Mitie Group plc
Annual Report and Accounts 2016
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Strategic report
Introduction
01
02 Mitie at a glance
06 Chairman’s statement
08 Chief Executive’s strategy overview
09 Our strategy
16 Key performance indicators
18 Sustainability
20 Bringing our strategy to life
34 Marketplace
37 Operating review
52 Financial review
57 Principal risks and uncertainties
61 Viability statement
Governance
62 Board of Directors
64
Chairman’s introduction to
Corporate Governance
65 The Board
70 Audit Committee
74 Nomination Committee
76 Directors’ remuneration report
95 Directors’ report: other disclosures
100 Directors’ report: statement
of Directors’ responsibilities
Financial
101
Independent auditor’s report to
the members of Mitie Group plc
106 Consolidated income statement
107 Consolidated statement
of comprehensive income
108 Consolidated balance sheet
110
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
111
113 Notes to the consolidated
financial statements
155 Company balance sheet
Notes to the Company
157
financial statements
IBC Shareholder information
Financial highlights
£2.232bn
£128.9m
Revenue
(2015: £2.274bn)
Operating profit1
(2015: £128.6m)
5.8%
Operating profit margin1
(2015: 5.7%)
75.2%
Cash conversion
(2015: 126.5%)
12.1p
Dividend per share
(2015: 11.7p)
17.5%
25.0p
Basic earnings per share1
(2015: 24.8p)
82%
Return on capital employed
(2015: 18.6%)
2017 budgeted revenue secured
(2015: 85%)
£8.5bn
Order book
(2015: £9.0bn)
1. Before other items (Note 5)
£9.1bn
Sales pipeline
(2015: £9.7bn)
Our sustainability and business goals
are intertwined, and this year you will find
material sustainability content discussed
throughout this report.
You can find further information on
the sustainability section of our website,
and detailed performance data in our
Sustainability Report.
www.mitie.com/sustainability
For further information
Visit our corporate website
mitie.com/investors
Visit our facebook page
facebook.com/mitiepeople
Follow us on twitter
@wearemitie
Watch our latest content
youtube.com/user/mitiegroupplc
Mitie is the outsourcing
partner of choice. We deliver
services that help clients be
more efficient and effective,
today and tomorrow.
We are all about developing
people to excel at what they
do, challenge how things are
done and inspire change.
1
www.mitie.com Mitie at a glance
We provide a range
of diverse services
Our facilities management services are delivered as integrated FM contracts, in bundles
or as single services, depending on client requirements. The property management
business provides repair and maintenance services in the social housing market and
we also provide high quality care to people at home.
£280m
Property Management
Housing maintenance
Painting
Insurance claim response
management
£78m
Healthcare
Homecare
Complex care
The shape of
the business
£2.2bn
Mitie revenue
£129m
operating profit
£619m
Hard FM
Maintenance
Compliance
Projects
Energy
£1,255m
Soft FM
Cleaning
Environmental
services
Security
Catering and front
of house
£1,874m
Facilities Management
2
Mitie Group plc | Annual Report and Accounts 2016 to high
quality clients
We have a strong track record of building
long-term relationships with our clients.
Our top 100 clients represent 50% of our revenues,
many of whom we have worked with for over ten years.
80% of our integrated FM contracts have developed
from single services relationships.
across a broad
range of markets
We work in most market sectors across the UK with
an emphasis on the private sector. Over the past few
years we have started to expand our services
in international markets and in 2016 we worked
in over 50 countries, and generate 3.4% of
revenues from outside the UK.
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£75bn
UK FM
outsourced
market
7
Revenue break down by end market
Public sector
1. Central government
2. Local government
3. Social housing
4. Healthcare
5. Education
Private sector
6. Finance and
professional services
7. Manufacturing
8. Retail
9. Property management
7%
7%
11%
8%
5%
10. Technology
11. Utilities
12. Leisure
13. Transport
17%
9%
12%
4%
6%
3%
4%
7%
3
www.mitie.com Mitie at a glance
A low risk and resilient business
model designed for growth
Our business model is designed to allow Mitie to succeed in the long term. Our starting point is always to talk to
our clients, understand their strategy and work out what they want to achieve. We then use our experience and
knowledge of property, workplaces and services to advise them on the best way forward. We apply fresh thinking to
create services that produce innovative ways for our clients to live and work. To deliver the services they need we make
sure that our people are well managed and motivated. We make sure that we get the basics right and provide
opportunities for our diverse workforce to develop careers. Our increasingly mobile workforce needs systems that are
flexible and adapt to changes in the workplace. We use a variety of technology-based solutions to make our services
more effective. As our clients’ needs change we keep evolving the way we do things to make sure we support them
over the long term.
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Delivering value
for Mitie’s clients,
people, communities
and shareholders
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How we create value
For a business to be able to succeed over the long term it needs to be able to generate value for all of its stakeholders.
We provide value for our clients by delivering efficient services that support their strategic objectives. Our people are
part of a business that celebrates and respects differences, gives opportunities for development and encourages
people to reach their potential. We have significant engagement with the communities where we work, supporting
schools and the disadvantaged, because we realise that we do not work in isolation. What we do affects the way
people think about us and allows us to operate. Our shareholders are looking for a return on their investment that is
compatible with the risks they are taking. As a stable predictable business we are well placed to deliver
value for all of our stakeholders.
4
Mitie Group plc | Annual Report and Accounts 2016
with a clear
investment case
Mitie is different because our people are motivated and entrepreneurial. Mitie has created long-term value
for shareholders by incentivising management teams to outperform. We have focused on having the best
people in our business, providing them with the technology and equipment they need, working in long-term
partnerships with our clients and providing a leading range of quality services. We know that by getting this
right growth and a strong financial performance follow. Today we are a UK based business with a market
leading position that provides a platform for sustainable growth.
Pure services business
Market leading integrated facilities management offer
Reduced risk with focus on facilities management
Quality client base
in diversified end markets
Broad client base across private and public sectors
Consultancy services provide strategic differentiation
High retention rates
and significant pipeline
Long-term relationships as a trusted partner supporting clients’ strategies
Good pipeline of future opportunities
Innovation and technology capabilities
Reputation for high quality efficient services and delivery capability
Technology enables data analytics and insight to enhance decision making and performance
Entrepreneurial people and
high management retention
Entrepreneurial people who are totally focused on client needs
Strong, diverse talent pool and succession plan
Stable, predictable profits
Margins consistently between 5% and 6%
Long-term order book
Disciplined capital allocation
We invest in our business using working capital to win and retain contracts
Long-term track record of dividend growth
5
www.mitie.com Chairman’s statement
A flexible and resilient
business model
Overview
This has been a year of good overall progress for
Mitie. We have had a steady flow of new contract
awards and have now successfully rebid or
extended all of our major integrated facilities
management contracts. Although we faced some
unanticipated macroeconomic headwinds that
impacted sales growth, we have maintained strong
margins, and good operating profit before other
items. Cash conversion remains high and we have
achieved substantial growth in earnings per share.
The short-term momentum of the business has been
impacted by a number of economic pressures during
the year. These include lower UK growth rates,
further government spending cuts, increasing labour
costs and uncertainty relating to the upcoming EU
referendum. Despite these economic pressures, we
have made good progress and demonstrated what
a truly resilient business model we have.
Our FM business continues to perform well,
particularly in the area of integrated FM where we
have successfully re-bid or extended all of our major
integrated contracts until at least 2019. Significant
new contracts have also been secured with Deloitte,
Thales, dmg media, NHS Property Services, CTIL
and Ladbrokes with a combined annual value in
excess of £80m. Revenues were slightly lower than
the prior year, partly due to new contract awards
being mobilised late in the financial year, and also
as a result of some project works being delayed or
cancelled. However, with new contracts starting in
the new financial year, a good pipeline of sales
opportunities and a number one market position
in the UK, we are positive about the potential for
long-term growth.
We have seen growth in our property
management business and although healthcare
had a challenging year, we continue to see
positive long-term opportunities.
We have focused our efforts on what we do
best. We have supported our clients as times
become tougher by innovating and introducing new
outsourcing models. Our customer proposition is
constantly evolving to meet client needs and we
are adept at incorporating technology to improve
our management of property, workplaces and
people services.
Results
During the year, revenue decreased by 1.8% to
£2,231.9m (2015: £2,273.8m). Operating profit
before other items increased by 0.2% to £128.9m
(2015: £128.6m), reflecting a margin of 5.8% (2015:
5.7%). Profit before tax increased by 133.3% to
6
Mitie Group plc | Annual Report and Accounts 2016 £96.8m (2015: £41.5m) and earnings per share
before other items increased by 0.8% to 25.0p
(2015: 24.8p). Earnings per share has increased
by 119.6% to 21.3p (2015:9.7p).
Cash generation remained good, with cash
inflows from operations of £114.6m (2015: £113.2m),
representing conversion of EBITDA to cash of
75.2% (2015: 126.5%). The balance sheet is robust
with net debt at the year end of £178.3m or
1.2x EBITDA before other items (2015: £177.8m
or 1.2x).
Our order book remains strong at £8.5bn (2015:
£9.0bn). Our sales pipeline currently stands at
£9.1bn (2015: £9.7bn) and our forward revenue
visibility is good, with contracted revenue for the
year ending 31 March 2017 at 82% of budgeted
revenue (prior year: 85%).
Dividend
The Board’s policy is to grow the dividend at least
in line with the underlying earnings of the group,
while maintaining dividend cover at a prudent level.
The final dividend proposed by the Board has
increased by 3.1% to 6.7p per share (2015: 6.5p per
share), bringing the full year dividend to 12.1p per
share (2015: 11.7p per share), an increase of 3.4%.
This represents 27 years of consecutive dividend
growth, demonstrating our resilient business model
and consistent cash generation. Subject to
shareholder approval at the Annual General
Meeting, the dividend will be paid on 4 August 2016
to shareholders on the register at 24 June 2016.
Capital allocation
We are focused on returning sustainable, long-term
value for our shareholders and as part of that we
take a disciplined approach to capital allocation.
First and foremost, we invest in working capital to
support the organic growth of the business. We will
also continue to make small, bolt-on acquisitions
that add capability to our offering, as well as grow
our dividend in line with the policy outlined above.
We have a track record of buying back shares to
offset share issues under share schemes and the
Mitie model, and this policy will continue in the future.
In addition, we are initiating a buyback programme
to return surplus cash to shareholders, whilst
maintaining modest year-end gearing levels of 1 to
1.5x EBITDA. This will be up to £20m in the current
financial year and will be reviewed annually going
forward. Shares purchased will be cancelled.
Board and corporate governance
As Chairman of the company one of my primary
responsibilities is to make sure that the business
has the appropriate systems and procedures in
place to ensure that it does the right thing from the
perspective of ethics and values and that it acts in a
way that protects the interests of shareholders and
10 year dividend (p)
Interim Dividend per Share
Final Dividend per Share
11.7p 12.1p
6.5p 6.7p
24.8
11.0p
24.3
6.1p
10.3p
5.7p
9.6p
5.2p
9.0p
4.9p
4.1p 4.4p 4.6p 4.9p 5.2p 5.4p
12
13
14
15
16
7.8p
4.1p
6.9p
3.6p
3.7p
3.3p
6.0p
3.2p
5.1p
2.7p
2.8p
2.4p
07
08
09
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15
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For more information, see our financial
review on pages 52-56
wider stakeholders. This year the Board has
prioritised the development of our long-term growth
strategy, the review of ongoing performance, capital
allocation and the composition of the Board.
During the year both David Jenkins and Crawford
Gillies retired from the Board and I would like to
thank them both for their valuable contributions
to the success of Mitie during their tenure.
Mark Reckitt was appointed to the Board on
1 July 2015 and became Chairman of the Audit
Committee on 14 July 2015. It is our intention to
recruit additional Non-Executive Directors in due
course to complement the current skills and
experience that we have on the Board.
Outlook
Mitie is in a strong position. Our business model
is flexible and resilient and has proven to be
responsive to client needs and market conditions
over three decades. We have a blue chip client base,
are well diversified across the private and public
sectors and we have an experienced and stable
management team.
Our focus remains on generating value for
shareholders, with profits backed by strong cash
flows, whilst maintaining a robust balance sheet
and margins within our target range.
We have a substantial order book and sales pipeline.
We continue to see a range of good outsourcing
opportunities across our key markets and anticipate
modest growth in the new financial year. We remain
positive about the prospects for the group’s future.
Roger Matthews
Chairman
7
www.mitie.com
Chief Executive’s strategy overview
A year of
good progress
Mitie has made good progress during the year. We have held
our own in a competitive marketplace, against the backdrop of a
somewhat challenging environment. However, outsourcing remains
the most effective way for public and private sector organisations to
innovate and improve efficiency and achieve competitive advantage.
We have a flexible, resilient business model and a track record of
responding to changing market conditions and client needs.
We look after our clients’ buildings, facilities and people – and we
continue to do these things very well. We are recognised as the
outsourcing partner of choice as well as the employer of choice,
twin strengths that enable us to deliver high quality services
and the greatest innovation in our chosen markets.
Our mission is to create stakeholder value by focusing on
sustainable, profitable growth – and we achieve this by
implementing a clear strategy.
8
Mitie Group plc | Annual Report and Accounts 2016 A clear strategy to deliver
sustainable, profitable growth
Achieved through our six distinct pillars
1
Maintain our position as the leading
provider of FM services in the UK
> Client and contract retention
> Executive relationship programme
> Economies of scale
> High-quality innovative services
2
Increase the range and scale of
services we provide to our top 200
clients, in the UK and internationally
> Proven efficiencies from integration
> Streamlined management structures
> Investment in relationships
> Scope for international expansion
3
Attract, retain and develop the
best people in our industry
> Nurture and develop a diverse
talent pool
> Increase employee satisfaction
> Promote career pathways from
apprenticeships to management
> Reward and recognition schemes
> Employee share ownership
4
5
6
Increase the provision of
technology-led services
> Investment in technology to
improve operational efficiency
and management information
Grow our public services businesses
by developing relationships with
key clients
> Careful selection of public sector clients
in housing, justice and health
> Mobile workforce tasking,
> Emphasis on quality of services
management, tracking and reporting
and mature relationships
> MiWorld portal
> Vetting and screening
> Bespoke partnering models
> Bundling and integration of services
> Remote monitoring and tracking
> Long-term contracts
Expand the scale and breadth of our
higher-value consultancy services
> Real estate, technology
and risk management
> IT infrastructure, telecomms,
voice and data
> Strategic advisory services
and business intelligence
Supported by a strong foundation
of sound business processes and a commitment to fulfilling our responsibilities to the wider community.
Sustainability
Risk management
Governance
> Reduce the environmental impact
of our operations
> Reinforce our culture to
“do the right thing”
> Improve the diversity, engagement,
health and safety of our people
> Macroeconomic environment
(including Brexit) creates the
operating and investment
environment for Mitie and its clients
> Protect our reputation
> Strategy and performance review
> Compliance, ethics and conduct
> Board composition and
succession planning
> Audit and internal controls
For more information,
see pages 18-19
For more information,
see pages 57-60
For more information,
see pages 64-100
9
www.mitie.com Chief Executive’s strategy overview continued
more information
on pages 37-51
Maintain our position as the leading
provider of FM services in the UK
1
Our clients appoint us because they are looking for
improved services at lower cost - and they stay with
us because we exceed expectations and constantly
identify new and better ways of working. In our
business, service is everything and we take the
time to gain a detailed understanding of our clients’
businesses, objectives and opportunities.
Clients continue to reward our approach to
outsourcing with praise as well as contracts.
We were named Best Overall FM Provider in the i-FM
Brand Survey Report for the third consecutive year.
Of the eight categories relevant to our operations
(integrated FM, technical FM, cleaning, security,
catering, front of house, landscaping and waste) we
were #1 in five, #2 in two and #3 in one. In each
category, we have either improved or maintained our
position during the last 12 months - so this element
of our strategy is clearly demonstrated by our
momentum and direction of travel.
Rankings
Overall FM provider
Integrated FM
Hard FM
Cleaning
Security
Catering
Front of house
Landscaping
Waste
2013
2014
2015
Direction of Travel
Maintain lead
Maintain lead
Maintain lead
Maintain
Maintain
#1
#1
#2
#2
#2
#5
#1
#2
#3
#1
#1
#2
#2
#2
#5
#2
#2
#2
#1
#1
#1
#2
#2
#3
#1
#1
#1
Our people are what make Mitie such a compelling partner for
organisations looking to improve performance and reduce costs.
10
“We have a track record
of responding to changing
market conditions and
client needs”
We retained 88%* of contracts up for review
during the year - and were particularly delighted
to successfully rebid our contract for the FM of
Rolls-Royce’s UK and European estate for a further
five years. We have worked with Rolls-Royce for
24 years and in that time have seen our partnership
grow from a single contract to a fully integrated,
European-wide service. Among other notable
developments, we also successfully rebid our
integrated FM contract with RWE npower and
extended in scope and term contracts with
St George’s Hospital NHS Hospital Trust and the
Cumbrian Collaboration during the year, underlining
the link between long-term relationships and
long-term value.
At the same time, we have continued to generate
more business from new and existing clients.
Among the highlights are a new £100 million
contract to provide FM services to NHS Property
Services across England. Our appointment followed
an intense rationalisation of services by NHS
Property Services - with Mitie winning 25 of the
31 lots on offer. We have also been successful
in adding a range of new single, bundled and
integrated services contracts to our portfolio
during the year, more details of which can be
found in the Operating Review on pp 37–51.
In November, the Mitie Executive Relationship
Programme (ERP) was honoured as the ‘Best
Corporate Decision-Maker-Targeted Campaign’
at the Business-to-Business Awards. The ERP is a
great example of how we work hard to get close to
our clients, building relationships based on trust and
mutual respect. We held 13 dinners and roundtables
under the ERP umbrella, engaging with 118
representatives from clients and prospects.
Topics covered included: agile working; data;
energy; evolving FM contract models; productivity;
the challenges faced by specific sectors; and our
views on FM industry drivers. We published three
major pieces of research during the year, 18
strategy reports, over 30 PR articles, 76 blogs
and made eight presentations of our white papers.
In addition to the clients we met face-to-face,
articles on our website received over 10,000 hits.
* This represents the retention % of the top 50 contracts across the group, calculated
using the same method as the prior year (96%).
Mitie Group plc | Annual Report and Accounts 2016
2
Increase the range and scale of services
we provide to our top 200 clients, in the
UK and internationally
Over the last decade, we have seen a clear trend for
clients to trust us to deliver an ever increasing range
of services. Typically, they begin their journey by
first testing the outsourcing water with a single
service. The next stage is to access broader cost
savings and synergies by bundling a range of
services into a single contract. Finally, they move
to fully integrated FM where they benefit from
greater savings, additional synergies and integrated
delivery co-ordinated by a Mitie-managed team.
Once clients experience IFM from Mitie, they
become long-term advocates – in fact our retention
rate in IFM was 100% during the last 12 months.
Now we are sharpening our focus on moving our
top 200 FM clients towards IFM, with skilled
account directors building and maintaining
close relationships that last.
An example of this during the year was when we
were awarded a new integrated FM contract with
dmg media, having previously provided security to
the group. The expanded five-year contract has
an expected total value in excess of £20 million,
with a further potential two-year extension period.
We were also delighted that our catering business,
Gather & Gather, was awarded a new contract by
Vodafone, adding to the existing integrated FM
work we already provide across their UK and
Irish estate. Growing the scope of our work with
existing clients has been key to our growth,
and this approach remains a critical element
of our long-term growth strategy.
We work hard to give our clients the best possible
service - not only how and when they want it,
but where they want it too. Our business model is
equally relevant across Europe. So when our clients
expand into new territories, we make sure they can
benefit from the same high quality services that
they enjoy in the UK. We have followed our clients
and built a Mitie presence in countries including
Ireland, Germany and Norway. Once established in
a new country with an existing client, we take the
opportunity to evaluate local markets and identify
opportunities for further expansion and growth.
Integrated FM
Integrated delivery – one client contact
Significant synergies
Management team employed
by Mitie (thin client layer)
Data and information systems drive
strategic property decisions
+10%
incremental savings
Bundled
services
Broader cost savings
Synergies between service lines
Standardised provision
+10-15%
incremental savings
Single
services
A range of specialist services
20-30%
savings from
in-house client provision
11
Evolution of service delivery
Our clients are all at varying stages of the outsourced
journey from single to bundled to integrated.
Turn to our operating review
for more information on pages 37-51
www.mitie.com
Diversity
We are passionate about diversity, and that
is why we are introducing aspirational targets
throughout our business.
Read more on page 18.
Executive Directors
2
Women
0
Men
Senior managers
114
Women
Employees
28,924
Women
480
Men
33,824
Men
Women while our apprenticeship programmes
won the silver award at the Apprenticeships
4 England Awards. We also won our eighth
consecutive Gold Medal Award from the
Royal Society for the Prevention of Accidents,
in recognition of our track record on employee
health and safety.
Being a diverse business makes us a better
business. This year we set ambitious internal
diversity targets for each of our subsidiary Boards,
which cover ethnicity, gender and age, and tasked
each of our management teams to deliver on these
targets by 2020. In the long-term we aim to have
management teams at all levels representative of
our wider people mix, which is currently 46/54 :
female/male and 20% disclosed BME. As a business
we also want to lead the way in transparency and
reporting, which is why we are now opting to include
our employee data, broken down by salary, gender
and ethnicity, in this report and can be found on p18
(in addition to our sustainability report where it has
been historically reported).
Chief Executive’s strategy overview continued
Attract, retain and develop the
best people in our industry
3
As a services business, we are nothing without our
people, and we strive to support and engage with
them in a wide range of ways. Only when we have
excellent people supporting great clients are we in
a position to inspire change in the way people live
and work.
Companies with highly engaged workforces
outperform their peers and achieve significantly
greater productivity and profitability, with fewer
safety incidents, less sick leave and reduced
people turnover. During the year we carried out
a full company-wide Misay employee engagement
survey, which attracted over 80,000 individual
comments and has resulted in a variety of actions
being taken across the business.
Our approach to engagement is to listen to what
our people say, address their needs and concerns,
share best practice and build a strong group culture
- and we do this across the full hire-inspire-admire-
retire employee lifecycle. At the hiring stage of
the employee journey, we focus on engagement
and teamwork. Then we inspire them with training
and development, including our Key Accounts
Leadership Development Programme, opening up
opportunities for careers - not just jobs. This is
followed by the admire stage, where we recognise
and reward their achievements. We continue to be
recognised as a good employer by our peers and
others. For the fifth year running, we have been
named as one of The Times Top 50 Employers for
Our vision and values
12
Mitie Group plc | Annual Report and Accounts 2016
Increase the provision
of technology-led services
4
We are constantly searching for new ways to work
as well as ways to improve what we already do well.
Our experience, scale and scope combine to give us
the ability to share best practice - we are able to
rapidly transform organisations by applying the
lessons learnt in one sector to the challenges
being faced elsewhere. We have made significant
investment in technological solutions and we
expect it to be an increasing component of
everything we do.
Where we take a technology-led approach,
it has the potential to reduce revenues,
but sustain profitability. Technology has already
had a positive impact on our profitability. A decade
ago, technology accounted for less than 5% of
our security business revenue and 0% of its profits.
In 2015, those figures were more than 10% and
20% respectively. Not surprisingly, our strategy
is to invest further in technology, ensuring high
data quality and developing bespoke solutions
based on analytics and data.
With the rise in agile working practices such as
hot-desking and home working, the office
environment is changing fast. We are constantly
exploring how we can work smarter by using data
and technology to deliver service excellence with
fewer people – and drive our financial performance.
For example, we are revolutionising cleaning
services by using sensors to detect usage levels of
office facilities from washrooms to boardrooms.
Where usage is low, cleaning schedules can be
updated in real time so our people can be deployed
where they are really needed. That means less time
wasted and more efficient use of resources.
We are investing in wearable technology, robotics
and a range of applications, and continue to
develop our existing technologies, such as remote
monitoring and vetting, which differentiate our
services. For example, during the year we created
a wearable app which can track site-based teams
via Bluetooth. This means we can schedule and
re-schedule teams to meet real-time requirements
as well as measure service delivery. Similarly,
our document management business has developed
a new app that allows clients to track goods and
deliveries across multiple sites – all via a tablet
instead of a desk-based system.
Our catering business, Gather & Gather has developed a bespoke
customer app which delivers instant offers, latest news
and loyalty rewards directly into the hands of our customers.
Our security business is another example of
how new technology is giving us a competitive
advantage. Through Mitec, we will be the first UK
company to incorporate revolutionary Facewatch
software into our CCTV monitoring contracts.
Facewatch simplifies the evidence collection
process, and enables clients to report incidents
directly to police and track the progress of
investigations. In addition, we will be using Mitec
data to identify risks and trends in particular areas,
supporting our clients as they work to tackle
business crime and anti-social behaviour.
Our investment in technology was acknowledged
by our peers during the year, when we were
crowned winner of i-FM’s Technology in FM Award,
in recognition of the benefits that our Miworld
management information tool is generating for
clients. Miworld gives our largest IFM clients a
minute-by-minute activity report of service delivery.
In the words of the judges, we were “able to
demonstrate a number of examples where the
technology has delivered significant savings.”
13
www.mitie.com Chief Executive’s strategy overview continued
Grow our public services businesses by
developing relationships with key clients
5
We know how to manage talented, committed
people and engage with clients in order to create
innovative, hugely effective services that provide
outstanding value over the long term. This business
model has been the foundation of our growth
in FM, but is also relevant across the provision
of public services.
A key element of our strategy is to ensure that we
serve a variety of markets that will sustainably give
us the growth and margins we desire. Over the full
economic cycle all of our chosen markets have the
potential to deliver successfully. This diversification
has been key to our resilience. We generate over a
third of our revenues from the public sector, where
we remain focused on three key areas: social
housing, justice and healthcare.
In our Property Management business, we provide
repair and maintenance services to the social
housing sector. Like our FM business, this market
features clients keen to establish long-term
relationships and access a steadily increasing range
of services. We work with a wide range of housing
associations and local authorities and aim to
leverage our capabilities in this area to grow our
business with new and existing clients.
We are also increasing our focus on the justice sector
where we have a growing track record in providing
services including immigration removal centres.
The Home Office is a key client and we see a
continuing flow of opportunities for our Care
and Custody business. In 2016 we made a small
acquisition in this area: Tascor Health, which provides
police forensic medical examination services
delivered by qualified doctors and nurses to police
forces. It is a specialised service that will further
strengthen our offering, by giving us presence and
capability in the offender health market.
In the homecare market, our MiHomecare
business delivers social care services to people who
require help and support due to illness or disability.
Complete Care provides nurse-led complex care
solutions in the home. Although the homecare
environment is facing challenges driven by local
authority spending cuts, we are focused on
establishing strategic partnerships with clients,
which will position us well for the opportunities that
we believe this market will generate in the longer
term. In the short term, we are focused on delivering
quality services, maintaining operational efficiency
and returning to profitability in the next financial year.
Expand the scale and breadth of
6
our higher value consultancy services
By engaging with clients at a boardroom or senior
management level, our consultancy business
frequently supports and differentiates our
mainstream FM services. Our capabilities include:
energy, waste, sustainability, real estate, workspace
management, vetting, risk and assurance. We see
further opportunities to leverage our existing client
base to expand our services, as well as offer
them in new markets.
Our Source8 business delivers real estate,
technology and risk management consultancy
services to leading global corporations. It has forged
a reputation for providing advisory and business
support services to government and non-
governmental organisations in real estate,
technology and risk management globally. Clients in
over 20 countries worldwide rely on analysis by the
Source8 team to underpin key decisions that impact
their organisations. Source8 has particular expertise
in emerging markets, but because it works on a
project basis, there is usually no need to establish a
permanent presence in each of those countries.
During the year it continued to expand its
operations in the Middle East and Asia, and
opened an office in Singapore.
Underpinning the strategy
Our strategy is supported by sound business
processes and a commitment to fulfilling our
responsibilities to the wider community.
Sustainability
Our business incorporates our sustainability
agenda into the way it operates every day.
We realise that having satisfied clients,
employees who are engaged, safe and respected,
a community that recognises our contribution to
society, minimum impact on the environment
and an aligned supply chain are the
fundamentals for success.
Our culture is about ‘doing the right thing’,
supporting each other and being a positive force in
our local communities. This approach is enabled by
rigorous policies on issues such as health and safety
and diversity, together with a commitment to
reducing the impact of our operations and helping
our clients achieve their own environmental targets.
This approach is ingrained in the way we do
everything and is described in more detail on
pages 18 to 19.
“The outsourcing market
remains one of change
and opportunity.”
14
more information
on pages 18-19
Mitie Group plc | Annual Report and Accounts 2016
more information
on pages 57-60
more information
on pages 64-100
Risk management
Everything we do is undertaken against a backdrop
of effective risk management. We categorise our
key risks as strategic, financial, operational or
regulatory and you can find more details on each
category on pages 57-60.
Governance
We have the processes in place to ensure that
Mitie is fully compliant, operates effectively and is
properly valued as a business. These include audit
and internal controls, financial reporting and quality
systems, together with processes and policies to
ensure appropriate remuneration as well as
compliance with the regulatory framework.
Please see pages 64-100 for details.
Market developments
The outsourcing market remains one of change and
opportunity. We are the leading FM provider with
some of the best technology, people and clients in
the market and we can continue to grow our position.
We also have a growing presence and range of
opportunities outside the UK and in new services,
which we intend to carefully explore and develop.
Customers are seeking a more joined-up approach
to different services, whether that be bundles or fully
integrated FM contracts. They seek providers that
can provide best-in-class services, add real value
and harness technology, but that are also easy
and flexible to do business with.
National Living Wage
As a top ten private sector employer, we welcomed
the announcement that a new National Living Wage
(NLW) would be introduced in the UK in April 2016.
We are supportive of this move, which ensures that
those of our people who are affected, are better
rewarded and feel more motivated to do the jobs
they do. It will also improve retention rates across
our business.
Since the minimum wage was introduced in 1999,
we have managed the impact from its annual
change as part of the normal course of our business.
Having completed discussions with our clients in
relation to both the regular annual increase in the
minimum wage and the introduction of the National
Living Wage in April 2016, we remain confident that
our contractual protections ensure that it will not
have a material impact on our future earnings.
We also believe that this was an important
move for the outsourcing industry, as it affects
all competitors equally and creates a level playing
field in terms of bidding. Outsourcing prices are
increasing as a consequence of this. We will
continue to work with our clients to identify
cost efficiencies in other areas.
Going forward, there are broader changes to
UK employment costs in addition to the National
Living Wage, such as rising employer pension
contributions, a new apprentice levy, and additional
labour legislation. These changes are contributing
to an increase in the overall cost of more labour-
intensive services. In what is already a competitive
environment, we expect this will create further shifts
in our markets. We are responding to these changes
by accelerating our focus on technology solutions to
drive greater efficiency and smarter working in all
the core services we provide.
Business evolution
To ensure that Mitie is best placed to respond to
its changing markets, and remains a lean and
efficient business, we have made some changes to
the way we operate. From 1 April 2016, parts of
the soft and hard FM businesses will be combined,
to operate under one management structure.
The management structures of our property
management and healthcare businesses will also
be combined, to create one services business that
faces our key public sector markets of social housing,
justice and healthcare.
These changes will allow us to optimise our back
office and support functions, ensuring we provide
the best solutions and services to our clients.
This presents a tremendous opportunity for us
all to challenge our approach, deliver our services
in a more efficient manner, invest in our technology,
and use the passion of our people to meet the
changing demands of our customers.
Looking ahead
We have a flexible, resilient business model and
a track record of responding to changing market
conditions and client needs. Due to current
macroeconomic factors, we anticipate modest
growth in the current financial year.
Mitie remains a vibrant, sustainable and profitable
business. Everything we do is about our people.
I would like to thank everyone across the group
who works so hard to deliver good services to our
clients. You make us who we are.
Our strategy is clear, with an excellent business
model our commitment to helping our clients
achieve more with less continues to be our guiding
purpose. We face the future with determination
and confidence.
Ruby McGregor-Smith, CBE
Chief Executive
15
www.mitie.com Key performance indicators
Measuring our progress
Our six strategic pillars
We measure performance using a range of
financial and non-financial key performance
indicators which are closely linked to the
six pillars of our strategy.
Our financial KPIs are detailed
on pages 52-56.
Management retention
(%)
97.1
82.5
89.2
87.9
85.2
1 Maintain our position
as the leading
provider of FM
services in the UK
4
Increase the provision of
technology-led services
12
13
14
15
16
Link to strategic priority:
6
2 Increase the range
and scale of services
we provide to our top
200 clients, in the UK
and internationally
5 Grow our public
services businesses
by developing
relationships with
key clients
3 Attract, retain and
develop the best
people in our industry
6
Expand the scale
and breadth of
our higher value
consultancy services
Order book
(£bn)
8.6
9.2
8.7
9.0
8.5
12
13
14
15
16
Link to strategic priority:
1
2 4 5
Supported by having the right culture,
values and process
Carbon dioxide emissions
(tonnes per employee)
Sustainability
Risk management
Governance
16
0.71
0.64
0.63
0.63
0.66
12
13
14
15
16
Description:
Mitie is a people business and we
pride ourselves on creating and
nurturing outstanding managers.
How successful we are in retaining
our people is an important measure
for us.
Target:
Maintaining a management
retention rate of over 80%.
Comment:
Our management retention
rate was 85.2% for the year,
excluding redundancies.
Description:
The order book reflects the value
of future revenues based on all
existing contracts and it is a key
part of our focus on building
long-term recurring revenue.
Target:
We aim to grow our order book at
least in line with revenue growth.
Comment:
Our order book reduced by
5.6% during the year to £8.5bn.
Description:
Emissions are calculated using the
Defra guidance on how to measure
and report GHG emissions and apply
the 2010 guidelines for company
reporting. The rate of CO2e
emissions per Mitie employee is
calculated using the average number
of people employed during the year.
Target:
Understand and minimise
the environmental impact of
our operations.
Comment:
Emissions per employee are
16% lower than the 2010 baseline.
Mitie Group plc | Annual Report and Accounts 2016
Description:
Mitie has historically tracked and
reported organic revenue growth
as a key measure of its success.
Organic growth is calculated by using
revenue as reported in the Accounts,
based on the continuing businesses
and excluding the impact of material
acquisitions or disposals made during
the performance period.
Target:
Grow revenue organically every year.
Comment:
Revenues declined slightly during
the year.
Description:
Our operating profit margin
before other items provides us
with a good indicator of the
efficiency of our business.
Target:
Margin within range of 5-6%.
Comment:
Margins improved to 5.8% driven by
strong margins in our FM business.
Secured revenue
(%)
82%
83
85
84
85
82
12
13
14
15
16
Link to strategic priority:
1 2 4 5
Single/bundled/integrated
contracts (%)
26
31
32
33
13
46
33
29
30
28
41
41
40
38
39
12
13
14
15
16
Single
Bundled
Integrated
Link to strategic priority:
1 2 4 5
Reportable accidents
(per 1,000 employees)
3.4
3.1
2.6
2.5
2.4
12
13
14
15
16
Description:
We are focused on long-term
recurring revenue streams.
At the start of each financial year,
we calculate the percentage of
budgeted revenue that is
already contracted.
Comment:
At the start of the financial year,
82% of budgeted revenue for
2016/17 was secured, a reflection of
the success of our strategy to focus
on long-term secured revenue.
Description:
As a substantial portion of our
revenue was historically generated
through single service contracts, one
of our opportunities for growth is
through expanding our relationships
with existing clients by providing
other services. We have seen a trend
in the market towards bundled and
FM contracts over the past few
years and we are well positioned to
meet the demands of this trend due
to our broad range of services.
We measure the percentage of
revenue that is generated by these
types of contracts in order to
measure how well we are
performing in this area.
Comment:
61% of revenues are attributable to
bundled and integrated FM contracts.
Description:
The health and safety of our people
is critical to our business. Reportable
accidents are those defined as
fatalities, major injuries or resulting
in over seven days absence or
restriction from work.
Target:
In line with our Work Safe Home
Safe! employee engagement
programme, our objective is to
embed safe working behaviours and
ensure every employee goes home
safely at the end of their working day.
Organic revenue growth
(%)
-1.9%
5.4
5.0
5.2
4.9
12
13
14
15
(1.9)
16
Link to strategic priority:
1 2 4 5
Operating profit margin
(%) before other items
5.8%
6.2
6.1
6.0
5.7
5.8
12
13
14
15
16
Link to strategic priority:
3
Comment:
Our reportable accident rate shows
an improvement on the 2015 rate,
with a 3% reduction in the number
of reportable accidents. We will
maintain our focus on continual
improvement in health and safety
risk management to fulfil our
Work Safe Home Safe! vision.
17
www.mitie.com
Sustainability
Sustainability underpins
everything that we do
Being a sustainable business underpins
everything that we do to such an extent that it
warrants a separate section in our annual report.
While sustainability is fully integrated in our
day-to-day operations we want to make sure that
our stakeholders are aware of our approach and
how it impacts the business.
The results of our materiality analysis this year have
shown we are in line with our stakeholders needs in
terms of priorities – it was good to see that ethical
behaviour and health and safety are also at the top
of our stakeholders’ concerns.
A responsible company is one that will succeed and
continue to grow, which is why we take our ethical
business framework very seriously. Introduced in
2014, our Code of Conduct provides the guidance
and support necessary for everyone at Mitie to
behave in the right way. It helps our people
understand Mitie’s values and the responsible
behaviours that underpin them. The Code of Conduct
remains a key part of our induction programme as
well as a priority on our internal communication plans
throughout the year and we operate a confidential
Speak Up line for anyone wishing to make a
complaint outside the usual management channels.
Our code of ethics lays down our core values and
the responsible behaviours that underpin them.
We expect our people to follow the code at all times
and we use our influence to encourage our suppliers
to observe its principles too.
Health and safety remains an absolute priority for
the group, wherever we work and whatever we do.
This year we delivered further enhancements
through improvements to our risk management
framework, investments in training and continued
promotion of our award-winning Work Safe Home
Safe! employee engagement programme. This has
resulted in improvements in all our health and
safety measures.
> RIDDOR reportable rate: 3% improvement
> Over 7 day reportable rate: 4% improvement
> Over 7 + Over 3 day rate: 7% improvement
> Total recordable rate (Major, >7 and .3 day):
6% improvement
> Total days lost: 15% improvement
18
While this is pleasing we are never complacent and
are fully committed to driving further improvement
in our performance.
Employee engagement, and employee satisfaction
and retention were also high on the list in our
materiality analysis – both for the business and for
our stakeholders. This shows our stakeholders truly
understand Mitie is a people business – without
engaged and motivated employees, we would not
be the business we are today. We place a particular
emphasis on the inclusion and diversity of all of our
people. Whilst the Board is responsible for driving
the diversity agenda throughout the organisation,
it is supported by a Diversity and Inclusion Steering
Group comprised of senior business leaders from
all business areas. The Steering Group identifies
group-wide strategy and facilitates business
specific diversity action plans to drive that agenda
and manages four diversity networks on gender,
sexuality, disability and race. These networks
are called: Engender, Proud to be, Enable and
Kaleidoscope. This year we have introduced
ambitious targets for all of our subsidiary
boards to increase the diversity of board
members by 2020.
Ethnicity summary
Salary band
White
Black
Asian
Other Undisclosed
Total
0-30k
30-60k
60-100k
Over 100k
34,699
6,525
2,729
2,844
2,593
86
112
292
92
2
–
8
2
64
3
2
11,453 58,250
1,049
3,904
157
36
462
132
Total
37,676
6,613
2,851
2,913
12,695 62,748
Gender summary
Salary band
0-30k
30-60k
60-100k
Over 100k
Total
Female
Male
Total
27,944
30,306 58,250
866
3,038
3,904
95
19
367
113
462
132
28,924
33,824 62,748
Mitie Group plc | Annual Report and Accounts 2016 As set out in the Equality, Diversity and Inclusion
Policy, Mitie’s approach to business is underpinned by
a belief that all individuals should be treated fairly, and
should have access to equal opportunities, regardless
of their status. More specifically, the policy states that
no job applicant or employee should receive less
favourable treatment on grounds of, amongst other
things, disability.
During the year Mitie successfully built on its
long-standing relationship with Remploy, providing
practical support for disabled people through the
provision of work experience and employment
opportunities, with a number of disabled people being
employed in the group to date. Opportunities also
exist for employees of the group who become disabled
to continue their employment, with any reasonable
adjustments being made, or to be retrained for other
positions in the group.
We put a lot of time and effort into understanding
our employees better this year – with the addition
of a culture team and a more in-depth employee
survey – and thanks to the insight we now have,
we will be working on various projects to enhance
employee engagement and satisfaction over the
coming months.
This year we have increased our focus on
the evaluation of our environmental impacts and
we have been working with the Carbon Trust to
assess our policies, processes and performance.
Our environmental performance has improved in
this financial year.
We depend on our local communities to provide the
engaged, dedicated and talented people we need to
deliver great service and in return we support them
through a wide range of initiatives. Over the last
year we have donated time and money, raised
awareness and funds, and hosted a range of
events for local people to participate in and enjoy.
Environmental performance
Resource
Units
Scope 1
Scope 2
Gas and fleet fuel Tonnes of CO2e
Tonnes of CO2e
Electricity
Scope 1 and 2
Intensity
Tonnes of CO2e/
employee
Scope 3
Intensity
Tonnes/£m
Energy and
business car travel
Tonnes of CO2e
Upstream
Water
Tonnes of CO2e
Created waste
Tonnes
Intensity
Tonnes/employee
General waste
Tonnes
Recycled waste
Tonnes
% recycled
Human rights
Mitie is committed to the UN Guiding Principles on
Business and Human Rights and the International
Labour Organisation convention. Protecting and
preserving human rights in every territory we
operate in is embedded in our culture and
fundamental to our company values. This is
reflected in our policies and actions towards
our people, suppliers, clients and the communities
and countries where we do business.
Modern Slavery Act
We recognise our responsibilities to society in
relation to our supply chain. We actively engage
with our suppliers to ensure that they share our
values and comply with relevant legislation.
We welcome the introduction of the 2015 Modern
Slavery Act and the provisions within Section 54
covering supply chain transparency in the Home
Office guide. We will not tolerate human trafficking,
slavery or forced labour of any type. We will be
producing our slavery and human trafficking
statement in accordance with Home Office
guidelines by September 2016.
We are making good progress against our
sustainability targets for 2020. These are
discussed in more detail in our sustainability report
where there is more detailed information and data
on all aspects of our performance on www.mitie.
com/sustainability.
2010
restated
baseline
2015
2016
% change
against
baseline
41,343
41,090
38,688
3,490
2,938
0.79
0.63
26.07
4,564
10
1,436
0.025
989
447
31
19.36
7,411
12
1,503
0.022
792
711
47
2,763
0.66
18.56
4,679
10
971
0.016
368
603
62
- 6%
- 21%
- 16%
- 29%
+ 3%
+ 1%
- 32%
- 8%
- 63%
+ 35%
+100%
19
www.mitie.com 4AM
St Paul’s Cathedral, London
Working in partnership with
Transport for London, cleaning
the bus stops.
Bringing our
strategy to life
24 hours a day, 7 days a week,
365 days a year, there is a Mitie
force at work delivering essential
services around the clock and
inspiring change in the way
people live and work.
Bringing our strategy to life
1
Maintain our position as the
leading provider
of FM in the UK
Using innovation to provide
an edge where every second counts
In October 2015, we were awarded a hard FM services contract
with Red Bull Racing in Milton Keynes.
The contract has quickly evolved into a centre of excellence for
Mitie’s Intelligent Buildings solution. Working in partnership with
Red Bull Racing we have taken innovative steps to optimise their
environments, from bustling manufacturing space to open plan
areas. We’re shifting the focus of FM, adopting a more proactive
approach which prioritises comfort and enhances the
productivity of building users.
In Formula One, teams either innovate or stagnate. Mitie’s
innovative solutions are challenging the role of FM in building
management, giving Red Bull Racing the edge in how they
operate both on and off the track.
7AM
Red Bull Racing,
Milton Keynes
An analyst from Mitie’s
Remote Operating Centre
sends a daily observations
log to our onsite team,
highlighting any areas
where the building is
operating outside its
agreed comfort policy.
11AM
Rolls-Royce, Norway
Cleaning the floors of the Rolls-Royce
technology and training facility in
Ålesund, Norway.
Bringing our strategy to life
2
Increase the
range and scale
of services
we provide to our top
200 clients, in the UK
and internationally
In October 2015, we successfully re-secured our pan-European,
integrated FM contract with Rolls-Royce.
The renewed contract, our largest out to tender this year, builds
on a strong 20-year relationship which started life as a single-
service cleaning contract in East Kilbride, Scotland in 1996.
Over the years, we’ve developed a strong working relationship
with our clients at Rolls-Royce, underpinned by our dedicated
service to and support of their property management strategy,
as well as by our investments in technological innovations.
In turn, Rolls-Royce has recognised the benefits of our
partnership, with subsequent extensions and expansions
of our contract – both at home and abroad – proving their
trust in our ability to deliver integrated services internationally.
> We currently provide integrated facilities management
to 700 Rolls-Royce properties across the UK, Norway,
Finland, Sweden, Germany, France and Poland.
> We have over 1,000 Mitie people working on the
Rolls-Royce contract across Europe.
1PM
Mitie’s office, London Bridge
Kirsty meets senior operations directors
to discuss contract development ideas.
Bringing our strategy to life
3
Attract, retain and develop the
best talent
in the industry
Apprentice to Head of Business Improvement
Kirsty joined Mitie as a contract administrator, initially overseeing
helpdesk, administration and finance for one of our key clients,
before completing her Technical HVAC Apprenticeship in 2012.
In the years since, Kirsty has quickly progressed up through
the business, holding various managerial roles with
increasing responsibility.
Kirsty continues to develop professionally and personally
at Mitie. She was recently promoted in our Technical Facilities
Management (TFM) business to Head of Business Improvement,
a managerial role responsible for operational and service delivery
improvement, governance and efficiencies within critical
engineering contracts. Kirsty has also successfully completed
her Higher National Certificate qualification in Building Services
Engineering and Heating Ventilation and Air-conditioning.
This year, Kirsty was awarded the Outstanding Achievement
Award (Individual) at the TFM Apprentice of the Year and
Outstanding Achievement Awards 2016, She was also recently
shortlisted for WeAreTheCity’s Rising Star Awards, both of which
serve to recognise Kirsty’s career journey from an administrative
role to an operational management position, and highlight just
how valuable an apprenticeship can be for those wanting to
further develop their career at Mitie.
“I aspire to become a director in
facilities management, and with
the continual training, support,
and opportunity available at
Mitie I know I can achieve that.”
Kirsty Johnston, Head of Business Improvement
3PM
Network Rail,
Milton Keynes
A cleaning operative
receives an instant alert
to his wearable device
about a spillage in the
building that requires
urgent attention.
Bringing our strategy to life
4
Increase the provision of
technology-led
services
Wearables
We continually challenge our service offering to our clients
and customers and we’re always seeking innovative ways
to improve efficiency.
Across a number of our client sites, we’ve introduced wearable
technology for our cleaning teams which allows us to locate and
communicate with our people in an instant, track reactive tasks
and more robustly measure productivity.
For the first time in real time we can provide our clients with
a fully accountable service delivery, measured against their
specific requirements and any adhoc demands. These simple
metrics allow us to adapt our service to suit each of our clients’
needs and ensure we are consistently operating at our
optimum productivity.
The technology also has a number of built-in features,
including a pedometer and heart rate monitor, to allow our
people to measure their walking distance and heart rate,
encouraging positive health and wellbeing.
Bringing our strategy to life
5
Grow our public
services businesses by
developing
relationships
with key clients
Mitie has been caring for residents’ homes and public buildings
for over 25 years. Our people are experts in all of the key building
and specialist trades, delivering responsive repairs and planned
and cyclical social housing maintenance services to over
100 local authorities and social housing providers nationwide.
Our success can be attributed to the open, transparent and
mutually beneficial relationships we build with not only our
clients, but also the residents we serve.
As a service provider involved with local communities and
residents every day, we’re in a unique position to give something
back to the areas we work in and contribute to the communities
we are part of. Residents are encouraged to take a more active
role in their communities, and Mitie helps to facilitate that.
Through residents’ forums, coffee mornings, repairs surgeries,
and estate fun days, we encourage them to play an active role
not only in the planning and delivery of our services, but in
helping to shape and build sustainable communities.
Another area of focus within our communities has been health
and wellbeing. In partnership with Kent County Council, Kent
NHS Trust, Wellbeing People and long-term partner Golding
Homes, we launched a Health MOT Roadshow, delivering free
mobile health checks to local residents. The unique partnership
won us the highly acclaimed ‘Innovation in Partnering using
TPC2005 Award’, as well as the prestigious CIH Award for
‘Innovators of the year’. In addition, we were recently recognised
for our ‘Outstanding Approach to Repairs and Maintenance’ at
the 2016 UK Housing Awards (UKHA), in recognition of our
repairs and maintenance contract with Golding Homes.
5PM
Hammersmith & Fulham
A Mitie Resident Liaison Officer
discusses upcoming maintenance
plans with residents on a
Hammersmith & Fulham estate
Bringing our strategy to life
6
Expand the scale and
breadth of our higher-value
consultancy
services
As more and more companies look to expand into developing
economies, understanding the environment they work in is
crucial. As experts in this field, our Source8 business offers
clients pragmatic advice in the realms of real estate, technology
and risk management – specifically, how to increase efficiencies
and reduce risk, whether they’re looking to expand offices into
new markets or consolidate office space in existing markets.
Over the past 12 months, Source8 has begun work with a
number of new clients, expanding operations further afield
into the Middle East and Asia, recently opening a new office
for a major financial services client in Singapore. In doing so,
Source8 created an ongoing FM solution that is also scalable
for the client’s other international properties.
30+
different languages
spoken by Source8
employees
£6m
consultancy contracts
secured with Mitie
clients this year
8PM
Client’s office, Singapore
The Source8 team in Singapore
discuss the ongoing operations
and maintenance of the new facility
on a conference call with our Mitie FM
team in the UK.
Marketplace
Opportunities
and challenges
The key trends that are shaping our industry.
The total UK FM market is valued at over £100 billion and of this,
around £75 billion is currently outsourced. Our principal addressable
market, defined as contracts worth over £500,000 a year, is valued
at around £45 billion, of which we hold a 5% share. The FM market is
highly fragmented at the smaller end of the market, but overall is
dominated by some 120 large providers. At the larger end of the
market, the 12 largest players generate over £30 billion in revenues,
or one-third of the total outsourced market. (Source: management
consultancy, MTW Research)
Major markets: Sales pipeline
1
13
12
11
10
2
3
£9.1bn
9
8
7
6
5
4
Public sector
1. Central government
2. Local government
3. Social housing
4. Healthcare
5. Education
Private sector
6. Finance and professional services
7. Manufacturing
8. Retail
9. Property management
10. Technology
11. Utilities
12. Leisure
13. Transport
9%
8%
27%
4%
2%
14%
6%
3%
11%
2%
4%
2%
8%
Modest macro-economic growth
The UK economy remains in relatively
low growth and low inflation mode.
GDP increased by 2.2% during 2015, down from
2.9% in 2014, and is currently forecast to grow
by a modest 2.0% in the year ahead.
In our markets over the past year, we have seen
client behaviour and decision making impacted by a
range of external factors. These include the general
election, changes in government policy, China, the oil
price and the Brexit referendum. These have had a
negative impact on sentiment and reduced the levels
of discretionary spend from our clients, as well as
cause some project works to be delayed, deferred
or cancelled.
Private sector partnership approach
The private sector continues to drive the
growth of outsourcing in the UK, with the
key driver being improved services with reduced
costs. Our focus is on a wide range of sectors
including finance and professional services,
manufacturing and leisure. The private sector
accounted for 62% of our 2015/16 revenue.
Private sector clients have always wanted more for
less and this is definitely the case now. With the UK
and European economies delivering limited growth,
the focus has returned to cost and increasing the
efficiency of service provision.
However, many of our clients, particularly in
the private sector, are looking to shift from a
transactional and contractual approach to a
partnership model. This model considers how
services can be provided to support the client’s
strategic goals over the longer term. It results in
clients generating the best value from their
relationships with service providers, by reducing
the number of suppliers they work with and ensuring
both parties are working towards common goals.
We have seen an increasing number of our clients
decide to take this approach, which works
particularly well where we are delivering
integrated services.
34
Mitie Group plc | Annual Report and Accounts 2016 Homecare should be seen as a critical strategic
resource for the key priority of containing spending
and pressure on the NHS. Without quality
homecare, most service users would have to be
looked after either in nursing homes or in hospitals.
The average cost of homecare based on daily visits
and intensive support is £200-250 a week. The cost
of nursing home care now averages £800 a week.
Hospital care ranges from £1,500-£2,000 a week.
Without homecare there would be extreme pressure
to increase use of these high-cost services.
Although the market does remain challenging, we
are encouraged by the tangible progress we have
seen in our healthcare business recently, with
improving quality scores and more evidence of
higher, sustainable, charge-out rates.
Increasing cost of labour
In the summer 2015 Budget, the UK
government announced the introduction of
a new National Living Wage. It represents a premium
to the National Minimum Wage (NMW), for people
aged over 25. It increased rates for over 25s from
£6.70 to £7.20 per hour in April 2016, and the
Government’s objective is to increase it to 60% of
median earnings by 2020, and for it to be over
£9 by that time. Automatic enrolment in workplace
pension schemes is also increasing the cost of labour
over the next three years. The Government has also
proposed the introduction of an apprentice levy,
which, if implemented in April 2017, will further add
to employment costs.
These initiatives will see a significantly increased cost
of labour in some areas of our business, including
cleaning, a small area of security, catering and
healthcare. This will in turn impact on outsourcing
prices, however we will continue to work with our
clients to identify cost efficiencies in other areas.
Public sector funding constraints
The public sector backdrop remains one
of austerity. The Government’s Spending
Review and Autumn Statement set out how it will
cut the forecast deficit by three quarters by
2016-17 from its peak and eliminate it altogether
by 2019-20, suggesting that both significant public
sector cuts and more reforms lie ahead.
Our focus on the public sector remains on
healthcare, social housing, justice and local
government. Continued budgetary constraints
and the back-end loading of Government cuts,
in a period of low economic growth, are forcing our
public sector clients to look for ways to do things
differently. Whilst procurement still remains very
focused on cost, we see good long-term growth
opportunities, as governments turn to outsourcing
to help them manage those costs while still
providing good service levels.
We made good progress during the year, with
our largest new contract award coming from the
public sector – a £100m agreement to provide a
range of FM services to NHS Property Services
across England.
In July 2015, the Chancellor announced that social
housing tenants in the UK would see their rent
reduced by 1% a year for the next four years after
compelling housing associations to lower them.
In anticipation of this statutory reduction in social
housing rents, which came into effect on 1 April
2016, we saw changes in spending patterns by our
local authority and housing association clients in
the second half of the financial year.
Homecare
The homecare market in the UK has suffered from
a severe lack of funding, particularly in the last two
years, as local government spending has been
heavily constrained. The National Audit Office
reports that central government will have
reduced its funding to local authorities by 37 per
cent in real terms between 2010-11 and 2015-16.
The United Kingdom Homecare Association
(UKHCA), the professional association of home
care providers, recently set out the case for a
sustainable hourly rate of around £16.00 an hour
now, rising to £23.00 an hour over the next four
years. However on average across the UK, councils
currently pay significantly below the sustainable rate.
35
www.mitie.com Marketplace continued
Greater globalisation
The world is coming closer together.
While our business footprint currently
covers nine countries, our people represent 138
different nationalities, demonstrating that Mitie is
one of the most diverse businesses in one of the
world’s most diverse marketplaces. Gender diversity
is also on the rise, with women now earning 60%
of university degrees in the US and Europe.
Increasingly, globalisation means that efficient
working practices in one country are quickly
replicated elsewhere to the benefit of all - and this
trend is magnified when organisations move into
new territories. We follow our clients, ensuring that
they can access the same level of service that they
enjoy in the UK.
Changing demographics
The population is growing and, in Europe,
also ageing. By 2025 there will be a further one
billion people on our planet, with 50% of that growth
in Africa. In the UK, one in five of us will be over
65 by 2050 and this has clear implications for
Governments as well as our healthcare business.
According to Deloitte’s 2016 Global health care
outlook, healthcare expenditure per capita was
$3,698 in the UK, behind Germany ($5,006)
and the US ($9,146). Deloitte also confirmed that
the population is ageing rapidly worldwide.
Increased life expectancy - up from an estimated
72.3 years in 2014 to 73.3 years in 2019 - will bring
the number of people aged 65+ worldwide to over
604 million, or 10.8 percent of the total global
population. That number is anticipated to be even
higher In Western Europe (almost 21%) and Japan
(28%), driving increased demand for homecare.
Deloitte’s view is that “with the appropriate use
of technology and monitoring, home health care
may reach hospital-level care. It also provides
treatment with reduced costs and improved
patient satisfaction. The US home health care
market alone was valued at $77.8 billion in 2012
and is projected to grow to $157 billion by 2022.
India’s home health care market is worth $2 billion
and is growing at the rate of 20 percent annually,
while in Europe, home health care is expected to be
worth $57.2 billion by 2017.” The UKHCA estimates
the UK’s home care market to be valued at £5.2
billion in 2015, serving approximately 900,000
individuals. With the size of the population aged
over 65 expected to increase by 7%, or over four
million people, in the next ten years, the UK market
is expected to grow significantly.
36
Changing workplaces
For the last three years, we have engaged
with senior property and FM directors through
a series of research projects. We have conducted
extensive interviews to build a detailed understanding of
the factors that are influencing the shape and operation
of commercial property estates. In 2015, we extended
this research project to knowledge (office-based)
workers, in order to gain a better understanding of
how different groups of employees are reacting to
new working patterns.
These are a few examples of how property directors
see their world in 2020:
> The need for commercial office space in the UK will
be half that of 2010
> Just 40% of office workers will have their ‘own’ desk
> 62% of the UK’s commercial space will be in
London and the South East
> 55% of UK businesses will have merged FM, Property,
HR & IT functions
> 60% of staff will spend more time working out
of the office than in it
As clients’ needs evolve so too must the FM
services created to meet them. In sectors from front
of house and security to cleaning, that means being
innovative – understanding how property is being used
and tailoring our solutions accordingly, often with the
use of technology.
Increasing use of technology
New technologies are transforming the way
people work. One of our industry surveys found
that around three-quarters of businesses use social
media and a similar number of executives say they
are working towards using analytics, while 72% of
businesses agreed that mobile adaptation was
improving productivity.
Even the jobs that people still do have changed as
automation has impacted many aspects of our working
lives. There are 271,000 more care workers today than
there were to 15 years ago, while the number of PAs,
secretaries and typists has fallen by 312,000 (source:
Frey & Osborn, Deloitte analysis 2015). Digital know-
how sits at the top of the table of skills required by
businesses for the future (source: Deloitte survey
of 100 businesses).
There has been a huge leap in the amount of data being
captured and collated by FM departments and service
providers, with sophisticated dashboards able to drill
down into the details of everything from utility costs to
how people move around a building. The single view of
data provided by our Miworld initiative gives clients the
opportunity to improve the way they manage
workplaces. This is just one example of the technologies
that are reshaping our markets, others include mobile
apps that streamline processes for our managers,
enabling them to spend more time with clients, and
wearable technology that tracks our site-based teams.
Mitie Group plc | Annual Report and Accounts 2016 Operating review
The shape of our business
£1,255m
Soft FM
£2.2bn
Revenue
£78m
Healthcare
£280m
Property
Management
£619m
Hard FM
Facilities Management revenue split
1. Cleaning and environmental services
2. Security
3. Catering and front of house
4. Hard FM
5. Integrated FM
2016
2015
£354m £360m
£214m
£236m
£112m
£427m
£745m
£114m
£479m
£734m
5
1
2
4
£1,874m
Facilities Management
revenue split
3
37
www.mitie.com Operating review continued
Facilities Management
Our FM business comprises two divisions. Soft FM
includes cleaning and environmental services, security,
catering and front of house services. Hard FM provides
a range of technical, building maintenance and energy
services. We bring these services together with property
consultancy and data analysis in a single tailored
proposition that we call Integrated Facilities Management.
As all of the services in our integrated FM contracts are
delivered by our FM businesses, we include relevant
revenue and profits on these contracts within Hard
and Soft FM below.
Revenue
Soft FM
Hard FM
Operating profit
before other items
Soft FM
Hard FM
Operating profit margin
before other items
Soft FM
Hard FM
2016
2015
Growth
£1,255.1m £1,280.3m
£621.1m
£1,873.5m £1,901.4m
£618.4m
£85.4m
£31.7m
£117.1m
£81.9m
£31.4m
£113.3m
(2.0%)
(0.4%)
(1.5%)
4.3%
1.0%
3.4%
6.8%
5.1%
6.3%
6.4%
5.1%
6.0%
+0.4ppt
–
+0.3ppt
Order book
£7.2bn
£7.6bn
(5.3%)
Key contract awards:
Client
Deloitte LLP
Appointed to deliver the complete range of FM services,
including cleaning, security, landscaping, pest control,
waste management, health and safety management,
energy consultancy and helpdesk services across
Deloitte’s entire UK estate.
Dixons Carphone
A new FM service contract to provide premises
management, maintenance, cleaning, security and front
of house for key non-retail locations.
JLL – Property and Asset Management
Awarded multiple soft and hard FM contracts for Investor
Client property portfolios across the UK.
Sky
Extended contract term by five years and changed
scope with Europe’s leading entertainment company.
Mitie will continue to provide a range of services including,
mechanical and electrical maintenance, and security,
front of house, cleaning, helpdesk, switchboard,
mailroom management and waste management.
Total
value
Time
frame
£40m 5 years
£10m 3 years
£100m
3 + 2
years
£190m 8 years
38
Developments during the year
Our FM businesses had a strong year, with a
93% contract retention rate and some notable
successes. We broadly maintained revenues and
profits despite a shortfall in project work, due to
our success in winning a number of new contracts.
The macroeconomic backdrop in the UK limited our
growth during the year, as clients changed their
spending patterns. In the first few months of the
year, we saw organisations delaying decisions on
projects until after the UK general election.
Following the election, the private sector resumed
activity at a healthy rate but the public sector
retained its focus on reducing the deficit and
cutting expenditure. In the second half of the year,
our markets experienced general uncertainty,
following the Government’s decision to hold a
referendum on the UK’s membership of the EU.
Together, these factors combined to cause a
number of our clients to either delay or cancel
projects until after the referendum.
While the day-to-day services that we provide
continued as expected, there was some reduction
in discretionary spend and projects. In response,
we took prompt action and removed any
discretionary items of expenditure from our
budgets, and also delayed or cancelled some of our
own projects. These actions enabled us to maintain
a healthy level of profitability across FM as a whole.
Mitec
Mitec is our remote monitoring disaster
recovery and technology centre, central to
our communications and technology services –
operational 24 hours a day, 365 days a year.
Mitie Group plc | Annual Report and Accounts 2016 Lone worker protection
Earlier this year we were awarded a five-year contract to provide lone-worker protection
services for Northumbrian Water Group based on our wide range of lone worker solutions
and industry leading technology.
Another major factor this year was the impact of
a series of initiatives by the UK Government that
will result in significant increases to the cost of
employing people over the next few years,
especially people on lower incomes. Our response is
to engage with our clients and discuss the possible
options in detail, before implementing the necessary
changes. The actions that we take vary depending
upon the circumstances of each individual client.
While some clients are able to afford and pass on
any increases, many are not able to do so. In these
instances we work with them to identify changes
to either the quantity or scope of services that
we provide. Another option that we are finding
increasingly appropriate is to increase the extent
to which we use technology to support our service
delivery. Recent innovations mean that we are
now able to track more accurately the needs of our
clients, both in terms of the buildings they occupy
and the people who use them.
39
www.mitie.com Operating review continued
Integrated FM
Key contract awards:
Client
dmg media
Multi-year FM contract with increased scope that will see
Mitie add mechanical and electrical maintenance, front of
house, mailroom and logistic services to its existing security
and cleaning service offering.
Thales UK Ltd
New contract to deliver a range of IFM services across
Thales Group’s entire UK estate.
Rolls-Royce
Successfully re-bid the facilities management of Rolls-Royce’
UK and specific European properties.
RWE npower
Successfully re-bid contract with leading energy company to
provide a number of services including cleaning, security, waste
management, reprographics, space planning, mechanical and
electrical maintenance, pest control, mailroom management
and drink and snack vending.
In addition to providing services, our Integrated
Facilities Management (IFM) business manages
and develops contracts where we manage those
services, using technology to analyse data in order
to improve efficiency and support our clients’
property strategies. We currently manage 19 IFM
accounts in the public and private sector across the
UK and Ireland (with 4% of its revenue coming from
the rest of Europe), representing total revenue for
Mitie of £745m.
Total
value
Time
frame
£30m 5 years
£40m 5 years
ND
ND
ND
3+2
years
During the year we achieved excellent results in
contract retentions, where we have successfully
extended all our major private sector contracts over
the last 12 months. There are no significant re-bids
in this portfolio over the medium term. In the public
sector, we extended our contract term and scope
with the Cumbrian Collaboration until 2019.
We successfully re-bid our contract to deliver
pan-European integrated FM services for
Rolls-Royce. This was the largest contract out
to tender during this financial year and we are
delighted to be continuing a relationship that first
began in 1992, when we provided a single service
to Rolls-Royce in the UK.
We also extended the term and scope of our
integrated FM contract with Sky for an additional
five years. We have supported Sky’s operations
since 2012 and the new agreement, under which we
will provide integrated FM across Sky’s entire estate
in the UK and Ireland, will extend our partnership to
2021 and generate total revenues of £190m.
In addition, we successfully re-bid our integrated
FM contract with RWE npower and were awarded
a new contract to provide integrated FM for dmg
media, building on our existing work providing
security services to the group.
Our success in developing existing client
relationships has been complemented by a range
of service contracts for new clients, including three
significant integrated FM contracts. Each of these
contracts is valued at around £40m over five years
and includes the potential for additional reactive and
project works. In the finance sector, we will deliver a
wide range of services for Deloitte, across 34 sites
and over 1.3m square feet of office space. We were
also awarded a contract to provide services to over
300 UK branches of a new high street bank. In the
industrial sector, we have been awarded a new
contract to provide services across the UK
estate of Thales Group.
Our telephonists in our front of house business answer over 10,000
calls per day.
40
Mitie Group plc | Annual Report and Accounts 2016 Our approach to IFM is to be selective
about the opportunities we bid. We have
a preference for the private sector due to the
greater volume of IFM opportunities, faster
procurement turnarounds and the sector’s
balanced approach to risk transfer, as well as its
ability to develop stable long-term relationships.
Our methodology is to:
1. Retain and expand service scope to current
IFM clients
2. Develop single/ bundled current service
provision into IFM contracts
3. Identify and target new outsourcing clients in
key sectors
4. Develop our international capability to service
current clients overseas
Our IFM proposition is based on:
> an experienced management team to integrate
the contracts, provide one point of contact and
lead at a strategic level - providing value-add
advice beyond day-to-day operations and
enabling a thin client interface;
> 95% in-house service delivery - offering expertise
on tap, consistency, flexibility and no people
duplication or margin on margin; and
> quality technology and data to enable greater
strategic decision-making around the total cost
of property ownership and occupation.
Our IFM clients are at the heart of Mitie’s future
development and we foster very strong
relationships with them. Partnering and relationship
building are key aspects of our operational
expertise, reflecting the size and scope of the
contracts we manage. In many cases we see these
relationships developing and leading to our team
being established as trusted advisors. Alongside the
significant investment of senior and experienced
resource for our contracts, we also carry out
Miclient campaign reviews which support the
retention and extension of current relationships.
These campaigns help us focus on the importance
of contract retention and ensure we contribute
to and improve our performance in this area.
Each contract features targets which we strive to
achieve. In addition, our award-winning top level
executive relationship programme helps establish
and build relationships with property and facilities
directors from current clients as well as prospects
at a strategic level. We also conduct regular surveys
Cleaning the windows of the airport control tower
at Heathrow.
that help us to gain a deeper understanding of
advocacy, pinch points and strengths and
weaknesses which are used as a robust feedback
loop. Finally, senior members of the IFM Board and
Mitie’s Executive Board regularly spend time with
our largest clients, developing strategic relationships
at the highest level and making sure that these
clients’ concerns and priorities are understood.
We work hard to deepen our relationships with our
IFM clients, including through the services provided
by our property consultancy business, Source8.
In addition to the advisory and business support
services Source8 provides to corporate and
governmental organisations on implementing
real estate, technology and risk management,
the business is now supporting some of our IFM
clients across their global property portfolios.
This is enabling us to execute our strategy of
following our clients internationally, and will be
an important area for us in the years to come.
41
www.mitie.com Operating review continued
Soft FM: Cleaning
Key contract awards:
Client
Farnborough International Air Show
A new contract to provide cleaning services at the Farnborough
International Air Show.
Chelsea Harbour Ltd
Secured a contract to provide manned security
and cleaning services across its large estate.
Transport for London (TfL)
Successfully re-bid street furniture cleaning and maintenance
contract with Transport for London.
St George’s University Hospitals NHS
Foundation Trust
Extended the term and scope of our contract to deliver
a full suite of soft FM services in-house and under one
management team.
Time
Total
frame
value
£3m 5 years
£7.5m 5 years
£16.5m 5 years
£33m 3 years
The cleaning business has had a solid year,
supported by the benefits of shifting the business
to a more innovative technology-based service.
The structure of this business features regional
operations across the UK together with business
units specialising in different market sectors such
as transport, leisure, retail, manufacturing and
healthcare. We are the largest daily office cleaning
business in the UK and also the number one events
cleaning business – in fact our people clean over
20 million square feet of retail space every day.
In the healthcare sector we have over 3,000 people
providing FM services including domestic cleaning,
clinical cleaning, patient dining, portering, retail
restaurants, linen, helpdesk, waste and recycling,
post room, materials, reception, grounds
maintenance, pest control and security. We prepare
and serve over two million patient meals a year.
The manufacturing team also employs around
3,000 people who provide FM services, including
heavy duty industrial cleaning and window cleaning.
The scope of the contracts operation includes
motor manufacturing, heavy engineering, food
manufacturing and distribution centres – all highly
specialist areas that require dedicated teams
and management.
Our cleaning business is differentiated by the
degree of innovation that we bring to the market.
For example, we were the first to use microfibre
technology, an early adopter of vacuum back-packs
42
and among the first to rigorously enforce
ethical procurement policies for uniform suppliers.
We were the first to set up independent lean
Six Sigma applications, with our own lean software
and Lean Academy. We are now taking cleaning to
the next level of innovation by investing in and
implementing automation, wearable technology,
apps focusing on quality, telemetrics, intelligent
sensors and real-time energy meterage together
with liquid glass and ozone technology.
All these technologies are brought together
in our business management system Workplace +,
which links workplace planning, traceability and
accountability with cloud-based productivity,
auditing and reporting systems.
New contracts awarded during the year included
Virgin Atlantic, Westfield, Chelsea Harbour and TfL,
while we extended the term and scope of our
contract with BMW and successfully re-bid
Canary Wharf.
For the year ahead, we will be launching a new
technical cleaning services business across the
UK to expand our flooring, windows and industrial
cleaning offer – an area where we see good
potential for growth.
Clean Environments is one of Mitie’s largest
offerings with over 30,000 employees working
across the UK.
Mitie Group plc | Annual Report and Accounts 2016 Soft FM: Environmental services
Key contract awards:
Client
Network Rail Ltd
A new contract with Network Rail to provide environmental
on-track support services which will see Mitie deliver a unique,
combined service incorporating trackside pest control, fly
tipping clearance and sanitation support.
Lucozade Ribena Suntory
Appointed by the soft drinks manufacturer to provide complete
waste management services across its entire UK estate.
Hull and East Yorkshire Hospitals NHS Trust
Secured a contract to provide waste services across
the hospital.
Time
Total
frame
value
ND 7 years
ND 3 years
ND 5 years
Our environmental services comprise landscaping,
pest control and waste management.
Landscapes enjoyed a successful year, with
highlights including the implementation of a
major contract with JLL, new contracts with
NHS Property Services and National Grid and
the successful re-bid of contracts with CBRE and
BNP Paribas. The business also launched a new
look and feel for its brand and developed a
customer portal. Sectors targeted for the year
ahead include managing agents, retail, distribution,
utilities and leisure.
Waste Management made good progress,
with its market-leading offering that enables
clients to realise significant cost benefits at
the same time as exceeding their sustainability
objectives. It benefits from a differentiated approach
that blends waste minimisation, reuse and resource
resale, supported by efficient disposal only where
necessary. The business was awarded contracts with
Lucozade Ribena Suntory and Network Rail during
the year and successfully re-bid its biggest contract
with Novartis. Target sectors include FMCG,
automotive, pharmaceuticals and retail.
Pest Control continues to innovate in its market,
winning awards for the high standard of its
technicians as well as for quality. Following
investment in its PestAlert system, the business
now uses drones to survey some sites. Pest Control
was awarded contracts with Network Rail, NHS
Property Services and Onestop during the year
while extending the term and scope of our contract
with Bourne Leisure. Target sectors include food
manufacturing, retail and distribution.
Our trained sniffer dogs are specialists in rodent and bed bug detection.
43
www.mitie.com Operating review continued
Soft FM: Security
Key contract awards:
Client
Aberdeen Harbour Ltd
A new contract to deliver security services across four key
areas of one of the busiest ports in the UK.
NuGen
Appointed by the UK nuclear company to provide security
personnel at three of its sites.
Belfast City Airport
A new contract to deliver security services at Belfast
City Airport.
Major retailer
A new contract to provide security services across a leading
retailer’s 500 stores.
Scottish & Southern Energy PLC
A new contract to provide 24-hour security personnel across
its UK-wide portfolio.
Time
Total
frame
value
ND 3 years
ND 3 years
£6m 3 years
£50m 4 years
ND 3 years
We have more than 250 highly trained security professionals ensuring
the safety and wellbeing of Eurostar passengers.
44
Our security business performed well during the
year. Although margin pressure continued in the
manned guarding market, we are pleased that this
was offset by the successful development of
technology, vetting, systems and mobile services.
We expect this change in mix to continue in the
years ahead.
We have launched an emergency services business
which will provide emergency security and mobile
services, and will be introducing more technology
driven services to detect security threats and
protect properties with either fixed or mobile CCTV.
We are also looking to develop our car park
management services.
The year’s major contract awards included an
agreement with a large food retailer, where we are
adopting a risk-based deployment model utilising
software and handheld technology to capture
incidents and analyse data. The contract will have a
dedicated pod in our Mitec centre for remote CCTV
and BMS monitoring. We will also be providing
protection for lone and vulnerable workers and
providing specialist risk management services. In
line with our commitment to greater use of
technology, we will be using a mobile and detection
model for the contract with the National Grid, with
an emphasis on protecting unoccupied buildings.
The business successfully re-bid a number of
contracts during the year, including those with
Citibank, Channel 4, Financial Times, Pearson and
Coventry University.
Procius, our employment screening business,
continues to deliver good growth and is now
established as one of the UK’s largest providers
of pre-employment screening, competency
management and criminal records checking
services. Procius provides services though a central
software platform, MyCheck™, which has increased
productivity significantly and enabled us to attract
new clients such as New Look, Home Retail Group
and Eversheds. We will shortly be launching an
online service to support organisations seeking to
provide references for ex-employees.
Our document management business made good
progress in the year. It started the first outsourced
print room for a magic circle law firm, delivering
both hybrid and digital mail solutions from our
offsite facilities in London and Birmingham. We have
rolled out our new Pinpoint tracking software across
multiple sites for both public and private sector
clients and, in addition, launched and delivered our
Lean consultancy services across a number of
customers and their portfolios.
Mitie Group plc | Annual Report and Accounts 2016 Soft FM: Catering and front of house
Key contract awards:
Client
Capita
Expanded the scope of a contract to provide catering at
Capita’s key offices.
Vodafone
New contract that will see Gather & Gather cater for 9,000
Vodafone employees every day across 12 locations across
the UK.
LinkedIn
Gather & Gather awarded a new contract to provide catering to
LinkedIn’s EMEA Head Office in Dublin.
London South Bank University
Retained contract to provide reception and student information
services across the London campus.
Total
value
Time
frame
£2.3m 3 years
£40m 5 years
ND 3 years
£2.5m 3 years
Sustainability is a big focus area for the business,
and we successfully moved from 2 stars to the
maximum 3 star sustainability champion rating from
the Sustainable Restaurant Association. We also
made significant investments in driving technology
solutions across the business, including the launch
of the Gather & Gather app.
In 2015 we completed the full acquisition of
Creativevents, having initially acquired 51% of the
business in 2012. Creativevents provides food and
beverage services at leisure and entertainment
venues, outdoor festivals and corporate events.
It reported a good year, securing a number of new
events and festivals, as well as a new visitor cafe
at The Shard.
Client Services, our business specialising in front-of-
house reception services and switchboards, has
enjoyed strong retention successes and is looking
forward to a successful 2016 under the leadership
of new MD Conrad Dean, who came through Mitie’s
highly successful development academy.
Following two years of dramatic growth, the Gather
& Gather brand now has a substantial presence in
the market. We were awarded a new five-year,
£40m contract with Vodafone, consolidating the
group’s position as a leading IFM provider.
Gather & Gather also successfully expanded its
catering operations in Europe, including in Germany,
following the successful retention of the Rolls-Royce
contract. In Ireland, the business grew revenues by
£7m, boosted by key new contracts such as
LinkedIn and Eircom. Other successes during the
year included Laithwaites Wine and Primark.
Our approach is to create food with personality
and attitude, served by people who are passionate
about food as well as the quality of service they
provide. Sourcing of ingredients is a key part of the
Gather & Gather ethos, with local and sustainable
always being the preferred option. We pay particular
attention to how the food we serve impacts upon
the productivity of the people who eat it. We want
to be a part of what makes a successful productive
workplace that helps our clients to attract and
retain the best people.
Gather & Gather encourage a holistic approach to
wellbeing in our clients’ workplace by promoting
healthier lifestyle choices including fitness, mental
wellbeing and nutrition.
45
www.mitie.com Operating review continued
Our team of over 2,000 multi-skilled engineers provide vital services for thousands of clients across the UK,
24 hours a day, 365 days a year.
46
Mitie Group plc | Annual Report and Accounts 2016 Hard FM
Key contract awards:
Client
Cornerstone Telecommunications
Infrastructure Ltd
A new contract to manage the network sites for CTIL,
a joint venture between Vodafone UK and O2 (Telefonica),
to consolidate their sites to create a single grid. The contract
will see Mitie deliver FM maintenance services to the network,
covering the entire UK.
Red Bull Racing
A new contract to provide hard FM services to Red Bull Racing
in Milton Keynes.
NHS Property Services
Appointed by NHS Property Services to supply its Hard FM
services of Mechanical and Electrical (M&E) and Building
Fabric at locations across England.
Total
value
Time
frame
£70m 5 years
ND
ND
£100m
3+1+1
years
The Hard FM business delivers a range of technical
building and maintenance services across most
market sectors in the UK. We are the largest such
organisation in the UK and work closely with our
clients to manage their maintenance and
energy expenditure.
The year saw a reduction in the number of projects,
for reasons previously outlined. Due to this change
in business mix, with a smaller proportion of
revenues generated by higher-margin variable
project works, profitability of this division was
negatively impacted. However, we delivered
revenues broadly in line with last year due to a
steady stream of contract successes.
We were recently awarded a contract worth up to
£100m over five years with NHS Property Services,
a private company set up by the Department of
Health to manage all the ex-primary care trust
estates. Following a client-led rationalisation of
suppliers, we will be providing hard FM, security,
landscaping and pest control. We will be conducting
extensive asset and facet surveys, and will use our
patented technology to manage, monitor and report
on all maintenance and project works.
We have also been awarded a five-year contract
with Cornerstone Telecommunications
Infrastructure Ltd, a joint venture between Vodafone
UK and O2 (Telefonica) to manage the network sites
for both companies, and consolidate a number of
sites to create a single grid. The contract is valued at
more than £70m over five years and will see Mitie
deliver hard FM services to the network of over
20,000 cell mast sites across the UK. We will use
our unique dashboard asset management software,
Direct Audits, to provide real time contract and
asset data.
Our MobileTech service has over 750 engineers
maintaining 40,000 client sites across the UK.
We also successfully re-bid our contract with
Ladbrokes during the year, which is valued at
more than £80m over five years. We will provide
a range of services including hard FM, complaint
management and other soft services to over
2,000 retail outlets and offices. In addition,
Dixons Carphone awarded us a five-year
bundled contract which includes hard FM
and other soft services.
Our energy consulting business, Utilyx,
successfully re-bid contracts with key clients
including McDonalds, Barclays, HSBC and John
Lewis Partnership, and extended the term of its
contracts with Royal Mail and Virgin Active. It has
also been awarded new work with current clients
including over 40 Energy Saving Opportunity
Scheme submissions. This has resulted in positive
follow-on projects with organisations including KFC
and GLH Hotels.
47
www.mitie.com Operating review continued
Property
Management
The Property Management business provides a wide
range of services to predominantly social housing clients
in the UK. It also delivers claims handling and repair
services to insurance companies and is the largest
commercial painting organisation in the UK.
Revenue
Operating profit
before other items
Operating profit margin items
Order book
2016
2015
Growth
£280.4m £273.4m
2.6%
£15.8m £10.4m
51.9%
5.6%
3.8%
+1.8ppt
£0.8bn
£1.0bn
(20%)
Key contract awards:
Client
Home Group Ltd
Awarded a contract to provide cyclical external redecorations
and pre-painting repairs.
LHC Building Components & Services
New social housing contract.
Greenfields Community Housing
New painting contract to provide cyclical external and internal
redecorations and pre-painting repairs.
Total
value
£7m
Time
frame
3+2
years
ND 4 years
£1.3m 2 years
The Property Management business provides a wide
range of services to predominantly social housing
clients in the UK. It also delivers claims handling and
repair services to insurance companies and is the
largest commercial painting organisation in the UK.
Our social housing business experienced a year of
two halves. In the first half, buoyed by contract
awards and increased spending levels from existing
clients, it recorded significant growth in both
revenue and profits. Over many years we have seen
a marked improvement in the second half as our
clients look to deliver their budget commitments.
However, this was not the case this year, with social
housing landlords forced to reassess spending plans
as a result of the UK Government reducing rents
by 1% a year for four years from April 2016, in an
attempt to reduce the housing benefit bill. As social
landlords had previously been able to increase
rents each year by CPI plus 1%, this equates to
around a 12% reduction over the four-year period.
Consequently, a number of social landlords are
deferring project work and all are concentrating on
statutory maintenance work. The result is that the
second half saw reduced revenue and profit terms
instead of the traditional boost to performance
typically achieved during those months.
The Government’s actions are driving social
landlords to consider different ways to look after
their homes. Some are re-tendering services in the
traditional way, hoping that competition will drive
down prices, while others are looking at new models
where the range of services provided and the
We received the ‘Outstanding Approach to Repairs
and Maintenance’ award at the 2016 UK Housing
Awards (UKHA), in recognition of our repairs and
maintenance contract with Golding Homes.
48
Mitie Group plc | Annual Report and Accounts 2016 We are the largest painting business in the UK, providing a full range of painting services, from planned
maintenance and specialist coatings, to historical property redecoration and painting repairs.
responsibilities of partners vary. It is worth noting
that a feature of the current market is that we are
being approached by some of our clients to take
over contracts from other providers that are not
meeting expectations.
Our response to the changes is to retain a flexible
approach to service delivery, enabling us to provide
services locally, regionally or nationally as well as
either in single services, bundles or in more
integrated models.
We are currently expanding our service capability,
with a focus on providing an integrated property
management solution. This will mean that we will be
able to provide clients with a total, integrated
service including call centres, property
management, responsive and planned maintenance,
compliance and energy services, property surveys,
asset management consultancy and investment
planning across the UK.
As the market leader in painting and repair services,
with national coverage, we continued our strong
growth trajectory during the year. We secured
notable new contracts with Semperian Group Ltd
(providing a re-decoration service nationally to
schools, hospitals and prisons), Taunton Deane
Borough Council, Johnnie Johnson Housing Trust,
CityWest Homes, Wandsworth Borough Council,
three universities in Glasgow (Strathclyde/Glasgow/
Glasgow Caledonian), Heineken UK Ltd, Britannia
Hotels and NHS Fife. We targeted improved
revenues and associated margins in the private
sector, while ensuring that we also secured a
number of long-term public sector contracts.
We were proud to win the most prestigious prize in
the painting and decorating industry – the Painting
and Decorating Association’s Premier Trophy
Special Award for Excellence. This showcased our
diversity of skills as well as the high levels of
craftmanship that our teams possess, keeping us
ahead of our competition.
49
www.mitie.com Our healthcare business provides care at home for
people who need help and support due to illness,
infirmity or disability. In addition, we also provide
nurse-led complex care solutions in the home.
The majority of these services are funded by local
authorities or the NHS, however we also have a
service offering that delivers privately-funded care.
This has been a challenging year for our healthcare
business. Our local authority clients have been faced
with a multi-year squeeze driven by reduced funding
from central government, increasing demand for
services caused by demographic shifts and an
inability to increase council tax. This has been
alleviated to some extent by the UK Government’s
decision to allow an increase in council tax of up to
2% to fund increasing social care costs. However,
most of this increase will be absorbed by wage
increases resulting from the new National Living
Wage. In the longer term, the funding crisis would
be better solved by pooling health and social care
budgets and redesigning the commissioning
of services.
During the year we reduced the scale of our
operations in the social care business, with
MiHomecare reducing from 40 branches to
31 branches.
We help people to live a happier and more
independent life in the comfort of their own home.
Operating review continued
Healthcare
Our healthcare business provides care at home for
people who need help and support due to illness,
infirmity or disability. In addition, we also provide
nurse-led complex care solutions in the home.
The majority of these services are funded by local
authorities or the NHS - however, we also have a
service offering that delivers privately-funded care.
2016
2015
Growth
£78.0m
£91.4m
(14.7%)
(£4.0m)
£4.9m
(5.1%)
5.4%
£0.5bn
£0.4bn
nm
nm
25%
Total
value Time frame
4 years
£3.2m
£36m
4 years
£4m
4 years
Revenue
Operating profit
before other items
Operating profit margin
before other items
Order book
Key contract awards:
Client
Hampshire County Council
A new contract to provide care at home for residents
in the Havant and Petersfield area.
London Borough of Hammersmith
& Fulham and Royal Borough of
Kensington & Chelsea
A new contract with the London Borough of Hammersmith
& Fulham and Royal Borough of Kensington & Chelsea to
deliver care at home and specialist learning disability
support to the local residents.
Reading Borough Council
A new contract to deliver care in the home to the residents
of Reading including low level continuing healthcare services.
50
Mitie Group plc | Annual Report and Accounts 2016 Our Complete Care business employs over 700 people – including registered nurses and person care
assistants – who specialise in caring for clients with a range of conditions, including acquired brain injury,
cerebral palsy and muscular dystrophy.
It is pleasing to see that the business is making
progress and achieving better quality scores.
We now have a better care business operating in
areas where we can develop over the long term.
In future, our approach to the social care market
will be highly selective. We will only work with clients
who are prepared to pay sustainable rates for care,
and this will in turn allow us to pay wage rates which
will support our drive to attract and retain quality
people. We want to develop long-term relationships
with our clients and are looking forward to working
with them on developing improved models for the
delivery of social care in the future.
We are now seeing examples of our ability to retain
existing contracts and also win new contracts at the
higher rates that will allow the business to return to
profitability over the medium term. Recent awards
include contracts with Devon County Council and
the London Borough of Barnet.
This has been a year of stability for our complex
care business, Complete Care. The focus has been
to consolidate its position as a leading provider
of nurse-led homecare by ensuring a pipeline of
quality care workers. In addition, we have worked
to ensure that the commercial arrangements of all
Complete Care contracts are appropriate for the
level of care being provided. The business is now
well placed to grow in the future.
Our Care Agency business delivers privately-funded
care. This can range from the traditional domiciliary
care and support to providing carers who will live
permanently at a service user’s home. Although the
Care Agency is currently a relatively small part of
the business, the signs are encouraging for its
future prospects.
51
www.mitie.com Financial review
Revenue
Revenue reduced by 1.8% to £2.23bn (2015:
£2.27bn). New contract awards towards the
end of the year, along with a strong pipeline of
opportunities, support our expectation for a return
to revenue growth in the year to March 2017.
Operating Profit
Operating profit for the year saw a significant
improvement compared to the prior year,
increasing by 101% to £112.5m (2015: £56.0m).
This improvement reflects both the completion of
the exit from the group’s historic construction market
exposures and an improvement in the trading result
from our continuing business where operating
profit before other items grew by 0.2% to £128.9m.
Our operating profit margin before other items
improved to 5.8%, in line with our target range of
5% to 6%, and an increase of 10 bps over last year.
Operating profit margin before
other items
(%)
5.8%
6.2
6.1
6.0
5.7
5.8
12
13
14
15
16
Other Items
Costs of £16.4m disclosed as other items represent
the amortisation of acquisition related intangible
assets and acquisition related costs. This included a
write off of intangible assets of £6.2m attributable
to healthcare contracts exited during the year on
financial grounds. Last year we completed the exit
from our construction market exposures and there
have been no net residual charges arising from this
activity in the current year (2015: £61.6m). Further
details of other items are set out in Note 5 to the
financial statements.
Generating sustainable shareholder value
Profit before tax was £96.8m (2015: £41.5m).
The effective tax rate for the year was 19.9%
(20.0% before other items). With the majority of
the Group’s activities based in the UK, our effective
tax rate generally tracks the UK mainstream rate
of corporation tax, which was 20% in the year.
Profit after tax was £77.5m (2015: £35.7m) and
following a small reduction in the weighted average
number of shares for the year to 355.4 million
(2015: 359.3 million), drove basic earnings per
share of 21.3p, an increase of 120% on the prior
year (2015: 9.7p).
A strong
financial position
Mitie is focussed on delivering long term value for our shareholders,
our customers and our people. This year’s financial results show
continued profit growth, improved margin, growth in earnings per
share and good cash generation. Mitie is in a strong financial position
with low leverage, a robust balance sheet and long term committed
financing facilities. These results enabled us to increase our dividend,
continuing our strong record of annual dividend growth over each of
the last 27 years.
Dividend per share history
(p)
15
12
9
6
3
0
95
12.1
2232
11.7
11.0
10.3
9.6
9.0
7.8
6.9
6.0
5.1
4.3
3.4
2.5
0.6 0.8 1.0 1.3
1.9
1.6
96
97
98
99
00
01
02 03
04 05 06 07 08
09 10 11 12
13
14 15
16
0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.5
90
91
92
93
94
52
Mitie Group plc | Annual Report and Accounts 2016
Highlights
£2.232bn
£128.9m
Revenue
(2015: £2.274bn)
Operating profit
before other items
(2015: £128.6m)
£112.5m
Operating profit
(2015: £56.0m)
5.8%
Operating profit margin
before other items
(2015: 5.7%)
12.1p
Dividend per share
(2015: 11.7p)
21.3p
Earnings per share
(2015: 9.7p)
75.2%
Cash conversion
(2015: 126.5%)
1.2x
Net debt: EBITDA
before other items
(2015: 1.2x)
25.0p
Earnings per share
before other items
(2015: 24.8p)
76.1%
Cash conversion
before other items
(2015: 95.1%)
In 2013, the Board approved a 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.
To this end, in the year to March 2016, the group
purchased 2.3 million of its own shares (2015: 3.7
million) at a cost of £6.6m; these shares are held in
treasury. The group also purchased 5.2 million of its
own shares at a cost of £15.2m and these shares
were subsequently cancelled. At 31 March 2016, the
group held a total of 10.5 million shares in treasury.
Basic earnings per share
(pence)
21.3p
20.5
21.3
13.4
11.8
9.7
12
13
14
15
16
Returning cash to shareholders
The group has a strong track record of dividend
growth, having increased dividends in each
consecutive year since the group first paid a
dividend in 1990, following its listing on the London
Stock Exchange in 1987. Growing returns to our
shareholders lies at the core of our business model
and we will continue our progressive dividend policy
to grow dividends at least in line with underlying
earnings of the group, while maintaining dividend
cover at a prudent level.
The full year dividend recommended by the Board is
12.1p per share (2015: 11.7p per share), reflecting a
cover of 2.1x (2015: 2.1x) earnings per share before
other items. This year’s dividend to shareholders,
which fully reflects our continued confidence in the
business, represents a dividend growth of 3.4%.
During the year, total dividends of £42.3m were
paid to shareholders (2015: £40.5m).
In addition to paying dividends, the Board has
approved a share buyback programme to further
enhance returns to shareholders whilst maintaining
a modest year end gearing level of 1.0x-1.5x
EBITDA. This will initially be up to £20m in 2017
and will be reviewed annually going forward.
53
www.mitie.com
Financial review continued
Return on capital employed
Our return on capital employed (ROCE) for
the year is 17.5% (2015: 18.6%). ROCE is calculated
as operating profit after tax before other items
(adjusted for the pro-forma, full year effect of
acquisitions) divided by capital employed.
Capital employed is calculated as net assets
excluding net debt less non-controlling interests.
Balance sheet
Goodwill and other intangible assets of £532.4m
(2015: £541.0m) were held on the balance sheet at
31 March 2016; the reduction during the year was
driven by a £6.2m write off from the Healthcare
intangible assets, as explained in Note 14, along with
the usual charge for the amortisation of intangible
assets across the group.
This asset profile is typical of our sector, which is
people based and low in capital intensity, and of
businesses growing through acquisition. Details of
the group’s goodwill are set out in Note 13.
Our group has a limited requirement for
investment in property, plant and equipment and
in the technology based intangible assets that
support the group and accordingly capital
expenditure as a percentage of revenue is 1.1%
(2015: 1.0%) and is expected to remain below 2% of
revenue going forward. This year we saw increased
investment in the technology assets to support the
development of our business model, where the
provision of technology led services, performance
data and analytics are now a core requirement of
our larger contracts. This mix of tangible and
intangible asset investment will be a continuing
feature of our business.
Our principal investment requirement in capital
terms is in working capital which supports the
group’s proposition to our markets. Working capital
management is a key focus for the group as is the
targeted investment of working capital in key client
accounts where we believe that sustainable long
term growth can be attained. During the year we
have actively invested working capital in support of
rebid and contract extension activity in support of a
small number of key contracts. This has resulted in
an uplift in trade and other receivables due after one
year of £27.5m. The return on capital employed for
this investment in trade and other receivables is
enhancing to the group and offers higher returns at
lower risk than M&A activity. Investment in working
capital in this manner is in line with the Board’s
capital allocation strategy in prioritising the
investment of capital to support the long term
organic growth of the group.
Short term working capital balances at 31 March
2016 were £(31.6m) (2015: £(48.5m)) or £54.4m
(2015: £10.0m) after the inclusion of non-current
trade and other receivables.
Our ROCE demonstrates our ability to generate
returns from the capital employed by our business.
We focus on our ROCE through the management
of our asset base and profit streams and take
into consideration returns on capital when we
invest to maximise the profitability of the group.
By generating returns that exceed our weighted
average cost of capital, currently 7.0%, we are
ensuring that our investment decisions add value
to our business.
Return on capital employed
(%)
17.5%
16.6
16.5
18.6
17.5
16.9
12
13
14
15
16
Balance sheet
Goodwill and other
intangible assets
Property, plant and
equipment
Net working capital
Net debt
Other
Pensions
Net assets
2016
£m
2015
£m
532.4
541.0
49.3
(31.6)
(178.3)
78.8
(35.5)
415.1
53.3
(48.5)
(177.8)
46.1
(35.8)
378.3
54
Mitie Group plc | Annual Report and Accounts 2016
Committed facilities to fund future growth
Syndicated revolving
credit facility
US private placement
loan notes
Committed facilities
2016
£m
Tenure
275
July 2019
252 2017-2024
527
In 2014, the group completed a refinancing of its
revolving credit facility through a syndicate of six
banks which secured facilities for a further five
years at margins favourable to the previous facility.
The group now has committed funding of £527m in
place to support our future growth opportunities.
Our interest rate exposure is predominantly fixed,
at around 4% per annum.
The group has a centralised treasury function whose
principal role is to ensure that adequate liquidity is
available to meet funding requirements as they
arise, and that financial risk is effectively identified
and managed. Treasury policies and procedures are
approved by the Board. No transactions of a
speculative nature are undertaken. Dealings are
restricted to those banks with suitable credit ratings
and counterparty risk and credit exposure is
monitored frequently.
Acquisitions
On 29 January 2016, we acquired Tascor Medical
Services Ltd, the leading UK custodial medical
services provider, for total consideration of £0.6m.
This business added an annualised £12m to group
revenue and an annualised £0.6m to group
operating profit, on a pro forma basis.
From the date of ownership, the acquired business
has contributed revenue of £2.1m and operating
profit of £0.1m to the group, which is in line with
our expectations.
Inventories
Current trade and
other receivables
Current trade and
other payables
Current provisions
Short-term
working capital
Non-current trade and
other receivables
Working capital
2016
£m
9.9
2015
£m
11.0
446.7
421.4
(487.8)
(0.4)
(476.0)
(4.9)
(31.6)
(48.5)
86.0
54.4
58.5
10.0
Good cash conversion
Our profits are strongly backed by cash flows.
Cash conversion measures our success in converting
operating profit (measured by earnings before
interest, tax, depreciation and amortisation ‘EBITDA’)
to cash and reflects both the quality of our earnings
and the effectiveness of our cash management
activities. This year, cash inflows from operations
were £114.6m (2015: £113.2m), representing cash
conversion of 75.2% (2015: 126.5%). Our cash
conversion has been consistently strong and the
average cash conversion achieved by the group over
the last 5 years is 100.3%. Before other items, cash
conversion was 76.1% (2015: 95.1%). The calculation
of cash conversion is set out in Note 39. This strong
cash performance has been achieved through a clear
strategy to actively manage our exposure to trade
accounts receivable.
Conversion of EBITDA to cash
(%)
75.2%
127.8
126.5
107.3
83.7
75.2
12
13
14
15
16
Net debt
As at 31 March 2016, net debt was £178.3m,
a small increase of £0.5m on the prior year.
Strong free cash flow of £63.1m has enabled us
to return £42.3m to shareholders in dividends.
We remain comfortably within each of our banking
covenants. As at 31 March 2016, net debt stood at
1.2x EBITDA (2015: 2.0x) and 1.2x EBITDA before
other items (2015: 1.2x).
55
www.mitie.com
Financial review continued
Pensions
Our financial strength and balance sheet remain
unaffected by any significant pensions deficit,
with the net deficit of all the defined benefit pension
arrangements included on the balance sheet being
£35.5m (2015: £35.8m).
During the year ended March 2014 we completed
the actuarial triennial valuation of the Mitie Group
scheme. The scheme actuarial deficit was £6.0m at
31 March 2014. We have agreed with the trustees
that no cash injection into the scheme is currently
required, but have committed to potential cash
injections of up to a total of £11.1m over ten years
should the funding position deteriorate materially.
The accounting deficit on Mitie Group plc’s
principal defined benefit scheme at 31 March
2016 was £34.4m (2015: £34.9m). The scheme’s
assets have generally performed in line with their
respective benchmarks, producing a slightly
negative investment return in the year. The valuation
of the scheme’s liabilities has decreased slightly
over the year due to marginally higher interest rates
used to value the future estimated cash flows of
those liabilities. These factors combined have
resulted in a broadly neutral effect on the
reported scheme deficit.
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.
Mitie’s net defined benefit pension deficit in respect
of schemes in which it is committed to funding
amounted to £1.1m (2015: £0.9m).
Suzanne Baxter
Group Finance Director
Driving entrepreneurialism through
equity participation
Mitie operates an entrepreneurial investment
programme known as the Mitie Model.
Investment companies are structured so that the
management team takes an equity stake of up to
49% in a business which they grow over a five to
ten-year period, and may eventually be acquired
by Mitie in full, should the acquisition criteria in the
respective Articles of Association and shareholder
agreements be met. Mitie has supported over 100
start-up businesses to grow using the Mitie model.
Currently, Mitie holds majority interests in 11 Mitie
Model companies with a carrying value of £2.9m,
disclosed as non-controlling interests in the
balance sheet.
On 24 November 2015 Mitie Group plc acquired
the remaining 49% share in Creativevents Limited.
The total consideration was £4.7m satisfied in
cash paid during the year. The group also settled
remaining deferred consideration of £3.8m on
the acquisition of Direct Enquiries Holdings Ltd.
This purchase and other acquisitions are discussed
in more detail in Note 33 to the financial statements.
Tax contribution
We manage all taxes, both direct and indirect,
to ensure that we pay the appropriate amount of
tax in each country whilst ensuring that we respect
the applicable tax legislation and utilise, where
appropriate, any legislative reliefs available.
This tax strategy is reviewed, regularly monitored
and endorsed by the Board.
Mitie is a significant contributor of revenues
to the UK Exchequer, paying £507m in the year
to March 2016 (2015: £522m). This comprised
£16m of UK corporation tax and £491m of indirect
taxes including business rates, VAT and payroll
taxes paid and collected.
The group’s tax charge before other items was
£22.7m (2015: £24.1m). The effective rate of tax
before other items was 20.0% for the year (2015:
21.1%). As Mitie is predominantly UK based, our
effective rate of tax reflects the UK corporate
rate of tax.
After adjusting for the tax credit of £3.4m (2015:
£18.3m) on other items, the income tax charge
was £19.3m (2015: £5.8m), an effective rate of
19.9% (2015: 14.0%).
56
Mitie Group plc | Annual Report and Accounts 2016 2016 Principal Risks and Uncertainties
Identified principal risks to the achievement of our strategic business objectives are outlined in the section below, together
with their potential impact and the mitigation measures in place. The Board believe these risks to be the most significant
with the potential to impact our strategy, our financial and operational performance and, ultimately, our reputation. There
may be other risks which are currently unknown to the group or which may become material in the future. Our key risk
categories continue to be: strategic, financial, operational, and regulatory.
Strategic
Risk Event
Controls and mitigation
Risk movement
Continuing uncertainty in economic environment (including Brexit) creates unstable operating and investment
environment for Mitie and its clients
Our principal macro economic exposure remains the UK, with
only very limited exposure to the wider global economy. We are
closely monitoring the outcomes of the 2015 Spending Review
and the potential for changes in government spending; we await
the outcome of the Brexit referendum and potential resulting
policy changes to determine the impact on future contract
opportunities. Regulatory wage inflation and other labour costs
together with restrictions on specific terms and conditions in
relation to certain labour models provides further challenge.
Our ability to recognise and respond to variations in the volume,
value and range of services required, particularly from our private
sector clients, may impact the Group’s ability to win or retain
significant business opportunities. Resilience is provided by our
diverse business portfolio during times of economic change, with
varying demands on our resources dependent on the way in
which our client base responds to the economic cycle.
The group continues to target strategic high-margin
growth areas, underpinned by the right supporting
business infrastructure. Development of a long-term
contract portfolio combining a mix of both public
and private sector contracts mitigates the financial
impact of rapid changes in the economic
environment. The Board retains formal oversight
and approval of entry into new business areas,
supported by a targeted and considered acquisition
strategy to enhance our capabilities in
complementary areas.
Protecting our reputation
Maintaining our strong reputation is critical for the achievement
of our strategic objectives. Our growth and financial targets
could be significantly impacted through an adverse impact to
our reputation leading to a loss of confidence from our current,
or potential, client base.
Such an impact on reputation could be caused by any incident
involving major harm to one of our people or one of our
clients/partners, or others affected by our services, inadequate
financial control processes, a failure to comply with regulatory
requirements or corrupt practices involving fraud or bribery.
Incidents of these types would potentially result in financial
penalties, losses of key contracts, an inability to win new
business, and/or an inability to retain key staff and recruit new
staff. The impact would therefore be potentially greater than
the impact of the underlying incident alone.
Our strong corporate governance framework
supported by our core values and behaviours forms
the basis for ensuring the protection of our
reputation. This framework is communicated
throughout the business.
A strong and consistent ‘tone from the top’
is provided by our senior management to ensure
our values and expected behaviours are clear and
understood by everyone.
Our code of conduct forms the cornerstone of our
ethical business framework, linking together our
policies, procedures, training programmes and
expectations of employee behaviour.
As our business continues to grow and develop
into new sectors we will remain strongly focused on
protecting the strength of our reputation through
effective governance, leadership and the continued
enhancement of our ethical business framework.
Financial
Risk Event
Controls and mitigation
Risk movement
Financial strength and access to appropriately scaled and diverse sources of funding
Although we are an attractive partner to our clients and
stakeholders (including our funding partners) due to our
financial strength, deterioration in our financial performance
could limit our ability to grow either organically or through
acquisition by restricting our ability to access competitively
termed funding or by increased costs of borrowing.
Given that staff costs remain our most significant expenditure,
the availability of funding from a variety of sources, strong cash
flow and working capital remain central to our ability to pay
our people regularly and at specific times. Funding is therefore
critical to the ongoing success and continuity of our business.
We maintain strong banking, debt finance and
equity relationships, and a diverse committed
long-term funding portfolio.
Our established financial governance arrangements
provide oversight of our financial performance
including daily monitoring of bank balances,
regular forecasting of cash flow and regular
financial performance and balance sheet reviews.
We have a diverse committed long-term funding
portfolio and strong banking, debt finance and
equity relationships.
57
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2016 Principal Risks and Uncertainties continued
Financial
Risk Event
Reliance on material counterparties
We are reliant on several significant counterparties
such as insurers, banks, clients and suppliers to maintain
our business activities. Our ability to trade and the
operational and financial effectiveness of our business
could be materially affected by a failure of one of these
key counterparties.
The need to maintain effective ongoing relationships
with our material counterparties is therefore critical
if the Group is to meet its strategic objectives
Operational
Risk Event
Contract bidding, mobilisation and delivery
Controls and mitigation
Risk movement
The impact of any potential failure of one counterparty
is limited due to the development of a diverse range of
robust counterparties. A formal review of material
counterparty risk is undertaken at Board, divisional
and business level.
Controls and mitigation
Risk movement
We see an increasingly complex service offering as
a business differentiator to our clients, supported by
ever more sophisticated and complex technological
solutions, and maintaining our strong financial position
is dependent upon our ability to successfully bid, mobilise
and deliver large scale, complex integrated facilities
management contracts.
When compared to our more traditional business activities,
these solutions necessarily carry increased risk around
bidding, design, delivery and successful implementation.
Our ability to manage these risks is therefore critical to
ensuring the group’s growth.
Our executive management team oversee our bid,
mobilisation and delivery processes for large integrated
facilities management contacts.
Teams of experienced bid, mobilisation and delivery
experts support the contracts through each stage
of development to ensure operation within the
delegated authority.
A focus on developing long-term client relationships
occurs – supported by a strengthened framework to
retain our existing client base.
The development and deployment of sophisticated
technical solutions to facilitate improved contract
delivery is governed by our Board, with governance
arrangements operating to provide assurance on their
ongoing performance.
Significant health, safety or environmental incident
We undertake a broad and diverse range of services
for our clients, some of which are potentially hazardous
and so the potential to cause significant harm to our
employees, our business partners, members of the public,
or to damage the environment exists.
We maintain an unwavering commitment to safeguarding
our people, others who potentially could be affected by our
activities, and protecting the environment wherever we
operate. Failure to maintain our high standards could
result in a significant incident affecting an employee, their
family, friends or colleagues; or lead to regulatory action,
financial impact or damage to our reputation.
The Board maintains a strong focus on providing
effective governance, oversight and management
standards and a commitment to achieving the highest
standards of quality, health, safety and environmental
(QHSE) performance, with QHSE performance
continuing to be the first item on every Board agenda.
Our well established and award winning employee
engagement programme, Work Safe Home Safe,
was strengthened during the year, and we continued
to maintain our QHSE management systems which
are certified to the ISO 9001, 14001 and OHSAS
18001 standards.
To support our management system and engagement
programme we focus on developing training
programmes to ensure every employee, at every level
of the business, has the core competencies required to
do their work safely.
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Mitie Group plc | Annual Report and Accounts 2016
Operational
Risk Event
Controls and mitigation
Risk movement
Intentional/unintentional business disruption through system, process or control failure
Our business is underpinned by operational efficiency,
with future business performance built upon the use of
sophisticated, interdependent business systems, with
greater use and reliance on such systems increasing in the
future as we provide more sophisticated services to our
client base. These systems, combined with our governance
framework of policies and procedures, remain critical for
the control and success of the business and the
achievement of our strategic objectives.
Due to the business critical nature of these systems,
operational failure may result in a significant impact on
operational delivery, or contract management and client
expectations, with a breakdown in the controls around high
volume transactions and compliance areas such as vetting
and employment legislation caused by system failure. As a
result of either operational or system failure, financial
misstatements, fines for statutory non-compliance and
loss of client and/or regulator confidence could occur.
Our governance framework, specifically our core
policies and procedures is continually reviewed and
optimised to ensure it remains effective and is fit for
purpose as our business grows and diversifies.
We formally review the effectiveness of internal
controls, supported by a programme of internal audits
and self-certification on the operation of key controls
and procedures.
Business critical systems are formally identified and
subject to testing to ensure effective recovery following
a potential disaster scenario. IT-related governance
oversight is provided by the IT Board (comprising
executive management) who continue to monitor the
effectiveness of the information security management
system, which is aligned with recognised international
standards. Cyber security arrangements and the threat
of malicious attacks on our systems are under continual
surveillance operationally and monitored by the Board.
We have undertaken Cyber Essentials certification and
are working towards Cyber Essentials Plus.
An assurance programme is in place to test the
adequacy of our mitigation activity.
Operational
Risk Event
Controls and mitigation
Risk movement
Attracting and retaining the right people in the right places
To achieve our strategic objectives and deliver our long-
term growth aspirations, we need to retain our most skilled
people at all levels of the business, as well as attracting
new staff to join us. Of particular importance is the need
to have access to a diverse range of views and experience
and to attract specific technical expertise where the
market may be highly competitive.
Failure to retain and develop our existing employees or to
attract new talent could impact our ability to achieve our
strategic growth objectives.
We focus on training and competency at all levels of
the business to ensure the development of our people
to enable them to successfully manage the changing
profile of our business – putting the right people, with
the right skills, in the right places. We aim to reward
achievement by offering promotion, by ensuring a
pipeline of opportunities exists for staff at every level
of the business. Talent management and succession
planning therefore continues to be a key focus for our
management teams.
We are also looking to the future and aiming to develop
the next generation of leaders via our established
graduate programme.
Regulatory
Risk Event
Controls and mitigation
Risk movement
Non-compliance with the developing regulatory framework
Our ability, as a major employer, to respond to the
developing legal and regulatory framework in areas such
as national living wage, healthcare and the broad range of
applicable operational laws is essential to ensure we meet
our strategic targets and avoid potential material financial
and reputational impacts associated with non-compliance.
Labour legislation, including the National Living Wage,
apprentice levy and changes to pension legislation
contribute to a change in the cost of our more labour
intensive services.
As a minimum requirement we demand legal and
regulatory compliance in all of our business areas, covering
all our activities, with strong management oversight of our
compliance status – particularly where we operate in a new
or changing business environment.
Our governance framework, comprising our code of
conduct, policies and procedures and specific training
activity forms the cornerstone of our legal and
regulatory compliance programme.
Responsibility for ensuring legal and regulatory
compliance remains primarily with our operational
management teams, supported where necessary with
specific technical expertise and related assurance
activity. Management oversight occurs via divisional
and Group Risk Committees. Challenges associated
with changes to labour legislation are being addressed
through a change to our business model, including
increased focus on technological solutions and a drive
for greater operational efficiency in our core services.
The developing regulatory framework is proactively
monitored to plan and budget for ongoing compliance.
59
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2016 Principal Risks and Uncertainties continued
The table below maps our strategic aims with our principal risks, to demonstrate which of the risks could have an impact on
the achievement of these strategic aims.
Strategy
Maintain our
position
as the leading
provider of FM
services in
the UK
Increase the
range and scale
of services we
provide to our
top 200 clients
in the UK and
internationally
Increase the
provision of
technology-led
services
Grow our public
services
businesses by
developing
relationships
with key clients
Expand
the scale and
breadth of
our higher-value
consultancy
services
Attract, retain
and develop the
best people in
our industry
Risk
Continuing uncertainty in
economic environment
(including Brexit) creates
unstable operating and
investment environment
for Mitie and its clients
Protecting our
reputation
Financial strength and
access to appropriately
scaled and diverse
sources of funding
Reliance on material
counterparties
Contract bidding,
mobilisation and delivery
Significant health, safety
or environmental incident
Intentional/unintentional
business disruption
through system, process
or control failure
Attracting and retaining
the right people in the
right places
Non-compliance with the
developing regulatory
framework
60
Mitie Group plc | Annual Report and Accounts 2016
Viability statement
In accordance with section 2.2 of the UK Corporate Governance Code 2014, the Directors have assessed the prospects of
the group over a three year period. This assessment took account of the group’s current position and potential impact of the
principal risks of the Group as set out on pages 57 to 60 of the Annual Report. Based on this assessment, the Directors
confirm that they have a reasonable expectation that the Company will be able to continue operation and meet its liabilities
as they fall due over the period to 31 March 2019.
The Directors believe that a three year period of review is appropriate for their viability assessment as its supported by our
strategic, budgeting and business planning cycles and is relevant to the duration of the Group’s existing contracts with
customers which typically range from three to five years. It therefore represents a timeframe over which the Directors
believe they can reasonably forecast the group’s performance.
At 31 March 2016 the Group had available £259m of undrawn committed borrowing facilities in respect of which all conditions
had been met. Its borrowing facilities total £527m and include a £275m Revolving Credit Facility with an expiry date of July
2019 and £252m of US Private Placement notes which have a range of maturity dates commencing from December 2017
out to December 2024. Over the period under consideration for viability testing £60m of the £527m of committed borrowing
facilities reaches maturity. The maturing facility is wholly comprised of the repayment of the 2010 US private placement
7 year notes. The Group is confident that the facilities falling due for repayment or renewal during the period of the viability
assessment could be refinanced in the ordinary course of business. Letters of support to this effect have been requested and
received from two of the Group’s principal reducing credit facility lenders.
In making this statement, the Directors have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity. This included the availability
and effectiveness of mitigating actions that could realistically be taken to avoid or reduce the impact or occurrence of the
underlying risks. In considering the likely effectiveness of such actions, the conclusions of the Board’s regular monitoring and
review of risk management and internal control systems, as described on page 68, are taken into account.
In undertaking its assessment, the Board has considered annually a detailed financial plan and budget which includes analysis
of the forecast and actual performance of the group’s existing contract base, its expectation for future growth including sales
targets and expected win rates, its overhead cost base, the expected costs of financing and the availability of future funding
facilities. The group’s forecasts of its divisional and consolidated income statement, balance sheet and cash flows are used to
perform analysis of forecast headroom on the group’s borrowing facilities and the group’s consequent solvency and liquidity.
Specific sensitivities were applied to the plan which included early termination of key contracts; zero revenue growth over the
plan period; reduced rates of margin on the existing contract base and a decline in availability of sources of financing for the
group. The customer and sector diversification of the Group’s operations helps minimise the risk of serious business
interruption or a catastrophic damage to our reputation. Our largest client constitutes 7.2% of Group revenue. The group’s
ability to flex its cost base protects its viability in the face of adverse economic conditions and/or political uncertainty.
The directors considered mitigating factors that could be employed to counter the negative effects of the crystallisation
of each of these risks. The main actions included the short term down scaling of investment in the business, limitations to
acquisition activity and reductions in cash distributions.
61
www.mitie.com Board of Directors
Roger Matthews
Non-Executive Chairman
Ruby McGregor-Smith
Baroness McGregor-Smith, CBE
Chief Executive
Suzanne Baxter
Group Finance Director
Board Committees
Chairman of the Nomination Committee
Member of the Remuneration Committee
Board Committees
Board Committees
Chair of the Results and Investment
Committees
Member of the Results and Investment
Committees
Date of appointment to the Board
December 2006
Date of appointment to the Board
December 2002
Date of appointment to the Board
April 2006
Other current appointments
None
Past roles
Previously a Non-Executive Director
of Mitie until his appointment as
Chairman in 2008. Roger qualified
as a Chartered Accountant with
PricewaterhouseCoopers. He held a
number of finance roles at Cadbury
Schweppes PLC and Grand Metropolitan
PLC before becoming Group Finance
Director and Group Managing Director at
Compass Group PLC and Group Finance
Director at J Sainsbury PLC. During the
last 11 years he has held a number of
non-executive roles including Non-
Executive Chairman of Pertemps
Network Group Limited and LSL Property
Services plc. He was previously a Non-
Executive Director at RHM PLC, Zetar
PLC and trustee of Cancer Research UK.
Skills and experience
> Over 25 years as a public company
director.
> Experienced FTSE 100 and FTSE 250
director in executive and non-executive
roles.
> Extensive experience in outsourcing,
retail, hospitality and food
manufacturing sectors.
> Significant experience in strategy,
international, finance and mergers
and acquisitions.
> Chartered Accountant.
Other current appointments
Senior Independent Director and
member of the Audit, Nomination and
Remuneration Committees at Michael
Page International plc; Non-Executive
Director of the Department of Education.
Ruby’s charitable and community interests
include acting as Chair of the Women’s
Business Council and Business
Ambassador for UK Trade and Investment.
In November 2015 she was also appointed
to the House of Lords.
Past roles
Ruby qualified as a Chartered Accountant
with BDO Stoy Hayward. Prior to joining
Mitie, she held a range of operational and
financial roles, primarily at Serco Group
plc. Ruby joined Mitie as Group Finance
Director in December 2002 and was
promoted to Chief Operating Officer in
2005 before being appointed as Chief
Executive in April 2007.
Other current appointments
Non-Executive Director, Chair of
the Audit Committee and member
of the Nomination and Remuneration
Committees of WH Smith PLC. Chair of
the Business Services Association, a policy
and research centre of excellence for the
support services industry, and Chair of the
Business in the Community (BITC) South
West Strategic Advisory Board.
Past roles
Suzanne qualified as a Chartered
Accountant with PricewaterhouseCoopers,
where she specialised in audit and
corporate finance. Prior to joining Mitie,
she held an advisory role at Deloitte,
supporting mergers and acquisitions,
privatisation and IPO activities. She then
moved to Serco Group plc where she
gained divisional board level responsibility
for sales, operations, finance and
commercial aspects of the business.
Skills and experience
> Executive and non-executive experience
with FTSE 250 public companies for
over 12 years.
On a pro bono basis, she worked with
Opportunity Now, the gender equality
campaign, for over 10 years and was
latterly Deputy Chair.
> Significant strategic and commercial
experience.
> Extensive experience in the support
services sector for over 24 years.
> Significant experience in government
and private sector contracting and
employment matters including
diversity.
> Extensive financial, audit and risk
management systems experience.
> Chartered Accountant.
Skills and experience
> Executive and non-executive experience
with FTSE 250 public companies for
over 10 years.
> Significant strategic, commercial and
operational experience.
> Extensive experience in the support
services sector for circa 20 years.
> Significant experience in government
and private sector contracting and
employment matters including diversity.
> Expertise in mergers and acquisitions.
> Chartered Accountant.
62
Mitie Group plc | Annual Report and Accounts 2016
63
Larry Hirst, CBE Senior Independent Director Jack Boyer, OBE Independent Non-Executive Director Mark Reckitt Independent Non-Executive Director Board Committees Member of the Audit, Nomination and Remuneration Committees Board Committees Chairman of the Remuneration Committee Member of the Audit and Nomination Committees Board Committees Chairman of the Audit Committee Member of the Nomination and Remuneration Committees Date of appointment to the Board February 2010 Date of appointment to the Board June 2013 Date of appointment to the Board July 2015 Other current appointments Non-Executive Director and Chairman of the Remuneration Committee, ARM Holdings plc and Chairman of the Imperial College Data Science Institute Advisory Board. Community interests include acting as an Ambassador to Everywoman and Black British Business. Member of the National Research Council for Cyber Security. Past roles Until his retirement from IBM in 2010, Larry was Chairman of IBM (EMEA) and held a number of other senior positions during his 33 year career with IBM. He represented IBM to the European Commission and other authorities. Chairman of the Transition to Teaching Committee; a Commissioner for the Government’s Employment and Skills Council; Chairman of the UK Trade and Investment Executive Board; Chairman of e-skills, the Sector Skills Council; member of the British Airways International Advisory Board; a private sector Business Ambassador, appointed by the Prime Minister; member of the South African President’s Advisory Council. Skills and experience > Served on both government and private sector boards at senior level. > Significant expertise in the global Information Technology industry, in particular in relation to defining and executing the strategies required to drive business success. Other current appointments Council Member of the board of the Engineering and Physical Sciences Research Council and the Innovate UK Energy Catalyst. Deputy Chair of the Advanced Materials Leadership Council. Past roles Previously founded and was CEO of companies in the engineering, telecommunications and biotechnology sectors; former Chairman of Ilika plc; former Non-Executive Director and Chairman of the Remuneration Committee of Laird PLC; investment banker at Goldman Sachs and strategy consultant at Bain & Co. Skills and experience > Director of FTSE 250, AIM and private companies, and Chairman of AIM companies and private companies. > Chief Executive and entrepreneur with a track record of steering successful corporate innovation, growth and globalisation in multiple sectors. > Significant experience in mergers and acquisitions, IPOs and financial markets in the UK, US and Asian capital markets. > MBA. Other current appointments Non-Executive Director and Chairman of the Audit Committee at Cranswick plc and J D Wetherspoon plc. Past roles Group Strategy Director, Smiths Group plc; Divisional President, Smiths Interconnect; interim Managing Director, Green & Black’s Chocolate; Chief Strategy Officer at Cadbury plc. Mark also held a range of Strategy and Finance roles at Cadbury since joining in 1989, including Finance Director of Cadbury UK. Prior to joining Cadbury, Mark spent six years in Investment Banking and Retailing. Skills and experience > Significant international strategic experience. > Chartered Accountant. www.mitie.com 6464
Mitie Group plc | Annual Report and Accounts 2016
Mitie Group plc | Annual Report and Accounts 2016Chairman’s introduction to Corporate Governance Compliance with the Code I can confirm on behalf of the Board that the group has complied in all respects with all of the principles and relevant provisions set out in the September 2014 edition of the Code throughout the year. Details of how we have applied the principles and complied with the provisions are explained throughout the report. The Code can be found on the Financial Reporting Council website at www.frc.org.uk. The September 2014 edition of the Code included a number of changes regarding directors’ remuneration, risk management and control, which we have adopted. One of the new requirements of the Code is for the Board to explain how it has assessed the prospects of the Company, taking account of the Company’s current position and principal risks (referred to as the ‘annual viability statement’), which can be found in the Strategic report on page 61. The Board considers that throughout the year sufficient time has been spent reviewing and discussing strategy, risk, financial performance, investor communication and engagement, and key matters of governance both at the Board and the committee meetings. An overview of the activities and the effectiveness of each of our Board committees is explained further on pages 65 to 77. The Board is responsible to shareholders and other stakeholders for the group’s activities and its long-term success. The value of good governance is recognised by the Board as an area of great importance and, in this governance report, we explain how the main principles of good governance are applied across the group. We also describe how the governance framework implements the UK Corporate Governance Code (the Code). Key areas of governance that have been reviewed in the year include: Ethics, compliance and code of conduct During the year we continued to focus on embedding our ethical business framework and, specifically, ensuring the requirements of our code of conduct (One Code) were understood and being followed. We strengthened awareness of One Code through the introduction of a summary version distributed to employees as part of our induction pack, and a supplier version, to make sure our values and expected behaviours are fully communicated and understood by our supply chain. One Code can be found on our website at www.mitie.com/about-us/our-culture/one-code-our-code-of-conduct. In addition, our Speak Up (whistle-blowing) service continued to operate and was widely communicated as part of our One Code promotion programme. Board composition As a Board, we are keen to ensure that a balance of views is available and that the right decisions are taken. Our Board comprises directors with a breadth of professional and sector experience from various backgrounds. As a result we have a balanced Board with the right range of skills and experience to contribute to and, where appropriate, challenge decision making. During the year there were a number of changes to the Board composition. Crawford Gillies retired from the Board at the Annual General Meeting (AGM) in July 2015 and David Jenkins retired from the Board in December 2015, having stepped down as Senior Independent Director and Chairman of the Audit Committee at the AGM. Mark Reckitt was appointed as a Non-Executive Director of Mitie with effect from 1 July 2015. Larry Hirst, who has been a Non-Executive Director for the past five years, was appointed Senior Independent Director and Mark Reckitt as Chairman of the Audit Committee, in each case upon David stepping down. The Board retains a focus on diversity and takes into consideration the diverse demographic of the group’s employee population. Mitie’s female population accounts for 46% of employees, and its disclosed BME population for 20% of employees. Remuneration Policy review During 2015 the review of the executive remuneration policy was completed and a revised policy designed to operate for three years was presented and approved by the group’s shareholders at the AGM in July 2015. Further details are provided in the Directors’ remuneration report which can be found on pages 76 to 94. Roger Matthews Chairman 65
The Board Board members The members of the Board and their accompanying biographies are set out on pages 62 and 63. All Directors are expected to allocate sufficient time to the Company to discharge their responsibilities effectively and, where possible, attend all Board meetings and the AGM. Any time commitment matters are addressed by the Chairman with the Director concerned. Chairman Roger Matthews Board members (executive) Ruby McGregor-Smith Suzanne Baxter Board members (non-executive) Jack Boyer Larry Hirst Mark Reckitt (from 1 July 2015) Crawford Gillies (until 13 July 2015) David Jenkins (until 31 December 2015) Key purpose of the Board The Board is collectively responsible for the sustainable long-term success of the Company and provides leadership and direction to management. Accordingly, the Board reviews and agrees the strategy for the group, proposed by the Executive Directors, on an annual basis and reviews certain aspects of the strategy at Board meetings during the year. In setting the strategy, the Board takes account of matters such as: market trends; competitive environment; private/public sector approach; international aspects of the business and opportunities; finance; shareholder returns; people and talent; and the Mitie Model, ensuring at all times that sufficient consideration is given to risk and internal controls. Key responsibilities There are key matters and responsibilities that are set aside to be dealt with exclusively by the Board. These include: > strategy – including setting group strategies and objectives; > structure – including approval of material changes to the group’s structure; > financial reporting – including approving the group’s Half-Year and Annual Report and Accounts, and approving business plans and budgets and monitoring performance against them; > internal controls – including ensuring that a sound system of internal controls is maintained which is designed to safeguard assets and ensure the reliability of financial information for both internal use and external publication; and reviewing and monitoring the effectiveness of those risk and control processes, with the assistance of the Audit Committee through Internal Audit and the Group Enterprise Risk framework; > acquisitions, disposals and contracts – including approving material acquisitions, disposals and business start-ups (including any material transactions outside of the normal course of business); > corporate governance matters – including undertaking a formal and rigorous review annually of its own performance and that of its committees and individual directors; determining the independence of directors and reviewing the group’s overall corporate governance arrangements; > delegation of authority – including the division of responsibilities between the Chairman and the Chief Executive and approval of terms of reference of Board Committees; > communication – including making arrangements for dialogue with shareholders and canvassing shareholder opinion; > people – including consideration of appointments to and resignations from the Board, changes to the structure, size, composition and diversity of the Board and ensuring adequate succession planning for the Board and senior management; > policies – including approval of group policies relating to share dealing, code of conduct, health and safety, corporate social responsibility and ethical trading; and > other matters – including approval of new material banking facilities; appointment of principal professional advisors; approval of the annual renewal of the group’s insurance arrangements; and material changes to the rules or statement of investment principles of the group’s pension schemes. Full details of the matters reserved for the Board can be found at www.mitie.com/investors/shareholder-services/corporate-governance. The Directors are mindful of their legal duties to act in a way they consider, in good faith, will be most likely to promote the success of the Company for its shareholders, having regard also to other stakeholders. Frequency of Board meetings During the year ended 31 March 2016, there were six scheduled Board meetings. Attendance Number of scheduled Board meetings held in the year: 6 Roger Matthews 6 Ruby McGregor-Smith 6 Suzanne Baxter 6 Jack Boyer 6 Larry Hirst 6 Mark Reckitt3 5 of 5 Crawford Gillies1 2 of 2 David Jenkins2 3 of 4 Notes: 1. Crawford Gillies retired from the Board on 13 July 2015. 2. David Jenkins retired from the Board on 31 December 2015. 3. Mark Reckitt was appointed to the Board on 1 July 2015. Additional unscheduled Board meetings were held, to the extent necessary, to deal with the review and approval of material transactions, key contracts, acquisitions and issues relating to shares and other administrative matters. www.mitie.com The Board continued
Key areas of business
In addition to the key responsibilities described above, during the
year the Board spent time discussing capital allocation policy
(including in relation to share buy-backs), developments in
corporate governance, principal risks and viability, the Modern
Slavery Act, the National Minimum and Living Wage, the impact
of Gender Pay Reporting and the Apprenticeship Levy.
Division of responsibilities of the Chairman and
Chief Executive
The Chairman and Chief Executive have clearly defined and
separate roles divided between running the Board on the one
hand, and the business on the other, whilst maintaining a close
working relationship. They have an open dialogue and meet
regularly between Board meetings to ensure a full
understanding of business issues and facilitate efficient decision
making. The document setting out this division of responsibilities
is available on the website at www.mitie.com/investors/
shareholder-services/corporate-governance.
The Chairman
The Chairman is a Non-Executive Director and is responsible for:
> chairing the Board and ensuring its effectiveness in all aspects
of its role, including the regularity and frequency of meetings;
> liaising with the Company Secretary to set Board
agendas, taking into account the issues and concerns
of all Board members;
> ensuring there is an appropriate delegation of authority
from the Board to the executive management;
> managing the Board to ensure sufficient time is allocated to
promote healthy discussion and open debate, supported by
the right level and quality of information to assist the Board
in reaching its decisions;
> facilitating the effective contribution of Non-Executive
Directors and encouraging active engagement by all
members of the Board;
> ensuring constructive relations between the Executive and
Non-Executive Directors;
The Chief Executive
The Chief Executive is responsible for all aspects of the operation
and management of the group and its business within the
authorities delegated to her by the Board.
She is specifically responsible for:
> developing group objectives and proposing and implementing
strategy, having regard to the group’s responsibilities to its
shareholders, customers, employees and other stakeholders;
> recommending to the Board an annual budget and strategic
and financial plan and ensuring their achievement following
Board approval;
> optimising the use and adequacy of the group’s resources;
> examining all investments and major capital expenditure
proposed by subsidiary companies and recommending to the
Board those which, in a group context, are material in either
nature or cost;
> evaluation, approval and execution of material contracts,
investments including technology investments, acquisitions,
disposals and new business opportunities;
> ensuring at all times that the group’s risk profile, including the
health and safety performance of the business, is managed
in line with the extent and categories of risk identified as
acceptable by the Board;
> making recommendations on remuneration policy,
other remuneration related matters and in respect of the
appointment of executive directors to the various Board
committees (other than the Nomination, Audit and
Remuneration Committees);
> setting group HR policies, including management development
and succession planning for senior management and
approving the appointment and termination of employment
of members of that team;
> ensuring the effective implementation of Board decisions,
and regularly reviewing the operational performance and
strategic direction of the group’s business; and
> ensuring that new Directors participate in a full, formal and
> ensuring effective communications with shareholders.
tailored induction programme;
> ensuring that the performance of the Board, its committees
and individual directors is evaluated at least once a year and
acting on the results of such evaluation; and
> maintaining sufficient contact with major shareholders in
order to understand their issues and concerns, in particular
in relation to governance, strategy and remuneration, and
ensuring that their views are communicated to the Board
as a whole.
The Chairman holds meetings with the Non-Executive Directors,
without the Executive Directors being present. He is available to
consult with shareholders throughout the year and will be
available at the AGM.
The Group Finance Director
The Group Finance Director is responsible for:
> leading, directing and overseeing all aspects of the finance and
accounting functions of the group, including financial reporting,
tax, treasury, strategy, performance analysis and financial
planning, financial systems and the development of the back
office and management information of the group, and
managing the processes for financial forecasting, budgets
and consolidated reporting;
> evaluating, approving and advising the Board and the
Executive Committee on the financial, commercial and
legal impact of material contracts and transactions
(including mergers and acquisitions), technology investments
in support of the development of the group, long range
planning assumptions, investment return metrics,
risks and opportunities and the impact of changes in
accounting standards;
66
Mitie Group plc | Annual Report and Accounts 2016
67
> overseeing and directing the group’s risk, insurance, pensions, internal audit, legal, corporate governance and assurance functions and managing the relationships with the external auditor, key financial institutions and advisors to the group; > ensuring that effective internal controls are in place and that the Company complies with appropriate accounting regulations for financial, regulatory and tax reporting; and > providing an underpin to all aspects of the group’s governance framework, the application of its delegated authorities, operation of its committees, its investment activities and chairing the Risk Committee. The Non-Executive Directors The Non-Executive Directors review proposals for the strategic direction of the group, constructively challenging and probing proposals presented by the Executive Directors, based on their breadth of knowledge, experience and individual skills, and contributing to the formulation and development of strategy. They are responsible for monitoring high level corporate reporting and satisfying themselves as to the integrity of financial information and the operation of key controls. They are required to maintain an effective understanding and oversight of the group’s principal risks and the assurance in place relating to those risks, including the results of the internal audit programme. The Non-Executive Directors play a key role in determining the remuneration policy for the Chairman, the Executive Directors, the Company Secretary and members of the senior management and take a primary role in Board succession planning. They have a responsibility to exercise their independent skill and judgement in carrying out their duties. The Senior Independent Director The role of the Senior Independent Director includes acting as a sounding board for the Chairman, serving as an intermediary for the other directors when necessary, conducting the Chairman’s annual performance evaluation and leading any new Chairman appointment process. He also acts as chairman of the Board, in absence of the Chairman, where necessary. The Senior Independent Director is available as an alternative point of contact for shareholders should they have concerns which have not been resolved through the normal channels of Chairman, Chief Executive or Group Finance Director, or for which such contact is inappropriate in the circumstances. The terms of appointment of the Non-Executive Directors and the Executive Directors’ service contracts are available for inspection at Mitie’s registered office, Mitie’s head office in Bristol and at the AGM. Evaluation of the performance of the Board and the committees A performance evaluation of the Board and its committees is carried out annually to ensure they continue to be effective and that each of the directors demonstrates commitment to their respective roles and has sufficient time to meet their commitment to the Company. During the 2013/14 financial year the Board was assisted in its evaluation by independent consultants, Condign Board Consulting. During the 2015/16 financial year the Board internally reviewed its performance and that of its committees and individual Directors. The process was based upon the completion of an appropriately designed questionnaire and/or one-to-one meetings between the Chairman and/or the Senior Independent Director and individual Directors. Key areas addressed were the Board’s composition (balance of skills, experience, independence, knowledge of the Company, and diversity, including gender), Board governance and processes, group strategy, contribution by the Board, adequacy of resources, knowledge and training needs, and follow-through on the prior Board evaluation. Evaluation of the Chairman was led by the Senior Independent Director. The conclusions and recommendations of the review were shared with the Board at the meeting in May 2016. Following the completion of the Board evaluation process, the Board was satisfied as to its effectiveness, and that of its committees, and that each Director had dedicated sufficient time to the Company in order to discharge their responsibilities effectively. The Board will continue to focus on its composition and balance of skills and experience. The Board will receive regular updates on the development of the customer proposition and presentations from divisional management on the strategic development and performance of their businesses. An externally facilitated performance evaluation of the Board will be conducted during the 2016/17 financial year, in line with the requirements of the Code. Director re-election The performance of each Director has been reviewed as part of the annual board evaluation process and the Board is satisfied that they continue to operate effectively and demonstrate clear commitment to their roles. All Directors will submit themselves for re-election at the 2016 AGM. Director induction process and training In order to ensure that Directors’ skills and knowledge are regularly updated briefing notes are circulated on matters such as changes in the regulatory and governance environment. Visits to different business sites and offices are arranged in order to help all Board members gain a deeper understanding of the business. The Board also receives regular updates and management presentations on the strategic development, operational and financial performance of the group. All Directors receive a personally tailored induction to Mitie which includes: > meetings with the Executive Directors and other key members of the senior management team; > a review of the group’s governance policies, structure and business, including details of the risks and operating issues facing the group; > visits to divisional offices and key client sites; and > a briefing on key contracts. www.mitie.com The Board continued
Following his appointment in July 2015, Mark Reckitt received
training and induction sessions with the Chairman, the Executive
Directors, the Company Secretary, the Group Enterprise Risk
Director, the divisional managing directors, the Head of Internal
Audit, Deloitte LLP and other key individuals.
Members of the Board are given access to an online board
portal which, as well as holding copies of all recent Board and
committee reports and minutes, has a reading room where the
Directors can access a Board Handbook containing essential
information about the group, including: copies of Mitie’s current
Articles of Association; the latest Annual Report and Accounts;
Board and committee terms of reference; guidance on directors’
statutory duties; governance and regulatory guidelines; the
group’s approved delegated authorities; and an overview of the
group’s directors’ and officers’ liability insurance arrangements.
The Handbook is reviewed and updated regularly.
Board accountability and assurance explained
Risk management approach
The Board understands that effective risk management and
a sound system of internal control underpin the achievement
of the group’s strategy and supporting objectives. The Audit
Committee recognises the enhanced risk management
requirements of the Code and has continued to focus on its
review of the risk management framework to better understand
and address the nature of the risks faced by the group.
To ensure the continued identification of risks and opportunities
to the delivery of its strategic objectives, the group maintains
a strong focus on embedding risk management across all areas
of the business.
Risk management processes
The group’s risk management framework provides a flexible
and adaptable approach to the identification of risk across all
areas of the business, to meet the demands of the dynamic
and quickly evolving environment in which the group continues
to operate. The Risk Management Policy establishes the
requirements for all areas of the group to implement – requiring
a consistent process for the identification and assessment of
risks, the associated mitigation measures and the potential
impact of such events occurring. The policy was reviewed during
the year and determined to be effective. Ultimate responsibility
for risk management lies with the Chief Executive, delegated
through the executive management team, with accountability
and responsibility assigned to specific risk owners. The group risk
profile is reviewed by the Chief Executive and Group Finance
Director in advance of formal review and approval by the Board.
This information is captured in risk registers at business,
divisional and functional level, which are subsequently
consolidated into strategic, operational, financial and regulatory
risk categories within the overall Group risk register maintained
by the Enterprise Risk function.
Risk identification and assessment
When considering the risks that pose a threat to the
achievement of the group’s strategy, the Board takes both
internal and external perspectives into account to ensure a
thorough identification process occurs. The internal view takes
into account factors such as the changing and developing
business profile, operational processes, technology and people,
68
while the external view will include the economic position, political
factors, and sector and geographical risks. A top down and
bottom up approach ensures the systematic identification of
significant risks to the business.
Once identified, risks are assessed using standard impact and
likelihood ratings to quantify the risk to the achievement of
business objectives. Independent challenge and oversight of the
risks identified within the divisional and functional risk registers
are provided by the Enterprise Risk function and divisional
managers, to ensure meaningful and consistent results are
achieved via the process. During the year a dedicated risk
management software system was introduced across all
parts of the group to assist the risk assessment and risk
reporting requirements. The new system has significantly
enhanced the group’s risk oversight processes, providing
improved visibility in real time of risk assessment, risk
interdependency and controls effectiveness, and enhanced
executive management reporting capabilities.
Risk mitigation
To provide more robust information on the effectiveness of
the identified risk mitigation controls, the control and mitigation
element of the group’s risk management process was reviewed
and enhanced over the course of the year. Each identified risk
has a defined control owner who is responsible for developing
a plan to mitigate the risk. Assessment of the effectiveness of
this control environment is undertaken at divisional and group
level, with the Audit Committee formally reviewing performance
throughout the year and advising on the effectiveness of the risk
management system in place.
Risk culture
While it is understood that an effective risk management
framework is essential for the achievement of the group’s
strategic objectives, values and risk management culture
underpin how the group operates. The focus, during the year,
has therefore been on providing a strong and consistent
message from senior management (or ‘tone from the top’)
on the importance of embedding risk management into all
key decisions such that opportunities to grow the group are
effectively balanced with effective risk management decision
making. This means that opportunities may be exploited,
provided risks have been properly identified and the right
controls established or, in some cases, potential opportunities
may be declined as they sit outside of the group’s risk appetite.
Aligned with the group’s values, the code of conduct (One Code)
continues to provide the framework upon which Mitie’s risk
culture is built. The code sets out expected behaviours, linked
to the group’s values, for all employees and establishes zero
tolerance in specific areas – as part of an established ethical
business framework. The code was developed in alignment with
the public sector’s ‘seven principles of public life’ thus ensuring
that, wherever Mitie operates, organisational values and
behaviours are aligned with those of the client. The Board
received regular reports on the development of this framework
during the year.
Mitie Group plc | Annual Report and Accounts 2016
69
Risk monitoring and review Principal risks to the business are monitored throughout the year, as the business’s profile continues to change, to ensure the risk profile is accurate and the control environment remains effective. The overall risk profile for the year remained in line with that reported in 2015, although the definition of a number of risk events has been refined in order to more accurately reflect the evolving business and the potential challenges to achieving the group’s strategic objectives. It should be noted that other risks are identified as part of the risk management process, but these do not have a material impact on the group’s overall ability to achieve business objectives. These risks are managed via the existing risk management process. During the year a formal and detailed review of the risk management and internal control requirements of the Code was undertaken across all operating divisions, against the requirements provided in the FRC’s guidance, with the results reported to the Audit Committee and the Board. As a result of this review, risk management and internal control practices and reporting requirements were refined, and will continue to be further refined during 2016/17. The Audit Committee, on behalf of the Board, regularly reviews the programme of risk management undertaken across the group to demonstrate the importance of the management and assessment of risk at a senior level, to take ownership of mitigation improvements where required and to receive reports on the assurance activity undertaken. In addition, during the year a Risk Committee was constituted (as a sub-committee of the Executive Board) with responsibility for ensuring robust risk identification, assessment, control and monitoring occurs, with deep dive reviews of specific identified risks. The Risk Committee provides reports of its findings both to the Executive Board and Audit Committee. The Committee is chaired by the Group Finance Director with divisional Managing Directors, the Enterprise Risk Director, Group General Counsel and Head of Internal Audit as nominated members. In addition, external subject matter experts attend to provide specific technical risk management input where identified as necessary. Although significant effort has been put into developing the group’s risk management programme over recent years, management is not complacent in this area. During 2016 the risk management programme was subject to external review and evaluation by risk management experts from Grant Thornton. Ultimately the risk management framework is designed to manage rather than eliminate the risk of failing to achieve the objectives and strategies of the group and can therefore only provide reasonable, and not absolute, assurance against material risk and loss. The Board, through the Audit Committee, considers the nature and extent of significant risks in setting the group’s strategy. Details of the principal risks of the group are set out on pages 57 to 60 . The Audit Committee confirms that this risk management process has been in place throughout the reporting year and up to the date of approval of the Annual Report and Accounts. Internal control and assurance Mitie operates a ‘3 lines of defence’ model incorporating internal controls, risk management and functional oversight, and Internal Audit. The implementation of the system of internal control is managed by the leadership of each division. Group functions (such as Finance, Legal, Human Resources and Risk) collaborate with divisional teams to promote continuous improvement and ensure that controls are operating effectively. A formal review of the internal control environment, led by the Group Finance Director and Head of Risk with engagement from Divisional Directors and boards, is undertaken annually in each division through the Internal Control Questionnaire, which evaluates controls in all key business processes. The Audit Committee receives assurance over the effectiveness of divisional controls through this process, updates from specific functions, and the independent testing undertaken by Internal Audit as part of their work. The Audit Committee also receives regular reports from the external auditor Deloitte LLP, who contribute a further independent perspective on the internal financial control systems arising from their audit work, and updates from the Head of Internal Audit and the Executive Directors on the operation of controls within the business. Internal Audit The Internal Audit function provides objective assurance over the design and operation of risk management and governance processes and controls operated across the group. The Head of Internal Audit is responsible for development of a risk based internal audit plan that is aligned with the overall business strategy and provides assurance over the principal risks faced by the Group. On an annual basis the Audit Committee reviews and approves both the audit plan for the year and the resources required to deliver the agreed work programme. The Internal Audit plan is delivered through a co-sourced model, through a mix of internal resources and external resources from the group’s Internal Audit partner, Grant Thornton. The purpose, authority and responsibility of Internal Audit are defined in the Internal Audit Charter. The Audit Committee regularly reviews the progress of the internal audit plan, together with reports received on findings of audits and management’s progress on implementation of agreed recommendations. The Head of Internal Audit has direct access to the Audit Chairman and members of the Audit Committee. The Head of Internal Audit also reports regularly to the Executive Board. Committees of the Board The Board has five formally constituted committees: the Audit Committee, the Nomination Committee, the Remuneration Committee, the Investment Committee and the Results Committee, the scope of which are set out on the following pages. www.mitie.com 70
Mitie Group plc | Annual Report and Accounts 2016Audit Committee Mark Reckitt Chairman’s introduction The primary role of the Audit Committee is to oversee and assist the Board in its responsibility to approve a set of fair, balanced and understandable group Annual Report and Accounts. The accounts should provide the information necessary for shareholders to assess the Company’s strategy, business model and financial performance throughout the year. The Committee ensures that the group has in place effective financial governance in respect of the group’s financial results, the performance of both the Internal Audit function and the external auditor, and the management of the group’s systems of internal control, business risks management and related compliance activities. Audit Committee members Mark Reckitt succeeded David Jenkins as Chairman of the Committee on 14 July 2015. Mark continues to be deemed by the Board, as at the date of this report, to have significant, recent and relevant financial experience through his qualifications and ongoing positions. Mark’s biography is included on page 63 and in the Notice of AGM. Crawford Gillies was also a member of the Committee during the year until his retirement from the Board in July. At the date of this report, the Audit Committee comprises independent Non-Executive Directors who are all considered appropriately experienced to fulfil their duties. Chairman Mark Reckitt Committee members Jack Boyer Larry Hirst Key purpose of the Audit Committee The Audit Committee provides effective governance over the appropriateness of the group’s financial reporting, and the performance of both the Internal and External Audit functions. The Committee also oversees the group’s internal control systems, business risks management and related compliance activities. The Committee meets with the external auditor and the Head of Internal Audit without the Executive Directors present. As Chairman of the Committee, Mark Reckitt will be available at the AGM to answer any questions about the work of the Committee. Key responsibilities of the Audit Committee The key responsibilities of the Audit Committee include: > monitoring the integrity of the financial statements of the Company, including its Half-Year Report and the Annual Report and Accounts, preliminary results announcements and any other formal announcement relating to its financial performance, reviewing and reporting to the Board on significant financial reporting issues and estimates and judgements having regard to matters communicated to it by the external auditor; > reviewing summary financial statements, significant financial returns to regulators and any financial information contained in certain other documents, such as announcements of a price sensitive nature; > reviewing the Half-Year Report and Annual Report and Accounts, including the fair, balanced and understandable statement, statements concerning internal controls and risk management, all other material information presented with the financial statements including the strategic report, the annual viability statement, the corporate governance statements (insofar as they relate to the audit and risk management), and recommending the same for Board approval; > keeping under review the adequacy and effectiveness of the group’s internal financial controls and internal control and risk management systems (being the systems established to identify, assess, manage and monitor financial and other risks); > providing advice on how, taking into account the Company’s position and principal risks, the Company’s prospects have been assessed, over what period, why the period is regarded as appropriate and whether there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the said period, drawing attention to any qualifications or assumptions as necessary, reviewing, and challenging where necessary accounting policies and key areas of accounting judgement; > reviewing the external auditor’s audit plan, nature and scope of work and overall summary of key issues and judgements; > assessing the effectiveness of the external auditor including the appropriateness and skills of its audit team and the quality of its services; > agreeing the audit fee for the year; > considering and making recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the group’s external auditor; > ensuring the group’s compliance with the Competition and Markets Authorities Statutory Audit Services Order, in particular with regard to audit tender; > reviewing and monitoring compliance with the Non-Audit Services Policy and maintenance of auditor independence; > reviewing the group’s consolidated risk register prior to its approval by the Board; 71
> monitoring and reviewing the role and effectiveness of the group’s internal audit function, reviewing the internal audit plan and ensuring the internal audit function has adequate resources and appropriate access to information to enable it to perform its function effectively; > reviewing key internal audit reports and findings; > reviewing the adequacy and security of the group’s arrangements for its employees and business partners to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters (ensuring that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action); > reviewing the group’s procedures for detecting fraud; > reviewing the group’s systems and controls for the prevention of bribery; > considering management’s response to any major internal or external audit recommendations; and > monitoring the effectiveness of the external audit and risk management systems and functions. The Audit Committee’s terms of reference are available at www.mitie.com/investors/shareholder-services/corporate-governance. Frequency of Audit Committee meetings During the financial year, the Audit Committee met three times. Meetings may, by invitation, be attended by the group’s external auditor, the Chairman, the Chief Executive, the Group Finance Director and the Head of Internal Audit. Attendance Number of meetings held in year: 3 Mark Reckitt1 2 of 2 Jack Boyer 3 Larry Hirst 3 Crawford Gillies3 0 of 1 David Jenkins2 2 of 2 Notes: 1. Mark Reckitt was appointed to the Board on 1 July 2015. 2. David Jenkins retired from the Board on 31 December 2015. 3. Crawford Gillies retired from the Board on 13 July 2015. The role of the Committee – financial reporting The primary role of the Committee in relation to financial reporting is to review with both management and the external auditor the appropriateness of the Half-Year and Annual Report and Accounts concentrating on, amongst other matters: > the consistency of, and any changes to, significant accounting policies and practices both on a year-on-year basis and across the group; > the clarity and completeness of disclosure in the group’s financial statements and the context in which statements are made; > the methods used to account for significant or unusual transactions where different approaches are possible; and > whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy. To aid the review, the Committee considers reports from the Group Finance Director and also reports from the external auditor on the outcomes of the Half-Year review and independent audit. Going concern and viability statement The Audit Committee considered the evidence that supports the ability of the Directors to conclude that Mitie has adequate financial resources to continue in operation for the foreseeable future and can prepare its accounts on a going concern basis. The Committee considered the future prospects and performance of the group including: the future business plans of the group; the potential impact of acquisition activity; 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; and those matters reviewed in connection with the viability statement. It also reviewed and considered the disclosures on the matter of going concern and viability in the Annual Report and Accounts and considered them to be appropriate. Details of the conclusions arrived at by the Directors in preparing the financial statements on a going concern basis can be found in the Directors’ report: other disclosures on page 99, as can the details of the conclusions arrived at by the directors in assessing the viability of the group. The more detailed assessment of the group’s long-term viability is set out in the viability statement on page 61. Significant issues considered by the Committee during the year The Audit Committee considered the following significant matters of judgement in relation to the accounting judgements contained in the Annual Report and Accounts. In all cases, papers were presented to the Audit Committee by management, setting out the material matters of accounting estimates and the judgements associated with each item. A separate paper was presented to the Audit Committee by the external auditor that set out views on each area of judgement. The Audit Committee discussed the papers with management and sought the views of the external auditor on each matter, and for each area of judgement concurred with the treatment presented by management and in the Annual Report and Accounts. www.mitie.com Audit Committee continued
Accounting for material contracts
The group operates a broad portfolio of contracts and discloses
revenue recognition as a critical judgement in the Annual Report
and Accounts. The methodology used for the recognition of
contract revenue influences the amount of profit recognised
on a contract as well as the inclusion and valuation of contract
related assets and liabilities on the balance sheet.
The Audit Committee considered papers prepared by
management on: revenue and profit recognition on contracts;
on the accounting treatment applied to all the group’s larger
integrated facilities management contracts, where judgement
is required in respect of the percentage of completion of
contracted work when recognising revenue and profit;
contract performance; forecast levels of contract profit and
the recognition and valuation of contract related assets and
liabilities; and on the recoverability of certain specific contract
receivables and the risk associated with their collection.
The Committee concurred that the judgements made in
respect of accounting for material contracts were appropriate.
The valuation of goodwill
The group has undertaken a number of acquisitions in the past
and carries goodwill as an intangible asset on its balance sheet
in respect of the businesses acquired (see Note 13).
The Group considers the carrying value of all goodwill on at
least an annual basis. The valuation and impairment review of
goodwill is assessed for each individual cash-generating unit
(CGU) and considers the balance sheet value of the goodwill
compared to the net present value of the post-tax cash flows
that are expected to be generated by that CGU. This involves
an estimation of the future cash flows deriving from each CGU
and also the selection of appropriate discount rates, which are
then applied to the cash flows to calculate a net present value.
The assumptions underpinning the reviews were considered
by the Audit Committee. The cash flow forecasts used in the
review were derived from the most recent CGU budgets which
have been reviewed and approved by the Board and the long-
term business plans of the group. The assumptions underpinning
the review, and also the sensitivity of the decision on goodwill
impairment to changes in key assumptions including the
discount factor were considered by management and presented
to the Audit Committee. During the year management formally
considered the carrying value of goodwill in respect of the
Healthcare CGU at both the half year and at the year end given
the performance of the healthcare business. The Committee
considered a detailed paper from management and a paper
from the external auditor on the key assumptions underpinning
the carrying value of goodwill. This included consideration of
the business plan for the Healthcare CGU including the areas
of activity to be undertaken following the acquisition of Tascor
Medical Services, the conditions in the healthcare market, the
calculation of the discount rate applied, the sensitivity of the
impairment testing to potential changes to both the key
assumptions and the discount rate applied therein, and the
disclosures to be made in the accounts. On the basis of this
review, the Audit Committee agreed with management that
no impairment to goodwill was necessary.
72
Financial Reporting Council (FRC) comment letter
The group received requests for further information and
explanation from the FRC in relation to the group’s 2014 and
2015 Annual Reports and Accounts. After due consideration and
approval by the Audit Committee, the group responded to the
FRC’s requests. The correspondence with the FRC in relation to
the Group’s Annual Reports and Accounts closed satisfactorily
with no changes to reported results. As a result of the
correspondence, the group refined the wording of certain of its
significant accounting policies and extended certain disclosures
in its 2015 and 2016 Annual Reports and Accounts.
The role of the Committee – external audit
Each year the Audit Committee reviews the performance
of the external auditor in respect of audit related services
and non-audit related services and is committed to ensuring
the independence, effectiveness and objectivity of the
external auditor.
Appointment and tendering of external audit services
The Audit Committee will continue to give consideration to the
timing of the next formal tender following the introduction of the
audit tendering provisions in the Code. There are no contractual
obligations restricting the Company’s choice of external auditor.
The Audit Committee approved the appointment of John
Charlton as the audit partner, following the retirement of
Colin Hudson from the audit during the year.
The Audit Committee confirms that the group is in compliance
with the Statutory Audit Services for Large Companies Market
Investigation (Mandatory use of Competitive Tender Process
and Audit Committee Responsibilities) Order 2014.
Deloitte LLP has been the Company’s external auditor since its
market listing in 1987. Mitie tendered its full external audit services
in 2012 and concluded that Deloitte LLP should be re-appointed
as external auditor given its relevant experience in both the listed
company environment and the support services sector.
External auditor effectiveness
The Audit Committee monitored the conduct and effectiveness
of the external auditor through its assessment of:
> the experience, expertise and perceptiveness of the auditor;
> the planning and execution of the agreed audit plan and
quality of audit reports; and
> the conduct of the auditor including the Audit Committee’s
experience of interaction with the auditor, which included
meetings held in the absence of management.
The Audit Committee is satisfied with the independence and
effectiveness of the external auditor and, in light of the audit
tender conducted in 2012, has assessed and recommended
to the Board the continued engagement of Deloitte LLP
as the Company’s external auditor. The Board is therefore
recommending that Deloitte LLP be proposed for
re-appointment at the forthcoming AGM.
Mitie Group plc | Annual Report and Accounts 2016 73
Non-audit services provided by the external auditor The Audit Committee has approved a Non-Audit Services Policy that ensures the external auditor remains independent and objective throughout the provision of their independent audit services and when formulating their audit opinion. In order to retain the flexibility of utilising the external auditor to provide non-audit services, the following criteria must also be met. These are such that the external auditor does not: > audit their own work; > make management decisions for the group; > create a conflict of interest; or > find themselves in the role of advocate for the group. The Non-Audit Services Policy identifies the various types of non-audit services and determines the analysis to be undertaken along with the level of authority required before the external auditor can be considered to undertake such services. Further, the policy is consistent with the Financial Reporting Council’s ethical standards policy. When considering the appointment of the external auditor for non-audit services, the following factors are taken into account: > the quality of work provided by the external auditor; > representations provided by the external auditor regarding independence and objectivity, along with internal controls implemented by them when providing non-audit services; > the level of the external auditor’s understanding of the group; > the nature of the work being performed; and > the commercial and practical circumstances of particular types of work required. Non-audit services provided to the group during the year included tax and corporate finance services. Further details can be found in Note 6 to the financial statements. The Audit Committee considered reports from both management and the external auditor, none of which raised concerns about auditor independence. This included consideration of the impact of the integrated facilities management contract with Deloitte LLP that was awarded to the group during the year. This contract award was made following a competitive tender process and in compliance with Deloitte’s internal independence and ethical standards. A summary of the fees paid to the external auditor is given in Note 6 to the financial statements. The Audit Committee confirms that the requirements of the Non-Audit Services Policy have been met throughout the year. Assurance In accordance with ‘Internal Control: Guidance for Directors’ and section C.2.3 of the Code, the Board performs a formal annual assessment of the operation and effectiveness of the system of internal control, covering all material controls including financial, operational and compliance controls, and updates this assessment prior to the signing of the Annual Report and Accounts. These activities are monitored at executive level to ensure that control changes are implemented appropriately and that they are effective. The Head of Internal Audit oversees the application of control environment improvements and attends Audit Committee meetings to provide regular updates on the effectiveness of the group’s internal controls and the results of the internal audit process. Features of the internal control and risk management systems that ensure accuracy and reliability of financial reporting include: a culture of good governance, integrity, competence, fairness and responsibility; group level policies and procedures to support the business by providing an operational internal control framework; clearly defined responsibilities, delegated in accordance with the group’s delegated authorities and authorisation registers; and a group function with a team of specialist resources. Mark Reckitt Chairman of the Audit Committee www.mitie.com 74
Mitie Group plc | Annual Report and Accounts 2016Nomination Committee Roger Matthews Chairman’s introduction The role of the Nomination Committee Chairman is to ensure the Board is appropriately balanced in terms of its composition, considering matters of diversity, skills and experience. The Committee is comprised of the Chairman of the Board and independent Non-Executive Directors who are all considered to be appropriately experienced to fulfil their duties. Nomination Committee members During the year Crawford Gillies and David Jenkins were also members of the Committee until their retirement from the Board, on 13 July 2015 and 31 December 2015 respectively. Mark Reckitt became a member of the Committee upon his appointment to the Board on 1 July 2015. At the date of this report the Committee comprises: Chairman Roger Matthews Committee members Jack Boyer Larry Hirst Mark Reckitt Key purpose of the Nomination Committee The Nomination Committee evaluates the composition, diversity, experience, knowledge, skills and independence of the Board and its committees. This allows the appropriate balance to be maintained and ensures the continued effectiveness of the Board. The Committee also ensures that appropriate succession plans for the Non-Executive Directors, Executive Directors and the group’s senior management are also kept under review, taking into account the challenges and opportunities facing the group, and the diversity, skills and expertise that are therefore required in the future. Key responsibilities of the Nomination Committee The key responsibilities of the Nomination Committee include: > making recommendations to the Board regarding succession planning for Directors and other senior executives, and in particular for the key roles of Chairman and Chief Executive; > reviewing the structure, size and composition of the Board (including its skills, knowledge, experience and diversity), making recommendations to the Board with regard to any changes and setting targets for diversity; > keeping under review the leadership needs of the group in order to ensure it continues to compete effectively in the marketplace; > making recommendations to the Board concerning the following: – potential candidates to fill Board vacancies when they arise; – the appointment of any director to executive or other office; – suitable candidates for the role of Senior Independent Director; – re-appointment of any Non-Executive Director at the conclusion of their specified term of office (particularly in relation to directors being re-elected for a term beyond six years); – the appointment of the Company Secretary; – membership of the Board committees; and – any matters relating to the continuation in office of any Director. > keeping up to date and fully informed about strategic issues and commercial changes affecting the group and the market in which it operates; and > reviewing the results of the Board performance evaluation process that relate to the composition of the Board. The Nomination Committee’s terms of reference are available at www.mitie.com/investors/shareholder-services/corporate-governance. 75
Key activities during the year The Committee reviewed the composition and chairmanship of the Board and each of its committees. The Committee is satisfied that the Board’s composition has been appropriate throughout the year, having regard in particular to the integrity, skills, knowledge and experience of its Directors and the size and nature of the business. The Committee recognises the importance of planning for the future and the succession planning process. During the year, the Committee considered the succession plan for key members of the executive management team. The Committee also worked with executive search firm Norman Broadbent during the financial year. The firm supported the Committee in its search for David Jenkins’ successor as Non-Executive Director and Chairman of the Audit Committee. There is no other connection between Norman Broadbent and the Company. Frequency of Nomination Committee meetings During the financial year, the Committee met four times. Attendance Number of meetings held in year: 4 Roger Matthews 4 Jack Boyer 4 Larry Hirst 4 Mark Reckitt3 3 of 3 Crawford Gillies2 1 of 1 David Jenkins1 1 of 2 Notes: 1. David Jenkins retired from the Board on 31 December 2015. 2. Crawford Gillies retired from the Board on 13 July 2015. 3. Mark Reckitt was appointed to the Board on 1 July 2015. Employee diversity and inclusion Mitie has a company-wide Equality, Diversity and Inclusion Policy that clearly states its commitment to the inclusion and diversity of all employees at all levels, up to and including Board level. The Board retains a key focus on diversity of skills, gender and experience in its membership with a view to setting appropriate aspirational targets designed to reflect the diverse demographic of the Group’s employee population. The Board ensures the group’s employment practices and policies are designed to recruit, motivate, retain, train and develop the very best people, recognising that this can be achieved only through offering equal opportunities regardless of gender, race, religion, age, disability, sexual orientation or any other aspect of diversity. Further details of the group’s commitment to diversity, together with a breakdown of employee diversity as required by the Companies Act 2006 can be found in the Strategic report on pages 12, 18 and 19. Further details of the diversity of Mitie’s people can be found in the group’s Sustainability Report which is available on the Company’s website at www.mitie.com. Roger Matthews Chairman of the Nomination Committee Investment Committee Overview and purpose The Investment Committee strengthens the group’s governance framework and facilitates the internal approvals process by approving matters as delegated by the Board and referring recommendations for Board approval. The Committee, which comprises the Chief Executive, as Chair, and Group Finance Director, met four times during the year and considered matters such as major bids and contracts, acquisitions, disposals, large capital expenditure and Mitie Model investments. Results Committee Overview and purpose The Results Committee assists the Board in approving matters such as half-year and preliminary results announcements, other routine, non-material announcements and shareholder communications. The Results Committee, which comprises the Chief Executive, as Chair, and Group Finance Director, met twice during the year. www.mitie.com Remuneration Committee
Jack Boyer, OBE
Chairman’s Introduction
On behalf of the Board, I am pleased to present the
Directors’ remuneration report for the year ended
31 March 2016.
Context to the Committee’s decisions
Prior to the 2015 AGM, we consulted with key
shareholders regarding a revised Executive Remuneration
Policy and this received strong support at the AGM. The
approved policy will therefore remain in place until July
2018 unless it is necessary to consult with shareholders
on any further changes.
When making decisions on remuneration the Committee
takes account of business performance within the context
of the sector along with broader economic factors that will
have an influence on past and future performance. As set
out in the Chairman’s statement and financial review, Mitie
has delivered a good set of results during the year:
Revenue
Operating profit
Basic EPS growth
Dividend per share growth
Before
other items
Reported
£2,231.9m £2,231.9m
£112.5m
119.6%
3.4%
£128.9m
0.8%
3.4%
Who is on the Remuneration Committee?
The members of the Remuneration Committee are
Non-Executive Directors.
Chairman:
Committee
Members:
Jack Boyer, OBE
Crawford Gillies (until 13 July 2015)
Larry Hirst, CBE
David Jenkins (until 31 December 2015)
Roger Matthews
Mark Reckitt (from 1 July 2015)
What is the Committee’s key purpose?
We have responsibility for determining the remuneration
of Mitie’s Executive Directors and the Chairman, taking
into account the need to ensure Executives are properly
incentivised to perform in the interests of the Company,
our people and our shareholders.
76
What are the Committee’s key responsibilities?
Our key responsibilities are:
> shaping and agreeing with the Board the policy framework
for the remuneration of Executive Directors and certain
aspects of the remuneration of senior management;
> determining the total individual remuneration package
of each Executive Director with due regard to the
performance of the individual in line with the agreed
remuneration policy;
> agreeing Executive Directors’ contractual terms;
> acting on behalf of the Board in connection with the
establishment and administration of the group’s current
and/or future share plans, including the selection of
participants, determining the structure of awards and
the setting of performance targets;
> overseeing the remuneration policy for the group as
a whole; and
> drafting and approving the Directors’ remuneration report
and any remuneration related resolutions to be put to the
shareholders at the group’s AGM.
Who attends Committee meetings?
The Committee regularly consults with Ruby McGregor-
Smith, CBE, Chief Executive and the Group Reward Director
on various matters relating to the appropriateness of rewards
for the Executive Directors. However, the Chief Executive
is not present when matters relating directly to her own
remuneration are discussed. This is also the case for other
Executives attending Committee meetings.
The Company Secretary attended the meetings as Secretary
to the Committee. The Chief Executive and Group Reward
Director attended the meetings by invitation only.
How many times did the Committee meet?
During the financial year, the Committee met four times.
Jack Boyer, OBE
Crawford Gillies1
Larry Hirst, CBE
David Jenkins2
Roger Matthews
Mark Reckitt3
Notes:
Attendance
4
1
4
3
4
3
1. Crawford Gillies stepped down from the Board at the AGM on
13 July 2015.
2. David Jenkins retired from the Board on 31 December 2015.
3. Mark Reckitt joined the Board on 1 July 2015.
Mitie Group plc | Annual Report and Accounts 2016
What were the key activities of the Committee during
the year?
During the year and immediately following the year end,
we addressed a number of key issues, such as:
> setting base salaries for the Executive Directors;
> assessing the performance of the Executive Directors
and determining annual bonuses;
> setting bonus targets for the Executive Directors;
> approving share awards and the vesting of legacy
share awards;
> reviewing the application of the remuneration policy
in response to market changes; and
> preparing the Directors’ remuneration report.
Alignment between strategy and pay at Mitie
Our pay policy supports and rewards the achievement
of our strategy to deliver sustainable and profitable growth.
This is driven and measured by how we perform against a
number of KPIs, both financial and non-financial, further
details of which can be found on pages 16 and 17 and pages
52 to 56 respectively.
We align our pay policy to our strategy and performance
in a number of ways, including:
Annual Bonus – awarded based on a combination of profit
and strategic measures set by the Board at the beginning
of the financial year; and
Long Term Incentive Plan (LTIP) – based on a basket of
measures tailored to our business. Page 81 gives
you more information on bonus and LTIP targets.
Remuneration decisions
Delivering our strategic goals for the future development of
the group as a streamlined business has been the key focus
for Mitie this year and the Committee has approached the
key decisions regarding the remuneration of our Executive
Directors with this future direction in mind. With regard to
fixed pay, it has been agreed that the Executive Directors’
base salaries should be increased by 2.5% from 1 April 2016.
This is in line with average salary increases awarded to Mitie’s
salaried non-contract UK employees.
For the Executive Directors, we introduced revisions to the
annual bonus plan in 2015/16 that strengthen the link
between performance and reward outcomes. In summary
these included a lower bonus earned at “threshold” and
“target” levels of performance, a wider pay-out range
between “threshold” and “maximum” performance and a
greater level of outperformance against “target” required
to receive a maximum pay-out. The bonus remains based
on the achievement of financial targets (110% of salary for
both Executive Directors) and performance against strategic
objectives relating to organic revenue growth, people
management and strategy (50% of salary for the Chief
Executive and 25% of salary for the Group Finance Director).
Overall, annual bonus outcomes for 2015/16 are 73% of
maximum for the Chief Executive and 70% of maximum for
the Group Finance Director. Under the financial element,
a level above the threshold position was achieved which
produced an entitlement of 71.5% of salary. Against the
strategic elements, the Committee has awarded 45% of
salary for the Chief Executive and 22.5% of salary for the
Group Finance Director, reflecting good progress on all
metrics; this brings the total bonus award to 116.5% of base
salary for the Chief Executive and 94% of base salary for the
Group Finance Director. With regard to long-term incentives,
last year we granted the first awards under our new LTIP
which shareholders approved at the 2015 AGM. As has been
the case with LTIP awards granted since 2013, these awards
were granted subject to a basket of four measures, namely
EPS, relative Total Shareholder Return (TSR), organic
revenue growth and cash conversion. The Committee has
recently reviewed the continued appropriateness of this blend
of targets and believes that some changes should be made
to the targets that are applied to the LTIP awards that are to
be made in 2016. Reflecting best practice, the Committee is
currently consulting major shareholders in connection with
these changes. Once these awards are made, details of the
performance conditions to which they are subject will be set
out in the relevant RNS announcement and will be fully
disclosed in next year’s report.
Also, the LTIP awards granted under the previous plan in
2013 will vest at a level of 69.5% based on performance over
the last three years. Further details of performance against
the annual bonus and LTIP targets can be found on pages 88
and 89 respectively.
Remuneration policy for 2016/17 and onwards
In response to the feedback received from our consultation
with shareholders before the 2015 AGM we made a number
of changes to ensure our Policy remained aligned to the
delivery of our strategy and shareholder priorities. At the
2015 AGM, shareholders provided their strong support with
93.6% of shareholders voting for the new approach. The
Directors’ remuneration report resolution achieved 99.7%
level of support of the votes cast. For completeness, a
summary of the approved policy, which remains in force, is
noted on pages 79 to 82. No further changes are proposed to
the policy this year, although page 88 explains a change in
the method for the payment of the pension benefit to reflect
the legislative changes which have impacted the tax
efficiency of this benefit for high earners. In summary, going
forward (and reflecting market practice) the Executive
Directors will cease to accrue benefits in the group’s defined
benefit scheme and will instead receive an additional cash
supplement of an equivalent value.
Conclusion
The Executive Remuneration Policy is aligned with the
expectations of our shareholders and with broadly accepted
practices in the market place. We will be seeking approval for
the Report from shareholders at the AGM. I would welcome
your views and feedback regarding this year’s report, which
can be emailed to me at jack.boyer@mitie.com.
Jack Boyer, OBE
Chairman of the Remuneration Committee
77
www.mitie.com
The Company’s remuneration policy
This report
We have presented this report in accordance with the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013. The report also describes how the Board has complied with the provisions set out
in the September 2014 edition of the UK Corporate Governance Code relating to remuneration matters.
At our 2016 AGM we will be holding an advisory vote on the implementation section of this report only, as no changes to the
policy are proposed. However, a summary of our policy is provided below for convenience (the full policy is available in the
2014/15 Report & Accounts which can be found on the Company’s website).
The Independent Auditor has reported on certain parts of this report and stated whether, in his opinion, those parts of the
report have been properly prepared in accordance with the Companies Act 2006. Those sections of the report that have
been subject to audit are clearly indicated.
The key principles of the policy
The remuneration policy promotes and embeds the Company’s remuneration principles. The key principles of this policy are:
Performance-related
Shareholder aligned
Comprehensive and simple
At the Executive Director and senior management levels, the majority of reward opportunity
is provided through performance-related incentives linked to the Company’s strategic goals
and taking account of the Company’s attitude to risk
Reward under these incentives is linked to both individual and group performance
The performance-related incentive arrangements are designed to align the interests of the
executives with those of shareholders and to promote the Company’s long-term success
The overall remuneration policy is comprehensive without becoming overcomplicated and
encourages executives to concentrate on profitable growth
78
Mitie Group plc | Annual Report and Accounts 2016
The policy
The key elements of the policy, approved at the 2015 AGM, are summarised below.
Purpose and
link to strategy
Base Salary
Set at levels to
attract and retain
individuals of the
calibre required to
drive the vision and
direction of Mitie.
Benefits
To aid retention
and be competitive
within the
marketplace.
Operation
Opportunity
Performance metrics
N/A
N/A
Salaries are generally reviewed
annually and effective from 1 April.
The review is influenced by:
– the individual’s role, experience
and performance;
– business performance and the
wider market and economic
conditions;
– the range of increases across
the group; and
– an external comparator
group comprised of sector
comparators and size adjusted
FTSE 250 comparator
organisations.
The group provides a range of
benefits which may include a
company car/car allowance,
private fuel, private health
insurance, life assurance and
annual leave.
Benefits are reviewed periodically
against market and new benefits
may be added and/or amended
as required to support the
attraction and retention of
key talent.
Additional benefits may be
awarded in certain recruitment
circumstances which may include
relocation expenses, housing
allowance and school fees.
Other benefits may be offered
if considered appropriate and
reasonable by the Committee.
Base salary increases will be
broadly in line with the average
increase for the salaried non-
contract UK employees whose
salaries Mitie determines,
although on occasion other
specific circumstances such as
changes of responsibilities,
progression in role, experience, or
a significant increase in the scale
of the role and/or size, value
and/or complexity of the group
may also be taken into
consideration.
Benefits are set at a level which
the Committee considers:
– is appropriately positioned
against comparable roles in
companies of a similar size
and complexity in the relevant
market;
– provides a sufficient level
of benefit based on the role
and individual circumstances
(for example, relocation).
The Committee retains discretion
to approve a higher cost than
currently incurred where factors
outside the Company’s control
have changed materially (e.g.
medical inflation) or in exceptional
circumstances (e.g. relocation).
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The Company’s remuneration policy continued
Purpose and
link to strategy
Operation
All Employee
Share Schemes
To provide
opportunities for
the Directors to
voluntarily invest in
the Company on
the same terms as
other employees.
Pension*
To aid retention
and provide
competitive
retirement benefits.
Executive Directors are eligible
to participate in any all-employee
share plan operated by the
Company, in line with HMRC
guidelines currently prevailing
(where relevant), on the same
basis as other eligible employees.
Executive Directors currently
participate in the group’s defined
benefit scheme which is now
closed to new entrants. The plan
has a cap on pensionable salary.
A cash supplement is payable in
respect of full salary.
The Directors are subject to the
same scheme rules as other
members of the Final Salary
scheme. The rules detail the
pension benefits which members
receive on retirement, death or
leaving service.
New Executive Directors will
be eligible to participate in the
defined contribution pension
scheme or to receive a cash
allowance in lieu of a pension
contribution.
Opportunity
N/A
Performance metrics
N/A
N/A
All Directors accrue pension at
a rate of 1/70th of pensionable
salary. Pension salary supplement
for each of the Directors is 20%
of salary.
The pension salary supplement
for new Directors will be
determined based on the
Committee’s assessment of
competitive levels needed to
attract and retain such individuals,
but will be capped at 20% of
salary.
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Mitie Group plc | Annual Report and Accounts 2016
Purpose and
link to strategy
Annual Bonus Plan
To incentivise and
recognise execution
of the Company’s
strategy on an
annual basis.
Rewards the
achievement of
annual financial
and strategic goals.
Deferral provides
alignment with
shareholders.
Long Term
Incentive Plan
To motivate and
incentivise delivery
of sustained
performance and
alignment with
shareholder
interests.
Operation
Opportunity
Performance metrics
Maximum bonus opportunity
is 160% of salary for the Chief
Executive and 135% of salary
for the Group Finance Director
or any other Executive Director.
Awards may be made up to a
maximum level of 200% of salary
for any Executive Director.
Measures and targets are set
annually and pay-out levels are
determined by the Committee
after the year end based on
performance against those
targets.
The Committee may, in
exceptional circumstances,
amend the bonus pay-out
should this not, in the view
of the Committee, reflect
overall business performance
or individual contribution.
Up to 100% of base salary is paid
in cash with anything over 100%
being deferred in shares which
vest in two years (normally
subject to continued employment).
Dividends are accrued on deferred
shares and paid in cash.
Malus provisions apply to deferred
share awards made after the
2015 AGM.
Annual awards (in the form of
nil-cost options, conditional share
awards or cash settlements) are
made with vesting dependent upon
the achievement of performance
conditions over three years.
Award levels and the framework
for determining vesting are
reviewed annually to ensure they
continue to support the group’s
strategy.
The Committee has the discretion
to decide whether, and to what
extent, targets have been met,
and, if an exceptional event occurs
that causes the Committee to
consider that the targets are no
longer appropriate, the Committee
may adjust them.
Dividend equivalents are paid in
cash on or after the date shares
are received.
Vested shares will be subject to
an additional holding period and
malus provisions will apply for
awards made after the 2015 AGM.
Bonuses are based on
stretching financial and
strategic objectives as set at
the beginning of the year and
assessed by the Committee
at the end of the year, with the
underlying aim of encouraging
and rewarding the generation
of sustainable returns to
shareholders.
The Committee has discretion
to determine the appropriate
weightings each year
depending on business
priorities. The financial
measures will represent
the majority of the bonus,
with the strategic objectives
representing the balance.
These elements are additive.
For the strategic element of the
award, payment at threshold
performance is zero. At the
start-to-earn performance level
under the financial element,
a bonus of no more than 60%
of salary is payable.
Performance over three
financial years is measured
against stretching objectives
set at the beginning of the
performance period which
again have the underlying aim
of encouraging and rewarding
the generation of sustainable
returns to shareholders.
Vesting under the LTIP
depends on the achievement
of performance conditions,
for which a minimum
performance threshold has
been set. Awards attributable
to each performance condition
vest at 25% on achievement of
the minimum performance
threshold rising to 100% for
the achievement of a defined
upper performance threshold.
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The Company’s remuneration policy continued
Purpose and
link to strategy
Operation
Opportunity
N/A
Performance metrics
N/A
Share Ownership
To ensure
alignment between
Executive Directors
and shareholders.
Chairman and
Non-Executive
Director fees
To attract and
retain high‑calibre
individuals.
Non-Executive
Directors do not
participate in any
incentive schemes.
Executive Directors are required,
over time, to build and maintain a
minimum shareholding in the
Company worth 200% of salary.
They are required to retain half of
the post-tax shares vesting under
the LTIP and other share options
until the guideline is met.
Fees are normally reviewed every
three years.
The fee structure is as follows:
– The Chairman is paid an all-
inclusive single fee for all Board
responsibilities.
Fees are set at a level which:
– reflects the commitment and
contribution that is expected
from a Chairman and the
Non-Executive Directors; and
– is appropriately positioned
N/A
– The Non-Executive Directors are
paid a basic fee, plus additional
fees for Chairmanship of
committees.
– Fees are currently paid in cash
but the Company may choose
to provide some of the fees
in share.
– Benefits, including expenses,
can be provided if considered
necessary on a case-by-case
basis.
against comparator roles in
companies of a similar size and
complexity in the relevant market.
Actual fees are disclosed in the
Directors’ remuneration report
for the relevant financial year.
Aggregate fees/value of benefits
are capped at the amount set out
in the Company’s Articles of
Association.
* page 88 explains how the defined benefit portion of the Executive Directors’ pension provision will be provided going forward to reflect changes in the
pension taxation regime.
Notes:
2016/2017 salaries for the Executive Directors can be found on page 87.
The malus provision under the Annual Bonus Plan and LTIP may be operated if it comes to light within three years that information used to determine
performance was materially inaccurate and resulted in a material overstatement of the award or in the event of any act/omission by an individual that
would give grounds for summary dismissal (with no time limit).
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How our policy actually influences levels of remuneration
Under our policy, a significant proportion of remuneration is linked to performance. The charts below show how much the
Executive Directors could earn under Mitie’s remuneration policy (as detailed above) under different performance scenarios.
The following assumptions have been made:
> Minimum performance (below threshold) – fixed pay only comprising salaries effective as of 1 April 2016, benefits received
in the year ended March 2016 and pension received in 2016;
> On-target performance – fixed pay plus an on-target bonus and 25% of the maximum possible LTIP award vesting.
On‑target bonus represents 90% of salary for financial targets and 50% of the maximum for strategic targets; and
> Maximum performance – fixed pay plus maximum bonus and maximum LTIP awards.
The scenarios do not include share price growth or dividend assumptions.
Ruby McGregor-Smith CBE
Suzanne Baxter
Minimum
On-target
Maximum
758.5
758.5
667.1
290.0
758.5
928.2
1160.2
Minimum
On-target
Maximum
497.3
497.3
378.4
184.6
497.3
498.4
738.3
£’000
0
1,000
2,000
3,000
£’000
0
500
1,000
1,500
2,000
Composition
of package (%)
Minimum
On-target
Maximum
Value of
package (£'000)
Minimum
On-target
Maximum
Fixed
100%
44%
27%
Bonus
LTIP
39%
32%
17%
41%
Composition
of package (%)
Minimum
On-target
Maximum
Fixed
100%
47%
29%
Bonus
LTIP
36%
29%
17%
42%
Fixed
Bonus
LTIP
Total
Value of
package (£'000)
758.5
758.5
758.5
667.1
928.2
758.5
290.0
1,715.6
1,160.2 2,846.9
Minimum
On-target
Maximum
Fixed
497.3
497.3
497.3
Bonus
LTIP
Total
378.4
498.4
184.6
738.3
497.3
1,060.3
1,734.0
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The Company’s remuneration policy continued
Our policy on Executive Directors’ service contracts
All Directors are appointed on rolling service contracts but are subject to annual re-election at the AGM in accordance with
the Code.
Under the service contracts, the Company is required to give 12 months’ notice of termination of employment; Executive
Directors are required to give six months’ notice.
For Executive Directors, if notice is served by either party, the Executive Director can continue to receive basic salary, benefits
and pension for the duration of their notice period during which time the Company may require the individual to continue to
fulfil their current duties or may assign a period of garden leave.
With respect to the current Group Finance Director’s contract, the Company has the right to make a payment in lieu of notice
equivalent in value up to 12 months’ salary payable either in monthly instalments or as a lump sum. The Company will also
pay for any benefit for which the individual would have been eligible until the date of cessation had full notice been given.
The Executive Directors’ service contracts are available for inspection at Mitie’s registered office, the head office and at the
AGM. There are no other provisions for compensation on termination of employment set out within the contracts of the
Executive Directors.
For future Directors, notice periods will not exceed 12 months, save in exceptional circumstances; and should a notice period
longer than 12 months be necessary the Committee would expect this to reduce to a 12 months notice period over time.
The effective dates of the service contracts of the Executive Directors are set out below:
Ruby McGregor-Smith, CBE
Suzanne Baxter
Date of agreement
01-Apr-03
10-Apr-06
Our policy on external appointments
The Board recognises that the appointment of Executive Directors to non-executive positions at other companies can
be beneficial for both the individual director and the group through the broadening of their experience and knowledge.
Ruby McGregor-Smith, CBE received fees of £58,000 pa in respect of her role as a Non-Executive Director of Michael Page
International plc and £15,000 for her role as Non-Executive Director of the Department of Culture, Media and Sport. Suzanne
Baxter received fees of £55,415 for her role as a Non-Executive Director of WH Smith plc. Both individuals are entitled to
retain any fees earned.
Our policy on Non-Executive Director remuneration and appointment terms
The Chairman and Non-Executive Directors receive an annual fee which is paid in monthly instalments. The Chairman’s
fee is set by the Remuneration Committee and the fees for the Non-Executive Directors are approved by the Board, on
the recommendation of the Chairman and the Chief Executive. The Non-Executive Directors are paid a basic fee with an
additional fee for chairing a Committee, together with expenses incurred in carrying out their duties on behalf of the Company.
Non-Executive Directors are not eligible to participate in any of the Company’s share schemes, Annual Bonus Plan, the pension
scheme and nor do they receive any ancillary benefits.
The terms of appointment of the Non-Executive Directors are available for inspection at Mitie’s registered office, the head
office and at the AGM. The Non-Executive Directors are engaged for an initial term of three years which is terminable on either
three or six months’ notice and thereafter on a rolling term. They are also subject to annual re-election.
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Mitie Group plc | Annual Report and Accounts 2016
Non-Executive Directors’ engagement terms
Additional duties
Date of engagement
Initial contract term
Notice period
Roger Matthews
David Jenkins1
Larry Hirst, CBE2
Crawford Gillies3
Jack Boyer, OBE
Mark Reckitt4
Notes:
Chairman; Chairman of Nomination Committee
Senior Independent Director
Chairman of Remuneration Committee
Chairman of Audit Committee
04-Dec-06
31-Jan-06
01-Feb-10
12-Jul-12
01-Jun-13
01-Jul-15
3 years
3 years
3 years
3 years
3 years
3 years
6 months
6 months
3 months
3 months
3 months
3 months
1. David Jenkins stepped down as Senior Independent Director and as Chairman of the Audit Committee at the AGM on 13 July 2015 and
retired from the Board on 31 December 2015.
2. Larry Hirst, CBE, was appointed as Senior Independent Director from 14 July 2015.
3. Crawford Gillies stepped down as a Director of the Board at the AGM on 13 July 2015.
4. Mark Reckitt was appointed to the Board on 1 July 2015 and assumed his responsibilities as Chairman of the Audit Committee on 14 July 2015.
How does the executive pay policy differ from that for other Mitie employees?
The remuneration policy for the Executive Directors is more heavily weighted towards variable pay than for other employees,
ensuring that the greater part of their pay is conditional on the successful delivery of business strategy. This helps create a
clear link between the value created for shareholders and the remuneration received by the Directors. The LTIP is limited to
the most senior employees. For employees below this level, variable pay may consist of share-based awards and annual
bonus (both of which will be based on role) and the opportunity to participate in SAYE and SIP.
How we take account of employment conditions elsewhere in the Company when setting our policy
The Remuneration Committee is responsible for overseeing the remuneration policy for the group as a whole and is mindful
of pay and employment conditions in the wider workforce within the group and externally when determining executive
remuneration. When considering base salary increases, benefits and pension provision, the Committee reviews overall levels
and increases offered to employees across the group. The Committee also reviews information with regard to share awards
made to other senior management of the group, noting that (i) all employees can participate in the SAYE and SIP, and
(ii) participation in the LTIP is limited to a selection of senior executives. However, consistent with general practice, the
Committee does not consult with employees in preparing the policy or its implementation.
How we take account of shareholder views when setting our policy
The Committee is committed to a continuing discussion with major shareholders and obtains their views when any significant
changes to remuneration arrangements are being proposed.
Remuneration Committee and its advisors
The Remuneration Committee seeks and considers advice from independent remuneration advisers where appropriate.
FIT Remuneration Consultants (‘FIT’) were appointed by the Committee in December 2013 to provide independent advice
on executive remuneration. FIT attended Committee meetings and provided advice and analysis of executive remuneration.
The advisors provide no other services to the Company (save in relation to services connected to executive remuneration
and share plans) and also comply with the Code of Conduct for Remuneration Consultants. FIT’s total cost of advice to
the Committee for the year they advised was £95,317 (such fees being charged in accordance with FIT’s standard terms
of business).
The Committee specifically considered the position of FIT and was satisfied that the advice the Committee received was
objective and independent, given that no other services were provided to the Company.
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Annual Report on Remuneration
Executive Director remuneration (subject to audit)
The table below reports a single figure of total remuneration for each Executive Director for the financial years ending 31
March 2015 and 31 March 2016.
Year
Salary
Benefits Annual bonus
LTIP
Pension
Other
Total
Ruby McGregor-
Smith, CBE
Suzanne Baxter
Total remuneration
Notes:
2016 £565,950
2015 £550,000
£25,855 £659,332 £1,167,006
£26,864 £440,000 £360,679
£152,577
£145,851
2016 £360,150
2015 £350,000
2016
2015
£23,537 £338,541 £594,596 £104,636
£98,696
£23,450
£229,707
£218,750
£1,692
£2,430
£1,692
£2,430
£2,572,412
£1,525,824
£1,423,152
£923,033
£3,995,564
£2,448,857
Benefits relate to the cost to the Company of private medical cover, private fuel and the car allowance.
Bonus payable in respect of the financial year includes any deferred element at face value at the date of award. Further information about how the level
of the award, for the year ending March 2016, was determined is provided on page 88.
The value of the 2016 LTIP is based on the 2013 LTIP award, which will vest in June 2016 at a rate of 69.5% (valuation based on the number of shares
vesting at the share price calculated as an average over the period 1 January to 31 March 2016 of 277.9p and including the value of the Dividend Equivalent
to date). The value of the 2015 LTIP has been restated from the figures disclosed in the 2015 report, to reflect the actual share price on vesting of 315.2p.
The Other column denotes the value of the 1 in 10 matching shares awarded under the Company Share Incentive Plan, of £180, following the investment
by each individual of a lump sum of £1,800 at the beginning of the tax year. It also includes £1,512 in respect of the intrinsic gain on 2,381 SAYE options
granted in the year being equal to the 20% discount from a share price of 317.5p to arrive at an exercise price of 254.0p.
The pension benefits of the Directors comprise a pension supplement paid in cash in the year of 20% of salary and a capped
cash contribution to a defined benefit pension scheme of £22,200 (2015: £16,104) made by Mitie for each of the Directors.
The disclosures above in respect of pension benefits comprise the 20% pension supplement along with an actuarially derived
value of the annually accrued pension benefits under the defined benefit pension scheme, net of personal contributions made
by each Director. This calculation is known as the net pension input amount and is affected by the number of years of scheme
membership, the value of annually accrued benefits at each year end, inflation and a prescribed multiplication factor of 20.
The net pension input amount for the Directors included in the pension benefits disclosed above was:
Ruby McGregor-Smith, CBE
Suzanne Baxter
Years
of scheme
membership
at 31 March
13
12
4
3
Year
2016
2015
2016
2015
£
39,387
35,851
32,606
28,696
Non-Executive Directors’ fees (subject to audit)
The fees for the Non-Executive Directors for the financial years ended 31 March 2016 and 31 March 2015 are set out below:
Non-Executive Directors’ remuneration
Roger Matthews
David Jenkins2
Larry Hirst, CBE
Crawford Gillies3
Jack Boyer, OBE
Mark Reckitt4
Total
Notes:
Base salary/fees £’000
2015
20161
185
43
57
15
60
45
405
185
67
52
56
56
N/A
416
1. All amounts were paid in cash and no other benefits were received in the year.
2. David Jenkins stepped down as Chairman of the Audit Committee at the AGM on 13 July 2015 and retired as a Non-Executive Director
on 31 December 2015.
3. Crawford Gillies stepped down as a Non-Executive Director at the AGM on 13 July 2015.
4. Mark Reckitt joined as a Non-Executive Director on 1 July 2015 and was appointed as Chairman of the Audit Committee on 14 July 2015.
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Mitie Group plc | Annual Report and Accounts 2016
What happened in 2015/2016 and changes for 2016/2017
Base salary and benefits
Effective 1 April 2015, the Remuneration Committee awarded average salary increases of 2.9% for the two Executive Directors,
resulting in the following base salaries being payable:
> Ruby McGregor-Smith, CBE – £565,950
> Suzanne Baxter – £360,150
Commencing 1 April 2016 and effective for the remainder of the financial year, the Committee awarded salary increases of
2.5% for the Executive Directors (which is in line with the average salary increases awarded to Mitie’s salaried non-contract UK
employees), resulting in the following base salaries being payable:
> Ruby McGregor-Smith CBE – £580,099
> Suzanne Baxter – £369,154
A review of Non-Executive Director fees was undertaken in March 2014. The broad policy is for the fees to be reviewed every
three years. The fees for the year ending March 2016 remain unchanged and are as follows:
Chairman fees2
Non-Executive Director core fees3
Additional fees
Senior Independent Director
Chairman of a Committee
Notes:
Base salary/fees £’000
2015
20161
185
52
7
8
185
52
7
8
1. The core fees of £52,000 paid to each Non-Executive Director (including the Chairman) will total £260,000 for the year ending March 2017. Total fees
including additional duties are expected to amount to £416,000 for the year ending March 2017 (£405,000 actual for the year ended March 2016).
2. The Chairman’s fee is inclusive of the Non-Executive Director core fee and no additional fees are paid to the Chairman where he is a Chairman,
or is a member of other committees.
3. For Non-Executive Directors, individual fees comprise the core fee and additional supplemental fees for chairing committees where a greater
responsibility and time commitment are required.
Benefits are as described in the Remuneration Policy table. No changes are planned for the year ending March 2017 (save
where required to take account of legislative changes to the pensions regime).
Pension (subject to audit)
Pension provision for 2015/16 is as described in the Remuneration Policy table. The pension entitlement for each Director
was as follows:
Defined benefit pension scheme transfer values
Ruby McGregor-Smith, CBE
Suzanne Baxter
Normal
retirement
date
Transfer value
31 March 2015
£’000
22/02/2028
16/04/2033
307
59
Contributions
made by
the Director
£’000
Increase in
accrued
pension over
the year
£’000
Transfer value
of pension
increase (after
inflation, net of
contributions)
£’000
Transfer value
31 March 2016
£’000
0
0
3
2
36
25
361
92
The pension benefits of the Executive Directors were based on a pensionable salary capped at £150,000. The Company made
contributions to the group’s defined benefit scheme on behalf of the two Directors who are members of the scheme at a rate
of 10.3% (previously 9%) of the value of the capped salary – this increase followed the triennial valuation of the pension scheme
in 2014. The Company also contributes to the administrative costs of the pension scheme based on a percentage of salary
which, due to the declining active membership, has risen to 4.5% (previously 2%) of the capped salary. In addition, the Directors
received a salary supplement as described in the policy table. The normal retirement age for the two Directors is 65 and no
additional benefits are available to the Directors upon early retirement.
The transfer value is an actuarially determined capital value of the pension benefits, based on prevailing market conditions
at the time. It is possible for transfer values to go down as well as up.
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What happened in 2015/2016 and changes for 2016/2017 continued
A review has been undertaken this year to assess the implications of recent changes in legislation relating to the impact of
the cessation of contracting out, and regarding the tax efficiency of pension savings for higher earners. From the new financial
year the Committee intends to change the method of delivering the defined benefit pension value to the Executive Directors.
This does not increase the costs of this benefit to the business. Going forward and reflecting market practice, the Executive
Directors will cease to accrue benefits in the group’s defined benefit scheme and will instead receive an additional cash
supplement of an equivalent value.
Annual Bonus Plan
Awards in respect of the year ended March 2016 were made under the Group Annual Bonus Plan. The outcomes were
determined as set out below.
At the beginning of the year the Committee set a range for performance on operating profit before other items for threshold,
target and maximum levels of performance as follows: a threshold of £126.3m, a target of £133.0m and a maximum of
£139.6m. The achievement was £128.9m. This generated a pay-out of 71.5% of salary which was 65.0% of the maximum
award under this element of the Plan.
The Committee also set objectives relating to: organic revenue growth; people management; back office and operational
efficiencies; healthcare; and customer proposition and strategic development. Key deliverables for the year included:
> to deliver organic revenue growth at a level that outperforms sector comparatives for UK businesses with clear strategic
plans for continued development of key accounts;
> to strengthen the talent pipeline;
> streamline procurement processes and back office services across the business;
> implementation of the MiHomecare business plan; and
> review of the FM customer proposition over the next five years.
Having evaluated a range of outcomes and indicators of performance, the Committee determined that overall progress was
good and warranted a pay-out of 45.0% of salary for the Chief Executive and 22.5% of salary for the Group Finance Director.
The Committee believes that these objectives are commercially sensitive and so does not believe it is in shareholders’ interests
to make any further disclosure.
Therefore, based on the Committee’s assessment of achievement of both the financial and the strategic objectives, the bonus
was calculated as follows:
Financial performance
Strategic performance
Total bonus payable
% of salary
payable at
threshold
% of salary
payable at
on-target
% of salary
payable at
maximum
% of salary
payable
% of salary
payable at
threshold
% of salary
payable at
maximum
% of salary
payable
Total
bonus
£’000
Cash
£’000
Deferred
shares
£’000
Ruby McGregor-
Smith, CBE
Suzanne Baxter
60
60
90
90
110
110
71.5
71.5
0
0
50
25
45.0
22.5
659.3
338.5
565.9
338.5
93.4
0.0
The Annual Bonus Plan will be operated on similar terms for the year ended March 2017. The targets are at present
commercially sensitive and so are not disclosed in this report. However, as above, details of the targets will be disclosed
in next year’s report.
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Mitie Group plc | Annual Report and Accounts 2016
Details of LTIP vesting in June 2016 (2013 award)
The Committee assessed the outcome of the 2013 LTIP awards granted under the plan in operation at the time against
a basket of performance measures:
Performance
measure
Earnings Per
Share (EPS)
growth
Weighting
Performance range
20% of the
award
3% – 8% pa
Relative Total
Shareholder
Return (TSR)
20% of the
award
Outperformance
against FTSE 350
Support Services index
Organic revenue
growth
30% of the
award
3% – 6% pa with a
financial underpin
based on the
achievement of target
margin of 5.5% pa
Cash conversion 30% of the
75% – 85% pa
award
Vesting of portion of the award
(performance period three years ending 31 March 2016)
Zero vesting if EPS growth, as adjusted by the Committee as
appropriate, is less than 3% pa. If performance is equal to 3%, 25%
of the award will vest. If Mitie achieves 8% EPS growth pa, all the
awards will vest. Between these two points the proportion of awards
vesting will be determined on a linear sliding scale basis.
Zero vesting if Mitie’s TSR performance is less than the median of
the index. If Mitie’s TSR performance is equal to the median of the
index, 25% of the award will vest and if it exceeds the index median
TSR by 10% pa or more, all the awards will vest. Between these two
points the proportion of awards vesting will be determined on a
linear sliding scale basis. An underpin condition for underlying
financial performance also applies.
Zero vesting if organic revenue growth is less than 3% pa.
If performance is equal to 3% pa, 25% of the award will vest.
If Mitie achieves 6% organic revenue growth pa, all the awards will
vest. Between these two points, the proportion of awards vesting will
be determined on a linear sliding scale basis. Entire portion of
award is subject to Mitie achieving an average 5.5% margin in the
performance period.
Zero vesting if cash conversion is less than 75% pa. At 75%, 25% of
the award will vest. 70% of the award will vest if Mitie achieves 80%.
Full vesting for this portion will occur if 85% pa is achieved. Between
75% and 80% and 80% and 85%, the proportion of awards vesting
will be determined on a linear sliding scale basis.
For the performance period it was assessed that the overall level of vesting against the four performance criteria was 69.5%.
This was calculated on the following basis:
EPS
TSR
Organic revenue growth
Cash conversion
Total vesting
Proportion
Achievement
Vesting
proportion
Proportion
of total
20%
20%
30%
30%
7.7%
0.0%
4.7%
>85%
95.5%
0.0%
68.0%
100.0%
19.1%
0.0%
20.4%
30.0%
69.5%
In relation to the EPS and organic revenue growth performance conditions, the performance in each of the 2013 and 2016
financial years was assessed on a like-for-like basis.
The 2014 award was granted subject to the same performance conditions.
89
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What happened in 2015/2016 and changes for 2016/2017 continued
LTIP awards granted in July 2015
Awards granted in July 2015 under the new LTIP were subject to the same performance measures as the 2013 and 2014
awards. The awards will vest in 2018 depending on performance.
Details of the awards made to the Executive Directors under the LTIP (granted as nil cost options) are summarised below,
with further details given in the table of outstanding share interests on page 93.
More particularly, the performance conditions applicable to the 2015 award are as follows:
Performance
measure
Earnings Per
Share (EPS)
growth
Weighting
Performance range
20% of the
award
3% – 8% pa
Relative Total
Shareholder
Return (TSR)
20% of the
award
Outperformance
against FTSE 350
Support Services index
Organic revenue
growth
30% of the
award
3% – 6% pa with a
financial underpin
based on the
achievement of target
margin of 5.5% pa
Cash conversion 30% of the
75% – 85% pa
award
Vesting of portion of the award
(performance period three years ending 31 March 2018)
Zero vesting if EPS growth, as adjusted by the Committee as
appropriate, is less than 3% pa. If performance is equal to 3%, 25%
of the award will vest. If Mitie achieves 8% EPS growth pa, all the
awards will vest. Between these two points the proportion of awards
vesting will be determined on a linear sliding scale basis.
Zero vesting if Mitie’s TSR performance is less than the median of
the index. If Mitie’s TSR performance is equal to the median of the
index, 25% of the award will vest and if it exceeds the index median
TSR by 10% pa or more, all the awards will vest. Between these two
points the proportion of awards vesting will be determined on a
linear sliding scale basis. An underpin condition for underlying
financial performance also applies.
Zero vesting if organic revenue growth is less than 3% pa.
If performance is equal to 3% pa, 25% of the award will vest.
If Mitie achieves 6% organic revenue growth pa, all the awards will
vest. Between these two points, the proportion of awards vesting
will be determined on a linear sliding scale basis. Entire portion of
award is subject to Mitie achieving an average 5.5% margin in the
performance period.
Zero vesting if cash conversion is less than 75% pa. At 75%, 25% of
the award will vest. 70% of the award will vest if Mitie achieves 80%.
Full vesting for this portion will occur if 85% pa is achieved. Between
75% and 80% and 80% and 85%, the proportion of awards vesting
will be determined on a linear sliding scale basis.
Awards made under the 2015 LTIP are, for continuing Executive Directors, subject to a holding period, post vesting, with 50%
of the shares being released immediately after the end of the performance period, 25% being released a year later and 25%
two years later.
What was granted in July 2015 (subject to audit)
Award
Type
Number of
shares
Face value1
(£000’s) % of salary
Performance
conditions
Performance
period
% vesting at
threshold
Ruby McGregor-Smith,
CBE
Performance Nil-cost
option
356,526
£1,132
200% Performance
conditions
are set out in
the table
above
Three financial
years ending
31 March 2018
25%
Suzanne Baxter
Performance
226,880
£720
200%
Notes:
1. Face value was calculated based on the average of the five business days preceding the date of grant giving a share price of 317.5p.
The Directors were also granted 2,381 options under the Mitie Group plc 2011 SAYE scheme, details of which can be found on page 92.
The performance conditions that are to apply to awards made in 2016 are yet to be determined and are the subject
of a shareholder consultation exercise. Once the awards are made, the conditions will be described in the relevant RNS
announcement and will be fully disclosed in next year’s report.
Loss of office payments (subject to audit)
No payments for loss of office were made to past Directors during the year.
Payments to past Directors (subject to audit)
No payments have been made to past Directors.
90
Mitie Group plc | Annual Report and Accounts 2016
Change in CEO pay for the year compared to UK salaried employees
The table below sets out the change in remuneration of the Chief Executive and Mitie’s UK salaried non-contract population,
which is considered the most appropriate group for comparison purposes.
%
Chief Executive
Average pay based on Mitie’s UK salaried non-contract employees2
Notes:
1. Includes car/car allowance, private medical benefit and private fuel.
Salary
Benefits1
2.9%
4.9%
-3.8%
10.2%
Bonus
49.8%
3.2%
2. Reflects the change in average pay for salaried non-contract UK employees employed at both 31 March 2015 and 31 March 2016. Salaried non-contract
employees are those who are employed directly by Mitie Group and whose roles are not dedicated to the provision of client services.
Relative spend on pay
The table below shows the total cost of remuneration in the group compared with the dividends distributed and share buybacks.
%
Aggregate employee remuneration
Equity dividends and share buybacks
Year ended
31 March
2016
£m
Year ended
31 March
2015
£m
1,132
57
1,150
41
Change
-1.6%
39.0%
Assessing pay and performance
In the table below we provide a summary of the Chief Executive’s single figure remuneration over the past seven years, as
well as the pay-out and vesting levels of our variable pay plans in relation to the maximum opportunity. This is compared with
historical TSR performance over the same period. We have chosen these indices (FTSE 250 Support Services, FTSE 350
Support Services and FTSE 350) as they are widely recognised and we have been members of these indices during the period:
350
300
250
200
)
0
0
1
O
T
D
E
S
A
B
E
R
(
150
R
S
T
Mar
09
Mar
10
Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mitie
FTSE250
FTSE350 SS
FTSE350
Single figure remuneration
Annual bonus element
(actual as a % of max)
LTIP element
(actual vesting as a % of max)
2010
2016
£1,703,031 £2,324,443 £2,431,773 £2,105,131 £1,447,266 £1,525,8241 £2,572,412
2015
2013
2012
2014
2011
100%
100%
100%
85%
90%
50%
73%
100%
100%
87.2%
57.2%
0%
25%
69.5%
1. The Single Figure has been restated from the figure disclosed in the report last year, to reflect the actual share price on vesting of the 2015 LTIP of 315.2p.
The reporting requirements state that the time period for the above TSR chart should be lengthened to ten years over time
and we have therefore included a ten year chart below:
)
0
0
1
O
T
D
E
S
A
B
E
R
(
R
S
T
250
200
150
100
50
Mar
06
Mar
07
Mar
08
Mar
09
Mar
10
Mitie
Mar
11
Mar
12
FTSE250
Mar
13
FTSE350 SS
Mar
14
Mar
15
FTSE350
Mar
16
91
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What happened in 2015/2016 and changes for 2016/2017 continued
Share ownership (subject to audit)
Number of
shares
owned as at
31 March 2016
Value of target
holding1
Target
shareholding2
Percentage
of salary held
as at
31 March 2016
Percentage
of target
achieved as at
31 March 2016
Ruby McGregor-Smith, CBE
Suzanne Baxter
567,090
256,126
£1,131,900
£720,300
387,664
246,695
293%
208%
146%
104%
Compliance
with share
ownership
guidelines
Achieved
Achieved
Notes:
1. Calculated as 200% of salary for the year ended 31 March 2016.
2. Calculated as value of target holding divided by the average share price of 292.0p for the five business days prior to the start of the financial year ended
31 March 2016
Directors’ outstanding share interests (subject to audit)
The following tables provide the outstanding share interests for the Executive Directors:
Directors’ interests in options granted under the Mitie Group plc 2011 Save As You Earn Scheme
Year of
Grant
Options as at
31 March
2015
Exercised
in year
Granted
in year
Lapsed
in year
Options as at
31 March
2016
Exercise
price p
Earliest normal
exercise date
20121
20142
20153
20121
20142
20153
4,035
3,459
–
4,035
3,459
–
4,035
–
–
4,035
–
–
–
–
2,381
–
–
2,381
–
–
–
–
–
–
–
3,459
2,381
–
3,459
2,381
223.0
260.2
254.0
223.0
260.2
254.0
–
Sep-17
Dec -18
–
Sep-17
Dec-18
Ruby McGregor-
Smith, CBE
Suzanne Baxter
Notes:
1. Executive Directors contributed £250 per month into the 2012 scheme which vested in December 2015.
2. Throughout the year the Executive Directors contributed £250 per month into the 2014 scheme.
3. Executive Directors contributed £168 per month into the 2015 scheme which started in December 2015.
Directors’ interests in shares purchased under the Mitie Group plc Share Incentive Plan 2011
Ruby McGregor-Smith, CBE
Suzanne Baxter
Notes:
Shares
outstanding as at
31 March 20151
Number of
partnership shares
acquired in year2
Number of
matching shares
awarded in year3
Total number of
shares outstanding
at 31 March 20164
2,594
2,594
746
746
61
61
3,401
3,401
1. Figure comprises 2377 purchased shares plus 217 matching shares.
2. Shares were acquired at a market price of 292.0p on 13 May 2015. Executive Directors contributed the full annual amount of £1,800 permitted under
the Plan. Shares acquired through dividend reinvestment (4 August 2015 and 1 February 2016) have also been included.
3. Matching shares were purchased in the market at a price of 292.0p on 13 May 2015. Awards of Matching Shares must in normal circumstances be
held for at least three years from the date of award and are subject to forfeiture if corresponding Partnership Shares are withdrawn during that period.
4. The market price of the Company’s shares as at 31 March 2016 was 257.0p. The highest and lowest prices during the year were 335.6p and 245.7p
respectively.
Directors’ interests in options granted under the Mitie Group plc 2001 Executive Share Option Scheme
ESOS options
outstanding
as at
31 March 2015
Granted
during
the year
Lapsed
during
the year
Exercised
during
the year
ESOS options
outstanding
as at
31 March 20161
Exercise
price
Exercisable
between
Ruby
McGregor-Smith, CBE
Unapproved scheme
Unapproved scheme
Suzanne Baxter
Unapproved scheme
Approved scheme
Note:
100,000
100,000
35,000
15,000
–
–
–
–
–
–
–
–
100,000
100,000
35,000
15,000
–
–
–
–
162
191
191
191
–
–
–
–
–
–
–
–
1. The market price of the Company’s shares as at 31 March 2016 was 257.0p. The highest and lowest prices during the year were 335.6p and 245.7p
respectively.
92
Mitie Group plc | Annual Report and Accounts 2016
Directors’ interests in shares granted under the Mitie Group plc 2010 Deferred Bonus Plan
Shares
outstanding
as at
31 March
2015
Year of
grant1
Granted
during
the year
Lapsed
during
the year
Vested
during
the year2,3
Shares
outstanding
as at
31 March
20164
Ruby
McGregor-Smith, CBE
Suzanne Baxter
2013
2014
2015
2013
2014
2015
71,616
71,670
–
19,842
23,651
–
–
–
–
–
–
–
–
–
–
–
–
–
71,616
–
–
19,842
–
–
–
71,670
–
–
23,651
–
Earliest
exercise
date
–
May-16
–
–
May-16
–
Notes:
1. The 2013 award was granted on 28 May 2013 at a grant price of 260.0p.
The 2014 award was granted on 28 May 2014 at a grant price of 323.7p.
No award of shares was made under the Deferred Bonus Plan in 2015.
2. Awards vested on 28 May 2015 and were transferred to the participant. At the date these awards vested the market price of the Company’s shares
was 310.2p.
3. The awards attract dividend equivalents which are accrued from grant date and paid out on vesting.
4. The market price of the Company’s shares as at 31 March 2016 was 257.0p. The highest and lowest prices during the year were 335.6p and 245.7p
respectively.
Directors’ interests in nil-cost options granted under the Mitie Group plc 2007 and the 2015 Long Term Incentive Plans
LTIP options
outstanding
at 31 March
2015
Granted
during
the year at
317.5p/ share
Year of
grant1
Lapsed
during
the year
Exercised
during
the year2
LTIP options
outstanding
at 31 March
20163
Exercise
price Exercisable between
Ruby McGregor-Smith,
CBE
Suzanne Baxter
Notes:
2012
2013
2014
2015
2012
2013
2014
2015
414,336
527,371
345,261
–
263,883
268,698
219,711
–
–
–
356,526
–
–
–
226,880
310,752
–
–
–
197,913
–
–
–
103,584
–
–
–
– Nil-cost
527,371 Nil-cost
345,261 Nil-cost
356,526 Nil-cost
65,970
–
–
–
– Nil-cost
268,698 Nil-cost
219,711 Nil-cost
226,880 Nil-cost
–
Jun-16
Jun-17
Jul-18
–
Jun-16
Jun-17
Jul-18
–
Jun-17
Jun-18
Jul-19
–
Jun-17
Jun-18
Jul-19
1. The performance criteria applicable to the 2012 award: lower and upper performance thresholds of 5% pa and 10% pa respectively.
The performance criteria applicable to the 2013 award reflect the basket of measures relating to TSR, EPS, organic revenue growth and cash conversion
set out on page 89.
The performance criteria applicable to the 2014 and 2015 awards are the same as those for the 2013 award and are provided on page 90.
2. The Committee assessed the extent to which the performance conditions applicable to the 2012 awards were met and determined that they should vest
at 25% of the original award granted. The Committee also assessed the extent to which the performance conditions applicable to the 2013 awards were
met and determined that the scheme should vest at 69.5% of the original award granted.
3. The market price of the Company’s shares as at 31 March 2016 was 257.0p. The highest and lowest prices during the year were 335.6p and 245.7p
respectively.
93
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What happened in 2015/2016 and changes for 2016/2017 continued
Director share ownership
Executive Directors
Ruby McGregor-Smith, CBE
Suzanne Baxter
Non-Executive Directors
Roger Matthews
David Jenkins1
Larry Hirst, CBE
Crawford Gillies2
Jack Boyer, OBE
Mark Reckitt3
Notes:
Number of Ordinary
Mitie shares
beneficially owned
as at 31 March 2016
(or date of resignation
if earlier)
Number of Ordinary
Mitie shares
beneficially owned
as at 31 March 2015
(or date of appointment
if later)
567,090
256,126
566,283
214,553
100,000
50,000
25,000
10,000
5,000
4,000
100,000
50,000
25,000
10,000
5,000
0
1. David Jenkins retired as a Director of Mitie Group plc on 31 December 2015.
2. Crawford Gillies stepped down as a Director of Mitie Group plc on 13 July 2015.
3. Mark Reckitt joined the Board as a Non-Executive Director on 1 July 2015.
Share dilution
The Company manages dilution rates within the standard guidelines of 10% of issued Ordinary share capital in respect of all
employee schemes and 5% in respect of discretionary schemes. In calculating compliance with these guidelines the Company
allocates available ‘headroom’ on a ten-year flat-line basis, making adjustments for projected lapse rates and projected
increases in issued share capital.
LTIP and deferred bonus awards are satisfied through the market purchase of shares held by the Mitie Group plc Employee
Benefit Trust 2008. The potential dilution of the Company’s issued share capital is set out below in respect of all outstanding
awards granted under the Company’s equity-based incentive schemes which are to be satisfied through the allotment of new
shares or Treasury shares.
Share dilution at 31 March 2016
All share plan (maximum 10%)
Discretionary share plans (maximum 5%)
Dilution %
8.2%
4.6%
Shareholder voting
Mitie remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are
substantial votes against resolutions in relation to Executive Directors’ remuneration, the group seeks to understand the
reasons for any such vote, and will detail here any actions in response to it.
Number of Votes
2015 Directors’ Remuneration policy
2015 AGM
2015 Directors’ Remuneration report
2015 AGM
Note:
1. Votes withheld are not counted in the calculation of the proportion of votes for or against a resolution.
Votes in
favour
205.1m
93.6%
239.0m
99.7%
Votes
against
Votes
withheld1
14.0m
6.4%
0.7m
0.3%
21.4m
–
0.7m
–
94
Mitie Group plc | Annual Report and Accounts 2016
Directors’ report: other disclosures
The Directors present their annual report, together with the
audited financial statements of the group and the Company,
for the year ended 31 March 2016.
The following information is incorporated into the Directors’
report: other disclosures by reference:
> Strategic report on pages 1 to 61;
> The Chairman’s introduction to corporate governance on
page 64;
> The Board report on pages 65 to 69;
> Audit Committee report on pages 70 to 73;
> Nomination Committee report on pages 74 to 75;
> Directors’ remuneration report on pages 76 to 94;
> Directors’ responsibilities statement on page 100; and
> Notes to the financial statements as detailed in this section.
For the purposes of compliance with paragraphs 4.1.5R(2)
and 4.1.8R of the Disclosure and Transparency Rules of the
Financial Conduct Authority, the Strategic report and this
Directors’ report: other disclosures (including the sections of
the Annual Report and Accounts incorporated by reference)
comprise the management report.
Principal group activities
The Company is the holding company of the group. The
principal activity of the Company is to provide management
services to the group. The group’s activities are focused on
the provision of strategic outsourcing services. The detailed
strategy for the group can be found on pages 8 to 15 and
pages 20 to 33 of the Strategic report. Further details of the
subsidiary undertakings of the Company are listed in Note 40
to the financial statements.
The group operates in the UK, the Republic of Ireland,
Guernsey, Jersey, Germany, France, Finland, Norway,
Sweden, the Netherlands, Spain, Poland, Switzerland,
Belgium, Nigeria, Kenya, Ghana and UAE.
Shares and shareholders
Share capital and powers of shareholders
The group is financed through both equity share capital
and debt instruments. Details of the Company’s share capital
are given in Note 31 to the financial statements and the
detail of its debt instruments is set out in Note 30 to the
financial statements.
The Company has a single class of shares being 2.5p
ordinary shares (Ordinary shares). The Ordinary shares
have no right to any fixed income and each Ordinary share
has the right to one vote per share at general meetings of
the Company. Under the Company’s Articles of Association
(the Articles), holders of Ordinary shares are entitled to
participate in any dividends pro-rata to their holding.
In accordance with the Articles, the Board may propose and
pay interim dividends and recommend a final dividend for
approval by the shareholders at the Annual General Meeting
(AGM). A final dividend may be declared by the shareholders
in a general meeting by ordinary resolution, but such dividend
cannot exceed the amount recommended by the Board.
The Articles can be amended in accordance with their
provisions, the Companies Act and related legislation. A copy
of the Articles is available at www.mitie.com/investors/share-
holder-services/corporate-governance.
Powers of the Company to issue or buy back its
own shares
At the 2015 AGM shareholders authorised:
> the Directors to allot Ordinary shares up to an aggregate
nominal amount of £3,399,012 representing one-third of
the issued share capital (excluding treasury shares) plus
14,088,001 Ordinary shares representing the outstanding
commitment in respect of options granted under Mitie’s
share schemes (in aggregate equating to 37.2% of the
issued share capital as at 31 March 2015 (excluding
treasury shares));
> the dis-application of pre-emption rights over allotted
shares up to an aggregate nominal value equal to
£457,022 or a maximum of 18,280,869 Ordinary shares
(representing approximately 5% of the issued share capital
as at 31 March 2015 (excluding treasury shares));
> the dis-application of pre-emption rights over allotted
shares up to an additional aggregate nominal value
not exceeding in aggregate £457,022 or a maximum
18,280,869 Ordinary shares (representing approximately
5% of the issued share capital as at 31 March 2015
(excluding treasury shares)) in connection with an
acquisition or specified capital investment; and
> the Company to make market purchases of its own shares
up to a total of 36,561,739 Ordinary shares (representing
10% of the issued share capital as at 31 March 2015
(excluding treasury shares)).
These standard authorities will expire on 13 October 2016 or
at the conclusion of the AGM in 2016, whichever is the earlier.
Further details of these authorisations are available in the
notes to the 2015 Notice of AGM and shareholders are
referred to the 2016 Notice, which contains similar provisions
in respect of the Company’s share capital (available at
www.mitie.com/investors/shareholder-services).
During the year, the Directors utilised the above authorities
to allot 2,158,224 Ordinary shares to an aggregate nominal
amount of £53,956 to employees participating in Mitie’s
share schemes.
The Company undertook market purchases of 7,494,270
of its own shares during the year (representing 2.0% of the
issued share capital of the Company as at 31 March 2016).
The shares equated to an aggregate nominal value of
£187,357 and the total aggregate amount paid was
£21,742,343 (including expenses). 2,250,000 shares were
purchased and held in treasury for re-issue at a later date
and to be used to hedge future share scheme issues.
5,244,270 shares were purchased and subsequently
cancelled from the register, in order to offset the increase
in share numbers anticipated from the issue of Ordinary
shares in connection with the Company’s share schemes
and the Mitie Model.
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Directors’ report: other disclosures continued
On 31 March 2016 the Company announced that it
had entered into an irrevocable and non-discretionary
arrangement with its stockbroker, Canaccord Genuity
Limited, to repurchase, on its behalf and within certain pre-set
parameters, its own Ordinary shares. Between 1 April and
21 April 2016, 5,181,190 Ordinary shares were purchased and
subsequently cancelled. The total aggregate amount paid
for the Ordinary shares was £14,199,022 (including expenses).
The Board approved the purchase of Ordinary shares to
reduce the capital of the Company in order to offset the
increase in share numbers anticipated from the issue of
Ordinary shares in connection with the Company's Mitie
Model and its share schemes.
past performance and continues to ensure a close alignment
of interests between Company shareholders and the
management and employees of the group.
There are no specific restrictions on the size of any
shareholding or on the transfer of shares, which are both
governed by the provisions of the Articles.
The Directors are not aware of any agreements entered
into by Company shareholders that may result in restrictions
on the transfer of securities or on voting rights. No person
has any special rights of control over the Company’s
share capital.
In addition, 1,335,611 Ordinary shares were distributed
following the exercise of awards under the Mitie Group plc
2011 Save As You Earn Scheme and the Mitie Group plc
2001 and 2011 Executive Share Option Scheme.
The total number of Ordinary shares held by the group in
treasury as at 31 March 2016 was therefore 10,460,499
(representing 2.8% of the issued share capital of the
Company at 31 March 2016).
Significant interests in the Company’s share capital
As at 23 May 2016, the Company has been notified of the
following significant holdings of voting rights in its Ordinary
shares under the Disclosure and Transparency Rules:
FMR LLC
Invesco Limited
Massachusetts Financial
Services Company
Heronbridge
Norges Bank
The Capital Group
Number of
Ordinary
shares
32,440,297
18,642,841
18,549,276
18,366,728
10,803,516
9,009,000
Percentage of
share capital
at the date of
notification
8.95
5.06
5.02
5.00
3.02
2.49
It should be noted that these holdings may have changed
since the Company was notified. However notification of
any change is not required until the next notifiable threshold
is crossed.
Details of the Directors’ interests in the Company’s share
capital are set out in the Directors’ remuneration report on
pages 92 to 94.
Restrictions on the trading of Mitie shares
Ordinary shares that are issued as consideration upon
the acquisition by the Company of the shares of minority
shareholders in subsidiaries of the group that participate
in the Mitie Model generally have contractual restrictions
placed upon them that both prevent the transfer of such
shares and/or attach specific claw-back provisions for
periods of up to two years following allotment. Recipients
of Company shares received in this way are contractually
restricted from selling the shares issued as consideration,
generally for a maximum of two years. The Board believes
that this is a unique business model that has aided Mitie’s
The group operates a Share Trading and Insider Dealing
Procedure which provides a framework to identify persons
who may have access to inside information relating to the
Company and explains the rules applicable to them for
dealing in Company shares. Individuals who may have
access to such information are informed individually and
required to read, understand and follow the procedures
detailed in the policy.
Employee share schemes and plans
Details of employee share schemes and long term incentive
plans are set out in Note 36 to the financial statements.
Details of awards made during the year and held by
Executive Directors are set out in the Directors’ remuneration
report on pages 92 to 94.
Under the terms of certain shareholders’ agreements and
articles of association relating to Mitie Model companies,
minority shareholders in such companies may provide an
option for the purchase by the Company of their minority
shares. The mechanism for calculating the price to be paid
in respect of such transfer is transparent, on an arm’s-length
basis, and in accordance with the pricing structure generally
applicable for other transfers under the Mitie Model. In
consideration for these purchases, the Company generally
has the option to settle payment in cash or in Ordinary
shares of the Company.
Significant agreements – change of control
There are a number of agreements with provisions that
take effect, alter or terminate upon a change of control
of the Company such as bank facility agreements and other
financial arrangements, employee share scheme rules and
articles of association of certain Mitie Model companies.
None of these are considered to be significant in terms of
their likely impact on the normal course of business of the
group. The Directors are not aware of any agreements
between the Company and its Directors or employees that
provide for compensation for loss of office or employment
that occurs solely because of a change of control.
Shareholder engagement
The Board is committed to an ongoing, pro-active dialogue
between the Company and its shareholders. A full
programme, led by the Chief Executive and Group Finance
Director, of formal and informal events, institutional investor
meetings and presentations is also held throughout the year.
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The Board receives an investor relations report at each
Board meeting detailing corporate news, share price activity,
investor relations activity and major movements in
shareholdings. The Board is also regularly updated and is
provided with investor feedback, stockbroker updates and
detailed analyst reports following the half year and full year
results presentations. The Chairman is responsible for
ensuring that the Board is made aware of the issues and
concerns of the major shareholders.
The Chairman and Senior Independent Director are available
for additional meetings with shareholders upon request.
The Board encourages an ongoing dialogue between the
Directors and investors and all Directors were present at the
2015 AGM.
Director appointments
With regard to the appointment and replacement of
Directors, the Company is governed by the Articles, the Code,
the Companies Act and related legislation.
Directors’ conflicts of interest
The Board has a formal policy on the declaration and
management of Directors’ conflicts of interests, in
accordance with the Articles, which has operated effectively
during the year. Any potential situation or transactional
conflict must be reported as soon as possible to the
Chairman, the Chief Executive and the Company Secretary.
Where a potential conflict is authorised (under the statutory
powers and powers granted under the Articles to the Board),
such conflict is kept under ongoing review.
Director indemnities
The group maintains directors’ and officers’ liability insurance,
providing appropriate cover for any legal action brought
against its Directors and/or officers. The Articles extend the
protection provided to Directors in respect of any litigation
against Directors relating to their position as a Director
of the Company, and specifically provide that the Company
may indemnify Directors against any liability incurred in
connection with any negligence, default, breach of duty
or breach of trust in relation to the Company and that the
Company may fund defence costs. Individual Directors
would still be liable to pay damages awarded to the
Company in any action against them by the Company,
to pay any criminal or regulatory fine against him or her
and to repay their defence costs (to the extent funded by
the Company) if their defence was unsuccessful.
Director commitments
Executive Directors are permitted to accept appointments
outside the group provided permission is sought from the
Chairman and the Chief Executive and that the additional
appointments do not interfere with the Director’s ability
to discharge their duties effectively. The commitments
outside the group of each Executive Director are detailed
in the Directors’ remuneration report on page 84 and in
the Directors’ biographical details on page 62. Executive
Directors are entitled to retain any fees earned from these
external appointments.
Latest group information, financial reports, corporate
governance and sustainability matters, half-year and full
year results presentations, major shareholder information
and all announcements are made available to shareholders
via the Mitie website (www.mitie.com) which has a specific
area dedicated to investor relations.
Electronic communications
The Directors remain committed to improving and
extending the electronic methods by which the Company
communicates with its shareholders, not only allowing
the latest information on the group to be provided more
efficiently but recognising the environmental benefits.
The Board encourages each shareholder to join the growing
number of investors electing to receive their information
electronically and further details on how to register are
provided in the Shareholder information section.
Directors
Board of Directors
The members of the Board, and their biographical details
(including details of committee chairmanships and other
positions held), are set out on pages 62 and 63. To comply
with the Code, all Directors will submit themselves for
re-election at the forthcoming AGM and details are provided
in the Notice of AGM which is available at www.mitie.com/
investors/shareholder-services.
During the year, Non-Executive Director independence
was considered by the Board. The Board determined that,
as at 31 March 2016, all Non-Executive Directors were
independent in mind and judgement, and free from any
material relationship that could interfere with their ability
to discharge their duties effectively.
Director development
The Chairman regularly meets with both the Executive
and Non-Executive Directors to discuss specific director
development and training needs. The annual Board
evaluation also addresses these requirements and ensures
that the appropriate level of knowledge, understanding
and expertise of the Board is sufficiently maintained.
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Directors’ report: other disclosures continued
Statement of the Directors in respect of the Annual
Report and Accounts
As required by the Code, the Directors confirm that they
consider the Annual Report and Accounts, taken as a whole,
to be fair, balanced and understandable and that it provides
the information necessary for shareholders to assess the
Company’s position and performance, business model and
strategy. When arriving at this position the Board was
assisted by a number of processes including the following:
> the Annual Report and Accounts is drafted by senior
management with overall co-ordination by the Group
General Counsel and Company Secretary to ensure
consistency across the relevant sections;
> an internal verification process is undertaken to ensure
factual accuracy;
> an independent review is undertaken by the Assurance
team to assess whether the Annual Report and Accounts
is fair, balanced and understandable using a set of
pre-defined indicators (such as consistency with internally
reported information, investor communications and relative
performance in the industry);
> comprehensive reviews of drafts of the Annual Report and
Accounts are undertaken by the Executive Directors and
other senior management;
> an advanced draft is reviewed by the Company’s Group
General Counsel and Company Secretary and external
legal advisors; and
> the final draft is reviewed by the Audit Committee prior
to consideration by the Board.
Employees and communications with employees
Details of Mitie’s employment policies, consultation practices
and how it communicates with its employees are set out in
the Strategic report on pages 12, 18 and 19.
Disabled persons
Details in respect of the group’s approach to employing,
training and developing the careers of disabled people can
be found in the Strategic report on page 19.
Finance
Financial results and dividends
A detailed commentary on the operational and financial
results of the group for the year is contained within the
Strategic report and the Financial review on pages 52 to 56.
The profit before taxation for the financial year is £96.8m
(2015: £41.5m).
> The Directors declared an interim dividend of 5.4p per
Ordinary share with a total value of £19.2m (2015: £18.6m)
which was paid to shareholders on 1 February 2016.
> The Directors recommend a final dividend of 6.7p per
Ordinary share with a total value of £23.7m (2015: £22.9m)
based upon the number of shares issued as at 13 May
2016. The final dividend for the year will be paid on
4 August 2016, subject to shareholder approval at the AGM,
to ordinary shareholders on the register on 24 June 2016.
> The total dividend per Ordinary share for the year ended
31 March 2016 is 12.1p (2015: 11.7p).
The Company operates a Dividend Re-investment Plan
(DRIP) which allows shareholders to build their holding by
using the cash dividend to purchase additional shares in Mitie.
Further details on the operation of the DRIP and how to apply
can be found in the Shareholder information section and are
available from Mitie’s Registrar.
During the year, the trustees of the Company’s Employee
Benefit Trust waived dividends on shares held.
Financing liabilities
The group’s financial instruments include bank borrowing
facilities, finance leases, overdrafts, US private placement
loan notes and performance guarantees. Various derivatives
are used to manage interest, currency and other risks when
necessary or material.
The principal objective of these instruments is to raise funds
for general corporate purposes and to manage financial risk.
Further details of these instruments are given in Note 26 to
the financial statements.
Events after the balance sheet date
There have not been any significant events after 31 March
2016 (the balance sheet date).
Future developments
The Strategic report sets out the Board’s view on the future
development of the group.
Research and development
Given the nature of the group’s activities, it does not carry
out any material research and development work.
Political donations
The Company included a resolution in its 2015 AGM notice
to shareholders in relation to the ability to make political
donations. Although Mitie’s long standing policy of not
making any political donations will continue, it is possible
that certain routine activities (including charitable donations)
undertaken by Mitie might unintentionally fall within the
wide definition of payments constituting political donations
and expenditure as set out in the Companies Act 2006.
The resolution, which was duly passed, granted the Company
the relevant statutory authority until the 2016 AGM subject to
a total aggregate cap for Mitie and its subsidiary companies
of £50,000.
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Mitie Group plc | Annual Report and Accounts 2016 Disclosure of information under Listing Rule 9.8.4
The annual report is required to contain certain information
under Listing Rule 9.8.4. Where this information has not been
cross referenced within the group financial statements, it can
be found in the following sections:
Details of long-term
incentive schemes
Shareholder waivers
of dividends and future
dividends
– Directors’ remuneration report
pages 76 to 94; and Note 36 to the
accounts
– Directors’ report: other disclosures
page 98 and below
In respect of shareholder waivers of dividends and future
dividends, in addition to the agreement by the trustees of the
Mitie Group plc Employee Benefit Trust to waive dividends
payable on the group’s shares it holds for satisfying awards
under various Mitie Group plc share plans, in accordance
with Section 726 of the Companies Act 2006 no dividends
can be paid to the Company in respect of the shares it holds
in treasury.
There are no other disclosures to be made under Listing
Rule 9.8.4.
None of the shareholders is considered to be a Controlling
Shareholder (as defined in Listing Rule 6.1.2.A).
Carbon reporting and the environment
The Company is required to state the annual quantity
of emissions in tonnes of carbon dioxide equivalent from
activities for which the group is responsible, including
combustion of fuel and the operation of facilities. Details of
the group’s emissions during the year ended 31 March 2016
are set out in the Strategic report on page 19.
Going concern
The Directors acknowledge the Financial Reporting Council’s
‘Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting’ issued in September 2014.
The group’s business activities, together with factors likely to
affect its future development, performance and position are
set out in the Strategic report on pages 37 to 51. The financial
position of the group, its cash flows, liquidity position and
borrowing facilities are described in the financial review, as
part of the Strategic report, on pages 52 to 56. In addition,
Note 27 to the financial statements includes details of the
group’s objectives, policies and processes for managing its
capital, its financial risk management objectives, details of its
financial instruments and hedging activities, and its exposure
to credit risk and liquidity risk.
The group benefits from a large number of long-term
contracts with a broad range of public and private customers
which provide a strong forward order book of £8.5bn and
high visibility of secured work (81% of budgeted revenue) for
the financial year ending 31 March 2017. These support the
Directors’ belief that the group is well-placed to manage its
business risks successfully.
In assessing the group’s ability to continue as a going
concern, the Board reviews and approves the annual budget
including 12 month forecasts of cash flows and borrowing
requirements. The Board reviews the group’s sources of
available funds and the level of headroom available against
its committed borrowing facilities. The group’s financial
forecasts, taking into account possible sensitivities in trading
performance, indicate that the group will be able to operate
within the level of its committed borrowing facilities. The
Board also assesses the principal risks and other matters
disclosed in relation to the viability statement on page 61.
On 23 July 2014, the group announced the extension of
its multi-currency revolving credit facility. The group now
benefits from a committed facility of £275m, which will
mature in July 2019. Together with the £252m PP notes in the
United States, this gives the group total committed funding
of £527m, of which £511.2m was undrawn at 31 March 2016.
The Directors have a reasonable expectation that the group
has adequate resources to continue its operational existence
for the foreseeable future. Accordingly, they continue to
adopt the going concern basis of accounting in preparing
the Annual Report and Accounts. There are no material
uncertainties to the group’s ability to continue to do so over
a period of at least 12 months from the date of the approval
of the Annual Report and Accounts.
Viability statement
This statement is detailed in full on page 61.
In accordance with provision C2.2 of the 2014 edition of the
Code, the Directors have assessed the viability of the group
over a three year period to 31 March 2019 taking into account
the group’s current position and the potential impact of the
principal risks set out in the Strategic report. Based on this
assessment the Directors have a reasonable expectation
that the group is and will continue to be viable.
Disclosure of information to the auditors
Each of the Directors in office as of the date of approval
of this Annual Report and Accounts confirms that:
> so far as he/she is aware, there is no relevant audit
information (being information required by the Company’s
auditors in the preparation of their report) of which the
Company’s auditors are unaware; and
> he/she has taken all the steps that he/she ought to have
taken as a Director to make himself/herself aware
of any relevant audit information and to establish that the
Company’s auditors are aware of such information.
This confirmation is given, and should be interpreted, in
accordance with Section 418 of the Companies Act 2006.
AGM
Mitie’s AGM will be held on 12 July 2016 at 11.30 am at UBS
Investment Bank, 1 Finsbury Avenue, London, EC2M 2PP.
By order of the Board
James Ormrod
Company Secretary
23 May 2016
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Directors’ report: statement of Directors’ responsibilities
Statement of Directors’ responsibilities in respect of the Annual Report, the remuneration report and the
financial statements
The Directors are responsible for preparing the Annual Report, the Directors’ remuneration report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors
are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company
financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company
law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the company and of the profit or loss of the company for that period.
In preparing the parent company financial statements, the Directors are required to:
> select suitable accounting policies and then apply them consistently;
> make judgements and accounting estimates that are reasonable and prudent;
> state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material
departures disclosed and explained in the financial statements; and
> prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will
continue in business.
In preparing the group financial statements, International Accounting Standard 1 requires that Directors:
> properly select and apply accounting policies;
> present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
> provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
> make an assessment of the company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities, and for the preparation of a Directors’ remuneration report which complies with the relevant requirements
of the Companies Acts, Listing Rules and Disclosure and Transparency Rules.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ responsibility statement
To the best of each Director’s knowledge:
> the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation
taken as a whole;
> the Strategic report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face; and
> the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s position, performance, business model and strategy.
By order of the Board
Ruby McGregor-Smith, CBE
Chief Executive
23 May 2016
Suzanne Baxter
Group Finance Director
23 May 2016
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Independent Auditor’s Report to the members of Mitie Group plc
Opinion on financial statements of Mitie Group plc
In our opinion:
> the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 March 2016 and of the group’s profit for the year then ended;
> the group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
> the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 101 "Reduced Disclosure Framework"; and
> the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of
Cash Flows, the Company Balance Sheet and the related notes 1 to 49. The financial reporting framework that has been
applied in the preparation of the group financial statements is applicable law and IFRSs as adopted by the European Union.
The financial reporting framework that has been applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice),
including FRS 101 “Reduced Disclosure Framework”.
Going concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity
of the group
As required by the Listing Rules we have reviewed the directors’ statement regarding the appropriateness of the going concern
basis of accounting contained within note 1 to the financial statements and the directors’ statement on the longer-term
viability of the group contained within the strategic report on page 61.
We have nothing material to add or draw attention to in relation to:
> the directors’ confirmation on page 100 that they have carried out a robust assessment of the principal risks facing the
group, including those that would threaten its business model, future performance, solvency or liquidity;
> the disclosures on pages 57-60 that describe those risks and explain how they are being managed or mitigated;
> the directors’ statement in note 1 to the financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their identification of any material uncertainties to the group’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
> the directors’ explanation on page 61 as to how they have assessed the prospects of the group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We agreed with the directors’ adoption of the going concern basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to
the group’s ability to continue as a going concern.
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Independent Auditor’s Report to the members of Mitie Group plc continued
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm that we are
independent of the group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also
confirm we have not provided any of the prohibited non-audit services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts of the engagement team.
Risk
How the scope of our audit responded to the risk
Appropriateness of revenue and profit recognition
There are significant accounting judgements required
to apply the group’s revenue recognition policies to the long-
term complex contracts entered into by the group for the
provision of project-based services, predominantly long term
complex contracts.
The contractual arrangements that underpin the
measurement of revenue in the period can be complex, with
judgements involved in the assessment of current and future
financial performance, which are relevant to the application
of long term contract accounting principles.
We focused our testing on contracts with the following
characteristics;
– Contract related assets that are materially sensitive to
changes in the forecast margin;
– Contracts that have the potential for material losses; and
– Contracts with material judgements.
The group’s policy on revenue recognition is set out in
note 1 to the group financial statements and revenue is
analysed in note 3.
The matter is also disclosed as a critical Judgement
in note 2.
Recoverability of goodwill and intangible assets in the
Healthcare division
In accordance with International Accounting Standard (IAS)
36 ‘Impairment of Assets’ and the Group’s accounting policy,
management is required to carry out an annual impairment
test of the Group’s goodwill of £465.5m and intangible assets
of £66.9m,
In recent years there has been a reduction in headroom
in the goodwill relating to the Healthcare division CGU which
accounts for £107.2m of the carried goodwill and £11.3m of
group intangible assets.
Assessing whether an impairment exists under IAS 36
is complex. Calculating the value in use for identified cash-
generating units (CGUs) incorporates judgements based
on assumptions about future revenue growth, forecast
cash flows, terminal growth rates and determination of the
appropriate discount rate and the appropriate inclusion of
new initiatives.
The Group’s policy on impairment of goodwill is disclosed in
note 1 and note 2. Further details in respect of the carrying
value of goodwill and intangible assets, and the recoverability
of individual cash-generating units and sensitivities of the key
assumptions are outlined in note 13.
We have tested the operating effectiveness of the key controls
over the contract process including tendering controls,
contract monitoring, billings and approvals, the general IT
controls over the systems used to generate the information
and Management’s review and approval of the contract
accounting applied.
We made a number of contract site visits and attended and
inspected minutes from certain meetings, forming a key part
of the Group’s risk and contract accounting process to fully
challenge at a management level, the ongoing performance
on long term complex contracts.
We have assessed management’s judgement regarding the
appropriate timing of revenue recognition, including when a
percentage of completion basis was applied. We reviewed
significant contract terms for the conditions that underpin the
revenue and the profit recognition assumptions. We have
performed substantive tests and analytical procedures on
costs incurred to date and profitability forecasts. This included
challenging management’s assumptions on the future costs
including projected savings, the actions required to achieve
these and by analysing historic performance. Through this
analysis we assessed the underlying accounting treatment
of contract related assets and assessed the recoverability
of these assets against future profitability.
We critically assessed management’s position as to
whether or not a reasonably possible change to key operating
assumptions could result in an impairment. In doing so, we
have considered the output of the Group’s budgeting process
including the sensitivity of the key assumptions relating to
future growth in revenue and cost savings to be achieved. We
assessed whether the forecasts adopted in the impairment
review were board approved and consistent with those used
in the going concern and longer-term viability assessment.
In addition we challenged the appropriateness of the inclusion
of cash flows relating to new initiatives noting these cash-
flows are in line with the Group’s strategy of expansion
in the Healthcare sector. We benchmarked the growth
rates employed to available market data and engaged our
specialist valuation team to consider the appropriateness of
the discount rate applied in the impairment review including
reviewing management’s calculation and reconciliation.
We performed sensitivity analysis in respect of each of
the key assumptions and reperformed management’s
sensitivity disclosure.
We also specifically reviewed the appropriateness of the
disclosures set out in note 13 to the accounts detailing the
point at which the recoverable value of goodwill would equal
the carrying amount.
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Last year our report included presentation of “other items” on the consolidated income statement and Recoverability of
trade receivables as key risks of material misstatement. The risk of presentation of “other items” is not included in our report
this year as there has been no material restructuring or businesses being exited in the year. The risk of recoverability of trade
receivables is also not included in our report this year as the ageing of trade receivables has improved.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee
discussed on pages 70-73.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
We determined materiality for the group to be £5.0 million (2015: £5.0 million) which is based on 5.2% (2015: 12.0%) of
statutory profit before tax and which equates to 4.4% (2015: 4.4%) of profit before tax before “other items”, 0.2% (2015: 0.2%)
of revenue and 1.2% (2015: 1.3%) of equity. Statutory profit before tax is used due to the reduction in “other items” in the year.
Profit was used as the benchmark for determining materiality as this is considered to be a key benchmark used by investors.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £100,000
(2015: £100,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group level. Based on that assessment, we focused our group audit
scope primarily on the audit work at the four divisions, reduced from five following the restructuring of the Energy Solutions
division in 2015, and at head office.
All UK subsidiaries within the four divisions were subject to a full audit with the exception of recently acquired businesses and
dormant entities.
The subsidiaries representing the principal business units account for 94.4% (2015: 100%) of the group’s net assets, 96.0%
(2015: 98.2%) of the group’s revenue and 100% (2015: 100%) of the group’s profit before tax. They were also selected to provide
an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work
was executed at levels of materiality applicable to each individual entity which were lower than group materiality and ranged
from £0.01 million to £3.5 million (2015: £0.01 million to £3.5 million).
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the
overseas entities, dormant entities and two recently acquired businesses not subject to audit.
The group audit team continued to follow a programme of planned visits to key locations including Bristol, London and
Reading. These visits have been designed so that the Senior Statutory Auditor meets with divisional management where
the group audit scope was focused, at least once a year.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
> the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
> the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
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Independent Auditor’s Report to the members of Mitie Group plc continued
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
> we have not received all the information and explanations we require for our audit; or
> adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
> the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting
records and returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the company’s
compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in
the annual report is:
> materially inconsistent with the information in the audited financial statements; or
> apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course
of performing our audit; or
> otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during
the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether
the annual report appropriately discloses those matters that we communicated to the audit committee which we consider
should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
104
Mitie Group plc | Annual Report and Accounts 2016
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and
Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools
aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems
include our dedicated professional standards review team and independent partner reviews.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s
circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial
and non-financial information in the annual report to identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
John Charlton FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London
23 May 2016
105
www.mitie.com
Consolidated income statement
For the year ended 31 March 2016
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of profit of joint ventures and
associates
Operating profit
Investment revenue
Finance costs
Net finance costs
Profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share (EPS)
– basic
– diluted
Note:
1. Other items are as described in Note 5.
Before
Other Items
£m
Notes
Other
Items1
£m
2016
Total
£m
Before
Other Items
£m
Other
Items1
£m
2015
Total
£m
3,4
2,231.9
(1,909.3)
322.6
–
–
–
2,231.9
(1,909.3)
322.6
2,266.2
(1,928.3)
337.9
7.6
(17.4)
(9.8)
2,273.8
(1,945.7)
328.1
(194.3)
(16.4)
(210.7)
(210.0)
(62.8)
(272.8)
16
4,6
8
9
10
0.6
128.9
–
(16.4)
0.6
112.5
0.7
128.6
–
(72.6)
0.1
(15.8)
(15.7)
113.2
(22.7)
90.5
88.7
1.8
90.5
–
–
–
(16.4)
3.4
(13.0)
(13.0)
–
(13.0)
0.1
(15.8)
(15.7)
96.8
(19.3)
77.5
75.7
1.8
77.5
0.3
(14.8)
(14.5)
114.1
(24.1)
90.0
89.3
0.7
90.0
–
–
–
(72.6)
18.3
(54.3)
(54.3)
–
(54.3)
12
12
25.0p
24.7p
(3.7)p
(3.6)p
21.3p
21.1p
24.8p
24.2p
(15.1)p
(14.7)p
0.7
56.0
0.3
(14.8)
(14.5)
41.5
(5.8)
35.7
35.0
0.7
35.7
9.7p
9.5p
106
Mitie Group plc | Annual Report and Accounts 2016
Consolidated statement of comprehensive income
For the year ended 31 March 2016
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Remeasurement of net defined benefit pension liability
Income tax relating to items not reclassified
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Gains on hedge of a net investment taken to equity
Cash flow hedges:
Gains arising during the year
Reclassification adjustment for losses included in profit and loss
Income tax (charge)/credit relating to items that may be reclassified
Other comprehensive income/(expense) for the financial year
Total comprehensive income for the financial year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
37
2016
£m
77.5
2015
£m
35.7
3.0
(1.7)
1.3
0.2
(0.7)
6.7
(4.4)
(0.6)
1.2
(15.0)
3.0
(12.0)
(2.0)
1.1
13.4
(14.6)
0.2
(1.9)
2.5
(13.9)
80.0
21.8
78.2
1.8
21.1
0.7
107
www.mitie.com
Notes
2016
£m
2015
£m
13
14
15
16
17
18
22
23
18
24
25
26
28
25
26
28
37
22
465.5
66.9
49.3
0.6
14.4
86.0
10.0
692.7
9.9
446.7
93.1
549.7
464.4
76.6
53.3
1.1
8.0
58.5
13.4
675.3
11.0
421.4
96.4
528.8
1,242.4
1,204.1
(487.8)
(10.4)
(1.9)
(0.4)
(500.5)
(476.0)
(5.2)
(1.8)
(4.9)
(487.9)
49.2
40.9
(2.5)
(283.9)
(0.5)
(35.5)
(4.4)
(326.8)
(8.0)
(279.2)
(7.4)
(35.8)
(7.5)
(337.9)
(827.3)
(825.8)
415.1
378.3
Consolidated balance sheet
At 31 March 2016
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in joint ventures and associates
Financing assets
Trade and other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Financing liabilities
Provisions
Total current liabilities
Net current assets
Non-current liabilities
Trade and other payables
Financing liabilities
Provisions
Retirement benefit obligation
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
108
Mitie Group plc | Annual Report and Accounts 2016
Consolidated balance sheet continued
At 31 March 2016
Equity
Share capital
Share premium account
Merger reserve
Share-based payments reserve
Own shares reserve
Other reserves
Hedging and translation reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
2016
£m
2015
£m
31
32
32
32
32
32
32
9.3
127.7
80.1
9.4
(48.8)
0.5
(4.6)
238.6
412.2
9.4
122.6
80.1
7.2
(47.5)
0.4
(6.4)
209.2
375.0
2.9
415.1
3.3
378.3
The financial statements of the group, company registration number SC019230 were approved by the Board of Directors and
authorised for issue on 23 May 2016. They were signed on its behalf by:
Ruby McGregor-Smith CBE
Chief Executive
Suzanne Baxter
Group Finance Director
109
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Consolidated statement of changes in equity
For the year ended 31 March 2016
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share-
based
payments
reserve
£m
Own
shares
reserve
£m
Other
reserves
£m
Hedging
and
translation
reserve
£m
Attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£m
Retained
earnings
£m
Total
£m
9.3
118.9 101.2
2.6
(37.2)
0.4
–
–
–
–
–
–
–
–
–
3.7
–
–
–
–
–
–
(21.1)
–
–
–
–
–
–
4.6
–
–
–
–
–
(10.7)
0.4
–
–
–
0.1
–
–
–
–
–
–
9.4
–
–
122.6 80.1
–
7.2
–
(47.5)
–
–
–
–
–
–
(0.1)
–
–
–
–
5.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
–
–
–
–
–
(6.6)
–
5.3
–
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
0.1
–
(4.3) 210.0
35.0
–
400.9
35.0
3.0 403.9
0.7
35.7
(2.1)
(11.8)
(13.9)
–
(13.9)
(2.1)
–
–
–
–
23.2
–
(40.5)
–
1.4
–
–
(0.1)
21.1
21.1
3.8
(40.5)
(10.7)
6.4
(0.1)
–
0.7
–
(0.1)
–
–
21.8
3.8
(40.6)
(10.7)
6.4
–
–
(0.1)
–
–
(5.9)
(6.4) 209.2
–
75.7
(5.9)
375.0
75.7
(0.3)
(6.2)
3.3 378.3
1.8
77.5
1.8
0.7
2.5
–
2.5
1.8
–
–
–
–
–
76.4
–
(42.2)
–
(15.3)
0.3
78.2
5.1
(42.2)
(6.6)
(15.3)
7.8
1.8 80.0
5.1
(42.4)
(6.6)
(15.3)
7.8
–
(0.2)
–
–
–
–
–
–
–
0.1
0.1
–
0.1
–
9.3
–
–
127.7 80.1
–
9.4
–
(48.8)
–
0.5
–
10.1
(4.6) 238.6
10.1
412.2
(2.0)
8.1
2.9 415.1
At 1 April 2014
Profit for the year
Other comprehensive
expense
Total comprehensive
income
Shares issued
Dividends paid
Purchase of own shares
Share-based payments
Tax on share-based
payment transactions
Transfer between reserves
Acquisitions and other
movements in non-
controlling interests
At 31 March 2015
Profit for the year
Other comprehensive
expense
Total comprehensive
income
Shares issued
Dividends paid
Purchase of own shares
Share buybacks
Share-based payments
Tax on share-based
payment transactions
Acquisitions and other
movements in non-
controlling interests
At 31 March 2016
110
Mitie Group plc | Annual Report and Accounts 2016
Consolidated statement of cash flows
For the year ended 31 March 2016
Operating profit
Adjustments for:
Share-based payment expense
Defined benefit pension charge
Defined benefit pension contributions
Acquisition costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
Write off of acquisition related intangible assets
Other non-cash movement in Other items
Share of profit of joint ventures and associates
Profit on disposal of businesses
Loss on disposal of property, plant and equipment
Operating cash flows before movements in working capital
Decrease/(Increase) in inventories
(Decrease)/increase in receivables
Increase/(Decrease) in payables
Decrease in provisions
Cash generated by operations
Income taxes paid
Interest paid
Facility extension fees
Acquisition costs
Net cash from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash acquired
Dividends received from joint ventures and associates
Investment in financing assets
Purchase of other intangible assets
Disposals of property, plant and equipment
Net cash outflow from investing activities
Notes
36
37
37
5
15
14
14
16
39
5
33
14
2016
£m
112.5
5.2
4.4
(3.0)
0.3
15.1
18.5
6.2
–
(0.6)
(0.5)
–
158.1
1.1
(52.9)
8.7
(0.4)
114.6
(15.7)
(13.4)
–
(0.3)
85.2
–
(15.7)
(8.0)
0.7
1.9
(8.9)
2.2
(27.8)
2015
£m
56.0
6.5
4.0
(3.1)
0.3
19.7
13.8
–
19.0
(0.7)
–
0.3
115.8
(3.8)
53.4
(50.9)
(1.3)
113.2
(15.5)
(13.1)
(2.0)
(0.3)
82.3
–
(23.0)
(0.5)
0.5
(0.3)
(3.9)
1.8
(25.4)
111
www.mitie.com
Consolidated statement of cash flows continued
For the year ended 31 March 2016
Notes
2016
£m
2015
£m
Financing activities
Repayments of obligations under finance leases
Proceeds on issue of share capital
Bank loans repaid
Purchase of own shares
Share buybacks
Equity dividends paid
Non-controlling interests dividends paid
Net cash outflow from financing
Net (decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Net cash and cash equivalents at end of the year
Net cash and cash equivalents comprise:
Cash at bank
32
31
11
Reconciliation of net cash flow to movements in net debt
Notes
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rate changes
Decrease in bank loans
Non-cash movement in private placement notes and associated hedges
Decrease in finance leases
(Increase)/decrease in net debt during the year
(3.1)
5.0
(2.2)
(3.7)
(14.4)
(42.3)
(0.2)
(60.9)
(2.0)
3.8
0.6
(10.7)
–
(40.5)
(0.1)
(48.9)
(3.5)
8.0
96.4
89.1
0.2
(0.7)
93.1
96.4
93.1
93.1
2016
£m
(3.5)
0.2
0.3
3.0
(0.5)
(0.5)
96.4
96.4
2015
£m
8.0
(0.7)
1.4
(1.3)
1.4
8.8
Opening net debt
Closing net debt
(177.8)
(178.3)
(186.6)
(177.8)
30
112
Mitie Group plc | Annual Report and Accounts 2016
Notes to the consolidated financial statements
For the year ended 31 March 2016
B1. 1
BBasis of preparation and significant accounting policies
Basis of preparation
The group’s financial statements for the year ended 31 March 2016 have been prepared in accordance with International
Financial Reporting Standards (IFRSs) adopted for use in the European Union and therefore the group’s financial statements
comply with Article 4 of the EU IAS Regulation.
As more fully detailed in the Directors’ report, the group’s financial statements have been prepared on a going concern basis.
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.
The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed
in the preparation of the group’s annual financial statements for the year ended 31 March 2015 except for the following
amendments, which were effective for the first time in the current period but had no impact on the results or financial position
of the group:
> Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
> Annual Improvements to IFRSs 2010-2012 Cycle : the majority of amendments are clarifications rather than
substantive changes in existing requirements apart from amendments to IFRS 8 Operating Segments and IAS 24
Related Party Disclosures
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’
> Amendments to IFRS 11 ‘Joint Arrangements’ – Accounting for Acquisitions of Interests in Joint Operations
> IFRS 15 ‘Revenue from Contracts with Customers’
> Amendments to IAS 27 ‘Separate Financial Statements’ – Equity Method in Separate Financial Statements
> Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
> Amendments to IAS 16 and IAS 41 ‘Agriculture: Bearer Plants’
> Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in Associates and Joint Ventures’–
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
> Amendments to IFRS 10 ‘Consolidated Financial Statements’, IFRS 12 ‘Disclosures of Interests in Other Entities’ and IAS 28
‘Investments in Associates and Joint Ventures’ – Investment Entities: Applying the Consolidation Exception;
> Amendments to IAS 1 ‘Presentation of Financial Statements’ – Disclosure Initiative; and
> Amendments resulting from Annual Improvements to IFRSs 2012-2014 and 2013-2015 Cycle.
The group is conducting a review of IFRS 15 ‘Revenue from Contracts with Customers’ which introduces a new revenue
recognition model and is due to be effective for periods beginning on or after 1 January 2018. IFRS 16 ‘Leases’ will require
nearly all leases to be recognised on the balance sheet as liabilities with corresponding assets being created, it will be effective
for periods beginning on or after 1 January 2019. We will be assessing the likely impact of these new standards nearer the
time of full adoption. The Directors do not anticipate that the adoption of other standards and interpretations that have been
issued but are not yet effective (and in some cases have not yet been adopted by the EU) will have a material financial impact
on the group’s financial statements in the period of initial application.
Significant accounting policies under IFRS
The significant accounting policies adopted in the preparation of the group’s IFRS financial information are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Mitie Group plc and all its subsidiaries.
The financial statements of the parent company and subsidiaries are prepared in accordance with UK Generally Accepted
Accounting Practice (UK GAAP) with the exception of a small number of entities.
All inter-company balances and transactions, including unrealised profits arising from inter-group transactions, have been
eliminated in full.
113
www.mitie.com
0
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B1.
BBasis of preparation and significant accounting policies continued
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.
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 owners of the parent.
Statutory and non-statutory measures of performance
Our financial statements contain all the information and disclosures required by the relevant accounting standards and
regulatory obligations that apply to the group.
We have elected to provide some further disclosures and performance measures, reported as “before other items”
(previously designated as “Headline”), in order to present our financial results in a way that demonstrates the performance
of our business excluding restructuring and acquisition related costs, businesses being exited and amortisation or write off
of acquired intangible assets. Results before other items are a non-statutory measure. Further detail of other items is set
out in Note 5 to the 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 profit or loss 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 shall be recognised in the income statement.
Revenue
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.
114
Mitie Group plc | Annual Report and Accounts 20162
3
B1.
BBasis of preparation and significant accounting policies continued
Costs incurred after confirmation of preferred bidder, but before the commencement 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. 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. 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 costs 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. Contract costs also include transition costs arising when there is a subsequent change in the scope of
contracted services. 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 act 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.
Revenue recognition: other
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.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in
profit or loss in the period in which they are incurred.
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.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B1.
BBasis of preparation and significant accounting policies continued
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; when the group intends to
settle its current tax assets and liabilities on a net basis.
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 profit or loss 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.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts
subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been
reinstated and is not included in determining any subsequent 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
Plant and vehicles
– period of the lease
– 3–10 years
Annually 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 the impairment loss (if any). 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.
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.
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.
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B1.
BBasis of preparation and significant accounting policies continued
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.
Financial liabilities comprise trade payables, financing liabilities, including bank and other borrowings, put options on
non-controlling interests 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.
Equity instruments issued by the Company 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 profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit
or loss depends on the nature of the hedge relationship.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
01.
BBasis of preparation and significant accounting policies continued
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 profit
or loss 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 profit or loss 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 profit or loss.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in
the periods when the hedged item is recognised in profit or loss, in the same line of the income statement 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 profit or loss. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
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 profit or loss. Gains or losses on the hedging instrument relating to the effective
portion of the hedge accumulated in equity are reclassified to profit or loss 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 against income.
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.
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B1.
BBasis of preparation and significant accounting policies continued
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.
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’s 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 acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
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 profit or
loss 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.
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 all grants of share options and awards, the fair value as at the date of grant is
calculated using the Black-Scholes or Monte Carlo models 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.
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4
1
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B1.
BBasis of preparation and significant accounting policies continued
Retirement benefit costs
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.
In addition, 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.
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, the return on plan 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 outside profit and loss and presented in the statement of comprehensive income.
Current service cost and past service cost are recognised in profit and loss, in administrative expenses, whilst the net interest
cost is recognised in net finance costs.
The retirement benefit obligation 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.
B2. 1
BCritical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the group’s accounting policies
In the process of applying the group’s accounting policies, which are described in Note 1 above, management has made
the following judgements that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition
Revenue is recognised for certain long-term complex projects based on the stage of completion of the contract activity.
This is measured by comparing the proportion of costs incurred, which include transition costs reflecting costs incurred in
the performance of transitioning services (see Note 1), against the estimated whole-life contract costs. Particular judgement
is 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 is taken of potential deductions
from and increments to revenue that may arise from the application of performance related measures under contracts.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below.
Measurement and impairment of goodwill and other intangible assets
The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows
and the selection of suitable discount rates. Determining whether goodwill and other intangible assets are impaired requires
an estimation of the value in use of the 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 use in order to calculate
present values. The carrying value of goodwill and other intangible assets is £532.4m (2015: £541.0m) at the balance sheet
date; see Notes 13 and 14. A sensitivity analysis has been performed and the Board has concluded that no reasonably
foreseeable change in the key assumptions would result in an impairment of the goodwill of any of the Soft FM, Hard FM or
Property Management CGUs. Further sensitivity testing was performed for the group’s Healthcare CGU where the financial
performance of the business has deteriorated during the year. On the basis of this review the Board has concluded that no
impairment to goodwill is necessary. A sensitivity analysis is included in Note 13.
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6
1
7
1
8
9
B2. 2
BCritical accounting judgements and key sources of estimation uncertainty continued
Measurement of defined benefit pension obligations
The measurement of defined benefit obligations requires judgement. It is dependent on material key assumptions including
discount rates, life expectancy rates, future returns on assets and future contribution rates. The present value of defined
benefit obligations at the balance sheet date is £201.9m (2015: £207.5m); see Note 37.
The sensitivity of defined benefit pension obligations to changes in principal actuarial assumptions is shown below:
Discount rate
Retail price inflation
Consumer price inflation
Salary increases
Life expectancy
B3. 2
BRevenue
Before Other Items
Rendering of services
Construction contracts
Revenue before other items
Other items
Construction contracts
Total revenue as disclosed in the consolidated income statement
Investment revenue (Note 8)
Total revenue as defined in IAS 18
Change in
assumption
Increase/
(decrease)
in liability
£m
+0.5%
-0.5%
+0.5%
-0.5%
+0.5%
-0.5%
+0.5%
-0.5%
+1 year
(19.1)
19.1
15.3
(14.3)
3.8
(3.8)
3.8
(2.9)
6.6
2016
£m
2015
£m
2,226.9
5.0
2,231.9
2,265.8
0.4
2,266.2
–
2,231.9
0.1
2,232.0
7.6
2,273.8
0.3
2,274.1
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0
1
2
2
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B4. 2
BBusiness and geographical segments
The group manages its business on a service division basis. These divisions are the basis on which the group reports its primary
segmental information.
Business segments – structure during the year
Revenue
before
other
items1
£m
Operating
Profit
before
other
items1
£m
Operating
Profit
margin
before
other
items1
%
Revenue
£m
2016
2015
Revenue
before
other
items1
£m
Operating
Profit
before
other
items1
£m
Operating
Profit
margin
before
other
items1
%
Profit
before tax
£m
Profit
before
tax
£m
Revenue
£m
Soft FM
Hard FM
Property
Management
Healthcare
Other Items (Note 5)
Total
1,255.1
618.4
1,255.1
618.4
85.4
31.7
280.4
78.0
–
280.4
78.0
–
2,231.9 2,231.9
15.8
(4.0)
–
128.9
6.8
5.1
5.6
(5.1)
–
5.8
87.5
18.5
1,280.3
621.1
1,280.3
621.1
273.4
273.4
15.8
91.4
91.4
(8.6)
–
7.6
(16.4)
96.8 2,273.8 2,266.2
81.9
31.4
10.4
4.9
–
128.6
6.4
5.1
3.8
5.4
–
5.7
79.6
24.2
9.9
0.4
(72.6)
41.5
The revenue analysis above is net of inter-segment sales which are not considered significant.
No single customer accounted for more than 10% of external revenue in 2016 or 2015.
The Improvement to IFRS 8 issued in April 2009 clarified 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
2016
2015
Revenue
before
other
items1
£m
Operating
Profit
before
other
items1
£m
Operating
Profit
margin
before
other
items1
%
Revenue
£m
Profit
before tax
£m
Revenue
£m
Revenue
before
other
items1
£m
Operating
Profit
before
other
items1
£m
Operating
Profit
margin
before
other
items1
%
Profit
before tax
£m
2,156.5 2,156.5
75.4
2,231.9 2,231.9
75.4
129.2
(0.3)
128.9
6.0
(0.4)
5.8
97.4 2,190.7
2,183.1
83.1
83.1
(0.6)
96.8 2,273.8 2,266.2
126.8
1.8
128.6
5.8
2.2
5.7
40.0
1.5
41.5
United Kingdom
Other countries
Total
Note:
1. Other items are as described in Note 5.
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5
B5. 2
BOther items
During the year ended 31 March 2015, the group separately reported as Other items the results of certain design and build
contracts and certain business activities in construction related markets from which it was exiting. During the year ended
31 March 2016, no further net charges have arisen in respect of these contracts and business activities. Net cash outflows
of £1.5m have been incurred in relation to the final close out of these contracts and business activities.
Restructuring
and
acquisition
related costs
£m
Businesses
being exited
£m
2016
Other
items
£m
–
–
Restructuring
and
acquisition
related costs
£m
–
–
–
2015
Other
items
£m
7.6
(17.4)
Businesses
being exited
£m
7.6
(17.4)
(6.1)
(6.1)
–
–
–
–
–
(2.2)
(2.2)
2.2
–
2.2
(45.7)
–
(45.7)
–
(0.3)
(16.1)
(14.2)
3.0
(11.2)
–
–
–
(2.2)
0.4
(1.8)
–
(0.3)
(16.1)
(16.4)
3.4
(13.0)
(0.6)
(0.3)
(10.1)
(56.7)
15.0
(41.7)
–
–
–
(15.9)
3.3
(12.6)
(0.6)
(0.3)
(10.1)
(72.6)
18.3
(54.3)
Revenue
Cost of Sales
Administrative expenses:
Administrative expenses
Exceptional credit/(charge) in relation to design and
build Asset Management contracts in Energy
Solutions
Restructuring costs relating to the integration of
Complete Group
Acquisition costs
Amortisation of acquisition related intangibles (Note 14)
Other items before tax
Tax on other items
Other items net of tax
B6. 3
BOperating profit
Operating profit has been arrived at after charging:
Depreciation of property, plant and equipment (Note 15)
Amortisation of intangible assets (Note 14)
Write off of acquisition related intangible assets (Note 14)
Loss on disposal of property, plant and equipment
Staff costs (Note 7)
A detailed analysis of auditor’s remuneration is provided below:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for the audit of the Company’s
subsidiaries pursuant to legislation
Total audit fees
Other audit related services to the group
Tax services
Corporate finance service
Other services
Non-audit fees
Total
2016
£m
15.1
18.5
6.2
–
1,132.1
2015
£m
19.7
13.8
–
0.3
1,149.9
2016
£’000
35
2015
£’000
33
731
766
59
74
53
22
208
605
638
80
89
125
36
330
974
968
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6
7
3
0
1
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B7. 3
BStaff costs
Number of people
The average number of people employed during the financial year was:
Soft FM
Hard FM
Property Management
Healthcare
Total group
The number of people employed at 31 March was:
Total group
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payments (Note 36)
2016
2015
51,271
4,912
2,270
5,069
63,522
56,473
5,131
2,286
6,605
70,495
62,674
69,557
2016
£m
1,026.0
79.2
21.3
5.6
1,132.1
2015
£m
1,042.9
81.6
18.9
6.5
1,149.9
Details of Directors’ remuneration and interests are provided in the audited section of the Directors’ remuneration report and
should be regarded as an integral part of this Note.
B8. 3
BInvestment revenue
Interest on bank deposits
B9. 3
BFinance costs
Interest on bank facilities
Interest on private placement loan notes
Bank fees
Interest on obligations under finance leases
Gain arising on derivatives in a designated fair value hedge
Loss arising on adjustment for the hedged item in a designated fair value hedge
Net interest on defined benefit pension scheme assets and liabilities
2016
£m
0.1
0.1
2015
£m
0.3
0.3
2016
£m
1.7
9.6
3.0
0.2
(0.8)
0.9
1.2
15.8
2015
£m
1.4
9.6
2.8
0.2
(3.7)
3.8
0.7
14.8
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5
3
6
7
3
8
9
B10. 4
BTax
Current tax
Deferred tax (Note 22)
2016
£m
21.2
(1.9)
19.3
2015
£m
9.7
(3.9)
5.8
Corporation tax is calculated at 20.0% (2015: 21.0%) of the estimated taxable profit for the year.
A reconciliation of the tax charge to the elements of profit before tax per the consolidated income statement elements is
as follows:
Profit before tax
Tax at UK rate of 20.0% (2015: 21%)
Reconciling tax charges for:
Non-tax deductible charges
Energy Solutions contract exit costs
Overseas tax rates
Impact of change in statutory tax rates
Prior year adjustments
Before
other items
£m
113.2
22.7
0.9
–
0.2
(0.1)
(1.0)
Other
items
£m
(16.4)
(3.2)
–
–
–
(0.2)
–
2016
Total
£m
96.8
19.5
0.9
–
0.2
(0.3)
(1.0)
Before
other items
£m
114.1
23.9
0.7
–
0.1
–
(0.6)
Other
items
£m
(72.6)
(15.2)
0.1
(3.2)
–
–
–
2015
Total
£m
41.5
8.7
0.8
(3.2)
0.1
–
(0.6)
Tax charge for the year
Effective tax rate for the year
22.7
20.0%
(3.4)
20.7%
19.3
19.9%
24.1
21.1%
(18.3)
25.2%
5.8
14.0%
In addition to the amounts charged to the consolidated income statement, a tax credit relating to retirement benefit costs and
hedged items amounting to £2.3m (2015: £3.2m charge) has been taken directly to the statement of comprehensive income
and £0.1m relating to share-based payments has been charged (2015: £0.1m credited) directly to equity.
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.
The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. Further reductions to 19% (effective from April 2017)
and then 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015. This will reduce the Company’s
future current tax charge accordingly. The UK deferred tax assets and liabilities at 31 March 2016 have been calculated
based on rates of 20%, 19% and 18% in respect of deferred tax expected to reverse before 1 April 2017, 1 April 2020 and after
this date respectively.
B11.
BDividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2015 of 6.5p (2014: 6.1p) per share
Interim dividend for the year ended 31 March 2016 of 5.4p (2015: 5.2p) per share
Proposed final dividend for the year ended 31 March 2016 of 6.7p (2015: 6.5p) per share
2016
£m
2015
£m
23.1
19.2
42.3
23.7
21.9
18.6
40.5
22.9
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included
as a liability in these financial statements.
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1
4
2
4
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B12. 4
BEarnings 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:
Net profit before other items attributable to equity holders of the parent
Other items net of tax
Net profit attributable to equity holders of the parent
Number of shares
Weighted average number of Ordinary shares for the purpose of basic EPS
Effect of dilutive potential Ordinary shares: share options
Weighted average number of Ordinary shares for the purpose of diluted EPS
Basic earnings per share before other items1
Basic earnings per share
Diluted earnings per share before other items1
Diluted earnings per share
Note:
1. Other items are as described in Note 5.
2016
£m
88.7
(13.0)
75.7
2016
million
355.4
4.1
359.5
2016
p
25.0
21.3
24.7
21.1
2015
£m
89.3
(54.3)
35.0
2015
million
359.3
10.4
369.7
2015
p
24.8
9.7
24.2
9.5
The weighted average number of Ordinary shares in issue during the year excludes those accounted for in the Own shares
reserve (see Note 32).
B13. 4
BGoodwill
Cost
At 1 April 2014
Acquisition of subsidiaries
Impact of foreign exchange
At 1 April 2015
Acquisition of subsidiaries
Impact of foreign exchange
At 31 March 2016
Accumulated impairment losses
At 1 April 2014
At 1 April 2015
At 31 March 2016
Carrying amount
At 31 March 2016
At 31 March 2015
£m
459.6
5.7
(0.9)
464.4
0.7
0.4
465.5
–
–
–
–
465.5
464.4
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected
to benefit from that business combination. Additions during the year relate to goodwill recognised on one acquisition. More
details are presented in the Acquisitions note (Note 33).
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5
4
6
7
B13. 4
BGoodwill continued
Goodwill has been allocated to CGUs, which align with the business segments, as this is how goodwill is monitored by the
group internally. Goodwill has arisen principally on the acquisitions of Initial Security in 2006 (Soft FM), Dalkia Technical
Facilities Management in 2009 (Hard FM) and Enara (Healthcare) in 2012.
Soft FM
Hard FM
Property Management
Healthcare
Discount
rate 2016
%
Discount
rate 2015
%
Goodwill
2016
£m
Goodwill
2015
£m
7.9
8.0
9.2
9.1
8.7
8.7
10.0
10.0
171.8
101.3
85.2
107.2
465.5
171.3
101.3
85.2
106.6
464.4
The group tests goodwill at least annually for impairment or more frequently if there are indicators that goodwill may
be impaired.
Key assumptions
The recoverable amounts of the CGUs are determined from value in use 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 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 growth rates are based on industry growth forecasts.
Changes in revenue and direct costs are based on past practices and expectations of future changes in the market.
Growth rates and terminal values
The group prepares cash flow forecasts derived from the most recent one year financial budgets approved by the Board,
extrapolated for four future years by the expected growth applicable to each unit with a terminal value using an inflationary
growth rate assumption in the range 2.0% – 2.5% dependent on the CGU.
Discount rates
The pre-tax rates used to discount the forecast cash flows from CGUs are derived from the Company’s post-tax Weighted
Average Cost of Capital, which was 7.0% at 31 March 2016 (2015: 7.4%), and adjusted for the risks specific to 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 Soft Facilities Management, Hard Facilities
Management and Property Management CGUs. In particular, a 1% increase in the discount rate or a 1% decrease in the
terminal value growth rate would not result in impairment in any of these CGUs.
Review of the carrying value of goodwill in the Healthcare CGU
The financial performance of the Healthcare business has deteriorated in the last financial year and that division has reported
an operating loss before other items of £4.0m for that period. Management has been taking positive action to reshape the
business during the year to meet future market opportunities and is encouraged by contract awards which give confidence
that conditions are beginning to improve.
The Directors remain confident in the long-term prospects of the healthcare sector and continue to closely monitor the
financial performance of the group's Healthcare cash-generating unit (CGU). In light of recent trading performance a revised
long-term business plan for the Healthcare business has been developed with reductions to forecast profits and cash flows.
The Directors have reviewed the revised long-term business plan for the Healthcare business and believe that the assumptions
on which it is based are reasonable given current performance and market conditions. The Directors continue to see long-term
growth opportunities in the domiciliary care and other related healthcare markets, especially in light of the increasing political
focus on the current funding of the sector and the expected demographic shift in the UK.
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6
7
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B13. 4
BGoodwill continued
The Directors recognise that there are risks and uncertainties in its Healthcare CGU if the performance of the business does
not improve as expected over the longer term in line with the revised business plan. Factors that could cause deterioration in
the future cash flows of the business compared to the plan include:
> the inability to recruit and retain staff at appropriate wage rates;
> the inability to win new and retain existing contracts to provide care hours at sustainable prices; and
> an adverse structural change to outsourcing of care in the UK caused by changes in UK Government policy.
The carrying value of goodwill relating to the Healthcare CGU of £107.2m (2015: £106.6m) was £38.2m less than the
recoverable amount, being the net present value of the future cash flows that are expected to be generated by the business.
These� cash flow forecasts are derived from the detailed long term business plan, with a terminal value using an inflationary
growth rate assumption of 2.5% based on industry growth forecasts and compound annual revenue growth rates of 16% (using
revenue of £78.0m reported for the year ended 31 March 2016 as the reference point for the rate of compound annual revenue
growth) underpinning the growth in operating profit in the first five years of the plan. The pre-tax rate used to discount the
forecast cash flows for the CGU is 9.1%, which has been adjusted for the risks specific to the market in which the CGU operates.
Further sensitivity testing was performed for the Healthcare CGU as the Directors recognise that it is possible that an
impairment to the healthcare goodwill could be identified if the performance of the business does not improve as expected
over the longer term in line with the business plan. They have considered the impact of a range of sensitivities on the
headroom between the recoverable amount and the carrying value of the goodwill attributable to the Healthcare CGU.
The carrying value of goodwill (and other intangible assets) becomes equal to its recoverable amount following the application
of the following sensitivities:
> an increase in the pre-tax discount rate of 1.9%; or
> a fall of 2.0% in the terminal value growth rate to a long-term inflationary assumption of 0.5%; or
> a 27% reduction in operating profit in year 5 and subsequent years compared to the revised business plan.
Based on the commentary and analysis above, and considering current market conditions, the Directors have concluded
that the value of goodwill of the Healthcare CGU is not impaired.
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7
B14. 5
BOther intangible assets
Cost
At 1 April 2014
Additions
Reclassifications from Property,
plant and equipment (Note 15)
At 1 April 2015
Additions
Reclassifications from Property,
plant and equipment (Note 15)
At 31 March 2016
Amortisation
At 1 April 2014
Charge for the year
At 1 April 2015
Charge for the year
Write off of acquisition related intangible assets
Reclassifications from Property,
plant and equipment (Note 15)
At 31 March 2016
Carrying amount
At 31 March 2016
At 31 March 2015
Acquisition related
Customer
relationships
£m
Total
acquisition
related
£m
Software and
development
expenditure
£m
Other
£m
Total
£m
143.9
5.9
5.2
155.0
8.9
8.5
172.4
64.6
13.8
78.4
18.5
6.2
2.4
105.5
97.3
2.0
–
99.3
–
–
99.3
49.9
10.1
60.0
9.9
6.2
–
76.1
46.6
3.9
5.2
55.7
8.9
8.5
73.1
14.7
3.7
18.4
8.6
–
2.4
29.4
23.2
39.3
43.7
37.3
66.9
76.6
86.8
1.6
–
88.4
–
–
88.4
41.7
9.5
51.2
9.5
6.2
–
66.9
21.5
37.2
10.5
0.4
–
10.9
–
–
10.9
8.2
0.6
8.8
0.4
–
–
9.2
1.7
2.1
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.
The customer relationships relating to the Healthcare business have been impairment tested in accordance with IAS 36
following the losses made by that business. As a result a write off of £6.2m has been recognised as a result of healthcare
contracts exited during the year on financial grounds.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B15. 5
BProperty, plant and equipment
Cost
At 1 April 2014
Additions
Reclassifications to intangible assets (Note 14)
Disposals
At 1 April 2015
Additions
Acquired with subsidiaries
Reclassifications within property, plant and equipment
Reclassifications to intangible assets (Note 14)
Disposals
At 31 March 2016
Accumulated depreciation and impairment
At 1 April 2014
Charge for the year
Disposals
At 1 April 2015
Charge for the year
Reclassifications within property, plant and equipment
Reclassifications to intangible assets (Note 14)
Disposals
At 31 March 2016
Carrying amount
At 31 March 2016
At 31 March 2015
Freehold
properties
£m
Leasehold
properties
£m
Plant and
vehicles
£m
3.3
–
–
(0.6)
2.7
–
–
–
–
(1.1)
1.6
0.7
–
(0.1)
0.6
0.1
–
–
(0.2)
0.5
15.7
3.1
–
(0.8)
18.0
0.6
–
0.5
–
(0.3)
18.8
7.5
1.7
(0.8)
8.4
1.4
0.3
–
(0.3)
9.8
101.8
20.5
(5.2)
(7.7)
109.4
18.6
0.2
(0.5)
(8.5)
(17.2)
102.0
55.9
18.0
(6.1)
67.8
13.6
(0.3)
(2.4)
(15.9)
62.8
Total
£m
120.8
23.6
(5.2)
(9.1)
130.1
19.2
0.2
–
(8.5)
(18.6)
122.4
64.1
19.7
(7.0)
76.8
15.1
–
(2.4)
(16.4)
73.1
1.1
2.1
9.0
9.6
39.2
41.6
49.3
53.3
The net book value of plant and vehicles held under finance leases included above was £4.0m (2015: £3.4m).
Additions to plant and vehicles during the year amounting to £3.5m (2015: £0.6m) were financed by new finance leases.
B16. 5
BInterest in joint ventures and associates
The group’s interests in joint ventures and associates are accounted for in the consolidated financial statements using the
equity method.
The group’s share of result of joint ventures and associates included in the consolidated income statement was as follows:
Revenue
Operating profit
Share of result of joint ventures and associates
2016
£m
3.9
0.6
0.6
2015
£m
3.8
0.7
0.7
During the year the group disposed of its interest in Savills Solar for £0.7m, giving rise to a profit on disposal of £0.3m.
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2
3
5
4
5
B16. 5
BInterest in joint ventures and associates continued
The group’s share of net assets of joint ventures and associates as at 31 March 2016 was as follows:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Interest in joint ventures and associates
2016
£m
–
0.9
(0.3)
–
0.6
2015
£m
1.7
1.3
(0.6)
(1.3)
1.1
Joint ventures and associated undertakings are not material to the group. None have significant restrictions on the ability to
transfer funds to the group in the form of cash dividends, or to repay loans or advances made by the group.
B17.
BFinancing assets
Derivative financial instruments (Note 27)
Loans to joint ventures and associates
Included in current assets
Included in non-current assets
B18. 6
BTrade and other receivables
Amounts receivable for the sale of services
Allowance for doubtful debt
Trade receivables
Amounts recoverable on construction contracts (Note 19)
Mobilisation costs (Note 21)
Accrued income
Prepayments
Other debtors
Included in current assets
Included in non-current assets*
2016
£m
14.4
–
14.4
–
14.4
14.4
2016
£m
213.5
(3.8)
209.7
2.6
28.6
236.2
36.4
19.2
532.7
446.7
86.0
532.7
2015
£m
6.8
1.2
8.0
–
8.0
8.0
2015
£m
202.3
(8.4)
193.9
8.1
30.6
192.6
38.2
16.5
479.9
421.4
58.5
479.9
* Non-current trade and other receivables comprise Accrued Income on long-term complex contracts of £68.7m and Mobilisation costs of £17.3m which are
further analysed in notes 20 and 21 respectively.
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6
7
5
8
5
9
6
0
1
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B18. 6
BTrade and other receivables continued
Ageing of trade receivables:
Neither impaired nor past due
Not impaired and less than three months overdue
Not impaired and more than three months overdue
Impaired receivables
Allowance for doubtful debt
Movement in the allowance for doubtful debt:
Balance at the beginning of the year
Impairment losses recognised
Amounts written off as uncollectable
Amounts recovered during the year
2016
£m
158.4
38.1
14.4
2.6
(3.8)
209.7
2016
£m
8.4
1.3
(4.3)
(1.6)
3.8
2015
£m
149.7
34.6
13.5
4.5
(8.4)
193.9
2015
£m
6.2
5.6
(2.4)
(1.0)
8.4
The average credit period taken on sales of services was 28 days (2015: 26 days).
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
B19. 6
BAmounts recoverable on construction contracts
Contracts in progress at the balance sheet date
Construction contract costs incurred plus recognised profits less recognised losses to date
Less progress billings
Amounts due from construction contract customers included in trade and other receivables
Included in current assets
Included in non-current assets
At 31 March 2016, retentions held by customers for contract work amounted to £4.7m (2015: £2.8m).
B20. 6
BAccrued Income on long-term complex contracts
Accrued Income
At 1 April
Amounts recognised in the income statement
At 31 March
Included in current assets
Included in non-current assets
132
2016
£m
46.3
(43.7)
2.6
2.6
–
2.6
2015
£m
127.1
(119.0)
8.1
8.1
–
8.1
2016
£m
48.4
28.7
77.1
8.4
68.7
77.1
2015
£m
26.9
21.5
48.4
8.1
40.3
48.4
Mitie Group plc | Annual Report and Accounts 20166
2
3
6
4
5
6
6
7
B21.
BMobilisation costs
Mobilisation costs
At 1 April
Additions
Amounts recognised in the income statement
At 31 March
Included in current assets
Included in non-current assets
B22.
BDeferred tax
2016
£m
30.6
12.0
(14.0)
28.6
11.3
17.3
28.6
2015
£m
30.3
19.6
(19.3)
30.6
12.4
18.2
30.6
The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the
current and prior reporting period:
At 1 April 2014
Credit/(charge) to income
(Charge)/credit to equity and the
statement of comprehensive income
Acquisition of subsidiaries
At 1 April 2015
Credit/(charge) to income
(Charge)/credit to equity and the
statement of comprehensive income
Acquisition of subsidiaries
At 31 March 2016
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Intangible
assets
acquired
£m
Share
options
£m
Short-term
timing
differences
£m
0.1
0.4
–
–
0.5
0.5
–
–
1.0
3.8
0.3
3.0
–
7.1
0.9
(1.6)
–
6.4
(9.3)
2.2
–
(0.4)
(7.5)
3.1
–
–
(4.4)
1.1
1.0
(0.2)
–
1.9
(0.4)
(0.2)
1.3
3.3
0.1
0.2
0.3
3.9
(2.2)
(0.5)
0.1
1.3
Tax losses
£m
0.1
(0.1)
–
–
–
–
–
–
–
Total
£m
(0.9)
3.9
3.0
(0.1)
5.9
1.9
(2.3)
0.1
5.6
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:
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset/(liability)
2016
£m
10.0
(4.4)
5.6
2015
£m
13.4
(7.5)
5.9
The group has unutilised income tax losses of £9.3m (2015: £10.2m) that are available for offset against future profits.
In addition the group has £0.8m (2015: £0.8m) of capital losses.
B23. 7
BInventories
Work-in-progress
Materials
2016
£m
2.5
7.4
9.9
2015
£m
4.5
6.5
11.0
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6
9
7
0
7
1
7
2
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B24.
BCash and cash equivalents
Cash and cash equivalents
2016
£m
93.1
93.1
2015
£m
96.4
96.4
Cash and cash equivalents comprise cash held by the group and short-term bank deposits with an original maturity of three
months or less. The carrying amount of the assets approximates their fair value.
Included in cash and cash equivalents are deposits totalling £0.9m (2015: £0.9m) held by the group’s insurance subsidiary,
which are not readily available for the general purposes of the group.
B25. 7
BTrade and other payables
Payments received on account
Trade creditors
Other taxes and social security
Other creditors
Accruals
Deferred income
Put options on non-controlling interests
Included in current liabilities
Included in non-current liabilities
2016
£m
0.1
206.8
82.7
9.6
143.1
48.0
–
490.3
487.8
2.5
490.3
2015
£m
2.4
201.8
84.8
13.1
132.1
41.8
8.0
484.0
476.0
8.0
484.0
Trade creditors, accruals and deferred income principally comprise amounts outstanding for trade purchases and ongoing
costs. The average credit period taken for trade purchases is 40 days (2015: 44 days).
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
B26. 7
BFinancing liabilities
Bank loans
Private placement notes
Derivative financial instruments
Obligations under finance leases (Note 29)
Included in current liabilities
Included in non-current liabilities
2016
£m
13.6
268.2
–
4.0
285.8
1.9
283.9
285.8
2015
£m
13.9
263.6
–
3.5
281.0
1.8
279.2
281.0
The banking facilities and private placement notes are unsecured but have financial and non-financial covenants and
obligations commonly associated with these arrangements.
Included in current liabilities are £1.9m (2015: £1.8m) of obligations under finance leases (see Note 29).
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6
7
7
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9
B26. 7
BFinancing liabilities continued
With the exception of derivative financial instruments and the private placement notes, all financing liabilities are held at
amortised cost. The Directors estimate that their carrying value approximates their fair value. Derivative financial instruments
are initially recognised at fair value at the date the contract is entered into and are subsequently remeasured to their fair value
through profit or loss unless they are designated as hedges for which hedge accounting can be applied (see Note 27). The
carrying value of the private placement notes at 31 March 2016 includes a fair value adjustment for interest rate and currency
risk of £0.7m (2015: £0.9m). The fair value of the private placement notes is not significantly different from their carrying value.
Private placement notes
On 13 December 2012, the group issued US$153.0m and £55.0m of private placement (‘PP’) notes in the United States Private
Placement market. This followed the issue on 16 December 2010 of US$96.0m and £40.0m of PP notes in the United States
Private Placement market. The PP notes are unsecured and rank pari passu with other senior unsecured indebtedness of the
group. In order to manage the risk of foreign currency fluctuations and to manage the group’s finance costs through a mix of
fixed and variable rate debt, the group has entered into cross currency interest rate swaps. The swap contracts have the same
duration and other critical terms as the borrowings and are considered to be highly effective. The amount, maturity and
interest terms of the PP notes are as shown below:
Tranche
7 year
7 year
9 year
10 year
10 year
10 year
12 year
Maturity date
Amount
Interest terms
Swap interest
16 December 2017
16 December 2017
16 December 2019
16 December 2022
16 December 2022
16 December 2022
16 December 2024
US$48.0m
US$48.0m
£40.0m
US$76.0m
US$77.0m
£25.0m
£30.0m
US$ fixed at 3.39%
US$ fixed at 3.39%
£ fixed at 4.38%
US$ fixed at 3.85%
US$ fixed at 3.85%
£ fixed at 3.87%
£ fixed at 4.04%
£ fixed at 3.88%
£ LIBOR + 1.26%
n/a
£ fixed at 4.05%
£ fixed at 4.02%
n/a
n/a
The weighted average interest rates paid during the year on the overdrafts and loans outstanding were as follows:
Overdrafts
Bank loans
Private placement notes
2016
%
2.1
1.3
3.8
2015
%
2.7
1.5
3.8
At 31 March 2016, the group had available £259.4m (2015: £261.1m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The facilities have an expiry date of July 2019. The loans carry interest rates
which are currently determined at 1.0% over LIBOR. Details of the group’s contingent liabilities are provided in Note 34.
B27.
BFinancial instruments
Classification
The group’s principal financial assets are cash and cash equivalents, trade receivables and financing assets. 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, financing liabilities and deferred contingent consideration. With the
exception of derivative financial instruments, private placement notes and deferred contingent consideration, all financial
liabilities are held at amortised cost.
Derivative financial instruments and private placement loan notes are measured initially at fair value at the date the contract
is entered into and are subsequently remeasured to their fair value through profit or loss unless they are designated as hedges
for which hedge accounting can be applied. Deferred contingent consideration is measured at the Directors’ best estimate of
the likely future obligation.
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.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B 27.
BFinancial instruments continued
Risk management objectives
The group’s treasury function 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 not to 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. Having issued US$249.0m and £95.0m of notes in the US PP fixed rate market, the group has swapped
US$48.0m into floating rate debt.
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. For floating rate liabilities, the analysis is prepared assuming the amount of liability
outstanding at the balance sheet date was outstanding for the whole year. All financial liabilities, other than financing liabilities,
are interest free.
If 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 2016 and reserves would decrease/increase by £0.4m (2015: £0.3m).
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 in Europe. The group considers the need to hedge its exposures appropriately 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 2016 £5.0m (2015: £5.5m) of cash and cash equivalents were held in foreign currencies. Included in bank loans
were £13.6m (2015: £13.9m) 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 facilities, which allow for appropriate headroom in the group’s
daily cash movements, are then arranged. Details of our bank facilities can be found in Note 26.
The tables below summarise the maturity profile (including both undiscounted interest and principal cash flows) of the group’s
financial liabilities:
Financial liabilities at 31 March 2016
Trade creditors
Financing liabilities
Deferred contingent consideration
Financial liabilities
Within
one year
£m
206.8
28.5
0.4
235.7
In the
second
to fifth
years
£m
–
140.6
–
140.6
After
five years
£m
–
170.8
–
170.8
Total
£m
206.8
339.9
0.4
547.1
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B27.
BFinancial instruments continued
Financial liabilities at 31 March 2015
Trade creditors
Financing liabilities
Put options on non-controlling interests
Deferred contingent consideration
Financial liabilities
Within
one year
£m
198.7
26.3
–
4.9
229.9
In the
second
to fifth
years
£m
–
143.5
11.0
6.5
161.0
After
five years
£m
–
172.9
–
–
172.9
Total
£m
198.7
342.7
11.0
11.4
563.8
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 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 allowances for doubtful
receivables.
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 allowance
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 30 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, the group bought back 5.2m (2015: nil) shares at a cost of £15.2m (2015: £nil) and
subsequently cancelled these shares. To offset shares issued under various share schemes and to hedge against shares to be
issued in the future, 2.3m (2015: 3.7m) shares were bought to be held in Treasury at a total cost of £6.6m (2015: £10.7m).
Further details are provided in Notes 31 and 32.
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. Bi-annual fixed interest
cash flows arising over the periods to December 2022 and denominated in US$ from the US Private Placement market are
exchanged for fixed interest cash flows denominated in sterling. The group also holds a number of forward exchange currency
contracts designated as hedges of highly probable forecast transactions. All cash flow hedges were assessed as being highly
effective as at 31 March 2016.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B27.
BFinancial instruments continued
Fair value hedges
The group holds a number of cross currency interest rate swaps designated as fair value hedges. Fixed interest cash flows
denominated in US$ from the US Private Placement market are exchanged for floating interest cash flows denominated in
sterling. All fair value hedges were assessed as being highly effective as at 31 March 2016.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2016 was a borrowing of €9.5m (2015: €9.5m) which has been designated as a hedge of
the net investment in the Republic of Ireland business of Dalkia FM in Ireland 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:
Cross currency interest rate swaps designated as cash flow hedges
Cross currency interest rate swaps designated as fair value hedges
Derivative financial instruments hedging private placement notes
Assets
2016
£m
10.3
4.1
14.4
Assets
2015
£m
Liabilities
2016
£m
Liabilities
2015
£m
3.7
3.1
6.8
–
–
–
–
–
–
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.
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 and that deferred contingent consideration
falls into Level 3.
Deferred contingent consideration is measured at the Directors’ best estimate of the likely future obligation based on the
attainment of certain profit targets. In assessing the likely future obligation, the Directors have used their experience and
knowledge of market conditions, alongside internal business plans and growth forecasts. Actual amounts payable may
vary up to a maximum of £0.4m (2015: £11.4m) dependent upon the results of the acquired businesses.
The following table shows the reconciliation from the opening to closing balances for Level 3 fair values:
At 1 April 2015
Movement of put options recognised in equity
Other amounts recognised through equity arising from transactions from non-controlling interests
At 31 March 2016
There were no transfers between levels during the year. All contracts are gross settled.
Deferred
contingent
consideration
£m
Put options
of non-
controlling
interests
£m
11.4
–
(11.0)
0.4
8.0
(8.0)
–
–
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B28. 8
BProvisions
At 1 April 2015
Amounts recognised in the income statement
Amounts recognised through goodwill
Utilised within the captive insurance subsidiary
Deferred contingent consideration settled in cash during the period
Amounts recognised through equity
At 31 March 2016
Included in current liabilities
Included in non-current liabilities
Deferred
contingent
consideration
£m
Insurance
reserve
£m
11.4
0.9
0.1
–
(9.3)
(1.8)
0.4
–
(0.4)
–
–
0.5
Total
£m
12.3
0.1
(0.4)
(9.3)
(1.8)
0.9
0.4
0.5
0.9
The provision for insurance claims represents amounts payable by Mitie Reinsurance Company Limited in respect of
outstanding claims incurred at the balance sheet dates. These amounts will become payable as each year’s claims are settled.
Deferred contingent consideration settled in cash includes £4.7m in respect of the remaining 49% in Creativevents Limited, and
£3.8m in respect of the prior year acquisition of the remaining 49% of Direct Enquiries Holdings Limited (see note 33).
B29. 9
BObligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Less: future finance charges
Present value of lease obligations
Less: Amount due for settlement within 12 months
Amount due for settlement after 12 months
Minimum lease
payments
Present value
of lease payments
2016
£m
2015
£m
2016
£m
2015
£m
2.0
2.3
4.3
(0.3)
4.0
(1.9)
2.1
1.8
2.0
3.8
(0.3)
3.5
(1.8)
1.7
1.9
2.1
4.0
–
4.0
(1.9)
2.1
1.8
1.7
3.5
–
3.5
(1.8)
1.7
The average remaining lease term is 23 months (2015: 17 months). For the year ended 31 March 2016, the average effective
borrowing rate was 4.1% (2015: 4.5%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and
no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling.
The fair value of the group’s lease obligations approximates their carrying amount. The group’s obligations under finance
leases are protected by the lessors’ rights over the leased assets.
B30. 9
BAnalysis of net debt
Cash and cash equivalents (Note 24)
Bank loans (Note 26)
Private placement notes (Note 26)
Derivative financial instruments hedging private placement notes (Note 27)
Net debt before obligations under finance leases
Obligations under finance leases (Note 29)
Net debt
2016
£m
93.1
(13.6)
(268.2)
14.4
(174.3)
(4.0)
(178.3)
2015
£m
96.4
(13.9)
(263.6)
6.8
(174.3)
(3.5)
(177.8)
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9
9
0
1
9
2
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B31.
BShare capital
Ordinary shares of 2.5p
Allotted and fully paid
At 1 April 2015
Share buybacks
Issued under share option schemes
At 31 March 2016
At 1 April 2014
Issued under share option schemes
At 31 March 2015
Number
million
375.2
(5.2)
2.1
372.1
373.5
1.7
375.2
£m
9.4
(0.1)
–
9.3
9.3
0.1
9.4
During the year 5.2m (2015: nil) Ordinary shares of 2.5p were purchased at a cost of £15.2m (2015: £nil) and subsequently
cancelled.
During the year 2.1 m (2015: 1.7m) Ordinary shares of 2.5p were allotted in respect of share option schemes at a price between
162p and 318.6p (2015: 127p and 260p) giving rise to share premium of £5.1m (2015: £3.7m).
B32. 9
BReserves
Share premium account
The share premium account represents the premium arising on the issue of equity shares (see Note 31).
Merger reserve
The merger reserve represents amounts relating to premiums arising on shares issued subject to the provisions of Section 612
of the Companies Act 2006.
Share-based payment reserve
The share-based payment reserve represents credits relating to equity-settled share-based payment transactions that have
not yet fully vested (see Note 36).
Own shares reserve
The group uses shares held in the Employee Benefit Trust and SIP Trust to satisfy options under the group’s LTIP and SIP
share option schemes respectively. During the year 2.3m (2015: 3.7m) Treasury shares were purchased at a cost of £6.6m
(2015: £10.7m) and are held so that they can be reissued at a later date if required (see details of Capital management risk
in Note 27). In addition, 1.3m shares were utilised out of Treasury shares in the year (2015: nil) at a cost of £3.8m (2015: nil).
The own shares reserve at 31 March 2016 represents the cost of 17.7m (2015: 17.5m) shares in Mitie Group plc, with a weighted
average of 18.8m (2015: 15.1m) shares during the year.
Other reserves
Other reserves are comprised of the revaluation reserve of £(0.2)m (2015: £(0.2)m), the capital redemption reserve of £0.5m
(2015: £0.5m) and other reserves of £0.2m (2015: £0.1m).
Hedging and translation reserve
The hedging and translation reserve of £4.6m (2015: £6.4m) includes balances in respect of the group’s cash flow hedges
(see Note 27) of £2.7m (2015: £5.0m). The net cash flow hedge movement during the year of £(2.3)m (2015: £(1.2)m) is included
within Other comprehensive income. The hedging and translation reserve also includes balances arising on translation of the
group’s overseas operations and in respect of net investment hedges.
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5
9
6
7
B33. 9
BAcquisitions
During the year a net cash outflow of £8.0m arose on the acquisitions set out below:
Procius Limited
Source Eight Limited
Direct Enquiries Holdings Limited
Creativevents Limited
Mitie Property Services (UK) Limited
Tascor Medical Services Limited
Other
Net cash outflow on acquisitions
£m
0.3
0.6
3.8
4.7
(1.1)
–
(0.3)
8.0
Current year acquisitions
Entities acquired during the year contributed £2.1m to revenue and £0.1m to the group’s operating profit before other items for
the period. If the acquisitions had taken place at the start of the period, the group’s revenue and operating profit before other
items would have been approximately £2,244m and £130m respectively.
The acquisitions enhanced our overall offering to clients. The goodwill arising on the acquisitions is attributable to the
underlying profitability of the companies in the acquired group, expected profitability arising from new business and the
anticipated future operating synergies arising from assimilation into Mitie. None of the goodwill recognised is expected to be
deductible for income tax purposes.
Purchase of Tascor Medical Services Limited
On 29 January 2016, Mitie acquired the leading UK custodial medical services provider for a total consideration of £0.6m
(£nil on a cash free basis), giving rise to goodwill of £0.7m. The transaction has been accounted for by the acquisition method
of accounting in accordance with IFRS 3 (2008) and is not material to the group.
Purchase of non-controlling interests
During the year Mitie purchased 49% of the share capital of Creativevents Limited for a cash consideration of £4.7m of which
was paid in the year.
During 2016, Mitie reduced its original business valuation of the acquisition of Mitie Property Services (UK) Limited in 2013
which resulted in a net cash inflow of £1.1m.
Prior year acquisitions
The provisional acquisition accounting for prior year acquisitions as disclosed in the 2015 Annual Report and Accounts was
reviewed during the period resulting in a reduction of the fair value of net assets acquired of £0.1m and an increase of goodwill
of £0.1m. These adjustments comprise an adjustment to estimates made at the end of the prior year and within a year from
the date of acquisition in line with the requirements of IFRS 3 ‘Business Combinations’. The adjustments have not materially
changed the net assets of the group and therefore the 2015 comparative information has not been restated.
B34. 1
BContingent 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. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in
aggregate, will have a material adverse effect on the group’s financial position, other than as provided for in the accounts.
Deferred contingent consideration relating to acquisitions has been accrued at the Directors’ best estimate of the likely future
obligation of £0.4m (2015: £11.4m) per Note 28. This is the maximum amount payable subject to certain targets being attained.
In addition, the group and its subsidiaries have provided guarantees and indemnities in respect of performance, issued by
financial institutions on its behalf, amounting to £23.6m (2015: £28.9m) in the ordinary course of business. These are not
expected to result in any material financial loss.
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8
9
1
0
4
0
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B35. 1
BOperating lease arrangements
The group as lessee
Minimum lease payments under operating leases recognised in income for the year
2016
£m
27.4
2015
£m
25.8
At the balance sheet date, the group had total outstanding aggregate commitments for future minimum lease payments
under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2016
£m
19.7
30.5
5.4
55.6
2015
£m
15.0
21.8
2.7
39.5
Operating lease payments represent rentals payable by the group for certain of its office properties and hire of vehicles and
other equipment. These leases have average durations ranging from three to ten years. No arrangements have been entered
into for contingent rental payments.
B36. 1
BShare-based payments
The Company has six equity-settled share option schemes:
Discretionary share plans:
The Mitie Group plc Long Term Incentive Plan (LTIP)
The LTIP was introduced in 2007. The awards of shares or rights to acquire shares (the awards) are offered to a small number
of key senior management. Where offered as options the exercise price is £nil. The vesting period is three years, although for
awards granted in 2015 and subsequently some are subject to a holding period of up to a further two years. If the awards
remain unexercised after a period of twelve months from the date of vesting the awards expire. The awards may be forfeited
if the employee leaves the group. Before the awards can be exercised, performance conditions must be satisfied which are
based on movements in a range of market and non-market measures over a three year period.
The group also awards performance-related bonuses for Executive Directors which are deferred in shares and are accounted
for as a share-based payment charge.
The Mitie Group plc 2001 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the average market value of the shares over the five day period
immediately preceding the date of grant. The vesting period is three years. If the options remain unexercised after a period of
ten years from the date of grant the options expire. Options may be forfeited if the employee leaves the group. Before options
can be exercised, a performance condition must be satisfied; the performance condition is linked to the percentage growth in
earnings per share over a three year period.
The Mitie Group plc 2011 Executive share option scheme (ESO)
The Executive share option scheme exercise price is equal to the average market value of the shares on the business day
preceding grant or, if the Committee decides, the average market value of shares over a number of preceding business days
(not to exceed 20). The vesting period is three years. If the options remain unexercised after a period of ten years from the
date of grant the options expire. Options may be forfeited if the employee leaves the group. Before options can be exercised,
a performance condition must be satisfied; the performance condition is linked to the percentage growth in earnings per share
over a three year period.
The Conditional share plan (CSP)
The CSP was introduced in 2014 and is a discretionary scheme. The awards of shares or the rights to acquire shares
(the award) are offered to a small number of key senior management. Where offered as options the exercise price is £nil.
The vesting period is determined at the discretion of the Remuneration Committee and is generally two or three years. If the
awards remain unexercised after a period of ten years from the date of grant the awards expire. The awards may be forfeited
if the employee leaves the group.
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0
6
0
7
1
0
8
0
9
B36. 1
BShare-based payments continued
Non-discretionary share plans:
The Mitie Group plc 2011 SAYE scheme
The SAYE scheme is open to all employees. The exercise price is not less than 80% of the market value of the shares
determined using either: the share price preceding the date on which invitations to participate in the scheme are issued, or
an average share price over five days preceding the invitation date. The vesting period is three years. If the options remain
unexercised after a period of six months from the date of vesting, the options expire. Options may be forfeited if the employee
leaves the group.
The Share Incentive Plan (SIP)
The SIP was introduced in 2011 and is a non-discretionary scheme open to all eligible UK resident employees. Under the
scheme, eligible employees are invited to invest in Partnership Shares which are purchased in the market on their behalf and
held in a separate UK trust. One Matching Share is awarded for every ten Partnership Shares purchased and has a holding
period of three years. Matching Shares are funded by way of market purchases.
Details of the share options outstanding during the year are as follows:
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
2016
Weighted
average
exercise
price
(p)
Number of
share
options
(million)
2015
Weighted
average
exercise
price
(p)
Number of
share
options
(million)
22.1
8.1
(4.6)
(4.2)
21.4
157
170
130
192
162
20.3
8.4
(4.8)
(1.8)
22.1
138
167
77
203
157
Exercisable at the end of the year
2.2
216
2.4
220
The group recognised the following expenses related to share-based payments:
Discretionary share plans
Non-discretionary share plans
2016
£m
4.0
1.2
5.2
2015
£m
5.4
1.1
6.5
The weighted average share price at the date of exercise for share options exercised during the year was 313p (2015: 310p).
The options outstanding at 31 March 2016 had exercise prices (other than nil in the case of the LTIP, the CSP and the SIP)
ranging from 191p – 319p (2015: 162p – 318p) and a weighted average remaining contractual life of 3.8 years (2015: 4.0 years).
In the year ended 31 March 2016, options were granted in May and August in respect of the SAYE, LTIP and ESO schemes.
The aggregate of the estimated fair values of the options granted on those dates was £8.5m. In the year ended 31 March
2015, options were granted in May, June, July and November 2014 and January 2015 in respect of the SAYE, LTIP and ESO
schemes. The aggregate of the estimated fair values of the options granted on those dates was £6.9m.
The fair value of options is measured by use of the Black-Scholes and Monte Carlo models.
The inputs into the Black-Scholes model are as follows:
Share price (p)
Exercise price (p)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
2016
2015
251 – 318
0 – 319
25 – 30
3 – 5
0.13 – 1.1
3.5 – 4.1
219 – 313
0 – 319
30 – 32
3 – 5
0.55 – 1.48
3.5 – 4.1
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For the year ended 31 March 2016
B36. 1
BShare-based payments continued
The inputs into the Monte Carlo model are as follows:
Share price (p)
Average correlation with TSR benchmark (%)
Expected volatility (%)
Expected life (years)
Risk-free rate (%)
Expected dividends (%)
2016
2015
251 – 319
26 – 32
18 – 24
3
0.64 – 1.29
3.5 – 4.1
251 – 319
29 – 32
21 – 24
3
0.64 – 1.29
3.5 – 4.1
Expected volatility was based upon the historical volatility over the expected life of the schemes. The expected life is based
upon historical data and has been adjusted based on management’s best estimates for the effects of non-transferability,
exercise restrictions and behavioural considerations.
B37.
BRetirement benefit schemes
The group has a number of pension arrangements for employees:
a) Defined contribution schemes for the majority of our employees; and
b) 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 the 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 assets invested in do not perform
in line with expectations) are borne by the employee.
The contributions are recognised as 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 £13.3m (2015: £10.7m) and
contributions to the auto-enrolment scheme of £4.1m (2015: £4.1m), 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 scheme closed to new members in 2006, with new employees able to join one of the defined contribution schemes.
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 trust 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.
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0
9
1
1
2
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1
3
B37.
BRetirement benefit schemes continued
The nature of the relationship between the group and the Trustee is also governed by local 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 2014.
The scheme 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 Trustees 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 government or local 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.
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 2014.
The group made a total contribution to the Group scheme of £2.5m during the year (2015: £2.8m). The group expects to make
contributions of around £2.5m to the Group scheme in the coming year. Employees’ contribution to the cost of the scheme
(7.5% of pensionable salaries) is generally paid through a ‘salary sacrifice’ arrangement.
The group made contributions to the Other schemes of £0.4m in the year (2015: £0.4m). The group expects to make
contributions of around £0.4m to the Other schemes in the coming year.
Details of latest funding valuation
Date of last formal funding valuation
Assets at valuation date
Funding liabilities at valuation date
Deficit at valuation date
Contribution rate agreed to meet the cost of benefits accruing, including related expenses
Employer contribution rate (including expenses)
Employee contribution rate
Group scheme
31 March 2014
£143.6 million
£149.6 million
£6.0 million
22.3% of pensionable salary
14.8% of pensionable salary
7.5% of pensionable salary
To eliminate the funding deficit the Trustee and the group have agreed that additional contributions (i.e. over and above those
required to cover benefits being accrued) will be paid into the scheme of £11.1m by 31 March 2024 (or if less, the deficit at that
time). The group has provided security for this liability by a UK clearing bank letter of credit building up to that value to 2024.
Under this recovery plan, if the assumptions made are borne out in practice, the deficit will be eliminated by 31 March 2024.
Group scheme details
The following table sets out details of the membership of the Group scheme:
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For the year ended 31 March 2016
B37.
BRetirement benefit schemes continued
Scheme details at last valuation date
Active members – by number
Active members – by proportion of funding liability
Total pensionable salary roll pa
Deferred members – by number
Deferred members – by proportion of funding liability
Total deferred pensions pa (at date of leaving scheme)
Pensioner members – by number
Pensioner members – by proportion of funding liability
Total pensions in payment pa
Group scheme
349
34%
£16.9m
1,195
47%
£3.6m
515
19%
£1.9m
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
Key assumptions used for IAS 19 valuation:
Discount rate
Expected rate of pensionable pay increases
Retail price inflation
Consumer price inflation
Future pension increases
Post retirement life expectancy:
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 65 – male
Future pensioners at 65 – female
Group scheme Other schemes (restated)
2016
%
2015
%
2016
%
2015
%
3.60
1.70
3.10
2.10
3.10
3.40
1.65
3.05
2.05
3.05
3.60
3.10
3.10
2.10
3.10
3.40
3.05
3.05
2.05
3.05
Group scheme
2016
Years
2015
Years
88.0
89.0
89.0
91.0
88.0
89.0
89.0
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.
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B37.
BRetirement benefit schemes continued
Amounts recognised in financial statements
The table below outlines where the group’s post-employment amounts are included in the financial statements.
Current service cost
Total administration expense
Amounts recognised in operating profit
Net interest cost
Amounts recognised in profit before tax
Group
scheme
£m
Other
schemes
£m
(3.6)
(0.5)
(4.1)
(1.2)
(5.3)
(0.3)
–
(0.3)
–
(0.3)
2016
Total
£m
(3.9)
(0.5)
(4.4)
(1.2)
(5.6)
Group
scheme
£m
Other
schemes
£m
(3.2)
(0.5)
(3.7)
(0.7)
(4.4)
(0.3)
–
(0.3)
–
(0.3)
Amounts recognised in the consolidated statement of comprehensive income are as follows:
Group
scheme
£m
Other
schemes
£m
2016
Total
£m
Group
scheme
£m
Other
schemes
£m
2015
Total
£m
(3.5)
(0.5)
(4.0)
(0.7)
(4.7)
2015
Total
£m
Actuarial (losses)/gains due to changes in
financial assumptions
Actuarial gains/(losses) due to changes in
demographic assumptions
Actuarial gains/(losses) due to liability experience
Return on scheme assets, excluding interest income
Contract transfers
6.3
0.4
6.7
(31.7)
(1.5)
(33.2)
–
3.1
(6.2)
–
3.2
–
–
(0.6)
–
(0.2)
–
3.1
(6.8)
–
3.0
1.4
1.2
13.0
–
(16.1)
(0.1)
(0.1)
0.6
2.2
1.1
1.3
1.1
13.6
2.2
(15.0)
The amounts included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement
benefit schemes are as follows:
Fair value of scheme assets
Present value of defined benefit obligations
Net pension liability
All figures above are shown before deferred tax.
Group
scheme
£m
156.9
(191.3)
(34.4)
Other
schemes
£m
9.5
(10.6)
(1.1)
2016
Total
£m
166.4
(201.9)
(35.5)
Group
scheme
£m
Other
schemes
£m
162.2
(197.1)
(34.9)
9.5
(10.4)
(0.9)
2015
Total
£m
171.7
(207.5)
(35.8)
Reconciliation of group balance sheet
The movement in the net defined benefit obligation in the year in respect of both the Group and Other schemes is as follows:
Group
scheme
£m
Other
schemes
£m
At 1 April
Current service cost
Interest cost
Contributions from scheme members
Actuarial losses/(gains) on liabilities arising
from changes in financial assumptions
Actuarial (gains)/losses liabilities arising from experience
Actuarial (gains)/losses on liabilities arising
from demographic assumptions
Benefits paid
Contract transfers
At 31 March
197.1
3.6
6.6
0.1
(6.3)
(3.1)
–
(6.7)
–
191.3
10.4
0.3
0.4
0.1
(0.4)
–
–
(0.2)
–
10.6
2016
Total
£m
207.5
3.9
7.0
0.2
(6.7)
(3.1)
–
(6.9)
–
201.9
Group
scheme
£m
Other
schemes
£m
160.8
3.2
7.1
0.1
31.8
(1.2)
(1.4)
(3.3)
–
197.1
18.3
0.3
0.4
0.1
1.5
0.1
0.1
(0.2)
(10.2)
10.4
2015
Total
£m
179.1
3.5
7.5
0.2
33.3
(1.1)
(1.3)
(3.5)
(10.2)
207.5
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For the year ended 31 March 2016
B37.
BRetirement benefit schemes continued
The defined benefit obligation of the Group scheme is analysed by participant status below:
Active
Deferred
Pensioners
At 31 March
Movements in the fair value of scheme assets were as follows:
2016
Total
£m
171.7
5.7
(6.8)
2.9
0.2
(0.4)
(6.9)
–
166.4
2015
£m
162.2
(197.1)
(34.9)
1.2
(0.6)%
13.0
8.0%
2015
£m
9.5
(10.4)
(0.9)
(0.1)
0.9%
0.8
8.4%
Group
scheme
£m
Other
schemes
£m
9.5
0.3
(0.6)
0.4
0.1
–
(0.2)
–
9.5
2016
£m
156.9
(191.3)
(34.4)
3.1
(1.6)%
(6.2)
(3.2)%
2016
£m
9.5
(10.6)
(1.1)
–
–
(0.6)
(6.1)%
At 1 April
Interest income
Actuarial gains and losses
Contributions from the sponsoring companies
Contributions from scheme members
Expenses paid
Benefits paid
Contract transfers
At 31 March
The history of experience adjustments is as follows:
162.2
5.4
(6.2)
2.5
0.1
(0.4)
(6.7)
–
156.9
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in the scheme
Experience adjustments on scheme liabilities
Percentage of scheme liabilities
Experience adjustments on scheme assets
Percentage of scheme assets
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in the scheme
Experience adjustments on scheme liabilities
Percentage of scheme liabilities
Experience adjustments on scheme assets
Percentage of scheme assets
148
2016
£m
62.2
78.4
50.7
191.3
Group
scheme
£m
Other
schemes
£m
16.2
0.4
0.6
0.4
0.1
–
(0.2)
(8.0)
9.5
2015
£m
62.8
86.1
48.2
197.1
2015
Total
£m
160.0
6.8
13.6
3.1
0.2
(0.5)
(3.5)
(8.0)
171.7
143.8
6.4
13.0
2.7
0.1
(0.5)
(3.3)
–
162.2
2014
£m
143.8
(160.8)
(17.0)
0.1
(0.1)%
3.6
2.5%
2014
£m
16.2
(18.3)
(2.1)
0.3
(1.8)%
(0.3)
(1.9)%
Group scheme
2013
£m
134.0
(163.7)
(29.7)
0.1
(0.1)%
3.9
2.9%
2012
£m
120.7
(137.9)
(17.2)
(5.3)
3.9%
(4.3)
(3.6)%
Other schemes
2013
£m
7.9
(8.1)
(0.2)
2012
£m
10.7
(10.8)
(0.1)
0.2
(2.8)%
0.2
(2.0)%
0.5
6.1%
0.2
1.6%
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B37.
BRetirement benefit schemes continued
Asset categories
Equities
Government bonds
Corporate bonds
Property
Diversified growth fund
Cash
Total fair value of assets
31 March 2016
31 March 2015
Group
56.9
22.3
19.2
17.0
40.2
1.3
156.9
Other
6.0
1.4
0.7
0.8
–
0.6
9.5
Total
62.9
23.7
19.9
17.8
40.2
1.9
166.4
Group
61.1
22.8
19.2
17.5
41.3
0.3
162.2
Other
6.1
1.0
1.0
0.8
–
0.6
9.5
Total
67.2
23.8
20.2
18.3
41.3
0.9
171.7
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 73% (2015: 74%) of the assets are held in equities, property and pooled investment vehicles which seek a higher
expected level of return over the long term.
£7m (2015: £7m) of the property assets represent freehold property, the rest are quoted property investments.
The sensitivity of the defined benefit obligation for the Group scheme to changes in the principal assumptions is shown in the
table below:
Sensitivity of defined benefit obligation to key assumptions
Discount rate
RPI inflation*
CPI inflation (excluding pay)
Pay increases
Life expectancy
Change in
assumption
Impact on defined benefit obligation
Increase in
assumption Decrease in assumption
0.1%
0.1%
0.1%
0.1%
1 year
Decrease by 2.0%
Increase by 1.6%
Increase by 0.4%
Increase by 0.4%
Increase by 3.4%
Increase by 2.0%
Decrease by 1.5%
Decrease by 0.4%
Decrease by 0.3%
–
* Including other inflation-linked assumptions (CPI inflation, pension increases, 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 20 years for the Group scheme.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B37.
BRetirement benefit schemes continued
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 (73%) 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.
The group believes that equities and DGFs offer the best returns over the long term with an acceptable level of
risk and hence holds a significant proportion of these types of asset. However, the schemes’ assets are well-
diversified by investing in a range of asset classes, including property, government bonds and corporate bonds.
The Group scheme holds 26% 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 liabilities. 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 liabilities. 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 schemes’ obligations are to provide a pension for the life of the member, so unexpected
increases in life expectancy will result in an increase in the liabilities.
Areas of risk management
Although investment decisions in the scheme are the responsibility of the Trustee, the group takes an active interest to ensure
that pension plan risks are managed efficiently. The group and Trustee have agreed a long-term strategy for reducing
investment risk where appropriate.
Certain benefits payable on death before retirement are insured.
B38. 1
BRelated 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 £0.8m (2015: £0.3m) of revenue from contracts with joint ventures and associated
undertakings. At 31 March 2016 trade and other receivables of £nil (2015: £nil) were outstanding and loans to joint ventures
and associates of £nil (2015: £1.1m) were included in Financing assets.
Mitie Group plc has a related party relationship with the Mitie Foundation, a charitable company, as R McGregor-Smith and
S C Baxter are two of the trustees of the Foundation. During the year, the group made donations of £79,000 (2015: £25,000)
and gifts in kind of £267,000 (2015: £277,000) to the Foundation. At the end of the year £nil (2015: £23,000) was due to the
Foundation and the Foundation had £nil (2015: £11,000) held within creditors as an amount accrued 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 are the Directors and Non-Executive Directors whose remuneration is disclosed in the
audited section of the Directors’ remuneration report. The share-based payment charge for key management personnel was
£0.7m (2015: £1.6m).
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B39. 1
BNotes to the consolidated statement of cash flows
Cash conversion
Operating profit
Depreciation
Amortisation
Earnings before interest, tax, depreciation and
amortisation (EBITDA)
Before
other items
£m
Other items
£m
128.9
15.1
8.6
(16.4)
–
16.1
2016
Total
£m
112.5
15.1
24.7
Before
other items
£m
Other items
£m
128.6
19.7
3.7
(72.6)
–
10.1
2015
Total
£m
56.0
19.7
13.8
152.6
(0.3)
152.3
152.0
(62.5)
89.5
Cash generated by operations
116.1
(1.5)
114.6
144.6
(31.4)
113.2
Cash conversion1
76.1%
75.2%
95.1%
126.5%
Free cash flow
Cash generated by operations
Purchase of property, plant and equipment
Purchase of other intangible assets
Disposals of property, plant and equipment
Income taxes paid
Interest paid (including facility extension fees)
Free cash flow
Note:
114.6
(15.7)
(8.9)
2.2
(15.7)
(13.4)
63.1
113.2
(23.0)
(3.9)
1.8
(15.5)
(15.1)
57.5
1. Cash conversion is calculated as cash generated by operations as a percentage of EBITDA
B40. 1
BSubsidiaries
The companies set out below are those which were part of the group at 31 March 2016.
Company
Abbey Home Care Agency Limited
Angels Care Services Limited
At Home Community Care Limited
Blythswood Decorators Limited
Care & Custody (Health) Limited
Care Connect Homecare Services Limited
Caretime Services Limited
Cole Motors Limited
Com:pact Community Services Holdings Limited
Com:Pact Community Services Limited
Complete Care Holdings Limited
Complete Care Services Wiltshire Ltd
Countryview Homecare Services Limited
County Care Home Care Services Limited
Creativevents Limited
Croft Community Services Ltd
DCSL Corporate Services Limited
Delight Care Limited
Direct Enquiries Holdings Limited
Enara Finance Limited
Enara Group Limited
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Nigeria
United Kingdom
United Kingdom
United Kingdom
United Kingdom
At 31 March 2016
% Voting rights and
ownership interest
At 31 March 2016
% Nominal
value owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
151
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1
3
0
3
1
1
3
2
3
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B40. 1
BSubsidiaries
The companies set out below are those which were part of the group at 31 March 2016.
Company
Environmental Property Services Holdings Limited
Environmental Property Services Limited
EPS Group Limited
Extracare Limited
First Choice Community Support Services Limited
First Class Recruitment Limited
Formcomplete Limited
Freedom Socialcare Limited
Freedom Socialcare Recruitment Ltd
Heart to Heart Care Limited
Home Comforts (South) Limited
Home Comforts Care Swansea Limited
Jabez Holdings Limited
Keratome Limited
MiHomecare Limited
Mitie Air Conditioning (Scotland) Limited
Mitie Aviation Security Limited
Mitie Belgium BVBA
Mitie Belgium Security BVBA
Mitie Built Environment Limited
Mitie Business Services Limited
Mitie Business Services UK Limited
Mitie Care and Custody Limited
Mitie Catering Services Limited
Mitie Cleaning & Environmental Services Limited
Mitie Cleaning Services Limited
Mitie Client Services Limited
Mitie Company Secretarial Services Limited
Mitie Compliance Ltd
Mitie Deutschland GmbH
Mitie Document Solutions Limited
Mitie Energy Limited
Mitie Engineering Limited
Mitie Engineering Projects Limited
Mitie Engineering Services (Bristol) Limited
Mitie Engineering Services (Edinburgh) Limited
Mitie Engineering Services (Guernsey) Limited
Mitie Engineering Services (Jersey) Limited
Mitie Engineering Services (Leeds) Limited
Mitie Engineering Services (Liverpool) Limited
Mitie Engineering Services (London) Limited
Mitie Engineering Services (Midlands) Limited
Mitie Engineering Services (Northern Region) Limited
Mitie Engineering Services (Retail) Limited
Mitie Engineering Services (Scotland) Limited
Mitie Engineering Services (South West) Limited
Mitie Engineering Services (SW Region) Limited
Mitie Engineering Services (Swansea) Limited
Mitie Engineering Services (Wales) Limited
Mitie Engineering Services Limited
Mitie Environmental Limited
152
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Belgium
Belgium
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Guernsey
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
At 31 March 2016
% Voting rights and
ownership interest
At 31 March 2016
% Nominal
value owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
72.4%
65.7%
80.3%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.5%
99.5%
99.3%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Mitie Group plc | Annual Report and Accounts 2016
1
3
2
3
3
B40. 1
BSubsidiaries continued
Company
Mitie España, S.L.
Mitie Events & Leisure Services Limited
Mitie Facilities Management Limited
Mitie Facilities Services Limited
Mitie France SAS
Mitie Greencote Limited
Mitie Group Pension Scheme Trustee Company Limited
Mitie Holdings Limited
Mitie Infrastructure Limited
Mitie Integrated Facilities Management Limited
Mitie Interiors Limited
Mitie International Limited
Mitie Investments Limited
Mitie Justice Limited
Mitie Landscape (Northern) Limited
Mitie Landscape (Southern) Limited
Mitie Landscapes Limited
Mitie Lighting Limited
Mitie Limited
Mitie Local Services Limited
Mitie Managed Services (South West and Wales) Limited
Mitie Managed Services (Southern) Limited
Mitie Managed Services Limited
Mitie McCartney Fire Protection Limited
Mitie Nederland B.V.
Mitie Norge Aksjeselskap
Mitie Payroll Services Limited
Mitie Pest Control (London) Limited
Mitie Pest Control Limited
Mitie PFI Limited
Mitie Polska Sp. z o.o.
Mitie Property Management Limited
Mitie Property Services (Eastern) Limited
Mitie Property Services (UK) Limited
Mitie Property Services Limited
Mitie Property Solutions Limited
Mitie Reinsurance Company Limited
Mitie Resources Limited
Mitie Schweiz GmbH
Mitie Scotgate Limited
Mitie Security (London) Limited
Mitie Security (North) Limited
Mitie Security Holdings Limited
Mitie Security Limited
Mitie Security Systems Limited
Mitie Services (Retail) Limited
Country of
incorporation
Spain
United Kingdom
Ireland
United Kingdom
France
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Netherlands
Norway
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Poland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Guernsey
United Kingdom
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
At 31 March 2016
% Voting rights and
ownership interest
At 31 March 2016
% Nominal
value owned
100%
74.8%
93.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
83.2%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.6%
99.4%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.7%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
153
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1
3
2
3
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2016
B40. 1
BSubsidiaries continued
Company
Mitie Shared Services Limited
Mitie Suomi Oy
Mitie Sverige AB
Mitie T S 2 Limited
Mitie Technical Facilities Management Holdings Limited
Mitie Technical Facilities Management Limited
Mitie Tilley Roofing Limited
Mitie Transport Services Limited
Mitie Treasury Management Limited
Mitie Trustee Limited
Mitie Waste & Environmental Services Limited
Mitie Work Wise Limited
Nene Investment Group Limited
Parkersell Limited
Pinniger and Partners Limited
Procius Limited
R. McCartney (Painters) Limited
Rise and Shine Care Limited
Robert Prettie & Co Limited
Sanne Secretaries Limited
Service Management International Asia Pacific PTE. Ltd.
Shinedream Limited
Sophisticare Limited
Source Eight Limited
Source8 Africa Limited
Source8 Delivery (Nigeria) Limited
Source8 Services FZLLC
The Care Agency Limited
TLC Care Ltd
Training & Care Solutions Essex Limited
Two Counties Community Care Limited
UK CRBS Limited
Utilyx Asset Management Limited
Utilyx Asset Management Projects Limited
Utilyx Broking Limited
Utilyx Healthcare Energy Services Limited
Utilyx Holdings Limited
Utilyx Limited
Utilyx Risk Management Limited
Village Homecare Services (Wales) Limited
Wealthy Thoughts Limited
Country of
incorporation
United Kingdom
Finland
Sweden
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
Singapore
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Nigeria
United Arab Emirates
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
At 31 March 2016
% Voting rights and
ownership interest
At 31 March 2016
% Nominal
value owned
100%
100%
100%
100%
100%
90.9%
100%
100%
100%
100%
69.8%
77.2%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.9%
100%
100%
100%
100%
99.6%
99.6%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
No subsidiaries have non-controlling interests that are material to the group. Whilst the group has 90.9% voting rights and
ownership interest in Mitie Technical Facilities Management Limited, Mitie is entitled to a threshold amount of profit and net
assets in the recapitalised business, which reduces the non-controlling interests.
The group has a related party relationship with The Mitie Foundation as R McGregor-Smith and S C Baxter, who are directors
of the group, are also trustees of the Foundation.
The group has a 50% interest in its joint venture, Pyramid Plus South LLP, a limited liability partnership registered in the
United Kingdom.
154
Mitie Group plc | Annual Report and Accounts 20161
3
2
3
3
Company balance sheet
At 31 March 2016
Fixed assets
Investments in subsidiary undertakings
Total fixed assets
Current assets
Debtors
Total current assets
Total assets
Creditors: amounts falling due within one year
Total current liabilities
Net current liabilities
Total assets less current liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Merger reserve
Share-based payments reserve
Own shares reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
Notes
43
2016
£m
2015
£m
691.2
691.2
703.7
703.7
44
31.1
31.1
30.5
30.5
722.3
734.2
46
(57.0)
(57.0)
(97.9)
(97.9)
31
(25.9)
(67.4)
665.3
636.3
665.3
636.3
9.3
127.7
80.1
20.6
(48.8)
0.5
475.9
9.4
122.6
80.1
16.7
(47.5)
0.5
454.5
665.3
636.3
The financial statements of Mitie Group plc, company registration number SC019230, were approved by the Board of
Directors and authorised for issue on May 2016. They were signed on its behalf by:
Ruby McGregor-Smith CBE
Chief Executive
Suzanne Baxter
Group Finance Director
155
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Statement of changes in equity
For the year ended 31 March 2016
As at April 2014
Shares issued
Purchase of own shares
Share-based payments
Profit for the year
Reserves transfer
Dividends paid to shareholders
Balance at 31 March 2015
Shares issued
Purchase of own shares
Share-based payments
Profit for the year
Share buybacks
Dividends paid to shareholders
Balance at 31 March 2016
Share
capital
£m
Share
premium
account
£m
9.3
0.1
–
–
–
–
–
9.4
–
–
–
–
(0.1)
–
9.3
118.9
3.7
–
–
–
–
–
122.6
5.1
–
–
–
–
–
127.7
Merger
reserve
£m
101.2
–
–
–
–
(21.1)
–
80.1
–
–
–
–
–
–
80.1
Share–
based
payments
reserve
£m
Own shares
reserve
£m
Other
reserves
£m
Profit
and loss
account
£m
12.6
–
–
4.1
–
–
–
16.7
–
–
3.9
–
–
–
(37.2)
–
(10.7)
0.4
–
–
–
(47.5)
3.8
(6.6)
1.4
–
0.1
–
20.6
(48.8)
0.5
–
–
–
–
–
–
0.5
–
–
–
–
–
–
0.5
270.8
–
–
1.9
201.2
21.1
(40.5)
454.5
–
(0.8)
(0.3)
80.2
(15.3)
(42.4)
475.9
Total
£m
476.1
3.8
(10.7)
6.4
201.2
–
(40.5)
636.3
8.9
(7.4)
5.0
80.2
(15.3)
(42.4)
665.3
As at 31 March 2016, the Company had distributable reserves of £239.2m.
Details of dividends are given in Note 11 of the consolidated financial statements.
156
Mitie Group plc | Annual Report and Accounts 2016
Notes to the Company financial statements
For the year ended 31 March 2016
B41.
BSignificant accounting policies
Basis of accounting
The separate financial statements of the Company are presented as required by company law. They have been prepared
under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards and law.
The Company meets the definition of a qualifying entity under FRS100 (Financial Reporting Standard 100) issued by the
Financial Reporting Council. Accordingly, in the year ended 31 March 2016 the Company has undergone transition from
reporting under UK GAAP to FRS101 as issued by the Financial Reporting Council. The financial statements have therefore
been prepared in accordance with FRS101 ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council.
This transition is not considered to have had a material effect on the financial statements.
As permitted by FRS 101, the company has taken advantage of the disclosure exemptions available under that standard
in relation to share-based payments, financial instruments, presentation of a cash flow statement, impairment of assets,
standards not yet effective, and related party transactions.
Where relevant, equivalent disclosures have been given in the group accounts.
As more fully detailed in the Directors’ report, the Company’s financial statements have been prepared on a going concern basis.
The principal accounting policies are summarised below. They have been applied consistently throughout the year and the
preceding year.
Investments
Fixed asset investments in subsidiaries are shown at cost less any provision for impairment.
Provisions
Provisions are recognised when the Company has a present obligation 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 Company 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 charged to the profit and loss account, 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.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted
or substantively enacted at the balance sheet date.
Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or
a right to pay less tax, at a future date, at rates expected to apply when they crystallise based upon tax rates and legislation
that have been enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of
items of income and expenditure in tax computations in periods different from those in which they are included in the financial
statements. Deferred tax is not provided on timing differences, or on unremitted earnings of subsidiaries and associates where
there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more
likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.
Financial instruments
Trade receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable
amounts are recognised in the profit and loss account where there is objective evidence that the asset is impaired.
Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the
profit and loss account and are added to the carrying amount of the instrument to the extent that they are not settled in the
period in which they arise.
Trade payables are measured at amortised cost.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes a party
to the contractual provisions of the instrument.
157
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3
4
1
3
5
Notes to the Company financial statements continued
For the year ended 31 March 2016
B41.
BSignificant accounting policies continued
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 all grants of share options and awards, the fair value as at the date of grant is
calculated using the Black-Scholes or Monte Carlo models 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.
Options over the Company’s shares awarded to employees of the Company’s subsidiaries are accounted for as a capital
contribution within the carrying value of investments in subsidiary undertakings.
Pensions
The Company participates in a group defined benefit scheme. The pension liability relating to the group scheme is disclosed
in the group’s subsidiary financial statements. There is no contractual agreement or stated policy for charging the net defined
benefit cost. The Company recognises a cost equal to its contribution payable for the period, which is presented within
administrative expenses in the profit and loss account. Note 37 to the consolidated financial statements sets out the details of
the IAS 19 ‘Employee Benefits’ net pension liability of £35.5m (2015: £34.9m).
B42.
BProfit for the year
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss
account for the year. Mitie Group plc reported a profit after taxation for the financial year ended 31 March 2016 of £80.2m
(2015: £201.2m).
The auditor’s remuneration for audit services to the Company was £35,000 (2015: £33,000).
Detailed disclosures of Directors’ remuneration and share options are given in the audited section of the Directors’
remuneration report contained in the consolidated financial statements.
B43. 1
BInvestments in subsidiary undertakings
Shares at cost
At 1 April 2015
Additions
Capital contribution re share-based payments
Disposals
At 31 March 2016
Provision for impairment
At 1 April 2015
At 31 March 2016
Net book value
At 31 March 2016
At 31 March 2015
A listing of principal subsidiaries is given in Note 40.
Disposals in the period relate to the voluntary striking-off of dormant subsidiaries within the group.
158
£m
736.3
0.2
3.9
(16.6)
723.8
32.6
32.6
691.2
703.7
Mitie Group plc | Annual Report and Accounts 2016
1
3
6
1
3
7
1
3
8
1
3
9
1
4
0
4
1
B44. 1
BDebtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Corporation tax
Deferred tax asset (Note 45)
The Directors consider that the carrying amount of debtors approximates their fair value.
B45. 1
BDeferred tax
Deferred tax asset at 1 April 2015
Charge to the profit and loss account
Deferred tax asset at 31 March 2016 (Note 44)
B46. 1
BCreditors: amounts falling due within one year
Overdraft
Trade creditors
Amounts owed to subsidiary undertakings
Other taxes and social security
Accruals and deferred income
Corporation tax
2016
£m
27.5
2.3
0.8
–
0.5
31.1
2015
£m
28.5
0.5
0.8
0.1
0.6
30.5
Share-
based
payment
timing
difference
£m
0.6
(0.1)
0.5
2016
£m
35.3
1.1
9.3
1.1
10.0
0.2
57.0
2015
£m
81.3
–
5.2
0.3
11.1
–
97.9
Amounts owed to subsidiary undertakings are repayable on demand.
The Directors consider that the carrying amount of creditors approximates their fair value.
The Company’s bank overdrafts are part of the group’s banking arrangements and are offset against credit balances within
the group. The Company has adequate liquidity to discharge all current obligations.
For details of group borrowings, see Note 26.
159
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1
4
2
4
3
1
4
4
4
5
1
4
6
4
7
Notes to the Company financial statements continued
For the year ended 31 March 2016
B47.
BContingent liabilities
Details of contingent liabilities have been given in Note 34 of the consolidated financial statements.
B48. 1
BShare-based payments
Equity-settled share option schemes
The Company has seven share option schemes as described in Note 36 of the consolidated financial statements.
The Company recognised an expense of £1.2m (2015: £2.2m) related to the share-based payment charge for discretionary
share option schemes.
The fair value of options is measured by use of the Black-Scholes and Monte Carlo models. The inputs into the Black-Scholes
and Monte Carlo models are as described in Note 36 of the consolidated financial statements.
B49. 1
BRelated parties
The Company makes management charges to all of its subsidiaries, whether they are wholly-owned or otherwise, and
receives dividends from its subsidiaries, according to their ability to remit them. Other details of related party transactions
have been given in Note 38 of the consolidated financial statement.
Under FRS 101 the Company is exempt from disclosing key management personnel compensation and transactions with
other companies wholly owned by Mitie Group plc. Other related party transactions are disclosed below:
Sales to
Purchases from
2016
£m
2015
£m
2016
£m
2015
£m
Subsidiaries
0.4
5.1
–
–
All inter-company balances are unsecured; training balances are payable within 30 days unless both parties agree an
extension, funding balances are repayable on demand.
160
Mitie Group plc | Annual Report and Accounts 2016
1
5
2
1
5
3
1
5
4
5
5
1
5
6
5
7
Shareholder information
Results
2017 Half-yearly results
Dividends
2016 Half-yearly dividend 5.4p paid
2016 Final dividend 6.7p (proposed)
2016 Final ex-dividend date
2016 Final dividend record date
2016 Final dividend payment date
21 November 2016
1 February 2016
–
23 June 2016
24 June 2016
4 August 2016
2016 Final dividend last date for receipt/revocation of DRIP mandate
8 July 2016
2016 Annual General Meeting
2016 Annual General Meeting
Company details
Mitie Group plc
1 Harlequin Office Park
Fieldfare
Emersons Green
Bristol
BS16 7FN
Telephone: 0117 970 8800
Fax: 0117 301 4159
Email: group@mitie.com
Website: www.mitie.com
Registered number: SC019230
12 July 2016
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: 0871 664 0300*
Website: www.mitie-shares.com
* calls cost 12p a minute plus network extras,
lines are open 9.00am – 5.30pm Mon – Fri.
Cautionary Statement
Certain statements contained in this announcement constitute or may constitute ‘forward-looking statements’. In some
cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms
‘believes’, ‘estimates’, ‘projects’, ‘aims’, ‘plans’, ‘predicts’, ‘prepares’, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’ or ‘should’ or, in
each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives,
goals, future events or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements of the group to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements are based on numerous assumptions regarding the group’s present and future business
strategies and the environment in which the group will operate in the future. These forward-looking statements speak only
as at the date of this announcement. Except as required by applicable law, rule or regulation, the group expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in
this announcement to reflect any change in its expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are
beyond the group’s control. Forward-looking statements are not guarantees of future performance. Mitie’s actual results of
operations, financial condition and the development of the business sector in which the group operates may differ
materially from those suggested by the forward-looking statements contained in this document including, but not limited
to, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory authorities, the impact of competition, currency changes, inflation,
deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well
as the impact of tax and other legislation and other regulations in the jurisdictions in which the group and its affiliates
operate. In addition, even if the group’s actual results of operations, financial condition and the development of the business
sector in which the group operates are consistent with the forward-looking statements contained in this document, those
results or developments may not be indicative of results or developments in subsequent periods. The forward-looking
statements contained in this document speak only as of the date of this announcement.
Dividend reinvestment plan (DRIP)
Mitie has set up a dividend reinvestment
plan (DRIP) to enable you to build your
shareholding by using your cash dividends
under a standing election to buy additional
shares in Mitie. If you would like to receive
further information, including details of how
to apply, please call Capita Asset Services
on 020 8639 3402 or contact them by
sending an email to: shares@capita.co.uk.
Mitie online share portal
Mitie has launched a shareholder portal
where shareholders can register and can:
> access information on shareholdings
and movements;
> update address details;
> view dividend payments received and
register bank mandate instructions;
> sell Mitie shares;
> complete an online proxy voting form;
and
> register for e-communications allowing
Mitie to notify shareholders by email
that certain documents are available to
view on its website. This will further
reduce Mitie’s carbon footprint as well
as reduce costs.
If you wish to register, please sign up at
www.mitie-shares.com
Corporate website
This report can be downloaded in PDF
from the Mitie website, which also contains
additional general information about Mitie.
Please visit www.mitie.com
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A huge thank you
To our people, who excel, challenge
and inspire every day, and make
Mitie the business it is today.
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Mitie Group plc
1 Harlequin Office Park,
Fieldfare, Emersons Green
Bristol BS16 7FN,
United Kingdom
T: +44 (0) 117 970 8800
E: group@mitie.com