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7
Beyond FM...
to the Connected
Workspace
Mitie Group plc
Annual Report and Accounts 2017
Strategic report
1
2
4
6
8
10
11
12
Mitie at a glance
Chairman’s statement
Chief Executive’s review
Market review
The Connected Workspace explained
Investment case
Business model
Group objectives, goals,
strategies and plans
Finance review
14 Operating review
26
30 Principal risks and uncertainties
37 Viability statement
Governance
38 Board of Directors
41
Chairman’s introduction to
Corporate Governance
43 The Board
49 Audit Committee
60 Nomination Committee
62 Directors’ remuneration report
87 Directors’ report: other disclosures
Directors’ report: statement
93
of Directors’ responsibilities
Financial
95
Independent auditor’s report to
the members of Mitie Group plc
107 Consolidated income statement
Consolidated statement
108
of comprehensive income
112
109 Consolidated balance sheet
111
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
Notes to the consolidated
financial statements
168 Company balance sheet
169
114
170
Company statement
of changes in equity
Notes to the Company
financial statements
Appendix – Alternative
Performance Measures
IBC Shareholder information
174
Key financials - continuing operations
£2.14bn
Adjusted revenue1
(2016: £2.13bn)
£82.0m
Adjusted operating profit1
(2016: £95.2m)
£147.2m
Net debt
(2016: £178.3m)
4.0p
Dividends per share
(2016: 12.1p)
£6.5bn
Order book2
(2016: £6.6bn)
£8.7bn
Sales pipeline3
(2016: £7.9bn)
£2.13bn
Reported revenue
(2016: £2.15bn)
£(42.9)m
Reported operating loss
(2016: profit £107.6m)
> Revenues maintained in a challenging environment
> New Connected Workspace strategy launched
> New cost saving initiatives commenced
> New management team and organisational structure in place
> Disposal of domiciliary healthcare business
> Accounting Review completed
> Lender definition amendment agreed and covenants in
compliance
1. For this year Alternative Performance Measures have been provided to adjust for
one-off items in both FY17 and FY16 to reflect more meaningful analysis of our
underlying operating performance before other items. For details see pages 26 and 27
and the Appendix on page 174.
2. Order book is the value of secured contracts at 31 March 2017.
3. Sales pipeline is the total contract value of opportunities at 31 March 2017.
Our sustainability and business goals
are intertwined, and this year you will
find sustainability content discussed
throughout this report.
You can find further information on
the sustainability section of our website.
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 UK’s leading provider of outsourced Facilities Management services.
We are in the business of saving our customers money.
We have embarked on a journey to go Beyond FM...to the Connected
Workspace – a place where people interact seamlessly with colleagues, clients,
spaces and technology, to give their very best and at the lowest cost by joining up
all of the information and intelligence we have on what goes on at work.
Mitie is changing from a company that simply manages facilities, to a strategic
partner that enables new ways of working and better collaboration, engagement
and innovation in today’s evolving workspace.
We provide a range of services...
Cleaning &
Environmental Services
£395m
Security
£404m
Catering
£134m
Engineering Services
£797m
Professional Services
& Connected Workspace
£91m
Public Services
£304m
...to a blue chip customer base.
1
www.mitie.com Chairman’s statement
A year of change
We have completed a comprehensive, independent and
management review of our accounting policies, judgements
made under those policies and the balance sheet (the
Accounting Review). Based on the results of the review, and
the new information available to the Board, the Board has
taken the appropriate action and agreed substantial
balance sheet write-downs and prior year adjustments.
The balance sheet has now been addressed and a number
of measures implemented to strengthen the Finance
function and financial disciplines within the business.
We decided during the year to focus on our core business
and against continuing to fund the ongoing losses and
long-term turnaround plan of our healthcare business. The
domiciliary healthcare business was exited in February 2017
and has resulted in a substantial impairment of goodwill and
loss on disposal.
We have conducted a strategic review and launched a
technology and investment-led strategy which will
maximise the potential of our facilities management (FM)
business and address the longer term opportunity of
moving “Beyond FM…to the Connected Workspace”.
Mitie remains a market leader in the provision of FM
services and has a portfolio of blue-chip clients. Revenues,
profits and cash flows have demonstrated their resilience
and net debt was lower than expected at the year end. We
are making significant investments in our people and our
transformation programme will deliver significant cost
efficiencies in the future. Leveraging technology and
extending our customer proposition into strategic
consultancy will support our future growth aspirations
and strong UK market position.
The challenges of the past year are now behind us, and the
Board can look forward, with a new management team in
place and a new strategy launched, to restoring and then
increasing shareholder value in the years ahead.
People
This has been a difficult year for the people working in
our business and I would personally like to thank them
for their dedication to Mitie and their determination to
provide quality services to our customers every day. As
a business we continue to look to the future, investing
in apprenticeships and training, ensuring that Mitie is
a good place to work for people of all backgrounds.
Overview
This year has been one of substantial challenges
for Mitie, with financial performance falling short of
our expectations.
The Board has dealt with these challenges at pace and
taken the appropriate action. Mitie remains a resilient
business with revenue broadly unchanged despite
the challenges and wider economic uncertainties. The
Board has implemented its succession plans, with new
and effective leadership in place to guide Mitie through
its next phase of growth and development.
The Board has taken decisive action in four
principal areas.
We have implemented the succession plans, agreed by
the Board in late 2015, for the key roles of Chief Executive,
Chief Financial Officer and Chairman. We are pleased to
have appointed Phil Bentley as CEO in December 2016
and Sandip Mahajan as CFO in February 2017. As
planned, following the senior management succession, the
Chairman’s succession will take place with the appointment
of Derek Mapp at the AGM on 26 July 2017. There have also
been a number of new appointments to the Executive
Leadership Team. With refreshed leadership in place, the
business is in a strong position to focus on the future.
2
Mitie Group plc | Annual Report and Accounts 2017
Results
During the year, reported revenue reduced slightly to
£2.13bn (2016: £2.15bn) and the operating loss for the year
was £(42.9)m (2016: profit £107.6m) with basic earnings per
share decreasing to (14.7)p (2016: 20.1p). Adjusted operating
profit1 decreased to £82.0m (2016: £95.2m).
Net debt at the year-end was £147.2m (2016: £178.3m).
The Group has agreed an amendment to its loan
agreements with its debt providers that has allowed it
to make more conservative accounting judgements and
remain in compliance with its covenants. Net assets of
the Group reduced by £271.7m to £89.8m.
During this period, our order book2 has remained flat at
£6.5bn (2016: £6.6bn). Our sales pipeline3 currently stands
at £8.7bn (2016: £7.9bn).
Dividend
The Board has reduced the dividend to reflect the lower
earnings of the business, improve the balance sheet and
provide investment capability in the future. Accordingly
the Board has decided not to recommend a final dividend
this year, making the full year dividend 4.0p per share
(2016: 12.1p per share). The Board will be reviewing
its dividend policy in the future.
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 wider stakeholders. This year the Board
has prioritised succession planning, the performance of the
business, risk management, internal audit, the long-term
financial stability of the Group, and the Accounting Review.
In addition to the Accounting Review, the Board has found
that improvements were required in the approach to risk
management and internal audit and has made changes
in both those areas. The detailed results of the review are
shown on pages 46 to 48.
The Board has also decided that it will conduct a tender
process for the appointment of new external auditors in the
coming months.
There have been a number of significant changes to the
Board during the year.
Ruby McGregor-Smith left the business after nine years as
Chief Executive and 15 years on the Board. Suzanne Baxter
left after 10 years as Group Finance Director. The Board
has implemented a comprehensive induction programme
for Phil Bentley and Sandip Mahajan to ensure a smooth
transition into their new roles.
Nivedita Krishnamurthy Bhagat joined the Board as a
Non-Executive Director on 1 June 2017. Nivedita is CEO,
Cloud Infrastructure Services UK, Ireland and Northern
1. Alternative Performance Measures. See pages 26 and 27
and the Appendix on page 174.
2. Order book is the value of secured contracts at 31 March 2017.
3. Sales pipeline is the total contract value of opportunities
at 31 March 2017.
“
We are investing in a change
programme to improve our customer
proposition, increase operational
efficiency, streamline processes,
leverage technology and develop
and retain our people.
Europe, for Capgemini SA and brings to the Board
considerable experience in technology and selling
professional services to corporate clients.
”
It is the intention of the Board to recruit additional Non-
Executive Directors to make sure that the composition of
the Board is appropriate, with the right balance of skills and
experience to meet the future requirements of the business.
I will be stepping down as Chairman and from the Board at
the AGM on 26 July 2017 after 10 years on the Board and
nine as Chairman. I am pleased that we have been able to
appoint Derek Mapp as my successor. Derek will ensure
robust corporate governance and provide strong challenge
to the management team. He has substantial experience,
having sat on the boards of public companies for over 20
years and been in non-executive chairman roles for the past
nine years. He is currently non-executive chairman of both
Informa plc and Huntsworth plc, following an extensive
career in ownership, managerial, operational and
commercial roles in service industries.
Outlook
It has been a challenging year but we are confident that our
new management team, led by Phil Bentley, is capable of
taking the business through its next stage of growth
and development.
Mitie is a business with an outstanding client base, great
people and a diverse portfolio of long-term FM contracts.
We are investing in a change programme to improve our
customer proposition, increase operational efficiency,
streamline processes, leverage technology and develop
and retain our people.
We expect a return to modest growth in underlying profits
this year. As the transformation programme is rolled out
and the customer proposition enhanced over time, we
are confident in our ability to restore and enhance future
shareholder value.
Roger Matthews
Chairman
3
www.mitie.com
Chief Executive’s review
Building the foundations for
creating shareholder value
strategic imperatives to achieve our objective of growing
customer lifetime value by offering compelling propositions
and delivering the basics brilliantly.
We are confident that delivering this agenda will create real
shareholder value.
1. Put our Customers at the heart of the business
At Mitie we have some great customers, but we have to
give them more. There are over 3,000 major customers
and there is significant untapped potential in our core
business to promote cross-selling and the bundling of our
service lines. To harness this we are investing in strategic
account management, introducing a Net Promoter Score
(NPS) programme and tailoring our customer propositions
based on a deep understanding of customers’ needs and
sector requirements.
We are increasing our commercial focus on our most
valuable market segments and those accounts with the
highest potential lifetime value. And to defend our core
business and deliver profitable growth we are expanding
our proposition into real estate professional services.
We aim to lead the market in providing value-added
consulting services through the use of technology and
data, providing greater insights of the cost drivers in
customer workspaces as we take them “Beyond FM…
to the Connected Workspace”.
2. Transform our Cost base and restore our
balance sheet strength
At Mitie our aim is to be the most efficient in our industry
and have the lowest cost base. We have launched Project
Helix to change the DNA of Mitie. This involves simplifying
our legal structures, standardising our processes and
rationalising our systems – in short, materially reducing our
cost base. This is the most significant driver to increase
shareholder value in the medium term.
We have moved to a structure with six business divisions.
We are consolidating support and back office functions to
reduce duplication, leverage best practice and increase
efficiency. We have created single functional support
across Mitie in Finance, HR, IT and Legal. We are introducing
the Mitie Way of doing things once and consistently across
the Group, whether that is accounting, back office and
administration, people development, payroll, sales
generation, incentivisation and reward, and in our legal
and commercial approach. The Mitie Way will also ensure
that workflow management for our engineers and
technicians is as automated as possible.
There are three waves to the cost transformation
programme. The first wave is completed and has eliminated
duplication and excess capacity in our management
Dear Mitie shareholder,
I am delighted to be presenting my first annual review,
having been appointed Chief Executive last December. My
principal role as CEO is to lead and inspire our 53,000 Mitie
colleagues to deliver great service and great ideas to our
clients. At Mitie we are in the business of saving our
customers money and generating long-term shareholder
value. We do this by giving more; more to our clients and
more to our people.
I have visited many of our operations and spoken to a huge
number of Mitie colleagues. I am full of admiration for the
service our colleagues, day in, day out, give to our
customers. They are full of ideas on how we can do things
even better. I have also met a large number of our valued
clients and gained an understanding of what we are doing
well and where we need to work harder. In the main I am
encouraged by the quality of what we deliver every day,
but it is clear that by joining up the best of Mitie, we can
do even more.
Strategy
Following a full strategic review of industry trends and our
strengths and weaknesses, we have developed a strategy
giving us a clear way forward to build the foundations for
creating shareholder value. We have developed four
4
Mitie Group plc | Annual Report and Accounts 2017
structure. This has resulted in annualised savings of £10m.
The second wave is addressing our short-term operational
efficiencies by removing activities that have no benefit
to customers, such as cross-charging between Mitie
companies. This will be completed in 2019 and will result in
annualised savings of £15m starting in FY19. The third wave
is the enterprise-wide deployment of integrated systems
and workflow processes. This is underway and will be rolling
out in 2017 with run rate benefits of £20m expected to
start in FY19.
3. Build a winning culture and develop and retain
our People
We aim to have the best trained and most motivated
workforce in our industry.
We are introducing a Mitie Way of talent management to
develop and retain our people and create a winning culture
that will make Mitie stand out from our peer group with a
focus on recruitment, induction, development, appraisal
and reward. We will be increasing investment in our people
to make sure that they are engaged and have the skills they
need to do their jobs with clear development opportunities
to enable them to give their best during their Mitie career.
We are redesigning incentives across the business,
linking them to the overall success of Mitie. Management
incentives will be aligned to reward cross-selling and
behaviours that demonstrate our one team ethos and
customer centric approach.
We will also be making clear to all our colleagues the
behaviours we expect from them. Our customers have
entrusted us with a duty of care to them and we must
not let them down. As we reduce management layers and
increase accountability we will be empowering our people
to make the decisions that improve our customer service
on a daily basis.
4. Uplift our investments in Technology to provide
insights and make Mitie the easiest company to
do business with
We are increasing our investment in technology to be at
the forefront of the industry. To develop a market-leading
proposition in the Connected Workspace we are creating a
distinctive offer for our customers and automating our own
internal processes.
In our clients’ premises, we are investing in sensors and
the latest mobile technology to understand what goes on
inside a building. And we are building new analytical tools
to process these vast amounts of data and to translate it
into insights on how to save money.
Business performance
Since I took over at Mitie, it is clear that we have had a
number of challenges. Our revenues have been flat, whilst
our costs have been increasing. I am determined to reverse
those trends and expect to see margins improve to between
4.5% and 5.5% in the medium term.
We have completed a review of our balance sheet which
has led to a number of one-off accounting charges, and in
1. Alternative Performance Measures. See pages 26 and 27
and the Appendix on page 174.
completing the sale of our loss-making non-core Healthcare
business in February 2017, we have had to take further
write-offs. As a consequence our profits are down year-on-
year and our reserves have fallen. The structural levels of
debt within the business need to be reduced despite a
better than expected year-end net debt of £147.2m
(2016: £178.3m), after utilisation of £110.7m (2016: £82.2m)
of non-recourse, sale of receivables arrangements.
Revenues have stayed broadly flat. Adjusted operating
profit1 has reduced to £82.0m (2016: £95.2m). Reported
operating profit before other items reduced to a loss of
£(6.3)m (2016: profit £113.9m), after writing off £88.3m
as a result of the balance sheet review.
Divisional performance has been mixed. Cleaning has been
hampered by high overheads and a lack of new business
but has been supported by the results of the Environmental
Services businesses. We have a new management team in
place and have started the deployment of Workplace+, our
new scheduling system. Security has performed well,
achieving strong sales growth due to a change in mix
between manned guarding and technology. Its results for
the year have been depressed by the addition of the poor
performing front-of-house business to the division.
Catering has had a solid year, consolidating its position in
the market as an innovative, lifestyle offer based on healthy
ingredients. Engineering Services has performed at the
level we would expect despite reduced project volumes at
the start of the year and reduced contract wins.
Professional Services & Connected Workspace is a new
business, bringing together our property consultancy,
project management, energy management and waste
consultancy. In Public Services, Care and Custody has
achieved its targets and has won a number of custodial
health contracts starting in FY18. Property Management
was below target as a result of the slow rate of contract
wins and project work flow in the first nine months of the
year. However the business has had a successful start to
2017 in terms of contract wins and the confirmation of
start dates for projects that had been deferred.
Leadership team
Mitie has many excellent people in the business but we
are building a new Executive Leadership Team. We have
appointed a new CFO, a new Group HR Director, a new
General Counsel & Company Secretary and a new Head
of Technology. We have also appointed new Managing
Directors in our Cleaning, Security, Engineering Services
and Professional Services divisions.
Looking ahead
With our new investment-led strategy we believe that there
is a significant opportunity to transform Mitie into a more
focused, higher growth, higher margin business which in
time will result in materially increased shareholder value.
We are grateful for your support.
Phil Bentley
Chief Executive
5
www.mitie.com
Market review
Opportunities and
challenges
Chart 1: GDP
(%)
2.2
2.0
1.8
2.0
1.9
1.7
1.6
2015
2016e
2017e
2018e
2019e
2020e
2021e
Source: Office of Budget Resposibility (OBR)
2.4
2.3
2.0
2.0
2.0
Chart 2: CPI
(%)
0.7
0.0
2015
2016e
2017e
2018e
2019e
2020e
2021e
Source: OBR
Chart 3: Fixed Investments – Business
(%)
3.70
4.20
3.90
3.60
5.10
0
-0.10
-1.50
2015
2016e
2017e
2018e
2019e
2020e
2021e
Source: OBR
Market segment
2016 was a challenging year weighed down by the vote to
leave the European Union and the protracted process that
is to follow. In response to this uncertainty we have seen
a significant devaluation of the British Pound, as well as
an uptick in inflationary pressure (chart 2), and a decline
in fixed investment (chart 3) over the last 12 months.
The FM industry has seen a relatively subdued year given
the macro-economic backdrop. Anecdotally we have
seen a reduction in the number of large contracts come to
market and a reduction in project spend across the board.
The overall UK FM market is worth in excess of £120bn.
Outsourced FM is estimated to be c.60% of the market,
of which £45bn is typically addressable for scale
players like Mitie.
UK economy
GDP growth declined marginally from 2.2% in 2015 to 1.8%
in 2016. Forecasts suggest a subdued growth profile over
the next three years (chart 1).
Over the last 12 months, we have seen clients adopt a more
risk averse approach to capital spending. Unsurprisingly,
fixed investments in the private sector declined in 2016
(chart 3), however a significant rebound is expected by
2018 as the uncertainties surrounding the UK’s impending
exit from the European Union are worked through.
Public sector funding constraints continue as the
government stays on track with its deficit reduction targets.
This creates a lasting drive for efficiency and improvements
in public sector contracts and a relatively buoyant backdrop
for both our Facilities Management and Public Services
offers as the government continues to increase
outsourced services.
FM industry
The UK FM industry is constantly evolving to address
a combination of external factors. These include macro-
economic factors mentioned above and legislative
changes such as changes to the National Living Wage
and the Apprenticeship Levy. We have broken down our
core FM markets by service lines (chart 4) and identified
the following key trends:
6
Mitie Group plc | Annual Report and Accounts 2017
Chart 4: £45bn Addressable Market
(%)
1
6
5
4
£45bn
3
2
Source: Bain & Company Research
1
2
3
4
5
6
Engineering Services
IFM
Cleaning
Security
Catering
Other
Highly fragmented
There is a broad set of providers with a range of
capabilities and services; as a result, different competitors
lead in different service lines. No one single provider has a
dominant market share in the UK FM market. This suggests
ample headroom for scale players to gain share.
Competitive market dynamics
We have witnessed consistent growth in the integrated
facilities management (IFM) market over the last five years.
As a result we are seeing a wider pool of competitors,
ranging from single service specialists to global IFM
specialists and global property advisory firms.
Legislative changes
In April 2016 National Living Wage (NLW) for people over
25 increased from £6.70 to £7.20 per hour. It increased
again to £7.50 per hour from April 2017. The government’s
objective is to increase NLW to 60% of median earnings by
2020, and for it to be over £9 per hour. This is a structural
headwind for the entire UK FM industry and we see greater
need to invest in innovation and formulate propositions that
improve productivity and efficiency.
From April 2017, the Apprenticeship Levy also took effect
with a 0.5% charge on payroll for businesses with over £3m
payroll. This is estimated to impact Mitie by £4m in FY18.
Innovation to drive productivity
With the backdrop of increasing wages, innovation in
technology is imperative to drive productivity. There is
significant demand for high-quality, low-cost services that
are responsive and aligned with our customers’ strategic
goals. This trend is highly prevalent in security services.
(See case study on page 19).
Changing workplaces
We have engaged senior property and FM directors through
a series of research projects to understand the changing
demands of our clients. The core themes we
discovered include:
• Demand for more flexible work spaces that bolster
productivity. Productivity is a common theme across
sectors; according to the Leesman Index, only 53% of
respondents agree that their workplace allows them
to work productively.
• Need for better analysis. Analytics is a business priority
and the way forward. There is rising demand for accurate
and accessible management information, as well as the
capability to generate insights, to help our customers
make operational and strategic decisions. In our opinion,
this is true value-add and allows our customers to make
informed decisions on how to drive productivity
throughout the workplace environment.
• Our customers want to foster collaboration within their
workforce to drive productivity and output. This is
partly delivered through the physical workspace.
7
www.mitie.com The Connected Workspace explained
How Mitie is moving “Beyond FM...
to the Connected Workspace”
The facilities management offering has evolved over the
past 30 years. Originally conceived as a way to reduce cost
and improve quality while allowing organisations to focus on
their core business. It has evolved from simple tasking
contracts for services to providing strategic advice and
execution on global corporate real estate portfolios.
Today with the increased availability and reduced cost of
technology it is possible to leverage the considerable
amount of data available through the Internet of Things,
Guiding Control Systems and enterprise-wide platforms to
connect all of the elements of a property portfolio’s
utilisation, efficiency, cost and environmental impact.
This is the next iteration of the FM market. One that we call
the Connected Workspace.
Our customers want to contract with us in different ways,
depending on where they are on the facilities journey. Our
strategy is to put our customers at the heart of our
business so we are set up to provide services however our
customers want them, whether that is single, bundled,
integrated or connected.
Markets have changed
Savings
Benefits
Cleaning
Catering
Security
Maintenance
up to 20%
• Best in class
• Specialist services
• Cost reduction
• Scale
Cleaning + Catering
Security + Maintenance
+ 10%
incremental
savings
• Synergies
• Standard processes
• Consistent quality
Management of full suite
of services
+ 10%
incremental
savings
• Streamlined
management
• Joined-up delivery
• Simplified invoicing
and reporting
Single – typical contract
length 3 years
Allowing a customer to focus
on its core business and to
have services provided by
a business that specialises
in that service, generates
considerable savings and
increases quality.
Bundled – typical contract
length 3-5 years
When a customer is
comfortable with a single
service FM they will often
contract more than one
service to the same
supplier in a bundle.
Integrated – typical contract
length 5 years+
Customer relationships can
develop to the extent where
they trust you to manage
and deliver the entirety of their
FM services in an integrated
contract. These contracts
usually involve significant
consolidation of the customers’
supply chain and transformation
of service delivery.
8
Mitie Group plc | Annual Report and Accounts 2017
Connected Workspace
Customers increasingly want more from their suppliers than just
service delivery. They want a partner with the ability to collect and
analyse all of the available data from their organisation to inform
their property strategy, make their workspaces more productive
and reduce their operational cost base.
The key to a truly connected workspace is to pool the data
together into a virtual data lake with neutral platforms to enable
access from a range of applications.
The approach is consultative, looking to establish very long-term
relationships across the customer’s organisation.
Savings
Benefits
• Corporate Real Estate
optimisation
• Sustainability support
a further 10%
• Wellbeing insights
• Cost savings
• Reduced risk
• Productive workspaces
Strategy
All elements of
the Connected
Workspace support
customer strategy
and evidence delivery
against strategic
objectives
Service delivery
Seamless delivery of
high-quality services
is an integral part of
any solution
Sustainability
Thinking and operating
with a long-term
perspective in terms
of the environment,
community and other
stakeholders
CUSTOMERS
D
a
t
a
+
t
e
c
h
n
o
lo
g
y
Engineering
performance
Mechanical and electrical
assets are the life system
of any property. They need
to be managed and
maintained proactively
by skilled professionals
Space
utilisation
The intelligent use
of buildings helps to
reduce waste and
increase employee
satisfaction
Critical
infrastructure
Criticality varies by
business from data
centres to telecoms
transmissions but
all need to operate
effectively
Secure
environments
Cyber and terror
risks are part of the
evaluation of current
security threats
Analytics
and MI
Data needs
analysis and clear
presentation for
the benefits to be
realised
9
www.mitie.com
How our new organisation will deliver value
A sound investment case
Mitie is a business with a good base of blue-chip clients and all of the service capability to succeed in Facilities
Management and Professional Services. We work in partnership with organisations to deliver long-term savings,
managing and maintaining some of the nation’s most recognised landmarks for a range of blue-chip public and
private sector customers. We are the UK’s largest Facilities Management company employing some 53,000 people
across the country.
Quality customer
base in diversified
end markets
High retention rates
and significant
pipeline
Innovation
and technology
capabilities
• Broad customer base
• Long-term relationships as
• Reputation for high-quality
across private and public
sectors
• Professional services
provide strategic
differentiation
a trusted partner
supporting customers’
strategies
• High client retention rates
• Good pipeline of future
opportunities (£8.7bn)
efficient services and
delivery capability
• Technology investment
enables data analytics and
insight to enhance decision
making and performance
• Partnership launched with
Microsoft to develop
Connected Workspace
Transformation
programme
Capital
management
Winning culture
• Project Helix launched to
change our DNA. New
workflow, processes and
systems
• Plans in place to reduce
cost base and improve
operational efficiency
• Standardisation of
technology
• Restoring balance sheet
• Develop the Mitie Way
strength
• Buy-back programme
ended
• Amendments to Mitie
model
• Realign dividend to
underlying performance
• Consistent cash flows
• Diversity
• Aligned incentives
• Talent management
• Development and training
10
Mitie Group plc | Annual Report and Accounts 2017
A business model that
delivers sustainable value
Our model has changed this year to reflect the conditions in our markets and the adjustments we have made to our
business. We provide value to our customers by delivering efficient services that support their strategic objectives.
Our colleagues are part of a business that is building a winning culture and supports the communities we are part of.
We plan to generate long-term returns for our shareholders.
Standardised platforms
and applications
Pooling of data
Analysis of trends and insight
Customer facing
Management
information
y
g
Techn olo
Delivering value
for Mitie’s customers,
colleagues,
communities and
shareholders
C
o
s
t
s
Lowest cost to serve
Streamlined processes
Operational excellence
Responsive to customer needs
C
u
s
t
o
m
e
r
s
P e o ple
The best advice and account
management
Compelling propositions
Long-term relationships
Cross-sell
Lifetime value
Improving NPS
Winning culture
Career development
Incentives to perform
Recognition for excellence
Improving engagement
Supported by a strong foundation
of sound business processes and a commitment to fulfilling our responsibilities to the wider community.
Sustainability
• Reduce the environmental
impact of our operations
• Improve the diversity,
engagement and health
and safety of our people
Risk management
• Macro-economic environment
Governance
• Strategy and
creates the operating and
investment environment
for Mitie and its clients
• Delegated authority protocol
performance review
• Compliance, ethics
and conduct
• Board composition and
succession planning
• Audit and internal controls
11
www.mitie.com Group objectives, goals, strategies and plans
Our strategic plan to deliver
Objective
Goals (KPIs)
Grow customer
lifetime value by
offering compelling
propositions and
delivering the basics,
brilliantly, to help
customers save
money
• Customer Net Promoter Score
• % UK FM market share
• % revenue from top 100 clients
• Forward order book1 (£bn)
• Leverage
(Net Debt: EBITDA)
• Overhead cost base (£m)
• Net adjusted operating
margin2 (%)
• Employee retention rate
• Employee engagement score
• Improve safety (RIDDOR AFR3)
• Professional Services &
Connected Workspace
revenue (£m)
1. Order book is the value of secured contracts at 31 March 2017.
2. Alternative Performance Measure. See pages 26 and 27 and the
Appendix on page 174.
3. For definitions see page 175.
12
Mitie Group plc | Annual Report and Accounts 2017
FY17
-1
4%
63%
£6.5bn
1.8x
£195m
3.8%
73.5%
45%
2.02
£91m
We have introduced a new approach to strategic planning linking our strategies and goals with execution of our key
plans, to ensure we deliver our long-term objective of growing customer lifetime value.
Strategies
Plans
1
Putting
customers
at the heart
of our business
2
Transform our
cost base, and
restore our
balance sheet
3
Build a winning
culture and
develop and retain
our people
4
Uplift investment
in technology
to provide
customer insights
and ease to do
business with
FY2017 progress
• Beyond FM
proposition launched
• Launch Beyond FM proposition
• Complete Lifetime Value analysis by customer and
agree segmentation/strategic management approach
• Healthcare
• Exit non-core businesses
• Introduce strategic account management for 1st tier
accounts; develop value propositions for target sectors
• Establish new sales capability with sector expertise;
optimise Salesforce.com to drive cross-sell
performance
• Introduce Net Promotor Score across top 100 clients
business exited
• Net Promoter Score
baseline established
• Re-engineer workflow processes across our businesses
• Transformation plans
• Consolidate support functions under Group
leadership; increase spans of control and reduce
layers across the business
• Re-engineer billing-to-cash processes to improve
cash conversion
• Rationalise Property and IT estate
• Deliver shared services cost savings
• Restore balance sheet strength
in place for HR, Finance
and Workflow
management under
Project Helix
• Build new Executive Leadership Team
• Launch Mitie Way of talent management, including high
potential programme, leadership training, and
performance management
• New Executive
Leadership Team
in place
• Launch Mitie Way of health, safety & environmental,
ensuring consistency and compliance
• Define Mitie values and roll out new ways of working
• Align management incentives to strategy delivery
• Standardise titles and salary bands
• Create a Connected Workspace technology team by
increasing investment, capex and opex, to enable
Internet of Things services and customer insights
• Implement a partnership with a world-class technology
service provider
• Technology team
in place
• Partnership with
Microsoft
in place
• Standardise and automate processes across the
business; integrate data, analytics and systems
wherever practical
13
www.mitie.com Operating review
The shape of our
business today
T
e
c
h
n
o
o
g
y
l
H
R
W
o
r
k
f
l
o
w
/
T
r
a
n
s
f
o
r
m
a
t
i
o
n
i
F
n
a
n
c
e
L
e
g
a
l
/
C
o
m
p
a
n
y
S
e
c
r
e
t
a
r
y
Professional Services
& Connected Workspace
P. 15
Cleaning &
Environmental Services
Security
Catering
P. 16
P. 18
P. 20
C
l
i
e
n
t
s
Engineering Services
P. 22
Public Services
P. 24
Optimally structured business
In January 2017, the Company announced a new
organisation structure and a new leadership team. The
financial and operating performance of our six divisions
reflect this new organisation, and the way we run the
business. A restructure of the support functions is also
underway to ensure P&L accountability and consistent
policies across our group functions.
Business KPIs
In addition to the Group KPIs detailed in the preceding
pages, we have highlighted a select number of business
KPIs linking strategy directly to execution.
Managing our business responsibly
We manage Mitie for long-term success. We operate in
a responsible way, in accordance with our code of conduct,
minimise our impact on the environment and recognise that
diversity among our employees will benefit our organisation.
There is one woman on our Board of Directors and seven
men, 103 female senior managers and 458 men, and
21,066 women across the Group in total, compared with
31,732 men.
We also realise that our engagement with the
communities where we operate contributes towards
our licence to operate.
Health & Safety is a priority, and this year our RIDDOR
reportable rate improved by 4% to 2.02 per 1,000 people.
Our employee engagement score changed to 45%, and our
Net Promoter Score (NPS) measurement of customer
satisfaction changed to -1.
Full details of our strategy for sustainability, our statistics
and our achievements during the year can be seen on our
website www.mitie.com/sustainability
14
Mitie Group plc | Annual Report and Accounts 2017
Professional Services
& Connected Workspace
Professional Services & Connected Workspace is
our new consultancy services division that thinks
strategically, operates collaboratively, and leverages
technology to make a real difference to our clients’
real estate and facilities services. By combining
our consultancy capabilities with strategic account
management, we are advising our clients on how to save
them money and improve their working environments.
Linking these capabilities with the new technologies and
analytics incorporated in our Connected Workspace
platform, we are very well placed to take our services
Beyond FM. Mitie has over 3,000 major clients and a
wide product offering, which provides us with a wealth
of opportunities to deliver more to our clients by cross-
selling and expanding service delivery.
The professional services team brings together our
consultancy businesses, including Source8, Mitie Waste and
Utilyx (Energy Services), allowing us to develop and provide
comprehensive and joined-up propositions for our clients.
Our capabilities are aligned with our Real Estate and
Facilities Management offerings, and include property
and real estate, technology, risk management, energy
and sustainability. Our strategic sales and account
management team has been re-built under new
leadership, with new processes, to better target and
manage our most important strategic accounts.
Within this division we are building the Connected
Workspace solutions and capabilities. The Connected
Workspace is a set of evolving technology-driven
solutions that will enable Mitie to improve the delivery
of facilities services and provide superior value to our
clients. For example, we are supporting a 20% estate
reduction target through design and smarter workplace
management for one of our largest customers. We are
using real-time data capture for analysis and monitoring to
drive efficiencies through occupancy-based energy controls
and maintenance regimes.
Performance
£m
Revenue
Adjusted revenue1
Operating profit before other items
Adjusted operating profit1
Order book
2016
Restated
2017
97.9 90.9
97.9 90.9
5.5
5.6
190
4.2
6.7
221
FY2017 operational highlights
The division reported £90.9m of revenue and £4.2m of
operating profit before other items. The adjusted operating
profit was up 20% from previous year. This is a relatively
new division, formed in the last quarter of FY17. Over the
last 12 months, the combined business saw a significant
increase in consulting activities with existing and new
clients. Despite revenue decline from the Waste business, it
secured contracts with JLL, a large national leisure operator,
and expanded existing contracts with Network Rail and
Manchester Airport Group. The professional services team
was engaged to deliver strategic planning, real estate
reduction, and design and move projects for prestigious
clients such as ED&F Man.
Next 12 months
Our focus is to differentiate Mitie’s proposition in the market
through the provision of world-class professional services
and industry-leading Connected Workspace solutions. With
the reach of our products, the extent of our client base and
our 53,000 colleagues, we will collect and analyse real-time
data, and develop targeted strategies that enhance the
productivity and wellbeing of our clients’ workspaces.
1. Alternative Performance Measure. See pages 26 and 27 and the Appendix on page 174.
15
www.mitie.com Operating review continued
Cleaning & Environmental Services
We remain one of the largest cleaning services
providers in the UK, offering a full suite of cleaning
services as well as specialist services, such as pest
control, landscaping, and gritting. The new division
unites our Cleaning business with our Pest Control
and Landscaping businesses (Environmental Services).
Waste Management, which previously sat within
Environmental Services, has been realigned with
Professional Services due to the advisory nature
of its services.
FY2017 operational highlights
The business reported £395.4m of revenue and £6.0m
of operating profit before other items. Adjusted operating
profit was down 14% year on year to £20.3m. The significant
under performance in Cleaning was partly offset by the
strong performance from Environmental Services.
Cleaning
It was a difficult year for Cleaning, with revenue down
5% with further deterioration in margins. The business
faces significant structural headwinds from service
commoditisation, low barriers to entry, and
price competition.
Despite a difficult trading year, the business secured a
number of contracts with high-profile customers, including
an expanded street furniture cleaning and maintenance
contract with Transport for London (TfL), a renewal with
Hinchingbrooke Health Care NHS Trust and an expansion
with Amazon.
Our client retention rate for FY17 was below expectations.
Our NPS score tells a similar story, with a slippage of
4 points, but we anticipate an improvement as we realign
our sales force and bolster our proposition post the
recent restructure.
We recognise the structural headwinds of the overall
Cleaning sector and we are responding to these pressures
by: extending our capabilities into more technical areas of
work; simplifying our overhead structure; and introducing
improved technology for better workforce management.
To improve our workforce management and employee
engagement, we have accelerated the implementation of
Workplace+, a handheld-enabled, all-in-one operations
portal for scheduling, payslips and supplies. In FY16, there
were no cleaning operatives on Workplace+, at the end of
FY17 there were 15%, and our target is to have more than
80% of our operatives on the portal by the end of FY18.
The wide adoption of Workplace+ will also allow the
business to better communicate with our employees,
measure and analyse the productivity patterns of our
operatives, and enable rapid roll-out of best practices.
Performance
£m
Revenue
Adjusted revenue1
Operating profit before other
items
Adjusted operating profit1
Order book
Operational KPI highlights
NPS
Workplace+
2016
Restated
408.7
407.1
25.5
23.6
894
2016
-10
0%
2017
395.4
399.0
6.0
20.3
811
2017
-14
15%
Technology has a key role to play in the shift towards a
demand-based workforce where cleaning is performed at
optimal efficiency. It will also allow us to improve employee
engagement, enhance our internal communications,
cement the Mitie Way of doing things, and create genuine
efficiencies through a ‘connected’ workforce.
Environmental Services
The Environmental Services segment has outperformed
this year, contributing c.50% to overall divisional adjusted
operating profits. We saw strong revenue growth of 23%
and adjusted operating profit growth of 4%.
The pest control business had a solid year with continued
organic profit growth. It renewed contracts with Mitchell &
Butler, Young’s and Homeserve. The business continues to
expand by targeting growth in food manufacturing, retail
and distribution, as well as through innovative solutions
such as drone technology. Used with a number of our
clients, drone technology enables safer and more efficient
inspections. The business has also invested extensively in
an operations platform, to improve the efficiencies of our
technicians, customer experience and reporting.
Landscaping has had an exceptional year following the
successful mobilisation of contracts secured at the end of
FY16. The business has commenced work on several new
contracts: Merseyrail, NHS Property Services, JP Morgan
and The Southern Co-operative. However earnings from
gritting were softer than expected due to a milder than
average winter in the UK.
Next 12 months
Over the next 12 months, the focus will be on looking
after our customers better, by getting the basics right.
This means simplifying our business structure and making
operations more efficient and effective. Our goal is to
transform our cost base by eliminating role duplication
and ineffective processes, and to improve productivity by
using existing toolkits and standardising how we operate.
16
Mitie Group plc | Annual Report and Accounts 2017
1. Alternative Performance Measure. See pages 26 and 27
and the Appendix on page 174.
Birmingham Airport
Birmingham Airport’s aim each day is to deliver a truly
world-class service for the nine million passengers that
travel through the airport each year.
With an increasing footfall and an environment that is
continuously changing, the highest standard of facilities
is core to enhancing the passenger experience.
Our promise from the beginning has been to exceed all
stakeholders’ expectations: our client’s, customers’ and
employees’, which is underpinned by our continual drive
towards innovative and technology-led solutions.
This year, we’ve introduced robotic technology, which
has improved operational efficiencies, helped to deliver
an exceptional cleaning performance, and assisted
our cleaners who were using manually operated
auto-scrubbers.
As an additional resource to our cleaning team at
Birmingham Airport, the robotics have enabled our
cleaners to focus on higher-skilled, value-added tasks,
resulting in increased staff morale and productivity.
Furthermore, by utilising ultraviolet light technology,
the robot removes 99.9% of viruses and bacteria,
and their advanced water saving systems reduce the
consumables required for cleaning, leading to
significant costs savings for the client.
Birmingham Airport is the UK’s
3rd largest
airport outside of London
We clean
11,000
square metres at Birmingham Airport’s terminal
For the second year, we’ve received the
Kimberley-Clarke Golden Service Award for the
Best Cleaned
Transport Hub with Birmingham Airport
17
www.mitie.com Operating review continued
Security
We are currently the 2nd largest integrated security
services provider in the UK, uniquely delivering
a full suite of services and products, including
security personnel, remote monitoring, mobile
response solutions, and fire and security systems -
all underpinned by a risk-based ethos. Working across
all sectors we are the leading provider in the transport
and aviation and retail sectors along with critical
security environments.
The new Security division comprises Security Management,
Front of House, Document Management, and our employee
vetting business - Procius. The grouping of these businesses
allows us to further develop our technology capabilities and
enhance solutions in a collaborative and integrated way.
Our goal is to build upon and strengthen our market-leading
position, continue to influence buying behaviours, and
cement long-term partnerships with our customers
through innovative operating models.
In a highly competitive market, our focus is to deliver
sustainable growth through a converged service offering,
challenging traditional procurement approaches by raising
awareness of risk-based, technology-driven solutions.
We want to be known as industry and thought leaders in
risk-based deployment, across all the sectors we operate
in. We strive to attract and retain our customers through
the provision of exceptional service, and we are pleased
to report a 67% increase in our NPS score in FY17.
FY2017 operational highlights
The division reported £404.2m of revenue and £16.1m
of operating profit before other items. Adjusted operating
profit remained relatively flat, margin deteriorated,
impacted by contract losses from Front of House. Strong
sales performance has resulted in a 13% growth in our
order book to £876m.
Earlier this year, we were awarded an expanded contract
with leading supermarket chain, Sainsbury’s, where we have
implemented a risk-based deployment model, applying
software and handheld technology to capture incidents
and analyse data to drive informed decision making.
Over the last 12 months, the Security Management
team has renewed a number of major contracts, including
Citigroup, Technicolor, John Radcliffe Hospital, DP World
and Strathclyde Passenger Transport. Customer retention
rate closed at 84% vs. 77% in the prior year. In FY17, our new
business wins came in at 30% above the previous year.
Notable contract awards include the expansion of
Sainsbury’s, London City Airport, BNP Paribas and the
NHS Property Services. Our sales pipeline has doubled
year-on-year to £1.2bn. We believe this is only the beginning
of a paradigm shift towards innovative risk-based solutions,
and we will continue to refine our proposition and look to
gain further market share to become the industry’s
leading security provider.
Our Document Management business had a solid year with
100% client retention and organic growth across its
portfolio. Similar to security, the document management
18
Mitie Group plc | Annual Report and Accounts 2017
Performance
£m
Revenue
Adjusted revenue1
Operating profit before other
items
Adjusted operating profit1
Order book
Operational KPI highlights
NPS
Customer retention
Staff retention
2016
Restated
364.4
364.4
2017
404.2
404.2
20.8
19.8
776
2016
9
77%
79%
16.1
19.9
876
2017
15
84%
81%
market is trending towards the increased use of technology.
The business has a national footprint offering a full range of
document process outsourcing services ranging from
managed print solutions and outsourcing of mail room
activities to a complete customised restructuring of
document work flows and processes. Recent deployments
include the implementation of hybrid mail into the second
largest local authority in the UK as well as one of the largest
private sector landlords and new mail tracking technology
into clients including: PwC, Holman Fenwick Willan and
Herbert Smith Freehills.
Our front of house business was the recipient of the
prestigious Customer Focus Award at this year’s UK
Customer Satisfaction Awards. However, our trading
performance was significantly impacted by contract
losses. In FY18 the business will undergo a rebrand
and repositioning of its offering in the market, which will
strengthen its market position and ensure our delivery
meets our customers’ needs. The business is looking to
advance under new leadership and move towards
sustainable growth for the coming years.
Procius, our employee vetting business, which is one of the
UK’s largest providers and the leader in the transport and
aviation sector of pre and post-employment screening and
criminal records checking services, continues to deliver
strong growth. In FY17, we saw an increasing demand for
our services across existing customers such as British
Airways, Jet2 and EasyJet along with significant contract
wins, including Ovo Energy and Arsenal Football Club.
Procius has also widened its product offering to cover a
broader range of employment lifecycle services, which will
deliver further growth opportunities in FY18.
Next 12 months
We expect further growth in FY18, supported by a solid
delivery model – combining risk analysis, technology
deployment, off-site monitoring and responsive services
and we will continue to refine our proposition in order to
challenge and lead the market with our approach to
transformational client contracts.
1. Alternative Performance Measure. See pages 26 and 27
and the Appendix on page 174.
Sainsbury’s
Our partnership with Sainsbury’s is based on
transparency and innovation, and built around a unique
Safer Community model designed to ensure the safety
of colleagues, visitors and members of the public.
Sainsbury’s Safer Communities (SSCs) was introduced to
pilot a new way of working within the security management
contract. We analyse the risk profile of each store and
create a tailored security service based on an individual
store’s threat profile; because we understand that some
stores are more likely to be a target to shoplifting than
others, and that posting four security guards in a low-risk
store is a poor use of our client’s budget. By deploying our
multi-skilled security officers in line with risk, we can
improve safety while reducing the cost of the service.
Technology underpins how we work together, with
several market-leading systems implemented to enhance
the efficiency and effectiveness of the contract, including
our Security Manager and Resilience (SMART) tool.
SMART provides real-time incident management and
alerts, building systems monitoring, and risk pattern
and crime trend analysis. It’s also linked with automatic
number plate recognition (ANPR) cameras at Sainsbury’s
fuel station forecourts. By using our SMART system’s
business intelligence module, Sainsbury’s can now analyse
and share relevant information within its business to
prevent repeat offenders across their estate.
Sainsbury’s is the UK’s second largest
supermarket and employs around
161,000 people
In November 2016, we were awarded a
3-year
contract to deliver integrated risk management,
technology and manned guarding services across its
entire UK portfolio
We employ
2,500
security colleagues across its 1,400+ UK locations
19
www.mitie.com Operating review continued
Catering
Our goal is to be recognised as the UK and Ireland’s most
distinctive, tech-enabled workplace catering experts,
where the wellbeing of our clients’ employees is high on
the agenda. We look to achieve this by concentrating
on our core strength: creating food with personality,
served by people who are passionate about delivering
the highest quality of service. Our catering division is
comprised of Gather & Gather – our core brand, and
Creativevents – our specialist outdoor catering business.
Our people have always played a major part in our overall
proposition, and we are proud to report our staff retention
rate increased to 71% in FY17.
In FY17, Gather & Gather received two prestigious
awards in recognition of its innovative approach. The first
award was the BIFM Brand Impact Award, recognising
Gather & Gather’s founding mission of ‘bringing food and
people together’ to enhance the workplace. The second
award was won by head chef, Clark Crawley, who won
Gold as part of the English National Culinary team in the
Culinary Olympics.
FY2017 operational highlights
The business reported revenue of £134.3m and operating
profit before other items of £4.7m. Despite a solid 6% top
line growth, Adjusted operating profit was flat due to
contrasting performances between Creative Events and
Gather and Gather.
Gather & Gather delivered solid revenue growth,
underpinned by a number of new wins in Ireland, including a
contract expansion with LinkedIn. Our order book remains
relatively stable at £458m. We have also established a new
baseline for NPS of 6.
External market forces such as food inflation have pushed
up our cost base and impacted our margin. Food inflation is
an ongoing factor. We believe that our core offering is
attractive and marketable, as we pay particular attention to
the provenance of our ingredients, how the food is served
and how it impacts workplace productivity. We continue to
win contracts over bulge bracket competitors due to our
customised approach to service delivery.
Food is an integral driver of workplace productivity, and we
are engaging our own team and industry experts to develop
technology that will form a key pillar of Mitie’s overall
connected workspace proposition. For example, Gather &
Gather has introduced a mobile application to improve the
customer experience. The app is live with a number of
prestigious clients, allowing our customers to pre-order,
collect loyalty rewards, leave feedback and receive targeted
push notifications.
Creativevents had a challenging year, impacted by external
factors such as adverse weather conditions and reduced
attendances at events following terrorism incidents in
Europe. Furthermore, we continued to exit non-profitable
contracts after recent changes to management. Despite
the challenging backdrop of FY17, we continue to provide
20
Mitie Group plc | Annual Report and Accounts 2017
Performance
£m
Revenue
Adjusted revenue1
Operating profit
before other items
Adjusted operating profit1
Order book
Operational KPI highlight
NPS
Staff retention
Employee engagement
2016
Restated
126.6
126.6
5.4
5.3
463
2016
N/A
70%
65%
2017
134.3
132.7
4.7
5.3
458
2017
6
71%
75%
retail bars, food and hospitality for a range of prestigious
clients, including Royal Ascot, the RHS Chelsea Flower
Show, the Farnborough Air Show and Lord’s Cricket Ground.
Next 12 months
The focus over the next 12 months is to fine-tune our
offering, and broaden the Gather & Gather brand and its
reach. We have established a strong presence in the media
sector but there are attractive opportunities in the financial
and professional services sector. Our goal is to build on our
recent contract wins, and show that we can adapt our style
to suit professional services firms.
Gather & Gather operates two bars at the top of the Shard
skyscraper – London and western Europe’s tallest building
– and are expecting to serve over 660,000 visitors in 2017.
1. Alternative Performance Measure. See pages 26 and 27
and the Appendix on page 174.
Creating an inspirational environment with Vodafone
With workplace and employee wellbeing becoming
increasingly important to the corporate agenda,
organisations’ property and people objectives have
never been more aligned.
Gather & Gather is supporting clients to achieve their
workplace wellbeing initiatives by placing food, social spaces
and people at the heart of decision making.
Since securing the food services contract for Vodafone’s UK
property portfolio in 2016, we’ve worked closely with the
Vodafone wellbeing team and Nuffield Health to create a
wellbeing partnership which supports mental, social and
physical health. By working collaboratively across the
service lines, it enables us to identify health concerns on a
site by site basis and tailor specific health promotion
programmes, whilst taking into consideration demographics,
purchasing habits and food trends.
We’ve introduced a Live Well range of nutritionally balanced
and portion-controlled food options, designed by our team
of nutritionists and development chefs, along with dedicated
wellbeing ambassadors on every site. Additionally, we hold
regular nutrition workshops and consultation days with the
Gather & Gather nutritionists, as we believe customer
engagement and education is key to influencing food
purchasing behaviours.
We believe that whatever the time of day, the need for food
creates a chance to connect. It’s not simply about serving up
an outstanding breakfast or lunch; it’s about taking the
opportunity to bring people together to create a happier,
healthier and more productive workforce.
In January 2016, we secured a
5-year
contract to provide food services across Vodafone’s
UK property portfolio
We were awarded the Hospitality Assured
accreditation by the Institute of Hospitality, just
6 months
after being appointed
Gather & Gather cater for
9,000
Vodafone employees every day across 12 locations
21
www.mitie.com Operating review continued
Engineering Services
We are one of the leading providers of engineering
services in the UK, delivering technical and building
maintenance services across a wide range of sectors
and real estate assets. In addition to our core
maintenance offer, we provide critical specialist services
such as heating, cooling, lighting, water treatment and
building controls.
We have combined our Hard FM business, and the
management team of Integrated FM, into one division:
Engineering Services. Engineering services has historically
been the service line with the largest share of our integrated
contracts; therefore, by combining and streamlining
operations, we can create financial and
operational synergies.
FY2017 operational highlights
The overall business reported revenue of £797.4m and
operating profit before other items of £0.2m. The Adjusted
operating profit declined 9.8% to £37.9m. Adjusted
operating margin also declined from 5.3% to 4.7%. The
underlying trading performance has been impacted by
lower margin on chargeable works. Nevertheless with
contract extensions and new business wins our order book
remains steady at £3.3bn.
Despite the challenges above, we continued to pursue a
number of large opportunities and have delivered
the following:
• extension and expansion our contract with Thales
• retention of Allianz Insurance
• expansion of our contract at Heathrow Airport
• an extension with the Scottish Parliament
• retention and expansion with Manchester Airport Group
• an extension with Lakeside North Harbour business
centre.
The business also successfully mobilised contracts with
NHS Property Services and CTIL with combined revenue in
excess of £40m p.a.
We see a significant amount of untapped potential in both
revenue and margins, given our critical mass in the UK. With
this in mind, we have fast-tracked the roll-out of a
standardised mobile workflow solution, MiJobs. Prior to
MiJobs, the business had several different mobile-enabled
workflow solutions, and we have migrated all mobile
engineers to MiJobs over the last 12 months. Our national
footprint coupled with more effective workflow
management, will mean improved operational efficiency
and superior service delivery for our customers.
Next 12 months
Over the next 12 months, our focus is on getting the basics
right. The business is embarking on a multi-year
transformation programme, designed to standardise and
simplify our operations to deliver the most efficient and
effective service, at the lowest cost to our clients.
22
Mitie Group plc | Annual Report and Accounts 2017
Performance
£m
Revenue
Adjusted revenue1,2
Operating profit
before other items
Adjusted operating profit2
Order book
Operational KPI highlights
NPS
MiJobs mobile roll out
2016
Restated
800.3
788.4
53.7
42.0
3,325
2016
+16
0%
2017
797.4
809.1
0.2
37.9
3,259
2017
-16
100%
This will begin with the integration of our core workforce, to
create a highly flexible and skilled team with the optimum
support systems. We will automate work flow management
for scheduling, tasking and billing. Our engineers will have
the necessary training and tools to operate in the safest
and most effective manner and deliver the highest quality of
service for our customers.
Longer term, our vision is to use technology to link outputs
to the Connected Workspace, providing the most
responsive and valued service in the market. By using a
combination of existing building systems and environment
sensors, along with energy data, asset data, and workplace
data, we will provide tailored solutions to suit each client’s
unique requirements.
1. The difference between ‘Reported’ and ‘Adjusted’ revenue relates
largely to adjustments to POC balances and accrued income as part
of the Accounting Review.
2. Alternative Performance Measure. See pages 26 and 27 and the
Appendix on page 174.
Engineering: The Scottish Government
Achieving a unique carbon status
In July 2016, we helped the Scottish Government retain its
unique status as the only government in the world to hold
the Carbon Trust Triple Standard.
The Carbon Trust Standards are independent certifications
recognising organisations that successfully measure,
manage and reduce their greenhouse gas emissions, water
use and waste, while demonstrating leadership within their
industry by making real year-on-year progress.
We’ve been providing a range of FM services to the Scottish
Government since 2010, from security and landscaping to
engineering and waste management. We also maintain and
monitor the building fabric, heating and lighting, which was
instrumental in helping the Scottish Government achieve its
sustainability ambitions.
We complete
19,000
planned preventative
maintenance tasks
for the Scottish
Government per
year, covering an
expansive geographic
area from Stranraer to
the Shetlands.
23
www.mitie.com Operating review continued
Public Services (Property Management and Care & Custody)
Property Management
The Property Management business provides a wide
range of maintenance services in the UK, predominantly
to clients in the social housing sector. The business
also delivers claims handling and repair services for
insurance companies, and is the largest painting and
commercial refurbishment roofing provider in the UK.
FY2017 operational highlights
Property Management reported revenue of £257.7m and
an operating loss before other items of £4.5m. Adjusted
operating profit was disappointing at £12.3m down 24%
year on year. This was impacted by a shortfall of in-year
project revenue, affecting both top-line growth and the
overall blended margin.
Revenue from the social housing business was negatively
impacted by delays in client capital spend, with its adjusted
profit also impacted by a reduction in higher margin project
works. In adjusted profit terms, the painting business had a
positive year, and the roofing business remained relatively
flat versus previous year.
In light of the performance during the year, the Board has
carefully reviewed the carrying value of goodwill and while
it is confident that the business plan is deliverable, it has
also come to the conclusion that an impairment of £15.0m
is appropriate, reducing the goodwill to £70.2m
(FY16: £85.2m)
The business has had a challenging trading year.
Nevertheless, our order book has remained buoyant,
growing 4% to £663m. The current order book contains over
£100m of annual revenues held within long-term (c.10yr)
partnering contracts in housing, with a blue chip client list.
Even though our NPS score declined marginally year-on-
year, we did achieve a 100% in year success rate on
long-term maintenance housing contract re-bids.
Under new leadership, the sales and marketing team has
relaunched its value proposition to address the changing
landscape of the social housing market, developing two
new propositions:
• Integrated Property Management – bundling services
to provide enhanced asset management services
• Partnership Solutions – to provide innovative long-term
solutions to address sector spending challenges
Our goal is to differentiate our offering in a relatively
commoditised market, by creating long-term partnerships,
thinking differently, and working innovatively to achieve our
customer’s strategic goals.
We have seen some early traction, with notable wins
including a 7+7yr Integrated Property Management contract
with national social housing provider, Home Group, worth
~£12.5m p.a; and a 5+5+5yr Integrated Property
Management contract with new client Islington and
Shoreditch Housing Association.
24
Mitie Group plc | Annual Report and Accounts 2017
Performance
£m
Revenue
Adjusted revenue
Operating profit/(loss)
before other items
Adjusted operating profit1
Order book
Operational KPI highlights
NPS
2016
Restated
313.5
313.5
16.8
16.2
639
2016
43
2017
257.7
257.7
(4.5)
12.3
663
2017
40
Technology has been an integral part of our integrated and
partnership offerings, as it brings efficiency and decision
making benefits to our clients. For example, the introduction
of our thermal-imaging drone service to help with home
surveys. We will continue to invest and deploy technology
to improve the value we provide to our customers.
Next 12 months
The main focus for the next 12 months is to get the basics
right, invest in our people, deliver the highest quality service
to customers – at the right cost for our clients – and
continue to invest in the communities in which we work.
The London Borough of Hammersmith & Fulham (H&F) has
welcomed our thermal-imaging drone service to help survey
its homes and quickly identify repairs. In place of unsightly
and expensive scaffolding, the drones detect problems with
buildings faster, resulting in an improved service for H&F
tenants, and long-term cost savings for the client.
1. Alternative Performance Measure. See pages 26 and 27 and the
Appendix on page 174.
Care & Custody
Our Care & Custody business delivers a range of public
services for vulnerable adults in secure environments,
on behalf of the UK government. These include
managing immigration detention centres for the
Home Office, forensic medical examiner (FME)
and custody support services for police forces
across England and Wales, and offender healthcare
provision in two prisons on behalf of NHS England.
FY2017 operational highlights
Care & Custody had a good year, delivering revenue
growth of 31% up from £35.5m in previous year to £46.4m.
Operating profit before other items was £2.1m in FY2016
and £2.2m this year. Adjusted operating profit was £2.9m
up 7.4% year on year, despite building some overhead
relating to upcoming bids.
Following the acquisition of Tascor Medical Services
(now Care & Custody Health), we have won c.£50m of new
business over the year. Expansion into the forensic medical
services market helped secure several flagship contract
wins in the police FME segment. We have also seen
significant growth in the sales pipeline, with an increase
from £1.6bn to £2.9bn due to several large Home
Office contracts coming to market.
One of our flagship contract awards was for the provision
of FME services to Greater Manchester Police; a contract
which also includes liaison and diversion services, delivered
through partnerships with the NHS and the Cheshire and
Greater Manchester Community Rehabilitation Company.
We envisage this model of contract being adopted by other
police forces, which should bolster our pipeline in the future.
In order to deliver high-quality services, we need to attract
and retain the highest quality people. We have created
specific career paths and provide access to training and
education. We are currently pursuing a number of options
to develop training and apprenticeships for detention
custody officers, clinicians and managers, to upskill
them and to create long-term careers for ambitious
and motivated individuals who want to join our team.
We see this approach as vital to helping secure a
sustainable recruitment pipeline; with an ageing and
tightening labour market, attracting and retaining
talented individuals in this sector can be difficult.
Performance
£m
Revenue
Adjusted revenue1
Operating profit
before other items
Adjusted operating profit1
Order book
Operational KPI highlights
Inspector feedback
Absence rate
2016
Restated
35.5
35.5
2.1
2.7
310
2016
Good
6%
2017
46.4
46.5
2.2
2.9
244
2017
Good
8%
Next 12 months
Our focus is to build on existing relationships, ensuring we
have a clear understanding of our clients’ needs, and design
solutions that meet and exceed their expectations. This
involves maintaining the highest standards for those in
our care. We recognise that our policies and processes
must reflect and respond to relevant legislation, and actively
embrace external regulatory scrutiny. We underpin these
principles by promoting a culture of openness,
transparency and high performance.
On the Greater Manchester Police contract, our
specialist staff will conduct early health assessments
of approximately 134,000 detainees in custody over
a three year period.
1. Alternative Performance Measure. See pages 26 and 27 and the
Appendix on page 174.
25
www.mitie.com Finance review
Laying the foundation
complex and technical accounting analysis. The fieldwork
concluded in May 2017 and its findings have since been
approved by the Audit Committee.
The Accounting Review identified a number of prior year
errors that, due to their materiality, required the restatement
of results for periods before 31 March 2017. The nature of
these errors is outlined in Note 1 and led to an error of
£60.5m, of which £26.0m is a restatement of goodwill
impairment in FY16, £20.9m relates to other adjustments
in FY16 and £13.6m relates to earlier years. As a
consequence, the net impact of prior year adjustments in
FY16 is £20.9m before other items. Throughout this report,
the FY16 comparatives are described as “Restated” which
means they are stated after adjustment for these errors.
In response to the Accounting Review, the Group has
included additional material balance sheet write-downs of
£44.9m and has created new provisions and accruals of
£14.8m resulting in a pre-tax adjustment to net assets of
£59.7m. These are additional to the £14.0m of one-off
charges identified in the January 2017 trading update.
A key finding of the Accounting Review was that the Group’s
accounting was less conservative than its peers. In response,
£39.7m of additional asset write-downs were recognised
which were more judgemental in nature, and would result in
no future cash outflow.
Management considers that the Accounting Review and
resulting write-down of the balance sheet at 31 March 2017
reflects a fair and balanced assessment process.
Alternative Performance Measures
The results of the Accounting Review, which led to both
prior year adjustments as well as asset write-downs of a
non-recurring nature, make it difficult to assess underlying
operating performance, which is a key focus for both
investors and others seeking to assess the Group’s
performance. Therefore, for FY17 (and for comparatives in
the year ending 31 March 2018), Alternative Performance
Measures have been provided to adjust for both other items
and one-off items in both FY17 and FY16, to reflect more
meaningful analysis of our like-for-like operating
performance (referred to as “adjusted revenue”
and “adjusted operating profit”).
It has been a challenging year for Mitie, with a
reported operating loss and reduced adjusted trading
performance. We faced a balance sheet that was
less prudent than ideal, and have seen instances of
accounting error requiring adjustments to prior year
accounts. As a result, the Group has taken decisive
action to correct the accounting errors and bring its
accounts to a more balanced position, and reached
agreement with its lenders on these changes. Our
approach has been designed to restore confidence
in the Group’s financial reporting. This lays the
foundation of a more stable financial position,
paving the way for the Group to implement its
Connected Workspace strategy.
Reported financial performance
An analysis of the year-on-year movement in reported
revenue and operating profit before other items from
continuing operations is as follows:
Revenue
Operating (loss)/profit
before other items
Other items
Operating (loss)/profit
2017
£m
2016 restated
£m
2,126.3
2,146.9
(6.3)
(36.6)
(42.9)
113.9
(6.3)
107.6
Reported revenue was £2,126.3m (2016: £2,146.9m), a
modest decline due to the revenue impact of the Accounting
Review, offset by favourable currency movements. As a
consequence of the Accounting Review, prior year errors,
goodwill impairments and costs of change, the operating
loss was £(42.9)m (2016: profit £107.6m). Altogether this
constitutes a disappointing year for the Group.
Accounting Review
As announced in the January 2017 trading update, the new
Executive Management Team, with the approval of and
working closely with the Audit Committee, commissioned a
wide-ranging Accounting Review. This Accounting Review
included independent support from KPMG to review and
advise management on the most material balance sheet
judgements in relation to long-term complex contracts,
accrued income, work in progress and mobilisation, as well
as providing support to management in considering some
26
Mitie Group plc | Annual Report and Accounts 2017
In considering its presentation of adjusted revenue and
adjusted operating profit, management has sought to
ensure that items considered to be non-recurring reflect a
fair and balanced position. Reported operating loss of £6.3m
(2016: profit £113.9m) is increased to an adjusted operating
profit of £82.0m (2016: £95.2m) through recognition of one
off items of £88.3m (2016: £18.7m). Where appropriate,
management has sought to reflect a like-for-like position in
arriving at its adjusted revenue and adjusted operating profit
for 2016. The most material items are as follows:
Impairment and amortisation of intangible assets
As part of the Accounting Review, management reassessed
the valuation of other intangible assets. A total of £10.5m
(2016: nil) has been written down from intangible assets.
This related to both the ongoing usefulness and the useful
life of each asset. The review found that a £3.0m write-
down of software and development expenditure was
appropriate. In addition, a reduction in anticipated useful
life led to an increased amortisation charge of £7.5m.
Management does not consider these reflect current
trading performance and therefore has treated them as
non-recurring.
Adjustment to accrued income on long-term
complex contracts
Long-term complex contracts accounted for under the
percentage of completion method involve a series of
forward-looking assumptions and judgement is required
to assess the balance of those assumptions. In its review,
management considered that it was appropriate to
exclude from the forecast anticipated but uncontracted
project work and anticipated energy savings. A total of
£20.4m (2016: credit £6.4m) has been written off the
accrued income balance on long term complex contracts.
In calculating the FY16 adjusted revenue and adjusted
operating profit, the non-recurring increase in lifetime margin
recognised on a significant contract has been excluded.
Management does not consider these to reflect current
trading and therefore has treated them as non-recurring.
Accrued income, debtors and prepayments included in
trade and other receivables
In its review of trading assets, management considered the
degree of judgement in the recognition of accrued income,
the recoverability of debtors, the appropriateness of
prepayment assets and the valuation of other receivables.
Management concluded that it was appropriate to either
write off or increase the level of provisions made against
such items, totalling £36.4m (2016: 0.1m).
Further items recognised in other categories include
impairment of mobilisation assets, other provisions and
other one-off items totalling £21.0m (2016: £12.3m).
The Group intends to revert to its usual presentation of
profit before other items next year as the Accounting
Review is anticipated to be a one-off event. The adjusted
operating profit is presented after adding back the £88.3m
(2016: credit £18.7m) identified as part of the
Accounting Review above.
Adjusted revenue and adjusted operating profit
An analysis of the year-on-year movements in adjusted
revenue and adjusted operating profit from continuing
operations is as follows:
Adjusted revenue
Cleaning &
Environmental Services
Security
Catering
Engineering Services
Professional Services &
Connected Workspace
Public Services
2017
£m
399.0
404.2
132.7
809.0
90.9
304.2
2016
£m
407.1
364.4
126.6
788.4
97.9
349.0
Total Group
2,140.0
2,133.4
Adjusted operating profit
Cleaning &
Environmental Services
Security
Catering
Engineering Services
Professional Services &
Connected Workspace
Public Services
Corporate Overheads
Total Group
2017
£m
20.3
19.9
5.3
37.9
6.7
15.2
(23.3)
82.0
2016
£m
23.6
19.8
5.3
42.0
5.6
18.9
(20.0)
95.2
The Group’s adjusted revenue increased marginally in the
year, from £2,133.4m to £2,140.0m. This was principally due
to strong revenue growth in Security offset by a significant
volume decline in Property Management. Adjusted operating
profit has fallen by 14% in the year from £95.2m to £82.0m,
driven by volume decline in Property Management and a
difficult year for both Cleaning and Engineering Services.
Further review of the adjusted trading results is included in
the Operating Review, on pages 14 to 25.
Other items before discontinued operations
Other items (with the exception of goodwill which is
described below) total £21.6m (2016: £6.3m). This includes
£14.9m of one-off costs of organisation change. The nature
of these costs are to support the Group’s cost efficiency
and transformation programmes and specifically relate to
project management support for the change process,
together with the costs of redundancy for people leaving
the business. Secondly, £6.7m (2016: £6.3m) relates to the
amortisation of acquisition related intangible assets and
acquisition costs. The tax credit on other items was £4.1m
(2016: £1.3m) resulting in other items after tax of £(32.5)m
(2016: £(5.0)m).
www.mitie.com
29
27
www.mitie.com
Finance review continued
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.
Dividends
Reflecting the difficult year for the Group, the Board has
decided not to recommend a final dividend, leaving the full
year dividend at 4.0p (2016: 12.1p). Going forward, the Board
will review dividend policy to ensure that the appropriate
balance is struck between the Group maintaining its
financial position and giving returns to shareholders.
Mitie is a significant contributor of revenues to the UK
Exchequer, paying £534.4m in FY17 (2016: £507m). This
comprised £15.4m of UK corporation tax and £519.0m of
indirect taxes including business rates, VAT and payroll
taxes paid and collected. As our business is primarily based
in the UK, our effective tax rate should track the UK
statutory tax rate. Due to losses incurred during the year
we do not expect to pay any corporate tax in FY18 and will
be obtaining a repayment of tax overpaid in prior years.
The amount due is shown as a current tax asset on our
balance sheet.
Discontinued operations
In February 2017, Mitie completed the disposal of its UK
social care division comprising the domiciliary care and
homecare businesses, Enara Group Limited and Complete
Care Holdings Limited, to Apposite Capital LLP, a specialist
healthcare investor, for a cash consideration of £2.
The Group agreed to contribute £9.45m to the funding of
trading losses and the cost of the turnaround plan, payable
in two tranches. The first tranche (£5.4m) was paid on
1 April 2017 with the second (£4.05m) to be paid on
1 July 2017. The total loss on disposal was £30.4m.
The Audit Committee appointed KPMG to review the
circumstances surrounding the judgement made on
Healthcare goodwill at 31 March 2016. As a result of the
review the Audit Committee has considered that one or
more errors had been made in preparation of the plan
that was approved by the Board and formed the basis for
impairment testing of Healthcare goodwill. Correction of
these errors reduces the value in use by £64.0m which
results in an impairment to Healthcare of £26.0m at 31
March 2016, and this has been adjusted in the prior year
figures. The remaining £81.1m Healthcare goodwill has
been written off in the year ended 31 March 2017 along
with other intangible assets written off and amortised in
the year totalling £11.4m (2016: £10.1m). In addition £0.3m
restructure costs have been incurred. These other items,
in addition to the trading loss incurred for the period to
disposal of £12.0m (2016: £5.9m), resulted in a total loss
from discontinued operations of £132.4m (2016: £39.0m),
after tax credits of £2.8m (2016: £3.0m).
Mitie Model
Mitie historically operated an investment programme known
as the Mitie Model. No new Mitie Model arrangements were
created during the year and this past construct will be
replaced by a more traditional Group LTIP Programme.
At 31 March 2017, Mitie holds majority interests in six Mitie
Model companies with a carrying value of £2.3m, disclosed
as non-controlling interests in the balance sheet.
The Group will be ceasing its practice of buying back
shares to offset shares issued under the Mitie Model or
future LTIP arrangements.
Balance sheet
The Group’s net assets reduced significantly at FY17 to
£89.8m (2016: £361.5m). The £271.7m reduction is
principally driven by £132.4m relating to the discontinued
Healthcare operations, along with £59.7m of adjustments
relating to the Accounting Review and £29.6m of net
actuarial loss on the Group’s pension schemes.
Goodwill and intangible assets
Goodwill and other intangible assets of £397.1m (2016:
£504.1m) were held on the balance sheet at 31 March 2017.
Impairment of the goodwill in relation to Healthcare
accounts for £81.1m of this reduction, along with
amortisation and impairment charges totalling £36.9m.
In addition, the Board has carefully reviewed the carrying
value of goodwill in the Property Management CGU and
while it considers that the business plan is achievable, it has
also come to the conclusion that considering the balance
of risks and opportunities, a disappointing performance in
FY17 and sensitivity analysis, an impairment of £15.0m is
appropriate, reducing that CGU’s goodwill to £70.2m
(2016: £85.2m).
Other goodwill balances have been maintained and there
were no acquisitions during the year giving rise to goodwill.
Working capital and invoice discounting
Operating cash flow improved to £151.1m (2016: £114.6m).
In order to properly understand the true working capital
performance, it is helpful to strip out both the effects of the
one-off write-offs and the utilisation of invoice discounting.
28
28
Mitie Group plc | Annual Report and Accounts 2017
Mitie Group plc | Annual Report and Accounts 2017
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
£3.5m (2016: £1.1m).
The Group has commenced consultation with those
employees who continue to accrue benefits under defined
benefit arrangements with a view to moving to a defined
contribution basis in line with the majority of employees in
the Company and the wider market.
Articles – borrowing powers
Due to the reduction of net assets, it has become necessary
to address the borrowing powers limit contained in the
Company’s Articles of Association. The borrowing powers
limit is a constitutional requirement and is not connected
with the Group’s ability to borrow money from commercial
lending markets but is an internal constitutional constraint.
The limit is currently set at 2x adjusted net assets, which the
Board believes is insufficient cover in light of the write-offs
reported in the financial statements, given the normal intra-
year swings in net debt. Therefore, the Company is holding
an Extraordinary General Meeting on 12 June 2017 to seek
shareholders’ permission to increase this limit to a fixed
amount of £1.5bn. This does not indicate that the Company
wishes to increase its level of indebtedness per se; rather
control over the Company’s ability to raise funding continues
to be primarily limited through the application of lender
covenant ratio requirements, as detailed above. However,
our lenders do require the Company to be compliant with its
Articles at all times.
Next steps
After a challenging year the foundations are laid enabling us
to drive forward our transformation programme with a
robust control environment to support our new strategy.
The one-off write-offs either reduce debtors or increase
provisions, both of which have the effect of a one-time
improvement on working capital, which offsets the reported
base level of EBIT.
The Group has used non-recourse invoice discounting for a
number of years. During the year, our utilisation of invoice
discounting facilities increased by £28.5m (2016: £23.1m).
Net other trade payables/receivables increased by £18.0m,
largely as a consequence of extending credit terms.
After stripping out these effects, working capital
from continuing operations has improved by £18.0m
(2016: £(34.4)m).
Cash
As a result of the net working capital movement, net debt at
31 March 2017 was £147.2m (2016: £178.3m).
Net debt and lender covenants
As at 31 March 2017, the Group has £527m of committed
funding arrangements. In September 2016, we extended
our £275m multi-currency Revolving Credit Facility (RCF)
for a further two years to July 2021, with no change to
terms. Our £252m of US Private Placement notes are
spread over four maturities between December 2017
and 2024.
Mitie’s two key covenant ratios are leverage cover (ratio of
net debt to EBITDA to be no more than 3x) and interest
cover (ratio of EBITDA to net finance costs to be no less
than 4x). Following the end of the year, the Group
approached its lenders to seek their agreement to exempt
further asset write-downs of £39.7m from covenant
calculations. These write-downs are judgemental in nature
and will not result in future cash outflows. Lender approval
was received and these write-downs are included in these
accounts. Due to the technical provisions of IAS 1 and the
timing of this approval being received after the year end, it
has been necessary to classify the drawn amounts under
the RCF and the US Private Placement notes (total
£309.3m) as current rather than non-current liabilities.
Retirement benefit schemes
The net deficit on our defined benefit pension schemes was
£74.2m (2016: £35.5m). The increase has been principally
driven by a 95 basis point reduction in the discount rate used
by the Group to determine its pension obligations, arising
from a reduction in corporate bond yields. The accounting
deficit on Mitie’s principal defined benefit scheme at 31
March 2017 was £70.7m (2016: £34.4m). Whilst this deficit
has fallen since the half year by £10.5m, Mitie intends to
develop a deficit reduction plan in the autumn of 2017,
once the actuarial triennial valuation at 31 March 2017
is completed.
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Principal risks and uncertainties
Mitie faces many risks and opportunities which are managed and mitigated through our risk management framework.
Our Group risk register contains those risks and uncertainties that the Board believes to be the most significant, following
consideration of our business and functional risk registers, with the potential to impact materially upon our strategy, our
financial and operational performance, and ultimately our reputation.
We also recognise that there are additional external pressures that we know will impact our risk profile, such as political
and economic risk, commodity price increases and new legislation. Our risk management programme does, and will, flex to
accommodate those additional external influences. In response to the challenges that we have faced in FY17, which have
resulted in an operating loss for the year, significant write downs and prior year adjustments, we have made significant
changes to the way we manage risk across the business. We have made structural and personnel changes that will improve
the evaluation of risks and uncertainties and how the organisation responds to them. The Board has conducted a robust
assessment of the principal risks and the risk management framework now covers 13 high-level risk areas that affect Mitie.
These will be embedded into the risk registers across the business.
In addition to the changes made as a result of what has happened during this financial year, we recognise that we have
a significant transformation programme underway, adding an additional internal dimension to our risk and control
environment. A specific risk has been added to our register this year covering the management of risk around our
transformation programme.
The challenging environment in which we operate requires a risk management framework in which we can confidently
identify, assess, mitigate and manage our risks and take advantage of opportunities presented. This framework enables
the Board to make more informed decisions. Our key risk categories, continue to be: strategic, financial, operational and
regulatory. In a Board context, the increasingly complex risks associated with these themes require careful consideration
and anticipation. The principal risks and uncertainties listed here promote an informed discussion and debate on matters
that could affect the long-term viability of the business.
As a result of changes in management and comments from shareholders, Mitie conducted a comprehensive Accounting
Review this year. The work was complemented by KPMG's review, which covered certain aspects of the material balances
of accrued income, mobilisation costs, percentage of completion accounting and the recoverability of trade receivables, as
well as the carrying value of certain other assets.
KPMG confirmed that the customer contract related methodologies and policies used by Mitie comply with all relevant
accounting standards. However, KPMG commented that our application of percentage of completion accounting is less
conservative, albeit still justifiable, than others in the market. In addition, the review has identified a number of prior year
material errors.
The outcomes of the Accounting Review are summarised on page 53 of this report.
This year we have continued to embed our risk management system through the continuing use of our risk management tool
and we started to introduce audit and risk committees at a business unit level. Progress has been made with the risk
management tool and risk registers, including the development of active mitigation plans, which are now in place for all our
businesses.
Next year we will expand these meetings to all of our businesses and have an increased focus on the effectiveness of
our mitigation plans and controls. We expect to see the control environment change during FY18 as a consequence
of changes to our management team, the operational structure and investment in technology.
The heat map below shows the relative importance of the risks that Mitie currently faces.
12
13
9
11
Impact
8, 10
1, 2, 3, 4, 6, 7
5
d
o
o
h
i
l
e
k
L
i
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Mitie Group plc | Annual Report and Accounts 2017
Mitie Group plc | Annual Report and Accounts 2017
Risk
no
1
2
3
4
5
6
7
8
9
Category
Strategic
Strategic
Risk
Poor contract negotiations, mobilisation and management leading to poor contractual
terms/inappropriate risk transfer, operational and financial loss
Continuing uncertainty of company performance and resourcing requirements through changes
(positive and negative) to economic conditions
Strategic
Inability to maintain competitive market offering
Strategic
Operational
Operational
Operational
Operational
Operational
Failure in delivery of our significant change agenda
Failure of critical IT infrastructure leading to performance and back office support issues
Cyber risk and/or customer data theft and compliance with data protection regulations
Inability to maintain high health, safety and environmental management standards
Termination or loss at re-bid of a major contract
Inability to attract or retain the right talent in the right place impacting performance capability
10
Financial
11
Financial
Poor operational cash flows and insufficient access to sources of capital leading to the inability to
maintain a strong liquidity position
Failure of material counterparty (customer, banker, supplier, insurer etc.) to fulfil its obligations
leading to significant contractual or financial exposure
12
13
Financial
Regulatory
Inability to pass on inflationary pressure on wages and input costs
Non-compliance with legal and regulatory requirements (e.g. employment, governance, anti-bribery,
modern slavery etc.)
Strategic risks
Risk number: 1
Poor contract negotiations, mobilisation and management
leading to poor contractual terms/inappropriate risk
transfer, operational and financial loss
Impact on our objectives
1
Putting customers at the heart of our business
2
Transforming our cost base
Our value proposition is to deliver support services to our
customers at a lower cost and higher quality than they can
provide themselves. Critical to this is our ability to bid,
mobilise and deliver large-scale, complex contracts
competitively. We have to negotiate and agree contracts
with our customers that balance risk and reward, with
contractual requirements that are fair, having appropriate
contract performance mechanisms to ensure that this is
achieved. Incorrectly evaluating the risks involved and
entering into contracts with onerous conditions, penalties
and one-sided termination clauses would be detrimental to
the Group’s performance. We have to ensure that the risk
profile of contracted services is capable of being properly
managed by Mitie and that we have the appropriate skills
and resources in the business or in our supply chain to
operate contracts successfully. Failure to do so could result
in contract termination, penalties and reputational damage.
Failure to properly mobilise a contract creates a high risk of
not meeting the performance and financial profile expected.
Having a dedicated resource to deal with the mobilisation
and the transfer of people to Mitie under TUPE (Transfer of
Undertakings and Protection of Employment) is necessary
to mitigate that risk.
In FY17 we have conducted reviews into all of our material
contracts to assess whether they are operating in
accordance with the contractual conditions and are meeting
financial performance expectations. The accounting
methodology, judgements and assumptions made were also
considered. This review has been supported by KPMG as
part of their review. As a result of this review a number of
adjustments and provisions have been made which are
detailed on page 26. The adjustments and provisions made
were based on management’s best judgement at the time of
the review.
We have performed a review of sales and tender approval
processes, the procedures for agreeing commercial contract
terms and the mobilisation and management of contracts.
These will all be updated over the course of FY18 and
management reporting will be enhanced to provide greater
control over contract performance.
Management mechanisms
• Executive management approval of complex tenders
• Commercial review by legal team
• Delegated authority register
• Client relationship programme
• Use of specialist mobilisation teams for complex contracts
• KPI/SLA formal reviews with customers
• Risk registers in place for large-scale contracts
• Certified quality management systems to ISO 9001
Future plans
• Continue to standardise our processes across Mitie,
with regard to the sales process, tender approvals
and commercial and legal reviews, mobilisation and
contract management as well as embedding risk
management accountability and responsibility for
our complex contracts.
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Principal risks and uncertainties continued
Risk number: 2
Continuing uncertainty of company performance and
resourcing requirements through changes (positive and
negative) to economic conditions
Risk number: 3
Inability to maintain a competitive market offering
Impact on our objectives
Impact on our objectives
1
Putting customers at the heart of our business
1
Putting customers at the heart of our business
2
3
4
Transforming our cost base
Developing and retaining our talent
Developing our technology-led professional services
The success of Mitie is dependent upon both our private
and public sector clients continuing to outsource the services
that we provide. This will continue as long as we are able to
deliver quality services that save our customers money
during all phases of the economic cycle. Company
performance is impacted by changes in economic
conditions largely through the volume of project works
and discretionary expenditure from our customers. High
levels of work improve company performance and demand
for resources, with the opposite for low levels.
Our principal macro-economic exposure remains in the UK,
with limited exposure to the wider global economy. We are
closely monitoring the outcomes of the EU exit negotiations
and any resulting policy changes to determine the impact on
future contract opportunities and availability of resources.
Regulatory changes such as increases to the National Living
Wage and other labour costs, such as the Apprenticeship
Levy, provide further challenge.
The UK economy is going through a period of uncertainty,
with lower than average growth levels and increasing costs
of materials due to the devaluation of the pound. How we
recognise and respond to variations in particular sectors
by designing service solutions that reduce costs for our
customers may impact the Group’s ability to win or
retain contracts.
Resilience is provided by our diverse business portfolio with
customers having varying demands on our resources
depending on how they are impacted by the economic cycle.
2
4
Transforming our cost base
Developing our technology-led professional services
Our changing environment requires us to have a clear and
appropriate market offering, which provides a competitive
advantage and is attractive to our customers. We recognise
that cost and margin pressure is an ever present factor in
our industry. This creates an imperative to have a low cost
base and a differentiated customer proposition.
Failure to maintain a compelling and competitive offering will
lead to revenue declines and margin reductions. The
strategic review has identified four key areas of focus for
Mitie’s customers, costs, people and technology. Putting our
customers at the heart of our business, increasing the use of
technology to provide insights into managing our clients’
workspaces more efficiently, reducing our cost base and
making Mitie the easiest company to do business with will
help to ensure a competitive and attractive market
proposition. Failure to achieve those two things would
impact Mitie’s ability to retain its clients and to secure new
contracts, impacting future financial performance. Our new
Connected Workspace strategy is key to improving our
competitive position.
Management mechanisms
• Project Helix transformation programme
• Enhanced capability within Professional Services
• Development of Connected Workspace solutions
• Strategic concentration on UK
• Executive approval for investment in new sectors/
infrastructure/technologies
• Strategic account management
• Continued pursuit of innovation and best practice
Future plans
Management mechanisms
• Maintaining mix of long-term contract portfolio in both the
public and private sector
• Focus on higher margin growth areas
• A strategic review of technological opportunities in
our markets to develop new technology-led offers for
our customers
• Additional sales and marketing capability.
• Increasing spread of client base, reducing reliance on
individual customers
• Customer retention programme
• Development of Connected Workspace solutions
• Employee engagement programme
• Frequent sales pipeline review
• Targeted and considered acquisition/divestment strategy
Future plans
• Our strategic review, focus on our cost base and the
continuation of our strategy of diversification across
cyclical markets will support Mitie’s resilience to these
external factors
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Mitie Group plc | Annual Report and Accounts 2017
Mitie Group plc | Annual Report and Accounts 2017
Risk number: 4
Failure in delivery of our significant change agenda
Impact on our objectives
1
Putting customers at the heart of our business
2
3
4
Transforming our cost base
Developing and retaining our talent
Developing our technology-led professional services
We recognise the challenging environment we are operating
in today and are responding to this with a transformation
programme (Project Helix) to ensure sustainable changes
are made to support our new operating model.
implementing a number of transformational projects, such
as business operational efficiency and transformations in
our Finance, IT, Procurement and HR.
We are
The intensity and volume of the change programmes, the
complex interdependencies, poor programme and solution
design, poor implementation or failing to make these
changes permanent and sustainable could impact on the
delivery of the change agenda.
invest may impact on the resources needed to deliver the
transformational programmes which could delay or
prevent some of them and place our positive return on
investment at risk.
Constraints on our ability to
Management mechanisms
• Executive sponsorship of the transformation programme
• Programme management, design and governance,
supported by an experienced third party, to support and
shape our transformation programme and to establish
effective governance with clear roles and responsibilities
across the programme.
effective supervision, decision making and the necessary
controls and management
This will enable us to have
• Appointing both internal and external people with the right
technical and change management skills to drive our
transformational projects
• Communication and awareness programmes to ensure
our people are engaged and ready for business change
• Focused business assurance activities to ensure we
maintain adequate controls
Operational risks
Risk number: 5
Failure of critical IT infrastructure leading to performance
and back office support issues
Impact on our objectives
1
Putting customers at the heart of our business
2
4
Transforming our cost base
Developing our technology-led professional services
Our operations are increasingly dependent upon technology
with a significant increase in both the quantity of data we
hold and the number of pieces of critical infrastructure we
look after on behalf of our customers. Failure of our IT
systems would impact our ability to operate and in some
cases our customers’ ability to operate.
Depending on its severity an IT failure may also impact our
ability to pay our people, our supply chain partners and to
submit invoices to our customers. This could have a
significant impact on the business.
We continue to expand on the use of technology for our
customers and with this we have an increased reliance on
systems and controls throughout the business.
Our clients expect greater connectivity of FM services and
with that there is an increased requirement on Mitie to
provide services data, with performance measurement
increasingly dependent on technological solutions.
Failure to invest in the right technology could impact on our
potential to provide the operational support needed to
enable our contract delivery.
Management mechanisms
• Investment strategy and support for technology
development
• Budgetary control and oversight over IT investments
• Standardisation of operational and ERP platforms and
software
• Expert consultancy advice sought to support new
contract and systems requirements
• Internal teams of experts trained to support new systems
Future plans
Future plans
• Ongoing oversight for each of the transformation streams
• Ongoing monitoring of investment strategy for
by the Executive Leadership Team
technical solutions
• Managing delivery of our transformation to minimise
• Sharing of learning across both customer facing and
disruption to the business.
internal technology investments
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Principal risks and uncertainties continued
Risk number: 6
Cyber risk and/or customer data theft and compliance with
data protection regulations
Risk number: 7
Inability to maintain high health, safety and environmental
management standards
Impact on our objectives
Impact on our objectives
1
Putting customers at the heart of our business
1
Putting customers at the heart of our business
4
Developing our technology-led professional services
3
Developing and retaining our talent
We undertake a broad and diverse range of services for our
customers, some of which are potentially hazardous and
have the potential to cause harm to our employees, our
business partners or members of the public, or to damage
the environment. Failure to maintain high health, safety
and environmental (HS&E) standards may cause death,
disability or injury or cause environmental damage.
Failure could also lead to regulatory action, financial
impact or damage to our reputation.
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.
Management mechanisms
• Work Safe Home Safe programme
• Certified HS&E management systems to OHSAS 18001
and ISO 14001
• Operations supported by professional HS&E teams
• HS&E performance reviews at all business and Board
meetings
• Best practice sharing at HS&E performance meetings
• Legal registers in place together with biannual evaluation
of compliance to legal requirements
Future plans
• Enhancing Work Safe Home Safe programme
• Certification of businesses remaining outside of
group umbrella certification to the QHSE (9001, 18001
and 14001) standards
• Developing clear and standardised KPIs to monitor
progress and improvements
• Reviewing our operating model for the delivery of
HS&E services and making changes to ensure that it is fit
for purpose.
Risk number: 8
Termination or loss at re-bid of a major contract
Impact on our objectives
1
Putting customers at the heart of our business
2
4
Transforming our cost base
Developing our technology-led professional services
Organisations of all types are at an increased risk of
cyber-attacks, hacking and ransomware. This has the
potential to affect our ability to operate and could
damage our reputation.
There is also the risk of reputational damage and financial
penalties for failing to adequately protect the data we hold
for our customers, end-users, suppliers and our own people.
Information is an important asset for the business and needs
to be protected at all times from disclosure or misuse. We
handle information in many forms and have formal secure
technical and procedural controls in place to mitigate risks
to the information. The secure processing, maintenance and
transmission of sensitive and confidential data is achieved
through the integrity of our systems. Appropriately applied
information security helps to ensure business continuity and
minimise disruption by preventing or minimising the impact
of security breaches. Failure to do this would raise questions
about how we handle information with care, and reduce
confidence in our abilities.
Data protection regulations are undergoing a
transformation with the introduction of the General Data
Protection Regulation (GDPR) and we have launched our
preparation activities to be ready by the enforcement date in
May 2018.
Failure to implement and maintain suitable security controls
will have an adverse effect on the confidentiality, integrity
and availability of both our and our customers’ information.
Management mechanisms
• Centralised information security team in place
• Information Security Management System (ISMS) in
place and certified to ISO/IEC27001:2013 for key
information assets
• IT security controls (including resources, tools and
processes) to proactively test, monitor, identify and
respond to cyber threats
• Cyber essentials accreditation
• Ongoing Security Awareness For Everyone (SAFE)
programme
• Cyber insurance policy
Future plans
• Reviewing and revising data protection methodologies
and procedures in line with the General Data
Protection Regulation
• Continuing development of technical security controls
and capabilities
• Information security a consideration for all new activities
and products.
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Mitie Group plc | Annual Report and Accounts 2017
Mitie Group plc | Annual Report and Accounts 2017
We have a number of large integrated contracts and major
service specific contracts, and the risk of termination or loss
at re-bid could affect our financial performance and impact
our reputation in the market, reducing the number of
We recognise that termination or loss could
reference sites.
be a result of external factors outside our control, such as a
change in the strategic priorities of our private sector and
government customers.
by ensuring we have the right business propositions,
supported by the right people and the right technology.
However, we can mitigate the risks
Management mechanisms
• Improved CRM capabilities with active relationship
management
• Strategic account management teams
• Net Promoter Score
Future plans
• Development of a winning Mitie culture incorporating a
review of corporate culture and behaviours
• Employee engagement programme
• Aligned incentives based on a balanced scorecard
• Mitie Way of performance management
• Improved on-boarding.
Financial risks
Risk number: 10
Poor operational cash flows and insufficient access to
sources of capital leading to the inability to maintain a strong
liquidity position
Impact on our objectives
• Professional services & Connected Workspace solutions
1
Putting customers at the heart of our business
• Innovations and best practice
Future plans
• Developing process for exiting contracts successfully
• Launch of ‘Beyond FM’ putting customers at the
heart of the business, with a focus on improving
customer satisfaction.
Risk number: 9
Inability to attract or retain the right talent in the right place
impacting performance capability
Impact on our objectives
1
Putting customers at the heart of our business
3
Developing and retaining our talent
Failure to retain our existing talent and attract new talent will
result in the business being uncompetitive in the market and
impact customer satisfaction and financial performance. We
must continue to retain our most skilled people at all levels
of the organisation, as well as attracting new people to join
us, especially during periods of change. We recognise the
need to have access to a diverse range of views and
experience and to attract specific technical expertise
where the market is highly competitive.
Failure to identify and recruit the right talent, and motivate
our people could lead to sub-optimal decision making and
poor business performance.
Failure to have the right culture in the business with weak
controls, a lack of checks and balances and management
processes could lead to contract management and
accounting errors.
Management mechanisms
• Succession planning and talent management
• Competitive remuneration, terms and conditions
• Talent management and personal development plans
related to annual appraisals
• Employee communications
• Business management system
• Mentoring programme
4
Developing our technology-led professional services
Mitie’s balance sheet strength has deteriorated in FY17
and this could limit our ability to grow either organically or
through acquisition.
Given that staff costs remain our most significant
expenditure, the availability of funding from a variety of
sources, strong cash flow and working capital management
remain central to our ability to pay our people on time. We
also require sufficient working capital to pay suppliers and
subcontractors and to invest in our transformational
programme. Funding is therefore critical to the ongoing
success and continuity of our business. Failure to maintain
adequate sources of finance ranging from banking facilities
and private placements to supply chain finance and invoice
discounting could result in insufficient funding to maintain a
strong liquidity position.
Management mechanisms
• Committed long-term funding facilities
• Strong debt and equity relationships
• Supply chain finance and invoice discounting
• Daily monitoring of bank balances
• Regular forecasting of cash flow
• Regular financial performance and balance sheet reviews
• Monthly monitoring of working capital
• Disputes and escalation process
Future plans
• Implement appropriate incentive schemes for
management to ensure a focus on cash collection
• Ensure appropriate payment terms with customers and
supply chain
• Change of policy to ensure provisions are made for
doubtful debts.
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Principal risks and uncertainties continued
Risk number: 11
Failure of material counterparty (customer, banker, supplier,
insurer etc.) to fulfil its obligations leading to significant
contractual or financial exposure
Management mechanisms
• Commercial review of contracts
• Protective contractual clauses
Impact on our objectives
1
Putting customers at the heart of our business
We are reliant on several 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.
Management mechanisms
• Annual material counterparty risk reviews and Board
approval
• Maintain sufficient committed debt facilities to cope with
adverse financial conditions
• Ongoing credit monitoring of material counterparties
and exposures
• Active contact with external financial and
commercial markets
Future plans
• Exercise continued vigilance in monitoring and managing
key counterparty relationships.
Risk number: 12
Inability to pass on inflationary pressures on wages and
input costs
Impact on our objectives
2
Transforming our cost base
3
Developing and retaining our talent
In our contracts there are two principal ways of addressing
the risk of inflation. The first is to link the price of the
contract to an index such as the Consumer Price Index,
the second is to build an assumption about inflation into
the pricing for later years of a contract. The risk to Mitie is
that the assumption we make about future inflationary
levels is incorrect.
Since the decision to exit the EU the fall in value of sterling
against major currencies has caused commodity price
increases and a subsequent increase in the prices we have
to pay for many of our materials, especially food.
We have contractual protection from increases in costs
either through regulatory change or inflationary pressure in
the majority of our contracts. The ability to pass through
cost increases is an important element of all contracts.
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Mitie Group plc | Annual Report and Accounts 2017
Mitie Group plc | Annual Report and Accounts 2017
• Executive review of material tenders
• Annual increase processes
• Delegated authority register
• Customer account management programme
Future plans
• Extending customer management programmes and
enhanced focus on contract terms.
Regulatory risks
Risk number: 13
Non-compliance with legal and regulatory requirements (e.g.
employment, governance, anti- bribery, modern slavery etc.)
Impact on our objectives
1
Putting customers at the heart of our business
3
Developing and retaining our talent
Failure to adhere to legal and regulatory requirements could
lead to fines, prosecutions, loss of our reputation and impact
our ability to attract and retain our people.
As a major employer, we have to comply with the complex
and developing legal and regulatory frameworks in areas
such as taxation, the National Minimum Wage and National
Living Wage, the Apprenticeship Levy and the Modern
Slavery Act. It is essential that we can demonstrate
compliance to avoid the material financial and reputational
impacts associated with non-compliance.
Management mechanisms
• Management oversight for legal compliance at audit and
risk committee meetings
• Group departments (Tax, Company Secretariat, Finance,
QHSE, Legal, HR, Pension) keep fully up to date with
regulations
• Specialist advice sought from external experts
• Compliance systems and statements of compliance
• Training provided and guidance for ongoing and
new legislation
• Compliance monitoring by Finance, Tax, Enterprise Risk
and Payroll functions
• Tax reporting framework in place to meet Senior
Accounting Officer requirement
• Code of conduct
• Certified business management systems (BMS) to ISO
9001, ISO 14001, OHSAS 18001 and ISO/IEC 27001
(as per statement of applicability)
• QHSE legal register
Future plans
• Reviews to assess the impact of the existing and changing
wage framework
• Further action plans for compliance with the Modern
Slavery Act in the supply chain.
Viability Statement
In accordance with section C.2.2 of the UK Corporate Governance Code 2016, 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 30 to 36 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 2020.
The Directors believe that a three-year period is appropriate for their viability assessment as it is supported by our strategic,
budgeting and business planning cycles and is relevant to the duration of the Group’s existing contracts with customers which
is around three years on average. It therefore represents a timeframe over which the Directors believe they can reasonably
forecast the Group’s performance.
At 31 March 2017, the Group had available £257.9m of undrawn committed borrowing facilities. Its borrowing facilities total
£526.8m and include a £275.0m Revolving Credit Facility with an expiry date of July 2021 and £251.8m 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 £60.2m of the £526.8m of committed borrowing facilities reaches maturity in
December 2017, with a further £40.0m reaching maturity in December 2019. The maturing facilities are comprised of the
repayment of the 2010 US Private Placement 7 and 9 year notes. The Group’s assessment of viability is not dependent on
refinancing these arrangements. The Group utilised £110.7m of invoice discounting at 31 March 2017.
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 46, are considered.
In undertaking its assessment, the Board has considered a detailed financial plan which includes analysis of the forecast and
actual performance of the Group’s existing contract base, expectation for future growth including sales targets and expected
win rates, overhead cost base, 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.
A range of scenarios that encompass the principal risks were applied to the plan which included early termination of key
contracts; revenue reduction over the plan period; reduced rates of margin on the existing contract base and adverse
operating cash performance. The analysis also considered a reverse stress-test scenario to illustrate the reduction in
operating margin required to cause a breach of leverage covenant, in combination with the reduced revenue and operating
cash scenarios.
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 only 7.5% of Group revenue. 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 scaling down of capital expenditure, asset disposals, and limitations to acquisition
activity and reductions in cash distributions.
37
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Board of Directors
Roger Matthews
Non-Executive Chairman
Phil Bentley
Chief Executive Officer
Sandip Mahajan
Chief Financial Officer
Board Committees
Chairman of the Nomination Committee
Member of the Remuneration Committee
Board Committees
Chairman of the Results and
Investment Committees
Board Committees
Member of the Results and
Investment Committees
Date of appointment to the Board
December 2006
Date of appointment to the Board
November 2016
Date of appointment to the Board
February 2017
Other current appointments
None
Other current appointments
None
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
12 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 a
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.
Past roles
Phil was the group chief executive
officer and director of Cable & Wireless
Communications Plc from January
2014 until its sale to Liberty Global in
May 2016. From 2007-2013 he was
managing director of British Gas and
was on the board of Centrica plc from
2000 to 2013, having held the roles of
group finance director (2000-2004)
and managing director, Europe
(2004-2007). He was a non-
executive director of IMI plc from
October 2012 to December 2014.
Skills and experience
• Executive and non-executive
experience with FTSE 100 public
companies for over 15 years.
• Significant strategic and commercial
experience, both at national and
global level.
• Extensive executive and leadership
experience from across industry.
• Extensive financial, audit and risk
management systems experience.
• Chartered Accountant, with a
Master’s degree from Oxford
University and an MBA from
INSEAD, Fontainebleau.
Past roles
Sandip previously worked at Balfour
Beatty plc, where he served as group
director of finance from 2013 to 2016
and held other roles in project and
structured finance in its Investments
Division from 2005-2013. Sandip was
previously at Ernst & Young and British
Airways Plc.
Skills and experience
• Executive experience with FTSE 250
public companies for over 10 years.
• Significant financial and commercial
experience in the operational
performance of long-term contracts.
• Experience of creating shareholder
value by structuring and negotiating
complicated long-term deals.
• Track record of leading corporate
transactions in the listed
environment.
• Chartered Accountant, with an
LLB honours law degree from
Leicester University.
38
Mitie Group plc | Annual Report and Accounts 2017
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
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 before 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 then Prime Minister;
member of the South African
President’s Advisory Council.
Until September 2016, Larry was a
non-executive director and chairman
of the remuneration committee of
ARM Holdings plc.
Skills and experience
• Served on both government and
private sector boards at senior level.
Other current appointments
Non-executive director and member
of the nominations, remuneration and
audit committees of TT Electronics PLC.
Council member of the board of the
Engineering and Physical Sciences
Research Council and the Innovate UK
Energy Catalyst.
Past roles
Former chairman of Ilika plc; former
non-executive director and chairman
of the remuneration committee of
Laird PLC; deputy chair Advanced
Materials Leadership Council.
Previously founded and was chief
executive officer of companies in the
engineering, telecommunications and
biotechnology sectors. 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.
• Significant expertise in the global
• MBA.
information technology industry, in
particular in relation to defining and
executing the strategies required to
drive business success.
Other current appointments
Non-executive director and chairman
of the audit committees at both
Cranswick plc and Hill & Smith
Holdings plc.
Past roles
Non-executive director and chairman
of the audit committee of J D
Wetherspoon plc; 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.
39
www.mitie.com
Board of Directors continued
Chairman’s introduction to Corporate Governance
Derek Mapp
Non-Executive Chairman-elect
Nivedita Krishnamurthy Bhagat
Independent Non-Executive Director
Board Committees
None
Board Committees
Member of the Audit Committee
Date of appointment to the Board
May 2017
Date of appointment to the Board
June 2017
Other current appointments
Chief executive, Infrastructure Services
& Cloud Services UK, Ireland and
Northern Europe at Capgemini SA, a
French publicly listed multinational
corporation, and a member of their UK
management board.
Past roles
Senior roles at Capgemini SA; Head of
Enterprise Solutions, EMEA and Head
of London Development Centre at
Infosys Technologies Ltd. Prior to
joining Infosys, Nivedita was a
consultant in the corporate finance
division at KPMG India.
Skills and experience
• Significant international
management experience.
• Extensive technological skills base.
• Chartered Accountant.
Other current appointments
Derek is chair of Informa plc and
Huntsworth plc. He is chair of
Imagesound, 3aaa and Salmon
Developments Limited, which are
all privately held companies. Derek
also has a number of other
business interests.
Past roles
CEO of Tom Cobleigh PLC, chair of
Leapfrog Day Nurseries Limited, chair
of The East Midlands Development
Agency, chair of Sport England and
chairman of the British Amateur
Boxing Association.
Skills and experience
• Experienced chairman and
entrepreneur.
• Extensive career in ownership,
managerial, operational and
commercial roles in service
industries.
• Wealth of commercial and
governance experience within
various sectors.
• Promotes robust debate and an
open and engaged culture.
40
Mitie Group plc | Annual Report and Accounts 2017
Compliance with the UK Corporate
Governance Code (the Code)
In September 2015, the Financial Reporting Council
(the FRC) considered revisions to its ethical and auditing
standards and the UK Corporate Governance Code. In
parallel with this, the FRC also consulted on changes to
its Audit Committee Guidance. These revisions were
designed to implement the provisions of the EU Audit
I am well aware that Mitie has faced substantial
challenges during the past year, with financial
performance falling short of our expectations. The
Board has taken decisive action in four principal areas:
• we have implemented succession plans for the Chief
Executive Officer, Chief Financial Officer and
Chairman;
Directive and Regulation, as well as to incorporate other
• we have completed a comprehensive review of our
changes such as those relating to auditor reporting
standards, and audit obligations under the Statutory
accounting policies and balance sheet, and the
appropriate write-downs and prior year adjustments
Services Order. As a result, the FRC published a revised
have been made;
Code in April 2016. This latest edition of the Code can
be found on the FRC’s website at www.frc.org.uk.
I can confirm on behalf of the Board that the Group has
complied throughout the year with all of the principles
and the relevant provisions set out in the April 2016
edition of the Code. Details of how we have applied
the principles and complied with the provisions are
explained throughout the annual report and, in this
section, we explain how the Code is implemented
via Mitie’s governance framework.
• we have disposed of our poor performing healthcare
business; and
• we have conducted a strategic review and launched a
technology and investment led strategy to maximise
the value of our core businesses and which addresses
the longer-term opportunity of “Beyond FM… to the
Connected Workspace”.
Further details are in the Chairman’s statement on
pages 2 and 3.
Significant steps have been implemented to strengthen
As reported last year, all listed companies must provide
the Finance team, financial disciplines and Internal Audit,
their shareholders with a Viability Statement. We have
which will lead to greater transparency in external
given particular consideration to the impact that the last
reporting. The external audit will also be tendered in the
12 months has had on Mitie’s viability reporting and risk
next few months – further details are in the Finance
exposure, and our Viability Statement can be found in
review on pages 26 to 29.
The challenges of the past year are behind us, and the
Board can now look forward, with a new management
team in place and a new strategy launched, to delivering
shareholder value in the years to come.
the strategic report on page 37.
Throughout the year the Board has reviewed and
discussed ongoing strategy, risk, financial performance,
investor communication and engagement, succession
planning, board composition and key matters of
governance. This has been done through Board and
Committee meetings. An overview of the activities and
the effectiveness of each of our Board Committees is
explained further on pages 49 to 86.
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.
Chairman’s introduction to Corporate Governance
I am well aware that Mitie has faced substantial
challenges during the past year, with financial
performance falling short of our expectations. The
Board has taken decisive action in four principal areas:
• we have implemented succession plans for the Chief
Executive Officer, Chief Financial Officer and
Chairman;
• we have completed a comprehensive review of our
accounting policies and balance sheet, and the
appropriate write-downs and prior year adjustments
have been made;
• we have disposed of our poor performing healthcare
business; and
• we have conducted a strategic review and launched a
technology and investment led strategy to maximise
the value of our core businesses and which addresses
the longer-term opportunity of “Beyond FM… to the
Connected Workspace”.
Further details are in the Chairman’s statement on
pages 2 and 3.
Significant steps have been implemented to strengthen
the Finance team, financial disciplines and Internal Audit,
which will lead to greater transparency in external
reporting. The external audit will also be tendered in the
next few months – further details are in the Finance
review on pages 26 to 29.
The challenges of the past year are behind us, and the
Board can now look forward, with a new management
team in place and a new strategy launched, to delivering
shareholder value in the years to come.
Compliance with the UK Corporate
Governance Code (the Code)
In September 2015, the Financial Reporting Council
(the FRC) considered revisions to its ethical and auditing
standards and the UK Corporate Governance Code. In
parallel with this, the FRC also consulted on changes to
its Audit Committee Guidance. These revisions were
designed to implement the provisions of the EU Audit
Directive and Regulation, as well as to incorporate other
changes such as those relating to auditor reporting
standards, and audit obligations under the Statutory
Services Order. As a result, the FRC published a revised
Code in April 2016. This latest edition of the Code can
be found on the FRC’s website at www.frc.org.uk.
I can confirm on behalf of the Board that the Group has
complied throughout the year with all of the principles
and the relevant provisions set out in the April 2016
edition of the Code. Details of how we have applied
the principles and complied with the provisions are
explained throughout the annual report and, in this
section, we explain how the Code is implemented
via Mitie’s governance framework.
As reported last year, all listed companies must provide
their shareholders with a Viability Statement. We have
given particular consideration to the impact that the last
12 months has had on Mitie’s viability reporting and risk
exposure, and our Viability Statement can be found in
the strategic report on page 37.
Throughout the year the Board has reviewed and
discussed ongoing strategy, risk, financial performance,
investor communication and engagement, succession
planning, board composition and key matters of
governance. This has been done through Board and
Committee meetings. An overview of the activities and
the effectiveness of each of our Board Committees is
explained further on pages 49 to 86.
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.
41
www.mitie.com
Chairman’s introduction to Corporate Governance continued
As announced on 16 March 2017, we appointed a new Non-
Executive Director, Nivedita Krishnamurthy Bhagat, to the
Board on 1 June 2017. Nivedita was also appointed as a
member of the Audit Committee on that date.
The Board retains its focus on diversity and takes into
consideration the diverse demographic of the Group’s
employee population. Mitie’s female population accounts
for 39.9% of employees, and its disclosed BME population
accounts for 18.9% of employees.
Remuneration policy review
The remuneration policy was approved by shareholders at
the Annual General Meeting (the AGM) in July 2015. The
Group has operated within the boundaries of the
remuneration policy and therefore does not intend to
present the policy to its shareholders this year.
Details of how the remuneration policy has been applied are
provided in the Directors’ remuneration report which can be
found on pages 62 to 86.
Roger Matthews
Chairman
Board composition
During the year, we reviewed the composition of our Board
and implemented the succession plan for the role of Chief
Executive and Group Finance Director, as well as continued
to look for a new Non-Executive Director. External advisors
were appointed to support the process, details of which
are set out in the report of the Nomination Committee
on pages 60 and 61.
Pursuant to the succession plan, Ruby McGregor-Smith
stepped down as Chief Executive and Director of Mitie on
12 December 2016, and Suzanne Baxter stepped down
as Group Finance Director and Director of Mitie on 10
February 2017.
As part of these changes, we welcomed Phil Bentley as
Ruby’s successor in the role of Chief Executive Officer.
Phil joined as a Director of Mitie on 1 November 2016,
and assumed the position of Chief Executive Officer on
12 December 2016. We also welcomed Sandip Mahajan
as Suzanne’s successor in the role of Chief Financial Officer
and Director of Mitie on 10 February 2017.
Additionally, and as announced on 9 May 2017, we
appointed Derek Mapp, as Chairman-elect, who will succeed
me as Chairman at the close of our Annual General Meeting
on 26 July 2017. Derek has substantial experience, having
sat on public company boards for over 20 years and been in
non-executive chairman roles for the past nine years. He is
currently non-executive chairman of both Informa plc and
Huntsworth plc, following an extensive career in ownership,
managerial, operational and commercial roles in service
industries.
42
Mitie Group plc | Annual Report and Accounts 2017
The Board
Board members
The members of the Board and their accompanying
biographies are set out on pages 38 to 40. 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)
Board members
(non-executive)
Phil Bentley (from 1 November 2016)
Sandip Mahajan
(from 10 February 2017)
Derek Mapp (from 9 May 2017)
Jack Boyer
Larry Hirst
Mark Reckitt
Nivedita Krishnamurthy Bhagat
(from 1 June 2017)
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 Group’s corporate structure,
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 Report and the 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 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 Officer and approval of terms of reference
of Board Committees;
• communication – including making arrangements for
dialogue with shareholders and canvassing shareholder
opinion;
• people – including changes to 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, as well as considering the level of
funding required for the Company’s pension fund.
Full details of the matters reserved for the Board can be
found at www.mitie.com/investors/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 2017, there were six
scheduled Board meetings.
Number of scheduled Board meetings held
in the year:
Roger Matthews
Ruby McGregor-Smith1
Phil Bentley2
Suzanne Baxter3
Sandip Mahajan4
Jack Boyer
Larry Hirst
Mark Reckitt
Notes:
Attendance
6
6
4
3
5
1
6
6
6
1. Ruby McGregor-Smith resigned from the Board on 12 December 2016
2. Phil Bentley was appointed to the Board on 1 November 2016
3. Suzanne Baxter resigned from the Board on 10 February 2017
4. Sandip Mahajan was appointed to the Board on 10 February 2017
43
www.mitie.com
The Board continued
Additional ad hoc Board meetings were held, to consider
various matters relating to the status of the Company’s
Healthcare division and appropriate action required to be
taken in relation to it, as well as the Company’s trading
announcement made on 19 September 2016. The Board
also held a full day strategy meeting. Given the serious
nature of the issues which the Company has faced, the
Board has already held five meetings during the current
financial year.
Key areas of business
In addition to the key responsibilities described above, during
the year the Board spent time discussing:
• trading updates;
• business divestment, including the trading performance
and subsequent disposal of Mitie’s Healthcare business;
• succession planning and Board composition;
• capital allocation policy;
• developments in corporate governance;
• principal risks and viability;
• the Modern Slavery Act;
• the impact of the National Minimum and National
Living Wage;
• the impact of Brexit on Mitie and our clients;
• gender pay reporting; and
• the Apprenticeship Levy.
Division of responsibilities of the Chairman
and the Chief Executive Officer
The Chairman and Chief Executive Officer 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/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;
• ensuring that new Directors participate in a full, formal
and 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 Chief Executive Officer
The Chief Executive Officer is responsible for all aspects of
the operation and management of the Group and its business
within the authorities delegated to him by the Board.
He 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;
• 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;
• ensuring the effective implementation of Board decisions,
and regularly reviewing the operational performance and
strategic direction of the Group’s business; and
• ensuring effective communications with shareholders.
• 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;
44
Mitie Group plc | Annual Report and Accounts 2017
The Chief Financial Officer
The Chief Financial Officer 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 Leadership Team on the financial and commercial
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;
• overseeing and directing the Group’s risk, insurance,
pensions, internal audit 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, and its investment activities.
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 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 the 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 Officer or Chief Financial Officer, or
for which such contact is inappropriate in the circumstances.
Evaluation of the performance of the Board and
its 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 have sufficient
time to meet their commitment to the Company.
The Code recommends that the Board of a listed company
should undergo an externally-led independent evaluation
every three years. In accordance with this, during FY17 the
Board underwent an externally facilitated Board review
which covered its performance and that of its Committees
and individual Directors. The review was undertaken by
Condign Board Consulting (Condign), a firm specialising in
board effectiveness, which has no other connection with the
Company. The process was based upon one-to-one
meetings with each of the Directors, and observation of the
Board at its Board meeting in March.
Condign shared its conclusions and recommendations
following the evaluation with the Board at its meeting in
May 2017, and the evaluation of the Chairman was passed
to the Senior Independent Director for him to discuss with
the Chairman.
The review highlighted the challenging year that the Company
has had, the potential reasons for this, and their impact on how
the Board had operated during the year, and also considered
the Board’s efforts to remediate issues as they emerged as well
as to pursue succession planning. Against this difficult
background, and following key senior executive changes, it was
found that the Board had begun to operate in a much more
functional, purposeful way, which could, and should, be more
effective in delivering value to shareholders in the longer term.
45
www.mitie.com
The Board continued
The Board will continue to focus on its composition in the
coming year, in particular with regards to the balance of skills
and experience appropriate to it, and in relation to its size, in
order to ensure appropriate coverage is in place to deal with
Mitie’s challenges, its future business requirements, and
any changes to committee arrangements. The Board will
receive regular updates on the development of the customer
proposition, presentations from divisional management
on the strategic development and performance of their
businesses, as well as hearing from, and engaging with,
appropriate external parties.
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. The CEO and
CFO will stand for election at the 2017 AGM, as will Derek
Mapp and Nivedita Krishnamurthy Bhagat. The other Non-
Executive Directors, with the exception of myself, will submit
themselves for re-election at the 2017 AGM.
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 London and at the 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.
Following his appointment to the Board in November 2016,
Phil Bentley received training and induction sessions with the
Chairman, the then Group Finance Director, 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
46
Mitie Group plc | Annual Report and Accounts 2017
directors’ and officers’ liability insurance arrangements.
The Handbook was last reviewed and updated in FY17 and
will continue to be subject to annual review.
Board accountability and assurance explained
Risk management approach
We would note that, as a consequence of the matters
identified by the balance sheet review carried out by
management with the support of KPMG, the Board has
taken a number of actions, intended to address certain
underlying issues which may have contributed to such
matters. These actions include ensuring clearer lines of
reporting for the Finance function, the enhancement of
financial and other business controls, including more detailed
accounting procedures to ensure that accurate accounting
judgements can be made at every level of the Finance
function and that these are subject to regular and effective
review. In addition we believe that better assurance will be
facilitated by the strengthening of the Internal Audit function,
including the appointment of a new Head of Internal Audit,
as well as the establishment of a third party whistleblowing
service. In future, changes in the organisation of the
business to ensure a more effective back office, enabled
by investment in IT systems will enable the production of
better quality management information on a more timely
basis. Other changes to move to simpler and more effective
performance incentives, which support a culture within Mitie
that puts customers at the heart of our business and
enables the simplification of business process, will provide
increased assurance that risks are understood and clearly
communicated through all levels of the organisation.
Detailed below is the Group’s existing approach to risk. In
addition to the specific actions outlined above, during the
next few months, we will be carrying out a detailed review
of our current approach and making any changes in our
approach to risk management as are required to ensure
that the Group adopts best practice.
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.
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, and our new CEO and
CFO have placed increased emphasis on its “tone from
the top” message about 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 continue to be exploited, provided
risks have been properly identified and the right controls
established or, in some cases, potential opportunities
are declined as they sit outside of the Group’s risk appetite.
Risk mitigation
Each identified risk has a defined control owner who is
responsible for developing and implementing a risk
mitigation plan. As part of our risk review, we require
each control to be reviewed and formally assessed
for their effectiveness in mitigating risk.
During the year we began implementation of audit and
risk committee meetings at business unit level. These
committees were not fully functional throughout the year.
To strengthen the oversight of risk management and
internal controls framework, these committees will be
formalised across the Group in the current year. Terms of
reference for the operation of these meetings will be aligned
with the Audit Committee’s objectives. A standing agenda
will require business units to review their top level risks and
progress of associated mitigation plans as well as
assessment of any changes to the external environment and
its consequent impact on business units’ risk profile. In
addition, results of Internal Audit and other internal or
external assurance providers will be discussed with business
unit audit and risk committees, with the objectives to share
best practice and identify common or emerging risk themes
that may impact their business unit.
Assessment of the effectiveness of the control
environment is undertaken at both business 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 monitoring and review
Principal risks to the business and their mitigation plans are
presented to the Audit Committee and are monitored on an
ongoing basis.
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. One Code sets out the
expected behaviours, linked to the Group’s values, for all
employees, and supply chain partners and establishes zero
tolerance in specific areas – as part of an established ethical
business framework. We will continue to review and re-
affirm our code of conduct with employees and supply chain
partners to ensure awareness of our values and expected
behaviours is maintained, especially during business
transformation activity.
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 fast evolving environment in which the
Group continues to operate. Ultimate responsibility for risk
management lies with the Board, delegated to the Chief
Executive Officer, who further delegates it to the Executive
Leadership Team, with accountability and responsibility
assigned to specific risk owners. The Group risk profile is
reviewed by the Chief Executive Officer and Chief Financial
Officer in advance of formal review and approval by the
Board. This information is captured in risk registers at
business, and functional level, as well as for large contracts,
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, while the external view
will include the economic position, political factors, 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.
Recent introduction of risk management software will help
us in delivering our enterprise risk management agenda as
well as enhancing Group oversight.
Our registers are formally reviewed twice a year, and
approved by our business unit managing directors.
Our risk assessments are based on a ‘5 X 5’ scale ranging
from minimal to catastrophic with any risks falling into our
upper limits having mandatory mitigation plans with the
expectation that these risks are managed down to levels
acceptable to us.
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Internal Audit
The Internal Audit function’s authority and responsibilities
are defined in its charter, approved in May 2016. Internal
Audit operates independently, reporting directly to the Audit
Committee and administratively to the Chief Financial
Officer. This reporting line offers independence from the
audited activities and allows Internal Audit to achieve
objectivity. The Chairman of the Audit Committee oversees
the appointment and removal of the Head of Internal Audit
and assesses the function’s performance against the
internal audit objectives. The annual internal audit plan and
budget are approved by the Audit Committee. Any
significant deviation from the approved annual internal audit
plan is communicated to the Audit Committee through
periodic activity reports. The results of each Internal Audit
are documented in an audit report for internal distribution
and action. The Chairman of the Audit Committee and the
external auditor, Deloitte LLP, have access to all internal
audit reports that are issued during the year and the Audit
Committee receives a quarterly detailed update reporting
on audits completed in the period.
The Audit Committee also receives regular reports
from Deloitte LLP who contribute a further independent
perspective on the internal financial control systems
arising from its audit work.
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.
The Board continued
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 30 to 36. 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.
The Audit Committee confirms that this risk management
process has been in place throughout the reporting year
and remains in place up to the date of approval of the
Annual Report and Accounts. However, as described, the
process will be subject to review and improvement in the
current year.
Whistleblowing
Mitie operates a whistleblowing ‘Speak Up’ service for
employees to contact when they see behaviour or matters
that sit outside the requirements of One Code and the
policies and procedures it supports. Speak Up matters were
previously reported through an internally managed
whistleblowing hotline. However, to enable employees to
report any concerns, or wrongdoing anonymously without
any fear of retaliation, Mitie has now contracted to
outsource its Speak Up service to a third party independent
provider and it will be relaunched as soon as possible in 2017.
The Group Legal Counsel will independently investigate, with
external specialist support where required, any issues and
report back to the Executive Leadership Team and, as
appropriate, the Board.
Internal control and assurance
Mitie operates a ‘three 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
business unit. Group functions (such as Finance, Legal,
Human Resources and Risk) collaborate with business units’
teams to promote continuous improvement and ensure
that controls are operating effectively. Mitie’s policies and
procedures are available to management and employees
through a user-friendly intranet portal. A formal review of
the internal control environment led by the Group Enterprise
Risk Management Director with engagement from business
units’ directors and boards, is undertaken annually in each
business unit through the Internal Control Questionnaire,
which evaluates controls in all key business processes.
The Audit Committee reviews the effectiveness of internal
controls through this process, updates from specific
functions, and the independent testing undertaken by
Internal Audit as part of its work. During the year there have
been a number of instances where discrepancies have been
notified to the Audit Committee between the results of the
Internal Control Questionnaires and concerns raised from
Internal Audit and other known events. These have resulted
in additional work being undertaken to highlight the areas
where the operation of internal controls has appeared to
be unsatisfactory.
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Mitie Group plc | Annual Report and Accounts 2017
Audit Committee
Mark Reckitt
Chairman’s introduction
The financial year 2016/17 was very challenging for Mitie
with profits adversely impacted by the discovery of a
number of instances of incorrect accounting, some of
which were relating to the prior years and resulted in a
prior year restatement of £60.5m, of which £46.9m
related to FY16. A reassessment of previous judgements
and estimates impacted pre-tax profit by £37.2m, net of
the prior year restatement and before any further
judgemental non-cash adjustments of £39.7m.
Accordingly, the Committee focused its attention on
these and the other significant issues facing the
Company, particularly with regards to why some of the
key estimates had changed during the financial year, why
some items had not been accounted for correctly in the
prior year and why it was appropriate to reassess some
of the accounting practices used in prior years. In
addition the Committee also ensured that the material
judgements and estimates used this financial year are
the most appropriate to present a fair and balanced view
of the position at 31 March 2017. In January, following the
appointment of new executive management, the
Committee engaged KPMG, as independent
accountants, to review and report on the most material
judgements made on the balance sheet amounts in
relation to long-term complex contracts, accrued income,
work in progress and mobilisation. Their work was
undertaken between January and May 2017 and focused
on balance sheet items as at the end of December 2016.
In addition, KPMG provided support to management,
who carried out a review of the remaining areas of the
balance sheet. By the completion of these reviews, all
material balance sheet items had been reviewed and the
results presented to, and discussed at the Audit
Committee. Over the course of five meetings, members
of the Audit Committee have been briefed by KPMG on
the findings of their work and the recommendations from
management on the changes required to ensure that
Mitie’s financial reporting and control environment meets
the standards required. These reviews have led to the
need for significant write-offs totalling £37.2m in FY17
and disappointingly, and most concerning, the correction
of a number of a number of material errors made in the
prior year to 31 March 2016. The Audit Committee views
these prior year adjustments with a very high degree of
concern, as the existence of such material errors is based
on information brought to the Committee’s attention in
the period from January to May 2017.
The Audit Committee also oversaw and assisted the
Board in its responsibility to approve a fair, balanced and
understandable Annual Report and Accounts for the year
ended 31 March 2017.
These accounts should provide the information
necessary for shareholders to assess the Company’s
strategy, business mode and financial performance
throughout the year.
Given the serious nature of the issues affecting the
Company, the Committee has met five times during the
financial year, with four further meetings held during the
current financial year. The membership of the Audit
Committee has been strengthened by the recent
appointment of Nivedita Krishnamurthy Bhagat.
During the financial year to 31 March 2017, the
Company received two requests for information from the
Corporate Reporting Review Committee of the Financial
Reporting Council (the FRC) under the FRC’s Conduct
Committee’s operating procedures for reviewing
corporate reporting. The requests related to the
treatment and disclosure of goodwill and accrued income
in the Annual Report and Accounts for the year ended
31 March 2016. The Audit Committee reviewed the
responses to these requests and I, together with other
Directors have also met with members of the Corporate
Reporting Review Committee and staff of the Corporate
Reporting Review team. The Audit Committee also
received and reviewed the findings of the FRC’s Audit
Quality Review (AQR) team following their review of the
work conducted by Deloitte during their audit for the
year ended 31 March 2016. At Group level, the AQR
team reviewed Deloitte’s supervision and oversight of
component auditors, the quality of communications with
the Audit Committee, goodwill impairment, quality
control of the audit and the audit of revenue recognition
in complex long-term contracts. At component level, the
AQR team reviewed the provisioning of trade receivables
and accrued income, primarily at two selected UK
components. The AQR’s review resulted in improvements
being required in two main areas which were reported to
the Audit Committee. First, in relation to the challenge of
certain key assumptions in the goodwill impairment
review, including the depth of analysis of related
sensitivities. Secondly in relation to the audit of the
recognition of certain cost saving initiatives relating to
one complex long-term contract. The Audit Committee
has worked with Deloitte to develop a comprehensive
action plan to address these findings. The Audit
Committee is satisfied that the AQR’s findings have been
addressed as part of the 2017 audit process.
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Audit Committee continued
The Audit Committee has discussed these findings with
Deloitte and was satisfied with the improvements that
Deloitte have made in the audit of goodwill impairment
and revenue recognition in connection with complex long-
term contracts.
The Committee also considered the effectiveness of the
Group’s financial reporting processes, 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.
As a consequence of the issues discovered during the year
the Audit Committee has considered the control
environment and in particular the risks of controls being
compromised by their override by management.
This has clearly been a very challenging year for the
management team at Mitie, as well as for the Board and
Audit Committee. I believe we have reacted to the issues
raised in a professional and diligent manner, applying our
independent judgement, and look forward to answering any
questions that shareholders wish to raise at the AGM.
Details of the Audit Committee’s work can be found on the
following pages.
Audit Committee members
Mark Reckitt has been Chairman of the Audit Committee
since 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 39
and in the Notice of AGM.
At the date of this report, the Audit Committee comprises
independent Non-Executive Directors who are all considered
appropriately experienced to fulfil their duties.
Mark Reckitt
Chairman
Committee members Jack Boyer
Larry Hirst
Nivedita Krishnamurthy Bhagat1
1. Nivedita Krishnamurthy Bhagat was appointed to the Audit Committee
on 1 June 2017.
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 Audit function and the
external auditor functions. The Audit Committee also
oversees the Group’s internal control systems, business
risks management and related compliance activities.
The Audit Committee meets with the external auditor and
the Head of Internal Audit without the Executive Directors
present. As Chairman of the Audit Committee, Mark will
be available at the AGM to answer any questions about the
work of the Audit Committee.
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Mitie Group plc | Annual Report and Accounts 2017
Principal responsibilities of the Audit Committee
Reporting and external audit
• 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 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;
• 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 reports produced in connection with the accounting reviews
undertaken by KPMG and management in the period January to May 2017 and
also assessment of management’s response to the issues raised; and
• 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.
Risk and internal control
• 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;
• 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;
• 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;
• 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; and
• Reviewing the Group’s systems and controls for the prevention of bribery.
Key areas discussed
and reviewed during year
• Results, commentary and
announcements;
• Key accounting judgements,
including contract margins and
impairment reviews;
• Changes to accounting policies
and procedures;
• Going concern and the Viability
Statement;
• Fair, balanced and understandable
assessment in relation to the
Annual Report;
• External auditor effectiveness;
• External auditor reports on planning
the half-yearly review and the full-
year audit, including the final opinion;
and
• The external auditor’s remuneration.
• Risk register, including identification
of the Group’s principal risks and
movement in exposures;
• Status of key risk indicators
including any breaches of
thresholds;
• Review of activities of the Enterprise
Risk Management function;
• Effectiveness of internal
control systems;
• Responses to audit findings and
recommendations for control
improvements, including
reviewing the external auditors’
management letter;
• Fraud risk assessment;
• Cyber security and readiness; and
• Whistleblowing procedures.
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Audit Committee continued
Principal Responsibilities of the Audit Committee
Internal Audit
• 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;
• 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.
Other
• Ensuring the Group’s compliance with the Competition and Markets Authorities
Statutory Audit Services Order, in particular with regard to audit tender.
Key areas discussed
and reviewed during year
• Annual internal audit plan, including
consideration of its alignment to the
principal risks, consideration of
emerging areas of risk, coverage
across the Group and review of the
Group’s processes and controls;
• Review of the execution of the
internal audit plan and the resultant
audit reports and findings;
• Internal Audit effectiveness;
• Internal Audit reports;
• Annual internal controls
overview; and
• Internal Audit charter, defining its
role and responsibilities.
• The Committee’s Terms of
Reference; and
• Effectiveness of the Committee.
The Audit Committee’s Terms of Reference are available at www.mitie.com/investors/corporate-governance.
To aid the review, the Audit Committee considers reports
from the Chief Financial Officer and also reports from the
external auditor on the outcomes of the half-year review and
independent audit.
Significant issues considered by the Audit
Committee during the year
The Audit Committee pays particular attention to matters
it considers to be important by virtue of their size,
complexity, level of judgement required, potential
impact on the financial statements and wider business
model, and matters pertaining to governance. Identification
of the issues deemed to be significant takes place following
open, frank and challenging discussion between the Audit
Committee members, with input from the Chief Financial
Officer, Deloitte and the Head of Internal Audit and other
relevant Mitie employees.
The Audit Committee considered the following significant
matters during the course of the financial year. 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.
The external auditor provides a paper that sets 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.
Frequency of Audit Committee meetings
During the financial year, the Audit Committee met five
times and held two additional ad hoc meetings at which it
discussed the external audit plan for the financial year and
the balance sheet review conducted by management and
assisted by KPMG. Invitations to attend meetings are
normally extended to the Group’s external auditor, the
Chairman, the Chief Executive Officer, the Chief Financial
Officer and the Head of Internal Audit.
Number of scheduled meetings held in year:
Mark Reckitt
Jack Boyer
Larry Hirst
Attendance
5
5
5
5
The role of the Audit Committee – financial
reporting
The primary role of the Audit Committee in relation to financial
reporting is to review with both management and the external
auditor the appropriateness of the Half-Year Report 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.
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Issue
How addressed
Accounting Review of
balance sheet
Instigating the review and
agreeing the scope of the
review of balance sheet
items by KPMG and
management.
The most significant issue considered by the Audit Committee during the year related to the
balance sheet reviews carried out by executive management, with support from KPMG. In
January 2017, in consultation with the new executive management, the Audit Committee asked
management to conduct a detailed balance sheet review with independent expert support. The
Audit Committee oversaw the appointment of KPMG in that and nominated its scope of work
and levels of materiality. Management and KPMG reported to the Audit Committee during the
period March to June 2017. The Audit Committee sought to ensure that the Accounting Review
has been thorough and balanced and requested recommendations for future improvements. Full
details of the outcome of these reviews are given in the Finance Review on pages 26 to 29.
Given the scale and significance of the resulting write-downs to items on the balance sheet,
including material errors from prior years, the valuation of intangible software assets, onerous
contract and other provisions, the Audit Committee spent a considerable time discussing and
challenging management on the significant estimates and judgements made by management
during the course of the review and also on the content and outcomes of this review.
The Audit Committee considered and agreed the scope of the review to ensure that it was
sufficiently rigorous, setting materiality levels, and supported the engagement of KPMG and the
terms for their engagement to provide financial reporting and accounting advice in connection
with the reviews. The Audit Committee considered the principal contract reviews that were
undertaken as part of the review process.
The Audit Committee met regularly to review progress and ensure that management was
able to apply sufficient resource to enable the review to be completed on a timely basis. In all,
four additional meetings were held prior to the publication of the 2017 Annual Report and
Accounts. These meetings reviewed in detail the results of the review and the key accounting
papers to assess whether there was any evidence of bias in management’s assessment of
accounting treatment and determination of the levels of provisioning, particularly in relation to
long-term complex contracts and those where there were high levels of accrued income and
work in progress.
As part of the Audit Committee’s detailed review and challenge the Audit Committee also
focused on whether there was evidence that impairments and provisions should have been
identified in a prior year (based on information available, or which should have been available at
the time) and might therefore be categorised as errors arising from the failure to use information
available when prior year accounts were being prepared. In some cases this review was
complicated by changes in personnel at Mitie. In such cases there is an inevitable element of
judgement as to whether a prior year error has been made, and should be corrected, or whether
changes in personnel have caused a change in judgement. In such cases there may be a
management bias in favour of judging that issues should be prior year errors rather than current
year judgements. The Audit Committee considered each of the prior year errors identified and
challenged management, in particular where information made available in the prior year had
changed or where management had changed. In some cases management decided
that insufficient evidence existed to support a determination of prior year error. The Audit
Committee discussed these issues with the Group’s external auditor and, in particular,
the differences between prior year error and changes in judgement.
The Audit Committee reviewed the treatment of items considered as being exceptional and
therefore requiring separate disclosure to assist the reader in understanding the results of the
Group. Management prepared documentation to support the financial statements, which was
reviewed and challenged by the Audit Committee and discussed with the external auditor.
As part of this review the Audit Committee also considered the appropriateness of the
accounting policies, instructing KPMG to carry out a detailed review of the policies in relation
to long-term complex contracts, mobilisation costs, accrued income and work in progress.
Management undertook a review of other policies, in particular those relating to capitalisation
and amortisation of intangible software assets and amounts receivable.
At the conclusion of the process the Audit Committee concluded that the overall provisions were
appropriately positioned, taking account of the range of possible outcomes. The Audit
Committee concluded that prior period errors were material and that a number of adjustments
were required to ensure that the results for the financial year to 31 March 2017 were fairly stated.
The Audit Committee has also concluded that the items regarded as exceptional have been
reported as such and that the accounting policies applied were appropriate.
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Audit Committee continued
Issue
How addressed
Issue
How addressed
Financial reporting &
trading statements
financial reporting
control environment
In light of the significant
provisions and
impairments made in
the year to
31 March 2017 the
Audit Committee
spent significant time
considering the strength
of the Group’s internal
control environment
Use of Alternative
Performance Measures
(APMs)
Since the appointment of Phil Bentley as Chief Executive Officer, the Company has made a
number of key appointments in the Finance function to increase the capability and leadership of
that function. Sandip Mahajan was appointed as Chief Financial Officer on 10 February 2017 and
has provided effective leadership to the Finance function which has included ensuring clearer lines
of reporting for finance managers. In April 2017, following discussions with the Chairman of the
Audit Committee, the Head of Internal Audit stepped down from that position and has been
replaced by an external appointee. The Audit Committee supports the appointments and other
changes made to date, and has asked management to continue to improve the training,
capability and direction provided to the Finance function. The Audit Committee has challenged
management to improve the clarity and effectiveness of the process by which management
across the business confirms the adequacy of the internal controls for which it is responsible. The
Audit Committee has also ensured that a new independently managed whistleblowing process
will be launched across the business. In the light of the increased risk of management override of
controls the Audit Committee considered the additional actions undertaken by management to
provide a sufficient level of assurance on the judgements made at all levels of the business in
relation to the determination of the financial position of Mitie.
As already noted the Audit Committee has appointed a new Head of Internal Audit and
challenged that team to increase the proportion of its work that is focused on the review of
balance sheet items, to ensure that higher risk areas of business receive a greater proportion of
its activity and to ensure that its reports to the Audit Committee are submitted on a timely basis
following completion of the relevant audit.
The Audit Committee challenged the adequacy of commentary on Healthcare impairment and
disposal to ensure a clear explanation of the evolution of the Group’s position on this division
from the prior year.
The Audit Committee reviewed the Group’s revenue recognition procedures and challenged
management on the recoverability of aged debt and accrued income, as well as the adequacy of
the level of provisioning made in relation to contracts where there was evidence of issues in
dispute with clients.
The Audit Committee received a report on the drivers for the increase in the defined benefit
pension obligations during the year and challenged management in respect of concluding on a
plan to deal with the pension deficit.
The Company’s performance measures continue to include some measures which are
not defined or specified under IFRS. In particular management have introduced measures
referred to as “adjusted revenue”, “adjusted operating profit” and “profit before other items” as
key measures to review current performance against the prior year by removing the impact of
prior year adjustments as well as asset write-downs of a non-recurring nature, which include
those identified during the Accounting Review.
The Committee noted the guidance issued by the Financial Reporting Council in relation to
the use of APMs and, supported by the challenge of the external auditor, considered whether the
performance measures used by management provided a meaningful insight into the results of
the Company for its shareholders.
The Audit Committee then also reviewed the treatment of items considered as requiring
separate disclosure.
With the support of the external auditor, the Audit Committee reviewed the proposed disclosure
of APMs in both the 2017 Half-Year Report and the Annual Report ahead of their approval by
the Board.
The Audit Committee agreed with management and the external auditor that adjusted profit is a
reasonable basis for the comparison of the performance of the business.
The Audit Committee also continued to support the judgements made by management
regarding the items considered as being exceptional and requiring separate disclosure.
The Audit Committee concluded that, in relation to the Half-Year Report and the FY17 results
and the Annual Report and Accounts, clear and meaningful descriptions had been provided for
the APMs used. It was also concluded that the relationship between these measures and the
statutory IFRS measures was clearly explained, supported the considered understanding of the
financial statements and that the Committee had considered that they had been accorded equal
prominence with measures that are defined by, or specified under, IFRS.
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Mitie Group plc | Annual Report and Accounts 2017
The valuation of goodwill
The Group has undertaken a number of acquisitions in the past and carries goodwill as an
including the impairment
future cash flows deriving from each CGU and also the selection of appropriate discount rates,
Reviewing the carrying
value of goodwill, with
particular emphasis
on Healthcare
and Property
Management,
of Healthcare goodwill
and acquisition related
intangibles
intangible asset on its balance sheet in respect of the businesses acquired (see Note 14).
The Group considers the carrying value of all goodwill on at least an annual basis, or when an
indicator of impairment has occurred. The valuation and impairment review of goodwill is
assessed for each individual cash-generating unit, or groups of cash-generating units (CGUs), 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
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.
At the half year the Audit Committee formally considered a paper on the status of Healthcare
goodwill. The Audit Committee concurred with the paper’s conclusion that the Healthcare
goodwill should be fully impaired as changes in the domiciliary healthcare market and the
experience of our Healthcare business over the first six months of the financial year caused the
Directors to decide in September 2016 that the Group would exit the social healthcare market.
Additionally the Audit Committee considered the disclosures to be made at the half year and also
received the advice of Deloitte on such disclosures.
In February 2017 the Corporate Reporting Review Committee of the Financial Reporting Council
(FRC) sent Mitie a number of questions relating to the impairment testing of the Healthcare
goodwill as at 31 March 2016 and the full impairment of that goodwill in the 30 September 2016
Half-Year Report. The Audit Committee, supported by KPMG and management, undertook a full
review of the circumstances surrounding the impairment testing of goodwill. Following
completion of the review the Audit Committee concluded that future impairment tests of goodwill
should include more detailed assessment of the sensitivities to a CGU’s recoverable amount,
especially in areas where forecast growth appears high compared to recent trading performance
and wider market conditions. The Audit Committee has concluded that certain aspects of the
impairment testing of the Healthcare goodwill as at 31 March 2016 resulted in an incorrect
statement of the relevant amount of goodwill at that date and that as a result it is appropriate to
record a prior year adjustment in respect of £65m of the value in use at that date of £157m.
Further detail on the impairment testing of Healthcare goodwill is provided on pages 137 to 139.
Mitie remains in dialogue with the FRC’s Corporate Reporting Review Committee in relation to
the impairment testing of Healthcare goodwill and accrued income at 31 March 2016.
The Audit Committee recognises that there was a material disclosure deficiency in the 2016
Annual Report and Accounts, in that there was a failure to disclose the significant judgements
made around the inclusion of new service line expansion plans in the Healthcare
business adjacent to existing skills and assets already in the business. This included the
provision of Telecare services, community healthcare and supply of temporary staff
on an agency basis.
At the full year, the Audit Committee formally considered the carrying value of goodwill in respect
of the Property Management CGU, given the limited impairment headroom of the CGU. The
Audit 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 Property Management CGU, the conditions in the
social housing 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. The Audit Committee ensured
that the underlying cash flow forecasts used for the assessment of goodwill impairment are also
consistent with those used for the Group’s going concern and viability assessment. In particular,
the Audit Committee considered the degree to which the valuation was sensitive to the recovery
in performance forecast for the current financial year and also whether, given the increased
apparent risk in the market, the range of sensitivity in the discount rate was capable of fully
valuing that risk. On the basis of this review, the Audit Committee agreed with management that
an impairment to goodwill of £15m was necessary, but asked management to ensure that
forecast performance was under close review and to alert the Audit Committee if management
believed that there was a risk of further impairment of goodwill during the current financial year.
The Audit Committee concluded that the disclosures provided in the financial statements are
transparent, appropriate and in compliance with financial reporting requirements.
Issue
How addressed
The valuation of goodwill
Reviewing the carrying
value of goodwill, with
particular emphasis
on Healthcare
and Property
Management,
including the impairment
of Healthcare goodwill
and acquisition related
intangibles
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 14).
The Group considers the carrying value of all goodwill on at least an annual basis, or when an
indicator of impairment has occurred. The valuation and impairment review of goodwill is
assessed for each individual cash-generating unit, or groups of cash-generating units (CGUs), 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.
At the half year the Audit Committee formally considered a paper on the status of Healthcare
goodwill. The Audit Committee concurred with the paper’s conclusion that the Healthcare
goodwill should be fully impaired as changes in the domiciliary healthcare market and the
experience of our Healthcare business over the first six months of the financial year caused the
Directors to decide in September 2016 that the Group would exit the social healthcare market.
Additionally the Audit Committee considered the disclosures to be made at the half year and also
received the advice of Deloitte on such disclosures.
In February 2017 the Corporate Reporting Review Committee of the Financial Reporting Council
(FRC) sent Mitie a number of questions relating to the impairment testing of the Healthcare
goodwill as at 31 March 2016 and the full impairment of that goodwill in the 30 September 2016
Half-Year Report. The Audit Committee, supported by KPMG and management, undertook a full
review of the circumstances surrounding the impairment testing of goodwill. Following
completion of the review the Audit Committee concluded that future impairment tests of goodwill
should include more detailed assessment of the sensitivities to a CGU’s recoverable amount,
especially in areas where forecast growth appears high compared to recent trading performance
and wider market conditions. The Audit Committee has concluded that certain aspects of the
impairment testing of the Healthcare goodwill as at 31 March 2016 resulted in an incorrect
statement of the relevant amount of goodwill at that date and that as a result it is appropriate to
record a prior year adjustment in respect of £65m of the value in use at that date of £157m.
Further detail on the impairment testing of Healthcare goodwill is provided on pages 137 to 139.
Mitie remains in dialogue with the FRC’s Corporate Reporting Review Committee in relation to
the impairment testing of Healthcare goodwill and accrued income at 31 March 2016.
The Audit Committee recognises that there was a material disclosure deficiency in the 2016
Annual Report and Accounts, in that there was a failure to disclose the significant judgements
made around the inclusion of new service line expansion plans in the Healthcare
business adjacent to existing skills and assets already in the business. This included the
provision of Telecare services, community healthcare and supply of temporary staff
on an agency basis.
At the full year, the Audit Committee formally considered the carrying value of goodwill in respect
of the Property Management CGU, given the limited impairment headroom of the CGU. The
Audit 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 Property Management CGU, the conditions in the
social housing 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. The Audit Committee ensured
that the underlying cash flow forecasts used for the assessment of goodwill impairment are also
consistent with those used for the Group’s going concern and viability assessment. In particular,
the Audit Committee considered the degree to which the valuation was sensitive to the recovery
in performance forecast for the current financial year and also whether, given the increased
apparent risk in the market, the range of sensitivity in the discount rate was capable of fully
valuing that risk. On the basis of this review, the Audit Committee agreed with management that
an impairment to goodwill of £15m was necessary, but asked management to ensure that
forecast performance was under close review and to alert the Audit Committee if management
believed that there was a risk of further impairment of goodwill during the current financial year.
The Audit Committee concluded that the disclosures provided in the financial statements are
transparent, appropriate and in compliance with financial reporting requirements.
55
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Audit Committee continued
Issue
How addressed
Review of the Group’s
going concern and
viability statements
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 the evidence that supports the ability of the Directors to
conclude that the Group has adequate financial resources to continue in operation for the
foreseeable future and can prepare its accounts on a going concern basis. The Audit Committee
considered the future prospects and performance of the Group including: the future business
plans of the Group; the potential impact of acquisition activity and possible changes to the
composition of the Group; the projected future cash flows of the Group; the availability of core
and ancillary financing facilities and compliance with related covenants, together with waivers of
covenants that have been agreed with lenders following the year end; 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 pages 90 and 91, 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 37.
The Audit Committee considered papers prepared by management, supported by KPMG in some
instances, on: revenue and profit recognition on contracts; 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. In November 2016 and April, May and
June 2017 the Audit Committee considered, in particular, the position of the largest and highest
risk Integrated Facilities Management contracts in conjunction with the Half-Year review and full
year audit work conducted by Deloitte. At the first of these meetings the Audit Committee
challenged management in relation to the reasonableness of forecasts made for project work
and labour savings, as well as the net position of disputes both for and against the client, in
relation to work already completed and accounted for on three public sector contracts. As a
result of these challenges, management undertook to increase the amount provided against
these contracts and to maintain the close monitoring of their performance over the remainder of
the year. At the meeting in November 2016 the Audit Committee also considered the views of
Deloitte in relation to a number of overdue items of accounts receivable and accrued income.
Following these discussions, management increased the amount provided against claims made
by a client of Mitie Property Management.
In April and May 2017 the Audit Committee considered the results of the Accounting Review
undertaken by KPMG and the resulting recommendations by management. The Committee has,
over the course of several meetings involving KPMG, considered the circumstances that
contributed to the causes of the instances of incorrect accounting and changes in estimates. It
concurs that many of the issues may have been avoided had the accounting activities of the
Finance function been directed in a more detailed fashion. Whilst accounting was consistent with
the requirements of the relevant accounting standards, the degree of inconsistency of application
across the various Group activities resulted in a range of judgements being applied at the lowest
level of accounting activity. The Audit Committee fully supports the activities of the current
Finance leadership to ensure that more detailed accounting procedures are embedded across
the organisation and that judgements made are clearly documented and appropriately
challenged by financial leadership, Internal Audit, external audit and ultimately the Audit
Committee and Board.
The Audit Committee also considered papers by management on the basis for recognition of PFI
lifecycle surpluses.
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Mitie Group plc | Annual Report and Accounts 2017
Issue
How addressed
Internal audit scope
Reviewed and redirected the
scope of internal audit work
Review of fraud
management controls
Reviewing the cause of a
number of instances of incorrect
accounting and the robustness
of the proposed revision to
internal controls
FRC’s Corporate Reporting
Review Committee comment
letter
Reviewing letters from the FRC
and management responses to
the enquiries made
Other areas
Impact of IFRS 15
The Audit Committee considered the effectiveness of Internal Audit scope during the year.
In May 2017 we appointed a new Head of Internal Audit, effective June 2017. The Audit
Committee has challenged the Head of Internal Audit to increase the proportion of its
work that is focused on the review of balance sheet items, to ensure that higher risk areas
of business receive a greater proportion of its activity and to report to the Audit
Committee within a set period after the completion of the relevant internal audit work.
The Audit Committee considered internal audit reports and management presentations on
occurrences of incorrect accounting in a number of individual businesses. The Audit
Committee has noted and supports the significant number of changes made, including in
the leadership and reporting lines for the Finance function as well as the additional
resources engaged to ensure that accurate accounting judgements can be made at every
level of the Finance function In addition to the other changes noted earlier in this report,
the Audit Committee supports management’s response to these issues and has
challenged management to ensure that sufficient resource is made available to embed the
changes into Mitie’s operations.
The Group received further requests for additional information and explanation from the
FRC’s Corporate Reporting Review Committee in relation to the Group’s 2016 Annual
Reports and Accounts, making this the FRC’s third year of enquiry. After due consideration
and approval by the Audit Committee, the Group has provided initial responses to the
Corporate Reporting Review Committee and remains in discussion with them.
As part of this process I, together with other Board members have met members of the
Corporate Reporting Review Committee and staff of the Corporate Reporting Review
team to seek to facilitate an effective and efficient plan for the resolution of the issues
raised by them.
In my role as Chair of the Audit Committee I have attended separate meetings with
members of the Finance function to receive updates on projects related to the efficiency
and effectiveness of that function.
IFRS 15, which introduces a new basis for revenue recognition, is due to be effective for
periods beginning on or after 1 January 2018. Mitie will be required to adopt this no later
than for FY19. The Audit Committee has discussed the likely impact on the accounting for
long-term complex contracts and mobilisation costs. As part of this process the Audit
Committee has agreed with management that it may be appropriate to adopt IFRS at
some point during FY18 but such determination will be dependant on ensuring that
effective management controls and processes are in place provide the required level of
assurance.
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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 FRC’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 7 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 FY16,
which 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 7 to the financial statements. The Audit Committee
confirms that the requirements of the non-audit services
policy have been met throughout the year.
Audit Committee continued
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
As a result of the issues encountered during the financial
year, the Audit Committee has given detailed consideration
to the timing of the next formal tender for the external audit
and has concluded that such a tender should commence
shortly such that a new external auditor can be in place
during the financial year to 31 March 2018. There are no
contractual obligations restricting the Company’s choice
of external auditor.
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.
Given the issues reported to the Audit Committee, which are
outlined in this report, the Audit Committee has considered
the effectiveness of the external auditor.
The Committee has satisfied itself with the improvements
made by Deloitte following the findings made by the Audit
Quality Review team at the FRC and also concluded that
Deloitte were effective in their role as external auditor for
the financial year.
The Audit Committee has concluded that it is in the
best interests of the Company that an audit tender is
undertaken shortly so that a new external auditor can
be appointed during the financial year ending on
31 March 2018.
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Mitie Group plc | Annual Report and Accounts 2017
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 the
Group Enterprise Risk function with a team of specialist
resources.
Review of whistleblowing processes
Part of the Audit Committee’s role is to ensure that
appropriate procedures are in place in relation to
whistleblowing and to review on an annual basis the
Group’s whistleblowing policy. Matters reported through
the Mitie whistleblowing hotline were previously reviewed
and investigated by the managing director of the relevant
business, with data presented to the Audit Committee via an
enterprise and risk management report, together with
details of the necessary action taken. In March 2017 the
Audit Committee challenged management to ensure that
whistleblowing arrangements were seen as effective and
independent of management across the organisation.
Management has now contracted with a third party provider
of such services and will relaunch the Mitie whistleblowing
hotline as soon as possible in 2017.
Mark Reckitt
Chairman of the Audit Committee
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 the
Group Enterprise Risk function with a team of specialist
resources.
Review of whistleblowing processes
Part of the Audit Committee’s role is to ensure that
appropriate procedures are in place in relation to
whistleblowing and to review on an annual basis the
Group’s whistleblowing policy. Matters reported through
the Mitie whistleblowing hotline were previously reviewed
and investigated by the managing director of the relevant
business, with data presented to the Audit Committee via an
enterprise and risk management report, together with
details of the necessary action taken. In March 2017 the
Audit Committee challenged management to ensure that
whistleblowing arrangements were seen as effective and
independent of management across the organisation.
Management has now contracted with a third party provider
of such services and will relaunch the Mitie whistleblowing
hotline as soon as possible in 2017.
Mark Reckitt
Chairman of the Audit Committee
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Nomination Committee
Roger Matthews
Chairman’s introduction
The role of the Nomination Committee is to ensure
the Board is appropriately balanced in terms of its
composition, considering matters of skills, experience
and diversity. The Nomination 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
At the date of this report the Nomination
Committee comprises:
Chairman
Committee members
Roger Matthews
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 Nomination 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,
Chief Executive Officer and Chief Financial Officer;
• 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;
• 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 those 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/corporate-
governance.
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Mitie Group plc | Annual Report and Accounts 2017
Key activities during the year
The Nomination Committee reviewed the composition
and chairmanship of the Board and each of its Committees.
The Nomination 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 Nomination Committee recognises the importance of
planning for the future and the succession planning process.
During the year, the Nomination Committee continued to
consider the succession plan which had commenced in 2015
for key members of the executive management team and, in
particular, who should succeed Ruby McGregor-Smith as
Chief Executive and Suzanne Baxter as Group Finance
Director. A detailed, independent review of internal
candidates was undertaken in 2015 and internal
candidates were considered for both roles. External
advisors, Ridgeway Partners Limited, were appointed to
support the process of finding new candidates for both
roles. There is no other connection between Ridgeway
Partners Limited and the Company.
After considering appropriate individuals, the Nomination
Committee recommended to the Board the appointment of
Phil Bentley as Chief Executive Officer. The Board accepted
this recommendation and Phil was appointed a Director of the
Company on 1 November 2016. Ruby stepped down as Chief
Executive and Director of Mitie on 12 December 2016, on which
date Phil assumed the position of Chief Executive Officer.
After conducting further searches, the Nomination
Committee recommended to the Board the appointment
of Sandip Mahajan as Chief Financial Officer. The Board
accepted this recommendation and Sandip was appointed
as Chief Financial Officer and Director of the Company on
10 February 2017, on which date Suzanne Baxter stepped
down as Director and Group Finance Director.
As a further part of its ongoing succession planning and
refreshing of the Board, the Nomination Committee worked
with executive search firms JCA Group, for a suitable
successor to myself as Chairman of the Board, and The
Zygos Partnership, to find an additional Non-Executive
Director, with skill sets to complement those of existing
Board members. Neither search firm has other connections
with the Company. In accordance with the Code, I took no
part in discussions in relation to the search and selection
process for the role of Chairman, this being led instead by
our Senior Independent Director, Larry Hirst.
Work with the JCA Group identified Derek Mapp as a suitable
successor as Chairman, and after careful consideration, the
Nomination Committee recommended to the Board his
appointment. As announced on 9 May 2017, Derek was
appointed as Chairman-elect and Non-Executive Director
of the Board on 9 May 2017. He will stand for election at the
forthcoming Annual General Meeting to be held on 26 July
2017, in accordance with the Code, and will undertake the
role of Chairman from the close of that meeting.
The search with The Zygos Partnership resulted in the
selection of Nivedita Krishnamurthy Bhagat, as announced
on 16 March 2017, and who was appointed to the Board on
1 June 2017 as a Non-Executive Director. Nivedita will also
stand for election at the forthcoming Annual General
Meeting, in accordance with the Code.
Frequency of Nomination Committee meetings
During the financial year, the Nomination Committee met
five times.
Roger Matthews
Jack Boyer
Larry Hirst
Mark Reckitt
Attendance
5
5
5
5
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. 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 and
the diversity of Mitie’s people, together with a breakdown of
employee diversity as required by the Companies Act 2006
can be found in the sustainability section of our website at
www.mitie.com.
Roger Matthews
Chairman of the Nomination Committee
Investment Committee
Overview and purpose
The Investment Committee facilitates the internal
approvals process by approving matters as delegated
by the Board and referring recommendations for Board
approval. The Investment Committee, which comprises
the Chief Executive Officer, as Chair, and Chief
Financial Officer, met once during the year and
considered major bids and contracts, 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 Officer, as Chair, and Chief Financial Officer,
met three times during the year.
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Remuneration Committee
Jack Boyer
Chairman’s introduction
On behalf of the Board, I am pleased to present the
Directors’ remuneration report for the year ended
31 March 2017.
The Remuneration Committee has been required to
address a number of issues during the course of the year.
I have described below the approach the Committee has
taken, together with the context in which key decisions
were made.
Chief Executive succession
In the second half of 2015 the Board initiated a detailed
review of its senior executive succession plans, initially
for the role of Chief Executive. External advisors were
appointed to support this process, with a range of
both internal and external candidates assessed. As
announced in October 2016, this process culminated
in the appointment of Phil Bentley as the successor to
Ruby McGregor-Smith as Chief Executive, with Phil
assuming this position in December.
We were pleased to secure Phil as Mitie’s Chief Executive.
He has a strong track record of value creation, having led
the successful turnaround and eventual sale of Cable &
Wireless Communications plc (CWC) where he created
substantial returns for shareholders (moving CWC up the
FTSE by 121 places to a ranking of 114 within a two-year
period, with the sale delivering £3.3 billion to shareholders).
Prior to that, Phil was managing director of British Gas (BG).
Phil built a new management team which grew BG into a £14
billion business with 33,000 employees and £1.2 billion
annual profit (increased from £300m).
In both roles, Phil demonstrated his skills in value creation
through a combination of people leadership, establishing
new management teams, changing the culture and
ways of working, a focus on client/customer service,
an expanded (and often technology-led) offering, cost
efficiencies and brand transformation. These change
programmes were also delivered at pace, with Phil’s skills
and drive highly relevant to Mitie and its strategy at this
critical stage in the Company’s development.
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Indeed, Phil has already made a significant impact at Mitie
by resetting the Group’s strategy and carrying out a balance
sheet review to underpin Mitie’s financial reporting. To
ensure focus on its core activities, Mitie sold its domiciliary
healthcare business in February 2017.
The Committee was mindful of the fact that the challenges
faced by Mitie required the leadership, vision and drive
of an exceptional Chief Executive such as Phil and that,
therefore, it was necessary to offer a level of remuneration
commensurate with the talents of such a candidate. Also,
when determining Phil’s remuneration, the Committee’s
underlying aims were to:
• operate within Mitie’s existing policy, for which shareholder
approval had been obtained at the 2015 AGM;
• avoid the payment of any “signing-on” awards;
• ensure that Phil’s interests are immediately aligned with
the long-term interests of shareholders via (i) Phil
acquiring out of his own funds a significant stake in Mitie,
(ii) a policy-compliant award under the existing Mitie LTIP
(albeit with performance measured over a longer four-
year period than the standard three years) and (iii) the
imposition of enhanced share ownership guidelines of
400% of salary; and
• ensure that a significant portion of Phil’s package is
performance-linked.
With this in mind, the main elements of Phil’s package were
agreed as follows:
• Base salary: £900,000. The Committee is aware that this
salary is above median. However, this salary reflects Phil’s
expertise and experience which are particularly relevant
to Mitie. This salary was not increased following the FY17
year end and will not be increased until 2020
(at the earliest);
• Shareholder alignment: to provide an immediate
and significant alignment with other shareholders, in
November 2016 Phil acquired out of his own funds
1,852,656 Mitie shares worth £3.6m. This ensured
adherence to the enhanced share ownership guideline
of 400% of salary that will apply to Phil (the current
policy being 200% of salary);
• Annual bonus:
– FY17 – as explained on page 77, Phil was eligible for an
on-target bonus of 115% of his pro-rated salary for
FY17. Although the Committee determined that the
financial elements of the target were not met, Phil had
achieved the strategic targets relating to the period of
management transition and in particular with reference
to customer, employee and shareholder goals. Mindful
of shareholders’ experience over the year, Phil has
waived this bonus. He has also currently waived his
entitlement to a car and driver; and
– FY18 – as explained on page 77, Phil’s bonus
opportunity for FY18 will reflect Mitie’s existing
approach in terms of quantum (i.e. a 160% of salary
maximum bonus). This bonus will be payable by
reference to performance against a blend of
financial (up to 70% of the bonus opportunity) and
personal/strategic targets (up to 30% of the bonus
opportunity). Any bonus earned in excess of 100%
of salary is deferred into shares.
• Long-term incentives: provided under the existing
shareholder-approved LTIP (which contains a two-year
post vesting holding period). Further details are provided
on page 80:
– FY17 – following his appointment in November
2016, Phil received a policy-compliant award under
the LTIP over shares worth 200% of salary. However,
in recognition of the specific circumstances relating to
his recruitment mid-year, Phil’s initial award will vest
subject to the extent to which the annual bonus
targets that apply for FY18, FY19 and FY20 are met
and a bonus paid, noting that typically a bonus will not
be paid in circumstances where a minimum financial
target set by the Committee has not been achieved
and/or where a significant negative event has occurred
in a year (such as a failure to pay a dividend). In the
event Phil earns a bonus in one of these years, 25% of
the award vests, with 67% vesting if a bonus is earned in
two of the years and full vesting if a bonus is earned in
all three years. However, no vesting will actually occur
until 2020. The Committee believes the approach
adopted for Phil’s initial award supports the strong
alignment of his interests with the long-term interests
of shareholders given (i) Phil’s substantial initial upfront
investment, (ii) future LTIP awards will be granted with
standard three-year performance targets and (iii) this
initial award effectively operates with a four-year
performance period, whereas other LTIP awards
granted to other participants in FY17 measure
performance over only three years (as they are
tested in 2019 rather than 2020); and
– FY18 – Phil will receive a standard LTIP award
over shares worth 200% of salary which will vest
subject to the same performance targets as other
recipients (i.e. a blend of EPS, TSR, cash conversion
and strategic objectives).
Departure terms of previous CEO and GFD
The remuneration issues relating to the stepping down
of Ruby McGregor-Smith and Suzanne Baxter were
approached in a consistent manner. This approach also
reflected the Company’s existing remuneration policy, the
terms of their service agreements, the rules of the relevant
incentive plans and did not include any ex gratia additional
payments. Full details of our approach are set out in this
report, which includes an explanation of the fact that (i)
neither Ruby McGregor-Smith nor Suzanne Baxter received
a bonus for FY17 and (ii) the Committee determined that all
their outstanding LTIP awards should lapse.
In addition, as a consequence of the prior year adjustments
to the accounts for the financial year ended 31 March 2016,
the Remuneration Committee will determine what rights
may be available to the Company to recover the bonus and
other awards made to each of Ruby McGregor-Smith and
Suzanne Baxter in respect of FY16 (whether in
whole or in part).
Remuneration policy
We have made no changes to the remuneration policy for
which shareholder approval was obtained at the 2015 AGM
and we are not proposing any changes for the forthcoming
year. For ease of reference we have provided shareholders
with a copy of the policy in the next section of this report.
This policy will remain in place until the AGM in July 2018.
Key activities during the year
During the year and immediately following the year end,
we addressed a number of key issues (in addition to those
described in the first sections of this letter), such as:
• setting base salaries for the Executive Directors;
• assessing the performance of the Executive Directors
and determining annual bonuses;
• Pension: reflecting standard policy, Phil will receive a cash
• setting bonus targets for the Executive Directors;
• approving share awards and considering the extent of
vesting of legacy share awards;
• reviewing the application of the remuneration policy; and
• preparing the Directors’ remuneration report.
contribution in lieu of pension of 20% of salary.
The above remains compliant with the Company’s existing
remuneration policy and does not include any “signing on”
awards. The Committee believes that the approach
adopted to Phil Bentley’s remuneration is appropriate and,
in particular, delivers against our objective of securing a
CEO with the exceptional talents required to address the
specific challenges faced by Mitie and to deliver strong
shareholder returns. Phil has shown his commitment to
Mitie via his significant upfront investment in Mitie shares,
thereby securing another of the Committee’s key
objectives – genuine alignment with the long-term
interests of shareholders.
Group Finance Director succession
As announced in January 2017, and also as part of
Mitie’s orderly succession planning process, Suzanne
Baxter stepped down from the Board as Group Finance
Director and was succeeded by Sandip Mahajan as Chief
Financial Officer. Full details of Sandip’s remuneration
arrangements – which comply with the Company’s
existing remuneration policy – are provided in this report
(and are lower than those provided to Suzanne Baxter) but,
in summary, include (i) a base salary of £320,000 which will
not be increased in FY18, (ii) an annual bonus opportunity of
100% of salary and (iii) regular annual LTIP awards of 125%
of salary.
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Remuneration Committee continued
Alignment between strategy and pay at Mitie
The remuneration policy supports and rewards the
achievement of the Group’s strategy to deliver sustainable
and profitable growth. This is driven and measured by how
the Group performs against a number of KPIs, both financial
and non-financial, further details of which can be found on
pages 12 and 13.
Remuneration decisions
Delivering strategic goals for the future development of the
Group, while also being cognisant of the challenging market
conditions Mitie faces, has been the key focus for the Board
this year and the Committee has approached the key
decisions regarding the remuneration of the Executive
Directors with this future direction in mind.
With regard to fixed pay, it has been agreed that the new
Executive Directors’ base salaries will not be increased and
so will remain £900,000 for Phil Bentley and £320,000
for Sandip Mahajan.
In relation to annual bonus (and as explained later in
this report):
• Phil Bentley was eligible for an on-target bonus of
115% of his pro-rated salary for FY17. Although the
Committee determined that the financial elements of the
target were not met, Phil had achieved the strategic
elements of his target. Mindful of shareholders’ experience
over the year, Phil has waived this bonus. He has also
currently waived his entitlement to a car and driver;
• Sandip Mahajan was not eligible for a bonus for FY17;
• the Committee determined that no bonus should be
payable to Ruby McGregor-Smith and Suzanne Baxter;
and
• for FY18, Phil Bentley’s bonus opportunity will be 160%
of salary, Sandip Mahajan’s 100%. Reflecting the approach
adopted last year, bonuses will be payable based on
performance against a blend of challenging financial
and strategic targets.
We align the remuneration policy to the Group’s strategy
and performance in a number of ways, including:
• Annual Bonus Plan (ABP) – 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 the Group’s business.
Pages 77 and 79 give you more information on ABP and
LTIP targets.
Remuneration Committee members
The members of the Remuneration Committee are all Non-
Executive Directors.
Chairman
Committee members
Jack Boyer
Larry Hirst
Roger Matthews
Mark Reckitt
Key purpose of the Remuneration Committee
We have responsibility for determining the remuneration
of Mitie’s Executive Directors and the Chairman, taking
into account the need to ensure Executive Directors are
properly incentivised to perform in the interests of the
Company and its shareholders.
The Remuneration Committee’s Terms of Reference are
available at www.mitie.com/investors/corporate-
governance/
Frequency of Remuneration Committee meetings
During the year ended 31 March 2017, the Committee met
five times.
Jack Boyer
Larry Hirst
Roger Matthews
Mark Reckitt
Attendance
5
5
5
5
The Committee regularly consults with the Chief Executive
and the Group HR Director on various matters relating to
the appropriateness of rewards for the Executive Directors.
However, the Chief Executive and other Executive Directors
are not present when matters relating directly to their 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 HR Director attended the meetings by invitation only.
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Mitie Group plc | Annual Report and Accounts 2017
With regard to long-term incentives (and as also explained
later in this report):
• following a shareholder consultation exercise, it was
agreed that the “normal” 2016 LTIP grants be made
subject to a blend of EPS, TSR, cash conversion and
strategic objectives. It is also proposed that a similar
approach will be taken to the LTIP awards that are to
be made in 2017 (over shares worth 200% of salary for
Phil Bentley and 125% of salary for Sandip Mahajan);
• in accordance with their terms, the 2014 LTIP awards
held by Ruby McGregor-Smith and Suzanne Baxter were
tested at the end of the original performance period. The
Committee determined that these awards should lapse in
full after exercising negative discretion; and
• in accordance with the rules of the relevant LTIP,
accelerated vesting applied to the 2015 and 2016 LTIP
awards held by Ruby McGregor-Smith and Suzanne
Baxter. The Committee determined that these awards
should also lapse in full after exercising negative discretion.
Remuneration policy for FY18 and onwards
FY18 is the last year that the current remuneration policy
will be in effect, following its approval at the 2015 AGM. We
will undertake a review of the policy during the year and any
proposals to amend the policy will be discussed with our key
shareholders prior to the final policy being presented to the
2018 AGM for a binding vote.
Conclusion
We will be seeking approval for the Directors’ remuneration
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
Chairman of the Remuneration Committee
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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 2017 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, our policy is provided below for convenience.
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
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
Shareholder aligned
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
Comprehensive and simple The overall remuneration policy is comprehensive without becoming overcomplicated and
encourages executives to concentrate on profitable growth
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Mitie Group plc | Annual Report and Accounts 2017
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 2017 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, our policy is provided below for convenience.
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
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
Shareholder aligned
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
Comprehensive and simple The overall remuneration policy is comprehensive without becoming overcomplicated and
encourages executives to concentrate on profitable growth
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
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.
N/A
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.
N/A
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; and
• 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 employed at
31 March 2016 participated in the
Group’s defined benefit scheme
which is closed to new entrants.
The plan has a cap
on pensionable salary.
A cash supplement is
payable in respect of full salary.
Those 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
Executive Directors employed at
31 March 2016 accrued pension at
a rate of 1/70th of pensionable
salary. Pension salary supplement
for each of those Directors is 20%
of salary.
As reported last year, from
1 April 2016, following changes
in legislation impacting the tax
efficiency of pension savings for
higher earners, the Executive
Directors who previously
participated in the Group’s defined
benefit pension scheme ceased
to accrue benefits in the Group’s
defined benefit scheme and
instead received an additional cash
supplement of equivalent value.
The pension salary supplement
for new Executive 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 2017
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 up to 135% of
salary for any other 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.
Awards may be made up to
a maximum level of 200% of
salary for any Executive
Director.
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 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 the 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
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 schemes
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;
• 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 shares; and
• benefits, including expenses,
can be provided if
considered necessary
on a case-by-case basis.
Opportunity
N/A
Performance metrics
N/A
N/A
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
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.
Note:
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).
Discretions retained in operating the incentive plans
The Committee will operate the Annual Bonus Plan and LTIP according to their respective rules and the above policy table.
The Committee retains discretion, consistent with market practice, in a number of respects, in relation to the operation and
administration of these plans.
These discretions include, but are not limited to, the following:
• the selection of participants;
• the timing of grant of an award/bonus opportunity;
• the size of an award/bonus opportunity subject to the maximum limits set out in the policy table;
• the determination of performance against targets and resultant vesting/bonus pay-outs;
• discretion required when dealing with a change of control or restructuring of the Group;
• determination of the treatment of leavers based on the rules of the plan and the appropriate treatment chosen;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events and special dividends); and
• the annual review of performance measures, weightings and targets from year to year.
In relation to both the LTIP and Annual Bonus Plan, the Committee retains the ability to adjust the targets and/or set different
measures if events occur (e.g. material acquisition and/or divestment of a Group business) which cause it to determine that
the conditions are no longer appropriate and the amendment is required so that the conditions achieve their original purpose
and are not materially less difficult to satisfy. Any use of these discretions would, where relevant, be explained in the
Directors’ remuneration report and may, where appropriate and practicable, be the subject of consultation with the
Company’s major shareholders.
In addition, for the avoidance of doubt, in approving this policy report, authority is given to the Company to honour any
commitments entered into with current or former Directors under previous policies. Details of any payments to former
Directors will be set out in the relevant report as required by the current reporting regulations.
70
Mitie Group plc | Annual Report and Accounts 2017
Remuneration scenarios for Executive Directors
Under the Company’s 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 2017 and the full-year
effect of ongoing benefits and cash allowance in lieu of a pension contribution;
• on-target performance – fixed pay plus an on-target bonus and 25% of the maximum possible LTIP award vesting.
On-target bonus for FY18 represents 70% of the maximum bonus; and
• maximum performance – fixed pay plus maximum bonus for FY18 of 160% of salary for the Chief Executive and 100%
for the Chief Financial Officer (structured 70% financial targets and 30% strategic/other) and maximum LTIP awards
(of 200% of salary for the Chief Executive and 125% for the Chief Financial Officer).
The scenarios do not include share price growth or dividend assumptions.
Phil Bentley
Sandip Mahajan
Minimum
1,101.6
Minimum
400.6
On-target
Maximum
1,101.6
1,008.0
450.0
1,101.6
1,440.0
1,800.0
On-target
Maximum
400.6
224.0
100.0
400.6
320.0
400.0
£’000
0
1,000
2,000
3,000
4,000
5,000
£’000
0
500
1,000
1,500
Composition of package (%)
Fixed
Bonus
LTIP
Composition of package (%)
Fixed
Bonus
LTIP
Minimum
On-target
Maximum
100%
43%
25%
39%
33%
18%
42%
Minimum
On-target
Maximum
100%
55%
36%
31%
28%
14%
36%
Value of package
(£'000)
Minimum
On-target
Maximum
Fixed
Bonus
LTIP
Total
Value of package
(£'000)
1,101.6
1,101.6
1,101.6
–
1,008.0
1,440.0
–
1,101.6
450.0 2,559.6
1,800.0 4,341.6
Minimum
On-target
Maximum
Fixed
Bonus
LTIP
Total
400.6
400.6
400.6
–
224.0
320.0
–
100.0
400.0
400.6
724.6
1,120.6
71
www.mitie.com
Non-Executive Directors’ engagement terms
Initial
contract
term
Notice
period
Roger Matthews
Chairman; Chairman of Nomination Committee 4 December 2006 3 years 6 months
Additional duties
Date of engagement
Larry Hirst
Jack Boyer
Mark Reckitt
Derek Mapp2
Notes:
Nivedita Krishnamurthy Bhagat1
Senior Independent Director
1 February 2010 3 years 3 months
Chairman of Remuneration Committee
1 June 2013 3 years 3 months
Chairman of Audit Committee
Chairman-elect
1 July 2015 3 years 3 months
14 March 2017 3 years 3 months
8 May 2017 3 years 3 months
1. Nivedita Krishnamurthy Bhagat joined the Board on 1 June 2017; her three-year contract term commenced on that date.
2. Derek Mapp joined the Board on 9 May 2017 as Chairman-elect and will take over as Chairman at the AGM on 26 July 2017.
How the executive pay policy differs 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 they will have the opportunity to participate in the
SAYE and SIP share schemes.
How employment conditions elsewhere in the Group are taken into account
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 share schemes, 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 shareholder views are taken into account
changes to remuneration arrangements are being proposed.
The Committee is committed to a continuing discussion with major shareholders and obtains their views when any significant
The Company’s remuneration policy continued
Executive Directors’ service contracts
All Executive 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; Phil Bentley
is required to give 12 months’ notice and Sandip Mahajan is 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 allowance 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 Chief Executive and Chief Financial Officer’s contracts, 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, Mitie’s 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 Executive Directors, notice periods will not exceed 12 months, save in exceptional circumstances; 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:
Phil Bentley
Sandip Mahajan
Ruby McGregor-Smith
Suzanne Baxter
Date of agreement
9 October 2016
17 January 2017
1 April 2003
10 April 2006
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 received fees of £53,500 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 Education. Suzanne Baxter received fees of
£60,000 for her role as a non-executive director of WH Smith plc. Both individuals are entitled to retain any fees earned.
Non-Executive Directors’ 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 or the pension scheme. They do not receive any ancillary benefits.
The terms of appointment of the Non-Executive Directors are available for inspection at Mitie’s registered office, Mitie’s 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.
72
Mitie Group plc | Annual Report and Accounts 2017
Non-Executive Directors’ engagement terms
Additional duties
Date of engagement
Initial
contract
term
Notice
period
Roger Matthews
Larry Hirst
Jack Boyer
Mark Reckitt
Nivedita Krishnamurthy Bhagat1
Derek Mapp2
Chairman; Chairman of Nomination Committee 4 December 2006 3 years 6 months
1 February 2010 3 years 3 months
Senior Independent Director
1 June 2013 3 years 3 months
Chairman of Remuneration Committee
1 July 2015 3 years 3 months
Chairman of Audit Committee
14 March 2017 3 years 3 months
8 May 2017 3 years 3 months
Chairman-elect
Notes:
1. Nivedita Krishnamurthy Bhagat joined the Board on 1 June 2017; her three-year contract term commenced on that date.
2. Derek Mapp joined the Board on 9 May 2017 as Chairman-elect and will take over as Chairman at the AGM on 26 July 2017.
How the executive pay policy differs 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 they will have the opportunity to participate in the
SAYE and SIP share schemes.
How employment conditions elsewhere in the Group are taken into account
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 share schemes, 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 shareholder views are taken into account
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.
73
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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 ended
31 March 2016 and 31 March 2017.
Phil Bentley
Sandip Mahajan
Former Directors
Ruby McGregor-Smith
Suzanne Baxter
Total remuneration
Notes:
Year
Salary
Benefits
2017 £375,000 £29,073
–
2016
–
2017 £44,000
–
2016
£2,063
–
Annual
bonus
–
–
–
–
LTIP
Pension
Other
Total
– £75,000
–
–
–
–
£8,800
–
–
–
–
–
£479,073
–
£54,863
–
2017 £404,311 £17,183
– £108,216
2016 £565,950 £25,855 £659,332 £1,042,755 £152,577
–
£918
£530,628
£1,692 £2,448,161
–
2017 £319,933 £20,466
2016 £360,150 £23,537 £338,541
– £98,001
£531,289 £104,636
£918
£439,318
£1,692 £1,359,845
2017
2016
£1,503,882
£3,808,006
Phil Bentley joined the Company and was appointed as an Executive Director on 1 November 2016. The information in the table above confirms his
earnings for his position as an Executive Director from 1 November 2016.
Sandip Mahajan joined the Company on 18 January 2017 and was appointed as an Executive Director on 10 February 2017. The information in the table
above confirms his earnings for his position as an Executive Director from 10 February 2017.
Ruby McGregor-Smith stepped down from the Board on 12 December 2016 and remained an employee until 31 March 2017. The information in the table
above confirms her earnings for her position as an Executive Director up to 12 December 2016.
Suzanne Baxter stepped down from the Board on 10 February 2017 and remained an employee until 31 May 2017. The information in the table above
confirms her earnings for her position as an Executive Director up to 10 February 2017.
Benefits relate to the cost to the Company of private medical cover, private fuel, car allowance and financial/tax planning advice.
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 nil level
of the award for the year ended 31 March 2017 was determined is provided on page 77.
The Committee determined that the 2014 LTIP awards (which were due to vest in June 2017) should lapse in their entirety following exercise of negative
discretion by the Committee. The Committee also determined that the accelerated 2015 and 2016 LTIP awards granted to Ruby McGregor-Smith and
Suzanne Baxter should lapse in their entirety following exercise of negative discretion by the Committee. The value of the LTIP in 2016 has been restated
from the figures disclosed in the 2016 report, to reflect the actual share price on vesting of 244.0p and a dividend equivalent of 40.5p.
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 £738 in respect of the intrinsic gain on 1,337 SAYE options
granted in the year being equal to the 20% discount from a share price of 275.9p to arrive at the exercise price of 220.7p.
The pension benefit disclosed above in respect of Phil Bentley and Sandip Mahajan comprises the 20% cash allowance in lieu of a pension contribution.
The disclosures above in respect of Ruby McGregor-Smith and Suzanne Baxter’s pension benefits in 2017 comprise the 20% pension supplement along
with the additional cash supplement. From 1 April 2016, following changes in legislation impacting the tax efficiency of pension savings for higher earners,
the Executive Directors who participate in the Group’s defined benefit scheme ceased to accrue benefits in the scheme and instead received an additional
cash supplement of equivalent value of £39,247 per annum. In the previous financial year, they comprised 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 was known as the net pension input amount and was 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.
74
Mitie Group plc | Annual Report and Accounts 2017
The net pension input amount for the Directors below included in the pension benefits disclosed above was:
Ruby McGregor-Smith
Suzanne Baxter
Note:
Years
of scheme
membership
at 31 March
14
13
5
4
Year
2017
2016
2017
2016
£
n/a1
39,387
n/a1
32,606
1. The Directors who participate in the scheme have ceased to accrue pension benefits in the scheme with effect from 1 April 2016. They instead received
an additional cash supplement of equivalent value of £39,247 each per annum.
Non-Executive Director remuneration (subject to audit)
The fees for the Non-Executive Directors for the financial years ended 31 March 2017 and 31 March 2016 are set out below:
Roger Matthews
David Jenkins2
Larry Hirst3
Crawford Gillies4
Jack Boyer
Mark Reckitt5
Total
Notes:
20171
£’000
2016
£’000
185
–
59
–
60
60
364
185
43
57
15
60
45
405
1. All amounts were paid in cash and no other benefits were received in the year.
2. David Jenkins stepped down as Senior Independent Director and Chairman of the Audit Committee at the AGM on 13 July 2015 and retired as a Non-
Executive Director on 31 December 2015.
3. Larry Hirst was appointed as Senior Independent Director from 14 July 2015.
4. Crawford Gillies stepped down as a Non-Executive Director at the AGM on 13 July 2015.
5. 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.
75
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Annual Report on Remuneration continued
Base salary and benefits
Effective 1 April 2016, the Remuneration Committee awarded average salary increases of 2.5% for the two Executive
Directors (which was 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 – £580,099
• Suzanne Baxter – £369,154
Commencing 1 November 2016 (and to be first reviewed in April 2020), the annual base salary for Phil Bentley is as follows:
• Phil Bentley – £900,000
Commencing 18 January 2017 (and to be first reviewed in April 2018), the annual base salary for Sandip Mahajan is as follows:
• Sandip Mahajan – £320,000
A review of Non-Executive Director fees was undertaken by the Board in March 2017 with the previous review having been
undertaken in March 2014. As a result of that review the fees for the year ending March 2018 were unchanged with the
exception of the fee agreed by the Committee of £225,000 per annum for Derek Mapp who joined as Chairman-elect
on 9 May 2017 and will take over as Chairman at the AGM on 26 July 2017. A further review of Non-Executive fees will
be undertaken in March 2018.
Chairman fees2
Non-Executive Director core fees3
Additional fees:
Senior Independent Director
Chairman of a Committee
Notes:
20181
£’000
225
52
7
8
2017
£’000
185
52
7
8
1. The core fees of £52,000 per annum paid to each Non-Executive Director (including the Chairman) will total £263,000 for the year ending 31 March
2018. This includes the fee for Nivedita Krishnamurthy Bhagat who has been appointed as a Non-Executive Director with effect from 1 June 2017 and
the fee for Derek Mapp who was appointed Chairman-elect on 9 May 2017. Total fees including additional duties are expected to amount to
£483,000 for the year ending 31 March 2018 (£364,000 actual for the year ended 31 March 2017).
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. The fee shown for 2018 is the annual fee for Derek Mapp.
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 31 March 2018.
Pension (subject to audit)
Pension provision for 2016/17 is as described in the remuneration policy table. From 1 April 2016, following changes in
legislation impacting the tax efficiency of pension savings for higher earners, the Executive Directors who participate in the
Group’s defined benefit scheme ceased to accrue benefits in the scheme and instead received an additional cash supplement.
In addition, the Directors received a salary supplement as described in the policy table. The normal retirement age for the
Directors is 65 and no additional benefits are available to the Directors upon early retirement.
Defined benefit pension scheme transfer values:
Ruby McGregor-Smith
Suzanne Baxter
Normal retirement
date
22 February
2028
16 April 2033
Transfer value
31 March 2017
£’000
Transfer value
31 March 2016
£’000
Contributions
made by
the Director in
the year
£’000
Increase in
accrued
pension over
the year
£’000
Transfer value
of pension
increase (after
inflation, net of
contributions)
£’000
441
117
361
92
0
0
0
0
0
0
In the prior year, 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 at a rate of 10.3%
of the value of the capped salary. The Company also contributed to the administrative costs of the pension scheme based
on a percentage of salary at a rate of 4.5% of the capped salary.
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.
76
Mitie Group plc | Annual Report and Accounts 2017
Annual Bonus Plan
Awards in respect of the year ended 31 March 2017 were considered under the Annual Bonus Plan. The outcomes were
determined as set out below.
At the beginning of the year the Committee set financial measures based on operating profit before other items for
threshold, target and maximum levels of performance as follows: a threshold of £120.6m, a target of £127.0m and a
maximum of £133.4m. The out-turn was £(6.3)m. This generated no pay-out for Ruby McGregor-Smith and Suzanne
Baxter under this element of the Plan.
The Committee also set strategic objectives relating to: facilities management; people services; people; back office
and operational synergies; and capital allocation. Having evaluated a range of outcomes and indicators of performance,
the Committee determined that no bonus should be payable under this element to either Ruby McGregor-Smith or
Suzanne Baxter.
On joining the Company on 1 November 2016, Phil Bentley became eligible to receive a bonus at on-target levels equivalent
to 115% of base salary, pro-rated to reflect his period of service during the year. The performance criteria were weighted
60% financial performance and 40% strategic performance based on a successful transition. While Phil was eligible to receive
a bonus, mindful of shareholders’ experience over the year, Phil has decided to waive this bonus.
Sandip Mahajan, who joined the Company on 18 January 2017, was not eligible to receive a bonus in respect of the
year ended 31 March 2017. He will be eligible to receive a bonus of up to 100% of base salary in respect of the year
ending 31 March 2018.
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 at
on-target
% of
salary
payable at
maximum
Phil Bentley
Ruby McGregor-
Smith
Suzanne Baxter
60
60
60
69
96
90
90
110
110
0
0
0
0
0
0
46
25
12.5
64
50
25
% of
salary
payable
Total
bonus
£’000
Cash
£’000
Deferred
shares
£’000
0
0.0
0.0
0.0
0
0
0.0
0.0
0.0
0.0
0.0
0.0
The Annual Bonus Plan will be operated on similar terms for the year ending 31 March 2018. Phil Bentley’s maximum bonus
opportunity for FY18 will continue to be 160% of salary. His and Sandip Mahajan’s bonus (of up to a maximum of 100%
of salary) will be payable by reference to performance against a blend of financial (70% of the bonus opportunity) and
personal/strategic targets (the remaining 30%). 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.
77
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Annual Report on Remuneration continued
Details of LTIP vesting in June 2017 (2014 award)
The Committee assessed the outcome of the 2014 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
75% – 85% pa
the award
Vesting of portion of the award
(performance period three years ending 31 March 2017)
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.
The Committee determined that the 2014 awards should lapse in their entirety following exercise of negative discretion
by the Committee.
The 2015 LTIP awards were granted subject to the same performance conditions in relation to the performance period
for the three years ending 31 March 2018.
78
Mitie Group plc | Annual Report and Accounts 2017
LTIP awards granted in July 2016
In 2016, the Committee reviewed the continued appropriateness of the blend of targets applied to LTIP awards since 2013
and concluded that some changes should be made to the targets that are applied to the LTIP awards made in 2016 to further
align the link between pay and strategy. Reflecting best practice, the Committee consulted major shareholders in connection
with these changes. Following this consultation, awards were granted in July 2016. Details of the awards made to the
Executive Directors under the LTIP (granted as nil-cost options) are summarised below.
Performance
measure
Earnings Per
Share (EPS)
growth
Weighting
Performance range
25% of
the award
3% – 8% pa
Relative Total
Shareholder
Return (TSR)
20% of
the award
Outperformance
against the Business
Support Services
subsector of the
FTSE 350 Support
Services index
(the Benchmark)
Strategic
objectives
25% of
the award
Cash conversion 30% of
75% – 85% pa
the award
Vesting of portion of the award
(performance period three years ending 31 March 2019)
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 Benchmark. If Mitie’s TSR performance is equal to the median
of the Benchmark, 25% of the award will vest and if it exceeds the
Benchmark 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 the strategic objectives are not met. Straight line
vesting between zero and maximum based on Remuneration
Committee assessment of performance against objectives.
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.
The strategic objectives were linked to the Company’s strategy that existed at the time and included succession planning
for the Board and senior executives with associated development plans, improving the diversity and inclusion mix of the
business, long-term sustainability of the FM business through technology and client development, and continued focus on
the health and safety of our people.
What was granted in July 2016 (subject to audit)
Award
Type
Ruby
McGregor-Smith
Performance
Performance
Suzanne
Baxter
Note:
Nil-cost
options
Nil-cost
options
Number
of shares1
478,431
Face value
(£’000) % of salary
1,160
200%
304,456
738
200%
Performance
conditions
Performance
period
% vesting at
threshold
Performance
conditions are
set out in the
table above
Three financial
years ending
31 March 2019
25%
25%
1. Number of shares was calculated based on the average of up to five business days preceding the date of grant giving a share price of 242.5p.
The Directors above were also granted 1,337 options under the Mitie Group plc 2011 SAYE scheme, details of which can be found on page 83.
In accordance with the rules of the relevant LTIP, accelerated vesting applied to the 2016 (and 2015) LTIP grants for Ruby
McGregor-Smith and Suzanne Baxter. The Committee determined that these awards should lapse in their entirety following
exercise of negative discretion by the Committee.
79
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Annual Report on Remuneration continued
LTIP award granted in November 2016
On 29 November 2016, Phil Bentley was granted LTIP awards to the value of 200% of salary (with Phil Bentley also
purchasing shares in the Company equivalent to 400% of annual base salary, as set out on page 83). The performance
conditions attaching to these run to 31 March 2020 and are linked to the achievement of a bonus payment in the three
financial years ending 31 March 2020. More particularly, if Phil earns a bonus in one of these years, 25% of the award vests,
with 67% vesting if a bonus is earned in two of the years and full vesting if a bonus is earned in all three years, noting that
a typical bonus will not be paid in circumstances where a minimum financial target set by the Committee has not been
achieved and/or where a significant negative event has occurred in a year (such as failure to pay a dividend). However,
no vesting will actually occur until 2020. The award is subject to a holding period, post vesting, with 50% of the shares being
released in May 2020 after the end of the performance period, 25% being released in November 2020 and 25% in
November 2021. Further disclosure will be made during the performance period.
What was granted in November 2016 (subject to audit)
Number
of shares1
Award
Type
Face value
(£’000) % of salary
Performance
conditions
Performance
period
% vesting at
threshold
Phil Bentley
Performance Nil-cost
options
879,077
1,800
200%
Linked to
bonus pay-
out
Three financial
years ending
31 March
2020
25%
Note:
1. Number of shares was calculated based on the average of the five business days preceding the date of grant giving a share price of 204.8p.
The performance conditions that are to apply to awards made in 2017 will follow the same structure as for those granted
in July 2016, as shown in the table on page 79.
Loss of office payments (subject to audit)
Ruby McGregor-Smith
Ruby McGregor-Smith stepped down from the Board on 12 December 2016. A summary of Ruby McGregor-Smith’s
departure terms was contained in the relevant RNS announcement. Up to 31 March 2017, Ruby McGregor-Smith was
available to support Phil Bentley to ensure a smooth transition. Ruby McGregor-Smith continued to receive her salary,
pension, car allowance and other contractual benefits until that date, at which point she ceased employment. Ruby
McGregor-Smith is entitled to receive a capped contribution of up to £76,000 (ex VAT) towards legal and outplacement
fees incurred in connection with her departure, the precise amount of which will be based on the fees actually incurred.
Precise details of any payment to be made to Ruby McGregor-Smith (and ongoing provision of any benefits) in respect
of the unexpired portion of her 12 month notice period have yet to be agreed and will be disclosed in next year’s Report.
As noted above, the Committee determined that:
• Ruby McGregor-Smith receive no bonus for FY17
• Ruby McGregor-Smith’s 2014, 2015 and 2016 LTIP awards lapse in full
In accordance with the rules of the Deferred Share Bonus Plan, the award made to Ruby McGregor-Smith on 31 May 2016 is
due to vest early. Precise details of vesting will be disclosed in next year’s Report. Ruby McGregor-Smith’s awards under the
all-employee SAYE Plan and Share Incentive Plan are treated in accordance with the terms of the respective plan rules.
This approach accords with the current remuneration policy.
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Mitie Group plc | Annual Report and Accounts 2017
Suzanne Baxter
Suzanne Baxter stepped down from the Board on 10 February 2017. A summary of Suzanne Baxter’s departure terms was
contained in the relevant RNS announcement. Up to 31 May 2017, Suzanne Baxter was available to support Sandip Mahajan
to ensure a smooth transition. Suzanne Baxter continued to receive her salary, pension, car allowance and other contractual
benefits until that date, at which point she ceased employment. Suzanne Baxter is entitled to receive a capped contribution
of up to £70,000 (ex VAT) towards legal and outplacement fees incurred in connection with her departure, the precise
amount of which will be based on the fees actually incurred. Precise details of any payment to be made to Suzanne
Baxter (and ongoing provision of any benefits) in respect of the unexpired portion of her 12 month notice period have
yet to be agreed and will be disclosed in next year’s Report.
As noted above, the Committee determined that:
• Suzanne Baxter receive no bonus for FY17 and will not participate in the FY18 bonus plan
• Suzanne Baxter’s 2014, 2015 and 2016 LTIP awards lapse in full
Suzanne Baxter’s awards under the all-employee SAYE Plan and Share Incentive Plan are treated in accordance with
the terms of the respective plan rules.
This approach accords with the current remuneration policy.
Payments to past Directors (subject to audit)
No payments have been made to past Directors.
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 Executive2
Average pay based on Mitie’s UK salaried non-contract employees3
Notes:
1. Includes car/car allowance, private medical benefit and private fuel.
Salary
Benefits1
2.5%
4.1%
-3.7%
13.7%
Bonus
-100%
-100%
2. Ruby McGregor-Smith stepped down as Chief Executive on 12 December 2016 and Phil Bentley became Chief Executive from 12 December 2016.
To facilitate a year-on-year comparison, the change in CEO percentage shown is the change in Ruby McGregor-Smith’s salary, benefits and bonus
between FY16 and FY17 on an annualised basis.
3. Reflects the change in average annual pay for salaried non-contract UK employees employed throughout the two financial years ended 31 March 2017.
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.
81
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Annual Report on Remuneration continued
Relative spend on pay
The table below shows the total cost of remuneration in the Group, compared with the dividends distributed and
share buybacks.
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:
Aggregate employee remuneration
Equity dividends and share buybacks
Year ended
31 March
2017
£m
Year ended
31 March
2016
£m
1,174
62
1,132
57
Change
3.7%
8.8%
Assessing pay and performance
In the table below we provide a summary of the Chief Executive’s single figure remuneration over the past eight 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, FTSE 350 Support
Services and FTSE 350) as they are widely recognised and Mitie has been a member of these indices during the period:
400
350
300
250
200
150
100
)
0
0
1
O
T
D
E
S
A
B
E
R
(
R
S
T
Mar
09
Mar
10
Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mar
17
Mitie
FTSE250
FTSE350 SS
FTSE350
2010
2011
2012
2013
2014
2015
2016
Smith2
Bentley2
£1,703,031 £2,324,443 £2,431,773 £2,105,131 £1,447,266 £1,525,824 £2,448,1611 £530,628 £479,073
2017
Ruby
McGregor-
2017
Phil
100%
100%
100%
85%
90%
50%
73%
0%
waived
100%
100%
87.2%
57.2%
0%
25%
69.5%
0%
n/a
Single figure
remuneration
Annual bonus
element (actual
as a % of max)
LTIP element
(actual vesting
as a % of max)
Notes:
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 LTIP in June 2016
of 244.0p.
2. Ruby McGregor-Smith stepped down as Chief Executive on 12 December 2016. Phil Bentley joined the Board on 1 November 2016 and assumed the
position of Chief Executive on 12 December 2016. The figures above include Phil Bentley’s remuneration from 1 November 2016.
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Mitie Group plc | Annual Report and Accounts 2017
Share ownership (subject to audit)
Number of
shares
Percentage
Percentage
Compliance
of salary held
of target
owned as at
Value of target
Target
as at
achieved as at
31 March 20171
holding2
shareholding3
31 March 2017
31 March 2017
Phil Bentley
Sandip Mahajan
1,852,656 £1,800,000
0
£320,000
926,328
125,353
Ruby McGregor-Smith4
Suzanne Baxter4
639,612
£1,160,198
280,714
£738,308
454,480
289,215
Notes:
1. Includes shares owned by connected persons.
400%
0%
281%
194%
with share
ownership
guidelines
200%
Achieved
0% Not achieved
but compliant
141%
Achieved
97% Not achieved
but compliant
2. Calculated as 200% of base salary for Phil Bentley, Ruby McGregor-Smith and Suzanne Baxter for the year ended 31 March 2017. In accordance with
Phil Bentley’s service contract, he acquired shares worth 400% of salary on joining. In accordance with the Company’s Share Ownership policy, Sandip
Mahajan is required to build and maintain, through the retention of vested share options, a shareholding of 200% of base salary.
3. Calculated as value of target holding divided by the share price of 194.3p on 21 November 2016 for Phil Bentley and the average share price of 255.3p
for the five business days prior to the start of the financial year ended 31 March 2017 for Ruby McGregor-Smith, Suzanne Baxter and Sandip Mahajan.
4. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their
shareholdings above are at those dates. Suzanne Baxter had 186,745 vested but unexercised 2013 LTIP awards.
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
Options
outstanding
as at
31 March
2016
Year of
grant
Exercised
in year
Granted
in year
Options
outstanding
as at
31
March
20174
Lapsed/
cancelled
in year4
Exercise
price
p
Ruby McGregor-
Smith
Suzanne Baxter
Notes:
20141
20152
20163
20141
20152
20163
3,459
2,381
–
3,459
2,381
–
–
–
–
–
–
–
1,337
–
–
–
–
1,337
–
–
–
3,459
2,381
1,337
3,459
2,381
1,337
–
–
–
260.2
254.0
220.7
260.2
254.0
220.7
Earliest
normal
exercise
date
Sep-17
Dec-18
Dec-19
Sep-17
Dec-18
Dec-19
1. Executive Directors contributed £250 per month into the 2014 scheme.
2. Throughout the year the Executive Directors contributed £168 per month into the 2015 scheme.
3. Executive Directors contributed £82 per month into the 2016 scheme which started in December 2016.
4. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their outstanding
share interests above are at those dates. Suzanne Baxter cancelled her savings contracts on 26 January 2017.
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:
250
200
150
100
)
0
0
1
O
T
D
E
S
A
B
E
R
(
R
S
T
50
Mar
07
Mar
08
Mar
09
Mar
10
Mar
11
Mar
12
Mar
13
Mar
14
Mar
15
Mar
16
Mar
17
Mitie
FTSE250
FTSE350 SS
FTSE350
Share ownership (subject to audit)
Number of
shares
owned as at
31 March 20171
Value of target
holding2
Target
shareholding3
Percentage
of salary held
as at
31 March 2017
Percentage
of target
achieved as at
31 March 2017
Compliance
with share
ownership
guidelines
Phil Bentley
Sandip Mahajan
1,852,656 £1,800,000
£320,000
0
926,328
125,353
Ruby McGregor-Smith4
Suzanne Baxter4
639,612
280,714
£1,160,198
£738,308
454,480
289,215
400%
0%
281%
194%
200%
Achieved
0% Not achieved
but compliant
141%
Achieved
97% Not achieved
but compliant
Notes:
1. Includes shares owned by connected persons.
2. Calculated as 200% of base salary for Phil Bentley, Ruby McGregor-Smith and Suzanne Baxter for the year ended 31 March 2017. In accordance with
Phil Bentley’s service contract, he acquired shares worth 400% of salary on joining. In accordance with the Company’s Share Ownership policy, Sandip
Mahajan is required to build and maintain, through the retention of vested share options, a shareholding of 200% of base salary.
3. Calculated as value of target holding divided by the share price of 194.3p on 21 November 2016 for Phil Bentley and the average share price of 255.3p
for the five business days prior to the start of the financial year ended 31 March 2017 for Ruby McGregor-Smith, Suzanne Baxter and Sandip Mahajan.
4. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their
shareholdings above are at those dates. Suzanne Baxter had 186,745 vested but unexercised 2013 LTIP awards.
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
Options
outstanding
as at
31 March
2016
Year of
grant
Exercised
in year
Granted
in year
Options
outstanding
as at
March
20174
31
Lapsed/
cancelled
in year4
Exercise
price
p
Ruby McGregor-
Smith
Suzanne Baxter
Notes:
20141
20152
20163
20141
20152
20163
3,459
2,381
–
3,459
2,381
–
–
–
–
–
–
–
–
–
1,337
–
–
1,337
–
–
–
3,459
2,381
1,337
3,459
2,381
1,337
–
–
–
260.2
254.0
220.7
260.2
254.0
220.7
Earliest
normal
exercise
date
Sep-17
Dec-18
Dec-19
Sep-17
Dec-18
Dec-19
1. Executive Directors contributed £250 per month into the 2014 scheme.
2. Throughout the year the Executive Directors contributed £168 per month into the 2015 scheme.
3. Executive Directors contributed £82 per month into the 2016 scheme which started in December 2016.
4. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their outstanding
share interests above are at those dates. Suzanne Baxter cancelled her savings contracts on 26 January 2017.
83
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Annual Report on Remuneration continued
Directors’ interests in shares purchased under the Mitie Group plc Share Incentive Plan 2011
Ruby McGregor-Smith
Suzanne Baxter
Notes:
Shares
outstanding
as at
31 March
20161
Number of
partnership
shares
acquired
in year2
Number of
matching
shares
awarded
in year3
Shares
outstanding
as at 31
March 20174,5
3,401
3,401
784
869
68
68
4,253
4,338
1. Figure comprises 3,123 purchased shares plus 278 matching shares.
2. Shares were acquired at a market price of 267.9p on 16 May 2016. Executive Directors contributed the full annual amount of £1,800 permitted under
the Plan. Shares acquired through dividend reinvestment (4 August 2016 and 1 February 2017) have also been included up to date of stepping down
from the Board.
3. Matching shares were purchased in the market at a price of 267.9p on 16 May 2016. 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 2017 was 221.9p. The highest and lowest prices during the year were 290.0p and
180.4p respectively.
5. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their outstanding
share interests above are at those dates.
Directors’ interests in shares granted under the Mitie Group plc 2010 Deferred Bonus Plan
Shares
outstanding
as at
31 March
2016
Year of
grant1
Granted in
year
Lapsed
in year
Vested in
year2,3
Shares
outstanding
as at
31 March
20174,5
Earliest
normal
vesting
date
Ruby
McGregor-Smith
Suzanne Baxter
2014
2015
2016
2014
2015
2016
71,670
–
–
23,651
–
–
–
–
33,149
–
–
–
–
–
–
–
–
–
71,670
–
–
23,651
–
–
–
–
33,149
–
–
May-18
–
–
–
–
–
–
Notes:
1. 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.
The 2016 award was granted on 31 May 2016 at a grant price of 281.7p.
2. The 2014 awards vested on 31 May 2016 and were transferred to the participants. At the date these awards vested the market price of the Company’s
shares was 281.7p.
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 2017 was 221.9p. The highest and lowest prices during the year were 290.0p and
180.4p respectively.
5. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their outstanding
share interests above are at those dates.
84
Mitie Group plc | Annual Report and Accounts 2017
Directors’ interests in nil-cost options granted under the Mitie Group plc 2007 and the 2015 Long Term Incentive Plans
Options
outstanding
as at
31 March
2016
Year of
grant1
Granted in
year
Lapsed
in year2
Exercised in
year
Options
outstanding
as at
31 March
20173,4
Exercise
price
Earliest
normal
exercise
date5
Phil Bentley
Ruby
McGregor-Smith
Suzanne Baxter
Notes:
Nov 2016
–
879,077
–
–
879,077
Nil-cost
May-20
2013
2014
2015
Jul 2016
2013
2014
2015
Jul 2016
527,371
345,261
356,526
–
268,698
219,711
226,880
–
–
–
–
478,431
–
–
–
304,456
160,849
–
–
–
81,953
–
–
–
–
–
–
–
–
–
–
–
366,522
345,261
356,526
478,431
186,745
219,711
226,880
304,456
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Jun-16
Jun-17
Jul-18
Jul-19
Jun-16
Jun-17
Jul-18
Jul-19
1. The performance criteria applicable to the 2014 award reflect the basket of measures relating to TSR, EPS, organic revenue growth and cash
conversion set out on page 78.
The performance criteria applicable to the 2015 award are the same as those for the 2014 award.
The performance criteria applicable to the 2016 awards are provided on pages 79 and 80.
2. The Committee assessed the extent to which the performance conditions applicable to the 2013 awards were met and determined that they should
vest at 69.5% of the original award granted. The Committee also assessed the extent to which the performance conditions applicable to the 2014,
2015 and July 2016 awards were met and determined that they should lapse in their entirety following exercise of negative discretion by the
Committee.
3. The market price of the Company’s shares as at 31 March 2017 was 221.9p. The highest and lowest prices during the year were 290.0p and
180.4p respectively.
4. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively; their outstanding
share interests above are at those dates.
5. Awards made since 2015 are subject to an additional holding period.
Director share ownership
Number of ordinary shares
beneficially owned
as at 31 March 2017
(or date of cessation if earlier)
Number of ordinary
shares beneficially owned
as at 31 March 2016
(or date of appointment if later)
Executive Directors
Phil Bentley1
Sandip Mahajan
Ruby McGregor-Smith2
Suzanne Baxter2
Non-Executive Directors
Roger Matthews
Larry Hirst
Jack Boyer
Mark Reckitt
Notes:
1,852,656
0
639,612
280,714
100,000
25,000
5,000
4,000
1. Phil Bentley joined the Board on 1 November 2016.
2. Ruby McGregor-Smith and Suzanne Baxter stepped down from the Board on 12 December 2016 and 10 February 2017 respectively;
their shareholdings above are shown at those dates and at 31 March 2016.
0
0
567,090
256,126
100,000
25,000
5,000
4,000
85
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Annual Report on Remuneration continued
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. The potential dilution of the Company's issued share capital is set out below in respect of all awards granted in
the last ten years under the Company's equity-based incentive schemes which are being satisfied through the allotment of
new shares or treasury shares.
Share dilution at 31 March 2017
All share plans (maximum 10%)
Discretionary share plans (maximum 5%)
Dilution
7.6%
4.0%
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.
A resolution to approve the Directors’ remuneration policy as set out in the Company’s Annual Report for the year ended
31 March 2015 was passed at the Company’s 2015 AGM. At the Company’s 2016 AGM, a resolution was passed to approve
the 2016 Directors’ remuneration report (excluding the summary of the Directors’ remuneration policy). The results of the
votes on these resolutions were as follows:
Number of votes
2015 Directors’ remuneration policy
2015 AGM
2016 Directors’ remuneration report
2016 AGM
Note:
Votes in
favour
205.1m
93.6%
227.2m
91.5%
Votes
against
14.0m
6.4%
21.2m
8.5%
Votes
withheld1
21.4m
–
1.2m
–
1. Votes withheld are not counted in the calculation of the proportion of votes for or against a resolution.
Remuneration Committee and its advisors
The Remuneration Committee seeks and considers advice from independent remuneration advisors 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 was £70,246 (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.
86
Mitie Group plc | Annual Report and Accounts 2017
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 2017.
The following information is incorporated into the Directors’
report: other disclosures by reference:
• Strategic report on pages 2 to 37;
• The Chairman’s introduction to corporate governance on
pages 41 and 42;
• The Board report on pages 43 to 48;
• Audit Committee report on pages 49 to 59;
The Articles can be amended in accordance with their
provisions, the Companies Act 2006 and related
legislation. A copy of the Articles is available at
www.mitie.com/investors/corporate-governance.
Powers of the Company to issue or buy back its own
shares
At the 2016 AGM shareholders authorised:
• the Directors to allot Ordinary Shares up to an aggregate
nominal amount of £2,969,340 representing one-third of
the issued share capital (excluding treasury shares) as at
25 May 2016;
• Nomination Committee report on pages 60 and 61;
• the dis-application of pre-emption rights over
• Directors’ remuneration report on pages 62 to 86;
• Directors’ responsibilities statement on pages 93 and 94;
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 Guidance 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 4 and 5 of the
Strategic report. Further details of the subsidiary
undertakings of the Company are listed in Note 41 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 32 to the financial statements and the
detail of its debt instruments is set out in Note 27 to the
financial statements.
The Company has a single class of shares being 2.5p
ordinary shares (Ordinary Shares). 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.
allotted shares up to an aggregate nominal value equal
to £890,802, equating to 10% of Mitie’s issued share
capital (excluding treasury shares) and 9.72% of the
issued share capital including treasury shares, each
as at 25 May 2016; and
• the Company to make market purchases of its own
shares up to a total of 35,632,084 Ordinary Shares
(representing 10% of the issued share capital as at
25 May 2016 (excluding treasury shares)).
These standard authorities will expire on 30 September
2017 or at the conclusion of the AGM in 2017, whichever
is the earlier. Further details of these authorisations
are available in the notes to the Notice of 2016 AGM
and shareholders are referred to the Notice of 2017
AGM, 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 6,070,568 Ordinary Shares to an
aggregate nominal amount of £151,764 to employees
participating in Mitie’s share schemes and to minority
shareholders in consideration for shares purchased in
connection with Mitie Model investments.
The Company undertook market purchases of 9,055,995
of its own shares during the year (representing 2.5% of the
issued share capital of the Company as at 31 March 2017).
The shares equated to an aggregate nominal value of
£226,400 and the total aggregate amount paid was
£24,229,063 (including expenses).
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 Schemes 1,180,406
Ordinary Shares were distributed from Treasury.
The total number of Ordinary Shares held by the Company
in treasury as at 31 March 2017 therefore reduced to
9,280,093 (representing 2.5% of the issued share
capital of the Company at 31 March 2017).
Significant interests in the Company’s share capital
As at 31 May 2017, the Company has been notified of
the following significant holdings of voting rights in its
Ordinary Shares under the Disclosure Guidance and
Transparency Rules:
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Directors’ report: other disclosures continued
Silchester International
Investors LLP
FMR LLC
Harris Associates L.P.
Brandes Investment
Partners LP
Heronbridge
Number of
Ordinary Shares
Percentage of
share capital at
the date of
notification
57,725,383
32,440,297
18,393,003
18,117,242
18,366,728
16.05%
8.95%
5.12%
5.05%
5.00%
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.
Changes that have occurred between the end of the period
under review and 9 June 2017, the latest practicable date
before approval of the report, are as follows:
Number of
Ordinary Shares
Percentage of
share capital at
the date of
notification
STRS Ohio
11,000,000
3.06%
Details of the Directors’ interests in the Company’s share
capital are set out in the Directors’ remuneration report on
pages 83 to 85.
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 Ordinary Shares received in this way are contractually
restricted from selling the shares issued as consideration,
generally for a maximum of two years.
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.
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 procedure.
Employee share schemes and plans
Details of employee share schemes and long term incentive
plans are set out in Note 37 to the financial statements.
Details of awards made during the year to, and held by,
Executive Directors are set out in the Directors’
remuneration report on pages 83 to 85.
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 Officer and Chief
Financial Officer, of formal and informal events, institutional
investor meetings and presentations is held throughout
the year.
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
2016 AGM.
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.
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.
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Mitie Group plc | Annual Report and Accounts 2017
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 38 to 40.
To comply with the UK Corporate Governance Code
(the Code), the Directors with the exception of the Chairman
will submit themselves for election or
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 2017, 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.
Director appointments
With regard to the appointment and replacement of
Directors, the Company is governed by the Articles, the
Code, the Companies Act 2006 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 Officer 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 them 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 Officer 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 72. Executive Directors are entitled to retain
fees earned from any external appointments.
The commitments outside the Group of the Chairman
and each Non-Executive Director are included on pages 38
to 40. The Chairman does not hold any significant
commitments outside of the Group.
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;
• a review is undertaken 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 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 included in
the Sustainability and People sections of our website.
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 Sustainability section of our website.
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Events after the balance sheet date
Following the year end the Group approached its lenders to
seek their agreement to an amendment to covenant
calculation definitions, to provide flexibility in response to
accounting issues raised in the balance sheet review
process. The lenders provided their consent to this
amendment on 7 June 2017.
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 62 to 86; and
Note 37 to the accounts
• Directors’ report: other
disclosures on this page
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).
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 as referred to on pages 2
to 37. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the
Finance Review on pages 26 to 29. In addition, Note 28 to
the consolidated 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.
Directors’ report: other disclosures continued
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 2016 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 2017 AGM subject
to a total aggregate cap for Mitie and its subsidiary
companies of £50,000.
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 Finance review on pages 14 to 29.
The loss before tax from continuing operations for the
financial year is £58.2m (2016: £91.9m profit).
The Directors declared an interim dividend of 4.0p
per Ordinary Share (2016: 5.4p) with a total value of
£14.1m (2016: £19.2m) which was paid to shareholders
on 1 February 2017.
The Directors do not propose to recommend a final dividend
for the year, given the current trading performance of the
Company.
The total dividend per Ordinary Share for the year ended
31 March 2017 is 4.0p (2016: 12.1p).
The Company operates a Dividend Re-investment Plan
(DRIP) which allows shareholders to build their holding by
using the cash dividend to purchase additional ordinary
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 Ordinary 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 27 to
the financial statements.
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Mitie Group plc | Annual Report and Accounts 2017
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.
Culture
Mitie has appointed a new executive management team and
adopted a new strategy. As part of that strategy, it will
develop a new Mitie Way of carrying on business. The Mitie
Way will have many elements including vision, culture, values
and branding. The vision has been already been defined and
seeks to take “Mitie Beyond FM…to a Connected
Workspace”. At this stage, our new culture and values
remain under development and will be critical to our future
success. The new culture will cover all aspects of the
business, from “who we are” to “what we do” and “how we
do it” and will incorporate the elements of our existing One
Code which includes health and safety, sustainability,
diversity and equality, bribery and corruption, conflicts of
interest. financial and non-financial accounting and
reporting. We expect that this work will be completed in
2017 and we will put the new culture and values on our
website when they are completed.
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 Group benefits from a committed facility of £275.0m,
which will mature in July 2021. Together with the £251.8m
US Private Placement notes, this gives the Group total
committed funding of £526.8m, of which £257.9m was
undrawn at 31 March 2017.
The Group’s US Private Placement notes and bank debt
contain certain financial covenants. The primary ratios are
net debt to EBITDA and EBITDA to net finance costs. These
covenants are tested on a rolling 12 month basis as at the
March and September reporting dates. At 31 March 2017,
both covenant tests were passed, following the successful
negotiation of a waiver to exclude judgemental, non-cash
items relating to the balance sheet review. The Group is
forecasting to remain within its banking covenants during
the year to 31 March 2018 and has stress-tested these
calculations for reasonable possible adverse variances in
trading and cash performance. While recognising that there
can be no absolute certainty, the Directors believe that
these covenant tests will be met.
Based on the above, the Directors consider it reasonable to
assume that the Group has adequate resources to continue
its operational existence for the foreseeable future. Thus,
they continue to adopt the going concern basis of
accounting in preparing the Annual Report and Accounts.
Viability statement
This statement is detailed in full on page 37.
In accordance with provision C.2.2 of the 2016 edition of the
Code, the Directors have assessed the viability of the Group
over a three year period to 31 March 2020 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.
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Directors’ report: other disclosures continued
Sustainability
We have continued to increase our focus on the evaluation of our environmental impacts and have worked with the Carbon
Trust in order to continually assess policies, processes and performance. Our environmental performance has continued
to improve.
Scope
Stream
Units
2010
baseline
totals
2016
reported
2016-2017
% change
vs baseline
2010
% change
vs previous
Year
Electricity and gas
Energy
consumption (inc.
Mitie-managed and
landlord-managed
energy supplies)
Transport fuel
Transport
(inc. fleet and
expensed fuel)
Elec
Gas
Total
Total without
MIHomeCare
Intensity
Intensity
Fleet
Expensed
Total
Intensity
Water
Water consumption Water
Waste
Waste management Waste
Recycled
Waste to landfill
ltrs
ltrs
ltrs
ltrs/£m
m3
tonnes
%
tonnes
kWh
kWh
kWh
kWh
9,091,141
7,980,537
7,306,750
6,624,127
5,129,193 5,493,067
-27.1%
-31.2%
17,071,678
12,435,943
12,117,194
-29.0%
-9.3%
7.1%
-2.6%
17,071,678
10,061,587 8,528,089
-50.0%
-15.2%
kWh/employee
kWh/£m
302
9,925
199
5,569
194
5,426
-35.6%
-45.3%
-2.6%
-2.6%
-2.2%
-21.1%
-3.8%
-3.8%
15,780,065
1,124,286
16,904,351
9,828
14,765,387 14,436,075
1,357,653
1,071,037
16,123,040 15,507,112
6,945
7,220
-8.5%
-4.7%
-8.3%
-29.3%
29,306
29,602
45,214
54.3%
52.7%
1,436
31%
989
971
62%
368
861
59%
349
-40.1%
91.8%
-64.7%
-11.4%
-4.3%
-5.1%
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 2017 are set out on the Company’s website www.mitie.com.
Current reporting period: 01/04/2016 – 31/03/2017
We depend on our local communities to provide the engaged and talented people we need to deliver great service and in
return we support them through a wide range of initiatives. Over the past 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.
AGM
Mitie’s AGM will be held on 26 July 2017 at 11:30am at UBS, 5 Broadgate, London, EC2M 2QS.
By order of the Board
Peter Dickinson
Company Secretary
12 June 2017
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Mitie Group plc | Annual Report and Accounts 2017
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 ‘Presentation of Financial Statements’ that
Directors requires:
• 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 Group’s ability to continue as a going concern.
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Directors’ report: statement of Directors’ responsibilities continued
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 Act 2006, the UKLA’s Listing Rules and the UKLA’s Disclosure Guidance 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
Phil Bentley
Chief Executive Officer
Sandip Mahajan
Chief Financial Officer
12 June 2017
12 June 2017
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Mitie Group plc | Annual Report and Accounts 2017
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 2017 and of the Group’s loss 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 that we have audited comprise:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and Parent Company Balance Sheets;
• the Consolidated and Parent Company Statements of Changes in Equity;
• the Consolidated Statement of Cash Flows; and
• the related Notes 1 to 51.
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’.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
Effect of potential prior year restatements
Impairment of goodwill in the Property division
Recoverability of aged or disputed debtors and accrued income
Healthcare disposal
Presentation of ‘other items’ in the consolidated income statement
Appropriateness of revenue and profit recognition
Management override of controls
Within this report, any new risks are identified with
as the prior year identified with
Following the impairment of goodwill in the Healthcare division reported in the interim
financial statements, this is no longer assessed as a key risk. Instead, we have identified
a key risk regarding the disposal of Healthcare.
and any risks which are the same
.
Materiality
Scoping
Significant changes
in our approach
The materiality that we used in the current year was £3.8m which was determined on
the basis of a normalised and adjusted profit before tax.
The scope of our Group audit was established to include the primary trading entities
across the three trading divisions covering 90% of revenue, 87% of profit before tax and
83% of net assets.
We have identified new risks arising from the events and trading results in the year. As a
consequence of the current year trading performance, we have revised our basis of
determining materiality so it more appropriately reflects the circumstances of the
business in the current year.
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Independent auditor’s report to the members of Mitie Group plc continued
Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group
We confirm that we have nothing material to add or draw
attention to in respect of these matters.
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.
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(a)
to the financial statements and the Directors’ statement on
the longer-term viability of the group contained within the
strategic report on page 37.
We are required to state whether we have anything material
to add or draw attention to in relation to:
• the Directors' confirmation on page 48 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 30 to 36 that describe those risks
and explain how they are being managed or mitigated;
• the Directors’ statement in Note 1(a) 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; and
• the Directors’ explanation on page 37 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.
Independence
We are required to comply with the Financial Reporting
Council’s Ethical Standards for Auditors and confirm that we
are independent of the Group and we have fulfilled our other
ethical responsibilities in accordance with those standards.
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.
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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.
Following the impairment of goodwill in the Healthcare division reported in the interim financial statements, this is no
longer assessed as a key risk impacting our audit strategy, the allocation of resources in the audit and directing the efforts
of the engagement team. However, we have assessed the prior year impact arising from the impairment of goodwill in the
Healthcare division as part of the prior year restatements key risk.
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.
Effect of potential prior year restatements
Risk description
How the scope of our audit
responded to the risk
Key observations
During the course of management’s balance sheet review, announced in the trading
update on 18 January 2017, and in responding to the Corporate Reporting Review
Committee queries regarding the impairment of goodwill in the Healthcare division,
a number of adjustments to the prior year results (income statement and reserves)
amounting to £60.9m have been identified and recorded in the financial statements
arising from information which has now been made available. These included the
impairment of goodwill in the Healthcare division of £26.0m, the remainder relating
to the write-back of intangible assets, under-accrual of costs and overstatement of
trade receivables and accrued income. There is judgement in evaluating whether the
matters identified represent accounting errors or changes in accounting judgement.
The Group’s accounting policy for, and analysis of, prior year restatements is disclosed
in Note 1(c) within the “Basis of preparation and significant accounting policies”. The key
judgements in respect of prior year restatements are considered on page 53 within
the Audit Committee section of the Directors’ report.
We have assessed the design and implementation of the management’s controls
relating to the review, challenge and approval of internal accounting papers. We have
also considered management bias in each of the matters identified as a prior year
adjustment in the context of the current year results, the prior year results and
compliance with the Group’s financial covenants.
We have challenged management’s decision to record a prior year adjustment and
have inspected the supporting evidence and accounting papers prepared by the Group
to validate the positions adopted and assessed compliance with relevant accounting
standards. In particular we have considered whether the various matters reflect a prior
period error or a change in accounting estimate, as defined by International Accounting
Standard 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.
We have obtained a detailed understanding of the facts underpinning the matters,
requested from management all internal and external correspondence and audit
evidence relating to the various matters, interviewed operational and financial
management knowledgeable of the issues, where still employed by the business,
and obtained copies of signed legal agreements or equivalent evidence, as applicable.
We have engaged technical specialists to increase our professional scepticism
through detailed analysis of the individual adjustments identified. We also engaged
senior independent audit partners to challenge any inherent management bias across
all the adjustments as a whole.
Based on our work performed, we observed that the judgements applied
were appropriate.
We noted that deficiencies in internal review controls, particularly management’s
controls relating to the review, challenge and approval of matters relating to financial
close, goodwill impairment and contract judgements, resulted in certain balances not
being appropriately recorded in the consolidated financial statements in the prior year.
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Impairment of goodwill in the Property division
Risk description
How the scope of our audit
responded to the risk
Key observations
In accordance with International Accounting Standard 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 £358.9m prior to impairment charges, of which £85.2m,
is recorded in the Property division.
Goodwill is disclosed in Note 14 to the financial statements.
Trading performance in the Property division has declined in the past year, with a loss
before tax of £9.3m recorded in the current year and management has recorded an
impairment charge of £15.0m for the year.
There is inherent uncertainty involved in forecasting the future cash flows of the division,
including: the variability in forecast contract income and margin due to contract attrition
and new contract wins or extensions; the impact of changes in market conditions; the
impact of changes in Government public sector policy; the availability of Local Authority
budgets; the impact of Brexit; and the selection of an appropriate discount rate.
The Group’s accounting policy for goodwill is disclosed in Note 1(b) within the “Basis
of preparation and significant accounting policies”. The key judgements in respect
of goodwill are disclosed in Note 2 “Measurement and impairment of goodwill and
other intangible assets” and is considered on page 55 within the Audit Committee
section of the Directors’ report.
We have assessed the design and implementation of relevant controls over the Group’s
budgeting and forecasting process as well as the impairment review process.
We have challenged the reasonableness of management’s key judgements. Specifically,
our work included, but was not limited to:
• evaluating management’s historical forecasting accuracy;
• assessing one-off items which management has identified as impacting the current
year and the risk of these items being pervasive in the business;
• benchmarking long-term growth rates to applicable market data, taking into
consideration available public information including, but not limited to, Government
public sector policy and the impact of Brexit;
• considering the performance of peers and available market data on output trends,
both historic and forecast;
• engaging Deloitte industry valuation specialists to challenge the discount rate applied
as well as the clerical accuracy of management’s impairment model;
• challenging the forecast revenue and margin growth assumptions as well as forecast
assumptions around new contract wins or extensions, contract attrition, contract
margins, cost reductions and the allocation of central costs by benchmarking against
historic performance and performance on similar projects; and
• assessing 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.
We independently determined whether or not a reasonably possible change to key
operating assumptions could result in an impairment in order to critically assess
management’s position.
We tested the sensitivity of the impairment to reasonably possible changes in each
of the key assumptions and reviewed management’s sensitivity disclosure to check
compliance with the financial reporting standards.
We also assessed whether the Group’s disclosures about the sensitivity of outcomes
reflected the risks inherent in the valuation of goodwill.
Whilst further actions are required by the Group to achieve these forecasts over the
short and medium term, we concluded that the assumptions applied in the impairment
model were within an acceptable range, and that the overall position adopted, resulting
in an impairment of £15.0m, was reasonable.
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Recoverability of aged or disputed debtors and accrued income
Risk description
How the scope of
our audit responded
to the risk
Material amounts of the Group’s billed and unbilled work remain outstanding for more than three
months as resolution of open issues remains ongoing on various contracts. The aged nature of
these balances increases the risk of recoverability, particularly where there is disagreement or
dispute. In addition we have considered the increased risk arising from the decline in trading
performance in the year.
Trade debtors and accrued income are disclosed in note 19 to the financial statements. Credit risk
associated with trade debtors is disclosed in note 28 to the financial statements.
There is significant management judgement involved in assessing the recoverability of these balances,
taking into consideration the Group’s contractual rights, available evidence of work performed, as
well as the status of ongoing commercial negotiations. This judgement is compounded by system
limitations which require a manual ageing of contractual balances, increasing the risk of error.
In the current year the Group has recognised a valuation allowance of £13.9m in respect of aged
and disputed balances.
The Group’s accounting policy for trade debtors and accrued income is disclosed in Note 1(b) within
the “Basis of preparation and significant accounting policies”.
We have assessed the design and implementation of key controls over the financial reporting process.
In particular, we have focused on the appropriate ageing of billed and unbilled balances recorded in the
financial accounts and review of these aged positions.
We have extended the scope of our work on aged balances and, on a sample basis, have challenged
the validity of the recorded debtors and accrued income by obtaining external confirmation of the
balances, such as client approval of works orders. We have challenged the validity of these balances
together with the completeness of management’s provisions.
We have read correspondence as well as internal and external legal counsel reports regarding any
disputed contractual amounts and positions.
We have interviewed commercial and project managers and challenged the financial position
adopted on the key contracts, gathering evidence of work performed and the status of negotiations
where appropriate.
Key observations
Based on our work performed and evidence gathered, we are satisfied that the trade debtors and
accrued income recorded in the financial statements are reasonable.
Healthcare disposal
Risk description
How the scope of
our audit responded
to the risk
Key observations
The Group’s Healthcare division (MiHomecare) was disposed of during the year. The Group has
recorded a loss on disposal of £30.4m and associated costs of disposal, largely driven by a £9.5m
contribution to trading losses payable to the purchaser. The terms of the sale are complex in relation to
the completeness of the disposal costs recognised which include the provision for certain warranties.
Discontinued operations and disposal of subsidiaries are disclosed in Note 6 to the financial statements.
The Group’s accounting policy for discontinued operations and disposal of subsidiaries is disclosed in
Note 1(b) within the “Basis of preparation and significant accounting policies”.
We have evaluated the design and implementation of the key controls over the disposal of the
Healthcare business, including controls in respect of the calculation of loss on disposal and exit costs.
We have read a copy of the sale agreement and used this to challenge the accuracy and completeness
of the obligations recorded in the financial statements.
We have reviewed the completeness of recorded provisions by challenging the assumptions
underpinning the calculations, in particular, the adequacy of an indemnity provision for employee costs
and associated presentation. We have audited the balance sheet on the date of disposal and re-
calculated the expected loss on disposal.
We have specifically reviewed the appropriateness of the disclosures set out in Note 6 to the accounts
detailing the background to the sale, the key terms of sale and the recorded position and considered
the appropriate presentation as discontinued operations.
We are satisfied that the loss on disposal of the Healthcare business has been appropriately calculated
and presented in the financial statements and the estimated exit costs are reasonable.
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Presentation of ‘other items’ in the consolidated income statement
Risk description
How the scope of
our audit responded
to the risk
Key observations
£153.5m of transactions have been presented as ‘other items’ in the consolidated statement of
comprehensive income.
Other items are disclosed in Note 5 to the financial statements and are intended to reflect transactions
that fall outside the normal course of business. These include goodwill impairment, the results of
disposals, restructuring costs and acquisition related costs.
There is judgement in evaluating whether a transaction meets the definition described in the Group’s
accounting policy and whether its presentation is ‘fair, balanced and understandable’. Failure to disclose
clearly the nature and impact of material ‘other item’ earnings may distort the reader’s view of the
financial result in the year.
The Group’s accounting policy for statutory and non-statutory measures of performance is disclosed in
Note 1(b) within the “Basis of preparation and significant accounting policies”. The key judgements in
respect of other items are disclosed in Note 2 “Critical accounting judgements and key sources of
estimation uncertainty”.
We have assessed the design and implementation of relevant controls over the financial statement
review process by management and the Audit Committee.
We have benchmarked against market practice, including, but not limited to:
• the guidance published by the Financial Reporting Council in their thematic review; and
• the guidance included in the “Guidelines on Alternative Performance Measures”, issued by the
European Securities and Markets Authority (ESMA).
We have understood the composition of other items identified as one-off by management, disclosed at
Note 5 and included within management’s Alternative Performance Measure of operating profit before
other items and agreed a sample of items to supporting documentation. We have challenged
management’s rationale for the presentation of items within the income statement as ‘other items’,
particularly around the areas of higher judgement such as restructuring costs to determine whether the
costs recognised as ‘other items’ meet the criteria of the accounting policy for such items defined by
the Group. This includes assessing the incremental nature of the costs, the extent to which the costs
are non-recurring and whether they are specific to individual events, and considering whether they
should be classified as part of results before other items. Our work has also included a review of
material items included within the income statement to identify income and expenses which may be
exceptional by nature but have not been separately identified.
We have independently evaluated and challenged the appropriate disclosure of these balances and
consulted with Deloitte technical specialists on financial reporting.
We are satisfied that presentation of the transactions included within ‘other items’ is reasonable.
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Appropriateness of revenue and profit recognition
Risk description
Certain of the Group’s project-based service contracts are long term in nature. The contractual
arrangements that underpin the measurement and recognition of revenue by the Group can be
complex and incorporate penalty clauses in the event of non-compliance. The Group is therefore
required to make operational and financial assumptions to estimate future performance over periods
that can extend beyond five years.
There are significant accounting judgements required to apply the Group’s revenue recognition policies
to the long-term complex contracts. The prediction of future events contains inherent risk and a high
degree of management judgement. Variability of contract penalties, underlying delivery costs and
customer disputes can put additional pressure on margins and on future contract profitability.
Revenue and operating profit is disclosed in Note 4 to the financial statements.
Management’s assessment of the through-life margin requires both the delivery of future cost saving
initiatives and plans to improve revenue. This brings with it an inherent level of risk and a requirement
for the operational teams to deliver these assumptions.
The key judgements impacting the recognition of revenue and resulting operating profit include:
• interpretations of terms and conditions in relation to the required service obligations in accordance
with contractual arrangements;
• consideration of the Group’s performance against contractual obligations and the impact on revenue
and costs of delivery;
• determining the stage of completion and forecasting with reasonable certainty contract revenue and
costs; and
• the recognition and recoverability of contract related assets, including those recognised as direct
incremental costs prior to service commencement.
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 risks leading to material judgements.
The Group’s accounting policy for revenue is disclosed in Note 1(b) within the “Basis of preparation and
significant accounting policies”. The key judgements in respect of revenue are disclosed in Note 2
“Revenue recognition” and is considered on page 56 within the Audit Committee section of the
Directors’ report.
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Appropriateness of revenue and profit recognition
How the scope of
our audit responded
to the risk
Key observations
We have tested the operating effectiveness of the key controls over the contract process including
contract monitoring, billings and approvals, the general IT controls over certain of the systems used to
generate the information and management’s review and approval of the contract accounting applied.
We have attended and inspected minutes from certain meetings forming a key part of the Group’s risk
and contract accounting process to challenge fully at a management level, the ongoing performance
and judgements taken on long-term complex contracts. In addition:
• we have assessed management’s judgement regarding the appropriate timing of revenue
recognition, including when a percentage of completion basis was applied, by challenging the validity
and reasonableness of forecast revenue and costs. As part of our assessment we have reviewed
papers documenting management’s balance sheet review which was supported by KPMG. As part
of this we attended Audit Committee meetings alongside KPMG. Where contract negotiations are
ongoing, particularly with regard to contract extensions or new contracts, we discussed the current
status with the respective contract manager and reviewed correspondence where relevant;
• we reviewed significant contract terms for the conditions that underpin the revenue and the profit
recognition assumptions. This is particularly relevant in our assessment of variable reactive and
project related revenue forecasts and our assessment of the Group’s exposure to any performance
related penalties. In addition we considered the impact of any contract variations including any
discounts that have been provided;
• we have performed substantive tests and substantive analytical procedures on costs incurred
to date and profitability forecasts. This included challenging management’s assumptions on revenue,
future costs including projected savings and 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 challenged the assumptions in the forecasts and through-life margin assumptions prepared by
management, to determine whether onerous contracts have been appropriately recognised and
adequately disclosed. This was particularly relevant where contract performance had deteriorated
in the year and contract initiatives which had previously been assumed were not delivered. In
determining where onerous provisions are required we have considered the historic performance,
assessed the assumptions regarding operational risk and the actions management is taking together
with the contractual obligations and remaining term of the contract. Our efforts were focused around
challenging management’s plan to improve operational performance, reduce cost and secure
revenue increases;
• we performed our own independent sensitivity analysis and we have undertaken additional analysis
on key assumptions to which management’s provisioning judgements are more sensitive. We also
held discussions with in-house and external legal counsel and read appropriate documentation to
evaluate contractual claims and disputes with customers and subcontractors and to assess any
issues with the interpretation of contracts; and
• for contract related assets which have been written off or where onerous contract provisions have
been created we have assessed whether the resulting charge was a change in estimate arising from
new information in the year or whether it represented a correction in a prior year error.
We consider the range of judgements across the contract portfolio of long-term complex contracts to
be appropriate.
From the evidence obtained, we did not identify any incremental onerous contracts over and above the
arrangements identified by management’s own procedures. We considered the level of provisioning to
be acceptable in the context of the Group financial statements taken as a whole. We are satisfied with
the Group’s related disclosures of these onerous contracts in light of the underlying assumptions and
accounting judgements made.
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Management override of controls
Risk description
How the scope
of our audit
responded to
the risk
The decentralised nature of the Group, coupled with the evolving systems and control environment,
means that there is an increased risk of errors remaining undetected and aggregating to cause a
material misstatement to the Group.
Furthermore, the financial results are sensitive to significant estimates and judgements, where there
is a broad range of acceptable outcomes that could lead to different levels of profit and revenue being
reported in the financial statements. Relatively small changes in the basis of those judgements and
estimates could result in the Group meeting, exceeding or falling short of forecasts, guidance or
targets. Consequently, the recovery of contractual balances is dependent on management being
consistent in pursuing a course of action.
We have evaluated the trading performance and governance events in the year, the prior year
restatements, the amendments obtained on the Group’s covenants and the significant judgement
applied on a number of our identified risks of material misstatement and identified that there is a key
risk of management override of controls. Further, management has identified instances of override of
controls during the year, resulting in a number of prior year restatements.
Management is in a unique position potentially to manipulate accounting records and financial
statements by overriding controls that otherwise appear to be operating effectively.
The key judgements in respect of management override of controls are considered on page 57
within the Audit Committee section of the Directors’ report.
We have tested the operating effectiveness of the key controls over management’s review and
approval of financial results.
Consistent with all of our audits, we addressed the risk of management override of internal controls,
including evaluating whether there was evidence of bias by management that represented a risk of
material misstatement.
In addition to the procedures performed to address the risks as discussed above related to prior year
restatements, impairment of goodwill in the Property division, recoverability of aged or disputed
debtors and accrued income, presentation of other items and appropriateness of revenue and profit
recognition, we have extended our enquiries designed to assess whether judgements and estimates
exhibited unconscious bias or whether management had taken systematic actions to manipulate the
reported results. We have applied an increased level of scepticism throughout the audit by increasing
the involvement of senior audit team personnel, with particular focus on audit procedures designed to
assess whether revenues and costs have been recognised in the correct accounting period and
whether key assumptions and judgements applied were appropriate. In particular, we looked at where
the Directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain.
Procedures designed to address these risks included testing of material journal entries and post-close
adjustments, testing and evaluating management’s key accounting estimates for reasonableness and
consistency, undertaking procedures to check the completeness and appropriate cut-off of revenue
and expenses and testing the occurrence and accuracy of revenue transactions. In addition, we
incorporate an element of unpredictability into our audit work each year.
We have attended the Audit Committee meetings throughout the year and read minutes of meetings
of the Board of Directors. We have also attended and inspected minutes from certain management
and project meetings, forming a key part of the Group’s risk and contract accounting process to
challenge at a management level the ongoing performance on long-term complex contracts.
Key observations
We observe there have been instances of weak implementation of the key controls in the year,
particularly over management’s control relating to review, challenge and approval of key accounting
estimates and judgements. Progress has been made by the Group towards the latter part of the
financial year, however, the controls were not in place for the whole year.
Based on our work performed, we consider that the judgements and position adopted by management,
in aggregate, is reasonable.
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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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
Basis for determining materiality
Rationale for the benchmark applied
£3.8m (2016: £5.0m).
5% of normalised and adjusted profit before tax.
Normalised and adjusted profit before tax has been calculated using an average of
historic profit before tax and forecast profit based on brokers’ consensus forecast.
Historic profit before tax is adjusted to remove one-off and non-recurring items,
including costs associated with businesses being exited and restructuring and
acquisition related costs.
In the prior year, materiality was determined on the basis of 5.2% of statutory profit
before tax.
We have revised our approach to determining materiality in light of the trading
performance in the period and the significant impact of matters identified in the
current year and non-trading items on the statutory profit measure.
1
2
1
2
3
1
2
Group materiality
Normalised and adjusted PBT £75.5m
1
2
3
Group materiality £3.8m
Component materiality range £1.9m to £2.7m
Audit Committee reporting threshold £0.19m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £190,000
(2016: £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.
The Group operates through a number of legal entities which form reporting components based on service lines. Audits for
Group reporting purposes were performed over the significant legal entities covering all the three trading divisions (a change
from the four in prior year as two of the trading divisions were merged at the start of the current year) and representing
approximately 90% (2016: 96%) of the Group’s revenue, 87% (2016: 100%) of Group profit before tax and 83% (2016: 94%) of
Group net assets.
The Group audit team approved component materiality levels, which ranged from £1.9m to £2.7m having regard to the mix of
size and risk profile of the Group across the components. The work on all components was performed by the Group auditors
based in each location under the direction and supervision of the Group engagement partner. The Group engagement partner
visited all the component locations. Various telephone conference meetings were also held with these local auditors
throughout the audit process covering planning and fieldwork.
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 non-significant entities which were not subject to audit work for the purposes of the
Group audit.
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1
2
1
1
2
2
Revenue
Profit
before tax
Net Assets
1
2
Full audit scope 90%
Review at group level 10%
1
2
Full audit scope 87%
Review at group level 13%
1
2
Full audit scope 83%
Review at group level 17%
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006;
• 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; and
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we
have not identified any material misstatements in the strategic report and the Directors’ report.
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
We have nothing to report in
respect of these matters.
• 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.
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.
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.
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.
We have nothing to report arising
from these matters.
We have nothing to report arising
from our review.
We confirm that we have not
identified any such inconsistencies
or misleading statements.
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.
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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
Statutory Auditor
London, United Kingdom
12 June 2017
106
Mitie Group plc | Annual Report and Accounts 2017
Consolidated income statement
For the year ended 31 March 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of profit of joint ventures and associates
Operating (loss)/profit
Investment revenue
Finance costs
Net finance costs
Before
other items
£m
Notes
Other
items‡
£m
2017
Total
£m
2016 – Restated*
Before
other items
£m
Other
items‡
£m
Total
£m
3,4
2,126.3
(1,896.5)
229.8
–
–
–
2,126.3
(1,896.5)
229.8
2,146.9
(1,849.8)
297.1
–
–
–
2,146.9
(1,849.8)
297.1
17
4,7
9
10
(236.7)
0.6
(6.3)
–
(15.3)
(15.3)
(36.6)
–
(36.6)
(273.3)
0.6
(42.9)
–
–
–
–
(15.3)
(15.3)
(183.8)
0.6
113.9
0.1
(15.8)
(15.7)
(6.3)
–
(6.3)
–
–
–
(190.1)
0.6
107.6
0.1
(15.8)
(15.7)
(Loss)/profit before tax
(21.6)
(36.6)
(58.2)
98.2
(6.3)
91.9
Tax
11
3.3
4.1
7.4
(19.5)
1.3
(18.2)
(Loss)/profit from continuing operations
after
tax
Discontinued operations
Loss from discontinued operations
(Loss)/profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
(18.3)
(32.5)
(50.8)
78.7
(5.0)
73.7
6
4
(11.4)
(29.7)
(121.0)
(153.5)
(132.4)
(183.2)
(5.0)
73.7
(34.0)
(39.0)
(39.0)
34.7
(30.5)
0.8
(29.7)
(153.5)
–
(153.5)
(184.0)
0.8
(183.2)
71.6
2.1
73.7
(39.0)
–
(39.0)
32.6
2.1
34.7
(Loss)/earnings per share (EPS) attributable to
equity shareholders of the parent
From continuing operations:
– basic
– diluted
From continuing and discontinued operations:
– basic
– diluted
13
13
13
13
(5.5)p
(5.4)p
(9.2)p
(9.2)p
(14.7)p
(14.6)p
21.6p
21.3p
(1.5)p
(1.4)p
20.1p
19.9p
(8.7)p
(8.6)p
(43.7)p
(43.3)p
(52.4)p
(51.9)p
20.1p
19.9p
(10.9)p
(10.8)p
9.2p
9.1p
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
See Note 6 for further detail on the re-presentation of the prior year comparatives due to the treatment of the Healthcare business as a discontinued
operation.
‡ Other items are as described in Note 5.
107
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Consolidated statement of comprehensive income
For the year ended 31 March 2017
(Loss)/profit for the year
Items that will not be reclassified subsequently to profit or loss
Remeasurement of net defined benefit pension liability
Income tax credit/(charge) relating to items not reclassified
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Gains/(losses) on hedge of a net investment taken to equity
Cash flow hedges:
(Losses)/gains arising during the year
Reclassification adjustment for profits/(losses) included in profit and loss
Income tax credit/(charge) relating to items that may be reclassified
Other comprehensive (expense)/income for the financial year
Total comprehensive (expense)/income for the financial year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
38
2017
£m
(183.2)
2016
Restated*
£m
34.7
(35.4)
5.5
(29.9)
1.3
0.1
(26.2)
21.4
0.3
(3.1)
3.0
(1.6)
1.4
0.2
(0.7)
6.7
(4.4)
(0.7)
1.1
(33.0)
2.5
(216.2)
37.2
(217.0)
0.8
35.1
2.1
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
108
Mitie Group plc | Annual Report and Accounts 2017
Consolidated balance sheet
As at 31 March 2017
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in joint ventures and associates
Derivative financial instruments
Trade and other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax asset
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 (liabilities)/assets
Non-current liabilities
Trade and other payables
Financing liabilities
Provisions
Retirement benefit liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Notes
2017
£m
2016
Restated*
£m
2015
Restated*
£m
14
15
16
17
18
19
23
24
19
18
25
26
27
29
26
27
29
38
23
343.9
53.2
32.3
0.6
–
50.3
22.2
502.5
6.8
381.0
35.8
12.1
129.1
564.8
439.5
64.6
49.3
0.6
14.4
84.8
10.4
663.6
9.9
432.1
–
–
93.1
535.1
464.4
73.8
53.3
1.1
8.0
58.5
13.9
673.0
11.0
416.8
–
–
96.4
524.2
1,067.3
1,198.7
1,197.2
(559.9)
–
(310.8)
(20.4)
(891.1)
(496.1)
(3.9)
(1.9)
(8.5)
(510.4)
(476.6)
(2.9)
(1.8)
(10.5)
(491.8)
(326.3)
24.7
32.4
(3.4)
(1.3)
(6.4)
(74.2)
(1.1)
(86.4)
(2.5)
(283.9)
(0.5)
(35.5)
(4.4)
(326.8)
(8.0)
(279.2)
(7.4)
(35.8)
(7.5)
(337.9)
(977.5)
(837.2)
(829.7)
89.8
361.5
367.5
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016 and 31 March 2015.
109
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Consolidated balance sheet continued
As at 31 March 2017
Equity
Share capital
Share premium account
Merger reserve
Own shares reserve
Other reserves
Hedging and translation reserve
Retained (losses)/earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
2017
£m
2016
Restated*
£m
2015
Restated*
£m
32
33
33
33
33
33
9.2
130.6
91.8
(42.2)
10.3
(8.0)
(104.2)
87.5
9.3
127.7
80.1
(48.8)
9.9
(4.6)
185.0
358.6
2.3
89.8
2.9
361.5
9.4
122.6
80.1
(47.5)
7.6
(6.4)
198.7
364.5
3.0
367.5
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016 and 31 March 2015.
The consolidated financial statements of Mitie Group plc, company registration number SC019230 were approved by the
Board of Directors and authorised for issue on 12 June 2017. They were signed on its behalf by:
Phil Bentley
Chief Executive Officer
Sandip Mahajan
Chief Financial Officer
110
Mitie Group plc | Annual Report and Accounts 2017
Consolidated statement of changes in equity
For the year ended 31 March 2017
At 1 April 2015 –as reported
Restatements*
At 1 April 2015 – restated*
Profit for the year
Other comprehensive income
Total comprehensive income
Shares issued
Dividends paid
Share buybacks
Purchase of own shares
Share-based payments
Tax on share-based payment
transactions
Acquisitions and other
movements in non-controlling
interests
Share
capital
£m
Share
premium
account
£m
9.4
–
9.4
–
–
–
–
–
(0.1)
–
–
–
–
122.6
–
122.6
–
–
–
5.1
–
–
–
–
–
–
Merger
reserve
£m
80.1
–
80.1
Own
shares
reserve
£m
(47.5)
–
(47.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6.6)
5.3
–
–
At 31 March 2016 – restated*
9.3
127.7
80.1
(48.8)
–
–
–
0.1
–
(0.2)
–
–
–
–
2.9
–
–
–
–
–
–
11.7
–
–
–
–
–
–
–
–
(0.2)
6.8
Loss for the year
Other comprehensive expense
Total comprehensive expense
Shares issued
Dividends paid
Share buybacks
Share-based payments
Acquisitions and other
movements in non-controlling
interests
At 31 March 2017
Hedging
and
translation
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Total
equity
£m
7.6
–
7.6
–
–
–
–
–
0.1
–
2.2
–
–
9.9
–
–
–
–
–
0.4
–
–
(6.4)
(6.4) 209.2 375.0
(10.5)
(10.5)
198.7 364.5
32.6
0.7
32.6
2.5
–
1.8
1.8
–
–
–
–
–
33.3
–
(42.2)
(15.3)
–
0.3
35.1
5.1
(42.2)
(15.3)
(6.6)
7.8
3.3 378.3
(0.3)
(10.8)
3.0 367.5
2.1
–
34.7
2.5
2.1
–
(0.2)
–
–
–
37.2
5.1
(42.4)
(15.3)
(6.6)
7.8
–
0.1
0.1
–
0.1
–
(4.6)
10.1
10.1
185.0 358.6
(2.0)
8.1
2.9 361.5
–
(3.4)
(3.4)
–
–
–
–
(184.0) (184.0)
(29.6)
(33.0)
(213.6)
(217.0)
–
14.7
(37.4)
(37.4)
(24.4)
(24.4)
2.4
9.2
0.8
–
0.8
–
(0.1)
–
–
(183.2)
(33.0)
(216.2)
14.7
(37.5)
(24.4)
9.2
–
9.2
–
130.6
–
91.8
–
(42.2)
–
10.3
–
(8.0)
(16.2)
(104.2)
(16.2)
87.5
(1.3)
2.3
(17.5)
89.8
* See Note 1(c) for an explanation and analysis of the prior year adjustments included above in respect of the profit for the year ended 31 March 2016 and
of retained earnings at 1 April 2015.
111
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Consolidated statement of cash flows
For the year ended 31 March 2017
Operating (loss)/profit – continuing operations
– discontinued operations
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
Share of profit of joint ventures and associates
Impairment of goodwill and intangible assets
Loss/(profit) on disposal of businesses
Loss on disposal of property, plant and equipment
Operating cash flows before movements in working capital
Decrease in inventories
Decrease/(increase) in receivables
Increase in payables
Increase in provisions
Cash generated by operations
Income taxes paid
Interest paid
Acquisition costs
Net cash inflow from operating activities
Investing activities
Interest received
Purchase of property, plant and equipment
Purchase of subsidiary undertakings, net of cash acquired
Purchase of non-controlling interests
Dividends received from joint ventures and associates
Investment in derivative financial instruments
Purchase of other intangible assets
Disposals of property, plant and equipment
Disposal of subsidiaries, including cash disposed
Net cash outflow from investing activities
Notes
2017
£m
2016
Restated*
£m
(42.9)
(135.2)
107.6
(42.0)
37
38
38
5
16
15
17
40
5
34
34
15
6.2
4.3
(2.4)
1.2
14.1
23.8
(0.6)
109.2
30.4
1.0
9.1
3.2
74.8
58.4
5.6
151.1
(15.3)
(12.7)
(0.3)
122.8
0.1
(14.5)
–
(1.4)
0.6
–
(12.4)
1.0
(1.7)
(28.3)
5.2
4.4
(3.0)
0.3
15.1
17.0
(0.6)
33.2
(0.5)
–
136.7
1.1
(41.7)
16.4
2.1
114.6
(15.7)
(13.4)
(0.3)
85.2
–
(15.7)
(0.6)
(7.4)
0.7
1.9
(8.9)
2.2
–
(27.8)
* See Note 1(c) for an explanation and analysis of the prior year adjustments included above in respect of the year ended 31 March 2016.
112
Mitie Group plc | Annual Report and Accounts 2017
Consolidated statement of cash flows continued
For the year ended 31 March 2017
Financing activities
Repayments of obligations under finance leases
Proceeds on issue of share capital
Bank loans repaid
Proceeds from new borrowings
Proceeds from re-issue of Treasury shares
Share buybacks
Equity dividends paid
Non-controlling interests dividends paid
Other financing items
Net cash outflow from financing
Net increase/(decrease) 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
Notes
2017
£m
2016
Restated*
£m
(1.6)
0.1
–
1.7
2.4
(24.4)
(37.4)
(0.1)
0.4
(58.9)
35.6
93.1
0.4
129.1
(3.1)
5.0
(2.2)
–
(3.7)
(14.4)
(42.3)
(0.2)
–
(60.9)
(3.5)
96.4
0.2
93.1
33
32
12
25
The above statement of consolidated cash flows includes cash flows from both continuing and discontinued operations.
Further details of the cash flows relating to discontinued operations are shown in Note 6.
Reconciliation of net cash flow to movements in net debt
Cash drivers
Net increase/(decrease) in cash and cash equivalents
(Increase)/decrease in bank loans
Non-cash drivers
Non-cash movement in private placement notes and associated hedges
Effect of foreign exchange rate changes
Decrease/(increase) in finance leases
Decrease/(increase) in net debt during the year
Opening net debt
Closing net debt
Notes
2017
£m
2016
Restated*
£m
35.6
(1.7)
(4.4)
0.4
1.2
31.1
(3.5)
0.3
3.0
0.2
(0.5)
(0.5)
(178.3)
(147.2)
(177.8)
(178.3)
31
* See Note 1(c) for an explanation and analysis of the prior year adjustments included above in respect of the year ended 31 March 2016.
113
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Notes to the consolidated financial statements
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies
(a) Basis of preparation
The group’s financial statements for the year ended 31 March 2017 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.
Accounting standards that are newly effective in the current year
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 2016 except for the
following amendments, which were effective for the first time in the current year but had no impact on the results or financial
position of the Group:
• Amendments to IAS 1 ‘Presentation of financial statements’ – disclosure initiative;
• Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation;
• Amendments to IFRS 11 ‘Joint Arrangements’ – Accounting for acquisitions of interests in joint operations; and
• Amendments resulting from annual improvements to IFRSs 2012-2014 and 2013-2015 cycle.
Accounting standards that are not yet mandatory and have not been applied by the Group
The following standards and interpretations have been issued but are not yet mandatorily effective (and in some cases have
not yet been adopted by the EU) and have not been applied by the Group:
• IFRS 9 ‘Financial instruments’;
• IFRS 15 ‘Revenue from contracts with customers’;
• IFRS 16 ‘Leases’;
• Amendments to IFRS 2 ‘Share-based payment’ – classification and measurement of share-based payment transactions;
• Amendments to IAS 7 ‘Cash flow statements’ – disclosure initiative;
• Amendments to IAS 12 ‘Income taxes’ – recognition of deferred tax assets for unrealised losses; and
• 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.
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial
statements of the Group in future periods, except as noted below:
• IFRS 9 will impact both the measurement and disclosures of financial instruments;
• IFRS 15 introduces a new revenue recognition model and is due to be effective for periods beginning on or after 1 January
2018. It will have a material impact on the reported assets and income statement of the Group. The Group is conducting a
detailed review of IFRS 15 with the view to early adopting the standard for the year ending 31 March 2018.
The review of the impact of IFRS 15 is continuing and will be completed during 2017. The key impacts identified to
date are:
Percentage of completion accounting on long-term complex contracts – the five step model for revenue recognition
contained in IFRS 15 introduces the concept of performance obligations. Performance obligations are the contractual
promise by an entity to transfer goods or services to a customer. Percentage of completion accounting does not provide
an appropriate representation of the satisfaction of performance obligations on these long-term complex contracts and
consequently will no longer be considered applicable to these contracts. Therefore, it will not be appropriate to carry
forward accrued revenue in relation to percentage of completion accounting on these contracts.
Mobilisation costs – under IFRS 15, costs of mobilising new contracts will have to meet different criteria in order to be
classified as a cost of fulfilling a contract. This change will materially affect both: (i) the amount of costs capitalised on
long-term complex contracts that have been accounted for under the percentage of completion method; and (ii) the
amount of costs that have been capitalised previously as mobilisation costs; and
• IFRS 16 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.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until
detailed reviews have been completed.
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0
1
B1.
BBasis of preparation and significant accounting policies continued
(b) 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 parent company has applied FRS 101 ‘Reduced Disclosure Framework’ in the preparation of its individual financial
statements. FRS 101 applies IFRS as adopted by the European Union with certain disclosure exemptions.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group. The results, assets and liabilities of joint ventures and associates are
accounted for under the equity method of accounting. Where necessary, adjustments are made to the financial statements of
subsidiaries, joint ventures and associates to bring the accounting policies used into line with those used by the Group.
All inter-company balances and transactions, including unrealised profits arising from inter-group transactions, have been
eliminated in full.
Interests of non-controlling interest shareholders are measured at the non-controlling interest’s proportion of the net fair
value of the assets and liabilities recognised. Changes in a parent’s ownership interest in a subsidiary that do not result in a
loss of control are accounted for within shareholders’ equity. No gain or loss is recognised on such transactions and goodwill
is not re-measured. Any difference between the change in the non-controlling interest and the fair value of the consideration
paid or received is recognised directly in equity and attributed to the owners of the parent.
Statutory and non-statutory measures of performance
The financial statements contain all the information and disclosures required by the relevant accounting standards and
regulatory obligations that apply to the Group.
In the financial statements the Group has elected to provide some further disclosures and performance measures, reported
as ‘before other items’, in order to present its financial results in a way that demonstrates the performance of continuing
operations excluding the results from restructuring and acquisition related costs, and the amortisation or write-off of
acquired intangible assets and goodwill. Results before other items are a non-statutory measure.
‘Other items’ are defined as items of income or expenditure which, in the opinion of the Directors, are material or unusual in
nature or of such significance that they require separate disclosure on the face of the income statement in accordance with
IAS 1 ‘Presentation of Financial Statements’. Should these items be reversed disclosure of this would also be as other items.
Further detail of other items is set out in Note 5 to the financial statements.
In addition, following the guidelines on Alternative Performance Measures (APMs) issued by the European Securities and
Markets Authorities (ESMA), the Group has included an APM appendix to the financial statements on page 174. These APMs
are measures which disclose the adjusted performance of the Group excluding specific items which are regarded as non-
recurring. The Directors believe that these are useful for users of the financial statements in helping to provide a balanced
view of, and relevant information on, the Group’s financial performance.
Foreign currency
The financial statements of each of the Group’s businesses are prepared in the functional currency applicable to that
business. Transactions in currencies other than the functional currency are recorded at the rate of exchange at the date of
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the
rates of exchange prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at
the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included
in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at
fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items
in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in equity.
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2
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies continued
On consolidation, the assets and liabilities of the Group’s overseas operations, including goodwill and fair value adjustments
arising on their acquisition, are translated into sterling at exchange rates prevailing at the balance sheet date. Income and
expenses are translated into sterling at average exchange rates for the period. Exchange differences arising are recognised
directly in equity in the Group’s hedging and translation reserve. On disposal of a foreign operation, the deferred cumulative
amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
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.
Costs incurred, after the confirmation of preferred bidder, that are specific costs incurred to ensure that the project or
programme has appropriate organisational, operational and technical infrastructures and mechanisms in place to enable the
delivery of full services under the contract target operating model are defined as mobilisation costs. These costs are included
within trade and other receivables on the balance sheet provided that the costs relate directly to the contract, are separately
identifiable, can be measured reliably and that the future net cash inflows from the contract are estimated to be no less than
the amounts capitalised.
Such costs may be incurred when a contract is awarded, or when there is a subsequent change in the scope of contracted
services. The mobilisation costs are amortised over the contracted period (including any contracted extension periods),
generally on a straight-line basis, or on a basis to reflect the profile of work to be performed over the contracted period if the
straight-line basis is not considered to be appropriate for the specific contract to which the costs relate. If the contract
becomes loss making, any unamortised costs are written off and the expected loss is provided for immediately.
Revenue recognition: long-term complex contracts
The group has a number of long-term contracts for the provision of complex project-based services, predominantly
integrated facilities management contracts. These are contracts which are transformational in nature and usually five years
in initial duration.
In this context, transformational means that the cost to the client over the life of the contract is reduced as a result of
significant transformations in service provision. Typically these contracts are priced to average the annual charge to the
client over the contract period and involve the provision of multiple service lines, with a single management team providing an
integrated service.
Where the outcome of such complex project-based contracts can be measured reliably, revenue and costs are recognised by
reference to the stage of completion of the contract activity at the balance sheet date. This is measured by the proportion of
contract costs incurred for work performed to date compared to the total estimated contract costs using the percentage of
completion methodology.
Contract costs used to determine the stage of completion are recognised in the income statement as expenses in the period
in which they are incurred and include transition costs, which are similar in nature to mobilisation costs under repeat service-
based contracts. Transition costs are expenses incurred in the performance of transitioning services provided after
confirmation of preferred bidder and before commencement of full services under the contract target operating model; no
profit margin is recognised for these transition costs.
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Contract costs also include transition costs arising when there is a subsequent change in the scope of contracted services
and include budgeted cost savings. Where the outcome of a complex project-based contract cannot be estimated reliably,
contract revenue is recognised to the extent that it is probable that contract costs will be recovered. Full provision is made for
all known or anticipated losses on each contract immediately as losses are forecast. In a number of long-term complex
contracts, the achievement of certain key performance indicators (KPIs) is a significant milestone which enables revenue to
be recognised. KPIs are generally measured contemporaneously with the performance of the service, rather than being
measured over a long period or retrospectively.
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 consist of interest and other costs that are incurred in connection with the borrowing of funds. Borrowing
costs are recognised in the income statement in the period in which they are incurred, with the finance charges relating to the
direct cost of debt issue spread over the period to redemption using the effective interest method.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised, based upon tax rates and legislation that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities; or when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value
of the identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment losses.
It is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement for the
period and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) expected to
benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU
is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each
asset in the unit. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies continued
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
Leasehold improvements
Plant and vehicles
50 years
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 any impairment loss. Where the asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount
of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of an
impairment loss is recognised as income immediately.
Intangible assets
Intangible assets identified in a business acquisition are capitalised at fair value as at the date of acquisition.
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.
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.
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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, bank and other borrowings, and deferred contingent
consideration. These are measured at initial recognition at fair value and subsequently at amortised cost with the exception
of derivative financial instruments which are measured at fair value, and deferred contingent consideration which is measured
at the Directors’ best estimate of the likely future obligation. Bank and other borrowings are stated at the amount of the net
proceeds after deduction of transaction costs. Finance charges, including premiums payable on settlement or redemption
and direct issue costs, are accounted for on an accruals basis in the income statement.
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, including cross-currency interest rate swaps and forward foreign
exchange contracts, to manage the Group’s exposure to financial risks associated with interest rates and foreign exchange.
Derivative financial instruments are initially recognised at fair value at the date the derivative contract is entered into and
are subsequently remeasured to their fair value, determined by reference to market rates, at each balance sheet date and
included as financial assets or liabilities as appropriate. The resulting gain or loss is recognised in the income statement
immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the
recognition in the income statement depends on the nature of the hedge relationship.
The Group may designate certain hedging instruments including derivatives as either fair value hedges, cash flow hedges, or
hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as
cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging
instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the
hedged item.
Fair value hedges
Hedges are classified as fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset
or liability. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the
income statement immediately, together with any changes in the fair value of the hedged item that are attributable to the
hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the
hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is discontinued
when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no
longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the
hedged risk is amortised to the income statement from that date.
Cash flow hedges
Hedges are classified as cash flow hedges when they hedge the exposure to changes in cash flows that are attributable to a
particular risk associated with either a recognised asset or liability or a forecast transaction. The effective portion of changes
in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive
income and accumulated in equity within the Group’s translation and hedging reserve. The gain or loss relating to any
ineffective portion is recognised immediately in the income statement.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies continued
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the income
statement in the periods when the hedged item is recognised in the income statement, in the same line as the recognised
hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a
non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the
initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the
Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies
for hedge accounting. Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is
recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is
no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the income statement.
Hedges of net investments in foreign operations
Hedges are classified as net investment hedges when they hedge the foreign currency exposure to changes in the Group’s
share in the net assets of a foreign operation. Hedges of net investments in foreign operations are accounted for similarly
to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in
other comprehensive income and accumulated in the Group’s translation and hedging reserve. The gain or loss relating to any
ineffective portion is recognised immediately in the income statement. Gains or losses on the hedging instrument relating to
the effective portion of the hedge accumulated in equity are reclassified to the income statement in the same way as
exchange differences relating to the foreign operation as described above.
Leasing
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to
the income statement.
Capitalised leased assets are depreciated over the shorter of the estimated life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits incidental to ownership of the asset are classified as
operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis
over the lease term. Any lease incentives are amortised on a straight-line basis over the non-cancellable period for which the
Group has contracted to lease the asset, together with any further terms for which the Group has the option to continue to
lease the asset if, at the inception of the lease, it is judged to be reasonably certain that the Group will exercise the option.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any
reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage
of time is recognised as a borrowing cost.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. Acquisition costs incurred are expensed. The acquiree identifiable
assets, liabilities and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the
acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with
IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value
less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of
the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquired identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately
in the income statement.
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Where applicable, the consideration for an acquisition includes any assets or liabilities resulting from a contingent
consideration arrangement, measured at fair value at the acquisition date. Subsequent changes in such fair values are
adjusted against the cost of acquisition where they result from additional information, obtained within one year from the
acquisition date, about facts and circumstances that existed at the acquisition date. All other subsequent changes in the fair
value of contingent consideration classified as an asset or liability are recognised in accordance with IAS 39, either in the
income statement or as a change to other comprehensive income. Changes in the fair value of contingent consideration
classified as equity are not recognised.
Any business combinations prior to 1 April 2010 were accounted for using the standards in place prior to the adoption of
IFRS 3 (revised 2008) which differ in the following respects: transaction costs directly attributable to the acquisition formed
part of the acquisition costs; contingent consideration was recognised if, and only if, the Group had a present obligation, the
economic outflow was more likely than not and a reliable estimate was determinable; and subsequent adjustments to the
contingent consideration were recognised as part of goodwill.
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries
are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are
adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity
and attributed to owners of the Company.
When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference
between; (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest; and (ii) the
previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the
Group had directly disposed of the related assets or liabilities of the subsidiary i.e. reclassified to profit or loss or transferred
to another category of equity as specified/permitted by applicable IFRSs. The fair value of any investment retained in the
former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting
under IAS 39, when applicable, of an investment in an associate or a joint venture.
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.
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 in the statement of comprehensive income.
Current service cost and past service cost are recognised in the income statement, in administrative expenses, whilst the net
interest cost is recognised in net finance costs.
The retirement benefit liability recognised in the balance sheet represents the present value of the defined benefit obligation,
as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of
available refunds and reductions in future contributions to the plan.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies continued
(c) Prior year restatements
During the year there was an apparent significant shortfall in the expected profitability of the Group for the year ended
31 March 2017. A new executive management team was appointed in December and January and they immediately launched
an Accounting Review process to provide confidence that all relevant accounting standards were appropriately reflected in
the Group’s financial reporting.
Following additional information becoming available, the review work has identified a number of prior year errors that, due to
their materiality, require the restatement of the results for the year ended 31 March 2016, as well as the consolidated balance
sheet positions as at 31 March 2016 and at 31 March 2015.
These prior year restatements relate to the following areas:
Impairment of Healthcare goodwill
The Healthcare goodwill impairment testing for the year ended 31 March 2016 was carried out by reference to a business
plan, which incorrectly included within it an apprenticeships business and certain other assumptions. Correcting for these
errors in the goodwill impairment model would have resulted in Healthcare goodwill being impaired by £26.0m in the year
ended 31 March 2016. This amount has now been written off to the consolidated income statement in the year ended
31 March 2016.
Additionally there was a material disclosure deficiency in the 2016 Annual Report and Accounts, in that there was a failure to
disclose the significant judgements made around the inclusion of new service line expansion plans in the Healthcare business,
adjacent to existing skills and assets already in the business. See Note 2 for further details.
Intangible asset write-off
Errors arising from the incorrect application of accounting policies during the impairment testing of other intangible assets
for the year ended 31 March 2014 resulted in the carrying value of capitalised software costs within intangible assets being
overstated at 31 March 2015 and 31 March 2016. At 31 March 2015 this resulted in a net asset value of £2.8m being written
off to the consolidated income statement together with a corresponding increase in the deferred tax asset of £0.5m. In the
consolidated income statement for the year ended 31 March 2016 a credit for £0.5m has now been included in respect of
amortisation no longer required, and a corresponding reduction in the deferred tax asset of £0.1m.
Under-accrual of costs
A number of under-accruals, or under-provisions, of various categories of costs have been identified in relation to prior years.
These costs have now been written off to the consolidated income statement in the relevant years and were incurred in
relation to:
i) employee bonuses that were paid during the year ended 31 March 2017 but related to the financial years ended 31 March
2015 and 31 March 2016 totalling £8.3m (2015 - £0.6m and 2016 - £7.7m); and
ii) under-provision of insurance liabilities that were outstanding at 31 March 2015 (£5.6m) and 31 March 2016 (£0.3m) and
contract related provisions of £2.2m in the year to 31 March 2016.
The tax impacts of these adjustments were credits to the consolidated income statement of £1.3m in 2015 and £2.0m
in 2016.
Overstatement of trade receivables and accrued income
Certain revenue recognition polices relating to the inclusion of disputed items in project revenues, the deferral in recognition
of commercial claims and the recognition of profit margins on accrued income balances were not applied correctly, resulting
in an overstatement of trade receivables and accrued income at 31 March 2015 (£4.6m) and 31 March 2016 of (£11.2m).
These amounts have now been written off to the consolidated income statement along with a corresponding credit to tax
of £1.0m in 2015 and £2.2m in 2016.
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Summary
A summary of the combined impact of the prior year adjustments on the consolidated income statement and consolidated
statement of cash flows for the year ended 31 March 2016 as well as the consolidated balance sheet as at 31 March 2016
arising from the restatements is as follows:
Consolidated income statement for the year ended 31 March 2016
As
previously
reported
£m
Discontinue
d operations
£m
As reported
continuing
operations
£m
Impairment
of
healthcare
goodwill
£m
Intangible
asset
write-off
£m
Under-
accrual of
costs
£m
Over-
statement
of trade
receivables
and
accrued
income
£m
2,231.9
322.6
112.5
96.8
(19.3)
77.5
–
77.5
(75.8)
(15.1)
16.0
16.0
(3.0)
13.0
(13.0)
–
2,156.1
307.5
128.5
112.8
(22.3)
90.5
–
–
–
–
–
–
(13.0)
77.5
(26.0)
(26.0)
–
–
0.5
0.5
(0.1)
0.4
–
0.4
–
–
(10.2)
(10.2)
2.0
(8.2)
–
(8.2)
(9.2)
(10.4)
(11.2)
(11.2)
2.2
(9.0)
–
(9.0)
Continuing operations
Revenue
Gross profit
Operating profit/(loss)
Profit/(loss) before tax
Tax
Profit/(loss) after tax
Loss from discontinued
operations
Profit/(loss) for the year
Consolidated statement of cash flows for the year ended 31 March 2016
Net cash flow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net decrease 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
Impairment
of
healthcare
goodwill
£m
Intangible
asset
write-off
£m
Under
accrual of
costs
£m
As reported
£m
85.2
(27.8)
(60.9)
(3.5)
96.4
0.2
93.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Over-
statement
of trade
receivables
and
accrued
income
£m
–
–
–
–
–
–
–
Restated
£m
2,146.9
297.1
107.6
91.9
(18.2)
73.7
(39.0)
34.7
Restated
£m
85.2
(27.8)
(60.9)
(3.5)
96.4
0.2
93.1
123
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2
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B1.
BBasis of preparation and significant accounting policies continued
Consolidated balance sheet as at 31 March 2016
Impairment
of healthcare
goodwill
£m
Intangible
asset write
off
£m
Under-
accrual of
costs
£m
As reported
£m
Over-
statement of
trade
receivables
and accrued
income
£m
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in joint ventures and associates
Derivative financial instruments
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
465.5
66.9
49.3
0.6
14.4
86.0
10.0
692.7
9.9
446.7
93.1
549.7
(26.0)
–
–
–
–
–
–
(26.0)
–
–
–
–
–
(2.3)
–
–
–
–
0.4
(1.9)
–
–
–
–
Total assets
1,242.4
(26.0)
(1.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
Restated
£m
439.5
64.6
49.3
0.6
14.4
84.8
10.4
663.6
9.9
432.1
93.1
535.1
–
–
–
–
–
(1.2)
–
(1.2)
–
(14.6)
–
(14.6)
(15.8)
1,198.7
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 liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Total equity
(487.8)
(10.4)
(1.9)
(0.4)
(500.5)
49.2
(2.5)
(283.9)
(0.5)
(35.5)
(4.4)
(326.8)
(827.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415.1
(26.0)
415.1
(26.0)
(1.9)
(1.9)
(8.3)
3.3
–
(8.1)
(13.1)
–
3.2
–
–
3.2
(496.1)
(3.9)
(1.9)
(8.5)
(510.4)
(13.1)
(11.4)
24.7
–
–
–
–
–
–
–
–
–
–
–
–
(2.5)
(283.9)
(0.5)
(35.5)
(4.4)
(326.8)
(13.1)
3.2
(837.2)
(13.1)
(12.6)
361.5
(13.1)
(12.6)
361.5
124
Mitie Group plc | Annual Report and Accounts 2017
1
6
1
7
B1.
BBasis of preparation and significant accounting policies continued
Consolidated balance sheet as at 31 March 2015
Impairment
of healthcare
goodwill
£m
Intangible
asset write
off
£m
Under-
accrual of
costs
£m
As reported
£m
Over-
statement of
trade
receivables
and accrued
income
£m
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in joint ventures and associates
Derivative financial instruments
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 liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Total equity
464.4
76.6
53.3
1.1
8.0
58.5
13.4
675.3
11.0
421.4
96.4
528.8
1,204.1
(476.0)
(5.2)
(1.8)
(4.9)
(487.9)
40.9
(8.0)
(279.2)
(7.4)
(35.8)
(7.5)
(337.9)
(825.8)
378.3
378.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.8)
–
–
–
–
0.5
(2.3)
–
–
–
–
(2.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.3)
(2.3)
Restated
£m
464.4
73.8
53.3
1.1
8.0
58.5
13.9
673.0
11.0
416.8
96.4
524.2
–
–
–
–
–
–
–
–
–
(4.6)
–
(4.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.6)
1,197.2
(0.6)
1.3
–
(5.6)
(4.9)
–
1.0
–
–
1.0
(476.6)
(2.9)
(1.8)
(10.5)
(491.8)
(4.9)
(3.6)
32.4
–
–
–
–
–
–
–
–
–
–
–
–
(8.0)
(279.2)
(7.4)
(35.8)
(7.5)
(337.9)
(4.9)
1.0
(829.7)
(4.9)
(3.6)
367.5
(4.9)
(3.6)
367.5
125
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1
6
1
7
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
2. 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
The Group’s revenue recognition policies, which are set out in Note 1(b), are central to how the Group measures the work it
has performed in each financial year; some of these could be considered as key sources of estimation uncertainty.
The revenue recognised for certain long-term complex project-based services is 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, against the estimated whole-life contract costs. This requires
significant judgements to be made in forecasting the outcomes of the long-term contracts.
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.
This requires management to apply judgements and estimates that draw on the knowledge and experience of the Group’s
project managers and delivery teams together with the Group’s commercial and finance professionals. Whilst there may be a
broad range of possible outcomes based on the relevant circumstances of the individual contract, the Group has controls in
place whereby all significant contracts are reviewed on a monthly basis and reforecast quarterly.
The amounts recognised as revenue, profit and contract assets are sensitive to changes in assumptions, for example:
• Revenue measurement – in line with the Group’s revenue recognition policy for long-term complex contracts, revenue is
recognised on these contracts to the extent that the outcome of the project can be reliably measured. For long-term
complex contracts this requires judgements to be made on which elements of the contract can be accurately forecast.
These contracts will usually comprise fixed revenue streams, variable works and project works. Project works are not
included as part of a long-term complex contract on the basis that these amounts are discretionary and consequently
cannot be reliably forecast. Therefore these projects are accounted for separately. The revenue streams that can be
reliably forecast comprise the fixed elements (for example for ongoing cleaning and security services) and variable works.
• Contract profitability and costs to complete – long-term complex contracts are transformational in nature and there is a
commitment to work in partnership with the client from the outset of the contract to drive significant cost savings and
efficiencies throughout the life of the contract. During the mobilisation of a contract a target operating model is developed.
This target operating model shows how the services that are part of the contract will be delivered during the contract and
is subject to a continuous review/improvement process throughout the duration of the contract. The target operating
model, cost saving initiatives identified and revenue pipeline will be combined into a financial plan for the individual contract.
Only cost saving initiatives that are considered to be reasonably certain in terms of timing and scale are included in the
plan. Management’s ability to accurately forecast the costs to complete the contract involves judgements around cost
savings to be achieved over time, anticipated profitability of the contract, as well as contract specific performance KPIs.
Where a contract is anticipated to make a loss, these judgements are also relevant in determining whether or not an
onerous contract provision is required and how this is to be measured.
• Renegotiation of terms – the Group often enters into renegotiations of existing contract terms such as the timing or the
specifications of the services to be delivered. Depending on the outcome of such negotiations, the timing and amount of
revenue recognised may be different.
• Recoverability of contract related assets – linked to the profitability of contracts above, management is also required to
determine the recoverability of contract related assets, accrued income and accounts receivable. Judgement is required in
determining whether or not the future economic benefits from contracts are sufficient to recover these contract assets.
Review of accounting policies and estimates
The Group has undertaken an accounting review process to provide confidence that all relevant accounting standards were
appropriately reflected in its financial reporting. The review has considered how the Group’s accounting policies have been
applied and interpreted, which has resulted in a number of more conservative applications of accounting estimates and
judgements in the following areas:
• Work in progress – for certain Engineering Services projects profit margins on work in progress will only be recognised
when the project is complete.
• Transition costs on long-term complex contracts – the methodology for recognising revenue on transition costs
incurred at the start of a contract has been changed. No gross profit margin will be applied to the revenue attributable to
these costs.
126
Mitie Group plc | Annual Report and Accounts 2017
9
2. 1
BCritical accounting judgements and key sources of estimation uncertainty continued
• Uncontracted revenue streams on long-term complex contracts – the approach to assessing the whole-life profitability
of long-term complex contracts has been revised. Uncontracted project works are excluded from the percentage of
completion calculation for these contracts and instead accounted for as repeat service-based contracts.
• Mobilisation costs incurred at the commencement of contracts – the items incurred at the outset of the contract,
which are spread over the contract life, have been reassessed with more items being expensed immediately.
Profit before other items
‘Other items’ are items of financial performance which the Group believes should be separately identified on the face of
the income statement to assist in understanding the underlying financial performance achieved by the Group. Determining
whether an item is part of other items or not requires judgement.
Other items after tax of £153.5m (2016 restated: £39.0m) were charged to the income statement for the year ended
31 March 2017. An analysis of the amounts included in other items is detailed in Note 5.
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.
Assessment of a prior year error in relation to goodwill on the Healthcare CGU
At 31 March 2016, the reported carrying value of Healthcare goodwill was £107.2m, with value-in-use calculated at £145.4m.
At 30 September 2016 it was determined that the carrying value of this goodwill was fully impaired and written down to a nil
value. Subsequently a large proportion of the Healthcare CGU was sold for £2 and the Group agreed to contribute £9.5m
towards the trading losses of the business and the turnaround plan (see Note 6 ‘Discontinued operations and disposal of
subsidiaries’ for further details on the sale of the Healthcare division).
As explained in the Audit Committee report on page 55 the FRC’s Corporate Reporting Review Committee has made
enquiries in this area. During the course of preparation of our response to its February 2017 letter, new evidence came to light
that had not previously been provided to the external auditor, the Audit Committee or the Board. The Audit Committee
appointed KPMG to review the circumstances surrounding the judgement made on Healthcare goodwill at 31 March 2016.
As a result of the review, the Audit Committee has considered whether there were one or more errors, which in accordance
with IAS 8, require a prior year adjustment.
As part of this assessment the Audit Committee considered the further information that was available at 31 March 2016
but had not been communicated to the external auditor, the Audit Committee or the Board. It has concluded that:
• One or more errors had been made in the preparation of the plan that was approved by the Board and formed the basis for
the impairment testing of Healthcare goodwill. Correction of those errors reduces the value in use by £64.0m which results
in an impairment to Healthcare goodwill of £26.0m as at 31 March 2016. The Audit Committee believes that this is a prior
period error in accordance with IAS 8 and consequently a prior year adjustment is made in these accounts to goodwill at 31
March 2016 (see Note 1(c) ‘Prior year restatements’ for further details on the prior year restatements made).
• A number of other judgements were made in respect of the impairment testing of Healthcare goodwill at 31 March 2016,
which were impacted by the discovery of further information and has been considered by the Board and Audit Committee
as part of the preparation of the 2017 Annual Report and Accounts.
These judgements relate to the inclusion of new service line expansion plans in the Healthcare business, adjacent to
existing skills and assets already in the business, namely provision of telecare services, community healthcare and supply
of temporary staff on an agency basis.
Additionally, the inclusion of Tascor, acquired in January 2016, subsequently renamed Care & Custody Health and retained
by Mitie following the disposal of the Healthcare business in February 2017, was regarded as part of the Healthcare CGU,
rather than with the CGU that included Care & Custody (Soft FM CGU).
Had these been regarded as prior year errors rather than changes in judgement, the amount of the prior year adjustment
would have increased by £44.0m.
127
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9
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
2. 1
BCritical accounting judgements and key sources of estimation uncertainty continued
The Directors have specifically reviewed the IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’
definition of a change in accounting estimate which states that “changes in accounting estimates result from new information
or new developments and, accordingly, are not corrections of errors”. The Audit Committee has carefully reconsidered the
judgements it made in the light of the discovery of new information and notwithstanding this becoming available and taken
into account, considers that the judgements made as to what should be classified as a prior year error have been formed on
a reasonable basis. However, the Audit Committee recognises that the failure to disclose these judgements in the 2016
Annual Report and Accounts was in itself a material disclosure deficiency.
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 £397.1m (2016 restated: £504.1m) at the balance sheet date;
see Notes 14 and 15. 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 the Soft Facilities Management and Hard
Facilities Management CGUs.
Further sensitivity testing was performed for the Group’s Property Management CGU where the financial performance of the
business has deteriorated during the year. On the basis of this review the Board has concluded that an impairment of £15.0m
is required. A sensitivity analysis is included in Note 14.
Useful economic life of other intangible assets
The Group held £53.2m of other intangible fixed assets at the balance sheet date, of which £46.9m is attributable to software
and development expenditure. Determining the appropriate useful economic life (UEL) and amortisation profile for these
assets requires a level of judgement.
Following the review of accounting policies and estimates (as discussed in the section above), a more accurate application of
the accounting policy has been applied. The Group has undertaken a reassessment of the UEL of software related intangible
assets and has adopted a revised amortisation profile for these assets. This change in estimate results in an additional £7.5m
of amortisation in the year ended 31 March 2016.
Provisions, contingent liabilities and onerous contracts
The Company and various of its subsidiaries are, from time to time, party to legal proceedings and claims that are in the
ordinary course of business. Judgements are required in order to assess whether these legal proceedings and claims are
probable and the liability can be reasonably estimated, resulting in a provision. Or, alternatively, whether the items meet the
definition of contingent liabilities.
When a contract is expected to incur future unavoidable losses and has therefore become onerous, judgment is required to
assess the future expected revenue and costs and hence to determine the appropriate level of provision.
Provisions are liabilities of uncertain timing or amount and therefore in making a reliable estimate of the quantum and timing
of liabilities judgement is applied and re-evaluated at each reporting date. The Group recognised provisions at 31 March 2017
of £26.8m (2016 restated: £9.0m). Further details are included in Note 29.
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 £263.3m (2016: £201.9m); see Note 38 for further detail and
a sensitivity analysis.
3. 2
BRevenue
Continuing operations
Rendering of services
Construction contracts
Total revenue as disclosed in the consolidated income statement
Investment revenue (Note 9)
Total revenue as defined in IAS 18
2017
£m
2016
Restated*
£m
2,124.6
1.7
2,126.3
–
2,126.3
2,141.9
5.0
2,146.9
0.1
2,147.0
* See Note 1 (c) for an explanation and analysis of the prior year restatement included above in respect of the year ended 31 March 2016.
128
Mitie Group plc | Annual Report and Accounts 2017
9
3
4. 2
BBusiness and geographical segments
Revenue, operating profit before other items and operating profit margin before other items are the primary measures
of performance that are reported to and reviewed by the chief operating decision maker of the business.
Business segments – structure during the year
The group manages its business on a service division basis. With effect from 1 April 2016, the divisional structure was
reorganised into three trading divisions being Facilities Management, Property Management and Healthcare. These
divisions are the basis on which the group reported its primary segmental information and are unchanged from the
previous reporting period, with the exception of Soft FM and Hard FM, which were previously reported separately and
then subsequently reported as one Facilities Management division, and Tilley Roofing which transferred from Facilities
Management to Property Management and Care and Custody which transferred from Facilities Management to Healthcare.
2017
2016 – Restated*
Operating
profit/(loss
before
other items1
£m
Operating
profit/(loss
margin
before
other items1
%
Profit/(loss)
before
tax
£m
1.5
(9.2)
1.4
–
(6.3)
(12.0)
–
(12.0)
(18.3)
0.1
(3.6)
3.0
–
(0.3)
(20.1)
–
(20.1)
(0.8)
(13.9)
(9.3)
1.6
(36.6)
(58.2)
(12.0)
(123.2)
(135.1)
(193.4)
Revenue
£m
1,822.6
257.3
46.4
–
2,126.3
59.2
–
59.2
2,185.5
Operating
profit/(loss)
before
other
items1
£m
Operating
profit/(loss)
margin
before other
items1
%
Profit/(loss)
before
tax
£m
95.8
14.9
3.2
–
113.9
(5.9)
–
(5.9)
108.0
5.3
4.7
8.5
–
5.3
(7.8)
–
(7.8)
4.9
84.5
15.0
(1.3)
(6.3)
91.9
(5.9)
(36.1)
(42.0)
49.9
Revenue
£m
1,795.5
313.8
37.6
–
2,146.9
75.8
–
75.8
2,222.7
Facilities Management ‡
Property Management ‡
Healthcare
Other items+ (Note 5)
Continuing operations
Healthcare
Other items+
Discontinued operations
Total
Notes:
1. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
+ Other items can be analysed by business segment as follows: Facilities Management £15.6m (2016: £4.7m); Property Management £20.7m (2016:
£1.6m); and Healthcare £0.3m (2016: nil). Other items in respect of discontinued operations is comprised of amounts in respect of the impairment
of goodwill, loss on disposal of the healthcare business, restructuring costs and acquisition related items. All of these amounts are shown before
tax. Impairments have been recognised in the Property Management £15.0m (2016: £nil) and the discontinued Healthcare £81.1m (2016:
£26.0m) segments.
‡ Tilley Roofing has transferred from Facilities Management to Property Management in the segments above. Tilley Roofing results included in Property
Management are as follows – Revenue £34.8m (2016: £34.4m), Operating profit before other items £0.8m (2016: £1.5m), and Profit before tax £0.7m
(2016: £1.6m).
Business segments – structure from 1 April 2017. The Property Management division has been combined into a
Public Services division along with Care & Custody (Health) and Care & Custody, which were previously included within
the Healthcare and Facilities Management divisions respectively. The Facilities Management division has been split
out into Cleaning & Environmental Services, Security, Catering, Engineering Services and Professional Services &
Connected Workspace.
129
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5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
4. 2
BBusiness and geographical segments continued
Business segments – structure from 1 April 2017
Operating
profit/(loss)
before
other items1
£m
Operating
profit/(loss)
margin
before
other items1
%
2017
Profit/(loss)
before
tax
£m
6.0
16.1
4.7
0.2
4.2
(2.3)
(35.2)
–
(6.3)
(12.0)
–
(12.0)
(18.3)
1.5
4.0
3.5
0.0
4.6
(0.8)
n/a
–
(0.3)
(20.1)
–
(20.1)
(0.8)
5.4
17.0
4.4
(8.1)
4.3
(1.5)
(43.1)
(36.6)
(58.2)
(12.0)
(123.2)
(135.2)
(193.4)
Revenue
£m
395.4
404.2
134.3
797.4
90.9
304.1
–
–
2,126.3
59.2
–
59.2
2,185.5
2016 – Restated*
Operating
profit/(loss)
before other
items1
£m
Operating
profit/(loss)
margin
before other
items1
%
Profit/(loss)
before tax
£m
25.5
20.8
5.4
53.7
5.5
18.9
(15.9)
–
113.9
(5.9)
–
(5.9)
108.0
6.2
5.7
4.3
6.7
5.6
5.4
n/a
–
5.3
(7.8)
–
(7.8)
4.9
25.2
21.7
5.1
45.2
5.7
20.0
(24.7)
(6.3)
91.9
(5.9)
(36.1)
(42.0)
49.9
Revenue
£m
408.7
364.4
126.6
800.3
97.9
349.0
–
–
2,146.9
75.8
–
75.8
2,222.7
Cleaning & Environmental
Services
Security
Catering
Engineering Services
Professional Services &
Connected Workspace
Public Services
Corporate overheads
Other items+ (Note 5)
Continuing operations
Healthcare
Other items+
Discontinued operations
Total
Notes:
1. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
+ Other items can be analysed by business segment as follows: Cleaning & Environmental Services £1.3m (2016: £nil), Security £0.6m (2016: £0.2m),
Catering £0.4m (2016: £0.3m), Engineering Services £8.8m (2016: £3.5m), Professional Services & Connected Workspace £1.5m (2016: £0.5m), Public
Services £17.9m (2016: £1.5m) and Corporate overheads £6.1m (2016: £0.3m). Other items in respect of discontinued operations is comprised of
amounts in respect of the impairment of goodwill, loss on disposal of the healthcare business, restructuring costs and acquisition related items. All of
these amounts are shown before tax. Impairments have been recognised in the Public Services £15.0m (2016: £nil) and the discontinued Healthcare
£81.1m (2016: £26.0m)
No single customer accounted for more than 10% of external revenue in 2017 or 2016.
IFRS 8 requires that a measure of segment assets should be disclosed only if that amount is regularly provided to the chief
operating decision maker and consequently no segment assets are disclosed.
Geographical segments
United Kingdom
Other countries
Continuing operations
United Kingdom
Other countries
Discontinued operations
Total
Notes:
2017
2016 – Restated*
Operating
profit/(loss)
margin
before
other items1
%
Operating
profit/(loss)
before
other items1
Profit/(loss)
before tax
£m
(4.8)
(1.5)
(6.3)
(12.0)
–
(12.0)
(18.3)
(0.2)
(1.4)
(0.3)
(20.1)
–
(20.1)
(0.8)
(54.8)
(3.4)
(58.2)
(135.2)
–
(135.2)
(193.4)
Revenue
£m
2,018.1
108.2
2,126.3
59.2
–
59.2
2,185.5
Operating
profit/(loss)
before other
items1
£m
Operating
profit/(loss)
margin
before other
items1
%
Profit/(loss)
before tax
£m
117.9
(4.0)
113.9
(5.9)
–
(5.9)
108.0
5.7
(4.6)
5.3
(7.8)
–
(7.8)
4.9
96.5
(4.6)
91.9
(42.0)
–
(42.0)
49.9
Revenue
£m
2,060.3
86.6
2,146.9
75.8
–
75.8
2,222.7
1. Other items are as described in Note 5.
* See Note 1(c) for an explanation and analysis of the prior year adjustments included above in respect of the year ended 31 March 2016.
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25. 2
BOther items
The Group separately reports the impairment of goodwill, the write-off and amortisation of acquisition related intangible
assets, the results of disposals, restructure costs, acquisition costs and other exceptional items and their related tax effect as
other items:
Continuing operations
Administrative expenses
Other items before tax
Tax
Other items after tax
Discontinued operations
(Loss) from discontinued operations net of tax
Total
Continuing operations
Administrative expenses
Other items before tax
Tax
Other items after tax
Discontinued operations
(Loss) from discontinued operations net of tax
Total
Impairment
of goodwill
£m
Healthcare
disposal
£m
Restructure
costs
£m
Acquisition
related
items
£m
(15.0)
(15.0)
–
(15.0)
–
–
–
–
(14.9)
(14.9)
3.0
(11.9)
(6.7)
(6.7)
1.1
(5.6)
2017
Total
£m
(36.6)
(36.6)
4.1
(32.5)
(81.1)
(96.1)
(30.4)
(30.4)
(0.3)
(12.2)
(9.2)
(14.8)
(121.0)
(153.5)
2016 Restated*
Impairment
of goodwill
£m
Businesses
being exited
£m
Restructure
credit
£m
Acquisition
related
items
£m
–
–
–
–
(26.0)
(26.0)
(2.2)
(2.2)
0.4
(1.8)
–
(1.8)
2.2
2.2
(0.4)
1.8
(6.3)
(6.3)
1.3
(5.0)
Total
£m
(6.3)
(6.3)
1.3
(5.0)
–
1.8
(8.0)
(13.0)
(34.0)
(39.0)
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
Impairment of goodwill
Following the Board’s decision to withdraw from the domiciliary healthcare market, the remaining carrying value of goodwill
for the Healthcare CGU was fully impaired during the year. In addition an impairment of £15.0m has been recognised in
relation to the Property Management CGU. See Note 14 for further details.
Healthcare disposal
During the year the Group decided to withdraw from the domiciliary healthcare market and completed the sale of the
Healthcare division on 28 February 2017. See Note 6 for further details.
Restructure costs
The restructure costs included in other items relate to one-off costs of organisational change associated with the Group’s
cost efficiency and change programmes. These one-off incremental expenses are analysed below:
Credit from design & build asset management contracts in Energy Solutions
Redundancy payments
Cost of change team
Expenditure and provisions in respect of property closure
Restructuring (costs)/credit
Taxation
Restructuring (costs)/credit net of taxation
Continuing
operations
£m
Discontinued
operations
£m
–
(9.2)
(3.4)
(2.3)
(14.9)
3.0
(11.9)
–
(0.3)
–
(0.1)
(0.4)
0.1
(0.3)
2017
£m
–
(9.5)
(3.4)
(2.4)
(15.3)
3.1
(12.2)
2016
£m
2.2
–
–
–
2.2
(0.4)
1.8
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
25. 2
BOther items continued
Acquisition related items
Acquisition related items include the write-offs and amortisation charge for acquisition related intangibles £5.5m (2016:
£6.0m), the accrual of contingent consideration that is required to be treated as remuneration £0.9m (2016: nil) and
acquisition costs £0.3m (2016: £0.3m). Acquisition related items from discontinued operations relate to the impairment and
amortisation of acquisition related intangibles net of tax £9.2m (2016: £8.0m). See Note 15 for further details.
26. Discontinued operations and disposal of subsidiaries
As a result of the Board’s decision to withdraw from the domiciliary healthcare market, the sale of the Healthcare division
completed on 28 February 2017. The disposal resulted in the control of Enara Group Limited (Enara) and Complete Care
Holdings Limited (Complete Care) passing to Apposite Capital LLP (Apposite) for £2. In addition, the Group agreed to
contribute £9.5m towards the trading losses of the business and the turnaround plan.
The trading results of the Healthcare business have been classified as discontinued operations as defined by IFRS 5
‘Non-current assets held for sale and discontinued operations’.
The net assets of Healthcare at the date of disposal were as follows:
Non-current assets
Other intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Financing liabilities
Current tax liabilities
Total current liabilities
Net assets
Deferred contribution payable to purchaser
Other costs of disposal
Total consideration
Loss on disposal
Net cash outflow arising on disposal:
Consideration on disposal
Cash and cash equivalents disposed of
2017
£m
1.5
1.1
0.4
3.0
14.7
1.7
16.4
19.4
(5.3)
(0.1)
(0.4)
(5.8)
13.6
9.5
7.3
–
(30.4)
–
1.7
1.7
Of the £9.5m contribution to trading losses, nil was paid during the financial year ended 31 March 2017. The Group paid
£5.4m of the contribution to Apposite on 3 April 2017. The remaining £4.1m is payable on 1 July 2017.
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26. Discontinued operations and disposal of subsidiaries continued
The results of the Healthcare discontinued operations in the current and prior periods are presented below:
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss before other items
Other items
Operating loss before tax
Tax
Loss from discontinued operations for the year
2017
£m
59.2
(48.8)
10.4
(22.4)
(12.0)
(123.2)
(135.2)
2.8
(132.4)
Of the £2.8m (2016: £3.0m) of tax credits included in the above results, £2.2m (2016: £2.1m) relates to other items.
The effect of discontinued operations on segment results is disclosed in Note 4.
Cash flows from discontinued operations included in the consolidated cash flow statement are as follows:
Net cash flows from operating activities (after tax)
Net cash flows from investing activities
Net cash flows from financing activities
37.
BOperating profit
Operating profit has been arrived at after charging:
Continuing and discontinued operations
Depreciation of property, plant and equipment (Note 16)
Amortisation of intangible assets (Note 15)
Impairment of goodwill (Note 14)
Impairment of other intangible assets (Note 15)
Impairment of acquisition related intangible assets (Note 15)
Loss on disposal of property, plant and equipment
Loss on disposal of subsidiary (Note 6)
Impairment loss recognised on trade receivables (Note 19)
Write-downs of inventories recognised as an expense
Impairment loss recognised on accrued income
2017
£m
(8.8)
(0.4)
–
(9.2)
2017
£m
14.1
23.8
96.1
3.0
10.1
1.0
30.4
13.9
1.4
4.5
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
2016
£m
75.8
(60.7)
15.1
(21.0)
(5.9)
(36.1)
(42.0)
3.0
(39.0)
2016
£m
(9.4)
(0.4)
–
(9.8)
2016
Restated*
£m
15.1
17.0
26.0
1.0
6.2
–
–
2.1
–
–
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1
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
37. 3
BOperating profit continued
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
Total non-audit fees
Total
2017
£’000
40
1,037
1,077
70
85
–
15
170
2016
£’000
35
731
766
59
74
53
22
208
1,247
974
* The tax services expense recognised in the year to 31 March 2017 relates to the financial years ended 31 March 2016 (£76k) and 31 March 2015 (£9k).
48. 3
BStaff costs
Number of people
The average number of people employed during the financial year was:
Facilities Management
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 37)
Total
2017
2016
Restated
49,585
2,354
4,340
56,279
51,499
2,498
5,335
59,332
52,798
59,591
2017
£m
1,068.9
82.2
16.7
6.2
1,174.0
2016
Restated
£m
1,026.0
79.2
21.3
5.2
1,131.7
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.
B9. 3
BInvestment revenue
Continuing operations
Interest on bank deposits
2017
£m
–
2016
£m
0.1
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3
5
3
6
7
B10. 3
BFinance costs
Continuing operations
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
Total
411.
BTax
Continuing and discontinued operations
Current tax
Deferred tax (Note 23)
Tax (credit)/change for the year
Continuing operations
Discontinued operations (Note 6)
Tax (credit)/change for the year
2017
£m
3.1
9.6
1.0
0.2
(4.9)
5.0
1.3
15.3
2016
£m
3.6
9.6
1.1
0.2
(0.8)
0.9
1.2
15.8
2017
£m
(0.9)
(9.3)
(10.2)
(7.4)
(2.8)
(10.2)
2016
Restated*
£m
17.0
(1.8)
15.2
18.2
(3.0)
15.2
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
Corporation tax is calculated at 20% (2016: 20%) of the estimated taxable profit for the year. A reconciliation of the tax
charge to the elements of loss before tax per the consolidated income statement elements is as follows:
Continuing and discontinued operations
Loss before tax
Tax at UK rate of 20% (2016: 20%)
Reconciling tax charges for:
Non-tax deductible charges
Share-based payments
Loss on disposal of business
Impairment of goodwill
Overseas tax rates
Impact of change in statutory tax rates
Prior year adjustments
Tax (credit)/charge for the year
Effective tax rate for the year
Before
other items
£m
(33.6)
(6.7)
0.4
0.8
–
–
0.1
1.2
0.3
(3.9)
11.5%
Other
items
£m
(159.8)
(32.0)
0.3
–
6.1
19.2
–
0.1
–
(6.3)
3.9%
2017
Total
£m
(193.4)
(38.7)
0.7
0.8
6.1
19.2
0.1
1.3
0.3
(10.2)
5.3%
Before
other items
£m
92.3
18.5
0.2
0.8
–
–
0.2
(0.1)
(1.0)
18.6
20.1%
2016 – Restated*
Other
items
£m
(42.4)
(8.5)
–
–
–
5.2
–
(0.1)
–
(3.4)
8.0%
Total
£m
49.9
10.0
0.2
0.8
–
5.2
0.2
(0.2)
(1.0)
15.2
30.4%
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
In addition to the amounts charged to the consolidated income statement, tax credits relating to retirement benefit costs and
hedged items amounting to £6.1m (2016: £2.1m charge) have been taken directly to the statement of comprehensive income
and £0.3m relating to share-based payments has been charged (2016: £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. However, as losses were incurred in 2017 the effective rate is lower than the statutory tax rate due to permanent
differences such as those described above and the impact of a change in tax rates.
The UK corporation tax rate reduced from 20% to 19% from 1 April 2017 and will reduce to 17% from 1 April 2020. This will reduce
the Group’s future current tax charge accordingly. The UK deferred tax assets and liabilities at 31 March 2017 have been
adjusted to reflect these changes. A current tax provision is recognised when the Group has a present obligation as a result of a
past event and it is probable that the Group will be required to settle that obligation.
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8
9
4
1
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
412. 4
BDividends
Amounts recognised as distributions in the year:
Final dividend for the year ended 31 March 2016 of 6.7p (2015: 6.5p) per share
Interim dividend for the year ended 31 March 2017 of 4.0p (2016: 5.4p) per share
Proposed final dividend for the year ended 31 March 2017 of nil (2016: 6.7p) per share
413. 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:
From continuing operations
Net (loss)/ profit before other items attributable to equity holders of the parent
Other items net of tax
Net (loss)/ profit attributable to equity holders of the parent
From continuing and discontinued operations
Net (loss)/profit before other items attributable to equity holders of the parent
Other items net of tax
Net (loss)/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
From continuing operations:
Basic (loss)/ earnings before other items per share‡
Basic (loss)/ earnings per share
Diluted (loss)/ earnings before other items per share‡
Diluted (loss)/ earnings per share
From continuing and discontinued operations:
Basic (loss)/ earnings before other items per share‡
Basic (loss)/ earnings per share
Diluted (loss)/ earnings before other items per share‡
Diluted (loss)/ earnings per share
2017
£m
23.3
14.1
37.4
–
2016
£m
23.1
19.2
42.3
23.4
2017
£m
2016
Restated*
£m
(19.1)
(32.5)
(51.6)
76.6
(5.0)
71.6
2017
£m
2016
Restated*
£m
(30.5)
(153.5)
(184.0)
2017
million
351.0
3.7
354.7
71.6
(39.0)
32.6
2016
million
355.4
4.1
359.5
2017
p
2016
Restated*
p
(5.5)
(14.7)
(5.4)
(14.6)
(8.7)
(52.4)
(8.6)
(51.9)
21.6
20.1
21.3
19.9
20.1
9.2
19.9
9.1
* See Note 1(c) for an explanation and analysis of the prior year restatement included above in respect of the year ended 31 March 2016.
‡ Other items are as described in Note 5.
The weighted average number of ordinary shares in issue during the year excludes those accounted for in the own shares
reserve (see Note 33).
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3
5
414. 4
BGoodwill
Cost
At 1 April 2015
Acquisition of subsidiaries
Impact of foreign exchange
At 1 April 2016
Change in consideration C&C Health
Disposal of subsidiary
Impact of foreign exchange
At 31 March 2017
Accumulated impairment losses
At 1 April 2015
Impairment of healthcare goodwill – restated*
At 1 April 2016 - restated*
Impairment of healthcare goodwill
Impairment of property goodwill
Disposal of subsidiary
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016 - restated*
£m
464.4
0.7
0.4
465.5
(0.1)
(107.1)
0.6
358.9
–
26.0
26.0
81.1
15.0
(107.1)
15.0
343.9
439.5
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
Impairment of healthcare goodwill
As explained in Note 6 to these Financial Statements, during the financial year the Board decided to withdraw from the
domiciliary healthcare market and the sale of the Healthcare division was completed on 28 February 2017.
In light of the Group’s decision to withdraw from the domiciliary healthcare market and the healthcare loss recorded in the
first half of the year, the Group undertook an impairment review of the goodwill and intangible assets associated with the
Healthcare business. This reassessment of the estimate of the recoverable amount of the Healthcare CGU resulted in a full
impairment of the carrying value of goodwill and acquisition related intangible assets for the Healthcare CGU.
Goodwill impairment testing
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 prior year relate to goodwill recognised on one acquisition.
More details are presented in Note 34.
Goodwill has been allocated to CGUs, which align with the business segments, as this is how goodwill is monitored by the
Group internally. The Group tests goodwill at least annually for impairment or more frequently if there are indicators that
goodwill may be impaired.
A summary of the goodwill balances and discount rates used to assess the forecast cash flows from the CGUs is as follows:
Facilities Management – Soft
Facilities Management – Hard
Property Management
Healthcare
Discount
rate
2017
%
Discount
rate
2016
%
8.4
8.5
12.1
–
7.9
8.0
9.2
9.1
Goodwill
2017
£m
172.4
101.3
70.2
–
343.9
Goodwill
2016
Restated*
£m
171.8
101.3
85.2
81.2
439.5
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
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7
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
414. 4
BGoodwill continued
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 forecast inflation. 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 of 2.0%.
Discount rates
The pre-tax discount rates used to assess the forecast cash flows from CGUs are derived from the Company’s post-tax
Weighted Average Cost of Capital, which was 7.3% at 31 March 2017 (2016: 7.0%), and is adjusted for the risks specific to the
business being assessed and the market in which the CGU operates. All CGUs have the same access to the Group’s treasury
functions and borrowing lines to fund their operations.
Sensitivity analysis
A sensitivity analysis has been performed and the Directors have concluded that no reasonably foreseeable change in the
key assumptions would result in an impairment of the goodwill of any of the Soft Facilities Management and Hard Facilities
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.
Impairment testing for new business segment structure
As detailed in Note 4 to the financial statements the business segments structure has been amended from 1 April 2017. This
amendment to business segment structure has necessitated a restructuring of the CGUs categorisation used for goodwill
impairment testing.
A summary of the goodwill balances and discount rates used to assess the forecast cash flows from the CGUs within the
new business segment structure is as follows:
Cleaning & Environmental Services
Security
Catering
Engineering Services
Professional Services & Connected Workspace
Public Services
Total Group
Pre-tax
discount
rate
%
Post-tax
discount
rate
%
8.4
8.4
9.1
8.4
10.3
12.1
7.3
7.3
7.8
7.3
8.8
9.8
Goodwill
2017
£m
33.1
101.7
15.7
107.5
15.7
70.2
343.9
Impairment testing and sensitivity analyses have been undertaken for the CGUs in this new structure 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 Cleaning & Environmental Services, Security, Catering, Engineering Services or Professional Services & Connected
Workspace CGUs.
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414. 4
BGoodwill continued
Review of the carrying value of goodwill in the Property Management CGU
In the year the Property Management CGU (which now forms the bulk of the Public Services CGU) reported a loss of £9.2m
principally from irrecoverable debts and accrued income in certain contracts which are being exited. As part of its annual
review of impairment, the Group has updated its estimate of the recoverable amount of the CGU, including various downside
scenarios, which has resulted in an impairment of £15.0m being taken and a goodwill carrying value of £70.2m at 31 March
2017.
Key assumptions
The key assumptions underpinning the calculations of the net present value of future cash flows include:
• the calculations are based on a five year plan approved by the Board;
• adjusted revenue of £267.4m in FY17 and compound annual revenue growth of 2.9%;
• adjusted operating profit of £10.2m (after management charges) underpinning the growth in operating margin of 1.3% over
the first five years of the plan. This includes the best estimate of the outcome of contractual disputes discussed further in
Note 35;
• a terminal value growth rate of 2.0%, based on inflationary projections; and
• pre-tax discount rate for the CGU of 12.1% which has been adjusted for the risks specific to the market in which the CGU
operates.
In reviewing the carrying value, the following factors have also been considered:
• circumstances surrounding the in-year loss and future trading expectations;
• the controls framework in the Property Management business;
• macro pressures in the social housing market;
• route to new sales; and
• management resource to deliver the budget.
Sensitivity analysis for Property Management CGU impairment testing
The value in use calculations are reliant on the accuracy of managements forecasts and the assumptions that underlie them
as well as the discount rate and growth rates applied. Sensitivity analysis was performed on the forecasts to consider the
impact of certain trading scenarios and changes in assumptions both individually and in combination.
A combination of these sensitivities concluded that an impairment of £15.0m represented the Audit Committee’s best
estimate. A 1% change in discount rate would result in a £7.5m sensitivity. A £1.0m change in operating profit would result in a
£7.6m sensitivity.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
15. 5
BOther intangible assets
Acquisition related
Customer
relationships
£m
Total
acquisition
related
£m
Software and
development
expenditure
£m
Other
£m
Cost
At 1 April 2015
Additions
Reclassifications from property, plant and equipment (Note 16)
At 1 April 2016
Additions
Disposal of subsidiary
Reclassifications from property, plant and equipment (Note 16)
Impact of foreign exchange
At 31 March 2017
Amortisation
At 1 April 2015 – restated*
Charge for the year – restated*
Impairment of intangible asset – restated*
Impairment of acquisition related intangible assets
Reclassifications from property, plant and equipment (Note 16)
At 1 April 2016 – Restated
Charge for the year
Impairment of software and development expenditure
Impairment of acquisition related intangible assets
Disposal of subsidiary
Impact of foreign exchange
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016 – restated*
88.4
–
–
88.4
–
–
–
–
88.4
51.2
9.5
–
6.2
–
66.9
6.4
–
10.1
–
–
83.4
5.0
21.5
10.9
–
–
10.9
–
–
–
–
10.9
8.8
0.4
–
–
–
9.2
0.4
–
–
–
–
9.6
1.3
1.7
Total
£m
155.0
8.9
8.5
172.4
12.4
(2.9)
14.5
0.2
196.6
81.2
17.0
1.0
6.2
2.4
107.8
23.8
3.0
10.1
(1.4)
0.1
143.4
99.3
–
–
99.3
–
–
–
–
99.3
60.0
9.9
–
6.2
–
76.1
6.8
–
10.1
–
–
93.0
55.7
8.9
8.5
73.1
12.4
(2.9)
14.5
0.2
97.3
21.2
7.1
1.0
–
2.4
31.7
17.0
3.0
–
(1.4)
0.1
50.4
6.3
23.2
46.9
41.4
53.2
64.6
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
Customer relationships are amortised over their useful lives based on the period of time over which they are anticipated
to generate benefits. These currently range from four to eight years. Other acquisition related intangibles include acquired
software and technology which are amortised over their useful lives which currently range from three to ten years.
Software and development costs are amortised over their useful lives of between five and ten years, once they have
been brought into use.
During the year the Group has undertaken a reassessment of the useful economic life of software and development
expenditure related intangible assets and has adopted a revised amortisation profile for these assets. This change in
accounting estimate resulted in an additional £7.5m of amortisation in the year ended 31 March 2017.
The customer relationships relating to the healthcare business were impairment tested at 30 September 2016 in accordance
with IAS 36 following the decision to withdraw from the domiciliary healthcare market and the healthcare loss recorded in the
half year. As a result, an impairment of £10.1m (2016: £6.2m) was recognised.
Reclassifications from property, plant and equipment relate to completed software and development expenditure which was
held in plant and vehicles whilst being developed.
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516. 5
BProperty, plant and equipment
Cost
At 1 April 2015
Additions
Acquired with subsidiaries
Reclassifications to intangible assets (Note 15)
Reclassifications within property, plant and equipment
Disposals
At 1 April 2016
Additions
Reclassifications to intangible assets (Note 15)
Disposals
Disposal of subsidiaries
Impact of foreign exchange
At 31 March 2017
Accumulated depreciation and impairment
At 1 April 2015
Charge for the year
Reclassifications to intangible assets (Note 15)
Reclassifications within property, plant and equipment
Disposals
At 1 April 2016
Charge for the year
Disposals
Disposal of subsidiaries
Impact of foreign exchange
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
Freehold
properties
£m
Leasehold
properties
£m
Plant and
vehicles
£m
Total
£m
130.1
19.2
0.2
(8.5)
–
(18.6)
122.4
14.7
(14.5)
(27.9)
(5.4)
0.3
89.6
76.8
15.1
(2.4)
–
(16.4)
73.1
14.1
(25.9)
(4.3)
0.3
57.3
18.0
0.6
–
–
0.5
(0.3)
18.8
0.3
–
(2.3)
(0.1)
0.1
16.8
8.4
1.4
–
0.3
(0.3)
9.8
1.5
(0.7)
–
–
10.6
109.4
18.6
0.2
(8.5)
(0.5)
(17.2)
102.0
14.4
(14.5)
(25.3)
(5.3)
0.2
71.5
67.8
13.6
(2.4)
(0.3)
(15.9)
62.8
12.6
(25.1)
(4.3)
0.3
46.3
6.2
9.0
25.2
39.2
32.3
49.3
2.7
–
–
–
–
(1.1)
1.6
–
–
(0.3)
–
–
1.3
0.6
0.1
–
–
(0.2)
0.5
–
(0.1)
–
–
0.4
0.8
1.1
The net book value of plant and vehicles held under finance leases included above was £2.8m (2016: £4.0m).
Additions to plant and vehicles during the year amounting to £0.2m (2016: £3.5m) were financed by new finance leases.
517.
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 profit of joint ventures and associates
2017
£m
3.7
0.6
0.6
2016
£m
3.9
0.6
0.6
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
517.
BInterest in joint ventures and associates continued
The Group’s share of net assets of joint ventures and associates as at 31 March 2017 was as follows:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Interest in joint ventures and associates
2017
£m
–
0.8
(0.2)
–
0.6
2016
£m
–
0.9
(0.3)
–
0.6
Joint ventures and associate 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. These results
have been taken from unaudited management accounts.
B18. Derivative financial instruments
Derivative financial instruments (Note 28)
Included in current assets
Included in non-current assets
Total
B19. 6
BTrade and other receivables
Amounts receivable for the sale of services
Provision for doubtful debts
Trade receivables
Amounts recoverable on construction contracts (Note 20)
Mobilisation costs (Note 22)
Accrued income
Prepayments‡
Other debtors#
Total
Included in current assets
Included in non-current assets+
Total
2017
£m
35.8
–
35.8
2016
£m
–
14.4
14.4
2017
£m
2016
Restated*
£m
201.8
(16.2)
185.6
0.1
21.0
178.1
22.7
23.8
431.3
381.0
50.3
431.3
212.8
(4.6)
208.2
2.6
28.6
224.1
35.9
17.5
516.9
432.1
84.8
516.9
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
+ Non-current trade and other receivables comprise accrued income on long-term complex contracts of £40.8m (2016 restated: £67.5m) and
mobilisation costs of £9.5m (2016 restated: £17.3m) which are further analysed in Notes 21 and 22 respectively.
‡ Prepayments include costs incurred for fixed price services where income will be recognised over the contract period.
# Accrued income includes cost incurred for project and reactive works in the Engineering Services division where income will be recognised
on completion.
At 31 March 2017 the Group utilised £110.7m of invoice discounting facilities (2016: £82.2m).
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7
5
8
0
1
219. 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
Provision for doubtful debts
Total
Movement in the provision for doubtful debts:
Balance at the beginning of the year
Impairment losses recognised
Amounts written off as uncollectable
Amounts recovered during the year
Disposal of business
Impact of foreign exchange
Total
2017
£m
2016
Restated*
£m
159.4
26.8
15.4
0.2
(16.2)
185.6
2017
£m
4.6
13.9
(0.8)
–
(1.5)
–
16.2
157.7
38.1
14.4
2.6
(4.6)
208.2
2016
Restated*
£m
8.4
2.1
(4.3)
(1.6)
–
–
4.6
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
The average credit period taken on sales of services was 27 days (2016 restated: 29 days).
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
20.
BAmounts recoverable on construction contracts
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
Total
2017
£m
39.7
(39.6)
0.1
0.1
–
0.1
2016
Restated*
£m
46.3
(43.7)
2.6
2.6
–
2.6
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
At 31 March 2017, retentions held by customers for contract work amounted to £2.3m (2016: £4.7m) and were held in
accrued income.
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3
6
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B21.
BAccrued income on long-term complex contracts
At 1 April
Amounts recognised in the income statement
At 31 March
Included in current assets
Included in non-current assets
Total
2017
£m
2016
Restated*
£m
70.6
(20.4)
50.2
9.4
40.8
50.2
43.8
26.8
70.6
3.1
67.5
70.6
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
£21.2m of the accrued income on long-term complex contracts is attributable to transition costs (2016: £26.5m).
The accrued income on long-term complex contracts balance at the end of each subsequent financial year is projected to be:
2017
2016 – Restated
22.
BMobilisation costs
At 1 April
Additions
Amounts recognised in the income statement
At 31 March
Included in current assets
Included in non-current assets
Total
2017
£m
n/a
67.5
2018
£m
40.8
54.3
2019
£m
27.8
36.8
2020
£m
16.9
24.4
2021
£m
8.8
14.1
2017
£m
28.6
12.4
(20.0)
21.0
11.5
9.5
21.0
2022
£m
3.2
5.5
2016
£m
30.6
12.0
(14.0)
28.6
11.3
17.3
28.6
Under IFRS 15 mobilisation costs will be replaced by fulfilment costs. The criteria for capitalising costs as a fulfilment cost will
be focused on the individual task being performed. The potential impact of this is being reviewed as part of the overall IFRS
15 review project.
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7
6
9
B23. 7
BDeferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the
current and prior reporting period:
At 1 April 2015 – restated*
Credit/(charge) to income
(Charge)/credit to equity and the
statement of comprehensive income
Acquisition of subsidiaries
At 1 April 2016 – restated*
Credit/(charge) to income
(Charge)/credit to equity and the
statement of comprehensive income
Acquisition of subsidiaries
At 31 March 2017
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Intangible
assets
acquired
£m
Losses
£m
Share
options
£m
Short-term
timing
differences
£m
–
–
–
–
–
0.8
–
–
0.8
1.0
0.4
–
–
1.4
5.1
–
–
6.5
7.1
0.9
(1.6)
–
6.4
0.7
5.5
–
12.6
(7.5)
3.1
–
–
(4.4)
3.3
–
–
(1.1)
1.9
(0.4)
(0.2)
–
1.3
(0.3)
(0.3)
–
0.7
3.9
(2.2)
(0.5)
0.1
1.3
(0.3)
0.6
–
1.6
Total
£m
6.4
1.8
(2.3)
0.1
6.0
9.3
5.8
–
21.1
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
2016
Restated*
£m
10.4
(4.4)
6.0
2017
£m
22.2
(1.1)
21.1
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
The Group has unutilised income tax losses of £14.2m (2016: £9.3m) that are available for offset against future profits.
In addition the Group has £0.8m (2016: £0.8m) of capital losses.
A deferred tax asset has been recognised in respect of certain unutilised losses and allowances on the basis that there
are expected future profits to be generated. Deferred tax has been calculated using the corporation tax rates disclosed in
Note 11.
B24.
BInventories
Work-in-progress
Materials
Total
B25. 7
BCash and cash equivalents
Cash and cash equivalents
2017
£m
–
6.8
6.8
2016
£m
2.5
7.4
9.9
2017
£m
129.1
2016
£m
93.1
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 £0.6m (2016: £0.9m) held by the Group’s insurance subsidiary,
which are not readily available for the general purposes of the Group.
At 31 March 2017 the Group utilised £110.7m (2016: £82.2m) of invoice discounting facilities.
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0
1
7
2
7
3
7
4
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B26. 7
BTrade and other payables
Payments received on account
Trade creditors
Other taxes and social security
Other creditors
Accruals
Deferred income
Total
Included in current liabilities
Included in non-current liabilities
Total
2017
£m
2016
Restated*
£m
1.8
244.7
84.3
24.5
160.4
47.6
563.3
559.9
3.4
563.3
0.1
206.8
82.7
9.6
151.4
48.0
498.6
496.1
2.5
498.6
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of 31 March 2016.
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 71 days (2016: 40 days).
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
B27.
B Financing liabilities
Bank loans – under committed facilities
Private placement notes
Obligations under finance leases (Note 30)
Total
Included in current liabilities
Included in non-current liabilities
Total
2017
£m
15.3
294.0
2.8
312.1
310.8
1.3
312.1
2016
£m
13.6
268.2
4.0
285.8
1.9
283.9
285.8
As discussed in Note 42, subsequent to the reporting period, on 7 June 2017, the Group’s lenders agreed an amendment to
covenant calculation definitions. In accordance with the requirements of IAS 1, it has been necessary to classify the drawn
amounts on the funding arrangements as current rather than non-current liabilities. The final maturity dates of all facilities
remain unchanged.
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 financing liabilities are £1.5m (2016: £1.9m) of
obligations under finance leases (see Note 30).
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 28). The carrying value of the private placement notes at 31 March 2017 includes a fair value adjustment for interest
rate and currency risk of £0.2m (2016: £0.7m). The fair value of the private placement notes is not significantly different from
their carrying value.
At 31 March 2017, the Group had available £257.9m (2016: £259.4m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met. The facilities have an expiry date of July 2021. 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 35.
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6
7
7
8
7
9
B27.
BFinancing liabilities continued
The weighted average interest rates paid during the year on the overdrafts and loans outstanding were as follows:
Overdrafts
Bank loans
Private placement notes
2017
%
2.1
1.2
3.8
2016
%
2.1
1.3
3.8
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
28. 8
BFinancial instruments
Classification
The Group’s principal financial assets are cash and cash equivalents, trade receivables and derivative financial instruments.
With the exception of derivative financial instruments, all financial assets are classified as loans and receivables.
The Group’s principal financial liabilities are trade payables, 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 the income statement 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.
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.
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8
7
9
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
28. 8
BFinancial instruments continued
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 2017 and reserves would decrease/increase by £0.8m (2016: £0.6m).
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 2017 £6.9m (2016: £5.0m) of cash and cash equivalents were held in foreign currencies. Included in bank loans
were £17.1m (2016: £15.6m) 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 the Group’s bank facilities can be found in Note 27.
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 2017
Trade creditors
Other creditors
Financing liabilities
Deferred contingent consideration
Financial liabilities
Financial liabilities at 31 March 2016
Trade creditors
Other creditors
Financing liabilities
Deferred contingent consideration
Financial liabilities
Within
one year
£m
244.7
24.5
106.2
0.3
375.7
Within
one year
£m
206.8
9.6
28.5
0.4
245.3
In the
second
to fifth
years
£m
–
–
70.2
–
70.2
In the
second
to fifth
years
£m
–
–
140.6
–
140.6
After
five years
£m
–
–
181.2
–
181.2
After
five years
£m
–
–
170.8
–
170.8
Total
£m
244.7
24.5
357.6
0.3
627.1
Total
£m
206.8
9.6
339.9
0.4
556.7
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 provisions for
doubtful debts.
The Group’s credit risk is primarily attributable to its trade receivables. Before accepting a new customer, the Group uses
external credit scoring systems to assess the potential customer’s credit quality and define an appropriate credit limit which
is reviewed regularly.
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B28. 8
BFinancial instruments continued
In determining the recoverability of a trade receivable, the Group considers the credit quality of the counterparty. An
allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a
reduction in the recoverability of the cash flows. The Directors believe that there is no further provision required in excess of
the provision for doubtful debts at the balance sheet date.
The maximum exposure to credit risk in relation to trade receivables at the balance sheet date is the fair value of trade
receivables. The Group’s customer base is large and unrelated and, accordingly, the Group does not have a significant
concentration of credit risk with any one counterparty or group of counterparties.
Capital management risk
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising
the return to stakeholders through the optimisation of debt and equity. The capital structure of the Group consists of net
debt per Note 31 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 9.1m (2016: 5.2m) shares at a cost of £24.4m (2016:
£15.2m) and subsequently cancelled these shares. From time to time shares are bought to be held in Treasury in order to
offset shares issued under various share schemes and to hedge against shares to be issued in the future. During the year, nil
(2016: 2.3m) shares were bought to be held in Treasury at a total cost of £nil (2016: £6.6m). Further details are provided in
Notes 32 and 33.
The Group is not subject to externally imposed regulatory capital requirements with the exception of those applicable to the
Group’s captive insurance subsidiary, which is monitored on a regular basis.
Hedging activities
Cash flow hedges
The Group holds a number of cross-currency interest rate swaps designated as cash flow hedges on US$201.0m of PP
notes. Biannual fixed interest cash flows arising over the periods to December 2022 and denominated in US$ from the US
Private Placement market are exchanged for fixed interest cash flows denominated in sterling. All cash flow hedges were
assessed as being highly effective as at 31 March 2017.
Fair value hedges
The Group holds a number of cross-currency interest rate swaps designated as fair value hedges on US$48.0m of PP notes.
Fixed interest cash flows denominated in US$ from the US Private Placement market are exchanged for floating interest
cash flows denominated in sterling. All fair value hedges were assessed as being highly effective as at 31 March 2017.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2017 was a borrowing of €9.5m (2016: €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
2017
£m
27.0
8.8
35.8
Assets
2016
£m
Liabilities
2017
£m
Liabilities
2016
£m
10.3
4.1
14.4
–
–
–
–
–
–
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.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
28. 8
BFinancial instruments continued
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 £0.3m (2016: £0.4m) 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 2016
Change in consideration C&C Health (Note 14)
At 31 March 2017
There were no transfers between levels during the year. All contracts are gross settled.
829. 8
BProvisions
Deferred
contingent
consideration
£m
0.4
(0.1)
0.3
At 1 April 2016 – Restated*
Amounts recognised in the income
statement
Amounts recognised through goodwill
Utilised within captive insurance
subsidiary
Utilised in the period
Reclassified from accruals
At 31 March 2017
Included in current liabilities
Included in non-current liabilities
Total
Healthcare
provision
£m
Deferred
contingent
consideration
£m
Legal costs
£m
Insurance
reserve
£m
Onerous
leases
£m
Contract
costs
£m
–
2.0
–
–
–
–
2.0
2.0
–
2.0
–
6.0
–
–
–
–
6.0
6.0
–
6.0
0.4
–
(0.1)
–
–
–
0.3
0.3
–
0.3
6.4
7.0
–
(0.1)
(6.7)
5.9
12.5
6.1
6.4
12.5
–
0.1
–
–
–
–
0.1
0.1
–
0.1
2.2
3.7
–
–
–
–
5.9
5.9
–
5.9
Total
£m
9.0
18.8
(0.1)
(0.1)
(6.7)
5.9
26.8
20.4
6.4
26.8
* See Note 1 (c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
The provisions balance includes the following items:
The legal costs provision relates to professional fees payable and the potential cost of settlement of outstanding claims
against the Group.
The Healthcare provision relates to the anticipated costs of separation of the Healthcare business from the Group, that is
anticipated to crystallise over the next two years. See Note 6 for more detail on disposal.
The insurance reserve provides for the self-insured element of Fleet and Liability claims that will typically settle over three to
five years. This includes a provision for claims that are expected but have not yet been reported.
Contract cost provisions relate to various obligations arising in the ordinary course of providing services in line with
commercial contracts that may require settlement largely over periods up to two years.
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930. 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
2017
£m
2016
£m
2017
£m
2016
£m
1.7
1.2
2.9
(0.1)
2.8
(1.5)
1.3
2.0
2.3
4.3
(0.3)
4.0
(1.9)
2.1
1.5
1.3
2.8
–
2.8
(1.5)
1.3
1.9
2.1
4.0
–
4.0
(1.9)
2.1
The average remaining lease term is 22 months (2016: 23 months). For the year ended 31 March 2017, the average
effective borrowing rate was 1.8% (2016: 4.1%). 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.
31.
BAnalysis of net debt
Cash and cash equivalents (Note 25)
Bank loans (Note 27)
Private placement notes (Note 27)
Derivative financial instruments hedging private placement notes (Note 28)
Net debt before obligations under finance leases
Obligations under finance leases (Note 30)
Net debt
932. 9
BShare capital
Ordinary shares of 2.5p
Allotted and fully paid
At 1 April 2015
Share buybacks
Issued under share option schemes
At 1 April 2016
Share buybacks
Issued for acquisitions
Issued under share option schemes
At 31 March 2017
2017
£m
129.1
(15.3)
(294.0)
35.8
(144.4)
(2.8)
(147.2)
Number
million
375.2
(5.2)
2.1
372.1
(9.1)
6.0
0.1
369.1
2016
£m
93.1
(13.6)
(268.2)
14.4
(174.3)
(4.0)
(178.3)
£m
9.4
(0.1)
–
9.3
(0.2)
0.1
–
9.2
During the year 9.1m (2016: 5.2m) ordinary shares of 2.5p were purchased at a cost of £24.4m (2016: £15.2m) and
subsequently cancelled.
During the year 6.0m (2016: nil) ordinary shares of 2.5p were allocated in respect of the acquisition of non-controlling
interests at a mid-market price of 244.4p (2016: nil) giving rise to share premium of £2.8m (2016: nil) and merger reserve of
£11.7m (2016: nil).
During the year 0.1m (2016: 2.1m) ordinary shares of 2.5p were allotted in respect of share option schemes at a price
between 201.0p and 260.2p (2016: 162.0p and 318.6p) giving rise to share premium of £0.1m (2016: £5.1m).
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
33. 9
BReserves
Share premium account
The share premium account represents the premium arising on the issue of equity shares (see Note 32).
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.
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 nil treasury shares were purchased (2016: 2.3m at a cost of £6.6m).
Treasury shares are held so that they can be reissued at a later date if required (see details of capital management risk in
Note 28). Proceeds from the issue of 1.2m (2016: 1.3m) treasury shares to satisfy options under the Group’s share schemes
in the year were £2.4m (2016: £3.7m) at a cost of £3.4m (2016: £3.8m).
The own shares reserve at 31 March 2017 represents the cost of 15.2m (2016: 17.5m) ordinary shares in Mitie Group plc, with
a weighted average of 16.5m (2016: 18.8m) shares during the year.
Other reserves
Other reserves are comprised of the share-based payment reserve of £9.4m (2016: £9.4m), the revaluation reserve of
£(0.2)m (2016: £(0.2)m), the capital redemption reserve of £0.9m (2016: £0.5m) and other reserves of £0.2m (2016: £0.2m).
The share-based payment reserve represents credits relating to equity-settled share-based payment transactions that have
not yet fully vested (see Note 37).
Hedging and translation reserve
The hedging and translation reserve of £(8.0)m (2016: £(4.6)m) includes balances in respect of the Group’s cash flow hedges
(see Note 28). The net cash flow hedge movement during the year of £(4.8)m (2016: £2.3m) 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.
34. 9
BAcquisitions
Current year acquisitions – purchase of non-controlling interests
On 24 August 2016, the Group purchased employee minority shareholdings in three of its successful ‘Mitie Model’ businesses:
Mitie Business Services UK Limited (MBSUKL), Mitie Technical Facilities Management Limited (MTFML), and Mitie Care and
Custody Limited (MCCL) in accordance with the respective articles of association and shareholders’ agreements of those
companies.
The total maximum consideration for all three purchases amounted to £16.1m. This was satisfied with £1.4m in cash and as
to the remaining £14.7m by the issue of 6,015,255 new ordinary shares of 2.5p each in Mitie valued at 244.38 p per share.
This is the average of the closing middle market price for the five banking days immediately preceding 26 July 2016. Earlier in
this financial year, Mitie purchased its own shares in the market to offset this share issue. The purchased shares were
cancelled following their acquisition.
As a result of these acquisitions Mitie owns 100% of the issued share capital of MBSUKL and MTFML, and 93.14% of the
issued share capital of MCCL. The shareholdings purchased, primarily held by certain of the employees and senior
management of the relevant subsidiary companies, are detailed below:
• MBSUKL – 27.29% of the issued share capital, comprising 116,000 B ordinary shares of £0.01 each, for a consideration of
£0.8m. The consideration was satisfied by £0.1m in cash and £0.7m by the issue of 275,428 new Mitie Shares;
• MTFML – 8.93% of the issued share capital, comprising 952,000 B ordinary shares of £0.01 each, for a consideration of
£12.1m. The consideration was satisfied by £1.0m in cash and £11.1m by the issue of 4,563,029 new Mitie Shares; and
• MCCL – 27.42% of the issued share capital, comprising 170,022 B ordinary shares of £0.01 each, for a consideration of
£3.2m. The consideration was satisfied by £0.3m in cash and £2.9m by the issue of 1,176,798 new Mitie Shares.
Prior year acquisitions – 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.
The business has been renamed Care and Custody (Health) Limited. The transaction has been accounted for by the
acquisition method of accounting in accordance with IFRS 3 (revised 2008). The provisional acquisition accounting as
disclosed in the 2016 Annual Report and Accounts was reviewed during the year resulting in a £0.1m reduction to the
consideration payable and the value of goodwill.
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135. 1
BContingent liabilities
The Company and various of its subsidiaries are, from time to time, party to contractual disputes that arise in the ordinary
course of business. Specifically, there are three ongoing contractual disputes with clients of Mitie’s Property Management
business which are subject to claims or potential claims of a material nature. In one instance, discussions are ongoing
between the Company and the counterparty, to determine both liability and potential quantum. In relation to the other two
matters, arbitration proceedings have commenced. 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. In appropriate cases, a provision is recognised based on best estimates and management
judgement but there can be no guarantee that these provisions (which may be subject to potentially material revision from
time to time) will result in an accurate prediction, due to the uncertainty of the actual costs and liabilities that may be incurred.
The Directors will continue to monitor events as matters progress.
In addition, the Company and its subsidiaries have provided guarantees and indemnities in respect of performance, issued by
financial institutions on its behalf, amounting to £23.8m (2016: £23.6m) in the ordinary course of business. These are not
expected to result in any material financial loss.
The Group participates in several industry multi-employer defined benefit schemes. These multi-employer schemes have
historically not been able to calculate the Group’s share of net liabilities and the Group funds the schemes through paying
employer pension contributions. In the event that a multi-employer scheme is able to calculate the Group’s share of net
pension liability, then this liability would then be recognised in the Group’s financial statements. Where the Group (or
subsidiary of the Group) exits such schemes, pension legislation may require the Group to fund the Group’s share of the total
amount of net liabilities with a one-off cash payment (a section 75 debt). Contingent liabilities related to the retirement benefit
schemes are disclosed in Note 38.
There is currently a specific National Minimum Wage enquiry being undertaken by the Government in relation to two
individuals in one division. In respect of this enquiry the Directors believe their risk to be immaterial. Based on the outcome of
this enquiry, there is an uncertainty as to whether further enquiries could be initiated over a wider population across the
Group. At this stage, due to the nature and complexity of assessing compliance, it is not possible to estimate the potential
economic exposure. In common with other UK businesses with a large number of employees operating near the minimum
wage, the Group is at risk of potential deficiency in respect of current and past employees. As part of a wider HR
transformation project, the Directors are reviewing the end to end HR processes and systems.
136. 1
BOperating lease arrangements
The Group as lessee:
Minimum lease payments under operating leases recognised in income for the year
2017
£m
32.1
2016
£m
27.4
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
Total
2017
£m
24.7
30.6
7.6
62.9
2016
£m
19.7
30.5
5.4
55.6
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.
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0
7
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
137.
BShare-based payments
The Company has six equity-settled share schemes. 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.
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 Mitie Group plc 2001 Executive share option scheme (ESOS)
The ESOS 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.
The Mitie Group plc 2011 Executive share option scheme (ESOS)
The ESOS exercise price is equal to the average market value of the shares on the business day preceding grant or, if the
Remuneration 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. 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.
Non-discretionary share plans:
The Mitie Group plc 2011 SAYE scheme
The SAYE scheme is open to eligible UK resident 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.
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137.
BShare-based payments continued
The Share Incentive Plan (SIP)
The SIP was introduced in 2011 and is 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 awards and share options outstanding during the year are as follows:
Outstanding at 1 April
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 31 March
2017
Weighted
average
exercise
price
(p)
Number of
share
options
(million)
2016
Weighted
average
exercise
price
(p)
162
87
178
98
141
22.1
8.1
(4.6)
(4.2)
21.4
157
170
130
192
162
Number of
share
options
(million)
21.4
7.5
(5.4)
(2.6)
20.9
Exercisable at the end of the year
3.5
213
2.2
216
The Group recognised the following expenses related to share-based payments:
Discretionary share plans
Non-discretionary share plans
2017
£m
4.8
1.4
6.2
2016
£m
4.0
1.2
5.2
The movement on the share-based payment reserve, which is part of other reserves, comprises the charge to the income
statement for the year of £6.2m (2016: £5.2m) net of the cumulative charge to the income statement of £6.2m (2016:
£3.0m) in respect of schemes that have vested in the year, which is released to retained earnings.
The share based payment entry in own share reserve of £6.8m (2016: £5.3m) reflects the use of treasury shares and
shares held by the Employee Benefit Trust in settlement of exercised share options. The £2.4m (2016: £0.3m) in retained
earnings includes £6.2m (2016: £3.0m) relating to vesting schemes described above net of the cost of shares used to settle
options and dividend equivalents.
The weighted average share price at the date of exercise for share options exercised during the year was 234p (2016: 313p).
The options outstanding at 31 March 2017 had exercise prices (other than nil in the case of the LTIP, the CSP and the
matching shares under the SIP) ranging from 201p – 319p (2016: 191p – 319p) and a weighted average remaining contractual
life of 4.0 years (2016: 3.8 years). In the year ended 31 March 2017, options were granted in respect of the SAYE, LTIP, CSP,
SIP and deferred bonus schemes. The aggregate of the estimated fair values of the options granted on those dates was
£11.1m (2016: £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 (%)
2017
2016
0 – 319
23 – 30
3 – 4
276 – 318 251 – 318
0 – 319
25 – 30
3 – 5
0.13 – 1.1 0.13 – 1.1
3.5 – 4.1
3.5 – 4.7
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Notes to the consolidated financial statements continued
For the year ended 31 March 2017
137.
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 (%)
2017
2016
247 – 319
26 – 35
18 – 23
3
251 – 319
26 – 32
18 – 24
3
0.16 – 1.29 0.64 – 1.29
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.
38. 1
BRetirement benefit schemes
The Group has a number of pension arrangements for employees:
• Defined contribution schemes for the majority of its employees; and
• Defined benefit schemes which include a group scheme and other, smaller schemes.
The Group operates a number of defined contribution pension schemes for qualifying employees. The Group has a defined
benefit pension scheme called the Mitie Group plc Pension Scheme (Group scheme) where Mitie Group plc is the principal
employer. The Group participates in a number of other defined benefit schemes (Other schemes) in respect of certain
employees who joined the Group under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Defined contribution schemes
A defined contribution scheme is a pension scheme under which the Group pays contributions to an independently
administered fund; such contributions are based upon a fixed percentage of employees’ pay. The Group has no legal or
constructive obligations to pay further contributions to the fund once these contributions have been paid. Members’ benefits
are determined by the amount of contributions paid, together with investment returns earned on the contributions arising
from the performance of each individual’s chosen investments and the type of pension the member chooses to take at
retirement. As a result, actuarial risk (that pension will be lower than expected) and investment risk (that the assets invested in
do not perform in line with expectations) are borne by the employee.
The Group’s contributions are recognised as an employee benefit expense when they are due.
The Group operates three separate schemes: a stakeholder defined contribution plan, which is closed to new members; a
self-invested personal pension plan, which is closed to new members; and a group personal pension (GPP) plan. Employer
contributions are payable to each on a matched basis requiring employee contributions to be paid. Employees have the
option to pay their share via a salary sacrifice arrangement. The scheme used to satisfy auto-enrolment compliance is a
master trust, The People’s Pension.
During the year, the Group made a total contribution to the defined contribution schemes of £13.7m (2016: £13.3m) and
contributions to the auto-enrolment scheme of £4.3m (2016: £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 Group 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 Trustee is responsible for ensuring that the scheme is sufficiently funded to meet current
and future benefit payments. Plan assets are held in trust and are governed by pension legislation. If investment experience
is worse than expected or the actuarial assessment of the scheme’s liabilities increases, the Group’s financial obligations to
the scheme rise.
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138. 1
BRetirement benefit schemes continued
The nature of the relationship between the Group and the Trustee is also governed by regulations and practice. The Trustee
must agree a funding plan with the sponsoring company such that any funding shortfall is expected to be met by additional
contributions and investment outperformance. In order to assess the level of contributions required, triennial valuations are
carried out with the scheme’s obligations measured using prudent assumptions (which are determined by the Trustee with
advice from the scheme actuary). The most recent triennial valuation was carried out as at 31 March 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 Trustee to manage the scheme.
Other defined benefit schemes
Grouped together under Other schemes are a number of schemes to which the Group makes contributions under Admitted
Body status to clients’ (generally local government or government entities) defined benefit schemes in respect of certain
employees who transferred to Mitie under TUPE. The valuations of the Other schemes are updated by an actuary at each
balance sheet date.
For the Admitted Body schemes, which are largely sections of the Local Government Pension Scheme, the Group will only
participate for a finite period up to the end of the relevant contract. The Group is required to pay regular contributions as
decided by the relevant scheme actuaries and detailed in each scheme’s Contributions Certificate, which are calculated every
three years as part of a triennial valuation. In a number of cases contributions payable by the employer are capped and any
excess is recovered from the entity that the employees transferred from. In addition, in certain cases, at the end of the
contract the Group will be required to pay any deficit (as determined by the scheme actuary) that is assessed for its notional
section of the scheme.
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 £2.0m during the year (2016: £2.5m). The Group expects to
make contributions of around £2.0m to the Group scheme in the coming year. Employees’ contribution to the cost of the
scheme (9.1% of pensionable salaries) is generally paid through a salary sacrifice arrangement.
The Group made contributions to the Other schemes of £0.3m in the year (2016: £0.4m). The Group expects to make
contributions of around £0.3m 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
23.0% of pensionable salary
13.9% of pensionable salary
9.1% 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 would be eliminated by
31 March 2024.
157
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1
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
138. 1
BRetirement benefit schemes continued
Group scheme details
The following table sets out details of the membership of the Group scheme:
Scheme details at last valuation date
Active members – by number
Active members – by proportion of funding liability
Total pensionable salary roll p.a.
Deferred members – by number
Deferred members – by proportion of funding liability
Total deferred pensions p.a. (at date of leaving scheme)
Pensioner members – by number
Pensioner members – by proportion of funding liability
Total pensions in payment p.a.
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
2017
%
2016
%
2017
%
2.65
2.00
3.40
2.40
3.40
3.60
1.70
3.10
2.10
3.10
2.65
3.40
3.40
2.40
3.40
2016
%
3.60
3.10
3.10
2.10
3.10
Group scheme
2017
Years
2016
Years
88.0
90.0
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.
158
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5
138. 1
BRetirement benefit schemes continued
Sensitivity of defined benefit obligations to key assumptions
Increase in discount rate
Increase in RPI inflation*
Increase in CPI inflation (excluding pay)
Increase in salary growth
Increase in life expectancy
Impact on defined benefit obligations
Change in
assumption
Increase/(decrease) in
obligations
%
Increase/(decrease) in
obligations
£m
0.1%
0.1%
0.1%
0.1%
1 year
(2.1)%
1.6%
0.5%
0.4%
4.0%
(5.5)
4.2
1.3
1.1
10.5
* Including other inflation-linked assumptions (CPI inflation, pension increases and salary growth)
The sensitivity information shown above has been prepared using the same method as adopted when adjusting the results of
the latest funding valuation to the balance sheet date.
Some of the above changes in assumptions may have an impact on the value of the scheme’s investment holdings.
For example, the Group scheme holds a proportion of its assets in UK corporate bonds. A fall in the discount rate as a result
of lower UK corporate bond yields would lead to an increase in the value of these assets, thus mitigating the increase in the
defined benefit obligation to some extent.
The duration, or average term to payment for the benefits due, weighted by liability, is around 22 years for the
Group scheme.
Amounts recognised in financial statements
The table below outlines where the Group’s post-employment amounts are included in the financial statements.
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
(3.2)
(0.8)
(4.0)
(1.3)
(5.3)
(0.3)
–
(0.3)
–
(0.3)
2017
Total
£m
(3.5)
(0.8)
(4.3)
(1.3)
(5.6)
Group
scheme
£m
Other
schemes
£m
(3.6)
(0.5)
(4.1)
(1.2)
(5.3)
(0.3)
–
(0.3)
–
(0.3)
Amounts recognised in the consolidated statement of comprehensive income are as follows:
Actuarial (losses)/gains due to changes in
financial assumptions
Actuarial gains due to liability experience
Return on scheme assets, excluding interest income
Group
scheme
£m
Other
schemes
£m
(52.5)
0.8
18.7
(33.0)
(3.7)
–
1.3
(2.4)
2017
Total
£m
(56.2)
0.8
20.0
(35.4)
Group
scheme
£m
Other
schemes
£m
6.3
3.1
(6.2)
3.2
0.4
–
(0.6)
(0.2)
2016
Total
£m
(3.9)
(0.5)
(4.4)
(1.2)
(5.6)
2016
Total
£m
6.7
3.1
(6.8)
3.0
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
177.8
(248.5)
(70.7)
Other
schemes
£m
11.3
(14.8)
(3.5)
2017
Total
£m
189.1
(263.3)
(74.2)
Group
scheme
£m
Other
schemes
£m
156.9
(191.3)
(34.4)
9.5
(10.6)
(1.1)
2016
Total
£m
166.4
(201.9)
(35.5)
159
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5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
138. 1
BRetirement benefit schemes continued
Reconciliation of group balance sheet
Movements in the present value of defined benefit obligations in the year in respect of both the Group and other schemes
were as follows:
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) on liabilities arising from experience
Benefits paid
At 31 March
Group
scheme
£m
Other
schemes
£m
191.3
3.2
6.8
0.1
52.5
(0.8)
(4.6)
248.5
10.6
0.3
0.4
0.1
3.7
–
(0.3)
14.8
2017
Total
£m
201.9
3.5
7.2
0.2
56.2
(0.8)
(4.9)
263.3
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:
Group
scheme
£m
Other
schemes
£m
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
2017
£m
85.0
103.1
60.4
248.5
At 1 April
Interest income
Actuarial gains and losses
Contributions from the sponsoring companies
Contributions from scheme members
Expenses paid
Benefits paid
At 31 March
Group
scheme
£m
Other
schemes
£m
156.9
5.5
18.7
2.0
0.1
(0.8)
(4.6)
177.8
9.5
0.4
1.3
0.3
0.1
–
(0.3)
11.3
2017
Total
£m
166.4
5.9
20.0
2.3
0.2
(0.8)
(4.9)
189.1
Group
scheme
£m
Other
schemes
£m
162.2
5.4
(6.2)
2.5
0.1
(0.4)
(6.7)
156.9
9.5
0.3
(0.6)
0.4
0.1
–
(0.2)
9.5
2016
Total
£m
207.5
3.9
7.0
0.2
(6.7)
(3.1)
(6.9)
201.9
2016
£m
62.2
78.4
50.7
191.3
2016
Total
£m
171.7
5.7
(6.8)
2.9
0.2
(0.4)
(6.9)
166.4
160
Mitie Group plc | Annual Report and Accounts 2017
1
5
Group scheme
2014
£m
143.8
(160.8)
(17.0)
0.1
(0.1)%
3.6
2.5%
2013
£m
134.0
(163.7)
(29.7)
0.1
(0.1)%
3.9
2.9%
Other schemes
2014
£m
16.2
(18.3)
(2.1)
0.3
(1.8)%
(0.3)
(1.9)%
2013
£m
7.9
(8.1)
(0.2)
0.2
(2.8)%
0.5
6.1%
2016
Total
£m
62.9
23.7
19.9
17.8
40.2
1.9
166.4
138. 1
BRetirement benefit schemes continued
The history of experience adjustments is as follows:
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
2017
£m
177.8
(248.5)
(70.7)
0.8
(0.3)%
18.7
10.5%
2017
£m
11.3
(14.8)
(3.5)
–
–
2016
£m
156.9
(191.3)
(34.4)
3.1
(1.6)%
(6.2)
(4.0)%
2016
£m
9.5
(10.6)
(1.1)
–
–
Experience adjustments on scheme assets
Percentage of scheme assets
1.3
11.5%
(0.6)
(6.1)%
Fair values of the assets held by the schemes were as follows:
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%
Equities
Government bonds
Corporate bonds
Property
Diversified growth fund
Cash
Total fair value of assets
Group
Schemes
£m
Other
Schemes
£m
66.4
26.8
21.7
16.2
46.6
0.1
177.8
7.6
1.6
0.8
0.8
–
0.5
11.3
2017
Total
£m
74.0
28.4
22.5
17.0
46.6
0.6
189.1
Group
Schemes
£m
Other
Schemes
£m
56.9
22.3
19.2
17.0
40.2
1.3
156.9
6.0
1.4
0.7
0.8
–
0.6
9.5
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% (2016: 73%) of the assets are held in equities, property and pooled investment vehicles which seek a higher
expected level of return over the long term.
£7m (2016: £7m) of the property assets represent freehold property, the rest are quoted property investments.
161
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1
5
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
238. 1
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. Equities
and DGFs are considered to offer the best returns over the long term with an acceptable level of risk and
hence the scheme holds a significant proportion of these types of asset. However, the scheme’s assets are
well-diversified by investing in a range of asset classes, including property, government bonds and corporate
bonds. The Group scheme holds 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 obligations. However, the investment in
corporate and government bonds offers a degree of matching, i.e. the movement in assets arising from
changes in bond yields partially matches the movement in the funding or accounting obligations. In this way,
the exposure to movements in bond yields is reduced.
Inflation risk The majority of the scheme’s benefit obligations are linked to inflation. Higher inflation will lead to higher
liabilities (although caps on the level of inflationary increases are in place to protect the plan against extreme
inflation). The majority of the Group scheme’s assets are either unaffected by inflation (fixed interest bonds)
or loosely correlated with inflation (equities), meaning that an increase in inflation will also increase the deficit.
The majority of the scheme’s obligations are to provide a pension for the life of the member, so increases in life
expectancy will result in an increase in the obligations.
Life
expectancy
162
Mitie Group plc | Annual Report and Accounts 2017
1
2
3
138. 1
BRetirement benefit schemes continued
Areas of risk management
Although investment decisions in the scheme are the responsibility of the Trustee, the Group takes an active interest to
ensure that pension plan risks are managed efficiently. The Group and Trustee have agreed a long-term strategy for reducing
investment risk where appropriate.
Guaranteed Minimum Pension (GMP) is a portion of pension that was accrued by individuals who were contracted out of the
State Second Pension prior to 6 April 1997. At present there is an inequality of benefits between male and female members
who have GMP. The Government intends to implement legislation to equalise benefits, which could result in an increase in the
value of GMP for males. This would increase the defined benefit obligations. At this stage, it is not possible to quantify the
impact of this change, and therefore no provision has been made.
Certain benefits payable on death before retirement are insured.
139. 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 £0.2m (2016: £0.8m) of revenue from contracts with joint ventures and associated
undertakings. At 31 March 2017 trade and other receivables of £nil (2016: £nil) were outstanding and loans to joint ventures
and associates of £nil (2016: £nil) 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 were Directors of the Company and were also two of the Trustees of the Foundation during the year. R McGregor-
Smith resigned as a Director and Trustee of the Mitie Foundation on 12 December 2016 and S C Baxter resigned as a Director
and Trustee of the Mitie Foundation on 16 March 2017. During the year, the Group made donations of £9,400 (2016: £79,000)
and gifts in kind of £282,000 (2016: £267,000) to the Foundation. At the end of the year £nil (2016: £nil) was due to the
Foundation and the Foundation had £nil (2016: £nil) held within creditors as an amount owed to Mitie Group plc.
No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a
Director had a material interest.
The Group’s key management personnel are the Executive 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 £1.3m (2016: £0.7m).
Details of transactions with Mitie Group plc Pension Scheme, and other smaller pension schemes, are given in Note 38.
163
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2
3
2
7
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
B40. 1
BNotes to the consolidated statement of cash flows
Cash conversion
Operating profit
Depreciation
Amortisation
Impairment of goodwill and write-down of
intangible
Earnings before interest, tax, depreciation and
amortisation (EBITDA)
Continued
operations
£m
Discontinued
operations
£m
(42.9)
13.6
22.4
(135.2)
0.5
1.4
2017
Total
£m
(178.1)
14.1
23.8
2016 – Restated*
Continued
operations
£m
Discontinued
operations
£m
107.6
14.6
7.8
(42.0)
0.5
9.2
Total
£m
65.6
15.1
17.0
18.0
91.2
109.2
–
33.2
33.2
11.1
(42.1)
(31.0)
130.0
0.9
130.9
Cash generated by operations
159.9
(8.8)
151.1
124.0
(9.3)
114.6
Cash conversion+
+
+
95.4%
87.6%
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
151.1
(14.5)
(12.4)
1.0
(15.3)
(12.7)
97.2
114.6
(15.7)
(8.9)
2.2
(15.7)
(13.4)
63.1
+ Previously cash conversion has been calculated as cash generated by operations as a percentage of EBITDA, however this year’s loss results in
meaningless percentages.
* See Note 1(c) for an explanation and analysis of the prior year restatements included above in respect of the year ended 31 March 2016.
It should be noted that the Directors no longer consider that cash conversion is an appropriate measure of performance for
the Group.
341.
BSubsidiaries
The companies set out below are those which were part of the Group at 31 March 2017.
Company
Care & Custody (Health) Limited
Cole Motors Limited*
Creativevents Limited
Direct Enquiries Holdings Limited*
Jabez Holdings 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*
164
Mitie Group plc | Annual Report and Accounts 2017
Country of
incorporation
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
2017
% voting rights and
ownership interest
2017
% nominal
value owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
93.1%
80.3%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.9%
99.3%
100%
100%
100%
100%
100%
3
1
1
1
3
3
141.
BSubsidiaries continued
Company
Mitie Deutschland GmbH 1
Mitie Document Solutions Limited*
Mitie Engineering Limited*
Mitie Engineering Services (Bristol) Limited*
Mitie Engineering Services (Guernsey) Limited
Mitie Engineering Services (Jersey) Limited
Mitie Engineering Services (Northern Region) Limited
Mitie Engineering Services (Wales) Limited*
Mitie Engineering Services Limited*
Mitie Environmental Limited*
Mitie España, S.L.
Mitie Events & Leisure Services Limited
Mitie Facilities Management Limited
Mitie Facilities Services Limited
Mitie France SAS
Mitie Group Pension Scheme Trustee Company Limited*
Mitie Holdings Limited
Mitie Infrastructure Limited
Mitie Integrated Facilities Management Limited*
Mitie International Limited
Mitie Investments Limited
Mitie Justice Limited*
Mitie Landscapes Limited
Mitie Limited
Mitie Local Services Limited
Mitie Managed Services Limited
Mitie Nederland B.V.
Mitie Norge Aksjeselskap
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 (UK) Limited
Mitie Reinsurance Company Limited
Mitie Resources Limited
Mitie Schweiz GmbH
Mitie Scotgate Limited*
Mitie Security (London) Limited*
Mitie Security Holdings Limited
Mitie Security Limited
Mitie Services (Retail) Limited
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
Country of
incorporation
Germany
United Kingdom
United Kingdom
United Kingdom
Guernsey
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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
Netherlands
Norway
United Kingdom
United Kingdom
United Kingdom
Poland
United Kingdom
United Kingdom
Guernsey
United Kingdom
Switzerland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Finland
Sweden
United Kingdom
United Kingdom
United Kingdom
United Kingdom
2017
% voting rights and
ownership interest
2017
% nominal
value owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
74.8%
94.2%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
98.2%
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%
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
165
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1
3
3
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
141.
BSubsidiaries continued
Company
Mitie Transport Services Limited*
Mitie Treasury Management Limited
Mitie Trustee Limited
Mitie Waste & Environmental Services Limited
Mitie Work Wise Limited
Parkersell Limited*
Procius Limited
Robert Prettie & Co Limited*
Service Management International Asia Pacific PTE. Ltd.
Source Eight Limited
Source8 Africa Limited
Source8 Delivery (Nigeria) Limited
Source8 Services FZLLC
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
Wealthy Thoughts Limited
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Singapore
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
2017
% voting rights and
ownership interest
2017
% nominal
value owned
100%
100%
100%
71%
100%
100%
100%
100%
100%
51%
51%
51%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.6%
100%
100%
100%
100%
100%
51%
51%
51%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* These entities were dormant during the year ended 31 March 2017 and will take the exemption from preparing and filing financial statements for the
year ended 31 March 2017 (by virtue of section 448A of the Companies Act 2006).
166
Mitie Group plc | Annual Report and Accounts 2017
1
3
3
B41.
BSubsidiaries continued
The registered office of all subsidiaries is 1 Harlequin Office Park, Fieldfare, Emersons Green, Bristol, South Gloucestershire,
BS16 7FN, with the exception of the following:
Company
Mitie Belgium BVBA
Mitie Belgium Security BVBA
Mitie Deutschland GmbH
Mitie Engineering Services (Guernsey)
Limited
Mitie Engineering Services (Jersey) Limited 13 Castle Street, St Helier, JE4 5UT, Jersey
Mitie España, S.L.
Mitie Facilities Management Limited
Mitie France SAS
Mitie Limited
Registered Office address
c/o Regus Brussels South Station, Place Broothaers 8 bt 5 1050 Brussels,
Belgium
c/o Regus Brussels South Station, Place Broothaers 8 bt 5 1050 Brussels,
Belgium
Meßstetter Straße 8, , 70567, Stuttgart, Germany
c/o MPR Private Clients Limited, PO Box 119, Martello Court, Admiral Park, St
Peter Port, GY1 3HB, Guernsey
Osborne Clarke, Avenida Diagonal, 477, Planta 20, 08036, Barcelona, Spain
108 Q House, Furze Road, Sandyford, Dublin 18, Ireland
259 rue St Honore, 75001, Paris, France
Clara House , Office B5, Dunmurry Office Park, 37A Upper Dunmurry Lane,
Belfast, Northern Ireland, BT17 0AA, United Kingdom
Hoofdweg 52A, 3067 GH Rotterdam, P.O. Box 8540, 3009 AM Rotterdam, 3009
AM Rotterdam, Netherlands
Kongensgate 9, 0153, Oslo, Norway, Norway
Solec 22, 00-410, Warsaw, Poland
Maison Trinity, Trinity Square, St. Peter Port, GY1 4AT, Guernsey
Brandschenkestrasse 90, CH-8027, Zurich, Switzerland
c/o Ov Visma Services Infocon Ab, Pormestarinrine 8, 00160 Helsinki, Finland
Kungsgatan 55 , 111 22 Stockholm, Sweden, Sweden
1 Raffles Place, #18-01, One Raffles Place , Singapore , 048616, Singapore
235 Ikorodu Road, Ilupeju, Lagos, Nigeria
17 The Iridium Building, Um Suqueim Road, Al Barsha, Dubai, PO BOX 391186,
United Arab Emirates
Mitie Nederland B.V.
Mitie Norge Aksjeselskap
Mitie Polska Sp. z o.o.
Mitie Reinsurance Company Limited
Mitie Schweiz GmbH
Mitie Suomi Oy
Mitie Sverige AB
Service Management International Asia
Pacific PTE. Ltd.
Source8 Delivery (Nigeria) Limited
Source8 Services FZLLC
No subsidiaries have non-controlling interests that are material to the Group.
The Group has a 30% interest in its associate, Pyramid Plus South LLP, a limited liability partnership registered in the
United Kingdom with its registered office at The Point, 37 North Wharf Road, London, W2 1BD.
B42.
Events after the reporting period
As at 31 March 2017, the Group had £527m of committed funding arrangements. Subsequent to the reporting period, on 7
June 2017, the Group’s lenders agreed an amendment to the covenant calculation definitions. In accordance with the
requirements of IAS 1, it has been necessary to classify the drawn amounts on the funding arrangements as current rather
than non-current liabilities. The final maturity dates of all facilities remain unchanged.
167
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2
1
3
3
2
Company balance sheet
At 31 March 2017
Non-current assets
Investments in subsidiary undertakings
Deferred tax asset
Total non-current assets
Current assets
Debtors
Total current assets
Total assets
2017
£m
2016
Restated+
£m
2015
Restated+
£m
Notes
45
47
46
589.5
0.3
589.8
691.2
0.5
691.7
703.7
0.6
704.3
36.9
36.9
30.8
30.8
29.8
29.8
626.7
722.5
734.1
Creditors: amounts falling due within one year
Total current liabilities
48
(44.6)
(44.6)
(58.7)
(58.7)
(97.3)
(97.3)
Net current liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Merger reserve
Own shares reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
(7.7)
(27.9)
(67.5)
582.1
663.8
636.8
32
33
33
33
9.2
130.6
91.8
(42.2)
25.3
367.4
582.1
9.3
127.7
80.1
(48.8)
21.1
474.4
663.8
9.4
122.6
80.1
(47.5)
17.2
455.0
636.8
+ See Note 43(c) for an explanation and analysis of the prior year restatements included in respect of 31 March 2016 and 31 March 2015.
The Company reported a loss for the financial year ended 31 March 2017 of £42.6m (2016 restated: profit £78.1m)
The financial statements of Mitie Group plc, company registration number SC019230, were approved by the Board of
Directors and authorised for issue on 12 June 2017. They were signed on its behalf by:
Phil Bentley
Chief Executive Officer
Sandip Mahajan
Chief Financial Officer
168
Mitie Group plc | Annual Report and Accounts 2017
Company statement of changes in equity
For the year ended 31 March 2017
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Own shares
reserve
£m
Other
reserves
£m
At 1 April 2015 – previously reported
Restatements +
At 1 April 2016 – restated +
Profit for the year
Shares issued
Purchase of own shares
Share-based payments
Share buybacks
Dividends paid
At 31 March 2016
Profit for the year
Shares issued
Share-based payments
Share buybacks
Dividends paid
At 31 March 2017
9.4
–
9.4
–
–
–
–
(0.1)
–
9.3
–
0.1
–
(0.2)
–
9.2
122.6
–
122.6
–
5.1
–
–
–
–
127.7
–
2.9
–
–
–
80.1
–
80.1
–
–
–
–
–
–
80.1
–
11.7
–
–
–
(47.5)
–
(47.5)
–
3.8
(6.6)
1.4
0.1
–
(48.8)
–
–
6.8
(0.2)
–
17.2
–
17.2
–
–
–
3.9
–
–
21.1
–
–
3.8
0.4
–
Profit
and loss
account
£m
454.5
0.5
455.0
78.1
–
(0.7)
(0.3)
(15.3)
(42.4)
474.4
(42.6)
–
(2.5)
(24.4)
(37.5)
Total
£m
636.3
0.5
636.8
78.1
8.9
(7.3)
5.0
(15.3)
(42.4)
663.8
(42.6)
14.7
8.1
(24.4)
(37.5)
582.1
130.6
91.8
(42.2)
25.3
367.4
+ See Note 43(c) for an explanation and analysis of the prior year restatements included in respect of the profit for the year ended 31 March 2016 and of
retained earnings at 31 March 2015.
As at 31 March 2017, the Company had distributable reserves of £137.3m (2016: restated £237.6m).
Details of dividends paid to shareholders are given in Note 12 of the consolidated financial statements.
169
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Notes to the Company financial statements continued
For the year ended 31 March 2017
143. 1
BSignificant accounting policies
(a) 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
financial statements have also been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’ as issued by the
Financial Reporting Council.
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.
(b) Principal accounting policies
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.
Investments in subsidiaries are reviewed on an ongoing basis for any indication of impairment and, if any such indication
exists, the investments’ recoverable amount is estimated. An impairment loss is recognised in the income statement
whenever the carrying value of an asset exceeds its recoverable amount.
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.
170
Mitie Group plc | Annual Report and Accounts 2017
3
5
343. 1
BSignificant accounting policies continued
Share-based payments
The Company 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 Company 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 the Mitie Group plc defined benefit Pension Scheme. All group companies account for the
contributions to the defined benefit scheme in respect of their employees and as part of a group arrangement one of the
Company’s subsidiaries accounts for the other costs, income, assets and liabilities of the scheme. Note 38 to the
consolidated financial statements sets out details of the IAS 19 ‘Employee Benefits’ net pension liability of the scheme
amounting to £70.7m (2016: £34.4m).
(c) Prior year restatements
During the year there was an apparent significant shortfall in the expected profitability of the Group for the year ended 31
March 2017. New executive directors were appointed in December and January and they immediately launched an
accounting review process to provide confidence that all relevant accounting standards were appropriately reflected in the
Group’s financial reporting.
Following additional information becoming available, the review work identified a number of prior year errors that, due to their
materiality, require the restatement of the results for the year ended 31 March 2016, as well as the consolidated balance
sheet positions as at 31 March 2016 and at 31 March 2015.
In respect of the Company, these prior year restatements relate to the under accrual of costs. For the year ended 31 March
2016 the adjustment related to the under accrual of bonus payments totalling £2.1m. For the year ended 31 March 2015 the
increase in profit after tax of £0.5m was due to the correction of bonus accrual recognition of £0.6m and an under provision
of insurance liabilities of £0.1m.
144.
BProfit for the year
As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own statement of
comprehensive income (including the profit and loss account) for the year. Mitie Group plc reported a loss after taxation for
the financial year ended 31 March 2017 of £42.6m (2016 restated: £78.1m).
The auditor’s remuneration for audit services to the Company was £40,000 (2016: £35,000).
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.
171
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1
3
7
1
3
9
Notes to the Company financial statements continued
For the year ended 31 March 2017
445. 1
BInvestments in subsidiary undertakings
Shares at cost
At 1 April 2016
Additions
Capital contribution re share-based payments
Disposals
At 31 March 2017
Provision for impairment
At 1 April 2016
Charged to income statement
Disposals
At 31 March 2017
Net book value
At 31 March 2017
At 31 March 2016
£m
723.8
16.3
3.8
(53.0)
690.9
32.6
121.8
(53.0)
101.4
589.5
691.2
A listing of subsidiaries is given in Note 41.
Disposals in the period relate to the voluntary striking-off of dormant subsidiaries within the Group.
The provision for impairment relates primarily to the sale of the Company’s Healthcare interests and the reduction in value of
its investment in Property Management.
446. 1
BDebtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Corporation tax
The Directors consider that the carrying amount of debtors approximates their fair value.
447.
BDeferred tax
Deferred tax asset at 1 April 2016
Charge to equity and the statement of comprehensive income
Deferred tax asset at 31 March 2017
2017
£m
31.2
0.7
0.2
4.8
36.9
2016
Restated
£m
27.5
2.3
0.8
0.2
30.8
Share-
based
payment
timing
difference
£m
0.5
(0.2)
0.3
The deferred tax balance has been presented as a non-current asset in the current year whereas it was a current asset in the
prior year.
172
Mitie Group plc | Annual Report and Accounts 2017
1
4
1
1
4
3
1
1
4
5
448. 1
BCreditors: amounts falling due within one year
Overdrafts
Trade creditors
Amounts owed to subsidiary undertakings
Other taxes and social security
Accruals and deferred income
Provisions
2017
£m
5.4
2.2
5.2
0.2
19.0
12.6
44.6
2016
Restated
£m
35.3
1.1
9.3
1.1
11.8
0.1
58.7
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 27.
B49. 1
BContingent liabilities
Details of contingent liabilities have been given in Note 35 of the consolidated financial statements.
450. 1
BShare-based payments
The Company has six equity-settled share schemes as described in Note 37 of the consolidated financial statements.
The Company recognised an expense of £2.4m (2016: £1.2m) 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 37 of the consolidated financial statements.
51.
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 39 of the consolidated financial statements.
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
2017
£m
2016
£m
2017
£m
2016
£m
Subsidiaries
–
0.4
–
–
Subsidiaries
–
–
(0.1)
–
All inter-company balances are unsecured; trading balances are payable within 30 days unless both parties agree an
extension; funding balances are repayable on demand.
Receivables outstanding
Creditors outstanding
2017
£m
2016
£m
2017
£m
2016
£m
173
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1
4
7
1
5
3
5
5
1
5
7
Notes to the Company financial statements continued
For the year ended 31 March 2017
Appendix – Alternative Performance Measures (APMs)
The Group presents various APMs as the Directors believe that these are useful for users of the financial statements in
helping to provide a balanced view of, and relevant information on, the Group’s financial performance. These APMs are
measures which disclose the adjusted performance of the Group excluding specific items which are regarded as non-
recurring. The Group separately reports acquisition costs, the amortisation of acquisition related intangible assets,
exceptional items and other specific items in the income statement which, in the Directors’ judgement, need to be disclosed
separately (see Notes 5, 6 and 7) by virtue of their nature, size and incidence in order for users of the financial statements to
obtain a proper understanding of the financial information and the underlying performance of the business.
APMs presented
Revenue
Adjusted revenue
One offs:
Adjustment to accrued income on long-term complex contracts
Accrued income, debtors, prepayments included in trade & other receivables
Effects of foreign currency
Other one off items
Before other items
Other items
Total revenue as reported
Operating profit
Adjusted operating profit
Impairment and amortisation of intangible assets (Note 15)
Adjustment to accrued income on long-term complex contracts
Accrued income, debtors, prepayments included in trade & other receivables
Impairment of mobilisation asset
Other provisions & accruals
Other one off items
Before other items
Other items
Total operating profit as reported
The total adjustments presented above impact business segments as follows:
Adjustments to revenue
Cleaning and Environmental Services
Security
Catering
Engineering Services
Professional Services & Connected Workspace
Public Services
Total adjustments
Adjustments to operating profit
Cleaning and Environmental Services
Security
Catering
Engineering Services
Professional Services & Connected Workspace
Public Services
Corporate Centre
Total adjustments
174
Mitie Group plc | Annual Report and Accounts 2017
2017
£m
2016
Restated
£m
2,140.0
2,133.4
(20.4)
(4.5)
11.3
–
6.4
8.3
–
(1.2)
2,126.3
–
2,126.3
2,146.9
–
2,146..9
82.0
(10.5)
(20.4)
(36.4)
(5.7)
(4.6)
(10.7)
(6.3)
(36.6)
(42.9)
2017
£m
3.6
–
(1.6)
11.7
–
–
13.7
2017
£m
14.4
3.8
0.7
37.5
2.5
17.4
12.0
88.3
95.2
–
6.4
0.1
–
7.6
4.7
113.9
(6.3)
107.6
2016
Restated
£m
(1.7)
–
–
(11.8)
–
–
(13.5)
2016
Restated
£m
(1.9)
(1.0)
–
(11.6)
–
–
(4.2)
(18.7)
Glossary
BIFM
BME
CPI
CRM
FM
FME
GDP
KPI
NPS
British Institute of Facilities Management
Black & Minority Ethnic
Consumer Price Index
Client Relationship Management
Facilities Management
Forensic Medical Examiner
Gross Domestic Product
Key Performance Indicator
Net Promoter Score
Riddor AFR
SMART
SLA
Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013,
Accident Frequency Rate
Security Manager & Resilience Tool
Service Level Agreement
175
www.mitie.com Shareholder information
Results
2018 Half-yearly results
Dividends
2017 interim dividend 4.0p paid
2017 Annual General Meeting
2017 Annual General Meeting
20 November 2017
1 February 2017
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;
26 July 2017
• 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
Registered office
Mitie Group plc
35 Duchess Rd
Rutherglen
Glasgow
G73 1AU
Telephone: 0117 970 8800
Email: group@mitie.com
Website: www.mitie.com
Registered in Scotland under
company number: SC019230
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.
176
Mitie Group plc | Annual Report and Accounts 2017
Cautionary statement
Certain statements contained in this document 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 document. 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
document 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 document.
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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