation in the FY2018 Half Year
Report, there are no active sales processes at year end and hence
it is no longer classified as a discontinued operation.
Prior year restatement
The prior year comparatives have been restated due to an
accounting error in respect of an under accrual of costs with a
corresponding increase in accrued income and revenue. The impact on
the prior year balance sheet is an increase in accruals and accrued
income of GBP14.6m and a decrease in revenue and costs of sales of
GBP2.9m within the income statement. The Directors recognise that
the under accrual of costs and understatement of accrued income may
also be apparent in the 2016 balance sheet. However as disclosed in
the 2017 accounts, an extensive review was undertaken, which led to
both prior year adjustments to 2016 and material adjustments being
recognised in 2017 arising from changes to accounting
estimates.
In addition, as a result of the 2016 financial statements being
subject to judgements and estimates made by the then Directors at
that time, the current Directors consider it is not appropriate or
meaningful to attempt to quantify or represent any errors, and as a
result the balance sheet for the year ended 31 March 2016 has not
been represented. Notwithstanding this, management note that any
error of the nature identified, were it present in the year ended
31 March 2016, would not have any impact on closing net assets for
that year nor would it have any impact on the reported loss for the
year ended 31 March 2017.
Going concern
The Directors have concluded that whilst the Group is in a net
current liability position at year end, it has adequate financial
resources to continue in operation for the foreseeable future and
can prepare its financial statements on a going concern basis. The
Directors have considered the future prospects and performance of
the Group including: the future business plans of the Group; the
potential impact of acquisition activity and possible changes to
the composition of the Group; the projected future cash flows of
the Group; the availability of core and ancillary financing
facilities and compliance with related covenants; the projected
drawn positions and headroom available on the core committed
financing facilities.
Accounting standards that are newly effective in the current
year
The accounting policies adopted in the preparation of the
financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year
ended 31 March 2017 except for the following amendments, which were
effective for the first time in the current year but had no impact
on the results or financial position of the Group:
-- Amendments to IAS 12 'Income taxes'- clarification of
requirements on recognition of deferred tax assets for unrealised
losses on debt instrument financial assets measured at fair
value;
-- Amendments to IAS 7 'Cash flow statements' - disclosure
initiative; and
-- Amendments resulting from annual improvements to IFRSs
2014-2016 cycle.
The Group has early adopted IFRS 15 'Revenue from contracts with
customers'. The impacts of adopting the new accounting standard are
detailed below.
Accounting standards that are not yet mandatory and have not
been applied by the Group
The following standards and interpretations have been issued but
are not yet mandatorily effective (and in some cases have not yet
been adopted by the EU) and have not been applied by the Group:
-- IFRS 9 'Financial instruments';
-- IFRS 16 'Leases';
-- IFRS 17 'Insurance contracts';
-- Amendments to IFRS 2 'Share-based payment' - classification
and measurement of share-based payment transactions;
-- IFRIC 22 'Foreign currency transactions and advance
consideration';
-- IFRIC 23 'Uncertainty over income tax treatments';
-- Amendments to IFRS 9 'Prepayment features with negative
compensation';
-- Amendments to IAS 28 'Long-term interests in associates and
joint ventures'; and
-- Annual improvements to IFRS's 2015-2017 cycle.
The Directors have considered the impact of IFRS 9 and IFRS 16
as noted below. The Directors do not expect that the adoption of
the other standards listed above will have a material impact on the
financial statements of the Group in future periods.
-- IFRS 9 'Financial instruments' is effective for the Group
starting 1 April 2018 and replaces the current requirements of IAS
39 'Financial instruments: recognition and measurement'. The main
changes introduced by the new standard are new classification and
measurement requirements for certain financial assets, a new
expected loss model for the impairment of financial assets,
revisions to the hedge accounting model, and amendments to
disclosures. The changes are generally to be applied
retrospectively. Given the nature of the financial assets and
liabilities currently held by the Group and its hedging
arrangements, the changes are not expected to have a significant
impact on the financial statements.
IFRS 16 'Leases' will be effective for the Group starting 1
April 2019 and will replace the current requirements IAS 17
'Leases'. An asset for the right to use the leased item and a
liability for future lease payments will be recognised for all
leases, subject to limited exemptions for short-term leases and
low-value lease assets. The costs of leases will be recognised in
the income statement split between depreciation of the lease asset
and a finance charge on the lease liability. This is similar to the
existing accounting for finance leases, but substantively different
to the existing accounting for operating leases under which no
lease asset or lease liability is recognised and rentals payable
are charged to the income statement on a straight-line basis.
Following the early adoption of IFRS 15, the Group is currently
considering the adoption date for IFRS 16 and is continuing its
assessment of the impact that the application of the standard will
have on the Group's financial statements. It remains too early to
fully determine the impact on the Group's financial statements as
this will be influenced by the composition of the lease portfolio
and the relevant discount rates at the date of adoption. Beyond the
information above, it is not practicable to provide a reasonable
estimate of the effect of IFRS 16 until a detailed review has been
completed.
Early adoption of IFRS 15
The Group decided to early adopt IFRS 15 'Revenue from contracts
with customers', with a date of initial application of 1 April
2017. As a result, the Group has changed its accounting policies
and updated its internal processes and controls relating to revenue
recognition.
The Group has applied IFRS 15 using the cumulative effect method
- i.e. by recognising the cumulative effect of initially applying
IFRS 15 as an adjustment to the opening balance of equity at 1
April 2017, calculated only for those contracts that were not
completed as at
1 April 2017. Therefore, the comparative information has not
been restated and continues to be reported under IAS 18 'Revenue'
and IAS 11 'Construction contracts'.
IFRS 15 provides a single, principles based five-step model to
be applied to all sales contracts as outlined below. It is based on
the transfer of control of goods and services to customers and
replaces the separate models for goods, services and construction
contracts.
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognise revenue when or as the entity satisfies its performance obligations
Set out below is the revenue recognition policy under IFRS 15
and the five-step model together with the impact of adopting the
standard.
Revenue recognition policy under IFRS 15
The Group operates contracts with a varying degree of complexity
across its service lines so accordingly, a range of methods are
used for the recognition of revenue based on the principles set out
in IFRS 15. Revenue represents income recognised in respect of
services provided during the period based on the delivery of
performance obligations and an assessment of when control is
transferred to the customer.
Step 1 - Identify the contract(s) with a customer
For all contracts with customers, the Group determines if the
arrangement creates enforceable rights and obligations. This
assessment results in certain Framework arrangements or Master
Service Agreements (MSAs) not meeting the definition of a contract
under IFRS 15 unless it specifies the minimum quantities to be
ordered. Usually the work order and any change orders together with
the Framework or MSA will constitute the IFRS 15 contract.
Duration of contract
The Group frequently enters into contracts with customers which
contain extension periods at the end of the initial term, automatic
annual renewals, and/or termination for convenience and break
clauses that could impact the actual duration of the contract. As
the term of the contract impacts the period over which amortisation
of contract assets and revenue from performance obligations may be
recognised, the Group applies judgement to assess the impact that
such clauses have in determining the relevant contract term. In
forming this judgement, management considers certain influencing
factors including the amount of discount provided, the presence of
significant termination penalties in the contract, and the
relationship, experience and performance of contract delivery with
the customer and/or the wider industry, in understanding the
likelihood of extension or termination of the contract.
Contract modifications
The Group's contracts are frequently amended for changes to
customer requirements such as change orders and variations. A
contract modification takes place when the amendment creates new
enforceable rights and obligations or changes the existing price or
scope (or both) of the contract, and the modification has been
approved. Contract modifications can be approved in writing, by
oral agreement, or implied by customary business practices.
If the parties to the contract have not approved a contract
modification, revenue is recognised in accordance with the existing
contractual terms. If a change in scope has been approved but the
corresponding change in price is still being negotiated, the Group
estimates the change to the total transaction price.
Contract modifications are accounted for as a separate contract
if the contract scope changes due to the addition of distinct goods
or services and the change in contract price reflects the
standalone selling price of the distinct good or service. The facts
and circumstances of any modification are considered in isolation
as these are specific to each contract and may result in different
accounting outcomes.
Step 2 - Identify the performance obligations in the
contract
Performance obligations are the contractual promises by the
Group to transfer distinct goods or services to a customer. For
arrangements with multiple components to be delivered to customers
such as in the Group's integrated facilities management contracts,
the Group applies judgement to consider whether those promised
goods and services are:
i. Distinct and accounted for as separate performance obligations;
ii. Combined with other promised goods or services until a
bundle is identified that is distinct; or
iii. Part of a series of distinct goods and services that are
substantially the same and have the same pattern of transfer over
time i.e. where the customer is deemed to have simultaneously
received and consumed the benefits of the goods or services over
the life of the contract, the Group treats the series as a single
performance obligation.
Step 3 - Determine the transaction price
At contract inception, the total transaction price is
determined, being the amount to which the Group expects to be
entitled and has rights under the current contract. This includes
the fixed price stated in the contract and an assessment of any
variable consideration, up or down, resulting from e.g. discounts,
rebates, service penalties. Variable consideration is typically
estimated based on the expected value method and is only recognised
to the extent it is highly probable that a subsequent change in its
estimate would not result in a significant revenue reversal.
Step 4 - Allocate the transaction price to the performance
obligations in the contract
The Group allocates the total transaction price to the
identified performance obligations based on their relative
stand-alone selling prices. This is predominantly based on an
observable price or a cost plus margin arrangement.
Step 5 - Recognise revenue when or as the entity satisfies its
performance obligations
For each performance obligation, the Group determines if revenue
will be recognised over time or at a point in time. Where revenue
is recognised over time, the Group applies the relevant output or
input revenue recognition method for measuring progress that
faithfully depicts the Group's performance in transferring control
of the goods and services to the customer.
Certain long-term contracts use output methods based upon
surveys of performance completed, appraisals of results achieved,
or milestones reached which allow the Group to recognise revenue on
the basis of direct measurements of the value to the customer of
the goods and services transferred to date relative to the
remaining goods and services under the contract.
Under the input method, measured progress and revenue are
recognised in direct proportion to costs incurred where the
transfer of control is most closely aligned to the Group's efforts
in delivering the service.
Where deemed appropriate, the Group will utilise the practical
expedient within IFRS15, allowing revenue to be recognised at the
amount which the Group has the right to invoice, where that amount
corresponds directly with the value to the customer of the Group's
performance completed to date.
If performance obligations do not meet the criteria to recognise
revenue over time, revenue is recognised at the point in time when
control of the good or service passes to the customer. This may be
at the point of physical delivery of goods and acceptance by a
customer or when the customer obtains control of an asset or
service in a contract with customer-specified acceptance
criteria.
Long-term complex contracts
The Group has a number of long-term complex contracts which are
predominantly integrated facilities management arrangements.
Typically, these contracts involve the provision of multiple
service lines, with a single management team providing an
integrated service. Such contracts tend to be transformational in
nature where the business works with the client to identify and
implement cost saving initiatives across the life of the
contract.
The Group considers the majority of services provided within
integrated facilities management contracts meet the definition of a
series of distinct goods and services that are substantially the
same and have the same pattern of transfer over time. The series
constitutes services provided in distinct time increments (e.g.
monthly or quarterly) and therefore the Group treats the series of
such services as one performance obligation.
The Group also delivers major project-based services under
long-term complex contracts that include performance obligations
under which revenue is recognised over time as value from the
service is transferred to the customer. This may be where the Group
has a legally enforceable right to remuneration for the work
completed to date, or at milestone periods, and therefore revenue
will be recognised in line with the associated transfer of control
or milestone dates.
Repeat service-based contracts (single and bundled
contracts)
The Group operates a number of single or joint-service line
arrangements where repeat services meet the definition of a series
of distinct services that are substantially the same (e.g. the
provision of cleaning, security, catering, waste, and landscaping
services). They have the same pattern of transfer of value to the
customer as the series constitutes core services provided in
distinct time increments (e.g. monthly or quarterly). The Group
therefore treats the series of such services as one performance
obligation.
Short-term service-based arrangements
The Group delivers a range of other short-term service based
performance obligations and professional services work across
certain reporting segments for which revenue is recognised at the
point in time when control of the service has transferred to the
customer. This may be at the point when the customer obtains
control of the service in a contract with customer-specified
acceptance criteria e.g. the delivery of a strategic operating
model or report.
Sales of goods are recognised when goods are delivered and
control has passed to the customer.
Other revenue
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset's net carrying amount.
Contract assets
Pre-contract costs
The Group incurs pre-contract expenses (e.g. legal costs) when
it is expected to enter into a new contract. The incremental costs
to obtain a contract with a customer are recognised within contract
assets if it is expected that those costs will be recoverable.
Costs to obtain a contract that would have been incurred regardless
of whether the contract was obtained are recognised as an expense
in the period.
Contract fulfilment costs
Costs incurred to ensure that the project or programme has
appropriate organisational, operational and technical
infrastructures, and mechanisms in place to enable the delivery of
full services under the contract target operating model, are
defined as contract fulfilment costs. Only costs which meet all
three of the criteria below are included within contract assets on
the balance sheet:
i. the costs directly relate to the contract (e.g. direct labour, materials, sub-contrators);
ii. the Group is building an asset that belongs to the customer
that will subsequently be used to deliver contract outcomes;
and
iii. the costs are expected to be recoverable i.e. the contract
is expected to be profitable after amortising the capitalised
costs.
Contract fulfilment costs covered within the scope of another
accounting standard, such as inventories, intangible assets, or
property, plant and equipment are not capitalised as contract
fulfilment assets but are treated according to the other
standard.
Amortisation and impairment of contract assets
The Group amortises contract assets (pre-contract costs and
contract fulfilment costs) on a systematic basis that is consistent
with the entity's transfer of the related goods or services to the
customer. The expense is recognised in profit or loss in the
period.
A capitalised pre-contract cost or contract fulfilment cost is
derecognised either when it is disposed of or when no further
economic benefits are expected to flow from its use or
disposal.
The Group is required to determine the recoverability of
contract related assets at each reporting date. An impairment
exists if the carrying amount of any asset exceeds the amount of
consideration the entity expects to receive in exchange for
providing the associated goods and services, less the remaining
costs that relate directly to providing those goods and services
under the relevant contract. In determining the estimated amount of
consideration, the Group uses the same principles as it does to
determine the contract transaction price which includes estimates
around variable consideration. An impairment is recognised
immediately where such losses are forecast.
Accrued income and deferred income
The Group's customer contracts include a diverse range of
payment schedules which are often agreed at the inception of
long-term contracts under which it receives payments throughout the
term of the arrangement. Payments for goods and services
transferred at a point in time may be at the delivery date, in
arrears or part payment in advance.
Where revenue recognised at the period end date is more than
amounts invoiced, the Group records accrued income for the
difference. Where revenue recognised at the period end date is less
than amounts invoiced, the Group recognises deferred income for the
difference.
Certain arrangements with customers include a contractual
obligation to make redundancies for which the Group is reimbursed
for the costs incurred. Revenue is not recognised on these
transactions. Instead, the Group expenses all redundancy costs in
the period they are incurred and any reimbursement credit is
matched against the associated cost included in the income
statement up to the value of the redundancy cost incurred. Any cash
payments received from the customer in excess of the reimbursement
cost of redundancy are deferred over the contract term and unwound
in line with the other services being delivered.
Where price step-downs are required in a contract and output is
not decreasing, revenue is deferred from initial years to
subsequent years in order for revenue to be recognised on a
consistent basis.
Providing the option for a customer to obtain extension periods
or other services at a significant discount may lead to a separate
performance obligation where a material right exists. Where this is
the case, the Group allocates part of the transaction price from
the original contract to deferred income which is then amortised
over the discounted extension period or recognised immediately when
the extension right expires.
The following disclosures show the impact of the adoption of
IFRS 15 on the Group's primary financial statements.
Consolidated balance
sheet
As at 31 March IFRS 15 adjustments
2018 GBPm
-------------------------- --------- --------------------------------------------- ---------
Balances
without
adoption
of
As IFRS Restated
reported 15 2017(1,2)
GBPm A B C D E F G GBPm GBPm
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Non-current assets
Goodwill 309.6 - - - - - - - 309.6 343.9
Other intangible
assets 38.3 - - - 1.0 - - - 39.3 53.2
Property, plant
and equipment 33.6 - - - 0.2 - - - 33.8 32.3
Interest in joint
ventures and associates 0.8 - - - - - - - 0.8 0.6
Derivative financial
instruments 6.1 - - - - - - - 6.1 -
Trade and other
receivables - 18.2 8.6 - - - - - 26.8 50.3
Contract assets 1.8 - - - (1.8) - - - - -
Deferred tax assets 36.7 - - - - - - (19.0) 17.7 22.2
Total non-current
assets 426.9 18.2 8.6 - (0.6) - - (19.0) 434.1 502.5
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Current assets
Inventories 6.9 - - - - - - - 6.9 6.8
Trade and other
receivables 386.0 20.0 11.9 (0.2) - 31.1 - - 448.8 395.6
Contract assets 0.4 - - - (0.4) - - - - -
Derivative financial
instruments - - - - - - - - - 35.8
Current tax assets 6.3 - - - - - - (2.8) 3.5 12.1
Cash and cash equivalents 59.8 - - - - - - - 59.8 129.1
Total current assets 459.4 20.0 11.9 (0.2) (0.4) 31.1 - (2.8) 519.0 579.4
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
-
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Total assets 886.3 38.2 20.5 (0.2) (1.0) 31.1 - (21.8) 953.1 1,081.9
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Current liabilities
Trade and other
payables (496.8) (0.7) - (38.0) - - 0.7 - (534.8) (574.5)
Deferred income (46.2) - - 46.2 - - - - - -
Financing liabilities (0.8) - - - - - - - (0.8) (310.8)
Provisions (25.2) - - - - - - - (25.2) (20.4)
Total current liabilities (569.0) (0.7) - 8.2 - - 0.7 - (560.8) (905.7)
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Net current liabilities (109.6) 19.3 11.9 8.0 (0.4) 31.1 0.7 (2.8) (41.8) (326.3)
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Non-current liabilities
Trade and other
payables - - - - - - - - - (3.4)
Deferred income (18.8) - - 18.8 - - - - - -
Financing liabilities (258.6) - - - - - - - (258.6) (1.3)
Provisions (6.3) - - - - - - - (6.3) (6.4)
Retirement benefit
liabilities (56.8) - - - - - - - (56.8) (74.2)
Deferred tax liabilities (0.8) - - - - - - - (0.8) (1.1)
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Total non-current
liabilities (341.3) - - 18.8 - - - - (322.5) (86.4)
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Total liabilities (910.3) (0.7) - 27.0 - - 0.7 - (883.3) (992.1)
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Net (liabilities)/assets (24.0) 37.5 20.5 26.8 (1.0) 31.1 0.7 (21.8) 69.8 89.8
-------------------------- --------- ----- ---- ------ ----- ---- --- ------ --------- ----------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated.
2. The Group has restated 2017 income statement and balance
sheet as per Note 1.
Consolidated income
statement
For the year ended IFRS 15 adjustments
31 March 2018 GBPm
------------------------ --------- ---------------------------------------------- --------- ----------
Balances
without
adoption
of
As IFRS Restated
reported 15 2017(1,2)
GBPm A B C D E F G GBPm GBPm
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Continuing operations
Revenue 2,203.7 (7.6) 0.6 (3.1) - 6.1 (0.6) - 2,199.1 2,123.4
Cost of sales (1,894.8) - (8.6) (0.5) (1.0) (1.5) (0.2) - (1,906.6) (1,893.6)
Administrative
expenses (220.1) - 3.6 0.3 - - - - (216.2) (236.7)
Share of profit
of joint venture
and associates 0.8 - - - - - - - 0.8 0.6
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Operating profit/(loss)
before other items 89.6 (7.6) (4.4) (3.3) (1.0) 4.6 (0.8) - 77.1 (6.3)
Other items (97.9) (5.1) - - - - - - (103.0) (36.6)
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Operating profit/(loss)
after other items (8.3) (12.7) (4.4) (3.3) (1.0) 4.6 (0.8) - (25.9) (42.9)
Net finance costs (16.4) - - - - - - - (16.4) (15.3)
Tax (1.3) - - - - - - 3.2 1.9 7.4
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Total from continuing
operations (26.0) (12.7) (4.4) (3.3) (1.0) 4.6 (0.8) 3.2 (40.4) (50.8)
Total from discontinued
operations - - - - - - - - - (132.4)
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Loss for the year (26.0) (12.7) (4.4) (3.3) (1.0) 4.6 (0.8) 3.2 (40.4) (183.2)
------------------------ --------- ------ ----- ----- ----- ----- ----- --- --------- ----------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated.
2. The Group has restated 2017 income statement and balance
sheet as per Note 1.
The following table details the impact on net assets as at 1
April 2017 and on the revenue and loss for the year recognised for
the year ended 31 March 2018, as a result of the adoption of IFRS
15:
Loss
for the
Net assets Revenue year
GBPm GBPm GBPm
----------------------------------- ---------- ------- --------
Balances without adoption of IFRS
15 89.8 2,199.1 (40.4)
IFRS 15 adjustments:
A - POC accounting (50.2) 7.6 12.7
B - Mobilisation assets (24.9) (0.6) 4.4
C - Design and development and
other upfront fees (30.1) 3.1 3.3
D - Contract assets - - 1.0
E - Work in progress (26.5) (6.1) (4.6)
F - Contracted discounts including
extension discounts (1.5) 0.6 0.8
G - Tax 25.0 - (3.2)
----------------------------------- ---------- ------- --------
As reported total (18.4) 2,203.7 (26.0)
----------------------------------- ---------- ------- --------
Adjustment A - POC accounting
IFRS 15 introduces the concept of performance obligations which
are the contractual promises by an entity to transfer goods or
services to a customer. Under IFRS 15, revenue is recognised on a
contract specific basis and in line with the satisfaction of
performance obligations. This is a change from the Group's previous
accounting policy and the use of a percentage of completion model
to measure the proportion of contract costs incurred for work
performed to date compared to the total estimated contract costs.
Percentage of completion accounting does not provide an appropriate
representation of the satisfaction of performance obligations on
these long-term complex contracts and consequently, is no longer
applied.
The impact of this is a decrease in reserves of GBP50.2m to
derecognise the percentage of completion asset held as accrued
income on long-term complex contracts at 1 April 2017 and a
GBP12.7m credit to the loss for the year ended 31 March 2018
comprising GBP7.6m to reverse the unwind of the asset movement, and
GBP5.1m to reverse a percentage of completion asset write-off
included within other items. The reversal of the asset write-off
follows the net impact of a write-off of GBP6.6m in relation to the
loss of two contracts which was offset by a GBP1.5m credit to
reinstate a previously written off asset. These balances, which
were presented in Other Items, would not have been recognised under
IFRS 15 as percentage of completion accounting would not have been
applied.
Adjustment B - Mobilisation assets
IFRS 15 specifies that certain costs to fulfil a contract are to
be capitalised as contract assets if relevant criteria are met. The
Group has determined that the existing mobilisation asset, whilst
appropriate under the previous accounting standard, does not meet
the more stringent criteria under IFRS 15.
The Group has therefore derecognised the asset (including
GBP3.9m recognised in prepayments within trade and other
receivables) as at 1 April 2017 leading to a decrease in reserves
of GBP24.9m.
The adjustment to the loss for the year ended 31 March 2018 is a
credit of GBP4.4m to reverse additions and write back amortisation
on the mobilisation balance written off.
Adjustment C - Design and development and other upfront fees
On certain contracts, the Group receives upfront, non-refundable
payments from the customer to cover significant costs incurred by
the Group during the initial phase of the contract. Under IFRS 15,
costs incurred from these transition and mobilisation activities,
which are more than administrative in nature, are assessed to
determine whether they form a separate performance obligation.
Where such costs do not form a separate performance obligation
under the contract, any upfront payments received from the customer
are allocated to the performance obligations of the contract,
deferred and recognised over the life of the other services.
The Group has determined that GBP30.1m of revenue previously
recognised should be presented as deferred income at 1 April 2017
leading to a decrease in reserves by the same amount. The
adjustment to the loss for the year ended 31 March 2018 is a
GBP3.3m credit following the rephasing of upfront payments.
Following the adoption of IFRS 15, the Group has presented
deferred income from contracts with customers separately on the
balance sheet. The balance of pre-IFRS 15 current deferred income
amounting to GBP46.2m has been reclassified as a result.
Adjustment D - Contract assets
IFRS 15 specifies that certain costs to fulfil a contract are to
be capitalised as contract assets if relevant criteria are met. The
Group capitalised a balance of GBP1.2m during the year ended 31
March 2018 (comprising GBP1.0m and GBP0.2m that would otherwise
have been recorded in other intangible assets and property, plant
and equipment respectively) that related to resources to allow it
to deliver services under its contracts for which control had
passed to the customer on installation. This amount has been
recognised on the balance sheet as an addition to contract assets
under IFRS 15.
During the year ended 31 March 2018, the Group capitalised costs
of GBP1.0m that were previously expensed and which relate to assets
to be used to deliver future contract outcomes.
Adjustment E - Work in progress
Under IFRS 15, revenue is only recognised when control has
passed to a customer and it can be reliably measured. Income which
was previously recognised under IAS 11 and IAS 18 has been
remeasured against the more stringent criteria in IFRS 15,
resulting in an amount being derecognised where it cannot be
reliably measured.
The Group has therefore derecognised the asset held on balance
sheet within accrued income leading to a reduction in reserves of
GBP26.5m at 1 April 2017. The impact to the loss for the year ended
31 March 2018 is a debit of GBP4.6m.
Adjustment F - Contracted discounts including extension
discounts
Where a contract provides the option for a customer to obtain an
extension period at a significant discount, this may lead to a
separate performance obligation where a material right exists. If a
separate performance obligation exists then there would be an
allocation of the transaction price from the original contract
through the option period. A balance is therefore adjusted in
reserves and recognised in deferred income with the unwind
recognised over the extension period (or immediately if the option
expires).
The Group has recorded a reduction of GBP1.5m in reserves at 1
April 2017 to reflect the material right with the balance
recognised in deferred income, which will be unwound as future
services are delivered. The impact to the loss for the year ended
31 March 2018 is a credit of GBP0.8m.
Adjustment G - Tax
Due to the changes in the pattern and timing of revenue
recognition under IFRS 15, an additional deferred income liability
is recognised on the balance sheet from 1 April 2017, via a charge
to the opening balance of equity at 1 April 2017. Further, certain
assets previously held in accrued income and recognised through the
income statement in earlier periods have been derecognised from
1 April 2017, again via a charge to the opening balance of
equity at 1 April 2017.
A tax deduction is available at 1 April 2017 for the one-off
transitional adjustments recognised in opening equity. This tax
deduction gives rise to tax losses at 1 April 2017, creating a
deductible temporary difference for which a deferred tax asset of
GBP25.0m is recognised at 1 April 2017, leading to an increase in
reserves by the same amount. The tax impact of the IFRS 15 impacts
on the loss for the year ended 31 March 2018 is a charge of
GBP3.2m, of which GBP1.0m arises on the adjustment to other
items.
b) Significant accounting policies
The significant accounting policies adopted in the preparation
of the Group's IFRS financial information are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of Mitie Group plc and all its subsidiaries.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group. The
results, assets and liabilities of joint ventures and associates
are accounted for under the equity method of accounting. Where
necessary, adjustments are made to the financial statements of
subsidiaries, joint ventures and associates to bring the accounting
policies used into line with those used by the Group.
All inter-company balances and transactions, including
unrealised profits arising from inter-group transactions, have been
eliminated
in full.
Interests of non-controlling interest shareholders are measured
at the non-controlling interest's proportion of the net fair value
of the assets and liabilities recognised. Changes in a parent's
ownership interest in a subsidiary that do not result in a loss of
control are accounted for within shareholders' equity. No gain or
loss is recognised on such transactions and goodwill is not
re-measured. Any difference between the change in the
non-controlling interest and the fair value of the consideration
paid or received is recognised directly in equity and attributed to
the equity holders of the parent.
Statutory and non-statutory measures of performance
The financial statements contain all the information and
disclosures required by the relevant accounting standards and
regulatory obligations that apply to the Group.
In the financial statements the Group has elected to provide
some further disclosures and performance measures, reported as
'before other items', in order to present its financial results in
a way that demonstrates the performance of continuing operations
excluding the results from restructuring and acquisition related
costs, and the amortisation or write-off of acquired intangible
assets and goodwill. Results before other items is a non-statutory
measure.
'Other items' are defined as items of income or expenditure
which, in the opinion of the Directors, are material or unusual in
nature or of such significance that they require separate
disclosure on the face of the income statement in accordance with
IAS 1 'Presentation of financial statements'. Should these items be
reversed disclosure of this would also be as other items.
Separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the
period and the extent to which results are influenced by material
unusual and/or non-recurring items.
Further detail of other items is set out in Note 4 to the
financial statements.
In addition, following the guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authorities (ESMA), the Group has included an APM appendix to the
financial statements in Appendix 1. These APMs are measures which
disclose the adjusted performance of the Group without the adoption
of IFRS 15 and excluding specific items which are regarded as
non-recurring. The Directors believe that these are useful for
users of the financial statements in helping to provide a balanced
view of, and relevant information on, the Group's financial
performance as the Group has applied IFRS 15 in the 2018 financial
statements using the cumulative effect method through an adjustment
to the opening balance of equity as 1 April 2017 and not restating
the comparative information for the 2017 financial year and there
were a number of significant restatements recorded in the 2017
financial statements.
Foreign currency
The financial statements of each of the Group's businesses are
prepared in the functional currency applicable to that business.
Transactions in currencies other than the functional currency are
recorded at the rate of exchange at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
at the balance sheet date are reported at the rates of exchange
prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
the income statement for the period. Exchange differences arising
on the retranslation of non-monetary items carried at fair value
are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange component of that
gain or loss is also recognised directly in equity.
On consolidation, the assets and liabilities of the Group's
overseas operations, including goodwill and fair value adjustments
arising on their acquisition, are translated into sterling at
exchange rates prevailing at the balance sheet date. Income and
expenses are translated into sterling at average exchange rates for
the period. Exchange differences arising are recognised directly in
equity in the Group's hedging and translation reserve. On disposal
of a foreign operation, the deferred cumulative amount recognised
in equity relating to that particular foreign operation is
recognised in the income statement.
Finance costs
Finance costs consist of interest and other costs that are
incurred in connection with the borrowing of funds. Finance costs
are recognised in the income statement in the period in which they
are incurred, with the finance charges relating to the direct cost
of debt issue spread over the period to redemption using the
effective interest method.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
is realised, based upon tax rates and legislation that have been
enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities; or when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree.
Acquisition costs incurred are expensed. The acquiree identifiable
assets, liabilities and contingent liabilities that meet the
conditions for recognition are recognised at their fair value at
the acquisition date, except for non-current assets (or disposal
groups) that are classified as held for resale in accordance with
IFRS 5 'Non-current assets held for sale and discontinued
operations', which are recognised and measured at fair value less
costs to sell.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquired identifiable assets,
liabilities and contingent liabilities exceeds the cost of the
business combination, the excess is recognised immediately in the
income statement.
Where applicable, the consideration for an acquisition includes
any assets or liabilities resulting from a contingent consideration
arrangement, measured at fair value at the acquisition date.
Subsequent changes in such fair values are adjusted against the
cost of acquisition where they result from additional information,
obtained within one year from the acquisition date, about facts and
circumstances that existed at the acquisition date. All other
subsequent changes in the fair value of contingent consideration
classified as an asset or liability are recognised in accordance
with IAS 39, either in the income statement or as a change to other
comprehensive income. Changes in the fair value of contingent
consideration classified as equity are not recognised.
Any business combinations prior to 1 April 2010 were accounted
for using the standards in place prior to the adoption of
IFRS 3 (revised 2008) which differ in the following respects:
transaction costs directly attributable to the acquisition formed
part of the acquisition costs; contingent consideration was
recognised if, and only if, the Group had a present obligation, the
economic outflow was more likely than not and a reliable estimate
was determinable; and subsequent adjustments to the contingent
consideration were recognised as part of goodwill.
Changes in the Group's ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
Group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is
recognised in profit or loss and is calculated as the difference
between: (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest; and (ii) the
previous carrying amount of the assets (including goodwill) and
liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognised in other comprehensive income in
relation to that subsidiary are accounted for as if the Group had
directly disposed of the related assets or liabilities of the
subsidiary i.e. reclassified to profit or loss or transferred to
another category of equity as specified/permitted by applicable
IFRSs. The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair
value on initial recognition for subsequent accounting under IAS
39, when applicable, of an investment in an associate or a joint
venture.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group's interest in the fair value
of the identifiable assets and liabilities of a subsidiary at
the date of acquisition.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less accumulated impairment losses.
It is reviewed for impairment at least annually. Any impairment is
recognised immediately in the income statement for the period and
is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to
each of the Group's cash-generating units (CGUs) expected to
benefit from the synergies of the combination. CGUs to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the CGU is less than the
carrying amount of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro-rata on the basis of
the carrying amount of each asset in the unit. On disposal of a
subsidiary the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment in value. Depreciation is charged
so as to write off the cost less expected residual value of the
assets over their estimated useful lives and is calculated on a
straight-line basis as follows:
Freehold buildings and long
leasehold property 50 years
--------------------------- -------------------
Leasehold improvements period of the lease
--------------------------- -------------------
Plant and vehicles 3-10 years
--------------------------- -------------------
The Group reviews the carrying amounts of its tangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of any impairment loss. Where the asset does not
generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the CGU to which the
asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the
asset
(or CGU) is reduced to its recoverable amount. An impairment
loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or
CGU) in prior years. A reversal of an impairment loss is recognised
as income immediately.
Intangible assets
Intangible assets identified in a business acquisition are
capitalised at fair value as at the date of acquisition.
Customer relationships are amortised over their useful lives
based on the period of time over which they are anticipated to
generate benefits. These currently range from four to eight
years.
Software and development expenditure is capitalised as an
intangible asset if the asset created can be identified, if it is
probable that the asset created will generate future economic
benefits and if the development cost of the asset can be measured
reliably.
Other acquisition related intangibles include acquired software
and technology which are amortised over their useful lives which
currently range from three to ten years. Software and development
costs includes internally generated intangible assets and are
amortised over their useful lives of between five and ten years,
once they have been brought into use.
Following initial recognition, the carrying amount of an
intangible asset is its cost less any accumulated amortisation and
any accumulated impairment losses. Intangible assets are reviewed
for impairment annually, or more frequently when there is an
indication that they may be impaired. Amortisation expense is
charged to administrative expenses in the income statement on a
straight-line basis over its useful life.
Joint ventures and associates
The Group has an interest in joint ventures which are entities
in which the Group has joint control. The Group also has an
interest in associates which are entities in which the Group has
significant influence.
The Group accounts for its interest in joint ventures and
associates using the equity method. Under the equity method the
Group's share of the post-tax result of joint ventures and
associates is reported as a single line item in the consolidated
income statement. The Group's interest in joint ventures and
associates is carried in the consolidated balance sheet at cost
plus post-acquisition changes in the Group's share of net
assets.
Inventories
Inventories are stated at the lower of cost and net realisable
value.
Costs represent materials, direct labour and overheads incurred
in bringing the inventories to their present condition and
location. Net realisable value is based on estimated selling price
less further costs expected to be incurred to completion and
estimated selling costs. Provision is made for obsolete, slow
moving or defective items where appropriate.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument. The Group derecognises
financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Assets that are assessed not to be individually impaired are
subsequently assessed for impairment on a collective basis.
Objective evidence of impairment for a portfolio of receivables
includes the Group's past experience of collecting payments, the
number of delayed payments in the portfolio past the average credit
period as well as observable changes in national or local economic
conditions that correlate with default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly with the exception of trade receivables
where the carrying amount is reduced through the use of an
allowance account. When a trade receivable is considered
uncollectable, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in the income
statement.
Financial assets comprise loans and receivables and are measured
at initial recognition at fair value and subsequently at amortised
cost. Appropriate allowances for estimated irrecoverable amounts
are recognised where there is objective evidence that the asset is
impaired. Cash and cash equivalents comprise cash in hand, demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
The Group uses a non-recourse customer invoice discounting
facility under which certain trade receivable balances are sold to
the Group's relationship banks. The trade receivables are sold
without recourse to the Group, and therefore the trade receivable
balance is derecognised.
Financial liabilities comprise trade payables, financing
liabilities, bank and other borrowings, and deferred contingent
consideration. These are measured at initial recognition at fair
value and subsequently at amortised cost with the exception of
derivative financial instruments which are measured at fair value,
and deferred contingent consideration which is measured at the
Directors' best estimate of the likely future obligation. Bank and
other borrowings are stated at the amount of the net proceeds after
deduction of transaction costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are
accounted for on an accruals basis in the income statement.
Included within the Group's trade creditors balance are amounts
relating to payments due to UK suppliers who make use of bank
provided supply chain finance arrangements to allow supplier early
payment. Amounts are settled in accordance with each suppliers'
normal payments terms and payments continue to be classified within
cash generated by operations. The Group does not receive any
additional guarantees and does not pay any interest in relation to
these amounts.
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, including
cross-currency interest rate swaps and forward foreign exchange
contracts, to manage the Group's exposure to financial risks
associated with interest rates and foreign exchange. Derivative
financial instruments are initially recognised at fair value at the
date the derivative contract is entered into and are subsequently
remeasured to their fair value, determined by reference to market
rates, at each balance sheet date and included as financial assets
or liabilities as appropriate. The resulting gain or loss is
recognised in the income statement immediately unless the
derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in the income statement
depends on the nature of the hedge relationship.
The Group may designate certain hedging instruments including
derivatives as either fair value hedges, cash flow hedges, or
hedges of net investments in foreign operations. Hedges of foreign
exchange risk on firm commitments are accounted for as cash flow
hedges. At the inception of the hedge relationship, the Group
documents the relationship between the hedging instrument and the
hedged item, along with its risk management objectives and its
strategy for undertaking various hedge transactions. Furthermore,
at the inception of the hedge and on an ongoing basis, the Group
documents whether the hedging instrument that is used in a hedging
relationship is highly effective in offsetting changes in fair
values or cash flows of the hedged item.
Fair value hedges
Hedges are classified as fair value hedges when they hedge the
exposure to changes in the fair value of a recognised asset or
liability. Changes in the fair value of derivatives that are
designated and qualify as fair value hedges are recorded in the
income statement immediately, together with any changes in the fair
value of the hedged item that are attributable to the hedged risk.
The change in the fair value of the hedging instrument and the
change in the hedged item attributable to the hedged risk are
recognised in the line of the income statement relating to the
hedged item. Hedge accounting is discontinued when the Group
revokes the hedging relationship, the hedging instrument expires or
is sold, terminated, exercised, or no longer qualifies for hedge
accounting. The fair value adjustment to the carrying amount of the
hedged item arising from the hedged risk is amortised to the income
statement from that date.
Cash flow hedges
Hedges are classified as cash flow hedges when they hedge the
exposure to changes in cash flows that are attributable to a
particular risk associated with either a recognised asset or
liability or a forecast transaction. The effective portion of
changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recognised in other comprehensive
income and accumulated in equity within the Group's translation and
hedging reserve. The gain or loss relating to any ineffective
portion is recognised immediately in the income statement.
Amounts previously recognised in other comprehensive income and
accumulated in equity are reclassified to the income statement in
the periods when the hedged item is recognised in the income
statement, in the same line as the recognised hedged item. However,
when the forecast transaction that is hedged results in the
recognition of a non-financial asset or a non-financial liability,
the gains and losses previously accumulated in equity are
transferred from equity and included in the initial measurement of
the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging
relationship, the hedging instrument expires or is sold,
terminated, exercised, or no longer qualifies for hedge accounting.
Any gain or loss recognised in other comprehensive income at that
time is accumulated in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When
a forecast transaction is no longer expected to occur, the gain or
loss accumulated in equity is recognised immediately in the income
statement.
Hedges of net investments in foreign operations
Hedges are classified as net investment hedges when they hedge
the foreign currency exposure to changes in the Group's share in
the net assets of a foreign operation. Hedges of net investments in
foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the
effective portion of the hedge is recognised in other comprehensive
income and accumulated in the Group's translation and hedging
reserve. The gain or loss relating to any ineffective portion is
recognised immediately in the income statement. Gains or losses on
the hedging instrument relating to the effective portion of the
hedge accumulated in equity are reclassified to the income
statement in the same way as exchange differences relating to the
foreign operation as described above.
Leasing
Finance leases, which transfer to the Group substantially all
the risks and benefits incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of
the leased item or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly to the income
statement.
Capitalised leased assets are depreciated over the shorter of
the estimated life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and
benefits incidental to ownership of the asset are classified as
operating leases. Operating lease payments are recognised as an
expense in the income statement on a straight-line basis over the
lease term. Any lease incentives are amortised on a straight-line
basis over the non-cancellable period for which the Group has
contracted to lease the asset, together with any further terms for
which the Group has the option to continue to lease the asset if,
at the inception of the lease, it is judged to be reasonably
certain that the Group will exercise the option.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event and
it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the
Group expects some or all of a provision to be reimbursed, for
example under an insurance contract, the reimbursement is
recognised as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a borrowing cost.
Onerous contract provisions (OCPs) arise when the unavoidable
costs of meeting contractual obligations exceed the remuneration
expected to be received. Unavoidable costs include total contract
costs together with a rational allocation of shared costs that can
be directly linked to fulfilling contractual obligations which have
been systematically allocated to OCPs on the basis of key cost
drivers except where this is impracticable, where contract revenue
is used as a proxy to activity. The provision is calculated as the
lower of the termination costs payable for an early exit and the
expected net cost to fulfil the Group's unavoidable contract
obligations. Where a customer has an option to extend a contract
and it is likely that such an extension will be made, the expected
net cost arising during the extension period is included within the
calculation. However, where a profit can be reasonably expected in
the extension period, no credit is taken on the basis that such
profits are uncertain given the potential for the customer to
either not extend or offer an extension under lower pricing
terms.
Share-based payments
The Group operates a number of executive and employee share
option schemes. Equity-settled share-based payments to employees
are measured at the fair value of the equity instruments at the
grant date. The fair value excludes the effect of non-market based
vesting conditions. For grants of share options and awards, the
fair value as at the date of grant is calculated using the
Black-Scholes model, Monte Carlo model or the share price at grant
date, and the corresponding expense is recognised on a
straight-line basis over the vesting period based on the Group's
estimate of shares that will eventually vest. At each balance sheet
date, the Group revises its estimate of the number of equity
instruments expected to vest as a result of the effect of
non-market based vesting conditions. Save As You Earn (SAYE)
options are treated as cancelled when employees cease to contribute
to the scheme, resulting in an acceleration of the remainder of the
related expense. Restricted shares are issued attached with a
condition that the relevant recipient continues their employment
with the Group for a fixed vesting period of time. Restrictions
will remain attached to the shares if the recipient leaves
employment with the Group prior to completion of the vesting period
of the shares.
Own shares
Own share relate to shares gifted to the Employee Trust by the
Company. The cash cost of own shares creates an own share reserve.
When options issued by the Employee Trust are exercised the own
share reserve is reduced and a gain or loss is recognised in
reserves based on proceeds less weighted-average cost of shares
initially purchased now exercised.
Included in the own shares reserve are restricted shares which
are issued as part of acquisitions made by the group. The
restricted shares are issued attached with a condition that the
relevant recipient continues their employment with the Group for a
fixed vesting period of time. Restrictions will remain attached to
the shares if the recipient leaves employment with the Group prior
to completion of the vesting period of the shares.
Retirement benefit costs
The Group operates a number of defined contribution retirement
benefit schemes for all qualifying employees. Payments to the
defined contribution and stakeholder pension schemes are charged as
an expense as they fall due.
In addition, the Group operates and participates in a number of
defined benefit schemes. In respect of the schemes in which the
Group participates, the Group accounts for its legal and
constructive obligations over the period of its participation which
is for a fixed period only.
For the defined benefit pension schemes, the cost of providing
benefits is determined using the projected unit credit method, with
actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses on obligations, the return on scheme
assets (excluding interest) and the effect of the asset ceiling (if
applicable) are recognised in full in the period in which they
occur. They are recognised in the statement of comprehensive
income.
Current service cost and past service cost (including
curtailments) are recognised in the income statement, in either
administrative expenses or other items, whilst the net interest
cost is recognised in finance costs.
The retirement benefit liability recognised in the balance sheet
represents the present value of the defined benefit obligation, as
reduced by the fair value of scheme assets. Any asset resulting
from this calculation is limited to the present value of available
refunds and reductions in future contributions to the plan.
The Group participates in four multi-employer pension schemes.
For three of these schemes the Group's share of the assets and
liabilities is minimal. The fourth scheme is the Plumbing &
Mechanical Services (UK) Industry Pension Scheme (the Plumbing
Scheme) a funded multi-employer defined benefit scheme. The
Plumbing Scheme was founded in 1975 and to date has had over 4,000
employers, with circa 400 remaining. The size and complexity of the
Plumbing Scheme has meant the trustee is unable at this time to
identify the assets and liabilities of the scheme which are
attributable to the Group. Consequently, the Group accounts for its
contributions as if they were paid to a defined contribution
scheme.
For schemes where sufficient information is not available to use
defined benefit accounting, no liability is recognised on the
balance sheet, however, the obligations are disclosed as contingent
liabilities in Note 18.
Revenue under IAS 11 and IAS 18 in relation to prior year
Revenue represents income recognised in respect of services
provided during the period (stated net of sales taxes) and is
earned predominantly within the United Kingdom. Revenue is
recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably
measured. When revenue is recognised but has not yet been billed
accrued income arises. Deferred income arises when the Group has
billed clients in advance of recognising revenue.
All bid costs are expensed through the income statement up to
the point where contract award or full recovery of the costs is
virtually certain. The confirmation of the preferred bidder for a
contract by a client is the point at which the award of a contract
is considered to be virtually certain.
Revenue from a contract to provide services is recognised by
reference to the stage of completion of the contract at the balance
sheet date. Revenue from time and material contracts is recognised
at the contractual rates as labour hours and tasks are delivered
and direct expenses incurred. In other cases, the Group
distinguishes between the following types of contract:
Revenue recognition: repeat service-based contracts (single and
bundled contracts)
Revenue is recognised on a straight-line basis unless this is
not an accurate reflection of the work performed. Where a
straight-line basis is not appropriate, for example if specific
works on contracts represent a significant element of the whole,
revenue is recognised based on the percentage of completion method,
based on the proportion of costs incurred at the balance sheet date
relative to the total estimated cost of completing the contracted
work.
Costs incurred, after the confirmation of preferred bidder, that
are specific costs incurred to ensure that the project or programme
has appropriate organisational, operational and technical
infrastructures and mechanisms in place to enable the delivery of
full services under the contract target operating model are defined
as mobilisation costs. These costs are included within trade and
other receivables on the balance sheet provided that the costs
relate directly to the contract, are separately identifiable, can
be measured reliably and that the future net cash inflows from the
contract are estimated to be no less than the amounts
capitalised.
Such costs may be incurred when a contract is awarded, or when
there is a subsequent change in the scope of contracted services.
The mobilisation costs are amortised over the contracted period
(including any contracted extension periods), generally on a
straight-line basis, or on a basis to reflect the profile of work
to be performed over the contracted period if the straight-line
basis is not considered to be appropriate for the specific contract
to which the costs relate. If the contract becomes loss making, any
unamortised costs are written off and the expected loss is provided
for immediately.
Revenue recognition: long-term complex contracts
The Group has a number of long-term contracts for the provision
of complex project-based services, predominantly integrated
facilities management contracts. These are contracts which are
transformational in nature and usually five years in initial
duration.
In this context, transformational means that the cost to the
client over the life of the contract is reduced as a result of
significant transformations in service provision. Typically, these
contracts are priced to average the annual charge to the client
over the contract period and involve the provision of multiple
service lines, with a single management team providing an
integrated service.
Where the outcome of such complex project-based contracts can be
measured reliably, revenue and costs are recognised by reference to
the stage of completion of the contract activity at the balance
sheet date. This is measured by the proportion of contract costs
incurred for work performed to date compared to the total estimated
contract costs using the percentage of completion methodology.
Contract costs used to determine the stage of completion are
recognised in the income statement as expenses in the period in
which they are incurred and include transition costs, which are
similar in nature to mobilisation costs under repeat service-based
contracts. Transition costs are expenses incurred in the
performance of transitioning services provided after confirmation
of preferred bidder and before commencement of full services under
the contract target operating model; no profit margin is recognised
for these transition costs.
Contract costs also include transition costs arising when there
is a subsequent change in the scope of contracted services and
include budgeted cost savings. Where the outcome of a complex
project-based contract cannot be estimated reliably, contract
revenue is recognised to the extent that it is probable that
contract costs will be recovered. Full provision is made for all
known or anticipated losses on each contract immediately as losses
are forecast. In a number of long-term complex contracts, the
achievement of certain key performance indicators (KPIs) is a
significant milestone which enables revenue to be recognised. KPIs
are generally measured contemporaneously with the performance of
the service, rather than being measured over a long period or
retrospectively.
2. Critical accounting judgements and key sources
of estimation uncertainty
The preparation of consolidated financial statements under IFRS
requires management to make judgements, estimates and assumptions
that affect amounts recognised for assets and liabilities at the
reporting date and the amounts of revenue and expenses incurred
during the reporting period. Actual results may differ from these
judgements, estimates and assumptions.
The judgements and estimates which have the most significant
effect on the reported result for the period and upon the carrying
value of assets and liabilities of the Group as at 31 March 2018
are described below.
Revenue recognition
The Group's revenue recognition policies, which are set out
under IFRS 15 in Note 1(a) for the financial year ended 31 March
2018 and under IAS 18 and IAS 11 in Note 1(b) in respect of prior
years, are central to how the Group measures the work it has
performed in each financial year.
The Group's current policy under IFRS 15
Due to the size and complexity of the Group's contracts,
management is required to form a number of key judgements and
assumptions in the determination of the amount of revenue and
profits to record, and related balance sheet items such as contract
assets, accrued income and deferred income to recognise (refer to
Note 1(a)). This includes an assessment of the costs the Group
incurs to deliver the contractual commitments and whether such
costs should be expensed as incurred or capitalised.
In addition, for certain contracts, key assumptions are
made:
i. concerning contract extensions and amendments which, for
example, directly impact the phasing of upfront payments from
customers which are recognised in deferred income and unwound over
the expected contract term; or
ii. where options are granted to customers leading to the recognition of a material right.
These judgements are inherently subjective and may cover future
events such as the achievement of contractual performance targets
and planned cost savings or discounts.
The Group's prior year policy under IAS 18 and IAS 11
The revenue recognised for certain long-term complex
project-based services was based on the stage of completion of the
contract activity. This was measured by comparing the proportion of
costs incurred, which include transition costs reflecting costs
incurred in the performance of transitioning services, against the
estimated whole-life contract costs. This required significant
judgements to be made in forecasting the outcomes of the long-term
contracts.
Particular judgement was required in evaluating the operational
and financial business plans for these contracts to forecast the
expected whole-life contract billings, costs and margin and to
assess the recoverability of any resulting accrued income through
the life of the contract. In forming the judgement around expected
whole-life contract billings, account was taken of potential
deductions from and increments to revenue arising from the
application of performance related measures under contracts.
This required management to apply judgements and estimates that
drew on the knowledge and experience of the Group's project
managers and delivery teams together with the Group's commercial
and finance professionals. Whilst there may have been a broad range
of possible outcomes based on the relevant circumstances of the
individual contract, the Group had controls in place whereby all
significant contracts were reviewed on a monthly basis and
reforecast quarterly.
The amounts recognised as revenue, profit and contract assets
were sensitive to changes in assumptions, for example:
-- Revenue measurement - in line with the Group's revenue
recognition policy for long-term complex contracts, revenue was
recognised on these contracts to the extent that the outcome of the
project could be reliably measured. For long-term complex contracts
this required judgements to be made on which elements of the
contract could be accurately forecast. These contracts would
usually comprise fixed revenue streams, variable works and project
works. Project works were not included as part of a long-term
complex contract on the basis that these amounts were discretionary
and consequently could not be reliably forecast. Therefore, these
projects were accounted for separately. The revenue streams that
could be reliably forecast comprised the fixed elements (for
example for ongoing cleaning and security services) and variable
works.
-- Contract profitability and costs to complete - long-term
complex contracts are transformational in nature and there is a
commitment to work in partnership with the client from the outset
of the contract to drive significant cost savings and efficiencies
throughout the life of the contract. During the mobilisation of a
contract a target operating model is developed. This target
operating model shows how the services that are part of the
contract will be delivered during the contract and is subject to a
continuous review/improvement process throughout the duration of
the contract. The target operating model, cost saving initiatives
identified and revenue pipeline were combined into a financial plan
for the individual contract. Only cost saving initiatives that were
considered to be reasonably certain in terms of timing and scale
were included in the plan. Management's ability to accurately
forecast the costs to complete the contract involved judgements
around cost savings to be achieved over time, anticipated
profitability of the contract, as well as contract specific
performance KPIs. Where a contract was anticipated to make a loss,
these judgements were also relevant in determining whether or not
an onerous contract provision was required and how this was to be
measured.
-- Renegotiation of terms - the Group often entered into
renegotiations of existing contract terms such as the timing or the
specifications of the services to be delivered. Depending on the
outcome of such negotiations, the timing and amount of revenue
recognised may have been different.
-- Recoverability of contract related assets - linked to the
profitability of contracts above, management was also required to
determine the recoverability of contract related assets, accrued
income and accounts receivable. Judgement was required in
determining whether or not the future economic benefits from
contracts were sufficient to recover these contract assets.
Profit before other items
'Other items' are items of financial performance which the Group
believes should be separately identified on the face of the income
statement to assist in understanding the underlying financial
performance achieved by the Group. Determining whether an item
should be classified as Other Items requires judgement as to
whether an item is or is not part of the underlying performance of
the Group.
Other items after tax of GBP87.2m (2017: GBP153.5m) were charged
to the income statement for the year ended 31 March 2018. An
analysis of the amounts included in other items is detailed in Note
4.
Key sources of estimation uncertainty
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units (CGUs) to which
the goodwill has been allocated. The value in use calculation
involves an estimation of the future cash flows of CGUs and also
the selection of appropriate discount rates to calculate the
present values of those cash flows.
The carrying value of goodwill at 31 March 2018 was GBP309.6m
(2017: GBP343.9m); see Note 8. A sensitivity analysis has been
performed and the Board has concluded, with the exception of the
Property Management CGU, that no reasonably foreseeable change in
the key assumptions would result in an impairment of the
goodwill.
Due to a deterioration in market conditions which is expected to
impact the performance of the Property Management CGU further
sensitivity testing was performed. On the basis of this review the
Board concluded that a further impairment of GBP34.6m was required
and this has been recorded during the year as outlined in Note 8.
The impacts of changes in key assumptions underpinning the
assessment of the carrying value of the Property Management
goodwill are set out in Note 8.
Recoverability of aged debtors and accrued income
The Group has material amounts of billed and unbilled work
outstanding at year end as outlined in Note 10 . Where balances
become aged or subject to dispute the risk of recoverability
increases. As a consequence there is significant management
judgement involved in assessing the recoverability of these
balances which involves consideration of Group contractual rights,
work performed as well as the status of ongoing commercial
negotiations. In the current year the Group has recognised a
valuation allowance of GBP17.3m (2017: GBP16.2m) in respect of aged
and disputed balances.
Provisions and contingent liabilities
The Company and various of its subsidiaries are, from time to
time, party to legal proceedings and claims that are in the
ordinary course of business. Judgements are required in order to
assess whether these legal proceedings and claims are probable and
the liability can be reasonably estimated, resulting in a provision
or, alternatively, whether the items meet the definition of
contingent liabilities.
Provisions are liabilities of uncertain timing or amount and
therefore in making a reliable estimate of the quantum and timing
of liabilities judgement is applied and re-evaluated at each
reporting date. The Group recognised provisions at 31 March 2018 of
GBP31.5m (2017: GBP26.8m). Further details are included in Note
15.
Measurement of defined benefit pension obligations
The net pension liability at 31 March 2018 was GBP56.8m (2017:
GBP74.2m).
The measurement of defined benefit obligations requires
judgement. It is dependent on material key assumptions including
discount rates, life expectancy rates, and future contribution
rates. see Note 19 for further detail and a sensitivity analysis
for the key assumptions.
The Group also participates in four multi-employer defined
benefit pension schemes, including the Plumbing & Mechanical
Services (UK) Industry Pension Scheme (the Plumbing Scheme). The
Group has a potential exposure to Section 75 employer debts in
respect of the Plumbing Scheme. Due to the inherent uncertainly
regarding the amount of any liability this has been disclosed as a
contingent liability, see Note 18 and Note 19.
3. Business segment information
The Group manages its business on a service division basis. At
31 March 2018, the Group has the following seven strategic
divisions which are its reportable segments and the information, as
reported, is consistent with information presented to the Board.
Revenue, operating profit before other items and operating profit
margin before other items are the primary measures of performance
that are reported to and reviewed by the Board, who is the Group's
chief operating decision maker.
The information presented for the year ended 31 March 2017 has
been restated to reflect changes in management reporting,
implemented in 2018, of certain business unit activities
transferring between Engineering Services, Security, Professional
Services and Cleaning & Environmental Services and the
splitting of Public Services into Care & Custody and Property
Management.
Restated
2018 2017(1,4)
------- -------------- --------- ------- -------------- ----------
Operating Operating
profit/(loss) profit/(loss)
before before
other Operating other Operating
Revenue items(2) Margin Revenue items(2) Margin
GBPm GBPm % GBPm GBPm %
------------------------- ------- -------------- --------- ------- -------------- ----------
Engineering Services 840.7 45.8 5.4 789.1 (4.5) (0.6)
Security 432.0 27.5 6.4 403.7 17.8 4.4
Professional Services 90.2 6.5 7.2 96.6 6.7 6.9
Cleaning & Environmental
Services 406.4 21.5 5.3 395.6 6.5 1.6
Care & Custody 59.9 1.9 3.2 46.4 2.2 4.7
Catering 137.1 5.6 4.1 134.3 4.7 3.5
Property Management 237.4 7.3 3.1 257.7 (4.5) (1.7)
Corporate centre - (26.5) - - (35.2) -
------------------------- ------- -------------- --------- ------- -------------- ----------
Total from continuing
operations 2,203.7 89.6 4.1 2,123.4 (6.3) (0.3)
------------------------- ------- -------------- --------- ------- -------------- ----------
Healthcare - - - 59.2 (12.0) (20.3)
------------------------- ------- -------------- --------- ------- -------------- ----------
Total from discontinued
operations - - - 59.2 (12.0) (20.3)
------------------------- ------- -------------- --------- ------- -------------- ----------
Total 2,203.7 89.6 4.1 2,182.6 (18.3) (0.8)
------------------------- ------- -------------- --------- ------- -------------- ----------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Other items are as described in Note 4.
3. No single customer accounted for more than 10% of external
revenue in 2018 or 2017.
4. The Group has restated 2017 income statement and balance
sheet as per Note 1.
A reconciliation of segment operating profit/(loss) before other
items to total loss before tax is provided below:
2018 2017(1)
GBPm GBPm
--------------------------------- ------ -------
Operating profit/(loss)
before other items 89.6 (6.3)
Other items(2) (97.9) (36.6)
Net finance costs (16.4) (15.3)
---------------------------------- ------ -------
Total from continuing operations (24.7) (58.2)
---------------------------------- ------ -------
Operating loss before other
items - (12.0)
Other items(2) - (123.2)
---------------------------------- ------ -------
Total from discontinued
operations - (135.2)
---------------------------------- ------ -------
Loss before tax (24.7) (193.4)
---------------------------------- ------ -------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Other items are as described in Note 4.
IFRS 8 requires that a measure of segment assets should be
disclosed only if that amount is regularly provided to the chief
operating decision maker and consequently no segment assets are
disclosed.
Geographical segments
Restated
2018 2017(1)
------- --------------- ------------- ------- ------------- ---------
Operating Operating
profit (loss)
before Operating before other Operating
Revenue other items(1) Margin Revenue items(1) Margin
GBPm GBPm % GBPm GBPm %
---------------------- ------- --------------- ------------- ------- ------------- ---------
United Kingdom 2,093.7 89.3 4.3 2,015.2 (4.8) (0.2)
Other countries 110.0 0.3 0.3 108.2 (1.5) (1.4)
---------------------- ------- --------------- ------------- ------- ------------- ---------
Continuing operations 2,203.7 89.6 4.1 2,123.4 (6.3) (0.3)
---------------------- ------- --------------- ------------- ------- ------------- ---------
United Kingdom - - - 59.2 (12.0) (20.1)
Other countries - - - - - -
---------------------- ------- --------------- ------------- ------- ------------- ---------
Discontinued
operations - - - 59.2 (12.0) (20.1)
---------------------- ------- --------------- ------------- ------- ------------- ---------
Total 2,203.7 89.6 4.0 2,182.6 (18.3) (0.8)
---------------------- ------- --------------- ------------- ------- ------------- ---------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Other items are as described in Note 4.
Disaggregated revenue
The Group disaggregates revenue from contracts with customers by
sector (government and non-government) and by contract duration
(contracts with a duration from inception of less than two years,
and contracts with a duration from inception of more than two
years). The Group believes this best depicts how the nature, timing
and amount of revenue and cash flows are affected by economic
factors. The following table includes a reconciliation of
disaggregated revenue with the Group's reportable segments.
2018(1)
---------- ------------------ ---------------------------------------
Contract duration
for timing of revenue
Sector(2) recognition
---------- ------------------ ---------- ---------------------------
Less More
than than
Government Total 2 years 2 years Total
GBPm Non-governmentGBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ------------------ ---------- -------- -------- -------
Engineering Services 330.6 510.1 840.7 87.6 753.1 840.7
Security 83.9 348.1 432.0 55.7 376.3 432.0
Professional Services 8.0 82.2 90.2 6.1 84.1 90.2
Cleaning & Environmental
Services 89.8 316.6 406.4 - 406.4 406.4
Care & Custody 59.9 - 59.9 - 59.9 59.9
Catering 4.6 132.5 137.1 1.6 135.5 137.1
Property Management 194.4 43.0 237.4 144.2 93.2 237.4
Continuing operations 771.2 1,432.5 2,203.7 295.2 1,908.5 2,203.7
------------------------- ---------- ------------------ ---------- -------- -------- -------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated and is therefore not presented as part of this analysis.
See Note 1.
2. Sector is defined by the end customer on any contract e.g. if
the Group is a sub-contractor to a construction company for the
building of a public hospital, then the contract would be
classified as government.
Transaction price allocated to the remaining performance
obligations
The table below shows the forward order book for each segment at
the reporting date with the time bands of when the Group expects to
recognise secured revenue on its contracts with customers. Secured
revenue corresponds to fixed work contracted with customers and
excludes the impact of any anticipated contract extensions, and new
contracts with customers.
Less Total
than More secured
1 year than revenue
GBPm 1 yearGBPm GBPm
------------------------- ------- ----------- --------
Engineering Services 383.3 1,680.9 2,064.2
Security 300.1 340.7 640.8
Professional Services 21.8 53.7 75.5
Cleaning & Environmental
Services 279.0 382.3 661.3
Care & Custody 100.8 569.3 670.1
Catering 8.2 26.5 34.7
Property Management 107.7 241.0 348.7
Total 1,200.9 3,294.4 4,495.3
------------------------- ------- ----------- --------
4. Other items
Other items are items of financial performance which the Group
believes should be separately identified on the face of the income
statement to assist in understanding the underlying financial
performance achieved by the Group.
The Group separately reports the impairment of goodwill, the
cost of restructuring programmes, acquisition and disposal costs
including the write-off and amortisation of acquisition related
intangible assets, the results of and costs associated with
disposals, and other exceptional items and their related tax effect
as Other Items:
2018
------------------------------------------------------------
Acquisition
& disposal Other
Impairment Restructure related exceptional
of goodwill costs costs items Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ ----------- ----------- ------------ ------
Administrative expenses (34.6) (47.3) (8.4) (7.6) (97.9)
------------------------ ------------ ----------- ----------- ------------ ------
Other items before tax (34.6) (47.3) (8.4) (7.6) (97.9)
Tax - 8.8 0.4 1.5 10.7
------------------------ ------------ ----------- ----------- ------------ ------
Other items after tax (34.6) (38.5) (8.0) (6.1) (87.2)
------------------------ ------------ ----------- ----------- ------------ ------
2017
-----------------------------------------------------------
Acquisition
& disposal
Impairment Restructure related Healthcare
of goodwill costs costs disposal Total
Continuing operations GBPm GBPm GBPm GBPm GBPm
------------------------ ------------ ----------- ----------- ---------- -------
Administrative expenses (15.0) (14.9) (6.7) - (36.6)
------------------------ ------------ ----------- ----------- ---------- -------
Other items before tax (15.0) (14.9) (6.7) - (36.6)
Tax - 3.0 1.1 - 4.1
------------------------ ------------ ----------- ----------- ---------- -------
Other items after tax (15.0) (11.9) (5.6) - (32.5)
Discontinued operations
Other items after tax (81.1) (0.3) (9.2) (30.4) (121.0)
------------------------ ------------ ----------- ----------- ---------- -------
Total (96.1) (12.2) (14.8) (30.4) (153.5)
------------------------ ------------ ----------- ----------- ---------- -------
Impairment of goodwill
Management has assessed the recoverability of the goodwill
allocated to the Property Management CGU and has recognised an
impairment charge of GBP34.6m (2017: GBP15.0m). See Note 8 for
further details.
Impairment of goodwill from discontinued operations relates to
the impairment of the remaining carrying value of goodwill for the
Healthcare CGU of GBPnil (2017: GBP81.1m).
Restructure costs
The restructure costs relate to costs of organisational change
associated with the Group's Project Helix transformation programme
including the transition costs associated with the outsourcing of
certain back-office transactional processes.
These costs are analysed below:
2018 Continuing Discontinued 2017
Total(6) operations operations Total
GBPm GBPm GBPm GBPm
------------------------------------ --------- ----------- ------------ ------
Redundancy payments (including
those in respect of Project
Helix transformation projects)(1) (4.8) (9.2) (0.3) (9.5)
Cost of change team(2) (5.5) (3.4) - (3.4)
Expenditure and provisions in
respect of property closure(3) (4.8) (2.3) (0.1) (2.4)
Expenditure in respect of Project
Helix transformation projects(4) (21.8) - - -
Impairment of intangible assets(5) (10.4) - - -
------------------------------------ --------- ----------- ------------ ------
Restructuring costs (47.3) (14.9) (0.4) (15.3)
Taxation 8.8 3.0 0.1 3.1
------------------------------------ --------- ----------- ------------ ------
Restructuring costs net of taxation (38.5) (11.9) (0.3) (12.2)
------------------------------------ --------- ----------- ------------ ------
Notes:
1. Costs in respect of roles made redundant as a result the
Project Helix transformation and other projects to restructure the
Group's activities.
2. Incremental costs of teams involved in the design and
excecution of Project Helix transformation projects
3. Costs in respect of property dilapidations, lease
termination, and asset impairments crystalised following decisions
vacate certain of the Group's properties as part of the overall
Project Helix transformation.
4. Expenditure in respect of Project Helix transformation
projects includes GBP0.6m of recruitment costs in respect of
achieving the new target operating model, GBP8.2m related to dual
running and knowledge transfer costs as part of the transfer of the
transactional back-office activities to a third-party provider and
GBP13.0m of professional fees in respect of advice and consultancy
activities associated with the design and exectution of the Project
Helix transformation
5. Impairment of intangible assets relate to systems and
processes which are redundant due to the changes to the Group's
strategy including the outsourcing of transactional back-office
activities. See Note 9.
6. Includes GBP34.7m in respect of the Project Helix
transformation activities.
Acquisition and disposal related costs
Acquisition and disposal related costs from continuing
operations include the impairment and amortisation charge for
acquisition related intangibles GBP2.6m (2017: GBP5.5m), the charge
for restricted shares issued of GBP3.4m (2017: GBPnil), the accrual
of contingent consideration that is required to be treated as
remuneration GBPnil (2017: GBP0.9m), other acquisition costs GBPnil
(2017: GBP0.3m), costs of GBP2.2m (2017: GBPnil) relating to the
aborted disposal of the Property Management business, and GBP0.2m
(2017: GBP30.4m - included within discontinued operations) related
to the disposal of the Healthcare divison.
Acquisition related costs from discontinued operations relate to
the impairment and amortisation of acquisition related intangibles
of GBPnil (2017: GBP9.2m).
Other exceptional items
Other exceptional items are analysed below:
2018 2017
GBP'm GBP'm
--------------------------------------------- ------ ------
Contract termination receipt(1) 2.0 -
Settlement of contractual dispute(2) (3.3) -
Pension scheme past service costs (including
curtailments)(3) (1.9) -
Regulatory investigation(4) (2.3) -
IFRS 15 adoption project(5) (0.8) -
Property dilapidations(6) (1.3) -
--------------------------------------------- ------ ------
Other exceptional items (7.6) -
Taxation 1.5 -
--------------------------------------------- ------ ------
Other exceptional items net of taxation (6.1) -
--------------------------------------------- ------ ------
Notes:
1. The loss of two major contracts in the year ended 31 March
2018 resulted in a one-off receipt of termination payments
amounting to GBP2.0m. These amounts are disclosed separately due to
the size of the payments received and the fact that the loss of
contracts of this size is an unusual event for the Group.
2. The settlement of a long standing contractual dispute for
which a provision of GBP0.7m was made in the year ended 31 March
2017, which will result in a cash outflow of GBP4m during the year
ending 31 March 2019. This amount is disclosed separately due to
the size of the settlement and the fact that the contract ended
several years ago and so has not contributed to the results in
either the current or prior year. In the Interim Financial
Statements for the six months ended 30 September 2017 this amount
was not separately disclosed as Other items within the "Loss from
discontinued operations". Following the decision not to proceed
with the disposal of the Property Management division the results
of this activity have been reclassified as continuing operations
and consequently separate disclosure of this amount as Other Items
is considered appropriate to enable understanding of the continuing
results of the Group.
3. As a result of the closure of the Mitie Group Plc Pension
Scheme to future accrual, a past service cost (including
curtailments) charge of GBP1.9m has been incurred. See Note 19 for
further details.
4. Legal and professional costs of GBP2.3m have been incurred in
respect of the now closed FRC investigation into the Company's
treatment of healthcare goodwill and accrued income in the
Company's audited accounts for the year ended 31 March 2016, the
ongoing FCA investigation in connection with the timeliness of a
profit warning announced by the Company on 19 September 2016, the
manner of preparation and content of the Company's financial
information, position and results for the period ended 31 March
2016, and regarding the Company's own investigation into the same
matters, facts and circumstances which are subject to FCA and FRC
investigation.
5. Professional fees and interim staff costs of GBP0.8m have
been incurred in respect of the project to adopt IFRS 15 'Revenue
from contracts with customers'.
6. As part of the rationalisation of the Group's property
portfolio a review of the potential liabilities for leasehold
property dilapidation costs has been carried out. This review has
resulted in a one-off GBP1.3m charge.
Healthcare disposal
During the year ended 31 March 2017 the Group decided to
withdraw from the domiciliary healthcare market and completed the
sale of the Healthcare division on 28 February 2017.
5. Tax
2018 2017(1)
Continuing and discontinued operations GBPm GBPm
--------------------------------------- ----- -------
Current tax (5.6) (0.9)
Deferred tax (Note 12) 6.9 (9.3)
--------------------------------------- ----- -------
Tax charge/(credit) for the year 1.3 (10.2)
--------------------------------------- ----- -------
Continuing operations 1.3 (7.4)
Discontinued operations - (2.8)
--------------------------------------- ----- -------
Tax charge/(credit) for the year 1.3 (10.2)
--------------------------------------- ----- -------
Corporation tax is calculated at 19% (2017: 20%) of the
estimated taxable profit for the year. A reconciliation of the tax
charge to the elements of loss before tax per the consolidated
income statement elements is as follows:
2018 2017(1)
---------------------------- ------------------------
Before Before
other Other other Other
items items Total items items Total
Continuing and discontinued operations GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ------ ------ ------ ------- -------
(Loss)/profit before tax 73.2 (97.9) (24.7) (33.6) (159.8) (193.4)
--------------------------------------- ------------ ------ ------ ------ ------- -------
Tax at UK rate of 19% (2017: 20%) 13.9 (18.6) (4.7) (6.7) (32.0) (38.7)
Reconciling tax charges for:
Non-tax deductible charges 0.5 1.1 1.6 0.4 0.3 0.7
Share-based payments (0.1) - (0.1) 0.8 - 0.8
Loss on disposal of business - - - - 6.1 6.1
Impairment of goodwill - 6.6 6.6 - 19.2 19.2
Overseas tax rates (0.3) - (0.3) 0.1 - 0.1
Impact of change in statutory tax
rates 0.1 0.2 0.3 1.2 0.1 1.3
Prior year adjustments (2.1) - (2.1) 0.3 - 0.3
Tax charge/(credit) for the year 12.0 (10.7) 1.3 (3.9) (6.3) (10.2)
--------------------------------------- ------------ ------ ------ ------ ------- -------
Effective tax rate for the year 16.4% 10.9% (5.3)% 11.5% 3.9% 5.3%
--------------------------------------- ------------ ------ ------ ------ ------- -------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
In addition to the amounts charged to the consolidated income
statement, tax relating to retirement benefit costs amounting to a
GBP3.4m charge (2017: GBP5.5m credit) has been taken directly to
the statement of comprehensive income together with a GBP0.1m
credit relating to share-based payments and hedged items (2017:
GBP0.3m credit).
The effective tax rate on profit before other items is generally
higher than the statutory tax rate due to entertaining costs,
commercial property depreciation and share-based payment charges
not being wholly tax deductible and tax losses incurred overseas.
However, as losses were incurred in 2018 and 2017 the effective
rate is lower than the statutory tax rate due to permanent
differences such as those described above. In addition the 2018
figure was impacted by prior year adjustments, whilst the 2017
figure was impacted by a change in tax rates.
The UK corporation tax rate reduced from 20% to 19% from 1 April
2017 and will reduce to 17% from 1 April 2020. This will reduce the
Group's future current tax charge accordingly. The UK deferred tax
assets and liabilities at 31 March 2018 have been adjusted to
reflect these changes. A current tax provision is recognised when
the Group has a present obligation as a result of a past event and
it is probable that the Group will be required to settle that
obligation.
6. Dividends
2018 2017
GBPm GBPm
------------------------------------------ ----- -----
Amounts recognised as distributions in
the year:
Final dividend for the year ended 31
March 2017 of nil (2016: 6.7p) per share - 23.3
Interim dividend for the year ended 31
March 2018 of 1.33p (2017: 4.0p) per
share 4.8 14.1
------------------------------------------ ----- -----
Amounts paid in 2018 and 2017 4.8 37.4
------------------------------------------ ----- -----
Proposed final dividend for the year
ended 31 March 2018 of 2.67p (2017: nil)
per share 9.8 -
------------------------------------------ ----- -----
7. Earnings per share
Basic and diluted earnings per share have been calculated in
accordance with IAS 33 'Earnings per share'.
The calculation of the basic and diluted EPS is based on the
following data:
2018 2017(1)
From continuing operations GBPm GBPm
---------------------------------------- ------ -------
Net profit/(loss) before other items
attributable to equity holders of the
parent 60.1 (19.1)
Other items net of tax (87.2) (32.5)
---------------------------------------- ------ -------
Net loss attributable to equity holders
of the parent (27.1) (51.6)
---------------------------------------- ------ -------
2018 2017(1)
From continuing and discontinued operations GBPm GBPm
-------------------------------------------- ------ -------
Net profit/(loss) before other items
attributable to equity holders of the
parent 60.1 (30.5)
Other items net of tax (87.2) (153.5)
-------------------------------------------- ------ -------
Net loss attributable to equity holders
of the parent (27.1) (184.0)
-------------------------------------------- ------ -------
2018 2017
Number of shares million million
------------------------------------------- -------- --------
Weighted average number of ordinary shares
for the purpose of basic EPS 357.9 351.0
Effect of dilutive potential ordinary
shares: share options 1.9 3.7
------------------------------------------- -------- --------
Weighted average number of ordinary shares
for the purpose of diluted EPS 359.8 354.7
------------------------------------------- -------- --------
2018 2017(1)
p p
--------------------------------------------- ----- -------
From continuing operations:
Basic earnings/(loss) before other items
per share(2) 16.8 (5.5)
Basic loss per share (7.6) (14.7)
Diluted earnings/(loss) before other
items per share(2,3) 16.8 (5.5)
Diluted loss per share (7.6) (14.7)
From continuing and discontinued operations:
Basic earnings/(loss) before other items
per share(2) 16.8 (8.7)
Basic loss per share (7.6) (52.4)
Diluted earnings/(loss) before other
items per share(2,3) 16.8 (8.7)
Diluted loss per share (7.6) (52.4)
--------------------------------------------- ----- -------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Other items are as described in Note 4
3. Prior year diluted loss per share have been restated to
exclude the effects of anti-dilutive potential ordinary shares.
The weighted average number of ordinary shares in issue during
the year excludes those accounted for in the own shares
reserve.
The dilutive potential ordinary shares relate to instruments
that could potentially dilute basic earnings per share in the
future, such as share options. The loss for the year means that the
identified potentially dilutive shares are anti-dilutive for the
purposes of calculating dilluted earnings per share.
8. Goodwill
GBPm
----------------------------------- -------
Cost
At 1 April 2016 465.5
Change in consideration C&C Health (0.1)
Disposal of subsidiary (107.1)
Impact of foreign exchange 0.6
----------------------------------- -------
At 1 April 2017 358.9
Impact of foreign exchange 0.3
----------------------------------- -------
At 31 March 2018 359.2
----------------------------------- -------
Accumulated impairment losses
At 1 April 2016 26.0
Impairment of healthcare goodwill 81.1
Impairment of property goodwill 15.0
Disposal of subsidiary (107.1)
----------------------------------- -------
At 1 April 2017 15.0
Impairment of property goodwill 34.6
At 31 March 2018 49.6
----------------------------------- -------
Carrying amount
At 31 March 2018 309.6
----------------------------------- -------
At 31 March 2017 343.9
----------------------------------- -------
At 1 April 2016 439.5
----------------------------------- -------
Impairment of Mitie Property Management goodwill
Taking into account the current and forecast market conditions
of the Property Management business, the Group has further impaired
the Property Management goodwill by GBP34.6m in the 2018 financial
year.
Further detail on the impairment, including sensitivity analysis
is presented below.
Impairment of Healthcare goodwill
In 2017 the Group undertook an impairment review of the goodwill
and intangible assets associated with the Healthcare business. This
reassessment of the estimate of the recoverable amount of the
Healthcare cash-generating unit (CGU) resulted in impairment of the
remaining carrying value of goodwill and acquisition related
intangible assets for the Healthcare CGU in the 2017 financial
year.
Goodwill impairment testing
Goodwill acquired in a business combination is allocated, at
acquisition, to the CGUs that are expected to benefit from that
business combination.
Goodwill has been allocated to CGUs, which align with the
business segments, as this is how goodwill is monitored by the
Group internally. The goodwill allocated to the Public Services
CGU, which consisted of the Property Management and Care &
Custody activities, in the prior year related only to Property
Management and has been assigned as such in the table below. The
Group tests goodwill at least annually for impairment or more
frequently if there are indicators that goodwill may be
impaired.
A summary of the goodwill balances and the discount rates used
to assess the forecast cash flows from each CGU are as follows:
Pre-tax Post-tax
discount discount Goodwill Goodwill
rate rate 2018 2017
% % GBPm GBPm
---------------------------------- ---------- --------- --------- --------
Engineering Services 9.8 8.2 107.8 107.5
Security 9.8 8.2 101.7 101.7
Professional Services 11.0 9.2 15.7 15.7
Cleaning & Environmental Services 9.8 8.2 33.1 33.1
Catering 10.4 8.7 15.7 15.7
Property Management 13.0 10.6 35.6 70.2
Total 309.6 343.9
---------------------------------- ---------- --------- --------- --------
Key assumptions
The recoverable amounts for each CGU are determined by the value
in use which is derived from discounted cash flow calculations. The
key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to
revenue and direct costs during the forecast period. Management
estimates discount rates using pre-tax rates that reflect current
market assessments of the time value of money and the risks
specific to the CGUs. The long-term growth rates are based on
forecast inflation. Changes in revenue and direct costs are based
on past performance and expectations of future changes in the
market, operating model, and cost base.
Growth rates and terminal values
For all CGUs excluding Property Management the Group prepares
cash flow forecasts derived from the most recent budgets for the
year ending 31 March 2019 which have been approved by the Board,
extrapolated for four future years by an expected growth rate of 1%
and a terminal value using a long-term growth assumption of
1.75%.
The assumptions for Property Management are set out below.
Discount rates
The pre-tax discount rates used to assess the forecast cash
flows from CGUs are derived from the Company's post-tax Weighted
Average Cost of Capital, which was 7.7% at 31 March 2018 (2017:
7.3%), and is adjusted for the risks specific to the business being
assessed and the market in which the CGU operates. All CGUs have
the same access to the Group's treasury functions and borrowing
lines to fund their operations.
Sensitivity analysis
A sensitivity analysis has been performed and the Directors have
concluded that no reasonably foreseeable change in the key
assumptions would result in an impairment of the goodwill of any of
the Group's CGUs with the exception of the Property Management CGU
which is described below. In particular a 1% increase in the
discount rate or a 1% decrease in the terminal value growth rate
would not result in any change to the impairment conclusions in any
of the CGUs.
Review of the carrying value of goodwill for the Property
Management CGU
During the 2018 financial year the Group was engaged in a
process to sell the Property Management CGU, by the half-year this
process was sufficiently well advanced for the division to be
reported as a discontinued operation. Subsequently, due to market
conditions, this process was terminated on 5 December 2017 and
consequently the division was reclassified as a continuing
operation. As noted in the Operating review the Property Management
business has had a difficult year with market conditions,
particularly in social housing, leading to a reduction in revenue
and continued pressure on operating margins.
In this context the Directors have taken a conservative approach
to forecasting the future performance of Property Management, with
an assumption of no growth in revenue during the period to 31 March
2023, and an improvement in margins of only 25bps compared to the
budget for the year ending 31 March 2019 over the period to 31
March 2023. An improvement in market conditions is anticipated
after 31 March 2023, with growth in the terminal value period being
in line with inflation at 1.75%.
Having considered this scenario alongside a range of other
scenarios, the Directors concluded that a further impairment of
GBP34.6m should be made against the Property Management goodwill,
resulting in a goodwill carrying value of GBP35.6m at 31 March
2018.
The impairment testing described above in respect of the
Property Management CGU is dependent upon the accuracy of the
assumptions made in respect of future performance, the discount
rate, and the growth during the terminal value period.
The table below shows how the impairment test would be impacted,
all other factors being equal, by:
-- an increase or decrease in the discount rate of 100bps;
-- a change in market conditions such that year on year revenue
growth increases or decreases by 100bps between 31 March 2020 and
31 March 2023;
-- a change in projected profitability such that EBIT margin as
a percentage of revenue increases or decreases by 100bps
between
31 March 2020 and 31 March 2023;
-- an increase or decrease of 100bps in the growth rate in the
terminal value period.
Increase/(decrease
in impairment
----------------------
Increase Decrease
of 100bps of 100bps
GBPm GBPm
----------------------------------------- ---------- ----------
Discount rate (5.1) 6.5
Year on year revenue growth FY20 to FY23 1.7 (1.7)
EBIT as a percentage of revenue FY20
to FY23 14.4 (14.4)
Terminal value growth rate 4.7 (3.7)
----------------------------------------- ---------- ----------
9. Other intangible assets
Acquisition
related
---------------------
Software
Total and
Customer acquisition development
relationships Other related expenditure Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------------- ----- ------------ ------------ -----
Cost
At 1 April 2016 88.4 10.9 99.3 73.1 172.4
Additions - - - 12.4 12.4
Disposal of subsidiary - - - (2.9) (2.9)
Reclassifications from property,
plant and equipment - - - 14.5 14.5
Impact of foreign exchange - - - 0.2 0.2
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2017 88.4 10.9 99.3 97.3 196.6
Additions - - - 9.0 9.0
At 31 March 2018 88.4 10.9 99.3 106.3 205.6
--------------------------------- -------------- ----- ------------ ------------ -----
Amortisation
At 1 April 2016 66.9 9.2 76.1 31.7 107.8
Charge for the year 6.4 0.4 6.8 17.0 23.8
Impairment of software and
development expenditure - - - 3.0 3.0
Impairment of acquisition
related intangible assets 10.1 - 10.1 - 10.1
Disposal of subsidiary - - - (1.4) (1.4)
Impact of foreign exchange - - - 0.1 0.1
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2017 83.4 9.6 93.0 50.4 143.4
Charge for the year 2.2 0.4 2.6 10.9 13.5
Impairment of software and
development expenditure - - - 10.4 10.4
At 31 March 2018 85.6 10.0 95.6 71.7 167.3
--------------------------------- -------------- ----- ------------ ------------ -----
Carrying amount
At 31 March 2018 2.8 0.9 3.7 34.6 38.3
--------------------------------- -------------- ----- ------------ ------------ -----
At 31 March 2017 5.0 1.3 6.3 46.9 53.2
--------------------------------- -------------- ----- ------------ ------------ -----
At 1 April 2016 21.5 1.7 23.2 41.4 64.6
--------------------------------- -------------- ----- ------------ ------------ -----
Customer relationships are amortised over their useful lives
based on the period of time over which they are anticipated to
generate benefits. These currently range from four to eight years.
Other acquisition related intangibles include acquired software and
technology which are amortised over their useful lives which
currently range from three to ten years. Software and development
costs are amortised over their useful lives of between five and ten
years, once they have been brought into use.
During the 2018 financial year the Group has undertaken a
reassessment of the useful economic life of software and
development expenditure related intangible assets. As a result of
the establishment of a new central database and the outsourcing of
finance transactional processes, the decision was taken to impair
software and development assets that will no longer be in use going
forward. An impairment of GBP10.4m was recognised within
restructure costs in other items in the financial year (see Note
4).
Following the decision to withdraw from the domiciliary
healthcare market, the customer relationships relating to the
healthcare business were impairment tested and an impairment of
GBP10.1m was recognised within acquisition and disposal related
costs in other items in the 2017 financial year (see Note 4).
Reclassifications from property, plant and equipment in 2017
relate to completed software and development expenditure which was
held in plant and vehicles whilst being developed.
10. Trade and other receivables
Restated
2018 2017(1,5)
GBPm GBPm
---------------------------------------------- ------ -----------------
Amounts receivable for the sale of services 222.3 201.8
Provision for doubtful debts (17.3) (16.2)
---------------------------------------------- ------ -----------------
Trade receivables(4) 205.0 185.6
Accrued income(2) 131.4 142.5
Accrued income on long-term complex contracts - 50.2
Amounts recoverable on construction contracts - 0.1
Mobilisation costs - 21.0
Prepayments 21.3 22.7
Other debtors 28.3 23.8
---------------------------------------------- ------ -----------------
Total 386.0 445.9
---------------------------------------------- ------ -----------------
Included in current assets 386.0 395.6
Included in non-current assets(3) - 50.3
---------------------------------------------- ------ -----------------
Total 386.0 445.9
---------------------------------------------- ------ -----------------
Notes:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
2. Accrued income relates to revenue recognised, but unbilled at
the year end.
3. Non-current trade and other receivables comprise accrued
income on long-term complex contracts of GBPnil (2017: GBP40.8m)
and mobilisation costs of GBPnil (2017: GBP9.5m).
4. As in the prior year the Group has made use of a non-recourse
customer invoice discounting facility under which certain trade
receivable balances are sold to the Group's relationship banks. The
Group reduced the amount of invoice discounting from GBP110.7m as
at 31 March 2017 to GBP76.3m as at 31 March 2018. As these trade
receivables are sold without recourse the Group has derecognised
them, and so they are not included in trade receivables.
5. The Group has restated 2017 income statement and balance
sheet as per Note 1.
Ageing of trade receivables:
2018 2017(1)
GBPm GBPm
---------------------------------------- ------ -------
Neither impaired nor past due 163.6 159.4
Not impaired and less than three months
overdue 37.4 26.8
Not impaired and more than three months
overdue 21.3 15.4
Impaired receivables - 0.2
Provision for doubtful debts (17.3) (16.2)
---------------------------------------- ------ -------
Total 205.0 185.6
---------------------------------------- ------ -------
Movement in the provision for doubtful debts:
2018 2017
GBPm GBPm
------------------------------------- ----- -----
At 1 April 16.2 4.6
Impairment losses recognised 2.3 13.9
Amounts written off as uncollectable (1.2) (0.8)
Disposal of business - (1.5)
At 31 March 17.3 16.2
------------------------------------- ----- -----
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
The average credit period taken on sales of services was 28 days
(restated 2017: 26 days).
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
11. Contract assets
2018
GBPm
---------------------- -----
Contract assets
At 1 April -
Additions 2.3
Amortised in the year (0.1)
---------------------- -----
At 31 March 2.2
---------------------- -----
Included in current assets 0.4
Included in non-current assets 1.8
------------------------------- ---
Total 2.2
------------------------------- ---
Contract assets amounting to GBP2.2m have been recognised at 31
March 2018. Contract assets are amortised on a straight-line basis
over the contract life which is consistent with the transfer of
services to the customer to which the asset relates.
To determine whether future economic benefits from contracts are
sufficient to recover the contract assets, management has performed
an assessment of the costs to complete the contract. In comparing
the carrying amount of the asset to the remaining amount of
consideration expected to be received less the costs to provide
services under the relevant contract, management has determined no
impairment is required at 31 March 2018.
12. Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting period:
Accelerated Retirement Intangible Short-term
tax benefit assets Share timing
Losses depreciation liabilities acquired options differences Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------------- ------------ ---------- -------- ------------ -----
At 1 April 2016 - 1.4 6.4 (4.4) 1.3 1.3 6.0
(Charge)/credit
to income 0.8 5.1 0.7 3.3 (0.3) (0.3) 9.3
(Charge)/credit
to equity and the
statement of comprehensive
income - - 5.5 - (0.3) 0.6 5.8
At 1 April 2017 0.8 6.5 12.6 (1.1) 0.7 1.6 21.1
Impact of change
to IFRS 15 25.0 - - - - - 25.0
(Charge)/credit
to income (7.0) (0.3) 0.3 0.3 (0.1) (0.1) (6.9)
(Charge)/credit
to equity and the
statement of comprehensive
income - - (3.4) - 0.1 - (3.3)
At 31 March 2018 18.8 6.2 9.5 (0.8) 0.7 1.5 35.9
---------------------------- ------ ------------- ------------ ---------- -------- ------------ -----
Certain deferred tax assets and liabilities have been offset.
The following is the analysis of the deferred tax balances (after
offset) for financial reporting purposes:
2018 2017
GBPm GBPm
------------------------- ----- -----
Deferred tax assets 36.7 22.2
Deferred tax liabilities (0.8) (1.1)
------------------------- ----- -----
Net deferred tax asset 35.9 21.1
------------------------- ----- -----
The Group has unutilised income tax losses of GBP94.9m (2017:
GBP14.2m) that are available for offset against future profits.
In addition, the Group has GBP0.8m (2017: GBP0.8m) of capital
losses.
A deferred tax asset has been recognised in respect of certain
unutilised losses and allowances to the extent that it is probable
that taxable profits will be generated in the future and available
for utilisation. Deferred tax has been calculated using the
corporation tax rates disclosed in Note 5.
13. Deferred income from contracts with customers
2018(1)
GBPm
------------------------------------ -------
Deferred income
Included in current liabilities (46.2)
Included in non-current liabilities (18.8)
------------------------------------ -------
Total deferred income (65.0)
------------------------------------ -------
Note:
1. The Group has applied IFRS 15 using the cumulative effect
method. Under this method, the comparative information is not
restated. See Note 1.
14. Financial instruments
Classification
The Group's principal financial assets are cash and cash
equivalents, trade receivables and derivative financial
instruments. With the exception of derivative financial
instruments, all financial assets are classified as loans and
receivables.
The Group's principal financial liabilities are trade payables
and financing liabilities. With the exception of derivative
financial instruments and deferred contingent consideration, all
financial liabilities are held at amortised cost.
Derivative financial instruments are measured initially at fair
value at the date the contract is entered into and are subsequently
remeasured to their fair value through the income statement unless
they are designated as hedges for which hedge accounting can be
applied.
Details of the significant accounting policies and methods
adopted (including the criteria for recognition, the basis of
measurement and the bases for recognition of income and expense)
for each class of financial asset, financial liability and equity
instrument are disclosed in Note 1.
Risk management objectives
The Group's treasury department monitors and manages the
financial risks relating to the operations of the Group. These
risks include those arising from interest rates, foreign
currencies, liquidity, credit and capital management. The Group
seeks to minimise the effects of these risks by using effective
control measures and, where appropriate, derivative financial
instruments to hedge certain risk exposures. The use of financial
derivatives is governed by Group policies and reviewed regularly.
Group policy is to not trade in financial instruments. The risk
management policies remain unchanged from the previous year.
Interest rate risk
The Group's activities expose it to the financial risks of
interest rates. The Group's treasury function reviews its risk
management strategy on a regular basis and will appropriately enter
into derivative financial instruments in order to manage interest
rate risk.
Interest rate sensitivity
The interest rate sensitivity has been determined based on the
exposure to interest rates for both derivative and non-derivative
instruments at the balance sheet date. All financial liabilities,
other than financing liabilities, are interest free.
If underlying interest rates had been 0.5% higher/lower and all
other variables were held constant, the Group's profit after tax
for the year ended 31 March 2018 and reserves would
decrease/increase by GBP0.7m (2017: GBP0.8m).
Foreign currency risk
The Group has limited exposure to transactional foreign currency
risk from trading transactions in currencies other than the
functional currency of individual group entities and some exposure
to translational foreign currency risk from the translation of its
operations overseas. The Group considers the need to hedge its
exposures as appropriate and will enter into forward foreign
exchange contracts to mitigate any significant risks.
In addition, the Group has fully hedged the US dollar exposure
on its PP notes into sterling using cross-currency interest rate
swaps (see Hedging activities below).
At 31 March 2018 GBP9.3m (2017: GBP6.9m) of cash and cash
equivalents were held in foreign currencies. Included in bank loans
were GBP15.7m (2017: GBP17.1m) of loans denominated in foreign
currency.
Liquidity risk
The Group monitors its liquidity risk using a cash flow
projection model which considers the maturity of the Group's assets
and liabilities and the projected cash flows from operations. Bank
loans under committed facilities, which allow for appropriate
headroom in the Group's daily cash movements, are then
arranged..
The tables below summarise the maturity profile (including both
undiscounted interest and principal cash flows) of the Group's
financial liabilities:
In the
second
Within to After
one fifth five
Financial liabilities at 31 year years years Total
March 2018 GBPm GBPm GBPm GBPm
---------------------------- ------ ------- ------ -----
Trade creditors 191.3 - - 191.3
Other creditors 29.2 - - 29.2
Financing liabilities 65.6 198.9 31.5 296.0
Financial liabilities* 286.1 198.9 31.5 516.5
---------------------------- ------ ------- ------ -----
* Financing liabilities maturity profile is exclusive of the
GBP6.1m derivative asset which would naturally offset the
settlement value of maturing private placement notes.
In the
second
Within to After
one fifth five
Financial liabilities at 31 year years years Total
March 2017 GBPm GBPm GBPm GBPm
---------------------------------- ------ ------- ------ -----
Trade creditors 244.7 - - 244.7
Other creditors 24.5 - - 24.5
Financing liabilities 106.2 70.2 181.2 357.6
Deferred contingent consideration 0.3 - - 0.3
---------------------------------- ------ ------- ------ -----
Financial liabilities* 375.7 70.2 181.2 627.1
---------------------------------- ------ ------- ------ -----
* Financing liabilities maturity profile is exclusive of the
GBP35.8m derivative asset which would naturally offset the
settlement value of the maturing private placement notes.
Credit risk
The Group's credit risk is monitored on an ongoing basis and
formally reported quarterly. The value of business placed with
financial institutions is reviewed on a daily basis.
The Group's credit risk on liquid funds and derivative financial
instruments is limited because the external counterparties are
banks with high credit ratings assigned by international credit
rating agencies and are managed through regular review.
The amounts presented in the balance sheet in relation to the
Group's trade receivables are net of provisions for doubtful
debts.
The Group's credit risk is primarily attributable to its trade
receivables. Before accepting a new customer, the Group uses
external credit scoring systems to assess the potential customer's
credit quality and define an appropriate credit limit which is
reviewed regularly.
In determining the recoverability of a trade receivable, the
Group considers the credit quality of the counterparty. An
allowance for impairment is made where there is an identified loss
event which, based on previous experience, is evidence of a
reduction in the recoverability of the cash flows. The Directors
believe that there is no further provision required in excess of
the provision for doubtful debts at the balance sheet date.
The maximum exposure to credit risk in relation to trade
receivables at the balance sheet date is the fair value of trade
receivables. The Group's customer base is large and unrelated and,
accordingly, the Group does not have a significant concentration of
credit risk with any one counterparty or group of
counterparties.
Capital management risk
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and
equity. The capital structure of the Group consists of net debt per
Note 16 and equity per the consolidated statement of changes in
equity.
The Group's capital structure is reviewed regularly. In 2013,
the Board approved a share purchase policy to maintain share
numbers at a broadly consistent level year on year with the aim of
ensuring that the interests of shareholders are not diluted by the
issue of shares that support the Group's various share schemes, nor
by the issue of shares as consideration for earn outs under the
Mitie model. During the year ended 31 March 2017, the Group bought
back 9.1m shares at a cost of GBP24.4m and subsequently cancelled
these shares. The Group has ceased its practice of buying back
shares to offset shares issued under the Mitie Model or future LTIP
arrangements and nil shares were bought back in the year ended 31
March 2018.
The Group is not subject to externally imposed regulatory
capital requirements with the exception of those applicable to the
Group's captive insurance subsidiary, which is monitored on a
regular basis.
Hedging activities
Cash flow hedges
The Group holds a number of cross-currency interest rate swaps
designated as cash flow hedges on US$153.0m of PP notes. Biannual
fixed interest cash flows denominated in US dollars arising over
the periods to December 2022 from the US Private Placement market
are exchanged for fixed interest cash flows denominated in
sterling. All cash flow hedges were assessed as being highly
effective as at 31 March 2018.
Fair value hedges
As at 31 March 2017 the Group held a number of cross-currency
interest rate swaps designated as fair value hedges on US$48.0m of
PP notes. Fixed interest cash flows denominated in US$ from the US
Private Placement market were exchanged for floating interest cash
flows denominated in sterling. These fair value hedges were
assessed as being highly effective as at 31 March 2017 and up until
their maturity date in December 2017.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2018 was a borrowing of
EUR9.5m (2017: EUR9.5m) which has been designated as a hedge of the
net investment in the Republic of Ireland business of Dalkia FM,
and is being used to hedge the Group's exposure to foreign exchange
risk on this investment. Gains or losses on the translation of the
borrowing are transferred to equity to offset gains or losses on
the translation of the net investment.
Derivative financial instruments
The carrying values of derivative financial instruments at the
balance sheet date were as follows:
Assets Assets
2018 2017
GBPm GBPm
--------------------------------- ------ ------
Cross-currency interest rate
swaps designated as cash flow
hedges 6.1 27.0
Cross-currency interest rate
swaps designated as fair value
hedges - 8.8
----------------------------------- ------ ------
Derivative financial instruments
hedging private placement notes 6.1 35.8
----------------------------------- ------ ------
Assets Assets
2018 2017
Derivative financial instruments GBPm GBPm
--------------------------------- ------ ------
Included in current assets - 35.8
Included in non-current assets 6.1 -
----------------------------------- ------ ------
Total 6.1 35.8
----------------------------------- ------ ------
Derivative financial instruments are measured at fair value.
Fair values of derivative financial instruments are calculated
based on a discounted cash flow analysis using appropriate market
information for the duration of the instruments.
During the year ended 31 March 2018, a number of cashflow hedges
were settled and all fair value hedges were settled.
Financial instruments fair value disclosure
Fair value measurements are classified into three levels,
depending on the degree to which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets or liabilities;
-- Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
-- Level 3 fair value measurements are those derived from
valuation techniques using inputs that are not based on observable
market data.
The Directors consider that the derivative financial instruments
fall into Level 2. There were no transfers between levels during
the year. All contracts are gross settled.
15. Provisions
Deferred Contract
Legal Healthcare contingent Insurance specific
costs provision Restructuring consideration reserve costs Dilapidations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------ ---------- ------------- -------------- --------- --------- ------------- -----
At 1 April
2017 2.0 6.0 - 0.3 12.5 6.0 - 26.8
Impact of
change in
accounting
policy - - - - - (0.2) - (0.2)
Amounts recognised
in the balance
sheet - - - - - - 3.4 3.4
Amounts recognised
in the income
statement 3.2 - 1.2 - 4.0 (1.3) - 7.1
Utilised within
captive insurance
subsidiary - - - - (0.1) - - (0.1)
Unwinding
of discount - - - - - - 0.2 0.2
Utilised in
the period (1.1) (1.1) - (0.3) (1.1) (2.1) - (5.7)
At 31 March
2018 4.1 4.9 1.2 - 15.3 2.4 3.6 31.5
--------------------- ------ ---------- ------------- -------------- --------- --------- ------------- -----
Included in
current liabilities 4.1 4.9 1.2 - 9.0 2.4 3.6 25.2
Included in
non-current
liabilities - - - - 6.3 - - 6.3
--------------------- ------ ---------- ------------- -------------- --------- --------- ------------- -----
Total 4.1 4.9 1.2 - 15.3 2.4 3.6 31.5
--------------------- ------ ---------- ------------- -------------- --------- --------- ------------- -----
The provisions balance includes the following items:
The legal costs provision relates to professional fees payable
and the potential cost of settlement of outstanding claims against
the Group.
The Healthcare provision relates to the anticipated costs of
separation of the Healthcare business from the Group, that are
anticipated to crystallise during the year ending 31 March
2019.
The restructuring provision relates to costs of organisational
change associated with the Group's Project Helix transformation
programme including the transition costs associated with the
outsourcing of certain back-office transactional processes.
The insurance reserve provides for the self-insured element of
fleet and liability claims that will typically settle over three to
five years. This includes a provision for claims that are expected
but have not yet been reported.
Contract specific cost provisions relate to various obligations
arising in the ordinary course of providing services in line with
commercial contracts.
The provision for dilapidations relates to the legal obligation
for a leased property 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.
16. Analysis of net debt
2018 2017
GBPm GBPm
------------------------------------------ ------- -------
Cash and cash equivalents 59.8 129.1
Bank loans (54.3) (15.3)
Private placement notes (203.8) (294.0)
Derivative financial instruments hedging
private placement notes (Note 14) 6.1 35.8
------------------------------------------ ------- -------
Net debt before obligations under finance
leases (192.2) (144.4)
Obligations under finance leases (1.3) (2.8)
------------------------------------------ ------- -------
Net debt (193.5) (147.2)
------------------------------------------ ------- -------
Net debt excludes amounts in respect of customer invoice
discounting referred to in Note 10 and amounts in respect of supply
chain financing.
17. Acquisitions
Current year acquisitions - purchase of non-controlling
interests
On 19 July 2017, the Company purchased the minority 49%
shareholding in Source Eight Limited. The consideration paid was
GBP4.0m, satisfied with GBP3.0m in cash and GBP1.0m in unrestricted
shares. A further GBP5.1m of shares were issued which were subject
to sale restrictions related to continuing employment. Regarding
shares issued, 2,196,708 ordinary shares were issued, with a
nominal value of 2.5p per share in Mitie Group plc (Mitie shares)
at a fair value of 278.8p, of which 1,838,028 Mitie shares were
subject to sale restrictions related to continuing employment.
In addition, on 20 October 2017 the Company purchased the
remaining minority shareholdings in five Mite Model companies. The
consideration paid was GBP3.4m, satisfied through the issue of
unrestricted shares. A further GBP3.0m of shares were issued which
were subject to sale restrictions related to continuing employment.
Regarding shares issued, 2,396,381 Mitie shares were issued at a
fair value of 266.3p, of which 1,139,697 Mitie shares were subject
to sale restrictions related to continuing employment. The
shareholdings purchased, primarily held by certain of the employees
and senior management of the relevant subsidiary companies, are
detailed below:
-- Mitie Care and Custody Limited (MCCL) - 6.86% of the issued
share capital, comprising 42,505 B ordinary shares of GBP0.01 each,
for a consideration of GBP0.4m satisfied by the issue of 169,328
Mitie shares;
-- Mitie Events & Leisure Services Limited (MELSL) - 24.08%
of the issued share capital, comprising 205,000 B ordinary shares
of GBP0.01 each, for a consideration of GBP0.4m satisfied by the
issue of 144,555 Mitie shares;
-- Mitie Facilities Management Limited (Ireland) (MFML) - 5.63%
of the issued share capital, comprising 146,000 B ordinary shares
of EUR0.01 each, for a consideration of GBP0.2m satisfied by the
issue of 72,228 Mitie shares;
-- Mitie Catering Services Limited (MCSL) - 18.55% of the issued
share capital, comprising 333,677 D ordinary shares of GBP0.01
each, for a consideration of GBP2.9m satisfied by the issue of
1,072,416 Mitie shares; and
-- Mitie Waste & Environmental Services Limited (MWESL) -
27.71% of the issued share capital, comprising 332,500 B ordinary
shares of GBP0.01 each, for a consideration of GBP2.5m satisfied by
the issue of 937,854 Mitie shares;
The above acquisitions have been completed based on transfer of
consideration of the fair value of the shareholdings of the
respective entities. As part of the above transactions Mitie Group
issued unrestricted and restricted shares. The restricted shares
are attached with a condition that the relevant recipient continues
in employment with the Group for a fixed vesting period of time.
Restrictions will remain attached to the shares if the recipient
leaves employment with the Group prior to completion of the vesting
period of the shares.
As a result of the acquisitions outlined above Mitie Group owns
100% of the issued share capital of all of the above entities.
Prior year acquisitions - purchase of non-controlling
interests
On 24 August 2016, the Company purchased employee minority
shareholdings in three of its successful 'Mitie Model' businesses:
Mitie Business Services UK Limited (MBSUKL), Mitie Technical
Facilities Management Limited (MTFML), and Mitie Care and Custody
Limited (MCCL) in accordance with the respective articles of
association and shareholders' agreements of those companies.
The total maximum consideration for all three purchases amounted
to GBP16.1m. This was satisfied with GBP1.4m in cash and as to the
remaining GBP14.7m by the issue of 6,015,255 Mitie shares valued at
244.38 p per share. This was the average of the closing middle
market price for the five banking days immediately preceding 26
July 2016. Earlier in that financial year ended 31 March 2017, the
Company purchased its own shares in the market to offset this share
issue. The purchased shares were cancelled following their
acquisition.
As a result of these acquisitions the Group owned 100% of the
issued share capital of MBSUKL and MTFML, and 93.14% of the issued
share capital of MCCL. The shareholdings purchased, primarily held
by certain of the employees and senior management of the relevant
subsidiary companies, are detailed below:
-- MBSUKL - 27.29% of the issued share capital, comprising
116,000 B ordinary shares of GBP0.01 each, for a consideration of
GBP0.8m. The consideration was satisfied by GBP0.1m in cash and
GBP0.7m by the issue of 275,428 Mitie shares;
-- MTFML - 8.93% of the issued share capital, comprising 952,000
B ordinary shares of GBP0.01 each, for a consideration of GBP12.1m.
The consideration was satisfied by GBP1.0m in cash and GBP11.1m by
the issue of 4,563,029 Mitie shares; and
-- MCCL - 27.42% of the issued share capital, comprising 170,022
B ordinary shares of GBP0.01 each, for a consideration of GBP3.2m.
The consideration was satisfied by GBP0.3m in cash and GBP2.9m by
the issue of 1,176,798 Mitie shares.
18. Contingent liabilities
Contractual disputes, guarantees and indemnities
The Company and various of its subsidiaries are, from time to
time, party to contractual disputes that arise in the ordinary
course of business. There is an ongoing contractual dispute with a
client of Mitie's Property Management business which is potentially
of a material nature (although formal legal proceedings have not
been commenced). Discussions are ongoing between the Company and
the counterparty to determine both liability and potential quantum.
The Directors do not anticipate that the outcome of this dispute
will have a material adverse effect on the Group's financial
position, other than as already provided for in the accounts. In
appropriate cases, a provision is recognised based on best
estimates and management judgement but there can be no guarantee
that these provisions (which may be subject to potentially material
revision from time to time) will result in an accurate prediction,
due to the uncertainty of the actual costs and liabilities that may
be incurred. The Directors will continue to monitor events as
matters progress.
In addition, the Company and its subsidiaries have provided
guarantees and indemnities in respect of performance, issued by
financial institutions on its behalf, amounting to GBP21.7m (2017:
GBP23.8m) in the ordinary course of business. These are not
expected to result in any material financial loss.
Multi-employer pension schemes
The Group participates in several industry multi-employer
defined benefit schemes, including the Plumbing & Mechanical
Services (UK) Industry "Pension Scheme" (Plumbing Scheme). The
total contributions to these schemes for the financial year ended
31 March 2019 are anticipated to be GBP0.1m. The size and
complexity of the Plumbing Scheme has meant the trustee is unable
at this time to identify the assets and liabilities of the scheme
which are attributable to the Group. Consequently, the Group
accounts for its contributions as if they were paid to a defined
contribution scheme.
When the Group (or a subsidiary of the Group) exits such schemes
(typically by ceasing to have any active employees in the scheme),
pension legislation may require the Group to fund the Group's share
of the total amount of net liabilities with a one-off cash payment
(a Section 75 debt under the Pensions Act 1995).
On 27 March 2018, the trustee of the Plumbing Scheme provided
participating employers with a summary of the draft actuarial
valuation of the Plumbing Scheme as at 5 April 2017. That summary
detailed the results of the valuation on three measures:
-- technical provisions - the amount of money the Plumbing
Scheme needs to meet all its obligations and pay benefits in
respect of past service as they fall due, based on the scheme
assets and the economic position as at 5 April 2017. This measure
showed a surplus of GBP45m on liabilities of GBP1.885bn;
-- Pension Protection Fund (PPF) - the amount used to set the
Plumbing Scheme's PPF levies. The benefits under this basis are
lower that the scheme's own benefits and the assumptions are
prescribed by the Pension Regulator. This measure showed a deficit
of GBP412m on liabilities of GBP2.342bn; and
-- solvency - this is an estimate of the cost of insuring all of
the Plumbing Scheme's benefits as at 5 April 2017 with an insurer
and is the basis required for Section 75 debt calculations. This
measure showed a deficit of GBP658m on liabilities of
GBP2.588bn.
The trustee of the Plumbing Scheme has recently conducted an
employer consultation regarding the allocation of Section 75 debts
including orphan liabilities (i.e. liabilities in respect of
Plumbing Scheme members whose employers or former employers are no
longer members of the Plumbing Scheme or are insolvent). This is
the second employer consultation carried out by the Plumbing Scheme
in respect of the allocation of Section 75 debts. The trustee has
stated that it is unlikely that any Section 75 debt notices will be
issued before early 2019, as the Plumbing Scheme's actuary cannot
be instructed in this regard until the calculation methodology has
been agreed.
Given these uncertainties it has not been possible to estimate
its potential exposure to Section 75 employer debts in respect of
the Plumbing Scheme within a reasonable range and so the issue is
disclosed as a contingent liability as set out in Note 19.
Employment claims
There are currently two enquiries being carried out by HMRC in
respect of the Group's compliance with the National Minimum Wage:
both enquiries are at an early stage. At this time due to the
nature and complexity of assessing compliance, it is not possible
to estimate the potential exposure. In common with other UK
businesses with a large number of employees operating near the
minimum wage, the Group is at risk of potential deficiency in
respect of current and past employees. Work is ongoing to enhance
the Group's payroll systems and processes to reduce the risk of
non-compliance in future.
In addition to specific enquiries in respect of compliance with
the National Minimum Wage, the Company and its subsidiaries are,
from time to time, party to employment disputes, claims, and other
potential liabilities which arise in the ordinary course of
business. The Directors do not anticipate that any of the current
matters will give rise to settlements, either individually or in
aggregate, which will have a material adverse effect on the Group's
financial position.
Financial Conduct Authority
On 29 August 2017 the Company announced that the Financial
Conduct Authority (FCA) had informed the Company of its
investigation in connection with i) the timeliness of a profit
warning announced by the Company on 19 September 2016, and ii) the
manner of preparation and content of the Company's financial
information, position and results for the period ended 31 March
2016.
The Company continues to fully co-operate with the FCA during
their ongoing investigation. At this time, the Directors have not
received any notification from the FCA that they will exercise
their regulatory enforcement powers against the Company.
Accordingly, the Directors are unable to determine whether the
investigation will lead to the imposition of any fine or other
penalties against the Company.
19. Retirement benefit schemes
The Group has a number of pension arrangements for
employees:
-- Defined contribution schemes for the majority of its
employees; and
-- Defined benefit schemes which include a group scheme and
other smaller schemes.
The Group operates a number of defined contribution pension
schemes for qualifying employees. The Group has a defined benefit
pension scheme called the Mitie Group plc Pension Scheme (Group
scheme) where Mitie Group plc is the principal employer. The Group
participates in a number of other defined benefit schemes (Other
schemes) in respect of certain employees who joined the Group under
the Transfer of Undertakings (Protection of Employment) Regulations
2006 (TUPE).
Defined contribution schemes
A defined contribution scheme is a pension scheme under which
the Group pays contributions to an independently administered fund;
such contributions are based upon a fixed percentage of employees'
pay. The Group has no legal or constructive obligations to pay
further contributions to the fund once these contributions have
been paid. Members' benefits are determined by the amount of
contributions paid, together with investment returns earned on the
contributions arising from the performance of each individual's
chosen investments and the type of pension the member chooses to
take at retirement. As a result, actuarial risk (that pension will
be lower than expected) and investment risk (that the assets
invested in do not perform in line with expectations) are borne by
the employee.
The Group's contributions are recognised as an employee benefit
expense when they are due.
The Group operates three separate schemes: a stakeholder defined
contribution plan, which is closed to new members; a self-invested
personal pension plan, which is closed to new members; and a group
personal pension (GPP) plan. Employer contributions are payable to
each on a matched basis requiring employee contributions to be
paid. Employees have the option to pay their share via a salary
sacrifice arrangement. The scheme used to satisfy auto-enrolment
compliance is a master trust, The People's Pension.
During the year, the Group made a total contribution to the
defined contribution schemes of GBP9.0m (2017: GBP8.9m) and
contributions to the auto-enrolment scheme of GBP4.3m (2017:
GBP4.3m), which are included in the income statement charge. The
Group expects to make contributions of a similar amount in the
coming year.
Defined benefit schemes
Group scheme
The Group scheme provides benefits to members in the form of a
guaranteed level of pension payable for life. The level of benefits
provided depends on members' length of service and their final
pensionable pay.
The Group scheme closed to new members in 2006, with new
employees able to join one of the defined contribution schemes. The
main Group scheme has now been closed as of October 2017.
Pensions in payment are generally increased in line with RPI
inflation, subject to certain caps and floors. Benefits are payable
on death and other events such as withdrawal from active
service.
The Group scheme is operated under the UK regulatory framework.
Benefits are paid to members from the trust-administered fund,
where the Trustee is responsible for ensuring that the scheme is
sufficiently funded to meet current and future benefit payments.
Plan assets are held in trust and are governed by pension
legislation. If investment experience is worse than expected or the
actuarial assessment of the scheme's liabilities increases, the
Group's financial obligations to the scheme rise.
The nature of the relationship between the Group and the Trustee
is also governed by regulations and practice. The Trustee must
agree a funding plan with the sponsoring company such that any
funding shortfall is expected to be met by additional contributions
and investment outperformance. In order to assess the level of
contributions required, triennial valuations are carried out with
the scheme's obligations measured using prudent assumptions (which
are determined by the Trustee with advice from the scheme actuary).
The most recent triennial valuation was carried out as at 31 March
2017 and is pending approval.
The Trustee's other duties include managing the investment of
the scheme's assets, administration of plan benefits and exercising
of discretionary powers. The Group works closely with the Trustee
to manage the scheme.
Other defined benefit schemes
Grouped together under Other schemes are a number of schemes to
which the Group makes contributions under Admitted Body status to
clients' (generally local government or government entities)
defined benefit schemes in respect of certain employees who
transferred to Mitie under TUPE. The valuations of the Other
schemes are updated by an actuary at each balance sheet date.
For the Admitted Body schemes, which are largely sections of the
Local Government Pension Scheme, the Group will only participate
for a finite period up to the end of the relevant contract. The
Group is required to pay regular contributions, as decided by the
relevant scheme actuaries and detailed in each scheme's
Contributions Certificate, which are calculated every three years
as part of a triennial valuation. In a number of cases
contributions payable by the employer are capped and any excess is
recovered from the entity that the employees transferred from. In
addition, in certain cases, at the end of the contract the Group
will be required to pay any deficit (as determined by the scheme
actuary) that is assessed for its notional section of the
scheme.
Multi-employer schemes
As a result of historic acquisition activity and staff transfers
following contract wins, the Group participates in four
multi-employer pension schemes. The total contributions to these
schemes for the financial year ended 31 March 2019 are anticipated
to be GBP0.1m. For three of these schemes, the Group's share of the
assets and liabilities is minimal.
The fourth scheme is the Plumbing & Mechanical Services (UK)
Industry Pension Scheme (the 'Plumbing Scheme') a funded
multi-employer defined benefit scheme. The Plumbing Scheme was
founded in 1975 and to date has had over 4,000 employers, with
circa 400 remaining. The size and complexity of the Plumbing Scheme
has meant the trustee is unable at this time to identify the assets
and liabilities of the scheme which are attributable to the Group.
Consequently, the Group accounts for its contributions as if they
were paid to a defined contribution scheme.
The April 2014 valuation of the Plumbing Scheme indicated a
surplus on a technical provisions basis of GBP19m liabilities of
GBP1.47m. The Annual Member update issued by the Plumbing Scheme in
October 2017 stated that an interim valuation prepared as at April
2016 indicated a deficit, however the draft triennial valuation as
at 5 April 2017 continues to show a surplus on a technical
provisions basis. Details of the draft triennial valuation as at 5
April 2017 are set out in Note 18.
As set out in Note 18 the Group has a potential exposure to s75
employer debts in respect of the Plumbing Scheme, which has been
disclosed as a contingent liability.
Further information in respect of the Group scheme and Other
schemes
The table below sets out the details of the latest funding
valuation of the Group scheme as at 31 March 2017.
The Group made a total contribution to the Group scheme of
GBP4.4m during the year (2017: GBP2.0m), including an additional
payment of GBP3.0m in relation to payment on a letter of credit
against the funding deficit. The Group expects to make
contributions of around GBP5.6m to the Group scheme in the year
ending 31 March 2019, including GBP4.2m against the funding
deficit. Employees' contribution to the cost of the scheme is
generally settled through a salary sacrifice arrangement.
The Group made contributions to the Other schemes of GBP0.3m in
the year (2017: GBP0.3m). The Group expects to make contributions
of around GBPnil to the Other schemes in the year ending 31 March
2019.
Details of latest funding valuation
Group scheme
------------------------------------- ----------------
Date of latest funding valuation 31 March 2017
Assets at valuation date GBP178.7 million
Funding liabilities at valuation date GBP225.3 million
Deficit at valuation date GBP46.6 million
------------------------------------- ----------------
The total contribution rate is between 40.5% and 44.9% of annual
pay for the remaining active members. The employer contribution
rate is the balance of the total cost after the deducting the
employee rate, which ranges depending on status and earnings. The
total contribution excludes any allowances for expenses met by the
scheme.
To eliminate the funding deficit the Trustee and the Group
agreed that additional contributions (i.e. over and above those
required to cover benefits being accrued) will be paid into the
scheme of GBP58.0m by 31 March 2027, of which GBP11.9m are due by
31 March 2020. On 27 November 2017, the Group paid the first of
these additional contributions amounting to GBP3.0m. Under this
recovery plan, if the assumptions made are borne out in practice,
the deficit would be eliminated by 31 March 2027.
The following table sets out details of the membership of the
Group scheme at 31 March 2017:
Group scheme
--------------------------------------------------------- ------------
Active members - by number 182
Active members - by proportion of funding liability 20.4%
Total pensionable salary roll p.a. GBP8.4m
--------------------------------------------------------- ------------
Deferred members - by number 853
Deferred members - by proportion of funding liability 52.0%
Total deferred pensions p.a. (at date of leaving scheme) GBP4.6m
--------------------------------------------------------- ------------
Pensioner members - by number 640
Pensioner members - by proportion of funding liability 27.6%
Total pensions in payment p.a. GBP2.7m
--------------------------------------------------------- ------------
Accounting assumptions
The assumptions used in calculating the accounting costs and
obligations of the Group's defined benefit pension schemes, as
detailed below, are set after consultation with independent,
professionally qualified actuaries.
The discount rate used to determine the present value of the
obligations is set by reference to market yields on high quality
corporate bonds. The assumptions for price inflation are set by
reference to the difference between yields on longer-term
conventional government bonds and index-linked bonds. The
assumption for increases in pensionable pay takes into account
expected salary inflation, the cap at CPI, and how often the cap is
likely to be exceeded.
The assumptions for life expectancy have been set with reference
to the actuarial tables used in the latest funding valuations, with
a lower 'best-estimate' allowance for future improvements to
mortality.
Principal accounting assumptions at balance sheet dates
Group scheme Other schemes
----------------------------- -------------- ---------------
2018 2017 2018 2017
% % % %
----------------------------- ------ ------ ------- ------
Key assumptions used for IAS
19 valuation:
Discount rate 2.60 2.65 2.60 2.65
Expected rate of pensionable
pay increases 3.10 2.00 3.10 3.40
Retail price inflation 3.10 3.40 3.10 3.40
Consumer price inflation 2.10 2.40 2.10 2.40
Future pension increases 3.40 3.40 3.40 3.40
----------------------------- ------ ------ ------- ------
Group scheme
---------------------------------- --------------
2018 2017
Years Years
---------------------------------- ------ ------
Post retirement life expectancy:
Current pensioners at 65 - male 88.0 88.0
Current pensioners at 65 - female 89.0 90.0
Future pensioners at 65 - male 89.0 89.0
Future pensioners at 65 - female 90.0 91.0
---------------------------------- ------ ------
Life expectancy for the other schemes is that used by the
relevant scheme actuary.
The sensitivity of defined benefit obligations to changes in
principal actuarial assumptions is shown below.
Sensitivity of defined benefit obligations to key
assumptions
Impact on defined benefit obligations
------------------------------------------ -----------------------------------------------------------------------
Increase/(decrease) in
Change in obligations Increase/(decrease) in obligations
assumption % GBPm
------------------------------------------ ----------- ---------------------- ----------------------------------
Increase in discount rate 0.1% (2.0)% (5.0)
Increase in RPI inflation* 0.1% 1.5% 3.8
Increase in CPI inflation (excluding pay) 0.1% 0.7% 1.8
Increase in salary growth 0.1% 0.0% -
Increase in life expectancy 1 year 3.9% 9.8
------------------------------------------ ----------- ---------------------- ----------------------------------
* Including other inflation-linked assumptions (CPI inflation,
pension increases and salary growth)
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the balance sheet date.
Some of the above changes in assumptions may have an impact on
the value of the scheme's investment holdings. For example, the
Group scheme holds a proportion of its assets in UK corporate
bonds. A fall in the discount rate as a result of lower UK
corporate bond yields would lead to an increase in the value of
these assets, thus mitigating the increase in the defined benefit
obligation to some extent.
The duration, or average term to payment for the benefits due,
weighted by liability, is around 22 years for the Group scheme.
Amounts recognised in financial statements
The table below outlines where the Group's post-employment
amounts are included in the financial statements.
2018 2017
----------------------------- -------------------------- -------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------- ----- ------- --------- -----
Current service cost (1.7) (0.3) (2.0) (3.2) (0.3) (3.5)
Total administration
expense (1.1) - (1.1) (0.8) - (0.8)
----------------------------- -------- --------- ----- ------- --------- -----
Amounts recognised
in operating profit (2.8) (0.3) (3.1) (4.0) (0.3) (4.3)
Past service cost (including
curtailments) (1.9) - (1.9) - - -
Net interest cost (1.9) (0.1) (2.0) (1.3) - (1.3)
----------------------------- -------- --------- ----- ------- --------- -----
Amounts recognised
in profit before tax (6.6) (0.4) (7.0) (5.3) (0.3) (5.6)
----------------------------- -------- --------- ----- ------- --------- -----
The past service cost (including curtailments) is as a result of
an increase in liabilities driven by the closure of the main Group
scheme.
Amounts recognised in the consolidated statement of
comprehensive income are as follows:
2018 2017
--------------------------- -------------------------- --------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- --------- ----- ------- --------- ------
Actuarial (losses)/gains
arising due to changes
in
financial assumptions 8.6 0.8 9.4 (52.5) (3.7) (56.2)
Actuarial (losses)/gains
arising from liability
experience (1.1) 0.8 (0.3) 0.8 - 0.8
Actuarial gains due
to changes in demographic
assumptions 5.9 0.2 6.1 - - -
Effect of asset ceiling - (0.5) (0.5) - - -
Return on scheme assets,
excluding interest
income 4.6 0.4 5.0 18.7 1.3 20.0
18.0 1.7 19.7 (33.0) (2.4) (35.4)
--------------------------- -------- --------- ----- ------- --------- ------
The amounts included in the balance sheet in respect of the
Group's defined benefit retirement benefit schemes are as
follows:
2018 2017
------------------------- ---------------------------- ---------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- --------- ------- ------- --------- -------
Fair value of scheme
assets 182.3 12.1 194.4 177.8 11.3 189.1
Present value of defined
benefit obligations (237.1) (14.1) (251.2) (248.5) (14.8) (263.3)
------------------------- -------- --------- ------- ------- --------- -------
Net pension liability (54.8) (2.0) (56.8) (70.7) (3.5) (74.2)
------------------------- -------- --------- ------- ------- --------- -------
All figures above are shown before deferred tax.
Movements in the present value of defined benefit obligations in
the year in respect of both the Group and other schemes were as
follows:
2018 2017
----------------------------- -------------------------- -------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- --------- ----- ------- --------- -----
At 1 April 248.5 14.8 263.3 191.3 10.6 201.9
Current service cost 1.7 0.3 2.0 3.2 0.3 3.5
Interest cost 6.5 0.4 6.9 6.8 0.4 7.2
Contributions from
scheme members - 0.1 0.1 0.1 0.1 0.2
Actuarial (gains)/losses
arising due to changes
in financial assumptions (8.6) (0.8) (9.4) 52.5 3.7 56.2
Actuarial losses/(gains)
arising from experience 1.1 (0.8) 0.3 (0.8) - (0.8)
Actuarial gains due
to changes in demographic
assumptions (5.9) (0.2) (6.1) - - -
Effect of asset ceiling - 0.5 0.5 - - -
Benefits paid (8.1) (0.2) (8.3) (4.6) (0.3) (4.9)
Past service cost (including
curtailments) 1.9 - 1.9 - - -
----------------------------- -------- --------- ----- ------- --------- -----
At 31 March 237.1 14.1 251.2 248.5 14.8 263.3
----------------------------- -------- --------- ----- ------- --------- -----
The defined benefit obligations of the Group scheme are analysed
by participant status below:
2018 2017
GBPm GBPm
------------ ----- -----
Active 48.3 85.0
Deferred 123.3 103.1
Pensioners 65.5 60.4
------------ ----- -----
At 31 March 237.1 248.5
------------ ----- -----
Movements in the fair value of scheme assets were as
follows:
2018 2017
-------------------------- -------------------------- -------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- --------- ----- ------- --------- -----
11.3
0.3
At 1 April 177.8 0.4 189.1 156.9 9.5 166.4
Interest income 4.6 0.3 4.9 5.5 0.4 5.9
Actuarial gains on
assets 4.6 0.4 5.0 18.7 1.3 20.0
Contributions from
the sponsoring companies 4.4 0.3 4.7 2.0 0.3 2.3
Contributions from
scheme members - - - 0.1 0.1 0.2
Expenses paid (1.0) - (1.0) (0.8) - (0.8)
Benefits paid (8.1) (0.2) (8.3) (4.6) (0.3) (4.9)
At 31 March 182.3 12.1 194.4 177.8 11.3 189.1
-------------------------- -------- --------- ----- ------- --------- -----
The history of experience adjustments is as follows:
Group scheme
--------------------------------- -------------------------------------------
2018 2017 2016 2015 2014
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- ------- ------- -------
Fair value of scheme assets 182.3 177.8 156.9 162.2 143.8
Present value of defined
benefit obligations (237.1) (248.5) (191.3) (197.1) (160.8)
--------------------------------- ------- ------- ------- ------- -------
Deficit in the scheme (54.8) (70.7) (34.4) (34.9) (17.0)
Experience (losses)/gains
on scheme liabilities (1.1) 0.8 3.1 1.2 0.1
Percentage of scheme liabilities 0.5% (0.3)% (1.6)% (0.6)% (0.1)%
Experience gains/(losses)
on scheme assets 4.6 18.7 (6.2) 13.0 3.6
Percentage of scheme assets 2.5% 10.5% (4.0)% 8.0% 2.5%
--------------------------------- ------- ------- ------- ------- -------
Other schemes
--------------------------------- --------------------------------------
2018 2017 2016 2015 2014
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------ ------ ------
Fair value of scheme assets 12.1 11.3 9.5 9.5 16.2
Present value of defined
benefit obligations (14.1) (14.8) (10.6) (10.4) (18.3)
--------------------------------- ------ ------ ------ ------ ------
Deficit in the scheme (2.0) (3.5) (1.1) (0.9) (2.1)
Experience gains/(losses)
on scheme liabilities 0.8 - - (0.1) 0.3
Percentage of scheme liabilities (5.6)% - - 0.9% (1.8)%
Experience gains/(losses)
on scheme assets 0.4 1.3 (0.6) 0.8 (0.3)
Percentage of scheme assets 3.3% 11.5% (6.1)% 8.4% (1.9)%
--------------------------------- ------ ------ ------ ------ ------
Fair values of the assets held by the schemes were as
follows:
2018 2017
-------------------- -------------------------- --------------------------
Group Other Group Other
scheme schemes Total scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- --------- ----- -------- --------- -----
Equities 66.3 7.0 73.3 66.4 7.6 74.0
Government bonds 26.9 - 26.9 26.8 1.6 28.4
Corporate bonds 22.0 3.8 25.8 21.7 0.8 22.5
Property 9.5 0.9 10.4 16.2 0.8 17.0
Diversified growth
fund 45.6 - 45.6 46.6 - 46.6
Cash 12.0 0.4 12.4 0.1 0.5 0.6
-------------------- -------- --------- ----- -------- --------- -----
Total fair value of
assets 182.3 12.1 194.4 177.8 11.3 189.1
-------------------- -------- --------- ----- -------- --------- -----
The investment portfolios are diversified, investing in a wide
range of assets, in order to provide reasonable assurance that no
single asset or type of asset could have a materially adverse
impact on the total portfolio. To reduce volatility, certain assets
are held in a matching portfolio, which largely consists of
government and corporate bonds, designed to mirror movements in
corresponding liabilities.
Around 67% (2017: 73%) of the assets are held in equities,
property and pooled investment vehicles which seek a higher
expected level of return over the long term.
GBPnil (2017: GBP7m) of the property assets represent freehold
property; the rest are quoted property investments.
Risks and risk management
The Group scheme, in common with the majority of UK plans, has a
number of risks. These areas of risk and the ways in which the
Group has sought to manage them, are set out in the table
below.
The risks are considered from both a funding perspective, which
drives the cash commitments of the Group, and from an accounting
perspective, i.e. the extent to which such risks affect the amounts
recorded in the Group's financial statements:
Risk Description
---------------------- ----------------------------------------------------------------------------------------------
Asset volatility The funding liabilities are calculated using a discount rate set with reference to government
bond yields, with allowance for additional return to be generated from the investment
portfolio.
The defined benefit obligation for accounting is calculated using a discount rate set with
reference to corporate bond yields. The Group scheme holds a large proportion of its assets
(67%) in equities and other return-seeking assets (principally diversified growth funds (DGFs)
and property). The returns on such assets tend to be volatile and are not correlated to
government
bonds. This means that the funding level has the potential to be volatile in the short term,
potentially resulting in short-term cash requirements or alternative security offers, which
are acceptable to the Trustee and an increase in the net defined benefit liability recorded
on the Group's balance sheet. Equities and DGFs are considered to offer the best returns over
the long term with an acceptable level of risk and hence the scheme holds a significant
proportion
of these types of asset. However, the scheme's assets are well-diversified by investing in
a range of asset classes, including property, government bonds and corporate bonds. The Group
scheme holds 25% of its assets in DGFs which seek to maintain high levels of return whilst
achieving lower volatility than direct equity funds. The allocation to return seeking assets
is monitored to ensure it remains appropriate given the scheme's long-term objectives. The
investment in bonds is discussed further below.
---------------------- ----------------------------------------------------------------------------------------------
Changes in bond yields Falling bond yields tend to increase the funding and accounting obligations. However, the
investment in corporate and government bonds offers a degree of matching, i.e. the movement
in assets arising from changes in bond yields partially matches the movement in the funding
or accounting obligations. In this way, the exposure to movements in bond yields is reduced.
---------------------- ----------------------------------------------------------------------------------------------
Inflation risk The majority of the scheme's benefit obligations are linked to inflation. Higher inflation
will lead to higher liabilities (although caps on the level of inflationary increases are
in place to protect the plan against extreme inflation). The majority of the Group scheme's
assets are either unaffected by inflation (fixed interest bonds) or loosely correlated with
inflation (equities), meaning that an increase in inflation will also increase the deficit.
---------------------- ----------------------------------------------------------------------------------------------
Life expectancy The majority of the scheme's obligations are to provide a pension for the life of the member,
so increases in life expectancy will result in an increase in the obligations.
---------------------- ----------------------------------------------------------------------------------------------
Areas of risk management
Although investment decisions in the scheme are the
responsibility of the Trustee, the Group takes an active interest
to ensure that pension plan risks are managed efficiently. The
Group and Trustee have agreed a long-term strategy for reducing
investment risk where appropriate.
Guaranteed Minimum Pension (GMP) is a portion of pension that
was accrued by individuals who were contracted out of the State
Second Pension prior to 6 April 1997. At present there is an
inequality of benefits between male and female members who have
GMP. The Government intends to implement legislation to equalise
benefits, which could result in an increase in the value of GMP for
males. This would increase the defined benefit obligations. At this
stage, it is not possible to quantify the impact of this change,
and therefore no provision has been made.
Certain benefits payable on death before retirement are
insured.
20. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation
and are not disclosed in this Note.
During the year, the Group derived GBP0.8m (2017: GBP0.2m) of
revenue from contracts with joint ventures and associated
undertakings and received GBP0.6m (2017: GBP0.6m) of dividends. At
31 March 2018 trade and other receivables of GBP0.2m (2017: GBPnil)
were outstanding and loans to joint ventures and associates of
GBPnil (2017: GBPnil) were included in financing assets.
Mitie Group plc has a related party relationship with the Mitie
Foundation, a charitable company. During the year, the Group made
donations and gifts in kind of GBP0.3m (2017: GBP0.3m) to the
Foundation. At 31 March 2018 GBPnil (2017: GBPnil) was due to the
Foundation and the Foundation had GBPnil (2017: GBPnil) held within
creditors as an amount owed to Mitie Group plc.
No material contract or arrangement has been entered into during
the year, nor existed at the end of the year, in which a Director
had a material interest.
The Group's key management personnel include the Executive
Directors, Non-Executive Directors and the Executive Leadership
team. The underlying remuneration for other key management
personnel, including the share-based payments charge is GBP5.6m
(2017: GBP4.1m).
In the Annual Report and Accounts for the year ended 31 March
2017, the Company noted that, as a consequence of prior year
adjustments to the accounts for the financial year ended 31 March
2016, the Remuneration Committee would determine what rights might
be available to the Company to recover the bonus and other awards
made to each of Ruby McGregor-Smith and Suzanne Baxter in respect
of FY16. The matters which gave rise to the prior year adjustments
are now the subject to the on-going investigation by the Financial
Conduct Authority (the FCA), which the Company disclosed in its
announcement on 29 August 2017. In that announcement, the Company
reported that the FCA had commenced an investigation in connection
with the timeliness of a profit warning announced by the Company on
19 September 2016 and the manner of preparation and content of the
Company's financial information, position and results for the
period ending 31 March 2016. The Company has been advised by its
external lawyers that as any claim against Ruby McGregor-Smith and
Suzanne Baxter would cover the same matters, facts and
circumstances which are the subject of the FCA investigation, any
formal steps to recover bonuses or other awards should be deferred
until after the FCA have reached their findings. It is currently
anticipated that the FCA will conclude its investigation during the
course of FY19.
Details of transactions with Mitie Group plc Pension Scheme, and
other smaller pension schemes, are given in Note 19.
21. Events after the reporting period
There are no material post balance sheet events that require
adjustment or disclosure in the annual report.
Appendix 1 - Alternative Performance Measures (APMs)
The Group presents APMs as the Group has applied IFRS 15 in the
2018 financial statements using the cumulative effect method
through an adjustment to the opening balance of equity at 1 April
2017 and not restating the comparative information for the 2017
financial year and there were a number of significant restatements
were recorded in the 2017 financial statements. The Group presents
various APMs as the Directors believe that these are useful for
users of the financial statements in helping to provide a balanced
view of, and relevant information on, the Group's financial
performance. These APMs are measures which disclose the adjusted
performance of the Group without the adoption of IFRS 15 (see Note
1 (a)) and excluding specific items which are regarded as
non-recurring. The Group separately reports acquisition costs, the
amortisation of acquisition related intangible assets, exceptional
items and other specific items in the income statement which, in
the Directors' judgement, need to be disclosed separately (see
Notes 3 and 4) 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.
2018 2017
APMs presented GBPm GBPm
-------------------------------------------- ------- -------
Revenue
Adjusted revenue 2,199.1 2,140.0
Impact as a result of the adoption of
IFRS 15 4.6 -
One-offs:
Adjustment to accrued income on long-term
complex contracts - (20.4)
Accrued income, debtors, prepayments
included in trade & other receivables - (7.4)
Effects of foreign currency - 11.2
Other one-off items - -
Before other items 2,203.7 2,123.4
-------------------------------------------- ------- -------
Other items - -
-------------------------------------------- ------- -------
Total revenue as reported 2,203.7 2,123.4
-------------------------------------------- ------- -------
Operating profit
Adjusted operating profit 77.1 82.0
Impact as a result of the adoption of
IFRS 15 12.5 -
One-offs:
Impairment and amortisation of intangible
assets (Note 9) - (10.5)
Adjustment to accrued income on long-term
complex contracts - (20.4)
Accrued income, debtors, prepayments
included in trade & other receivables - (36.4)
Impairment of mobilisation asset - (5.7)
Other provisions & accruals - (4.6)
Other one-off items - (10.7)
-------------------------------------------- ------- -------
Before other items 89.6 (6.3)
-------------------------------------------- ------- -------
Adjusted other items (103.0) (36.6)
Impact as a result of the adoption of
IFRS 15 5.1 -
-------------------------------------------- ------- -------
Other items as reported (97.9) (36.6)
-------------------------------------------- ------- -------
Total operating profit as reported (8.3) (42.9)
-------------------------------------------- ------- -------
The total adjustments presented above impact business segments
as follows:
2018 2017
Adjustments to revenue GBPm GBPm
---------------------------------- ----- -----
Engineering Services (6.9) 14.6
Security (0.3) -
Professional Services 0.6 --
Cleaning & Environmental Services (0.9) 3.6
Care & Custody 2.4 -
Catering - (1.6)
Property Management 0.5 -
---------------------------------- ----- -----
Total adjustments (4.6) 16.6
---------------------------------- ----- -----
2018 2017
Adjustments to operating profit GBPm GBPm
---------------------------------- ------ -----
Engineering Services (10.3) 37.5
Security (2.3) 3.8
Professional Services 0.5 2.6
Cleaning & Environmental Services (1.7) 14.4
Care & Custody 1.3 0.7
Catering (0.6) 0.6
Property Management 0.6 16.8
Corporate Centre - 11.9
---------------------------------- ------ -----
Total adjustments (12.5) 88.3
---------------------------------- ------ -----
2018 2017
--------- ------------ -------- ---------- ----------- --------
Adjusted Adjusted
As Impacts cash As One-off cash
Adjustments to cash reported of IFRS flows reported items flows
flows GBPm 15GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Operating loss - continuing
operations (8.3) (17.6) (25.9) (42.9) 88.3 45.4
-
discontinued
operations - - - (135.2) - (135.2)
Adjustments for non-cash
and non-operating
items 75.5 - 75.5 187.2 (88.3) 98.9
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Operating cash flows
before movements in
working capital 67.2 (17.6) 49.6 9.1 - 9.1
(Increase)/decrease
in inventories (0.1) - (0.1) 3.2 - 3.2
(Increase)/decrease
in receivables (43.2) 13.1 (30.1) 60.2 - 60.2
(Increase)/decrease
in contract assets (2.3) 2.3 - - - -
(Decrease)/increase
in deferred income
arising on contracts (12.8) 12.8 - - - -
(Decrease)/increase
in payables (21.2) (9.1) (30.3) 73.0 - 73.0
(Decrease)/increase
in provisions 4.5 (0.2) 4.3 5.6 - 5.6
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Cash (used in)/generated
by operations (7.9) 1.3 (6.6) 151.1 - 151.1
Income taxes, interest
and acquisition costs
received/(paid) (1.9) - (1.9) (28.3) - (28.3)
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Net cash (outflow)/inflow
from operating activities (9.8) 1.3 (8.5) 122.8 - 122.8
Investing activities
Purchase of property,
plant and equipment (15.8) (0.2) (16.0) (14.5) - (14.5)
Purchase of other
intangible assets (9.0) (1.1) (10.1) (12.4) - (12.4)
Other investing activities (7.3) - (7.3) - - -
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Net cash outflow from
investing activities (32.1) (1.3) (33.4) (26.9) - (26.9)
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Net cash inflow from
financing activities (27.8) - (27.8) (60.3) - (60.3)
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Net (decrease)/increase
in cash and cash equivalents (69.7) - (69.7) 35.6 - 35.6
------------------------------------------------ --------- ------------ -------- ---------- ----------- --------
Adjustments to the balances sheet are shown in Note 1.
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END
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