Mitie Group plc
Annual Report and Accounts 2019
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9
The
Exceptional,
Every Day
Welcome to Mitie
Annual Report and Accounts 2019
We are the UK’s leading
facilities management and
professional services company,
providing a range of services
to a large, diverse, blue-chip
client base. Our expertise, care,
technology and insight create
amazing work environments,
helping our customers be
exceptional, every day.
Strategic report
Governance
Financial statements
50
53
54
56
62
68
70
82
88
Board of Directors
Chairman’s introduction
to Corporate Governance
Governance at a glance
The Board
Audit Committee
Nomination Committee
Directors’ remuneration
report
Directors’ report:
other disclosures
Directors’ report: statement
of Directors’ responsibilities
01
Introduction
02 Financial highlights
04 At a glance
06 Chairman’s statement
08 Business model
10 Market review
11
14
Chief Executive’s
strategic review
Key performance
indicators
16 Operating review
22 Finance review
26 Stakeholder engagement
28
Non-financial information
statement
29 Social value
34 Our people
38
Principal risks and
uncertainties
47 Viability statement
95
90
Independent auditor’s
report to the members
of Mitie Group plc
Consolidated
income statement
Consolidated statement
of comprehensive income
Consolidated balance sheet
Consolidated statement
of changes in equity
100 Consolidated statement
97
99
96
of cash flows
102 Notes to the consolidated
financial statements
158 Company balance sheet
159 Company statement
of changes in equity
160 Notes to the Company
financial statements
163 Appendix – Alternative
Performance Measures
(APMs)
166 Shareholder information
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Exceptional,
every day
for our
customers
Exceptional,
every day
for our
environment
Exceptional,
every day
for our
employees
Our customers range
from banks and retailers,
to hospitals, schools and
government entities.
We have an order book
of £4.1bn and a pipeline
of opportunities of
£10.2bn.
Read more on PG 12
In 2010, we committed
to reduce our emissions
intensity by 35% by
2020. We are proud to
have achieved this target
a year early. We did so by
rationalising our estate,
restricting business
travel and improving
fleet efficiency.
Read more on PG 32-33
Our 52,500 employees
go the extra mile for our
colleagues and clients
to deliver basics brilliantly.
We are driven by our vision
of 'The Exceptional,
Every Day' and our values.
We are One Mitie.
Read more on PG 34-37
Mitie Group plc | Annual Report and Accounts 2019
01
Financial highlights
Financial highlights (for the year ended 31 March 2019)
£2.2bn
Revenue1
(FY 17/18: £2.0bn)
16.8p
Basic earnings before other
items per share1,2
(FY 17/18: 15.2p)
£140.7m
Net debt (at period end)3
(FY 17/18: £193.5m)
£4.1bn
Secured order book1
(FY 17/18: £4.2bn)
£88.2m
Operating profit before other items1,2
(FY 17/18: £83.2m)
4.0p
Dividends per share
(FY 17/18: 4.0p)
£302.0m
Net debt (daily average)
(FY 17/18: £286.1m)
£10.2bn
Pipeline of opportunities
(FY 17/18: N/A)
Financial summary
£m unless otherwise specified
Revenue1
Operating profit1
Operating profit margin1
Profit/(loss) before tax1
Profit/(loss) for the year
Basic earnings/(loss) per share
Full-year total dividend per share
Cash generated from/(used in) operations
Period end net debt3
Order book1
FY 18/19
Before
other items2
2,221.4
88.2
4.0%
74.4
63.7
16.8p1
FY 17/18
Before
other items2
2,030.6
83.2
4.1%
66.7
61.2
15.2p1
Total
2,221.4
50.2
2.3%
36.4
30.9
8.6p
4.0p
FY 18/19
47.5
140.7
4,147.3
Total
2,030.6
1.1
0.1%
(15.4)
(26.0)
(7.6)p
4.0p
FY 17/18
(7.9)
193.5
4,186.0
• Revenue up 9.4% to £2.2bn (FY 17/18: £2.0bn)
with organic growth at 5.5% reflecting strong
performance from top strategic accounts
• Operating profit before other items up
6.0% to £88.2m (FY 17/18: £83.2m)
• Operating profit up to £50.2m
(FY 17/18: £1.1m)
• Final dividend recommendation of 2.67p,
making the total full-year dividend of
4.0p per share (FY 17/18: 4.0p)
• Leverage multiple reduced to 1.33x net debt/
EBITDA (FY 17/18: 1.98x, covenant <3x) with
period end net debt further improved to
£140.7m (FY 17/18: £193.5m)
• Core businesses performing strongly
• Project Helix largely complete with exit
run-rate savings of c.£45m; Project Forte
(Phase II of Mitie’s transformation)
now launched with primary focus on
Engineering Services
• Order book from continuing operations
stable at £4.1bn with pipeline growing to
£10.2bn on the back of inclusion onto the
Crown Commercial Services Framework
• Net Promoter Score up 22 points to
+12 (FY 17/18: -10)
• Employee engagement up 12 ppts to 45%
• Paying our suppliers faster (50 supplier
payment days down from 58 days in FY 17/18)
Reconciliation of the Group’s performance
measures to its statutory results is provided in the
Appendix – Alternative Performance Measures.
1. From continuing operations.
2. Other items are as described in Note 4 to the
consolidated financial statements.
3. Note 26 to the consolidated financial statements
for analysis of net debt.
Delivering the exceptional through a range of services
Revenue1 FY 18/19
Engineering
Services
Security
Professional
Services
Cleaning &
Environmental
Services
Care &
Custody
Catering
£905.7m
(FY 17/18: £886.3m)
£536.5m
(FY 17/18: £432.0m)
£131.4m
(FY 17/18: £131.2m)
£404.4m
(FY 17/18: £384.1m)
£107.3m
(FY 17/18: £59.9m)
£136.1m
(FY 17/18: £137.1m)
02
Mitie Group plc | Annual Report and Accounts 2019
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14
04 At a glance
06 Chairman’s statement
08 Business model
10 Market review
11
Chief Executive’s
strategic review
Key performance
indicators
16 Operating review
22 Finance review
26 Stakeholder engagement
28
Non-financial information
statement
29 Social value
34 Our people
38
47 Viability statement
Principal risks and uncertainties
Exceptional,
every day
for our
customers
We are investing in Connected Workspace
technology to enable us to offer added value
to our customers, improve operational
efficiency and reduce reliance on manual
labour. Our open source platform allows
us to integrate multiple systems and data
sources, perform advanced data analytics
and deliver solutions through easy-to-use
customer interfaces.
Our nationwide flexible offering combined
with the smart use of technology remains
attractive. With a focus on key drivers –
customer, people, cost and technology –
we are helping to shape next generation
facilities management.
Read more on PG 13
6m
daily data readings
5
Integrated facilities
management
contracts with
Connected Workspace
component won in
FY 18/19
Mitie Group plc | Annual Report and Accounts 2019
03
At a glance
Group
information
Our vision
Our purpose
What we do
The Exceptional, Every Day.
Our expertise, care, technology and insight create amazing work
environments, helping our customers be exceptional, every day.
We are the UK’s leading facilities management (FM) and professional services
company employing 52,500 people. We manage and maintain some of the
nation’s most recognised landmarks and work with a wide range of blue-chip
private and public sector clients. We have scale and nationwide reach as well
as breadth and depth of facilities management services, which we deliver in
a flexible, tailored proposition through self-delivery or strategic partnerships.
We work in partnership with our clients to grow customer lifetime value
by offering technology-backed solutions where our Connected Workspace
technology is a true differentiator. We are ambitious for the future of the
FM industry, our customers and our employees.
We deliver the exceptional through a range of services
Engineering
Services (ES)
Mitie Engineering Services
delivers technical and building
maintenance services and
specialist services in heating,
cooling, lighting, water
treatment, and building
controls. The division carries
out project works, including
roofing and painting works.
Security
The Security division comprises
Security Management, Front of
House, Document Management,
and the employee vetting
business, Procius.
Professional
Services (PS)
Professional Services is Mitie’s
consultancy services division,
which includes Connected
Workspace solutions,
International, Sustainability,
Waste Management,
Risk Management and
Occupier Services.
Cleaning &
Environmental
Services (CES)
The Cleaning & Environmental
Services division offers
commercial and technical
cleaning, as well as specialist
services such as landscaping
and healthcare services.
Catering
The Catering division
comprises: Gather & Gather,
our workplace catering
brand; and Creativevents,
our specialist indoor
and outdoor event
catering business.
Care &
Custody
The Care & Custody division
provides a range of services
to vulnerable adults in secure
environments, including
managing immigration removal
centres and detention and
escorting services on behalf
of the Home Office, as well as
forensic medical examiner and
custody support services for
police forces across England
and Wales.
Read more on PG 16-17
Read more on PG 17-18
Read more on PG 18-19
Read more on PG 19
Read more on PG 20
Read more on PG 20-21
04
Mitie Group plc | Annual Report and Accounts 2019
Customer type
Forward order book
£m
Government
Non-government
FY 18/19
700.3
1,521.1
£m
Government
Non-government
FY 17/18
620.4
1,410.2
FY 18/19
Revenue
from continuing
operations
FY 17/18
Revenue
from continuing
operations
FY 18/19
Total secured
revenue for
continuing
operations
FY 17/18
Total secured
revenue for
continuing
operations
£m
Less than 1 year
More than 1 year
FY 18/19
1,251.9
2,895.4
£m
Less than 1 year
More than 1 year
FY 17/18
1,121.6
3,064.4
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Engineering
Services (ES)
Mitie Engineering Services
delivers technical and building
maintenance services and
specialist services in heating,
cooling, lighting, water
treatment, and building
controls. The division carries
out project works, including
roofing and painting works.
Security
The Security division comprises
Security Management, Front of
House, Document Management,
and the employee vetting
business, Procius.
Professional
Services (PS)
Professional Services is Mitie’s
consultancy services division,
which includes Connected
Workspace solutions,
International, Sustainability,
Waste Management,
Risk Management and
Occupier Services.
Cleaning &
Environmental
Services (CES)
The Cleaning & Environmental
Services division offers
commercial and technical
cleaning, as well as specialist
services such as landscaping
and healthcare services.
Catering
The Catering division
comprises: Gather & Gather,
our workplace catering
brand; and Creativevents,
our specialist indoor
and outdoor event
catering business.
Care &
Custody
The Care & Custody division
provides a range of services
to vulnerable adults in secure
environments, including
managing immigration removal
centres and detention and
escorting services on behalf
of the Home Office, as well as
forensic medical examiner and
custody support services for
police forces across England
and Wales.
Read more on PG 16-17
Read more on PG 17-18
Read more on PG 18-19
Read more on PG 19
Read more on PG 20
Read more on PG 20-21
FY 18/19
Revenue
from continuing
operations
by division
£m
FY 18/19
Engineering Services
Security
Professional Services
CES
Care & Custody
Catering
905.7
536.5
131.4
404.4
107.3
136.1
FY 17/18
Revenue
from continuing
operations
by division
£m
Engineering Services
Security
Professional Services
CES
Care & Custody
Catering
FY 17/18
886.3
432.0
131.2
384.1
59.9
137.1
Mitie Group plc | Annual Report and Accounts 2019
05
Chairman’s statement
Shaping Mitie
for the future
—
£2.2bn
Revenue from continuing
operations
(FY 17/18: £2.0bn)
—
£88.2m
Operating profit before other
items from continuing operations1
(FY 17/18: £83.2m)
—
4.0p
Dividends per share
(FY 17/18: 4.0p)
1. Reconciliation of operating profit
before other items to the statutory
accounts is provided in the Appendix –
Alternative Performance Measures on
pages 163 to 165.
06
Mitie Group plc | Annual Report and Accounts 2019
We want to drive a
change from today’s mostly
reactive approach to a
preventive approach using
data and technology.
Derek Mapp
Chairman
Dear Mitie shareholder,
I am pleased to report on the progress of Mitie’s second year
of transformation. It has been a year of delivery and change –
operational, financial and cultural – in a competitive facilities management
market with a challenging industry backdrop.
FM industry overview and changing customer demands
Last year I referenced the demise of Carillion, one of our major
competitors. The outsourcing sector has remained in the spotlight
with Interserve – another major competitor – going into pre-pack
administration, following which Interserve’s lenders acquired its
operating subsidiaries. Despite the ongoing challenges for the industry,
I still believe that the medium-term outlook for your company is
positive. On the one hand, there is significant opportunity for increased
outsourcing penetration of the facilities management industry. On the
other hand, we expect consolidation in the market to continue over the
next couple of years, as the industry addresses some of its fundamental
strategic and financial challenges.
Outsourcing remains a low-margin industry. In this environment,
technology and scale remain two of Mitie’s most significant differentiators.
Creating a technology-enabled business can fundamentally change the
economics of the industry. We will continue to focus our technology
programme on three key areas: transforming our internal technology
infrastructure to build a more cost-efficient organisation; investing in
service delivery technologies to improve the customer experience and
cost-to-serve; and finally, creating new services and products which add
significant new value for our customers.
As a consequence, we believe that the economics of facilities
management is shifting from a low-margin, labour-based model to a
more sustainable technology-driven approach. Customer priorities
are beginning to evolve as a result of the challenges facing the industry,
the impact of technology and new employee workplace expectations.
While cost efficiency and the quality of service delivery remain front
and centre for our customers, they are increasingly also focusing on
employee wellbeing, sustainability and better use of their buildings.
These softer benefits are becoming important in attracting and retaining
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In line with the UK Corporate Governance Code 2018 and the Financial
Reporting Council’s guidance on board effectiveness, Mitie appointed
Jennifer Duvalier as the Group’s designated Non-Executive Director to
oversee Board engagement with our workforce. Jennifer champions the
voice of Mitie employees at Board discussions and participates directly in
our employee engagement initiatives.
Board composition
The Nomination Committee regularly reviews Board composition
and considers matters such as skills and diversity. During the year,
the Board adopted an inclusion policy, setting objectives in terms of
diversity and inclusion.
In July 2018, Larry Hirst retired from the Board and Roger Yates
succeeded him as Senior Independent Director. Mark Reckitt also
stood down from the Board, with Mary Reilly assuming the role of
Chair of the Audit Committee.
Jack Boyer stood down from the Board with effect from 31 August
2018. Jennifer Duvalier succeeded him as Chair of the Remuneration
Committee.
I would like to thank Larry, Mark and Jack for their service to Mitie.
Results and dividends
I am pleased to report that revenue growth from continuing operations
during the year was strong at 9.4% to £2.2bn (FY 17/18: £2.0bn),
boosted by the acquisition of the security firm VSG. Operating profit
from continuing operations before other items also grew by 6.0% to
£88.2m (FY 17/18: £83.2m) with Engineering Services, Security and
Care & Custody all delivering good growth.
The Board has recommended a final dividend of 2.67p, taking total
dividends for the year to 4.0p. We expect to hold the dividend flat
at least until transformation is complete, when we will review the
dividend policy.
Outlook
While change can be unsettling, it can also be rewarding, and these
are exciting times for your Company. The strength of our strategy,
management, scale, technology offering and, of course, the dedication of
our people, really set us apart. We will continue to build upon the progress
achieved over the first two years of transformation, strengthening our
position as the UK’s leading facilities management organisation.
On behalf of the Board, I would like to thank our many stakeholders, and
all Mitie employees, including the VSG colleagues who joined us recently,
for their dedication and commitment to the Company, and for going the
extra mile. And finally, I would also like to thank you, our shareholders,
for your continued support.
Derek Mapp
Chairman
the best people and enabling them to be as productive as possible.
At Mitie, we therefore continue to drive adoption of our Connected
Workspace offering, which is focused on products and services that
improve the performance of buildings, and the wellbeing of their
occupants, for the benefit of our customers.
Strategy
Our strategy is based on four pillars – customer, people, cost and
technology – and is designed to grow customer lifetime value through
technology-based solutions. We are focusing on those business lines
where we can secure market-leading positions to ensure long-term
sustainable growth. Our vision is to deliver The Exceptional, Every Day.
It is clear to me that by the end of year two in our transformation
journey, we have made progress.
During FY 18/19 we simplified and strengthened the Mitie portfolio
by selling our Pest Control and Social Housing businesses and acquiring
a security business, Vision Security Group (VSG). The acquisition of
VSG boosts our already strong position in the UK security market.
We have embedded technology into the heart of our offering. Examples
include our Connected Workspace technology, our MiTec centre in
Belfast, our global security operations centre (GSOC) in Northampton
and our service operations centre (SOC) in Bracknell. We are
showcasing our technology solutions in our Shard headquarters.
We want to drive a change in the facilities management industry from
today’s mostly reactive approach to a preventive approach using data
and technology to optimise the performance of a customer’s estate
and enhance the wellbeing of their people.
During the year, we continued to prioritise customer service, which
is reflected in a very encouraging 22-point increase in Net Promoter
Score (NPS) to +12 points. This is testament to all the hard work from
the teams on the ground and at account management level. However,
we will not be complacent about the result; we have more to do, so
we will continue to listen to our customers and act on their feedback.
Our people are our most critical asset. Without their commitment
and hard work, the Group would not have progressed as far in its
transformation journey during the first two challenging years.
We are committed to creating a ‘Great Place to Work’. During the
year, employee engagement improved to 45% from 33% last year –
a remarkable achievement given the ongoing transformation and scale
of change within the Group. Along with my fellow Board members,
I personally participated in our ‘back to the floor’ initiative to meet
more of our colleagues, listen to their experiences and celebrate
exceptional performance.
We have continued to focus on rigorous cost control under our
Project Helix programme. By the end of March 2019, we had reached
our target exit run-rate savings – annualised reductions to the cost
base – of c.£45m per annum, through various cost saving initiatives across
HR, Procurement, Property, Finance, IT and Engineering Services. We
now expect to launch a new cost saving initiative programme in FY 19/20.
Stakeholder engagement
The Board has reviewed governance in readiness for the UK Corporate
Governance Code 2018, which applies to accounting periods beginning
on or after 1 January 2019. Given the extent of change at Mitie over
the last two years, we as a Board wish to engage proactively with our
stakeholders. In FY 18/19, the Board established a format for regular
engagement with shareholders and for supporting Mitie’s workforce
during transformation. Through regular updates from the Executive
Leadership Team, the Board also remains abreast of developments
with customers, suppliers, banks, noteholders and other stakeholders.
We will continue to develop dialogue between the Board and
all stakeholders to ensure a mutual understanding of views on
governance and to promote discussion of the Group’s performance.
Along with a number of Non-Executive Directors, I have directly
engaged with institutional shareholders with a cumulative holding
of 69% of Mitie’s issued share capital. Discussion covered a range
of governance matters including Mitie’s culture and cultural
transformation, as well as Board support for the executive team.
Mitie Group plc | Annual Report and Accounts 2019
07
Business model
Creating value
for all our stakeholders
Our vision
The Exceptional, Every Day.
Read more on PG 11
Our purpose
Our expertise, care,
technology and insight create
amazing work environments,
helping our customers be
exceptional, every day.
Read more on PG 11
Our values
• We are One Mitie.
• We are built on
integrity and trust.
• We go the extra mile.
• Our diversity makes
us stronger.
• Our customers’ business,
is our business.
Read more on PG 35
1.
Diligence
and design
What we do We start by engaging with a new
or existing client to understand
its needs or any changes to
requirements. We design a bespoke
solution using our expertise,
knowledge and Connected
Workspace technology.
The Mitie
approach
We have created a One Mitie
approach in everything we do to
deliver a seamless, unrivalled service.
Delivered
through our
business
We offer a breadth of services
underpinned by broad expertise,
a flexible bespoke approach
and proprietary market-leading
technology.
Guided by
our strategy
Our four strategic pillars – customer,
people, cost and technology –
underpin our strategy of focusing on
our larger businesses and strategic
accounts where our technology offer
is a true differentiator to ensure
long-term sustainable growth, delivery
of our vision of ‘The Exceptional,
Every Day’ and creation of value for
all our stakeholders.
2.
Mobilisation
and running
operations
We look to mobilise our
contracts in the most
efficient way. Once in
operation, we are continually
looking for opportunities
to remove cost, expand
our offering where it would
be of benefit to customers
and become a valued
strategic partner.
Scale
The scale of our operations
allows us to self-deliver
most services, including
some specialist services.
We also partner with
third parties to deliver
additional specialist services.
3.
Insights to
drive value
Using our proprietary technology, data analysis and open source data
lake, as well as traditional methods, we collate information on customers’
buildings and assets and the wellbeing of their employees. We convert
data and feedback into actionable recommendations for our clients.
Recognising that every customer is different, our approach is tailored
to customers’ unique needs and is designed to deliver continual
improvements throughout the life of the contract.
Nationwide
reach
Our nationwide reach
allows us to service
large clients with
presence all over
the UK.
Expertise
We are a partner
trusted for our
expertise and
for putting our
customers at the
heart of our business.
Technology
Our technology suite
includes Connected
Workplace, MiTec,
service operations
centre (SOC) and
global security
operations centre
(GSOC).
Engineering
Services
Security
Professional
Cleaning &
Services
Environmental
Care &
Custody
Catering
Services
Customer: putting
customers at the
heart of what we do
Building market-leading
positions in higher growth
segments and increasing
customer NPS.
People: our
single most
important
resource
Creating a ‘Great
Place to Work’ for
our employees.
Cost: strong
balance sheet
Technology:
technology
and cost control
solutions and
Strengthening
our balancing sheet
and maintaining
cost discipline to
remain competitive.
Connected
Workspace
Embedding technology
into the heart of
our offering .
08
Mitie Group plc | Annual Report and Accounts 2019
2.
Mobilisation
and running
operations
looking for opportunities
to remove cost, expand
our offering where it would
be of benefit to customers
and become a valued
strategic partner.
Scale
The scale of our operations
allows us to self-deliver
most services, including
some specialist services.
We also partner with
third parties to deliver
additional specialist services.
1.
Diligence
and design
3.
Insights to
drive value
What we do We start by engaging with a new
or existing client to understand
its needs or any changes to
We look to mobilise our
contracts in the most
efficient way. Once in
requirements. We design a bespoke
operation, we are continually
solution using our expertise,
knowledge and Connected
Workspace technology.
Using our proprietary technology, data analysis and open source data
lake, as well as traditional methods, we collate information on customers’
buildings and assets and the wellbeing of their employees. We convert
data and feedback into actionable recommendations for our clients.
Recognising that every customer is different, our approach is tailored
to customers’ unique needs and is designed to deliver continual
improvements throughout the life of the contract.
The Mitie
approach
We have created a One Mitie
approach in everything we do to
deliver a seamless, unrivalled service.
Delivered
We offer a breadth of services
through our
business
underpinned by broad expertise,
a flexible bespoke approach
and proprietary market-leading
technology.
Guided by
Our four strategic pillars – customer,
our strategy
people, cost and technology –
Nationwide
reach
Our nationwide reach
allows us to service
large clients with
presence all over
the UK.
Expertise
We are a partner
trusted for our
expertise and
for putting our
customers at the
heart of our business.
Technology
Our technology suite
includes Connected
Workplace, MiTec,
service operations
centre (SOC) and
global security
operations centre
(GSOC).
Engineering
Security
Services
Professional
Services
Cleaning &
Environmental
Services
Care &
Custody
Catering
underpin our strategy of focusing on
our larger businesses and strategic
accounts where our technology offer
is a true differentiator to ensure
long-term sustainable growth, delivery
of our vision of ‘The Exceptional,
Every Day’ and creation of value for
all our stakeholders.
Customer: putting
customers at the
heart of what we do
Building market-leading
positions in higher growth
segments and increasing
customer NPS.
People: our
single most
important
resource
Creating a ‘Great
Place to Work’ for
our employees.
Cost: strong
balance sheet
and cost control
Strengthening
our balancing sheet
and maintaining
cost discipline to
remain competitive.
Technology:
technology
solutions and
Connected
Workspace
Embedding technology
into the heart of
our offering .
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Creating value for
all our stakeholders
Customers
We aim to move from being just another service provider
to being a trusted partner for our customers, helping
them create high-performance work environments by
optimising utilisation of their buildings and improving the
wellbeing and performance of their people.
+12
Net Promoter Score (an improvement
of 22 points from -10 in FY 17/18)
Shareholders
We are a business in turnaround with strong
management, an excellent customer base and a
clear strategy. We are committed to strong financial
management and the creation of shareholder value.
8.6p
Basic earnings per share
(improved from loss of 7.6p in FY 17/18)
Employees
We are creating a great working environment and
learning and development opportunities for our
employees. We empower our people and recognise
great work.
52,500
employees
Social value: communities, environment,
people, innovation and regional business
Through the Mitie Foundation we provide opportunities
for learning and employment: Ready2Work scheme;
employer engagement days; Think Differently
programme; and school, academy and college events.
151 Mitie colleagues
volunteered to assist in a range of
educational and community events
Suppliers
We are committed to ensuring a responsible supply
chain. We work with all suppliers to ensure adherence
to our Code of Conduct, including Modern Slavery and
Human Trafficking, Safety and Sustainability objectives,
and our Mitie vetting standards.
We procured from
7,500
suppliers in FY 18/19
Mitie Group plc | Annual Report and Accounts 2019
09
Market review
A world of
opportunity
We are focused on improving our customers’
experience and embedding technology-driven
solutions in our offering.
Key market drivers
Facilities
management
industry
UK
economy
Customer
expectations
Legislation
The UK has a large and established outsourced
facilities management (FM) market. Overall it is
forecast to grow at moderate levels (c.2%) as the
market continues to move slowly from insourcing to
outsourcing. Despite recent industry turbulence, we
are not seeing any marked trends for insourcing. FM
outsourcing penetration ranges from c.55% for
catering to c.90% for cleaning. The relative share of
contract types (single service c.55%, bundle/integrated
FM c.45%) has remained relatively stable. Customers’
primary focus continues to be on cost, efficiency and
service quality, but with an increasing focus on
technology and employee wellbeing. Turbulence in the
sector has highlighted the need for a more informed
approach to pricing and risk transfer. Scrutiny into
public sector outsourcing has remained high.
According to the Office for National Statistics (ONS),
in 2018 UK GDP grew 1.4%, slower than 1.8% in 2017.
ONS reported that the Consumer Prices Index (CPI)
12-month rate was 2.1% in December 2018. ONS
revised down real GDP growth in 2019 from 1.6% to
1.2%, against the backdrop of considerable uncertainty
over the next steps in the Brexit process. As Brexit
uncertainty subsides, and productivity growth
gradually improves, ONS expects GDP growth to pick
up to 1.4% in 2020 and to 1.6% a year thereafter as the
small margin of spare capacity is absorbed. The
unemployment rate is expected to rise marginally to
4.1% in 2019 as output falls below potential.
Although cost, efficiency and service quality continue
to be priorities for customers, employee wellbeing and
technology are gaining further traction. Customers
are increasingly looking to improve the working
environment, employee satisfaction and wellbeing of
their employees. Flexible workspace solutions, efficient
use of their estate and operational insights supported
by real-time data provide an opportunity for
customers to improve the performance and wellbeing
of their people and functioning of their buildings.
UK employers must comply with legal and regulatory
requirements in areas such as taxation, the National
Minimum Wage (NMW) and the National Living
Wage (NLW), the Apprenticeship Levy, workplace
pensions and the Modern Slavery Act.
The majority of Mitie front-line employees are within
the NLW category. The NLW for workers aged
25 and over increased by 4.9% from £7.83 to £8.21
from April 2019.
The Apprenticeship Levy is required from UK
employers to fund new apprenticeships and is
charged at a rate of 0.5% of an employer’s payroll.
By law all employers must offer a workplace pension
scheme to eligible employees.
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Mitie Group plc | Annual Report and Accounts 2019
How we are responding
We are the UK’s largest FM company and we are
transforming the industry by continuing to focus on
delivering an outstanding service and customer
experience, generating cost efficiency, creating an
environment where our people can thrive and investing
in technology. Our Connected Workspace technology
differentiates us from our competition. We are generating
data-driven insights and enabling decisions that improve
efficiency and our cost-to-serve, as well as create new
services and products for our customers.
Read more in the CEO’s strategic review on pages 11 to 13
Read about principal risks and uncertainties on pages 38 to 46
Outsourcing is typically shielded from economic cycles,
benefiting from an increased customer cost-cutting
focus during economic slowdowns, and from contract
expansion in economic upturns. Our national footprint,
scale of operations and flexible proposition remain
compelling, while our Connected Workspace technology
serves as a clear differentiator.
We have assessed potential Brexit impacts under a range of
scenarios. We expect the main impacts in wage and food
price inflation and labour and parts shortages, all of which
we are addressing through contingency planning and
working closely with our supply chain.
Read about principal risks and uncertainties on pages 38 to 46
We are investing in Connected Workspace technology
to reduce our cost-to-serve and create new products
and services that add significant value for our customers.
Our open source technology platform allows us to
integrate multiple systems and data sources, perform
advanced data analytics and deliver better services for
our customers. We will continue reshaping our business
to be the leader in next generation FM.
Read more in the CEO’s strategic review on pages 11 to 13
Read about principal risks and uncertainties on pages 38 to 46
The majority of our existing contracts already contain
a change-of-law clause which allows us to pass on related
cost increases, helping us to protect our margins. We
are utilising the Apprenticeship Levy for front-line staff
training and development. We are also moving beyond a
‘labour-plus’ model towards more value-added services
and embedding more technology in our operations.
Pressure on margins is likely to continue as labour costs
increase driven by legislation and CPI inflation.
We paid £4.7m into the Apprenticeship Levy scheme in FY
18/19 and utilised £1.2m.
Read about principal risks and uncertainties on pages 38 to 46
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Chief Executive’s strategic review
Strengthening the business,
in a challenging market
Our vision is to deliver
‘The Exceptional, Every Day’
for our customers, people
and other stakeholders.
Phil Bentley
Chief Executive Officer
Our vision
‘The Exceptional, Every Day.’ It’s a combination of expertise, care and
insights, backed by the latest technology and data, to create an offering
that goes beyond traditional FM. To our people we promise a place to
work where they can thrive and be the best every day. To our customers
we promise to be a trusted partner, creating exceptional environments for
clients and colleagues, as well as adding value. Everything we do is backed
by our core values, which oversee how we behave as a responsible
corporate citizen, and as individuals.
Our purpose
Achieving ‘The Exceptional, Every Day’ doesn’t happen by chance.
And we want our customers to be exceptional too. We start by doing the
basics brilliantly, tailoring solutions that anticipate and meet our customers’
needs. We are aware that technology is changing our world, and we are
using it to change FM. Through Connected Workspace we provide
data-driven solutions, embedding technology seamlessly into everything we
do. The insights gained allow us to offer customers a new level of flexibility
and control, helping them become exceptional at what they do best.
Our strategic pillars
Customer: build market-leading positions in higher
growth segments and increase customer NPS
People: create a ‘Great Place to Work’ for
our employees
Cost: strengthen our balance sheet and maintain
cost discipline to remain competitive
Technology: embed technology into the heart of
our offering
Dear Mitie shareholder,
I am pleased to report on our progress in my second full year as
CEO of Mitie Group plc. Two years into our transformation journey
we are already seeing the benefits of our strategy to focus on our larger
businesses and strategic accounts where our technology offer is a true
differentiator to ensure long-term sustainable growth, delivery of our
vision of ‘The Exceptional, Every Day’ and creation of value for all our
stakeholders through our four strategic pillars of customer, people, cost
and technology.
Over FY 18/19 we sharpened the focus by continuing to invest in
customer service and technology and by changes to our portfolio
of businesses. This has enabled us to grow revenue and profits.
We see our larger businesses and strategic clients as offering the best
opportunities for growth and margin expansion as we deepen our
capabilities and relationships. These are also areas where we are best
able to deploy technology.
Project Helix has provided solid foundations for Mitie’s future
growth, enabling investments in our people, customer and technology.
With the foundations now built, we are now moving to Project Forte,
which is focused primarily on driving simplicity and efficiency in
Engineering Services. Together with our focus on strategic accounts
and larger businesses, we should see improvement in the Group’s profits.
At the same time, we are making good progress in strengthening our
balance sheet.
Mitie Group plc | Annual Report and Accounts 2019
11
Chief Executive’s strategic review continued
Business performance
It has been another challenging year with the FM sector remaining firmly
in the spotlight. Despite this, we grew our revenues and top strategic
accounts, reduced our period end net debt and qualified for Phases I and
II of the Crown Commercial Services (CCS) FM Marketplace Framework
thereby positioning ourselves to win more government work.
Revenue from continuing operations was 9.4% up on the previous year,
at £2.2bn, with organic growth at 5.5%. Operating profit before other
items from continuing operations increased to £88.2m from £83.2m in
FY 17/18. Operating profit for FY 18/19 was up to £50.2m from £1.1m a
year earlier and basic earnings per share were 8.6p, from a loss of 7.6p in
FY 17/18. Basic earnings per share before other items from continuing
operations were 16.8p (FY 17/18: 15.2p).
The fixed-term order book from continuing operations was broadly flat
at £4.1bn, benefiting from VSG’s order book and significant contract wins
towards the end of the year. Following the successful reorganisation of
our sales team and the introduction of strategic account managers, we
have seen a steady flow of wins and retentions. The pipeline of £10.2bn
includes significant opportunities on the CCS Framework.
Our balance sheet health remains a key focus. We are committed to
further reducing customer invoice discounting, normalising creditor days,
asking clients for fairer payment terms, streamlining our billing processes
and delivering faster cash collection. Our efforts have seen a decline in
average daily net debt in H2 18/19 to £286.5m from £317.4m in H1 18/19
as we resolved working capital impacts following the outsourcing of
transactional processing to India in early FY 18/19. Overall, average daily
net debt for FY 18/19 was £15.9m higher than prior year at £302.0m.
Our medium-term objective is to continue to reduce the average daily
net debt. The period end net debt was £140.7m versus £193.5m a year
earlier as we make continuing improvements to the cash collection
cycle; the net debt position also includes proceeds from two disposal
transactions effected during FY 18/19. We are operating comfortably
within debt covenants with period end net debt to EBITDA of 1.33x.
Focusing our business
In FY 18/19, we also focused our business by selling our Pest Control and
Social Housing businesses and acquiring the Vision Security Group (VSG).
The first two transactions simplified our operations; they also provided
funds to strengthen the balance sheet and accelerate partial repayment
of the deficit under the Group’s defined benefit pension scheme. The
VSG acquisition strengthens our position as one of the UK’s largest
providers of security services to businesses.
Customer focus
Listening to clients is essential as we focus on delivering services that our
customers need. By taking on board feedback from last year’s customer
survey and continuing to invest in customer service, we have secured
an impressive improvement in our NPS score, which increased from
-10 to +12 in FY 18/19. A follow-up programme for account directors
will ensure we improve our score further still, helping us to win and
retain more business.
Mitie’s success rests on growing our largest strategic accounts and
deepening our relationship with them. It was pleasing to see that
these accounts grew revenues by 8% in FY 18/19, which demonstrates
that our biggest clients are trusting us with more of their business.
We have recently secured a place on several key government
frameworks, giving us an opportunity to become a strategic partner for
the UK government in outsourced FM, defence, security and custody.
A great place to work
Supporting our people to be the best they can be is one of our core
objectives. We do more than just provide the tools required for the job;
we are making Mitie a great place to work through various initiatives.
Our online People Hub, supported by SAP SuccessFactors, is a single
point of access for anything HR-related. The recently launched Learning
Hub offers a cloud-based pool of 2,500 instructor-led courses.
Mitie Exceptionals is a diverse employee consulting group which liaises
with our Non-Executive Director, Jennifer Duvalier, on the interests
of the wider workforce. In April 2018, we launched Upload, a people
survey providing the opportunity to feedback on working with Mitie.
We launched a ‘You Said, We Did’ campaign to address employees’
feedback throughout the year. It was therefore very encouraging to
see that the employee engagement score went up to 45% from 33%
in the prior year.
In addition, we were the only FM company to be recognised by two
prestigious awarding bodies. We were certified a 2019 Top Employer
by the Top Employer Institute Certification Programme. And we came
17th on the Inclusive Top 50 UK Employers list for promoting diversity
and inclusion.
Our strategy
in action
Our strategy is to focus on
our larger businesses and
strategic accounts where our
technology offer is a true
differentiator to ensure
long-term sustainable growth,
delivery of our vision of
‘The Exceptional, Every Day’
and creation of value for
all our stakeholders.
Customer: build market-leading
positions in higher growth segments
and increase customer NPS
Achievements
• NPS increased 22 points to +12
• Top strategic accounts grew revenues by 8%
• Mitie qualified as a supplier on Crown
Commercial Services Framework for FM,
defence and security services
KPIs: Organic revenue growth, operating profit
margin before other items, order book, NPS
People: create a ‘Great Place
to Work’ for our employees
Achievements
• We launched People Hub and Learning
Hub platforms
• Employee engagement increased to 45%
• Jennifer Duvalier oversees Board
engagement with the workforce
KPIs: Staff turnover, employee engagement,
all injury frequency rate
£10.2bn
pipeline of opportunities
45%
employee engagement
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Mitie Group plc | Annual Report and Accounts 2019
Cost discipline
In June 2017 our cost programme, Project Helix, was launched to
kickstart Mitie’s transformation. Two years on, we have largely
achieved our aims, exiting FY 18/19 with run-rate cost savings of
c.£45m. We started by delayering and removing central management
heads both at Group level and within the divisions. We standardised
and centralised our IT, HR and Finance functions. For IT and Finance
we also offshored the majority of back-office processes. In HR, we
introduced SAP SuccessFactors to manage all people-related matters,
as well as temporary and permanent hiring solutions.
The final elements of this project will continue throughout FY 19/20,
with expected run-rate cost benefits – these are annual cost savings to
the cost base following the finalisation of currently running programmes
at the end of Project Helix – of c.£50m by March 2020.
The next phase of transformation is Project Forte, aimed at changing
the processes and technology underpinning our largest division,
Engineering Services.
Project Forte will include a full roll-out of the ‘Click’ dynamic
scheduling and deployment system and implementing a new case
management and billing application. It will result in improved engineer
productivity and back-office efficiencies. Project Forte will also include
further Group-wide organisational consolidation and additional cost
reductions by automating manual and paper-based processes and
migration of our accounting system to a Mitie-wide SAP solution.
It is a two-year programme with estimated gross run-rate cost
benefits of c.£30m by March 2021 and associated one-off cost of
change of c.£30m.
Technology at our core
Mitie’s use of technology sets us apart from the competition and is at
the core of customer satisfaction and retention success. Our clients
need and expect high-performance facilities that not only provide
the right work environment but operate efficiently and support their
sustainability agenda. Our skilled resources, nationwide reach and
experience of managing different types of facilities give us unparalleled
capabilities to help clients achieve these objectives.
For example, our Connected Workspace solutions include a
sophisticated service operations centre (SOC) that provides remote
monitoring of buildings and facilities. SOC uses advanced algorithms
to detect anomalies and trigger corrective actions prior to an asset
failing. We are also able to reduce energy consumption for buildings,
plant and equipment. We call this ‘Monitoring as a Service’ and it is the
core of our predictive maintenance offering.
Other fast-growing technology applications include our MiTec centre,
Fire & Security systems and our global security operations centre.
Our approach isn’t just transforming clients’ organisations, it is
transforming Mitie and consolidating our position as the UK’s leader
in FM.
Outlook
We expect to continue to grow revenue organically at 3%-4% in the
medium term. For FY 19/20 we expect operating profit to grow at
mid-single digits – with revenue growth and cost savings partially offset
by the dilutive effect of the FY 18/19 contract renewals and continued
reinvestment in our business. Project Forte and focus on strategic
accounts and larger businesses should drive operating profit margin
in the medium term to our target of 4.5%-5.5%.
Looking ahead
Mitie’s transformation continues at pace. Our strength is supported
by great customers and loyal staff. Through our use of technology and
expertise, we are leading the field, transforming our operations and
how we interact with our clients. Change has been challenging at times,
but our progress and performance to date are encouraging. Revenue
is growing, Project Helix has allowed us to lay solid foundations for the
business and in addition to wins across the business, the CCS Framework
presents a considerable opportunity. Mitie is in a strong position for
future growth and we look forward to the year ahead.
Phil Bentley
Chief Executive Officer
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Cost: strengthen our balance
sheet and maintain cost discipline
to remain competitive
Achievements
• Project Helix largely complete in HR, IT,
Finance, Procurement and other (CES and
property estate)
• FY 18/19 in-year benefits of c.£38m, with exit
run-rate benefits of c.£45m
KPIs: operating profit margin before other items,
net debt/EBITDA ratio and average daily net debt
Technology: embed technology
into the heart of our offering
Achievements
• Growing revenue stream in Security
• Technology solutions through MiTec, GSOC,
Fire & Security systems in Security
• Connected Workspace embedded in five
new large IFM contracts
• MI dashboards live in Healthcare clients (CES)
KPIs: Organic revenue growth, order book, NPS
Focusing our business
Achievements
• Pest Control business1 sold to leverage
subcontractor expertise
• Social Housing business1 sold to exit
a low-growth low-margin sector
• VSG2 acquired to boost our position in
the security market
• Disposals simplify Mitie Group and
strengthen the balance sheet
1 Note 5 to the consolidated financial statements on
discontinued operations and disposal of subsidiaries.
2 Note 30 to the consolidated financial statements
on acquisitions.
£45m
gross FY 18/19 exit run-rate benefits
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new CW projects in FY 18/19
3
successful transactions
Mitie Group plc | Annual Report and Accounts 2019
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Key performance indicators
Monitoring
our progress
Our KPIs are measures we use
to assess the Group’s progress
against our strategy of focusing on
our larger businesses and strategic
accounts where our technology
offer is a true differentiator to
ensure long-term sustainable
growth, delivery of our vision
of ‘The Exceptional, Every Day’
and creation of value for all
our stakeholders.
The health and safety of our people is the highest priority
for us as a business. We are constantly striving to develop
a zero-harm workplace. Coordinated by Mitie’s Quality,
Health, Safety and Environment (QHSE) team, our
LiveSafe programme was launched in December 2018.
This highlights the importance of workplace safety and
was developed out of the need to constantly improve
QHSE performance across the business. This year we are
introducing a non-financial QHSE KPI to our reporting –
all injury frequency rate.
Our strategic pillars
Customer: build market-leading positions in higher
growth segments and increase customer NPS
People: create a ‘Great Place to Work’ for
our employees
Cost: strengthen our balance sheet and maintain
cost discipline to remain competitive
Technology: embed technology into the heart of
our offering
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Mitie Group plc | Annual Report and Accounts 2019
Organic revenue growth (%)
Description
Revenue growth reflects the health of our order book, our ability to upsell and
cross-sell, the pipeline of potential opportunities, our win and retention rates and
our broader reputation in the sector. Organic revenue growth is growth on a
comparable basis before any impact from acquisitions and excluding discontinued
operations. Reconciliation of revenue excluding the impact from the VSG
acquisition to the statutory accounts is provided in Appendix – Alternative
Performance Measures on pages 163 to 165.
FY 18/19
FY 18/19
FY 17/18
(excluding VSG)
£2,221m
£2,142m
£2,031m
5.5%
organic growth
from previous year
Outlook
Our plan is to achieve 3%-4%
organic revenue growth in the
medium term.
How we did it
Organic revenue grew by 5.5% despite
a challenging market environment, due to
new wins and focusing on adding more
value and services to our top customers.
We continue to invest in customer service
and technology to drive customer retention
and win rates. Revenue growth of 9.4% from
continuing operations included the impact
from the acquisition of VSG.
Operating profit margin
before other items (%)
Description
The UK FM industry is a mature and highly competitive market. Profitability on
contracts improves as we enhance the efficiency of our operations throughout
the life of the contract. Reconciliation of operating profit before other items
from continuing operations to statutory accounts is provided in Appendix –
Alternative Performance Measures on pages 163 to 165.
FY 18/19
FY 17/18
4.0%
4.1%
10bpts
decrease from
previous year
How we did it
The operating profit margin before other
items reduced slightly to 4.0% over the year
as the dilutive impact from the acquisition
of VSG was mitigated through continued
strong performance within our larger
contracts and realised cost savings from our
transformation programme. We invested
back into customer service, our technology
capability and staff incentive schemes.
Outlook
For FY 19/20 we expect operating
profit to grow at mid-single digits
– with revenue growth and cost
savings partially offset by the
dilutive effect of the FY 18/19
contract renewals and continued
reinvestment in our business.
Project Forte and focus on
strategic accounts and larger
businesses should drive operating
profit margin in the medium term
to our target of 4.5%-5.5%.
Order book (£m)
Description
The reported order book includes only secured fixed-term contracted work
and excludes variable work, such as catering point-of-sale. See Note 3 to the
consolidated financial statements for analysis of the forward order book.
FY 18/19
FY 17/18
How we did it
Our order book for continuing operations
declined by 1%. Contract wins and the
benefit from the acquisition of VSG offset
the delivery of revenue under long-term
contracts.
£4,147m
£4,186m
1%
decrease from
previous year
Outlook
In FY 18/19, we were successful in
qualifying as a supplier on Phases I
and II of the Crown Commercial
Services Facilities Management
Marketplace Framework. We
will be focusing on this area as
significant wins would materially
improve our order position.
Net debt/EBITDA ratio (x)
Average daily net debt (£m)
Description
Period end net debt/EBITDA ratio or leverage ratio is one of the two debt
covenants used to assess our financial position. For the leverage covenant the
ratio of net debt to EBITDA should be no more than 3x. The other covenant
ratio is interest cover (ratio of EBITDA to net finance costs to be no less than 4x).
Description
Our balance sheet health is of paramount importance to the long-term
sustainability of our business. Average daily net debt reflects working capital
and bill-to-collect management.
FY 18/19
FY 17/18
1.33x
1.98x
0.65x
improvement from
previous year
FY 18/19
FY 17/18
£302m
£286m
£16m
deterioration from
previous year
How we did it
Our period end net debt decreased by
£52.8m to £140.7m as we benefited from
net proceeds from disposals and focused
on accelerating our order to cash cycle.
We continue to operate comfortably
within our debt covenants.
See Note 26 to the consolidated financial
statements for analysis of net debt.
Outlook
We expect to continue to reduce
our period end net debt/EBITDA
ratio whilst also reducing
off-balance sheet financing.
How we did it
Our average daily net debt increased
compared to the prior year’s level. The
increase in H1 to £317.4m was due to
temporary working capital issues related
to outsourcing of transactional processing.
This was reversed in H2 resulting in lower
average daily net debt in the H2 period at
£286.5m. Overall, average daily net debt
for FY 18/19 was £15.9m higher than prior
year at £302.0m.
Outlook
Proactive management will be an
ongoing theme. Over the medium
term, we aim to continue to
reduce average daily net debt.
Staff turnover (%)
Employee engagement (%)
Description
We measure the number of employees leaving us voluntarily over a 12-month
period against our overall headcount.
Description
The survey asks colleagues at Mitie how they feel about working with the
organisation, and what improvements could be made. This is followed by
the ‘You Said, We Did’ campaign to demonstrate actions undertaken in
response to feedback.
FY 18/19
FY 17/18
19.7%
16.8%
2.9ppts
increase from
previous year
FY 18/19
FY 17/18
45%
33%
12ppts
increase from
previous year
How we did it
In FY 18/19, we launched People Hub, a
one-stop-shop for everything related to
the employee lifecycle, and Learning Hub,
an online portal through which employees
can access courses related to their career,
as well as health and wellbeing. We have
been embedding new behaviours following
the roll-out of new values in FY 17/18.
Outlook
We will continue to utilise
technology to support our
people processes. In FY 18/19,
we appointed a head of resourcing
to create an industry-leading talent
and resourcing function to attract,
recruit, develop and retain the
best people at all levels.
How we did it
28% of employees (excluding VSG
colleagues) completed the Upload survey
and the engagement score was 45%, up
from 33% the year before.
Outlook
The annual survey is a vital tool
in raising employee engagement,
but it is not the only one. Senior
management meet employees
throughout the year at roadshow
conferences across the UK and
members of the Group Leadership
Team go ‘back to the floor’ to
engage with front-line colleagues.
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Net Promoter Score (index)
Description
NPS is a measure for gauging the customer’s overall satisfaction with a company’s
product or service and the customer’s loyalty to the brand.
All injury frequency rate
(per million manhours worked)
Description
Safety of our employees is of paramount importance. We have established
systems and governance processes to measure our performance. Our injury rate
is a key measure to monitor our progress towards zero harm and includes all
injury severities from first aid to fatality.
FY 18/19
FY 17/18
+12
-10
22points
increase from
previous year
FY 18/19
FY 17/18
30.9
35.8
13.5%
reduction from
previous year
How we did it
In FY 18/19 we reached a wider and deeper
section of our customer base, capturing
90%+ of our revenue, in a more extensive
CRM programme. Our NPS improved as a
result of continued investment in customer
service and our One Mitie approach.
Outlook
This is a core focus for us
and we will be enhancing our
CRM programme, customer
communications and engagement.
How we did it
Over the past year we have changed
reporting system (Q3) and categorisation
of incidents allowing for increased focus
and analysis of accidents and incidents.
Through the promotion of our LiveSafe
programme and campaign promoting the
proactive reporting of hazard observations
and near misses we are seeing a shift from
reactive to proactive safety performance.
Outlook
Continued efforts to further
reduce injuries is at the forefront
of the LiveSafe programme,
striving towards a zero-harm
workplace. Additionally we
will continue to develop our
Occupational Health strategy.
Mitie Group plc | Annual Report and Accounts 2019
15
Operating review
Our divisional
performance
Engineering
Services
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
FY 18/19
905.7
FY 17/18
886.3
Change, %
2.2
58.7
54.1
8.5
6.5
6.1
0.4 ppt
Order book
1,802.7
2,039.2
(11.6)
Performance highlights
• Good growth of operating profit before other items driven by
a strong performance in the major accounts
• Encouraging improvements in engineer productivity
• Phase I of Engineering Services transformation under
Project Helix completed
• Engineering Services transformation is moving into Project Forte
Operational performance
Engineering Services had another year of good operating profit
growth driven by a strong performance in the major accounts.
The business focused on reducing layers and increasing spans of
control, whilst continuing to invest in customer service and technology
to enhance the quality and efficiency of the service we provide. We
have also listened to and acted upon customer feedback. We are clearly
seeing the impact of our investment into service with our divisional
NPS up 30 points year-on-year.
Another area of focus was the productivity of our engineers where we
have seen encouraging improvements in utilisation with a 7% increase in
productivity, a 3% (c.£3m) reduction in core subcontractor spend and a
subsequent increase in profitability. This increased productivity has been
partly driven by a 20% reduction in travel time which has in turn allowed
us to reduce the backlog in jobs by 20% and therefore provide a better
service to our customers. Additional year-on-year indirect cost reductions
included a 12% (c.£2m) decrease in vehicle costs and a 4% (c.£0.1m)
drop in staff travel expenses. We have created a data hub which
allows benchmarking, best practice and standardisation to enable
these improvements.
We also took steps to reduce complexity in our business. On the
customer front we actively focused on revenue quality by serving our top
clients better. We made a decision to no longer pursue smaller and less
profitable opportunities and to proactively exit low-margin contracts.
With regard to the supply chain, we reduced our supplier base by 25%
by migrating to fewer strategic partners, enabling meaningful economies
of scale. There is further opportunity in these areas.
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Mitie Group plc | Annual Report and Accounts 2019
Under Project Helix, we have now completed Phase 1 of the Engineering
Services transformation. This included the roll-out of PDAs to our
engineers and related training; the introduction of a dashboard enabling
better performance management of all organisational levels including
engineers; and launching our Click pilot (automated engineer scheduling
and deployment tool). We also introduced incentive schemes for engineers
to aim for first-time-fix and greater efficiencies.
The next phase of transformation for Engineering Services is grouped
under Project Forte and will include changes to the culture, processes and
technology underpinning the business. This will include the scheduling and
deployment system roll-out and a new case management and billing
application. The objective is to drive further improvements for our
customers and our staff by using technology to improve productivity
and service delivery.
The programme will also include Group-wide initiatives aimed at
organisational consolidation and further cost reductions by automating
manual and paper-based processes. Project Forte is expected to run
for approximately two years with associated cost of implementation
of c.£30m and estimated exit gross run-rate benefits of c.£30m by
March 2021.
In FY 18/19 Mitie Property Management’s roofing and painting businesses
were integrated into Engineering Services following the sale of the Social
Housing business in November 2018. Incorporating these two business
units into the ES projects business broadened the overall offering under
the projects umbrella and boosted cross-selling opportunities across Mitie.
It also allowed the sales teams to share leads and be proactive in capturing
opportunities with customers. Overall, this combination is starting to gain
traction in the market and is helping to make Mitie known as a one-stop
projects business.
From the start of FY 19/20 several business units of the current
Professional Services division will be incorporated into an enlarged
Engineering Services division. These include Connected Workspace,
International Services, Occupier Services and Sustainability. The logic
behind the move is that these services are closely aligned to our largest
integrated accounts where engineering services are central to our offer.
We will therefore be able to improve and broaden our customer product
offering in a manner that more closely aligns with our customers’ needs.
To facilitate these changes we have strengthened the Engineering Services
leadership team with senior appointments in mobile engineering, strategic
accounts and critical infrastructure.
Engineering Services revenue comprises fixed contract work and variable
work. During the year we broadened the capability of our commercial
team by setting up a new dedicated sales team focused on winning more
variable and project-based work with our existing and potential clients.
The order book declined 11.6% to £1,802.7m in the year as the unwinding
of existing contracts exceeded new wins and renewals underpinned by
more disciplined bidding.
We extended a number of contracts, including a five-year contract
worth £17m with Gatwick Airport and a two-year extension with
Vodafone. We won new business as part of integrated FM contracts with
a major UK retailer, a major infrastructure company, Connect Group and
Yorkshire Building Society We also won several single service contracts,
including a contract with construction firm Willmott Dixon to provide
mechanical and electrical services for Bournemouth University.
We also enhanced our focus on the government sector enabling us to
qualify as a supplier of M&E services on the CCS Framework which offers
UK-wide facilities management opportunities across numerous public
sector entities.
Financial performance
Revenue from continuing operations in the Engineering Services division
was up 2.2% to £905.7m (FY 17/18: £886.3m), with growth in top accounts
and related project work offsetting the impact of contracts lost during
the prior year and a slower year in terms of contract wins. The top 50
Engineering Services contracts continued to deliver good growth in
both volumes and profitability on the back of project and variable work
volumes with revenue growth of 8% and 70 basis points improvement
in gross profit margin. Our projects business, which includes fire
protection, painting and roofing, as well as project work within top
accounts, grew its revenue by 4% and saw operating profit margin
expansion of 80 basis points.
Operating profit for continuing operations before other items increased
8.5% to £58.7m (FY 17/18: £54.1m). This was due to a combination of
strong performance in our largest accounts, exit from low-margin
contracts and cost savings from the transformation programme, partly
offset by the impact of contracts lost in the prior year and incremental
investments into improving service levels.
Outlook
As we deepen our relationships with our largest customers we are
increasingly seeing the demand for a broader service offering which
includes the use of predictive maintenance technology, improved facilities
performance management information and more energy efficiency from
assets and buildings. By combining several existing Mitie businesses from
the Professional Services division into one enlarged Engineering Services
division, we will be able to meet these demands better. The market for
Engineering Services remains fragmented but is still showing modest
growth. We are optimistic about our future performance as we broaden
our offering, particularly focusing on technology, and as we embark on a
transformation of the business through Project Forte that will improve
the customer experience whilst reducing our cost-to-serve.
Security
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
Order book
FY 18/19
536.5
FY 17/18
432.0
Change, %
24.2
30.7
27.5
11.6
5.7
971.5
6.4
(0.7) ppt
640.8
51.6
Performance highlights
• Strong year with a good performance across all business
units together with a positive contribution from the acquisition
of VSG
• Significant progress made in integrating VSG following its
acquisition in October 2018
• Technology solutions playing a greater role in contributing to
the overall profit growth
Operational performance
Security enjoyed another strong year with a good performance across
all its major business units, together with a positive contribution from
the acquisition of VSG in October 2018. The largest part of our security
business is manned guarding where we saw good growth across all regions
as we continue to develop our presence in the retail, logistics and critical
security environment sectors.
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The VSG acquisition strengthened the position of Mitie's Security business
as one of the leading providers of integrated and risk-based security
services in the UK. The combination offers opportunities to accelerate
the growth of Mitie's premium systems and technology-enabled and
intelligence-led security solutions.
Significant progress has already been made in integrating VSG, aligning both
operations and technology capabilities. We have consolidated operations
into our new global security operations centre (GSOC), a single hub,
located in Northampton. It will serve as a centre for intelligence and
security industry experts with cutting-edge software tools to capture,
translate, geolocate and alert to any major global incidents. This will
become a hub for development of our intelligence cell and house our
interactive customer control centre where we undertake live CCTV
monitoring. In addition, we are employing innovative and unique methods
of collating actual incidents and crime reports overlaid with national crime
statistics to dynamically risk-rate individual locations to drive the efficient
deployment of security resources for our customer sites.
Our industry-leading 24/7 communications and technology centre MiTec will
be retained as our primary alarm receiving centre (ARC) responsible for
delivering a wide range of remote services including CCTV, intruder, fire,
access control and lone worker monitoring and dedicated client helpdesks.
We are also creating a secondary ARC location at our Northampton
GSOC to provide MiTec with added resilience. We will continue to focus
on the growth of our Fire & Security Systems business as one of the leading
providers of life safety solutions and innovative security systems in the UK.
Through the integration of VSG’s systems team, we have expanded our
geographical footprint, increased our technical expertise levels and
strengthened our operational model which is enabling us to deliver
larger-scale projects and contracts for clients.
Mitie is a significant Front of House service provider through our
Signature business. There are opportunities for growth, especially in
major city conurbations and in particular the premium and London-centric
corporate market.
Mitie Group plc | Annual Report and Accounts 2019
17
Operating review continued
Mitie's employee vetting business, Procius, continues to hold a strong
position in the aviation industry whilst we are also seeing traction
within commercial sectors. The focus here is on developing further
technology-led solutions to automate, facilitate and speed up
vetting processes.
In Document Management we continue to grow our customer
base, attracting high-end law firms and corporate clients by offering
technology-enabled document management and document processing
outsourcing among other services. Through recent wins, we are
expanding to include the delivery of our services to clients’ regional offices.
The divisional NPS score improved by 15 points as we expand and
enhance our offer and embed more technology solutions in our
services. The secured order book before the impact from the VSG
acquisition was up by 19%, with the unwinding of contracts more than
offset by significant contract wins and successful retenders. We won a
three-year contract with a multinational retail group and extended a
contract with Springfields for a further three years. We also had a strong
year for retaining clients, including two contract extensions for travel
clients, Strathclyde Partnership for Transport (a further five years) and
Eurostar (for two years). We successfully extended a contract with Belfast
City Airport and won a high-profile contract from the CCS Framework.
The total secured order book benefited from the acquisition of VSG and
grew overall by 51.6% to £971.5m.
Financial performance
The Security division delivered a strong financial performance, with
good organic growth together with a positive contribution from the
VSG acquisition. Organic revenue grew by 5.8%, and overall revenue,
including VSG, grew 24.2% to £536.5m (FY 17/18: £432.0m). Manned
guarding, technology solutions including vetting services, and Document
Management all delivered good growth following new sales wins
and higher volumes of project and variable work. Front of House
performance was impacted by loss of key contracts in the prior year.
Operating profit before other items increased 11.6% to £30.7m
(FY 17/18: £27.5m) driven by contract wins and operational efficiency
initiatives as well as a positive contribution from VSG’s performance.
VSG enjoyed a very encouraging start under Mitie’s ownership. After taking
over a business which was trading at close to break-even, we are seeing a
faster improvement in margins than originally planned at the initial integration
stage. VSG's gross margin increased from 5% pre-takeover to 8% over its
first trading period under Mitie's ownership.
Technology solutions are increasingly contributing to the overall revenue
growth of the division and now account for 13% (FY 17/18: 12%) of the
revenue (excluding VSG), driven by growth in Fire & Security systems,
MiTec and vetting. MiTec is benefiting from the Detention & Escorting
Services contract, won by the Care & Custody division in December 2017,
while vetting is moving into the corporate space on top of its strong
position in aviation.
The division finished the year with good momentum following successful
contract wins towards the end of FY 18/19.
Outlook
The overall security market remains fragmented and manned guarding
remains competitive and highly commoditised. In this context, Mitie’s
ability to provide a broader range of services gives a competitive
advantage when bidding for and winning business. Retention is then
enhanced through application of technology. We will continue to derive
benefits from the VSG acquisition where the performance of major
contracts will continue to benefit from ongoing price renegotiations,
reducing revenue leakage, walking away from substandard arrangements
and re-aligning the cost base.
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Mitie Group plc | Annual Report and Accounts 2019
Professional
Services
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
Order book
FY 18/19
131.4
FY 17/18
131.2
Change, %
0.2
5.6
4.3
86.9
5.6
4.3
144.9
0.0
0.0 ppt
(40.0)
Performance highlights
• Divisional revenue performance was impacted by the exit
from two loss-making international contracts and renewed
focus on internal projects to support Mitie key accounts
• The Waste Management business retained two significant
contracts and won the first phase of a significant contract
with NHS Improvement
• Sustainability delivered a stable performance for the year
• The International business focused on re-balancing its
portfolio towards higher-margin work
Operational performance
Whilst the Professional Services division showed a flat trading performance
year-on-year, it recorded a high-profile win with NHS Improvement for
Waste Management and it repositioned several of the other operating
units to focus on driving overall Mitie performance by supporting key
accounts. The benefits of these activities fall outside the division.
The Waste Management business retained two significant contracts during
the year with a pharmaceuticals company and the UK branch of a global
consumer goods company, both for a further two years. Contract wins
during FY 18/19 included Bidfood, a commercial real estate services
company and the first phase of a significant contract with NHS
Improvement, won from the CCS Framework, which was mobilised
in October 2018.
The Sustainability business, including Energy, had a slow start to the
year but gained momentum on the back of project work. The Water
business was fully integrated during the year into the Sustainability business,
which now encompasses all key utilities, enabling it to build a broader
proposition for our customers.
The International business focused on re-balancing its portfolio towards
higher-margin work and, as a consequence, we proactively exited two
loss-making international contracts. At the same time, Mitie secured a
facilities management and property services contract with Ahlsell – a
hardware retailer – to manage and maintain all its stores in Norway.
The order book declined 40% as contract wins and renewals only partly
offset the delivery of contracts.
Financial performance
Professional Services, excluding the International business, delivered
revenue growth in FY 18/19. However, the overall divisional performance
was impacted by the reduction in revenue as we exited loss-making
contracts in the International business. Overall revenue for the division
was flat at £131.4m (FY 17/18: £131.2m). Waste grew strongly by 14%,
including the new NHS Improvement contract. Sustainability delivered
a stable performance for the year.
At the operating profit level, we benefited from exiting the loss-making
international contracts, good cost discipline across the division and
re-balancing our activities to target higher-margin work. Profitability
was partly held back by a renewed focus on projects to support key
Mitie strategic accounts and investments into Connected Workspace.
Operating profit before other items was £5.6m (FY 17/18: £5.6m).
Outlook
Our Connected Workspace solutions are increasingly being focused
on monitoring the critical environments of our largest clients, where
we provide maintenance and engineering solutions. Given the close link
between the client solutions required within our Engineering business,
and several elements of the Professional Services division, we are
embedding Connected Workspace, Occupier Services, International
and Sustainability under Engineering Services from April 2019. We see
this as an opportunity to enhance and improve our core engineering
offering by using technology to monitor critical assets, thereby allowing
us to deliver a proactive service. We also see the opportunity to improve
the quality of information that customers receive to manage their facilities
and their assets.
As part of these changes, Waste Management is moving to Cleaning &
Environmental Services, and Risk Advisory Services is transferring into
the Security division.
Cleaning &
Environmental
Services
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
Order book
FY 18/19
404.4
FY 17/18
384.1
Change, %
5.3
17.5
19.6
(10.7)
4.3
663.1
5.1
(0.8) ppt
656.3
1.0
Performance highlights
• The division delivered good revenue growth in a
highly-competitive market environment; however, profits
were negatively impacted by the dilutive effect of contracts
won in prior years
• On 30 September 2018, we sold the Mitie Pest Control
business unit to Rentokil Initial plc and entered into a
preferred supplier partnership covering a range of services
Operational performance
On 30 September 2018, we sold the Mitie Pest Control business unit
to Rentokil Initial plc and entered into a preferred supplier partnership
covering a range of services. These services will be provided as part
of an integrated facilities management offering to Mitie's wide range of
customers. The transaction enables us to continue to provide specialist
services to our clients whilst focusing on our core competencies.
Cleaning & Environmental Services (CES) delivered good revenue growth
from continuing operations in a highly-competitive market environment
where outsourcing remains a compelling option for clients. Margins still
remain low. However, the division was negatively impacted by historical
contracts with low margin. Offsetting this were cost savings arising from
various delayering exercises to remove managerial roles.
In addition to our core Cleaning business, there are two significant
stand-alone business units within the CES division. Our Landscape
business is a specialist service where we enjoy a balanced mix of fixed
and pay-as-you-go work throughout the year. This ensures a broadly stable
performance with further upside during harsh winters. Mitie Healthcare
provides a multi-service offering looking after a broad portfolio of NHS
clients and has recently introduced a range of technology features to its
offer, including dynamic performance dashboards, electronic meal ordering
and the trialling of an intelligent automated portering system.
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The division was successful in retaining a number of large clients as well
as winning new clients partly as a consequence of a much improved NPS
score, up 26 points year-on-year. The CES order book for continuing
operations was up 1% to £663.1m. We extended our services with
Epsom & St Helier University Hospital NHS Trust for cleaning and with
Whitbread for landscaping. We also won a five-year landscaping contract
with NHS/South Western Ambulance. Towards the end of FY 18/19, the
division was successful in securing an extension to its 10-year partnership
with St George’s University Hospitals NHS Foundation Trust until 2030,
which is worth £150m and covers a range of services including cleaning,
patient catering and facilities helpdesk services; the extension will also
include waste management duties at one of the sites. At the same time,
we have also taken steps to reduce the margin drag of new contracts by
introducing tighter bidding discipline. As a consequence, growth in the near
term will be slower.
Financial performance
CES revenues for continuing operations grew by 5.3% to £404.4m
(FY 17/18: £384.1m) driven by the impact of prior year contract wins.
However, operating profit for continuing operations before other items
was down 10.7% to £17.5m (FY 17/18: £19.6m) due to unfavourable
contract mix versus last year, only partly offset by savings from Project
Helix. Within the division, Healthcare grew strongly on the back of
the prior year wins, however, first-year mobilisation factors impacted
profitability; this has now been addressed. Landscapes delivered a
strong performance despite a particularly mild winter, with operating
profit protected by a well-balanced portfolio of work, which hedges
pay-as-you-go with fixed-price contracts.
Outlook
Over the next couple of years we expect steady growth in our Healthcare
and Landscapes businesses. Cleaning is not expected to grow as we work
on improving margins through disciplined bidding and re-balancing of the
contract base.
Mitie Group plc | Annual Report and Accounts 2019
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Operating review continued
Care &
Custody
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
Catering
FY 18/19
107.3
FY 17/18
59.9
Change, %
79.1
£m
Revenue
FY 18/19
136.1
FY 17/18
137.1
Change, %
(0.7)
3.9
3.6
1.9
3.2
105.3
0.4 ppt
(11.0)
Operating profit before
other items
Operating margin before
other items, %
Order book
5.2
3.8
26.5
5.6
4.1
34.7
(7.1)
(0.3) ppt
(23.6)
Order book
596.6
670.1
Performance highlights
• Excellent year following the successful mobilisation and
commencement of operations for the Detention & Escorting
Services (D&E) Home Office contract and a strong delivery
from existing contracts
• The division continues to expand its offering as it diversifies
into adjacent areas to complement its core capabilities
Performance highlights
• The division delivered broadly flat performance at the
revenue level and a decline at the operating profit level
• Growth in Gather & Gather was offset by weaker results
in external events and venues through Creativevents
• Gather & Gather's differentiated wellbeing and sustainability-
focused offer continues to gain traction in the market
Operational performance
Our Gather & Gather brand is a niche player in the catering sector
with a well-articulated and differentiated offer which continues to gain
traction. During FY 18/19, we saw further increases in the adoption of
our wellbeing-led food concepts and consumer technology solutions.
We also launched The Gathered Table – a unique collaboration between
culinary, technology and sustainability experts to help fuel the continued
development of Gather & Gather’s innovative offer. The Gathered Table
delivers pop-ups, menu content, training and client appearances to amplify
Gather & Gather’s influence on the health, productivity and engagement
of the customers we serve every day.
During the year, Gather & Gather also qualified onto the London
University Purchasing Consortium (LUPC), the largest higher education
purchasing consortium in the UK. As a consequence, we won a significant
£10m 3+2-year contract with Edinburgh College – our first on the
framework and our first in the further and higher education sector.
This provides an opportunity to transform the catering experience
for students and staff by bringing a contemporary approach to food,
service and consumer technology.
Operational performance
The Care & Custody division had an excellent year, having almost
doubled in size on the back of the successful mobilisation and
commencement of operations for the sizeable D&E contract won in
December 2017. In addition, the division benefited from strong delivery
of existing contracts with police forces, custody support and Forensic
Medical Examiner (FME) services. The D&E contract, the largest ever
contract for the division, reinforces our role as the largest supplier of
immigration detention services to the UK Government.
It is also allowing us to expand and gain expertise in areas adjacent to
the core immigration detention and movement services. During the year,
we won an electronic tagging of offenders contract in Northern Ireland.
This opportunity is an entry point into electronic monitoring within the
criminal justice system in other parts of the UK, where we are able to
leverage Mitie Security’s MiTec facility. Other wins included the
Nottinghamshire FME services contract.
The order book declined 11% to £596.6m as the unwinding of long-term
contracts was only partially offset by contract wins and renewals.
Following an announcement in November 2018 the Home Office
unexpectedly closed Campsfield IRC, which was managed by Mitie.
The contract expired in early 2019.
Financial performance
Care & Custody’s revenues grew by 79.1% to £107.3m (FY 17/18: £59.9m)
following the win and successful mobilisation of the D&E contract and
good growth from existing contracts. Operating profit before other items
increased by 105.3% to £3.9m (FY 17/18: £1.9m) driven by performance of
the D&E contract and other contracts won in the prior year and includes
the expensing of a net £3.3m of mobilisation costs for the D&E contract.
Amounts related to these mobilisation activities were paid by the customer
and will be released from deferred income over the term of the contract.
Outlook
As the division grows its core competencies and expands into adjacent
services, the pipeline has expanded to include large opportunities such as
the latest cycle of Prisoner Escort and Court Services contracts (PECS4).
These are long-term cyclical opportunities with lengthy bidding lead times.
Our clients are UK Government departments which are increasingly
evaluating bids against surety of delivery, sustainability and quality of
outcomes, all of which play well to Care & Custody’s proposition. In a
competitive market place, Care & Custody is well positioned to win
contracts because we are growing in scale, enjoy a solid reputation with
our public sector commissioners and clients, and continue to expand our
offering as we diversify into adjacent areas (such as custodial movements)
to complement our core capabilities.
20
Mitie Group plc | Annual Report and Accounts 2019
Gather & Gather also secured other significant new wins in the year,
including Dropbox. We were also successful in securing the opportunity to
roll out a new café concept across some of Primark’s UK and Ireland retail
estate. The division also won work for Yorkshire Building Society and a
major UK retailer as part of new or expanded integrated FM contracts.
The secured order book for the division declined 23.6% to £26.5m.
The secured order book only includes fixed contract work, while c.96%
of the divisional revenue in FY 18/19 came from point-of-sale contracts
and variable work.
Financial performance
In FY 18/19, the Catering division delivered broadly flat revenue at
£136.1m (FY 17/18: £137.1m) with improved momentum in H2 largely
offsetting the contraction in H1. The core Gather & Gather workplace
offering grew revenue and operating profit whilst the overall divisional
performance was held back by weaker results in external events and
venues through Creativevents. Against an inflationary backdrop, gross
profit was stable as we partially mitigated food price inflation, reduced
the use of consumables and disposables – reducing the overall cost to
the business and improving our environmental footprint – and improved
labour management discipline. Overall, operating profit before other items
declined by 7.1% to £5.2m (FY 17/18: £5.6m) due to weaker performance
in Creativevents.
Outlook
Whilst the catering sector remains under pressure from food price
and labour inflation, the market offers opportunity for a well-respected
brand such as Gather & Gather. Clients increasingly seek to enhance their
catering facilities as key contributors to their talent attraction and retention
strategies, by improving the customer experience, improving wellbeing and
increasing sustainability. Gather & Gather has continued to demonstrate its
ability to anticipate and satisfy these demands as the industry changes.
In this context, we expect a good year from Catering in FY 19/20 on the
back of the annualisation of significant recent wins with 90% of revenue
already secured. The Gather & Gather brand continues to offer a
distinctive quality alternative to the large corporate caterers who
dominate the mass market.
Corporate overheads
Corporate overheads represent the costs of running the Group function
and include costs for the commercial, financial, marketing, legal and HR
teams. Corporate overheads have increased as we continue to invest
in the foundations to deliver: 'The Exceptional, Every Day'; leadership
in the Connected Workspace; and accelerated growth. We also
reinstated certain staff incentive schemes in FY 18/19 after suspending
them for two years during the early stages of the Mitie turnaround.
The main investments were into our commercial capability, upweighting
our marketing, and strengthening our technology underpin. Corporate
overheads increased by 7.4% to £33.4m (FY 17/18: £31.1m).
Public sector
Given the significant opportunities available in the public sector, we
have recently set up a new public sector centre of excellence. This team
will be responsible for assisting in any public sector work across Mitie
as well as owning the overall relationship with the UK Government.
During the year, we qualified as a supplier on Phase 1 of the Crown
Commercial Service (CCS) FM Marketplace Framework, which will
allow departments, as well as Phase II, which will allow us to bid for
defence facilities management as well as for security services and
technical security contracts. Qualification as a supplier on the CCS
Framework has added large opportunities to our pipeline. We have
established a new public sector sales team who will coordinate bids
from across the divisions into these key public sector accounts.
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Discontinued operations
Below are the results of discontinued operations up to the date of disposal.
Pest Control
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
FY 18/19
11.9
FY 17/18
22.3
Change, %
nm
2.4
2.6
nm
20.2
11.7
8.5 ppt
On 30 September 2018, Mitie completed the sale of the entire issued
share capital of Mitie Pest Control Limited to Rentokil Initial plc.
Mitie separately entered into a preferred supplier partnership with
Rentokil Initial plc, covering a range of services (including pest services)
to be provided as part of integrated facilities management offerings to
Mitie's wide range of customers.
Pest Control reported revenues of £11.9m (FY 17/18: £22.3m) and
its operating profit before other items was £2.4m (FY 17/18: £2.6m).
Pest Control was previously part of the Cleaning & Environmental
Services division.
Social Housing
£m
Revenue
Operating profit before
other items
Operating margin before
other items, %
FY 18/19
89.1
FY 17/18
150.8
Change, %
nm
1.6
1.8
3.8
nm
2.5
(0.7) ppt
In November 2018, the Group sold the Social Housing business to
Mears Group plc. The Social Housing business was previously part
of the Property Management division, together with the roofing and
painting business units, which have been integrated into the Engineering
Services division.
The consideration comprised an initial payment of £22.5m, which was
paid in cash at completion. No fair value was recognised on the further
contingent consideration of up to £12.5m, payable in cash after two
years post completion which is subject to the achievement of certain
performance milestones. The Group has retained liabilities for a number
of legacy contracts in the Social Housing business.
In FY 18/19 the Social Housing business reported revenues of £89.1m
(FY 17/18: £150.8m) and operating profit before other items of £1.6m
(FY 17/18: £3.8m).
Mitie Group plc | Annual Report and Accounts 2019
21
Finance review
Finance review
We are continuing to
simplify our business and
de-lever our balance sheet.
Paul Woolf
Chief Financial Officer
Whilst we have accomplished a great deal during this second year of
our transformation, there remains more to do as we continue our
journey towards a One Mitie way of delivering our products and
services. Following the centralisation of our core support functions last
year, the majority of the transactional activity for IT and Finance is now
being undertaken offshore by global process experts and we have
introduced new systems across the business, including recruitment
platforms for temporary and permanent staff.
Our revenues and profits are growing, both at a headline level, and
also on an organic basis excluding the impact of M&A. We have started
to focus our business through the acquisition of VSG by our Security
division and the sale of our Pest Control and Social Housing businesses.
We have again made progress in reducing our leverage and
strengthening our balance sheet with further reductions in off-balance
sheet finance, improved supplier payment performance and proceeds
from our disposals programme. Going forward, we expect to continue
to reduce leverage.
Following the transfer of our finance transactional processing to Genpact
(a business process outsourcing provider, operating out of Kolkata, India)
in April 2018 we have now initiated a broader finance modernisation
programme. The initial Genpact move entailed a lift-and-shift approach
which caused issues in the first few months due to the multiplicity of
processes used across Mitie. These issues have now been largely
resolved and we have turned our attention to ongoing improvement
in the function through our finance modernisation programme. This is
focused on finance process simplification and standardisation, cleansing
our master data and upgrading finance systems and tools across the
business with a view to paying our suppliers quicker, reducing our
processing costs through automation and further accelerating our
order-to-cash cycle.
Reported financial performance
Reported revenue and reported operating profit from continuing
operations are set out below:
£m
Revenue
Operating profit before other items
Other items
Operating profit
FY 18/19
2,221.4
FY 17/18
2,030.6
Change, %
9.4
88.2
(38.0)
50.2
83.2
(82.1)
1.1
6.0
nm
nm
Reported revenue from continuing operations was £2,221.4m compared
with £2,030.6m in FY17/18. The Group reported an operating profit
before other items from continuing operations of £88.2m (FY 17/18:
£83.2m).
Reported balance sheet
£m
Goodwill and intangible assets
Property, plant and equipment
Working capital balances
Net debt
Retirement benefit liabilities
Deferred tax
Other net (liabilities)/assets
Total net liabilities
FY 18/19
344.5
29.0
(216.9)
(140.7)
(63.8)
35.8
(0.3)
(12.4)
FY 17/18 Change, £m
(3.4)
347.9
33.6
(198.2)
(193.5)
(56.8)
35.9
7.1
(24.0)
(4.6)
(18.7)
52.8
(7.0)
(0.1)
(7.4)
11.6
The Group is reporting net liabilities at 31 March 2019 of £12.4m
(FY 17/18: £24.0m), with an improvement in net debt, offset by a
larger negative working capital balance and an increase in retirement
benefit liabilities.
22
Mitie Group plc | Annual Report and Accounts 2019
New accounting standards
The Group adopted IFRS 15, ‘Revenue from Contracts with
Customers’ in FY 17/18, as previously described in the Annual
Report and Accounts 2018.
IFRS 9
IFRS 9 ‘Financial instruments’ became effective for the Group
starting 1 April 2018 and replaced the requirements of IAS 39
‘Financial instruments: recognition and measurement’. The main changes
introduced by the new standard are new classification and measurement
requirements for certain financial assets, a new Expected Credit Loss
(ECL) model for the impairment of financial assets, revisions to the
hedge accounting model, and amendments to disclosures. The Group
elected, from 1 April 2018, to continue to apply the hedge accounting
guidance in IAS 39.
With respect to loss allowances for trade receivables, IFRS 9 replaced
the ‘incurred loss’ model in IAS 39 with an ECL model. The Group,
from 1 April 2018, measures loss allowances for trade receivables and
accrued income at an amount equal to lifetime expected credit losses
using both quantitative and qualitative information and analysis based
on the Group’s historical experience and forward-looking information.
The Group has determined that the transition to IFRS 9 resulted in an
additional loss allowance for trade receivables and accrued income as
at 1 April 2018 of £2.5m and gave rise to a tax credit of £0.4m. The
additional loss allowance has been applied as an adjustment to opening
retained earnings at 1 April 2018 and therefore, the prior year
comparative information is not restated.
Future accounting standards – IFRS 16
IFRS 16 ‘Leases’ became effective for the Group from 1 April 2019
and replaces the requirement of IAS 17 ‘Leases’. An asset representing
the Group’s right as a lessee to use a leased item, and a liability for
future lease payments, will be recognised for all leases, subject to limited
exemptions for short-term leases and low-value lease assets. The costs
of leases will be recognised in the consolidated income statement split
between depreciation of the lease asset and a finance charge on the
lease liability. This is similar to the accounting for finance leases under
IAS 17, but substantively different to the accounting for operating leases
(under which no lease asset or lease liability was recognised, and rentals
payable were charged to the consolidated income statement on a
straight-line basis).
As a result of adopting the new rules, for the year ending 31 March
2020, the Group expects net profit before tax to increase by between
£nil and £3m. Operating profit is expected to increase by between
£24m and £29m as the operating lease rentals payable which were
previously included in operating profit are excluded, with this increase
being offset by additional depreciation of between £22m and £24m as the
right-of-use assets are depreciated. In addition, operating cash flows are
expected to increase by between £24m and £29m as repayment of the
lease liabilities is reclassified as cash used in financing activities and net
debt will increase by between £81m and £86m.
Alternative Performance Measures (APM)
The Group presents its key financial analysis as the results of continuing
operations before other items as the Directors believe this is most
useful for users of the financial statements in helping to provide a
balanced view of, and relevant information on, the Group’s financial
performance. Accordingly, the Group separately reports the
impairment of goodwill, the cost of restructuring programmes,
acquisition and disposal costs (including the write-off and amortisation
of acquisition related intangible assets) as ‘other items’. Read more on
pages 163 to 165.
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Divisional breakdown of financial performance
FY 17/18
Revenue, £m
886.3
Engineering Services
FY 18/19
905.7
Change, %
2.2
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Total
536.5
131.4
404.4
107.3
136.1
432.0
131.2
384.1
59.9
137.1
2,221.4
2,030.6
24.2
0.2
5.3
79.1
(0.7)
9.4
The Group’s revenue increased in the year, from £2,030.6m to
£2,221.4m. This was principally due to a significant contract win in
Care & Custody, the acquisition of VSG in Security and good underlying
growth in our Engineering Services strategic accounts and in Security
and Cleaning. Organic revenue growth was 5.5%.
Operating profit before other items, £m
Engineering Services
FY 18/19
58.7
FY 17/18
54.1
Change, %
8.5
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Corporate centre
Total
30.7
5.6
17.5
3.9
5.2
(33.4)
88.2
27.5
5.6
19.6
1.9
5.6
(31.1)
83.2
11.6
0.0
(10.7)
105.3
(7.1)
7.4
6.0
Operating profit before other items increased by 6.0% in the year from
£83.2m to £88.2m, reflecting good growth in strategic accounts and
projects in Engineering, the significant contract win in Care & Custody,
strong underlying growth in Security in addition to the impact of the
acquisition of VSG, partly offset by ongoing investment in customer
service and the reinstatement of staff incentives.
Other items
£m
Restructure costs
Acquisition and disposal related costs
Gain on bargain purchase of VSG
Pension scheme Section 75 debt
Impairment of goodwill
Other
Total other items before tax
Tax credit on other items
Other items after tax
FY 18/19
(15.1)
(8.7)
8.8
(20.0)
–
(3.0)
(38.0)
7.4
(30.6)
FY 17/18
(47.0)
(8.4)
–
–
(22.7)
(4.0)
(82.1)
10.0
(72.1)
Disappointingly, other items before tax remain high at a charge of
£38.0m, albeit significantly lower than last year (FY 17/18: £82.1m).
The main components are restructure costs and a provision for the
Section 75 debt on the Plumbing & Mechanical Services (UK)
Industry Pension Scheme (the Plumbing Scheme). The tax credit on
these other items was £7.4m (FY 17/18: £10.0m).
Tax contribution
The Group manages both direct and indirect taxes to ensure that it
pays the appropriate amount of tax in each country whilst respecting
the applicable tax legislation, where appropriate utilising any legislative
reliefs available. The strategy is reviewed regularly and is endorsed by
the Board.
Mitie Group plc | Annual Report and Accounts 2019
23
Finance review continued
Mitie is a significant contributor of revenues to the UK Exchequer,
paying £529.3m in the year ended 31 March 2019 (FY 17/18: £481.2m).
This comprised £534.3m (FY 17/18: £492.8m) of indirect taxes including
business rates, VAT and payroll taxes paid and collected less a £4.7m
(FY 17/18: £11.6m) refund of UK corporation tax. The tax refund was
due to the utilisation of losses resulting from the accounting adjustments
in earlier years’ accounts. As Mitie’s business is primarily based in the UK,
the effective tax rate should track the UK statutory tax rate.
There was a tax charge of £6.4m (FY 17/18: £1.1m) on the profit before
tax of £36.4m (FY 17/18: loss before tax £15.4m).
Discontinued operations
During the year, Mitie sold its Social Housing business to Mears Group plc,
with the sale completing on 30 November 2018. As a result, the business
is classified as a discontinued operation as at 31 March 2019. This
business formed part of the Property Management division. Following
this sale, the roofing and painting businesses of the former Property
Management division were integrated into the projects business of
Engineering Services.
In addition, Mitie disposed of its Pest Control business (previously
included in the Cleaning & Environmental Services division) to Rentokil
Initial plc, with the sale completing on 30 September 2018. This is also
consequently classified as a discontinued operation as at 31 March 2019.
Discontinued operations contributed a profit after tax before other
items of £3.1m (FY 17/18: £5.6m). Other items before tax were a charge
of £6.0m (FY 17/18: £15.8m) and included a gain on disposal of Pest
Control of £27.6m, a loss on disposal of the Social Housing business of
£11.7m and a £20.5m charge for various remediation and rectification
liabilities associated with the Social Housing business. The tax credit on
other items was £3.8m (FY 17/18: £0.7m).
Dividends
The full-year dividend is 4.0p per share (FY 17/18: 4.0p per share),
comprising an interim dividend of 1.33p per share and a final dividend
recommended by the Board of 2.67p per share.
Goodwill and intangible assets
Goodwill and intangible assets of £344.5m (FY 17/18: £347.9m) were
held on the balance sheet at 31 March 2019. The small reduction can
be explained by a reduction in goodwill due to disposals of the Social
Housing and Pest Control businesses during the year, largely offset by
an increase in intangible assets from the recognition of a customer
relationships intangible asset on the acquisition of VSG and additional
internally generated intangible assets from software development to
enhance customer experience.
Cash flow
The Group continued to strengthen its balance sheet during the year,
assisted by two business disposals. Utilisation of non-recourse invoice
discounting was reduced slightly during the year, while supplier payment
performance was improved.
Overall operating cash inflow, before movements in working capital
was £39.5m (FY 17/18: £67.2m). This includes defined benefit pension
contributions of £11.6m (FY 17/18: £4.7m). Cash generated from
operations during the year was £47.5m (FY 17/18: £7.9m used in
operations) including a working capital inflow of £8.0m (FY 17/18:
outflow of £75.1m). The working capital movement is explained in
more detail below.
After paying interest of £12.4m (FY 17/18: £13.5m) and receiving
corporation tax refunds of £4.7m (FY 17/18: £11.6m), net cash inflow
from operating activities was £39.8m (FY 17/18: outflow of £9.8m).
Capital expenditure reduced by £1.5m compared to the prior year to
£23.3m (FY 17/18: £24.8m), while the business generated £43.5m from
the proceeds of disposals net of acquisitions. Dividends of £14.4m were
paid in the year (FY 17/18: £4.8m).
Overall this resulted in a reduction of the Group’s net debt of £52.8m
(FY 17/18: £46.3m increase) to £140.7m (FY 17/18: £193.5m).
Working capital
Working capital movements resulted in an inflow for the year of £8.0m.
The complex process of outsourcing transactional processing activities
in April 2018 caused trade and other receivable balances to increase,
resulting in a working capital outflow of £34.0m in the first half. The
situation has now been addressed. Working capital reduced by £42.0m
in the second half of the year.
Whilst the Group has been focused on improving its working capital
cycle it has also considered its responsibilities to the supply chain by being
fair in respect of payment performance. Supplier payment terms were
reduced by eight days over the full year, with the improvement taking
place skewed to the second half. This was partially achieved by unilaterally
reducing payment terms for a number of our suppliers meaning that they
have now reduced their need for supply chain finance. Consequently, the
use of the supply chain finance facility reduced by £25.1m. The working
capital outflow associated with this reduction in payment terms was
offset by an increase in provisions of £25.5m. These provisions
predominantly relate to the now disposed Social Housing business.
Along with other M&A related working capital balances, they are
expected to result in a cash outflow of c. £40m over the next two years.
The Group also marginally reduced its utilisation of non-recourse
customer invoice discounting by £3.1m to £73.2m (FY 17/18: £76.3m).
The invoice discounting facilities are non-recourse and are therefore
netted off against trade and other receivables within the balance sheet.
Net debt
Net debt is the aggregation of the Group’s borrowings net of cash
in hand. The Group’s net debt reduced by £52.8m to £140.7m as at
31 March 2019 (FY 17/18: £193.5m). After a poor start to the year
following the outsourcing of finance transactional processing,
Q4 showed positive progress on our journey to reduce the volatility
of working capital. Average daily net debt in Q4 was £31m lower than
the same period last year with average daily borrowings of £278m
(Q4 17/18: £309m). This improved position was largely achieved through
a combination of business disposal proceeds and improved customer
cash collection performance, at the same time as paying our suppliers
more quickly. The net debt position benefited from disposal proceeds,
net of acquisitions and acquisition and disposal related costs, of £40.9m.
Liquidity and covenants
As at 31 March 2019, the Group had £466.5m of committed funding
arrangements (FY 17/18: £466.5m). The £275m multi-currency Revolving
Credit Facility (RCF) matures in July 2021. The £191.5m of US Private
Placement notes are spread over three maturities: December 2019
£40.0m; December 2022 £121.5m; and December 2024 £30.0m.
Mitie’s two key covenant ratios are leverage (ratio of net debt to
covenant EBITDA to be no more than 3 times) and interest cover
(ratio of covenant EBITDA to net finance costs to be no less than
4 times). As at 31 March 2019, we were operating comfortably within
these ratios at 1.33x for leverage and 8.8x for interest cover.
24
Mitie Group plc | Annual Report and Accounts 2019
The principal financial covenant ratios (leverage and interest cover)
for our committed funding arrangements are tested every six months.
Following an amendment agreed on 29 March 2019, all future covenant
calculations will be on an IFRS 15 basis. The covenants continue to
exclude the future impact of IFRS 16.
As is usual for corporate facilities, the definition of key metrics in Mitie’s
finance agreements is somewhat different to its reported numbers and
this is outlined in the table below. This table shows that Mitie remains
comfortably within its covenant requirements. In this instance, the prior
year comparatives are not provided, as while Mitie had adopted IFRS 15
in FY 17/18, its covenant reporting at that time remained on a pre-IFRS
15 basis, making comparison unhelpful.
FY 18/19
88.2
4.0
92.2
20.8
113.0
(7.1)
(a)
105.9
(2.3)
(b)
103.6
13.8
(1.7)
12.1
8.8x
140.7
(3.0)
£m
Operating profit before other items
– continuing operations
– discontinued operations
Total
Add: depreciation & amortisation
Headline EBITDA
Deduct: covenant adjustments
Consolidated EBITDA
Full-year effect of acquisitions & disposals
Adjusted consolidated EBITDA
Net finance costs
Less: covenant adjustments
Consolidated net finance costs
(c)
Interest cover (ratio of (a) to (c)
must exceed 4.0x)
Net debt
Impact of hedge accounting & upfront fees
Consolidated total net borrowings
(d)
137.7
Leverage (ratio of (d) to (b) must
not exceed 3.0x)
1.33x
Mitie’s intention is to consistently maintain adequate headroom
within its committed facilities. In addition to its committed funding,
the Group utilises ancillary facilities, including invoice discounting of
£73.2m (FY 17/18: £76.3m). The Group’s trade creditors include
amounts due to UK suppliers which make use of supply chain finance
arranged by Mitie of £20.0m (FY 17/18: £45.1m).
Retirement benefit schemes
The net defined benefit pension liability at 31 March 2019 for the Mitie
Group scheme was £61.4m (FY 17/18: £54.8m). The increase in the
deficit is principally due to a 20bps decrease in the discount rate driven
by reductions in corporate bond rates since 31 March 2018. The latest
valuation of the Mitie Group scheme as at 31 March 2017, indicated an
actuarial deficit of £74.0m (31 March 2014: £6.0m), largely due to a fall in
discount rates since 2014. The Group has agreed a deficit recovery plan
with the Trustee for further payments totalling £64.8m in instalments
until 31 March 2025.
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. As at 31 March 2019, Mitie’s net defined
pension liability in respect of these schemes, which it is committed to
funding, amounted to £2.4m (FY 17/18: £2.0m).
In addition, the Group also participates in four industry multi-employer
defined benefit pension schemes, including the Plumbing Scheme.
These schemes are accounted for as defined contribution schemes,
either because the assets and liabilities cannot be apportioned among
employers or the amounts involved are not significant. Contributions to
these schemes for FY 19/20 are expected to be approximately £0.1m.
The Group is exposed to Section 75 employer debts in respect of two
of these schemes. These liabilities crystallise when the Group ceases
to have any active employees in the schemes. In the last few months,
the Group received a Section 75 demand in respect of the Plumbing
Scheme for £20.0m. This has been provided for in full.
Paul Woolf
Chief Financial Officer
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Stakeholder engagement
Building constructive
relationships
Building constructive relationships
with our key stakeholders is
critical to our business. We are
focused on long-term success
and creating sustainable value
in the broadest sense.
Links to policies
Business areas considered to have the highest
risk of bribery and corruption are public
procurement, gifts and hospitality, overseas
operations and oversight of subcontractors.
The risk is managed by several policies and
training courses which are available to
employees through the process repository
(BMS) and our new HR online Learning Hub.
The policies include:
• One code (code of conduct);
• Ethical business practice policy;
• Business expenses &
entertaining procedure;
• Modern slavery;
• Whistleblowing process; and
• Anti-bribery and
anti-corruption
e-learning module.
Key stakeholders
Customers
Mitie works with private and public sector (the UK
Government) clients. Through understanding our
customers’ needs we can offer value-added,
innovative and cost effective solutions and
build enduring relationships.
Shareholders, banks,
noteholders and media
We proactively engage with shareholders, banks,
noteholders and journalists on an ongoing basis.
Employees
Mitie currently employs 52,500 employees.
Our success is underpinned by the way
we lead and engage with our people.
Communities
and environment
Our employees touch the lives
of others every day.
Suppliers
We work closely with our suppliers
to ensure a responsible supply chain.
26
Mitie Group plc | Annual Report and Accounts 2019
• Financial performance;
• Bi-annual roadshows;
• Transformation and Project Helix;
• Corporate governance and Environment,
How we engage
• Ongoing management of customer relationships
by senior leadership;
• Government is a regulator and often a customer
for Mitie, so engagement ensures Mitie can help
in shaping new policies, regulations and standards;
• NPS programme;
• Customer experience programmes;
• Participation in industry forums and events;
• Customer communications;
• Website and social media platforms; and
• Meetings and briefings.
• Annual Report and Accounts;
• Annual General Meeting;
• Investor and News & Insights sections of the corporate
website Mitie.com;
• Results presentations and post-results roadshows;
• Stock exchange announcements and press releases;
• Website and social media platforms; and
Key areas of interest
• Customer satisfaction;
• Financial position;
• Reputation and brand;
• Performance and efficiency;
• Quality and value for money;
• Technology, research and innovation;
• Sustainability performance;
• Governance and transparency;
• Vision and values;
• Social values; and
• People and culture.
• Governance and transparency;
• Sustainability performance;
• People and culture;
• Contracts, new products,
technology, innovation; and
• Regular and ad hoc enquiries, calls, meetings and interviews.
• Reputational impact.
• HR core standards set the framework for
• Health, safety and environment
• MiNet, internal communications and social media platforms;
• Career opportunities;
employee engagement;
• Onboarding and induction training and Learning Hub;
• Annual employee engagement survey;
• ‘You Said, We Did’ campaign;
• Townhall meetings and annual roadshow by
senior management;
• ‘Grill Phil’ channel to engage directly with the CEO;
• ‘Back to the floor’ sessions for Group Leadership Team;
• Recognition and reward programmes; and
• Annual individual performance reviews.
• Employee volunteering;
• The Mitie Foundation;
• Mitie.com and social media platforms;
• Local community events; and
• Electric fleet vision.
performance;
• Reputation;
• Employee development;
• Talent pipeline and retention;
• Diversity and inclusion; and
• Remuneration and reward.
• Future talent pipeline;
• Local operational impact; and
• Health, safety and
environment performance.
• Supplier conferences and workshops;
• Global supplier portal and notices to suppliers;
• Mitie.com;
• Annual Report and Accounts; and
• The Mitie Foundation.
• Responsible procurement;
• Trust and ethics;
• Prompt payment code; and
• Operational improvement.
Our response and KPIs
• 8% revenue growth from top accounts
in FY 18/19;
• Customer retention improved to 64%;
• 250 customers surveyed in the NPS
survey;
• NPS improved 22 points to +12; and
• Feedback from unsuccessful contract bids
is analysed to improve our win rates.
Social and Governance (ESG)-focused
meetings with institutional investors;
• CEO and divisional Managing
Directors regularly give interviews to
a number of publications;
• Operating profit improved from £1.1m
in FY 17/18 to £50.2m in FY 18/19; and
• Total dividend of 4.0p for FY 18/19.
• All injury frequency rate
decreased 13.5%;
• Employee engagement increased to
45% from 33% in FY 17/18;
• Supporting women in STEM roles;
• Mitie Exceptionals is a group of volunteers
across the Group who act as ambassadors
for our values and behaviours; and
• Jennifer Duvalier, Non-Executive Director,
has been designated to oversee Board
engagement with the workforce.
• Ready2Work;
• Employer engagement days;
• Think Differently programme;
• School, academy and college events;
• Reduction in fuel and energy
consumption;
• Reduction in carbon emissions; and
• Focus on key social value areas where
we can make a real contribution.
• Mitie encourages suppliers to work
collaboratively to ensure continual
improvement in operations and to
deliver mutual benefit;
• The trade creditor payment days
decreased from 58 days in FY 17/18
to 50 days in FY 18/19; and
• We reduced the use of the supply
chain finance facility by £25m compared
to FY 17/18.
Key stakeholders
Customers
Mitie works with private and public sector (the UK
Government) clients. Through understanding our
customers’ needs we can offer value-added,
innovative and cost effective solutions and
build enduring relationships.
Shareholders, banks,
noteholders and media
We proactively engage with shareholders, banks,
noteholders and journalists on an ongoing basis.
Employees
Mitie currently employs 52,500 employees.
Our success is underpinned by the way
we lead and engage with our people.
Communities
and environment
Our employees touch the lives
of others every day.
Suppliers
We work closely with our suppliers
to ensure a responsible supply chain.
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Our strategic pillars
Customer: build market-leading positions in higher
growth segments and increase customer NPS
People: create a ‘Great Place to Work’
for our employees
Cost: strengthen our balance sheet and
maintain cost discipline to remain competitive
Technology: embed technology into the heart
of our offering
How we engage
Key areas of interest
Our response and KPIs
• Ongoing management of customer relationships
by senior leadership;
• Government is a regulator and often a customer
for Mitie, so engagement ensures Mitie can help
in shaping new policies, regulations and standards;
• NPS programme;
• Customer experience programmes;
• Participation in industry forums and events;
• Customer communications;
• Website and social media platforms; and
• Meetings and briefings.
• Annual Report and Accounts;
• Annual General Meeting;
• Investor and News & Insights sections of the corporate
website Mitie.com;
• Results presentations and post-results roadshows;
• Stock exchange announcements and press releases;
• Website and social media platforms; and
• Regular and ad hoc enquiries, calls, meetings and interviews.
• Customer satisfaction;
• Financial position;
• Reputation and brand;
• Performance and efficiency;
• Quality and value for money;
• Technology, research and innovation;
• Sustainability performance;
• Governance and transparency;
• Vision and values;
• Social values; and
• People and culture.
• Financial performance;
• Transformation and Project Helix;
• Governance and transparency;
• Sustainability performance;
• People and culture;
• Contracts, new products,
technology, innovation; and
• Reputational impact.
• HR core standards set the framework for
• Health, safety and environment
employee engagement;
• Onboarding and induction training and Learning Hub;
• Annual employee engagement survey;
• ‘You Said, We Did’ campaign;
• MiNet, internal communications and social media platforms;
• Townhall meetings and annual roadshow by
senior management;
• ‘Grill Phil’ channel to engage directly with the CEO;
• ‘Back to the floor’ sessions for Group Leadership Team;
• Recognition and reward programmes; and
• Annual individual performance reviews.
• Employee volunteering;
• The Mitie Foundation;
• Mitie.com and social media platforms;
• Local community events; and
• Electric fleet vision.
performance;
• Reputation;
• Employee development;
• Talent pipeline and retention;
• Career opportunities;
• Diversity and inclusion; and
• Remuneration and reward.
• Future talent pipeline;
• Local operational impact; and
• Health, safety and
environment performance.
• Supplier conferences and workshops;
• Global supplier portal and notices to suppliers;
• Mitie.com;
• Annual Report and Accounts; and
• The Mitie Foundation.
• Responsible procurement;
• Trust and ethics;
• Prompt payment code; and
• Operational improvement.
• 8% revenue growth from top accounts
in FY 18/19;
• Customer retention improved to 64%;
• 250 customers surveyed in the NPS
survey;
• NPS improved 22 points to +12; and
• Feedback from unsuccessful contract bids
is analysed to improve our win rates.
• Bi-annual roadshows;
• Corporate governance and Environment,
Social and Governance (ESG)-focused
meetings with institutional investors;
• CEO and divisional Managing
Directors regularly give interviews to
a number of publications;
• Operating profit improved from £1.1m
in FY 17/18 to £50.2m in FY 18/19; and
• Total dividend of 4.0p for FY 18/19.
• All injury frequency rate
decreased 13.5%;
• Employee engagement increased to
45% from 33% in FY 17/18;
• Supporting women in STEM roles;
• Mitie Exceptionals is a group of volunteers
across the Group who act as ambassadors
for our values and behaviours; and
• Jennifer Duvalier, Non-Executive Director,
has been designated to oversee Board
engagement with the workforce.
• Ready2Work;
• Employer engagement days;
• Think Differently programme;
• School, academy and college events;
• Reduction in fuel and energy
consumption;
• Reduction in carbon emissions; and
• Focus on key social value areas where
we can make a real contribution.
• Mitie encourages suppliers to work
collaboratively to ensure continual
improvement in operations and to
deliver mutual benefit;
• The trade creditor payment days
decreased from 58 days in FY 17/18
to 50 days in FY 18/19; and
• We reduced the use of the supply
chain finance facility by £25m compared
to FY 17/18.
Mitie Group plc | Annual Report and Accounts 2019
27
Non-financial information statement
Non-financial
information statement
In accordance with Sections 414CA and
414CB of the Companies Act 2006, which
outline requirements for non-financial
reporting, the table below is intended to
provide our stakeholders with the content
they need to understand our development,
performance, position and the impact of
our activities with regards to specified
non-financial matters.
We continually look for ways to make Mitie a responsible business and
we actively engage with our stakeholders to improve our impact. In FY
18/19, we commissioned a comprehensive summary of our social value
activity and how Mitie aligns with all 17 of the United Nations Sustainable
Development Goals. We also became the first major UK FM provider
to launch an electric vehicle fleet. We introduced a range of initiatives to
further benefit our employees and made commitments in areas where
we can contribute real benefit to improve social value and environmental
impact within the communities we work in.
We use a variety of tools to track and measure our performance
against strategic objectives. Our business model encompasses the
non-financial value created for our stakeholders from our resources,
human capital, expertise and relationships. Through our business
model we deliver value for our employees, suppliers, communities,
shareholders and customers.
Reporting requirement
Environmental
matters
Employees
Social matters
Relevant policies¹
Sustainability policy
Procurement policy
One code: our code of conduct
People policy
Inclusion policy
Health and safety policy
Ethical business practice policy
Sustainability policy
Quality policy
Sustainability policy
Human rights
One code: our code of conduct
Ethical business practice policy
One code: our code of conduct
Ethical business practice policy
E-learning module available for employees
through the process repository (BMS)
and Learning Hub
Anti-bribery
and anti-corruption
Business model
Non-financial KPIs
Principal risks
1 Policies, statements and codes are available at www.mitie.com
28
Mitie Group plc | Annual Report and Accounts 2019
Annual Report page reference
Stakeholder engagement pages 26 to 27
Social value pages 29 to 33
Chief Executive’s strategic review pages 11 to 13
Stakeholder engagement pages 26 to 27
Our people pages 34 to 37
Social value pages 29 to 33
Chief Executive’s strategic review pages 11 to 13
Social value pages 29 to 33
Stakeholder engagement pages 26 to 27
Social value pages 29 to 33
Social value pages 29 to 33
Our people pages 34 to 37
Stakeholder engagement pages 26 to 27
Business model pages 08 to 09
KPIs pages 14 to 15
Principal risks and uncertainties pages 38 to 46
Viability statement pages 47 to 48
Audit Committee report pages 62 to 67
The Board pages 59 to 60
Social value
Delivering
social value
People, products and services are integral to
the delivery of long-term sustainable solutions
both within Mitie and for our customers.
We have been reflecting on our sustainability performance over
the past decade, as well as looking forward to further reducing
our environmental impact and enhancing social value activity
in the decade to come.
Key to this is our Sustainability Working Group and internal
governance structure, which was realigned to better drive our strategy
and represent our diverse business in FY 16/17. The Sustainability
Working Group is headed by Jo Davis, Group HR Director and
executive sponsor for Sustainability. Two years on, the group now
includes a cross-functional cohort of subject matter experts, who
specialise in a wide range of areas, including environmental impact,
supply chain and people management.
In FY 19/20 the remit for the Sustainability Working Group will
be broadened to encompass the Group’s social value agenda.
The Sustainability Working Group will report directly to the Board
to ensure that Mitie’s social value and sustainability commitments
for 2030 have the appropriate resource and focus.
Social value in action
As a responsible corporate citizen caring for both people and planet,
we commissioned a comprehensive summary of our social value activity
and how Mitie aligns with all 17 of the United Nations (UN) Sustainable
Development Goals (SDGs).
In FY 19/20 we will set our 2030 targets and focus on some key themes
where we feel Mitie can contribute real benefit to improve social value
and environmental impact within the communities it works in.
Senior members of the Executive
Leadership Team have individual
responsibility in five significant areas:
Supporting the growth of
responsible regional businesses;
Promoting skills
and employment;
1.
2.
3. Creating healthier, safer and
4. Protecting and improving
5. Promoting
more resilient communities;
our environment; and
social innovation.
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By FY 19/20, we pledge to…
Increase apprenticeships by over
100%
35%
(from FY 09/10 base)
Reduce our emissions intensity by
Increase the number of women
entering STEM roles by
20%
People through our
Ready2Work programme
450
Mitie’s spend under our supplier
management framework to be
20%
Electric vehicles within our small
vans and car fleet should be at least
20%
Become a Living Wage Foundation
Recognised Service Provider
Remove all consumer single use plastic
from our Gather & Gather business
Launch ‘Mitie Girls Can’, a female-only
technical apprenticeship programme
to assist with encouraging more women
into STEM roles
Mitie Group plc | Annual Report and Accounts 2019
29
Social value continued
1. Promoting skills
and employment
2. Supporting the growth of
responsible regional businesses
How we align to SDGs:
Aligning to our strategic pillars:
How we align to SDGs:
Aligning to our strategic pillars:
Apprenticeships
We paid £4.7m into the Apprenticeship Levy scheme in FY 18/19
and currently have 660 apprentices working across our portfolio of
contracts. They are engaged on a range of technical apprenticeships
in engineering and catering, as well as professional apprenticeships in IT,
HR and management development. All Mitie apprentices benefit from
permanent employment contracts and are fully embedded in business
activities to maximise learning.
Learning Hub
Our Cloud-based Learning Hub is an online portal through which
employees can access online development material relevant to their role,
mandatory training, induction, a wealth of self-selected development
material, as well as health and wellbeing modules. It means that all our
people have access to quality education at a time and place that suits
them.
Springboard
Gather & Gather Managing Director, Allister Richards, sits on the board
of Springboard UK, a subsidiary of the Springboard Charity, which seeks
to relieve poverty and unemployment by developing the potential of
disadvantaged young people. At our Springboard Takeover Days we give
cookery demonstrations and talks about the benefits of working in the
hospitality industry, we also mentor those showing particular promise.
—
70%
of candidates receive a job offer
following Ready2Work programme
Mitie Foundation
The Mitie Foundation has worked on a number of initiatives during
FY 18/19, designed to create work experience opportunities to those
with barriers to employment.
The Ready2Work programme consists of a pre-placement week,
followed by seven weeks’ work experience. The programme provides
valuable work experience to the long-term unemployed. On average,
over 70% of candidates receive a job offer at the end. In the past year
our six Ready2Work programmes helped around 60 long-term
unemployed people into work.
We also supported 12 employer engagement days; these workshops
benefited around 360 disadvantaged people with low self-confidence,
a disability, refugee status, a criminal record or mental health issues.
As a rule, these events are attended on average by 16 employers and
30 candidates, who face a Dragon’s Den/Apprentice-style challenge.
Our ‘Think Differently’ programme was developed to support
candidates with learning disabilities/neurodiversity and those who have
experienced mental illness. In FY 18/19 we held six disability awareness
workshops which resulted in 24 candidates being offered four weeks’
work placements with Mitie, our clients or suppliers.
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Mitie Group plc | Annual Report and Accounts 2019
Resource efficiency
We understand our business impacts the planet and its finite resources.
Improving our efficiency is therefore essential to creating a more
sustainable business.
Our transformation strategy was designed to improve efficiency, with
an associated reduction in resources, through better technology and
innovation, and smarter processes. In FY 18/19 we achieved large paper
savings as we digitised records. The saving continues to increase due
to our investment in IT.
The move to regional office hubs and improving our people’s ability
to work remotely also support waste reduction. Our use of Skype
for Business and Microsoft Teams has helped improve processes
and reduce business travel and associated emissions.
—
58.1%
reduction in total waste
generation since FY 09/10
(Mitie estate)
Reducing supply chain impact
It is vital to understand our supply chain impact in order to ensure
a responsible supply chain. In FY 18/19 we undertook a resource use
assessment by supplier category and spend. We will continue to work
to ensure all suppliers adhere to our Code of Conduct, including our
Modern Slavery and Human Trafficking statement. We also vet all
suppliers to ensure that our Safety and Sustainability objectives and
our vetting standards are met.
120 suppliers were invited to take part in our social auditing exercise
in FY 18/19. The programme included collaborating with other
organisations, training some of our preferred suppliers, and writing
a joint case study with the Home Office to demonstrate best practice.
We will continue to work with preferred suppliers to measure impacts
and understand our Scope 3 (indirect) carbon emissions.
Some achievements on our sustainability journey…
• We completed a Consumer Single Use Plastic (CSUP) plan and
will continue to work to eliminate our plastic footprint.
• Gather & Gather was one of the first major contract caterers in the
UK to announce the removal of plastic straws. In May 2018, we signed
up to #thelaststraw campaign and banned single-use plastic straws in
all 276 outlets. We have eliminated plastic water bottles at our Shard
offices and continue to run ‘keep cup’ promotions, as well as providing
ceramic cups and plates and metal cutlery.
• Where applicable, our Government contracts support the 25-year
environment plan target of eliminating all CSUP on their estate by
2020. Care & Custody completed a CSUP elimination plan and has
stopped procurement of plastic products which could be easily
eliminated or substituted with non-plastic materials.
• We achieved Gold Medal recognition from Ecovadis, putting our
organisation in the top 5% of those evaluated.
• Gather & Gather has retained the maximum three-star award from
the Sustainable Restaurant Association in recognition of achievements
in Society, Environment and Sourcing.
3. Creating healthier, safer
and more resilient communities
4. Protecting and improving
our environment
How we align to SDGs:
Aligning to our strategic pillars:
How we align to SDGs:
Aligning to our strategic pillars:
Wellbeing
Mitie’s people are our strength, which is why wellbeing is a vital
component of our employee value proposition. In FY 18/19, we launched
a new wellbeing working group to utilise the expertise of our in-house
wellbeing and occupational health specialists.
Reducing carbon emissions
In 2010, we committed to reducing our carbon intensity by 35% by 2020.
We are proud to have achieved this target a year early. We did so by
rationalising our estate, reducing business travel and building occupancy
supported by remote working technology, and improving fleet efficiency.
As part of the annual Mental Health Awareness Week, in May 2018
we focused on stress in the workplace and how best to deal with it.
We have also conducted awareness initiatives on workplace
mindfulness and psychological wellbeing, nutrition and physical activity.
Thirteen mental health first aid workshops were also held across the
UK. As part of our learning and development transformation, we are
in the process of launching e-learning packages on wellbeing and career
development to ensure our people are equipped with the knowledge
and tools to support their future ambitions.
Through Gather & Gather, we support Public Health England’s
nutrition initiatives, including childhood obesity and calorie, sugar and salt
reduction programmes. We also back Government recommendations
that free sugars should make up no more than 5% of energy intake each
day, and limiting daily salt intake to no more than 6g. We strive to assist
guests in achieving these healthy targets through recipe reformulation,
product sourcing and menu development.
Gather & Gather also runs the Live Well scheme, designed to help
our customers’ employees and our colleagues make informed food
choices to support wellbeing. Using specialised Saffron software,
detailed nutritional labels can be produced for each recipe. Live
Well-branded leaflets, cards and posters on topics such as portion
control, snacking and eating five-a-day ensure people are updated
with relevant nutrition information.
We continue to procure 100% renewable energy and are working
towards the implementation of ISO 50001 Energy Management System.
In FY 18/19 the Carbon Trust scored Mitie 81% for carbon management,
the highest mark within the UK FM sector.
Mitie also completed a climate change risk assessment based on
guidance from Task Force on Climate-related Financial Disclosures
(TCFD). We are working to establish future carbon reduction plans
and objectives. This includes setting a science-based target for carbon
reduction and working with key supply partners on innovations
and reduction technology.
—
—
52%
37%
reduction in energy consumption
across Mitie estate since FY 09/10
reduction in emissions intensity
since FY 09/10
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Mitie Group plc | Annual Report and Accounts 2019
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Social value continued
Managing fleet impact
35%
13.9%
reduction in fuel
consumption since
FY 09/10
reduction in fuel
consumption intensity
since FY 09/10
Mitie’s vehicle operations account for over 90% of our total carbon
emissions. Through our fleet committee’s low carbon fleet strategy
we have reduced our total emissions footprint year-on-year.
Low carbon solutions
In FY 18/19, we signed up to the Clean Van Commitment and were
accredited as a Go Ultra Low company. Following successful trials
of hydrogen and electric vehicles, we committed to 20% of our
small vans and cars being fully electric by 2020.
Sometimes an EV is not the best commercial or operational
decision, in which case we will source the most efficient diesel vehicle.
Through our great supplier relationships we are kept informed of market
progress, meaning we can take advantage of new technology when it
becomes available. An example of this is the new model of the Vauxhall
Vivaro, which brings 15% CO2 and fuel savings over the previous model.
Over a seven-year period, the Vivaro’s efficiency has improved by 26%,
creating significant environmental and financial savings.
Restricting vehicle selection
Mitie vehicles typically operate on a rolling four-year contract
hire agreement from our strategic fleet partner, Lex Autolease.
By outsourcing fleet management, Mitie aims to take advantage
of the most efficient technology when it becomes available. All of
our non-commercial vehicles are restricted by a self-imposed vehicles
emissions cap of 130g/km CO2. In 2018, our commercial vehicle models
were on average 10.5% more efficient in terms of carbon emissions
compared to 2014, and the phasing out process continues to yield
carbon and fuel savings. Our Vauxhall Astra estate models generate
10% less emissions, and by changing Vauxhall Vivaro vans from 2.0L
to 1.6L engines, plus Adblue, stop/start technology to cut idling,
we have restricted carbon emissions by 11% and NOx emissions
by 72% on average, ensuring compliance with EURO6 emission
standards and significantly reducing fuel costs.
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Mitie Group plc | Annual Report and Accounts 2019
Telematics
All our commercial vehicles are fitted with telematics. Non-conformance
to our driver expectations, such as speeding, idling or substandard
driving, is escalated accordingly. During 2019 we will continue to work
on better telematic information and data for faster real-time reporting.
Permit to Drive
We launched Permit to Drive in August 2018 as part of our
commitment to road safety, driver wellbeing and environmental
protection. Our annual e-learning awareness training and assessment
scheme has seen 3,505 drivers complete Permit to Drive so far.
We believe our driver awareness campaign and fleet risk reduction
plan will bring down the number of road traffic incidents and improve
fuel efficiency. The combined impact of our measures, including
technology, has seen a 13% reduction in vehicle accidents from
the previous year.
Mitie electric vehicle project
In the face of rising fuel costs, stricter emissions targets and a need
to address climate change, fleet electrification marks a dramatic step
towards reducing the financial and environmental cost of doing business.
In December 2018, Mitie became the first major UK FM provider to
launch an electric vehicle (EV) fleet. By 2020, 20% (717) of our compact
vans and cars will be fully electric.
With a total fleet of 5,107 vehicles, Mitie’s diesel cars, vans and trucks are
a familiar sight on UK roads. Due to significant developments in battery
technology and driving range, electric vehicles represent an exciting and
viable alternative to traditional cars and vans.
Mitie has ordered vehicles with a long range and fast charging capabilities.
The Volkswagen e-Golf, Hyundai Kona, Renault Zoe and Kia e-Niro will
join the Mitie fleet in coming months, alongside fully electric vans like
the Nissan eNV-200.
Charging infrastructure
Mitie is investing in appropriate charging infrastructure to ensure
operational success of our electric vehicles. We are partnering with
a renowned charging supplier to install over 800 charging points
across the Mitie estate and at employee homes. We will also build
on relationships with clients who have EVs in their fleet to offer
Mitie colleagues the opportunity to use their charging sites.
We look forward to supporting current and future customers
who share our passion for innovative and sustainable mobility.
Key benefits
Electric vehicles produce no CO2 when they are being driven.
This is good for the planet and good for the pocket – electric
vehicles attract a fraction of the company car tax of their fossil
fuel counterparts. Electric vehicles are also less expensive to run
due to significantly reduced fuel costs, which means we can keep
operational costs to a minimum.
Training and telematics
Mitie has developed a suite of training courses for drivers of its electric
vehicles to ensure that they are used safely and with maximum efficiency.
By partnering with the manufacturer, we can guarantee training is
relevant to the vehicle model at hand.
Tapping into clean water
Gather & Gather’s supplier is LifeWater, a British brand that partners
with the charity Drop4Drop to fund clean water projects around the
globe. So far 14 pumps and wells have been built in needy communities
across India and Africa thanks to LifeWater purchases at Gather &
Gather. The most recent was in the village of Bejiman, Mzimba District,
Malawi. Water sources funded through Gather & Gather currently
benefit over 18,000 people and all feature a plaque bearing our catering
arm’s distinctive logo.
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5. Promoting social
innovation
How we align to SDGs:
Aligning to our strategic pillars:
Supporting women
The Mitie Foundation has supported the build of a mini-retail park
inside HMP Foston Hall, a women’s prison in Derbyshire. Mitie
employees have worked in partnership with female prisoners, teaching
the skills of landscaping, groundworks, building, electrical, solar panels,
rainwater harvesting and work ethics. When the park is complete,
female prisoners will be trained to run their own micro-retail business,
supporting them with new skills and experience to build upon on release.
Partnership with Well Grounded
Gather & Gather has been working with social enterprise Well
Grounded to help a broad spectrum of young Londoners into work
as baristas. In FY 17/18, this included a cohort of nine trainees, who
attended a full-time, four-week course at Well Grounded’s East London
academy. Upon training completion, they completed four weeks’ work
experience with Gather & Gather and successfully took up positions
as baristas post graduation.
Mitie continues to work with Well Grounded to assist those who
have struggled to find employment. The second cohort of 10 Well
Grounded baristas began training in FY 18/19.
Volunteering days
In FY 18/19, 151 Mitie colleagues volunteered to assist in a range
of education and community events.
We coordinated 41 careers and World of Work days held in schools
and colleges. Mitie colleagues volunteer to assist, providing positive
business role models and giving students the skills and knowledge to
raise their aspirations and broaden their career horizons. In addition to
this, Mitie Landscapes teams supported the annual Marine Conservation
Society Great British Beach Clean, volunteering to remove litter and
plastic from the UK shoreline; and working with Keep Britain Tidy,
Mitie volunteers attended Saturday morning litter picks to remove
rubbish from the countryside.
Mitie Group plc | Annual Report and Accounts 2019
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Our people
Our promise
to our people
Mitie’s people are our strength. As a major
UK employer with 52,500 colleagues, we
take our responsibility towards our people
seriously. Improving our Employee Value
Proposition has been a key focus in FY 18/19
as we look to consolidate our position as
one of the UK’s most dynamic, forward-
thinking and sustainable FM companies.
We have been busy developing a range
of initiatives to make Mitie a ‘Great Place
to Work’ and an employer of choice.
Upload survey
Listening to our people is as important as listening to our customers.
We launched the Upload survey in April 2018 to ask our people
how they feel about working at Mitie, and what improvements could
be made. This was followed by the ‘You Said, We Did’ campaign
to demonstrate actions undertaken in response to feedback.
There were five key priority areas for improvement:
• Reward and recognition;
• Enabling infrastructure;
• Senior leadership;
• Employee brand; and
• Autonomy and empowerment.
Our 2018 Upload survey proved a vital tool in benchmarking employee
engagement. We relaunched the survey in March 2019 to measure
progress. Following our improvements and our ‘You Said, We Did’
campaign, we have seen employee engagement rise by 12%. In
addition to overall engagement increasing, we have seen perceptions
of leadership improve by +17% and employee brand improve by +12%.
Although we have made significant progress, the results show
that there are still areas where we can improve. The results will
be followed by another ‘You Said, We Did’ campaign in 2019.
We plan to continue to measure engagement annually.
28%
Upload
response rate
45%
Engagement
score
+12%
Improvement in
engagement score
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Mitie Group plc | Annual Report and Accounts 2019
‘You Said, We Did’ campaign
Listening to our people led to the introduction of the following initiatives
in 2018:
Mitie Stars
The Mitie Stars scheme is our way to reward and recognise those
who have gone above and beyond for our customers and colleagues.
By engaging and thanking our people, we are helping to make Mitie
a great place to work. Our colleagues up and down the country
proudly display their badges on their lanyards.
Feel Good Fridays
Feel Good Fridays is a new recognition scheme that gives Mitie people
the opportunity to thank and recognise colleagues for delivering ‘the
exceptional, every day’. Nominations are made via MiNet and thank yous
are published online each Friday.
Long-service awards
We launched the long-service award scheme to celebrate and mark
one, five, 10, 20, 30, 40 and 50 year service milestones with Mitie.
Enhanced maternity policy
In October 2018, we introduced an enhanced maternity package for all
eligible salaried employees, with an additional ‘return to work bonus’
to encourage mothers back after maternity leave. It demonstrates
our commitment to gender equality, our efforts to raise the number
of women in the workforce and our intention to become an employer
of choice for women in FM. The package is detailed below.
• 10 weeks’ pay at full pay inclusive of Statutory Maternity Pay (SMP) –
increasing from the previous allowance of statutory payments only
(six weeks at 90% of average earnings);
• A further 29 weeks at the applicable SMP rate; and
• A ‘return to work bonus’ equivalent to two weeks’ full pay.
We are also introducing enhanced adoption pay arrangements for
those taking adoption leave. An adjustment to paternity provision
is due to be reviewed.
IT improvements
We have invested £1.5m in new laptops for our people, replaced
a significant number of mobile phones, and rolled out a company-wide
upgrade to Windows 10. This has enhanced our cyber security as well
as increased connectivity and collaboration.
The Mitie Roadshow
Mitie’s Executive Leadership Team held nine Roadshows across five
locations in the UK, engaging over 2,000 managers to update on our
transformation journey and listen to our people’s views.
Back to the floor
To increase visibility of our senior leadership team, we have refreshed
the popular ‘back to the floor’ initiative. This is an opportunity for
members of the Group Leadership Team (GLT) to get to grips with
what our front-line people experience every day. Each GLT member
is required to complete two back to the floor visits each year. Besides
assisting with the work, they provide our colleagues with support,
listening events, and recognise and celebrate teams delivering
‘The Exceptional, Every Day’.
These initiatives represent a huge step forward as we seek to engage,
reward, recognise and retain our people.
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Vision and values
Embedding our values into our DNA is enabling a successful
cultural transformation.
During 2018, we articulated a new set of behaviours that
bring our values to life with help from our Mitie Exceptionals,
a group of values champions from every corner of our business.
They were nominated because they ‘live’ our new vision so we
asked them to help us articulate how you deliver our new vision
of The Exceptional, Every Day, every day.
These behaviours now form the basis of all our people policies
and processes, from recruitment and onboarding, through to
performance reviews. The Upload survey 2019 shows that 69%
of our respondents have a good understanding of our values.
• We are One Mitie
• We are built on integrity and trust
• We go the extra mile
• Our diversity makes us stronger
• Our customer’s business, is our business
Gender pay gap report
Mitie Group is required to publish data on two legal entities,
Mitie Limited and Mitie Property Services (UK) Limited, compared
to the 15 legal entities reported in 2017.
As at 5 April 2018, Mitie Group had a mean average gender pay gap of
13.8%, which was lower than the 16.0% gap reported as at 5 April 2017.
The mean bonus gap was 47.3%, which was considerably lower than the
71.0% reported in 2017.
We have made a number of significant changes to reduce the gap,
which include introducing a new people system to enable better
gender and job level reporting, enhancing our maternity pay offering
and setting the strategic objective to increase the number of women
entering science, technology, engineering and mathematics (STEM) roles.
While our gap has improved, we still have work to do in FY 19/20.
2.2%
pay gap
23.7%
bonus gap
Since June 2017, we have welcomed four women to our Board of
Directors (women: 4; men: 4). Women account for 11% of our
Executive Leadership Team (woman: 1; men: 8) and 24% of our
Group Leadership Team (women: 18; men: 57) as at 31 March 2019.
Across Mitie Group female employees account for c.32% of our
workforce (women: 16,800; men: 35,700).
Living Wage Foundation
We want our people to feel valued and engaged and recognise
that wages play an important part in this. Our goal is to become a
Recognised Service Provider with the Living Wage Foundation by 2020,
and we are already paying employees working in Mitie offices the real
Living Wage.
Diversity and inclusion
At Mitie, we are very proud of our rich and diverse culture and
backgrounds – it creates ideas and insights. We believe everyone
should have opportunities to progress, whether that is through working
with amazing customers or individual learning and development.
This year, we were immensely proud to be recognised as 17th on the
Inclusive Top 50 UK Employers list.
Our employee networks help support our agenda by allowing
members to discuss issues affecting them with key decision makers,
assist in formulating new and reviewing existing policies and procedures,
provide a safe space for members to raise their concerns in a
confidential environment, and provide an opportunity for members
to update each other on local and national policy and developments.
Each network is sponsored by a member of the Executive Leadership
Team who is a role model for diversity and inclusion and champions
the agenda across the Group.
Mitie Group plc | Annual Report and Accounts 2019
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Our people continued
Diversity networks
Mitie’s employee diversity networks are designed to support and
champion the following minority groups:
Enable network, disability awareness and support – sponsored by
Simon Venn, Chief Government & Strategy Officer.
Engender network, gender equality – sponsored by Carlo Alloni,
Managing Director, Engineering Services.
Generations network, age awareness – sponsored by Peter Dickinson,
General Counsel & Company Secretary.
Kaleidoscope network, ethnic minorities, particularly BAME
(Black, Asian and Minority Ethnic) – sponsored by Matthew Thompson,
Managing Director, Cleaning & Environmental Services.
Proud To Be network, LGBTQ awareness – sponsored by
Allister Richards, Managing Director, Gather & Gather.
A new start for our new starters
First impressions last, and in FY 18/19 we overhauled the onboarding
process. The purpose is not only to provide an exciting introduction
to their new role at Mitie, but to highlight the opportunities open to
colleagues in the UK’s leading FM organisation. For the first time, we
have a ‘One Mitie’ approach to induction, providing clear and easily
accessible information on our company structure, what we do, our
values, leadership, benefits, tools and systems. All new starters are
required to complete a series of learning modules via our e-learning
platform, the Learning Hub.
Temporary resourcing
Every year, Mitie engages with a significant number of suppliers to find
people required on a temporary basis. The opportunity to reduce cost
and complexity was clear, and to this end in October 2018 we launched
a temporary resourcing team in collaboration with our recruitment
partner, Retinue. Working together, both teams manage the recruitment
of temporary staff across Mitie. The benefits are clear and numerous:
• Simple and fast process via a new technology platform – it takes
52 seconds to raise a job, 64 seconds to book a fully-compliant
candidate and 18 seconds to approve a timesheet;
• Mobile app to use on-the-go, providing quick access to manage
requests and approve timesheets;
• Ensures all suppliers are compliant with right to work and
pre-employment screening checks, providing a clear audit trail
for each worker;
• Consolidated invoicing reduces the time spent on administration,
taking us from 37,000 invoices to one per week per business unit; and
• Reduced costs and consistency of terms.
Permanent resourcing
The next step in our HR transformation is our permanent resourcing
solution, the Talent Hub, launched in early 2019. We are creating an
industry-leading talent and resourcing function to attract, recruit,
develop and retain the best people at all levels.
We will use the best technology in the market to mine new talent and
fill opportunities quickly. Our new Talent Hub platform also allows us to
grow our employer brand and raise awareness of internal career paths.
Apprenticeships
As a major UK employer, Mitie provides a wealth of apprenticeships
taking an ‘apprentice first’ approach to training. We paid £4.7m into
the Apprenticeship Levy scheme in FY 18/19.
660 apprentices are working across our portfolio of contracts.
Our apprenticeship strategy continues to evolve, and we are partnering
with a number of specialist providers to ensure we deliver learning that
meets the needs of the individual as well as the business. We have
ambitious plans to increase apprenticeships by over 100% by 2020.
We recognise the Government’s target of 2.3% apprentices across
the workforce: a target we are set to exceed.
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Learning Hub
At the core of our Learning and Development transformation
is our Learning Hub, an online portal through which employees
can access online development material relevant to their role,
mandatory material, our induction, a wealth of self-selected
development material, as well as health and wellbeing modules.
The Learning Hub is Cloud-based and can be accessed on any
device connected to the internet, allowing colleagues to access
courses and content at a time and place that suits them. In the
five months since launch in October 2018, Mitie colleagues
completed 40,000 Learning Hub courses. There are 2,500
instructor-led courses as well as 900 Learning Hub activities
available, which range from informative documents and
infographics to eight-hour seminars.
40,000
Learning Hub
courses completed
2,500
instructor-led
courses
900
Learning Hub
activities available
Sales Academy
January 2019 marked the beginning of an exciting new era for Mitie’s
Sales community: the launch of the Mitie Sales Academy. The first
cohort of 12 colleagues began a year-long apprenticeship that culminates
in Level Four sales certification from the Association of Professional Sales
(APS). Apprenticeship Levy funding has enabled us to create our first
professional Academy which creates an Academy blueprint for other
professional apprenticeship programmes to be launched in 2019.
LiveSafe
We are constantly striving to develop a zero-harm workplace.
Coordinated by Mitie’s Quality, Health, Safety and Environment (QHSE)
team, our LiveSafe programme launched in December 2018 in order to
constantly improve Quality and HSE performance across the business.
LiveSafe is underpinned by a set of principles and rules that will help us
keep ourselves, our colleagues and those affected by our operations safe.
Extensive supporting material is available on the designated LiveSafe
intranet page, and a series of workshops has been rolled out across
the country.
People Hub
Launched in October 2018, the People Hub is a
one-stop-shop for all things related to the employee lifecycle.
It provides colleagues with 24/7 access to their personal
employee profiles, allowing them to manage everything from
viewing payslips, to requesting and approving leave requests.
The People Hub is paperless and all new employees are
onboarded electronically with DocuSign. For the first
time at Mitie, our organisational hierarchies are visible.
24/7
People Hub provides colleagues with
24/7 access to their personal profile
Our promise to our people
is to create a place where
they can thrive and be their
best every day.
Jo Davis,
Group HR Director
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Awards
Mitie’s far-reaching efforts to improve our employee value
proposition have not gone unnoticed and we were the
only FM provider to be recognised by two prestigious
awarding bodies:
• 17th place on the Inclusive Top 50 UK Employers list,
the definitive round-up of UK organisations promoting
diversity and inclusion across disability, gender, age,
LGBT and race.
• Certified a 2019 Top Employer by the Top Employer
Institute Certification Programme. The award is made
to employers who lead the way in forward-thinking,
people-first HR practices.
Employee involvement in Company performance
Mitie encourages the involvement of employees in the Company’s
performance through the annual bonus scheme and various share
schemes. During the year, invitations to join the Company’s Save As
You Earn share option plan were distributed to all eligible employees.
Employees can also participate in a Share Incentive Plan.
Engaging with our people
As part of our ongoing commitment to improving employee
engagement, we have implemented a new employee communication
channel strategy which includes additional channels promoting direct
engagement between managers and their teams and encouraging regular
employee feedback. These include the monthly Mitie Download, our
team briefing document for managers, and weekly Recap news email.
These are supported by digital engagement channels including Yammer.
Our aim is to ensure our employees are fully aware of and feel
supported through our transformation journey. We provide regular
updates on financial and economic factors affecting our company’s
performance, and the important role each employee plays in Mitie’s
future success. Our specific focus is on our front-line workforce,
and we will be implementing several new digital channels as we
continue to improve how we engage with our people.
Mitie Group plc | Annual Report and Accounts 2019
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Principal risks and uncertainties
Effective risk
management
Our risk management approach
Our approach to risk management is
regularly reviewed by the Board and
Executive Leadership Team and continues
to evolve in line with our business structure
and risk profile. We recognise that to have
an effective risk management framework,
we need to develop appropriate risk
management culture, controls and supporting
processes. Our ‘One Mitie’ Vision and Values
and Enterprise Risk Management policy have
an important role to play in this regard.
Further information can be found in the
Board report on pages 56 to 61.
Risk management structure
Our risk management structure is designed
to ensure a consistent approach to the
identification, assessment, monitoring and
management of risks across the business.
This is set out in more detail below and
in the Board report on pages 59 and 60.
Areas of focus
Our focus during the year has been on
standardising and simplifying processes,
procedures and associated IT systems
in the Group, including:
• Simplification of the
organisational structure;
• Clarity of reporting lines for
central functions;
• IT, financial and operational systems
improvements across the business;
• Improvements to cyber security controls
across all systems and infrastructure;
• Deployment of an improved
incident recording, monitoring and
reporting system;
• Deployment of a new HR resourcing
system across the Group;
• Launch of online training and
development hub;
• Simplified approach and consistent
process to both temporary and
permanent recruitment;
• Outsourcing of back-office finance
transactional processes to Genpact; and
• Outsourcing of application maintenance
IT processes to Wipro.
Our risk management framework
Top down
Strategic risk management
Bottom up
Operational risk management
• Review external environment
• Robust assessment
of principal risks
• Set risk appetite
and parameters
• Determine strategic
action points
• Assess effectiveness of
risk management system
• Report on principal risks
and uncertainties
Board/Audit
Committee
• Identify principal risks
• Direct delivery of strategic
actions in line with risk appetite
• Monitor key risk indicators
Executive
Leadership
Team
• Consider completeness of
identified risks and adequacy
of mitigating actions
• Consider aggregation of risk
exposure across the business
• Execute strategic actions
• Report on key risk indicators
Divisions
• Report current
and emerging risks
• Identify, evaluate and mitigate
operational risks recorded
in risk register
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New and emerging risks
We continuously monitor our internal and external environment to
ensure that any new or emerging risk is identified in a timely manner
and responded to appropriately. As a result of the Principal Risks
assessment, new risks relating to structural complexity, market share
and incident at client site have been identified.
Risk management structure
Board and Audit Committee
Executive Leadership Team
Internal Audit
Our strategic pillars
Responsibility
Process
Board
The Board has overall responsibility for the
approach to risk management and internal
control, including the annual assessment
of the effectiveness of the internal control
and risk management framework.
Executive Leadership Team
Ownership and responsibility for
operating risk management and
controls are delegated to the
Executive Leadership Team.
Internal Audit
Internal Audit is responsible for providing
assurance to the Audit Committee that the
risk management, governance and internal
controls processes are adequate and
operating effectively.
• Vision and Values statement and Code of Conduct approved by the Board and communicated
to employees – setting tone at the top.
• Review of the Group’s strategy by the Board and the setting of risk appetite for the Company.
• The Board through the Audit Committee reviews the effectiveness of the internal control and
risk management framework on a yearly basis.
• The Board set the frequency and scope of its discussion on strategy, business model and risk.
• The Board reviews principal risks on a yearly basis.
• The Audit Committee, which comprises independent Non-Executive Directors, reviews
internal audit reports on a regular basis
Mitie’s focus is to operate a ‘three lines of defence’ model for effective risk management
and monitoring:
First line of defence
• Core set of business policies available on the Company’s intranet – setting out
management’s expectations.
• Maintenance of risk registers at business unit and function level. Risk registers are also
maintained for major contracts.
Second line of defence
• Enterprise Risk Management policy is in place and available to employees.
• Enterprise Risk function is in place.
• QHSE compliance function operates to ensure adherence with the Company’s QHSE policies.
• Formation of audit and risk committees operating at business unit levels.
Third line of defence
Internal Audit acts as a third line of defence.
• The Head of Internal audit reports functionally to the Chair of the Audit Committee.
• The Internal Audit function targets its work at areas of the business where risk management
and internal controls are suspected of requiring improvement. In addition, the Internal Audit
plan is linked with the Principal Risks to ensure adequate coverage of the risk areas.
• The in-house Internal Audit team uses Grant Thornton to support its work, where appropriate.
Mitie Group plc | Annual Report and Accounts 2019
39
Principal risks and uncertainties continued
Risk
Impacts
Risk
Impacts
New risk
New risk
1 Political
Political and economic uncertainty in the UK
may adversely affect our customers’ approach to
outsourcing decisions and our ability to plan and
invest. The lack of clarity of the timing and impact
of Brexit adds further uncertainty.
2 Structural complexity
Mitie has historically operated using complex manual
processes and an organisational model with a high
and misaligned cost base, rather than leveraging its
technology. If we do not address these issues we
will be unable to execute client contracts efficiently,
resulting in sub-optimal customer experiences and
erosion of sustained profitable growth.
3 Cyber
Failure of critical infrastructure, including through a
cyber-attack, could affect client delivery operations
and cause critical delays in internal processes.
4 Funding
Inability to maintain access to and renew suitable
sources of funding due to a perceived risk in both our
business and the sector as a whole, may impact our
ability to maintain profitable business performance.
5 Legal
Failure to comply with applicable laws and
regulations may lead to fines, prosecution
and damage to our reputation.
7 Health, safety and environment
Failure to maintain appropriately high standards
in health, safety and environmental management
may result in harm to employees, client staff or
members of the public, and consequential fines
and reputational damage.
8 Incident at client site
A high-profile incident or accident occurring at
an FM client site, or a location operated by our
Care & Custody business, as a result of negligent
staff actions, inconsistent vetting or ineffective
training and communications for staff, could
have a significant impact on our reputation and
current and future contracts.
9 Data management
Ineffective processes and controls to manage our
data and customers’ data may result in a major
data breach leading to fines, remediation costs
and reputational damage.
10 Employees
Inability to recruit, retain and reward suitably
talented employees, as well as failure to implement
appropriate development plans, simple consistent
processes across the business and a One Mitie
approach, could negatively impact our operational
and financial performance.
11 Market sentiment
Negative sentiment towards the outsourcing
sector could lead to fewer opportunities, including
reduced IFM volumes, and challenges to our
business model and profit growth.
6 Market share
A loss of market share through competitors
improving their offering and price, and potentially
targeting some of our key contracts, or from new
entrants deploying new business models, could have
a significant impact on our revenue and profit.
New risk
12 Contract losses
If we do not ensure that we produce bids for
contracts which are competitive, financially viable
and have a balanced approach to risk, and/or fail
to deliver on our contract obligations, we may
damage our client relationships, which may lead to
cancellation of contracts resulting in financial losses.
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Our strategic pillars
Change in year
Customer: build market-leading positions in higher
Decreased
growth segments and increase customer NPS
People: create a ‘Great Place to Work’
for our employees
Cost: strengthen our balance sheet and maintain
cost discipline to remain competitive
Stayed
the same
Increased
Technology: embed technology into the heart
of our offering
V
Viability
statement
Principal risks and uncertainties
Controls and mitigating actions
Future plans
• Ensure the focus on strategic
accounts generates growth
opportunities
• Maintain dialogue with key public
and private sector clients to
demonstrate the value we offer
• Leverage the most appropriate
opportunities through the Crown
Commercial Services Framework
to increase public sector contracts
• Maintain blend of public and
private sector clients
• Appointment to the Crown
Commercial Services Framework
• Appointment of Chief
Government & Strategy
Officer and team
• Regular reviews of sales
opportunities by all business
sales leaders
• Dedicated account managers
to focus on integrated
strategic accounts
• Focus on high-margin opportunities
with growth potential
• Drive for greater customer
retention through improvements
in the value we deliver
• Development of new and
innovative service offerings
• Successful delivery of Project
Helix and other improvement
and simplification initiatives
• IT, financial and operational systems
improvements across the business
• Outsourcing of back-office
functions in IT and Finance
• Simplification of the business
structure into divisions
• Clarification of accountabilities
and responsibilities, particularly
for strategic accounts
• Focus on sourcing and
procurement processes to
simplify supplier base and
leverage cost opportunities
• Use of digital technologies for
customers and employees
• Successfully complete
improvement projects for IT
systems in Engineering Services
• A comprehensive review of
end-to-end processes across the
business to improve efficiency
and control, remove unnecessary
tasks and reduce costs. A Digital
Transformation Officer has already
been appointed who is responsible
for this initiative
• Legal entity rationalisation
• Finance modernisation programme
• Commence a further
transformational review
to simplify the business
1 Political
Political and economic uncertainty in the UK may adversely affect our
customers’ approach to outsourcing decisions and our ability to plan
and invest. The lack of clarity of the timing and impact of Brexit adds
further uncertainty.
Impacts on:
Change in year:
V
As the vast majority of Mitie’s client base is within the UK, we are
particularly exposed to uncertainties in the UK’s political and economic
landscape. A major aspect of this uncertainty continues to be the ongoing
negotiations for the UK to leave the European Union (Brexit). This may
result in changes to the regulatory framework, as well as restrictions in the
supply of labour and materials.
Political and economic factors also influence the decisions taken by both public
and private sector clients on which activities should be outsourced and the
amount of discretionary spend available for outsourcing activities. This may
result in fewer opportunities for Mitie and have a consequential negative
impact on our financial performance.
It is important that we are able to offer competitive, innovative and high-quality
solutions to clients, and demonstrate the value we bring to them. We also need
to ensure that we carefully monitor and identify the most appropriate
opportunities in both the public and private sectors.
2 Structural complexity
Mitie has historically operated using complex manual processes and an
organisational model with a high and misaligned cost base, rather than
leveraging its technology. If we do not address these issues we will be
unable to execute client contracts efficiently, resulting in sub-optimal
customer experiences and erosion of sustained profitable growth.
Impacts on:
Change in year:
V New risk
Mitie’s business and organisational model has evolved with a large number
of unnecessary complexities, including multiple and inconsistent processes,
isolated IT systems, and unclear organisational and reporting structures.
These complexities have required a disproportionately high cost base in
order to maintain them.
The business transformation project (Project Helix), and a number of other
improvement initiatives over the past two years, have made substantial
progress, but further work is required to simplify and standardise these
underlying processes and to ensure that we are able to deliver acceptable
margins and growth from our business.
We are continuing to address internal costs by leveraging the opportunities
from outsourcing back-office functions, including in Finance and IT. In addition,
we are investing in IT systems improvements across the business, notably
in Engineering Services, HR and Finance. We will also continue to simplify
end-to-end processes and the structure of the organisation.
Mitie is now embracing technology to deliver a digital experience to both
internal and external users. If we fail to do this we could be unable to deliver
profitable growth, our opportunities to invest in new technology and offerings
could be limited and our bids could be uncompetitive.
Mitie Group plc | Annual Report and Accounts 2019
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Principal risks and uncertainties continued
Principal risks and uncertainties
Controls and mitigating actions
Future plans
• Clear strategy to invest in
• Upgrade to the Engineering
Services operational and financial
systems to improve security
and efficiency
• Look for opportunities to
leverage the outsource partner’s
development capabilities
technology improvements, both in
internal systems and client offering
• Outsourcing of routine IT
operations to partner organisation
to improve resilience and controls
• Upgrades to legacy systems to
reduce complexity and improve
management information
• Rationalisation of ERP systems
and infrastructure
• Leveraging new technologies
such as AI and big data
• Maintenance and testing of
effective disaster recovery plans
• Improvements to cyber security
controls across all systems
and infrastructure
• Dedicated IS PMO to ensure
all projects with an IS element
are managed effectively and
risks are minimised
• Regular forecasting of cash
• Continue to work with a
flow and net debt
• Thorough focus on working capital
cycles with a clear set of KPIs
• Maintenance of strong banking,
debt and equity relationships
• Strong focus on and monitoring
of cash collection
• Regular reviews of payment terms
with customers and supply chain
range of financial institutions to
ensure we can access affordable
finance sources
• Focus on working capital
processes to reduce cycle
times and average net debt
• Improve accrued income and
billing processes
3 Cyber
Failure of critical infrastructure, including through a cyber-attack,
could affect client delivery operations and cause critical delays
in internal processes.
Impacts on:
Change in year:
V
The reliability and effectiveness of our technology is vitally important to
ensure that we can meet our contract obligations, deliver improvements
in operational processes, generate meaningful management information
and help deliver value for our clients. In many cases clients rely upon us
to look after their critical data and infrastructure.
We are continuing to invest in technology to simplify our business, as well
as improving resilience and security to protect against systems failure or a
cyber-attack. During the year we have commenced an upgrade programme
to ensure we meet the Government’s Cyber Essentials Plus requirements.
This has involved a substantial programme to upgrade and replace computers
within the organisation. We have also delivered a number of system
improvements in the year including People Hub, a standardised and
integrated HR solution.
We have also outsourced our routine IT operations to a partner which will
help improve efficiency and effectiveness and build in greater resilience to
failures. This also allows us to focus on higher value technology developments
for clients. We will continue to invest in systems and technology to replace
the legacy estate, automate processes and ensure the smooth and efficient
operation of our business. It is also important to have effective business
continuity and disaster recovery plans, and this is another key focus.
4 Funding
Inability to maintain access to and renew suitable sources of funding
due to a perceived risk in both our business and the sector as a whole,
may impact our ability to maintain profitable business performance.
Impacts on:
Change in year:
V
In order to be able to meet our financial commitments, we need to have access
to a number of affordable sources of finance. Our core debt facilities include
a revolving credit facility and private placement loan notes. We need to have
sufficient liquidity to be able to pay suppliers and staff, whilst also investing in
the business and ensuring that we have enough options for profitable growth.
In the past few years there has been significant concern about the financial
strength and viability of companies operating in our sector. This has continued
during the year with a number of high-profile incidents occurring relating to
our competitors. Any actual or perceived weaknesses in our financial position
could restrict our access to finance or attract high interest rates.
We have been focused on maintaining strong financial discipline in the
management of our working capital and investment decisions and on
minimising our levels of debt. This has included working with our back-office
process outsource partner to improve processes and efficiency.
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Change in year
Customer: build market-leading positions in higher
Decreased
growth segments and increase customer NPS
People: create a ‘Great Place to Work’
for our employees
Cost: strengthen our balance sheet and maintain
cost discipline to remain competitive
Stayed
the same
Increased
Technology: embed technology into the heart
of our offeringour offering
V
Viability
statement
Principal risks and uncertainties
Controls and mitigating actions
Future plans
• Introduction of further mandatory
training courses to relevant
employees via our Learning Hub
• Ongoing review of BMS to update
policies and procedures
• Deployment of strategic account
managers for key contracts
• Complete Project Forte
launched to improve IT
systems in Engineering Services
• Regular monitoring of legal
and regulatory changes by
Group Functions including
Company Secretariat, Legal
and Quality, Health, Safety
and Environment (QHSE)
• Code of Conduct communicated
to all employees
• Group-wide policies updated for
changes to laws and regulations and
maintained in the online Business
Management System (BMS)
• Regular and thorough external
regulatory audits
• Training and awareness material
communicated to employees
and monitoring of completion
performed
• Externally hosted whistleblowing
service available
• Continued focus on simplifying
business processes and structure
• Investment in new and innovative
technologies – including
Connected Workspace
• Focus on client relationships
and Net Promoter Score
• Regular reviews of sales
opportunities arising
• Replacing and upgrading
operational and financial systems
• Standard processes and tools
for sales and CRM teams
5 Legal
Failure to comply with applicable laws and regulations may lead to fines,
prosecution and damage to our reputation.
Impacts on:
Change in year:
V
Our business is subject to a wide range of laws and regulations. Given
the nature of our business, these include, amongst others, health & safety,
employment, anti-bribery and corruption and statutory wage requirements.
Failure to comply with applicable laws and regulations could result in
prosecution and/or significant fines, and, from a reputational perspective,
could damage our relationships with clients and our ability to win work.
We may also face debarment from public sector contracts.
We continue to ensure that we have effective governance and oversight
of our compliance with applicable laws and regulations and continuously
assess the impact of changes in relevant legislation. It is also important that
we provide appropriate communications and training for our people to
ensure that they are aware of their obligations, and that regular monitoring
of compliance is undertaken.
6 Market share
A loss of market share through competitors improving their offering and
price, and potentially targeting some of our key contracts, or from new
entrants deploying new business models, could have a significant impact
on our revenue and profit.
Impacts on:
Change in year:
V
New risk
In the recent past, many companies in our sector have experienced financial
and operational difficulties, and as a result there has been a strong focus on
strategy, costs, investments and business structure. For those organisations
that have successfully addressed their issues there may be opportunities
to increase market share through more competitive or innovative offerings,
which may impact our ability to retain current clients and win future business.
Additionally, there is also the possibility of a new entrant disrupting the market
by deploying a new low-cost business model for FM, potentially through
a technology platform, which would challenge the structure and approach
of the existing organisations, including Mitie. This could also potentially
significantly erode our market share and decrease new opportunities.
It is important that we continue to prioritise the transformation of our
business, particularly through improving processes and simplifying business
structure, focusing on minimising costs and developing innovative solutions
for clients, such as the Connected Workspace. In this way, we will be able
to deliver genuine value for current and future clients.
Mitie Group plc | Annual Report and Accounts 2019
43
Principal risks and uncertainties continued
Principal risks and uncertainties
Controls and mitigating actions
Future plans
• Build on the principles of LiveSafe
and ensure regular communication
and engagement with staff
• Transition from OHSAS health
and safety management system
to ISO45001
• Review and further testing of
business continuity and crisis
response plans
• Transition from OHSAS health
and safety management system
to IS045001
7 Health, safety and environment
Failure to maintain appropriately high standards in health, safety and
environmental management may result in harm to employees, client staff
or members of the public, and consequential fines and reputational damage.
Impacts on:
Change in year:
V
As a company we are committed to maintaining the highest levels of health,
safety and environmental (HSE) standards. The services we deliver could
potentially present an increased risk of a health and safety incident involving
our employees, client staff or even members of the public. Our activities also
carry a risk of damage to the environment. It is essential that we manage these
risks in a highly diligent and effective manner.
At all levels in the organisation, safety is our number one priority and we
ensure that all risks are properly assessed and managed, our employees
are trained, our expectations of how they perform their work are clearly
explained, and adherence to health and safety standards is regularly monitored.
If we do not manage these risks appropriately, it could lead to harm to
individuals and damage to the environment, and consequently prosecution,
fines and significant damage to our reputation.
8 Incident at client site
A high-profile incident or accident occurring at an FM client site,
or a location operated by our Care & Custody business, as a result
of negligent staff actions, inconsistent vetting or ineffective training
and communications for staff, could have a significant impact on
our reputation and current and future contracts.
Impacts on:
Change in year:
V
New risk
We deliver services to clients at a number of important and high-profile sites
across the country. These include locations with substantial historical and
cultural significance and high level of scrutiny by governmental bodies, media
organisations and the general public. If a major incident occurred at one
of these sites, whether through the negligent or deliberate act of Mitie
employees, it could attract a large amount of publicity and have a highly
negative impact on our reputation. It would also be likely to limit our
chances of winning future contracts and potentially retaining current clients.
In order to make sure we manage this risk, it is important that we have
appropriate polices and processes in place, which clearly set out the
expectations of our employees. We also need to communicate these
effectively and deliver regular and relevant training to employees. In addition,
it is important that we ensure our employees have been appropriately
vetted to determine who is eligible to work on particular contracts and sites,
so that we are able to meet the specific requirements of our clients.
It is also necessary to have effective business continuity plans in place for
our operations, so that we can continue to deliver a high-quality service
to clients in the event of a disruptive incident. Should an incident occur, a
comprehensive and tested crisis response plan is essential to ensure that
we would be able to minimise the impact on our employees and clients,
the public and the environment.
• A comprehensive QHSE
strategy has been developed
• Major cultural HSE programme,
LiveSafe, launched in the year, with
clear rules and training for staff
• Regular training and
communication delivered
throughout the company, in
accordance with LiveSafe principles
• Certified H&S management
systems to OHSAS 18001
and environmental system
to ISO14001
• Deployment of an improved
incident recording, monitoring
and reporting system
• Regular HSE reviews conducted
at divisional and Group level
• Clear and standardised KPIs
introduced to monitor progress
and improvements
• Targeted QHSE procedural audit
programme introduced
• Custodial operations working
within Standard Operations
Procedures (SOP), bespoke
to each site for Care &
Custody business
• Contingency plans are regularly
tested and compliance to
SOPs regularly audited for
Care & Custody sites
• Health and safety strategy –
LiveSafe programme launched
this year as part of the strategy
• Certified H&S management
systems to OHSAS 18001
and environmental system
to ISO14001
• Comprehensive training plans
on safety, security and risks
• Regular updates to employees
on new safety and operational
requirements
• Internal and external
compliance audits
• Effective vetting programme
tailored to the individual risks
of each client and site
• Tested business continuity and
crisis response plans
• Standardised and comprehensive
investigation process
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Our strategic pillars
Change in year
Customer: build market-leading positions in higher
Decreased
growth segments and increase customer NPS
People: create a ‘Great Place to Work’
for our employees
Cost: strengthen our balance sheet and maintain
cost discipline to remain competitive
Stayed
the same
Increased
Technology: embed technology into the heart
of our offering
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Viability
statement
Principal risks and uncertainties
Controls and mitigating actions
Future plans
9 Data management
Ineffective processes and controls to manage our data and customers’
data may result in a major data breach leading to fines, remediation costs
and reputational damage.
Impacts on:
Change in year:
V
One of the most important assets we have is the data we hold, which includes
information concerning our business operations, employees, clients, suppliers
and others. This information is vital to enable us to run our business efficiently
and profitably. We need to maintain adequate controls to mitigate risks
associated with loss or theft of data which would damage our reputation
with clients and potentially expose us to significant fines from regulators.
In order to ensure confidential and sensitive data is processed, transmitted
and stored securely, we have implemented formal technical and procedural
controls. These controls are deployed across our IT systems and are subject
to regular review and testing. Effective information security procedures help
to prevent or minimise the impact of any breaches of security.
We have an ongoing programme of work to ensure we are compliant with
the requirements of the General Data Protection Regulation (GDPR).
10 Employees
Inability to recruit, retain and reward suitably talented employees, as
well as failure to implement appropriate development plans, simple
consistent processes across the business and a One Mitie approach,
could negatively impact our operational and financial performance.
Impacts on:
V
Change in year:
It is important for the success of our business that we continue to recruit,
develop, motivate and retain talented individuals. If we are unable to do so
there would be an adverse impact on the profitable and successful delivery
of our contracts, and we would be limited in our ability to win future
opportunities and grow the business.
We need to have the right level of experience and expertise available and be
able to develop a culture of high standards of achievement, compliance to the
Mitie values and good governance and control. In order to achieve this, we also
need to provide development opportunities for our employees to enable them
to reach their full potential.
In addition, it is important that we maintain a stability and consistency in our
senior leadership team to provide high-quality direction for the business and
deliver our strategy.
An important element of the culture is ensuring that we have a One Mitie
way of operating and collaborate effectively across the business. This will
give greater consistency in processes and controls and allow for seamless
movement of staff across the Group.
• Centralised information security
• Regular reviews of information
management to ensure
compliance with GDPR
• Expansion of dedicated data
privacy team
• Ensure seamless transition to
IT outsource partner with data
standards maintained
• Working towards achieving
cyber essential plus accreditation
team in place
• Information Security Management
System (ISMS) in place and
certified to ISO/IEC27001:2013
for key information assets
• IT security controls in place to
proactively test, monitor, identify
and respond to cyber threats
• Information security
requirements established on
all new projects, including
outsourcing of routine operations
• Cyber essential accreditation
• Cyber insurance policy
• Deployment of new HR resourcing
• Further enhance online HR
and training systems
• Launch of new induction
programme, mandatory for
new starters
• Salary benchmarking
• New competency framework
to be developed
system across the Group
• Launch of online training and
development hub, People Hub
• Simplified approach and consistent
process to both temporary and
permanent recruitment
• Regular communications from
leadership team – including ELT
country-wide roadshow
• Specific plans developed to address
results of employee survey
• Competitive remuneration,
terms and conditions
• Training and development
programmes for senior leadership
• Regular employee offers
• Developed talent
identification, management
and development plans
• Succession plans are in place
for critical roles, especially for
the senior leadership team
• Clear performance
management framework
Mitie Group plc | Annual Report and Accounts 2019
45
Principal risks and uncertainties continued
Principal risks and uncertainties
Controls and mitigating actions
Future plans
• Further improvement and
transformation opportunities
to be explored
• Post sales review of loss-making
contracts to ensure we identify
and apply lessons learned for
our future bids
• Inclusion and maintenance
on Crown Commercial
Service Framework
• Dedicated management
of strategic accounts
• Regular financial
performance reviews
• Focus on improving Net
Promoter Score
• Strong relationships with
financial institutions
• Process and IT systems
improvement programmes
• Long-term contract portfolio
and spread of client base
• Bid Committee approval
for complex bids
• Detailed contracting guidelines
developed and rolled out
• Clear delegated authorities register
• New Sales and CRM teams in place
• Use of specialist mobilisation teams
for complex contracts
• Strategic account management
• Risk registers in place for
large-scale contracts
• KPI/SLA formal reviews
with customers
• Improved CRM capabilities with
active relationship management
• Focus on Net Promoter Score
• Launch of Sales Academy to
train sales teams
• Appointment of Chief
Government & Strategy Officer
to coordinate all interfaces with
the Cabinet Office
11 Market sentiment
Negative sentiment towards the outsourcing sector could lead to fewer
opportunities, including reduced IFM volumes, and challenges to our
business model and profit growth.
Impacts on:
Change in year:
V
In the past two years, the activities and results of a number of companies
operating in our sector have generated significant negative publicity, which
potentially affects Mitie’s reputation and raises concerns with current and
future clients. This has included the liquidation of Carillion and the
administration of Interserve. The viability of outsourced facilities management
companies to deliver operational performance to sufficiently high standards,
whilst also managing costs appropriately, has been the subject of much scrutiny.
In particular, the opportunities for integrated facilities management contracts
may decrease in both the public and private sector, as organisations look to
spread the risk of these services amongst a greater number of providers.
In order to address these concerns, it is important that we are able to
consistently deliver a high-quality and valued service on our existing contracts
and demonstrate this to potential new clients. We need to ensure that we
develop and maintain a business model and offering which can successfully
deliver profitable growth and exploit new opportunities as they arise, whilst
adapting to the needs of the market.
12 Contract losses
If we do not ensure that we produce bids for contracts which are
competitive, financially viable and have a balanced approach to risk,
and/or fail to deliver on our contract obligations, we may damage our
client relationships, which may lead to cancellation of contracts resulting
in financial losses.
Impacts on:
Change in year:
V
In order to deliver consistent and profitable growth, it is important that
we continue to bid for and secure contracts at acceptable margins. It is also
essential that we successfully mobilise and deliver our contracts. In order
to achieve this, we must monitor and control costs, deliver on the contract
obligations and meet client expectations.
We need to develop competitive bids, which provide a fair balance of risk and
reward that is properly reflected within the contract terms and conditions.
Our offering needs to be compelling and innovative and provide a balance
between cost and margin pressure, which is a key feature of the sector in
which we operate. It is also important to make sure we have the skills and
resources available to execute on our contracts successfully.
Once we have mobilised the contracts, we need to monitor a relevant set
of Key Performance Indicators (KPIs) to ensure that we are delivering on
the obligations to which we have agreed and communicating with clients to
understand if they are satisfied with our performance. It is also important to
assess and agree any variations to the contract services and terms and amend
the KPIs accordingly.
If we are unable to deliver the services as agreed in our contracts, it could
negatively impact our customer relationships and reputation and lead to
legal disputes and termination of contracts. This could then lead to potentially
failing to retain existing clients and secure new contracts, with a detrimental
effect on our financial performance.
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Mitie Group plc | Annual Report and Accounts 2019
Viability statement
Viability
statement
The Group’s strategic report (pages 1 to 48) contains information on the Group’s strategy (pages 11 to 13),
business model (pages 8 and 9) and market review (page 10), as well as principal risks and uncertainties
(pages 38 to 46). The key factors affecting the Group’s prospects are:
• Mitie is the leading UK FM business with 4% of the market;
• The outsourcing market is relatively insensitive to economic cycles;
• The Group has a diverse portfolio of blue-chip and public sector clients, the largest of which
constitutes <10% of revenue;
• We have a clear vision for our technology centric growth strategy; and
• We are making good progress in our transformation programme.
The Directors believe that a three-year period is appropriate for their viability assessment as it is
supported by the Group’s strategic, budgeting and business planning cycles and is relevant to the duration
of 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.
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 includes 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 pages 59 to 61, are considered.
In undertaking its viability assessment, as a base case, the Board has used the agreed budget for FY 19/20,
which includes analysis of the forecast performance of the Group’s existing contract base, expectation
for future growth including sales targets and expected win rates, and overhead cost base. Based on this
budget, further projections for viability purposes have been made using prudent assumptions for:
• Modest revenue and margin growth beyond FY19/20;
• No major changes in working capital;
• Invoice discounting continuing to decrease over time;
• Future dividends in line with current policy;
• Settlement of existing provisions according to best estimates together with funding costs for ongoing
transformation activities;
• No changes to group structure; and
• No additional capital beyond current committed debt facilities.
The resulting financial model assesses the ability of the Group to remain within the financial covenants and
liquidity headroom of the existing committed debt facilities. During the forecast period, £40m of the US
Private Placement notes mature and the model assumes these are not refinanced. The £275m revolving
credit facility also matures in the forecast period and the Directors consider it reasonable to assume this
will be refinanced on materially similar terms. The Group also utilised £73m of invoice discounting at 31
March 2019, which the Group is not dependent upon for liquidity, covenant compliance or viability
purposes in the base case scenario.
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Viability statement continued
A range of scenarios that encompass the principal risks were applied to the base case and are set out
in the table below. The analysis also considered a reverse stress-test scenario to illustrate the working
capital outflow required to cause a breach of leverage covenant, in combination with the reduced
revenue scenario.
1
2
3
4
5
6
Scenario
Loss of major contract – lost revenue and operating profit in all
future periods
Major client insolvency – lost revenue, operating profit and cash flow,
plus one-off costs equivalent to three months’ revenue
Major working capital outflow – £100m
10% revenue reduction
Margin erosion
Principal risks
1, 2, 3, 12
1
4
1, 2, 3, 5, 6, 7, 9, 11, 12
1, 2, 7, 8, 10, 12
Reverse stress test – revenue loss and working capital outflow in
combination to covenant breach
N/A
In each of scenarios 1-5, the Group would be able to continue operating within debt covenants and
liquidity headroom, and maintain dividends in line with current policy. Scenario 6 required such an
extreme set of factors in unison that it is considered to be a very remote likelihood and therefore
does not represent a realistic threat to the viability of the Group.
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, reductions in cash distributions or raising equity.
Based on this assessment, the Directors have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over the three-year period considered.
The strategic report on pages 1 to 48 of Mitie Group plc, company registration number SC019230
was approved by the Board of Directors and authorised for issue on 5 June 2019.
It was signed on its behalf by
Phil Bentley
Chief Executive Officer
Paul Woolf
Chief Financial Officer
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Board of Directors
Chairman’s introduction
to Corporate Governance
Governance at a glance
The Board
Audit Committee
Nomination Committee
Directors’ remuneration report
Directors’ report: other disclosures
Directors’ report: statement of
Directors’ responsibilities
Exceptional,
every day
for our
environment
In FY 18/19 Mitie signed the Clean Van
Commitment which builds on our promise to
ensure 20% of our small van and car fleet is
electric within the next two years. We also
ordered 400 electric vehicles to support the
fight against climate change and air pollution.
Mitie, which has a fleet of 3,500 compact vans
and cars, will run more than 700 electric
vehicles by the end of 2020.
Mitie has also been accredited as a Go Ultra
Low company, under a scheme jointly run
by Government and vehicle manufacturers,
which has 160 signatories. Mitie joins
other companies that have committed to
increase the number of electric vehicles
in their fleets.
Read more on PG 31-32
52%
reduction in energy
consumption across
Mitie estate
since FY 09/10
37%
reduction in
emissions intensity
since FY 09/10
Mitie Group plc | Annual Report and Accounts 2019
49
Board of Directors
An experienced
Board of Directors
Derek Mapp
Non-Executive Chairman
Phil Bentley
Chief Executive Officer
Paul Woolf
Chief Financial Officer
Board Committees
Chairman of the Nomination Committee
Board Committees
None
Board Committees
None
Date of appointment to the Board
9 May 2017
Date of appointment to the Board
1 November 2016
Date of appointment to the Board
13 November 2017
Other current appointments
Derek is Chair of Informa plc and private
companies: Imagesound Limited and Salmon
Developments Limited. Derek also has several
other private business interests.
Past roles
Derek was Chair of Huntsworth plc from
December 2014 to March 2019. He was also
previously Chief Executive Officer of Tom
Cobleigh plc and Chair of Leapfrog Day
Nurseries Limited, East Midlands Development
Agency, Sport England and British Amateur
Boxing Association Limited.
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; and
• Promotes robust debate and an open and
engaged culture.
Other current appointments
None
Other current appointments
None
Past roles
Phil was Group Chief Executive Officer of Cable
& Wireless Communications plc from January
2014 until its sale to Liberty Global plc in May
2016. Prior to this he was a member of the
board of Centrica plc from 2000 to 2013 whilst
also Managing Director of British Gas from 2007
to 2013, Managing Director, Europe from 2004
to 2007 and Group Finance Director from 2000
to 2004. Phil’s prior non-executive directorships
include IMI plc from 2012 to 2014 and Kingfisher
plc from 2002 to 2010.
Skills and experience
• Executive and non-executive experience with
FTSE 100 companies for over 18 years;
• Significant strategic and commercial experience
at both national and global level;
• Extensive executive and leadership experience
from across industry;
• Extensive financial, audit and risk management
systems experience; and
• Accountant by profession, with a master’s
degree from Oxford University and an MBA
from INSEAD, Fontainebleau.
Past roles
Paul was Chief Executive Officer of Virgin Active
Health Clubs from September 2013 to March
2017 and Chief Financial Officer from January
2013 to September 2013. Prior to that he was
Chief Financial Officer of Jack Wills, Group Chief
Financial Officer of Birds Eye Iglo Group and
Chief Financial Officer of the Automobile
Association.
Skills and experience
• A highly-regarded leader with experience
across a broad range of industry sectors;
• A proven track record in operational, financial
and strategic oversight and execution;
• Extensive turnaround experience; and
• Qualified as a chartered accountant, with a
degree from Oxford University in Philosophy,
Politics and Economics.
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Nivedita
Krishnamurthy Bhagat
Independent
Non-Executive Director
Board Committees
Member of the Audit Committee
Member of the Nomination Committee
Date of appointment to the Board
1 June 2017
Other current appointments
Nivedita is Chief Executive, Infrastructure
Services & Cloud Services UK, Europe at
Capgemini SA, a French publicly listed
multinational corporation. She is also a member
of its UK management board.
Past roles
Nivedita was Head of Enterprise Solutions,
EMEA and Head of London Development
Centre at Infosys Technologies Ltd from 1998 to
2010. Prior to this she was a consultant in the
corporate finance division at KPMG India.
Skills and experience
• Significant international management
experience having worked across the UK,
Europe, US and India;
• Vast experience in advising clients on
technology solutions with a view to enabling
them to increase shareholder value;
• Several years of IT consulting and IT
outsourcing experience managing large
complex contracts;
• Strong sales orientation having sold global
technology and digital solutions to global
clients;
• Deep P/L management with focus on top and
bottom line; and
• Qualified as a chartered accountant, with a
degree in Economics.
Jennifer Duvalier
Independent
Non-Executive Director
Philippa Couttie
Independent
Non-Executive Director
Board Committees
Chair of the Remuneration Committee
Member of the Nomination Committee
Board Committees
Member of the Audit Committee
Member of the Nomination Committee
Date of appointment to the Board
26 July 2017
Date of appointment to the Board
15 November 2017
Other current appointments
Jennifer is Non-Executive Director and Chair of
the Remuneration Committee of Guardian
Media Group plc, and Non-Executive Director
of NCC Group plc. She is also Director of The
Cranemere Group Limited and a member of the
Council of the Royal College of Art, where she is
also Chair of the Remuneration Committee.
Past roles
Jennifer was Executive Vice President, People, for
ARM Holdings plc, a global technology business,
from September 2013 to March 2017. She was
also an executive committee member with
responsibility for people and internal
communications activity. Prior to this, Jennifer
was Group People and Culture Director at UBM
plc from 2007 to 2013 and Group HR Director at
Emap plc from 2003 to 2007.
Skills and experience
• Leadership development, talent acquisition and
management and succession planning;
• Mentoring and coaching;
• People strategy, organisation development and
change management;
• Employee engagement and internal
communications;
• Corporate social responsibility and
partnerships;
• Executive remuneration and performance
management;
• Executive team and Board effectiveness; and
• MA (Hons) from the University of Oxford in
English and French.
Other current appointments
Philippa is a member of the House of Lords and
party whip.
Past roles
Philippa led Westminster City Council from 2012
to 2017. She joined the Council in 2006 and has
previously served as Cabinet Member for
Finance, Cabinet Member for Housing and
Deputy Cabinet Member for Children’s Services.
Philippa was also a member of the Polling and
Digital Media Select Committee from 2017 to
2018.
Prior to progressing her career in public service,
Philippa was a director at Citigroup following its
takeover of Schroders, where she headed up its
principal finance business. She was also previously
Chief Executive of Cornerstone
Communications.
Philippa has served as a non-executive director
on several boards since 2006, including Royal
Parks and the London Local Enterprise
Partnership. She was also previously Chair of the
West End Partnership and Council Member of
Imperial College, where she was also Chair of
the Audit Committee.
Skills and experience
• Extensive experience in both public and
private sector at the most senior level;
• Ennobled and joined the House of Lords
in 2016; and
• A degree from the University of St Andrews
in Psychology.
Mitie Group plc | Annual Report and Accounts 2019
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Board of Directors continued
An experienced
Board of Directors continued
Peter Dickinson
General Counsel &
Company Secretary
Board Committees
None
Date of appointment
6 March 2017
Other current appointments
None
Past roles
Peter was a partner at global law firm Mayer
Brown International LLP (and its predecessor
firm) from 1995 to 2017. During his time at
Mayer Brown, Peter was also Co-Head of the
Global Technology Transactions practice from
2015 to 2017, Co-Head of the Global Corporate
practice (with specific responsibility for strategy)
from 2008 to 2015, and Head of Corporate
practice in London from 2005 to 2015.
Skills and experience
• Substantial experience in corporate advisory,
mergers and acquisitions, joint ventures and
other significant commercial transactions
including large scale multi-jurisdictional
outsourcing projects; and
• Qualified solicitor, with a degree from
Southampton University in Law.
Mary Reilly
Independent
Non-Executive Director
Roger Yates
Senior Independent
Director
Board Committees
Chair of the Audit Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Board Committees
Member of the Audit Committee
Member of the Remuneration Committee
Member of the Nomination Committee
Date of appointment to the Board
1 September 2017
Date of appointment to the Board
1 March 2018
Other current appointments
Roger is Non-Executive Director of Jupiter Fund
Management plc and Senior Independent
Director of St James’s Place plc, where he is also
Chair of the Remuneration Committee.
Past roles
Roger started his career in asset management at
GT Management in 1981 and held positions of
increasing seniority at Morgan Grenfell, LGT and
Invesco. He served as Chief Executive of
Henderson Group plc from 1999 to 2008 and as
Chief Executive of Unicredit’s asset management
arm, Pioneer Investments.
Roger’s non-executive roles have included F&C
Investments, IG Group plc, Electra Private Equity
plc and JPMorgan Elect plc.
Skills and experience
• Substantial board experience;
• Strong business track record; and
• Extensive knowledge of the finance and
investment community.
Other current appointments
Mary is Non-Executive Director and Chair of
the Audit Committee of Essentra plc, an
international supplier of specialist plastic, fibre,
foam and packaging products. She is also
Non-Executive Director and Chair of the Audit
Committee of Travelzoo. Her current
trusteeships include the Invictus Games
Foundation and PDSA.
Past roles
Mary was Non-Executive Director and Chair of
the Audit Committee of Ferrexpo plc, an iron
ore mining company, from 2015 to 2019. She was
also Non-Executive Director and Chair of the
Audit & Risk Committee of the UK Department
of Transport and of Crown Agents Limited, an
international development company, from 2013
to 2017. Prior to this Mary was Non-Executive
Director of Cape plc, a global industrial services
company, from 2016 to 2017. She has served as a
non-executive director on several other boards
since 2000.
Mary was a partner in Deloitte LLP (and
predecessor firms) for over 25 years. Mary was
an Audit Partner in the UK specialising in
manufacturing, luxury retail and business
services. She also headed a unit offering
outsourcing capability.
Skills and experience
• Accounting, finance and international
management experience; and
• Chartered accountant, with a degree from
University College London in History.
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Corporate governance
Chairman’s introduction
to Corporate Governance
The Board is continually seeking to adapt and respond to meet
its responsibilities to shareholders and wider stakeholders for the
Group’s activities and its long-term success.
The Board is kept up to date on all matters of key governance by way of
comprehensive reports prepared by the Company Secretary for each
Board meeting. Between meetings, the Company Secretary and wider
team are available if required, and the Board has access to an electronic
board portal which is kept up to date with the latest governance-related
information and guidance.
Statement of compliance with the Code
For the year ended 31 March 2019, we are reporting against the
April 2016 edition of the UK Corporate Governance Code (the
Code) and I can confirm on behalf of the Board that the Company
has complied throughout the year with all the principles and the relevant
provisions. The Code can be found on the Financial Reporting Council’s
website at www.frc.org.uk.
Details of how we have applied the principles and complied with
the provisions of the Code are explained throughout the Annual
Report and Accounts. In the following sections, we explain how the
Code is implemented via Mitie’s governance framework.
The Financial Reporting Council published an updated Code in July
2018, which applies to the Company from 1 April 2019. As a Board,
we have spent time reviewing the Company’s governance processes
in preparation for reporting under the updated Code and we are
confident we will be able to confirm full compliance for FY 19/20.
Stakeholder engagement
The Board acknowledges the importance of forming and retaining
sound relationships with all stakeholder groups. Effective engagement
enables the Board to ensure stakeholder interests are considered
when making strategic decisions.
Accordingly, the Board has reviewed and discussed the Group’s
key stakeholders along with the engagement mechanisms in
place to ensure they support effective, two-way communication.
This information has been collated into a stakeholder engagement
‘map’which will be considered regularly by the Board to ensure it
remains fit for purpose. The map will also be used to support the
Board’s reporting requirements under Section 172 of the Companies
Act 2006. More details on stakeholder engagement can be found
on pages 26 and 27.
As a Board, we are committed
to delivering and maintaining the
highest levels of governance.
Derek Mapp
Chairman
To further enhance our extensive employee engagement activities,
Jennifer Duvalier has been appointed as the Group’s designated
Non-Executive Director to oversee Board engagement with our
workforce. Jennifer is committed to understanding the views of
our workforce and will ensure those views are incorporated into
the Board’s decision making processes.
Board composition
In July 2018, Larry Hirst retired from the Board with Roger Yates
succeeding Larry as Senior Independent Director. Mark Reckitt also
stood down from the Board in July 2018, with Mary Reilly assuming
the role of Chair of the Audit Committee.
As announced in August 2018, Jack Boyer stood down from the Board
with effect from 31 August 2018. Jennifer Duvalier succeeded Jack as
Chair of the Remuneration Committee.
Diversity and inclusion
During the year, the Board adopted a Board Inclusion Policy which sets
objectives for the Board in terms of diversity and inclusion. See page 69
for further information.
Board effectiveness
The performance of the Board, its Committees and its individual
Directors is an essential component of the Company’s success. During
2019, I led an internal Board evaluation, which involved one-to-one
meetings with each of the Directors facilitated by a questionnaire
completed by each Director in advance. As Senior Independent
Director, Roger Yates led the review of my performance as Chairman.
Regulatory update
On 26 June 2018, the Company was advised by the Financial Conduct
Authority (the FCA) that the investigation into the Company in
connection with the timeliness of a profit warning announced by the
Company on 19 September 2016 and the manner and preparation
and content of the Company’s financial information, position and
results for the period ending 31 March 2016, which was initiated on
25 August 2017, had been discontinued.
In conclusion
The Board remains dedicated to achieving the highest levels of
corporate governance to underpin the delivery of shareholder
value in the years ahead.
Derek Mapp
Chairman
Mitie Group plc | Annual Report and Accounts 2019
53
Governance at a glance
Overview
of our governance
Governance
framework
Shareholders
The Board is collectively responsible and accountable
to shareholders for the sustainable long-term
success of the Company.
The Board
The Board provides leadership and direction to management within
a framework of controls enabling risk to be adequately assessed
and managed.
Read more on PG 56-61
The Audit
Committee
The Nomination
Committee
The Remuneration
Committee
The Audit Committee provides effective
governance of the appropriateness of
the Group’s financial reporting and the
performance of both the Internal Audit
function and the external auditor.
The Nomination Committee evaluates
the composition, diversity, experience,
knowledge, skills and independence of the
Board and its Committees.
The Remuneration Committee
determines the framework or
broad policy for remuneration and sets
the remuneration for the Chairman,
the Chief Executive Officer, the Executive
Directors and senior management.
Read more on PG 62-67
Read more on PG 68-69
Read more on PG 70-81
The Executive Leadership Team
The Executive Leadership Team includes members from each
business unit and central group function ensuring accountability
across the business.
Our range of services
Engineering
Services
Security
Professional
Services
Cleaning &
Environmental
Services
Catering
Care &
Custody
Board activities
Members of the Board attended
a number of stakeholder
related events during the year.
Items discussed at Board
meetings during the year are
included on pages 56 and 57.
April 2018
May
June
July
August
September
October
November
December
January 2019
February
March
Monthly Cabinet
Office attendance
in the capacity of
strategic supplier
to Government
Investor roadshow
(UK & US)
Annual General
Meeting (offsite)
The Gathered Table
Employee roadshow
Investor
Investor
Finance leadership
Supplier conference
Major shareholder
– Launch event
(five locations across
roadshow (UK)
roadshow (US)
(The Shard)
dinner (offsite)
the UK attended
by over 2,000
employees)
team forum
(The Shard)
Client dinner
(The Shard)
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Gender diversity
Roles
Director age range
Female
Male
4
4
Chairman
Executive Directors
Non-Executive Directors
1
2
5
41-50 years
51-60 years
61-70 years
2
3
3
Table of meetings
Position
Chairman
Board members
(Executives)
Name
Derek Mapp
Phil Bentley
Paul Woolf
Board members
(Non-Executives)
Nivedita Krishnamurthy Bhagat
Jack Boyer1
Philippa Couttie2
Jennifer Duvalier
Larry Hirst3
Mark Reckitt4
Mary Reilly5
Roger Yates6
Board
Nomination
Committee*
Audit
Committee
Remuneration
Committee
7/7
7/7
7/7
7/7
2/2
7/7
7/7
2/2
2/2
7/7
7/7
2/2
2/2
2/2
2/2
0/0
2/2
2/2
0/0
0/0
2/2
2/2
–
–
–
6/7
–
6/6
–
–
4/4
7/7
3/3
–
–
–
–
3/3
–
5/5
3/3
–
2/2
2/2
1. Jack Boyer resigned on 31 August 2018.
2. Philippa Couttie joined the Audit Committee on 22 May 2018.
3. Larry Hirst retired on 31 July 2018.
4. Mark Reckitt resigned on 31 July 2018.
5. Mary Reilly joined the Remuneration Committee on 31 August 2018.
6. Roger Yates joined the Audit Committee and Remuneration Committee on 31 July 2018.
* Phil Bentley and Paul Woolf stood down from the Nomination Committee on 31 March 2019.
April 2018
May
June
July
August
September
October
November
December
January 2019
February
March
Investor roadshow
(UK & US)
Annual General
Meeting (offsite)
Monthly Cabinet
Office attendance
in the capacity of
strategic supplier
to Government
The Gathered Table
– Launch event
Employee roadshow
(five locations across
the UK attended
by over 2,000
employees)
Investor
roadshow (UK)
Investor
roadshow (US)
Finance leadership
team forum
(The Shard)
Supplier conference
(The Shard)
Major shareholder
dinner (offsite)
Client dinner
(The Shard)
Mitie Group plc | Annual Report and Accounts 2019
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The Board
Board report
Chairman Derek Mapp
Executive
Directors
Non-
Executive
Directors
Phil Bentley
Paul Woolf
Nivedita Krishnamurthy Bhagat
Jack Boyer
Philippa Couttie
Jennifer Duvalier
Larry Hirst
Mark Reckitt
Mary Reilly
Roger Yates
until 31 August 2018
until 31 July 2018
until 31 July 2018
Full biographical details can be found on PG 50-52.
Purpose of the Board
The Board is responsible and accountable to shareholders for the
sustainable long-term success of the Company. The Board leads and
directs management within a framework of controls enabling risk to
be adequately assessed and managed.
The Board reviews and agrees the strategy for the Group on an
annual basis and reviews aspects of strategy at Board meetings during
the year. When setting Group strategy, the Board considers a wide
range of matters including, but not limited to:
• Finance;
• Shareholder returns;
• Corporate structure;
• Market trends;
• Competitive environment;
• Private/public sector approach;
• International aspects of the business and opportunities; and
• People and talent.
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Board Committees
The Board has four formal Committees:
• Audit Committee;
• Nomination Committee;
• Remuneration Committee; and
• Disclosure Committee (ad-hoc).
Details of the purpose and activities of each Committee are set out
on pages 62 to 81.
The Board also has an informal Bid Committee comprised of the
Chief Executive Officer, Chief Financial Officer, General Counsel
& Company Secretary, Chief Government & Strategy Officer and
members of the sales team. The Bid Committee meets weekly to
consider any material bids being submitted.
Board activities
The Board held seven scheduled meetings during the year. Individual
Director attendance at each meeting and a timeline setting out
stakeholder related events attended by members of the Board can
be found on pages 54 and 55. Other Board activities during the year
include those set out below. In undertaking their duties, the Directors
act in a way they consider, in good faith, will be most likely to promote
the success of the Company for its shareholders as a whole, having
regard also to other stakeholders.
Activities
Strategy
Offsite strategy day
Chief Executive
Officer’s update
Corporate transactions
Finance
Chief Financial
Officer’s update
Budget
Results and dividends
All Directors attended the Board’s offsite
strategy day in September. On the day,
the Board discussed the Group’s strategic
methodology and recommendations, target
operating model and execution risks.
At every Board meeting the Chief Executive
Officer presented to the Board on topics
such as:
• Financial highlights;
• Business development;
• Sector considerations;
• Customers;
• Sales; and
• Divisional updates.
The Board debated and approved the:
• Acquisition of Vision Security Group Limited;
• Sale of Mitie’s Social Housing business; and
• Sale of Mitie Pest Control Limited.
At every Board meeting the Chief Financial
Officer presented a paper to the Board
covering topics such as:
• Financial performance of the Group;
• Finance structuring review; and
• Finance modernisation.
The Board reviewed and approved the Group’s
annual budget.
The Board reviewed and approved the
half-yearly financial report and Annual Report
and Accounts, and associated dividends.
Governance and risk
Share dealing procedures An external review of Mitie’s Market Abuse
Company secretarial
and legal updates
People and culture
Employee engagement
Culture
Regime compliance policy was undertaken
during the year. The Board subsequently
adopted updated documentation.
At every Board meeting the General Counsel
& Company Secretary presented a paper
covering topics such as:
• Whistleblowing;
• Material litigation;
• Modern Slavery Act Statement;
• GDPR;
• July 2018 UK Corporate Governance Code;
• Companies Act 2006 Section 172
considerations; and
• Other governance and regulatory highlights.
The Board received and discussed the results
of the annual employee engagement survey,
Upload, and agreed actions to be taken. Actions
included the creation of the ‘You Said, We Did’
campaign which was launched during the year.
The Board received regular updates on:
• The roll-out of Mitie’s vision and values;
• Mitie Exceptionals, an employee champions
network to embed new company behaviours;
and
• LiveSafe, the safety culture development
programme aligned to Mitie’s vision and
values, launched in December 2018.
Stakeholders and society
Stakeholder
engagement ‘map’
Investor relations,
corporate affairs
and internal
communications
Net Promoter Score
The Board discussed the results of a formal
review which was undertaken during the
year to identify:
• Key stakeholders;
• Their ‘owners’ within the business;
• Reasons for engagement;
• Engagement mechanisms; and
• Important issues for each stakeholder.
At every Board meeting a report from the
Head of Investor Relations was presented
covering topics such as:
• Share price performance;
• Shareholder engagement;
• Share register analysis;
• Sector news;
• Investor feedback;
• Media coverage; and
• Internal communications.
The results of a Net Promoter Score survey
were presented to the Board in March 2019
along with an action plan to embed more of
the right behaviours going forward. The survey
involved 250 clients being asked how likely
they were to recommend Mitie to a friend
or colleague. Mitie’s Net Promoter Score
improved 22 points from the prior year.
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Director induction process and training
On joining the Board, all Directors receive a personally tailored induction
which includes:
• Meetings with Executive Directors, the General Counsel & Company
Secretary, and other members of senior management;
• An overview of the Group’s governance policies, corporate structure
and business functions;
• Details of risks and operating issues facing the Group;
• Visits to divisional offices and key client sites; and
• A briefing on key contracts.
Mitie is committed to the continual professional development of its
Directors. In 2018, all Directors attended an externally facilitated training
session on director duties, stakeholder engagement and the July 2018 UK
Corporate Governance Code.
All Directors have access to Mitie’s Board Handbook which includes:
• Board and Committee terms of reference;
• The Company’s Articles of Association;
• Guidance on directors’ statutory duties;
• An overview of the Group’s directors’ and officers’ liability insurance
arrangements;
• Delegated authorities register;
• Share dealing procedures;
• Corporate governance and regulatory guidelines; and
• Key corporate documents and policies.
The Board Handbook is subject to regular review and was last updated
in early 2019.
Briefing notes on changes in the regulatory and governance environment
are circulated to Directors on an ad hoc basis.
Online training is also available to all Directors on topics such as the
Bribery Act, GDPR, Criminal Finance Act 2017 and anti-slavery.
Visits to different business sites and offices are arranged for Directors
to facilitate a deeper understanding of the business.
Re-election of Directors
In accordance with the Code and the Company’s Articles of Association,
all Directors are subject to election or re-election by shareholders.
At the 2018 AGM each Director in post at the time (except for Larry
Hirst and Mark Reckitt) stood for election or re-election and was
appointed or re-appointed by shareholders. Larry Hirst and Mark
Reckitt departed the Board following the 2018 AGM. All Directors
will stand for re-election at the 2019 AGM.
Terms of appointment for Non-Executive Directors and service
contracts for Executive Directors are available for inspection at the
Company’s registered office and head office, and will be available at
the 2019 AGM.
Mitie Group plc | Annual Report and Accounts 2019
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Senior Independent Director
• Act as a sounding board for the Chairman;
• Serve as an intermediary to other Directors when necessary;
• Conduct the Chairman’s annual performance evaluation and
lead the appointment process for any new Chairman;
• Act as chairman of the Board in the absence of the Chairman; and
• Be available as an alternative point of contact for shareholders if they
have concerns which have not been resolved through the normal
channels, or for which such contact is inappropriate in the
circumstances.
Non-Executive Directors
• Exercise independent skill and judgement;
• Constructively challenge proposals based on relevant
individual experience, knowledge and skills;
• Contribute to the formulation and development of strategy;
• Monitor corporate reporting to ensure integrity of
financial information;
• Oversee the Group’s principal risks and assurance in place relating
to those risks, including internal audit programmes;
• Play a key role in determining the remuneration policy for the
Chairman, Executive Directors, General Counsel & Company
Secretary and members of senior management; and
• Hold a primary role in Board succession planning.
Chief Executive Officer
• All aspects of the operation and management of the Group within
the authorities delegated by the Board;
• Develop Group objectives and strategy, having regard to the
Group’s responsibilities to its shareholders, customers, employees
and other stakeholders;
• Successful achievement of objectives and execution of strategy
following presentation to, and approval by, the Board;
• Recommend to the Board an annual budget and long-term business
plan and ensure their achievement following Board approval;
• Optimise the use and adequacy of the Group’s resources;
• Recommend to the Board acquisitions and disposals, and ensure
their execution following Board approval;
• Manage the Group’s risk profile, including the health and safety
performance of the business; and
• Make recommendations to the Remuneration Committee on
remuneration policy, executive remuneration and terms of
employment of the senior executive team.
Chief Financial Officer
• Lead, direct and oversee all aspects of the finance and accounting
functions of the Group;
• Evaluate, approve and advise on the financial and commercial impact
of material contracts and transactions (including mergers and
acquisitions), technology investments, long-range planning assumptions,
investment return metrics, risks and opportunities and the impact of
changes in accounting standards;
• Oversee and direct the Group’s Risk, Insurance, Pensions and Internal
Audit functions;
• Manage relationships with the external auditor and key financial
institutions and advisors;
• Ensure effective internal controls are in place and compliance with
appropriate accounting regulations for financial, regulatory and tax
reporting; and
• Provide an underpin to all aspects of the Group’s governance
framework, the application of its delegated authorities and its
investment activities.
The Board continued
Responsibilities of the Board
Mitie maintains a formal schedule of matters reserved for the
Board which can be viewed at www.mitie.com/investors/
corporate-governance. The schedule was last reviewed and
updated in March 2019 following the introduction of the July 2018
UK Corporate Governance Code. The schedule details key matters
and responsibilities that are to be dealt with exclusively by the Board.
These include to:
• Approve the Group’s long-term objectives and commercial strategy;
• Establish the Group’s purpose and values and be satisfied that these,
its strategy and culture are aligned;
• Review performance in light of the Group’s strategy, objectives,
business plans and budgets;
• Approve the half-yearly financial report and the Annual Report
and Accounts;
• Review the effectiveness of the Group’s risk and control processes;
• Approve all material acquisitions, material disposals, material
contractual and other operational matters;
• Ensure adequate succession planning for the Board and
senior management;
• Undertake a formal and rigorous review annually of its own
performance and that of its Committees and individual Directors; and
• Make arrangements for dialogue with shareholders, canvassing
shareholder opinion and engagement with shareholders in relation
to any shareholder resolution which is opposed by more than 20%
of the votes cast.
Division of responsibilities
Directors have certain responsibilities in line with their role, including
those set out below.
The Board continues to support separation of the roles of the
Chairman and Chief Executive Officer. A more detailed document
setting out their responsibilities is available at www.mitie.com/investors/
corporate-governance.
Chairman
• Chair the Board, Nomination Committee and shareholder
general meetings;
• Ensure effectiveness of the Board in all aspects of its role, including
the regularity and frequency of meetings;
• Set Board agendas, taking into account the issues and concerns of
all Board members;
• Ensure appropriate delegation of authority from the Board to
executive management;
• Manage 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;
• Facilitate the effective contribution of Non-Executive Directors
and encourage active engagement by all members of the Board;
• Ensure constructive relations between the Executive Directors
and Non-Executive Directors;
• Hold meetings with the Non-Executive Directors without the
Executive Directors present;
• Ensure that new Directors participate in a full, formal and tailored
induction programme;
• Ensure that the performance of the Board, its Committees and
individual Directors is evaluated at least once a year and act on
the results of such evaluation;
• Maintain sufficient contact with major shareholders to
understand their issues and concerns; and
• Ensure that the views of shareholders are communicated to
the Board.
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Board effectiveness
In accordance with the Code, the Board carries out annual performance
evaluations. These are externally led every three years and internally
led in other years. In FY 18/19, the Board evaluation was internally led by
the Chairman for the Non-Executive Directors and Executive Directors,
and facilitated by the Senior Independent Director for the Chairman.
The Board’s evaluation of its own performance provides an opportunity
to enhance its effectiveness and identify any areas for improvement.
The Board evaluation process followed in FY 18/19 is set out below.
Identify areas of focus
Circulate questionnaire
One-to-one meetings
Anonymise meeting notes
Produce findings and actions
Board discussion
The Chairman discussed the outcomes of the evaluation with the
Board at its meeting in June 2019. Details will be set out in the next
annual report.
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Risk management approach
During the year, the Board has continued to oversee the improvements
being implemented by the management team to reflect the more
structured approach to governance, risk management and internal
control first adopted following the FY 16/17 comprehensive review of
the Group’s balance sheet. These have included simplification of the
organisational structure, clarity of reporting lines for the central
functions, notably HR, Legal and Finance, cessation of the ‘Mitie Model’
arrangements, outsourcing of the back-office finance transactional
processes to Genpact, the outsourcing of application maintenance IT
processes to Wipro and continued standardisation and simplification
of processes and procedures in the Group. In FY 17/18, a Group-wide
delegated authority register (DAR) was deployed which clarifies the
accountabilities and authority to take decisions on specific matters
within defined financial limits, at levels from the Board to divisional
leadership. This helps to disseminate the Board’s risk appetite. At the
same time, authority registers were also implemented in each division,
which follow the same principles as the DAR. This structure should
ensure a consistent approach to acceptance and management of risk
across the business.
The whistleblowing line, provided by an external party, was launched
in FY 17/18, with all reports being reviewed and investigated. This also
enhances the identification of risks. Improvements in IT systems
have continued to bring the business onto consistent platforms, with
improving management information and visibility of common risks and
effectiveness of controls. The Internal Audit function has targeted its
work at areas of the business where risk management and internal
controls are suspected of requiring improvement, which has helped
to improve the risk and control frameworks.
In addition, a new Bid Committee has been established, the key
members of which comprise the Chief Executive Officer, Chief
Financial Officer, General Counsel & Company Secretary and
Chief Government & Strategy Officer. The role of the Committee
is to consider all bids the aggregate value of which exceeds £3m p.a.,
to determine whether such bids meet the Group’s financial, commercial
and legal objectives.
The Group’s approach to risk is set out in more detail below. The
approach to risk management is regularly reviewed by the Board and
Executive Leadership Team and continues to evolve in line with the
business structure and risk profile. The Board understands that effective
risk management and a sound system of internal control are essential
to the achievement of the Group’s strategy and supporting objectives.
The Audit Committee has continued to focus on its review of the risk
management framework to increase its understanding of the nature
of the risks faced by the Group and how they are addressed.
Risk culture
It is recognised that the risk management culture within the business
is equally as important as an effective risk management framework.
In support of this, the ‘One Mitie’ Vision and Values have an important
role to play. As well as helping to achieve common ways of working
and clarity of approach for customers and employees, they also
help set out, together with the code of conduct (One Code), the
framework upon which Mitie’s risk culture is built. Emphasis is placed
on the importance of embedding risk management into all key
decisions, such that opportunities to grow the Group are effectively
balanced with effective risk management decision making. This means
that opportunities may continue to be exploited, provided risks have
been properly identified and the right controls established or, in some
cases, potential opportunities are declined if they sit outside the
Group’s risk appetite.
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Risk monitoring and review
Principal risks to the business and associated mitigation plans
are presented to the Audit Committee and are monitored on
an ongoing basis.
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 38 to 46. 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 is continuing to evolve and will be subject to
review and improvement.
Whistleblowing
Since September 2017, Mitie has operated an independent
whistleblowing service to enable employees, suppliers and third parties
to report any concerns or wrongdoing anonymously without any fear of
retaliation. The service, which is managed by an independent service
provider, can be accessed via a freephone number, a free online app or
through the service provider’s website.
Details of the service are made available to employees via Mitie’s Code
of Conduct and are displayed on Mitie’s intranet and workplace posters.
Details of the service are also communicated to suppliers via Mitie’s
sourcing portal and to other third parties via www.mitie.com.
The service and related internal procedures are structured to ensure
that all reports are reviewed and investigated independently from the
area of the business to which they relate, thereby minimising the risk of
conflicts arising.
All reports are copied to the Group Legal function, which is intended to
ensure transparency and enable any trends across different divisions and
functions to be identified and addressed. An update on whistleblowing
activity is provided to the Executive Leadership Team as appropriate
and to the Board at each Board meeting.
Internal controls
The Board is responsible for maintaining an effective internal control
framework. Mitie’s system of internal control consists of financial,
operational and compliance controls.
The system covers both entity level and monitoring and oversight
controls, comprising business leadership review and direction, and
detailed process controls and control activities, which are embedded
in business processes. During FY 18/19, a comprehensive exercise was
commenced to review, improve and document internal controls across
the Group.
Mitie’s policies and procedures are documented in the Business
Management System (BMS) and are available to management and
employees through an intranet portal. Divisional and functional
leadership teams ensure that controls are operating within the processes
and procedures, and that risks are being appropriately managed.
The Board continued
One Code sets out the expected behaviours for all employees and
supply chain partners and establishes zero tolerance in specific areas as
part of an established ethical business framework. The Group continues
to review and reaffirm its code of conduct with employees and supply
chain partners to ensure awareness of the vision, values and expected
behaviours is maintained.
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, Chief Financial Officer and General Counsel &
Company Secretary 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
Group 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 includes the economic environment,
political factors and sector and geographical risks. A top-down and
bottom-up approach ensures the systematic identification of significant
risks to the business. Once identified, risks are assessed using standard
impact and likelihood ratings to quantify the risk to the achievement of
business objectives. The Group employs risk management software to
help deliver its enterprise risk management agenda as well as enhancing
risk reporting and oversight. Risk registers are formally reviewed twice a
year and approved by business unit Managing Directors.
Risk assessments are based on a ‘5 x 5’ scale ranging from minimal to
catastrophic, with any risks falling into the Group’s upper limits having
mandatory mitigation plans with the expectation that these risks are
managed down to acceptable levels.
Risk mitigation
Each identified risk has a defined control owner who is responsible for
developing and implementing a risk mitigation plan. As part of the risk
review process, each control is required to be reviewed and formally
assessed for its effectiveness in mitigating risk. In order to strengthen
the oversight of risk management and internal control, audit and risk
governance meetings occur at a business unit level.
The terms of reference for the operation of these meetings are
aligned with the Audit Committee’s objectives. The agenda requires
business units to review their top-level risks and the progress of
associated mitigation plans as well as assess any changes to the external
environment and their consequent impact on business units’ risk profile.
In addition, reports from the Internal Audit function and other internal
or external assurance providers are discussed, with the objectives to
share best practice and identify common or emerging risk themes.
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.
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The Audit Committee conducts a review of the effectiveness of the
system of internal control annually. This review is supported by a report
from the Head of Internal Audit and includes a control assessment
exercise undertaken by Internal Audit in conjunction with the business
leadership teams. The review focuses on the key internal controls which
manage the risks faced by the business. The Committee also considers
the results of the work completed by Internal Audit, which are reported
to it in regular updates. There has continued to be a significant number
of internal control weaknesses reported to the Audit Committee in
reports produced by the Internal Audit team. This is because the internal
audit work plan is targeted at areas known, or suspected to have, weak
or ineffective internal controls. Remedial action plans developed by
management to address any control weaknesses found are monitored
by the Audit Committee to ensure timely closure of the actions.
Further detail on this can be found in the Audit Committee Report
on page 66.
Internal Audit
The Internal Audit function’s authority and responsibilities are defined
in its charter, which is reviewed regularly by the Audit Committee.
The Internal Audit function operates independently and reports directly
to the Audit Committee (administratively to the Chief Financial Officer).
This reporting line offers independence from audited activities and allows
the Internal Audit function to achieve objectivity.
The work of the Internal Audit function helps to provide assurance
over the effectiveness of the Group’s governance, risk and control
frameworks. The Chair of the Audit Committee oversees the
appointment and removal of the Head of Internal Audit and assesses
the function’s performance against internal audit objectives. The annual
internal audit plan is approved by the Audit Committee. All amendments
to the approved annual internal audit plan are communicated to the
Audit Committee through periodic update reports. The results of
each internal audit are documented in an audit report for internal
distribution and action.
The Chair of the Audit Committee and the Company’s external auditor,
BDO LLP, have access to all internal audit reports issued during the year.
The Audit Committee also receives a quarterly report on internal audits
completed in the period, and reports from BDO LLP arising from its
audit work. These provide an independent perspective on the Group’s
internal financial control systems.
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Audit Committee report
Report from the
Audit Committee Chair
The current financial year has
seen further improvement in the
internal control and financial
reporting environment.
Mary Reilly
Chair of the Audit Committee
As Chair of the Audit Committee I am pleased to present my first
report to shareholders. I was appointed Chair of the Audit Committee
in July 2018, having been a member of the Committee since September
2017. I would like to thank my predecessor, Mark Reckitt, for his
leadership of the Committee and work with the Group during what
had been a difficult period with a number of complex and challenging
matters being presented for the Committee’s consideration.
It is gratifying to report that continued further improvements have been
made by the Group to strengthen the internal control environment,
improve the accuracy of financial reporting, and ensure consistency of
application of accounting policy across the Group, including:
• An appropriate risk management and internal control culture is
being successfully embedded in each division through divisional audit
committees which are attended by the division’s Managing Director
and Finance Director, the Head of Internal Audit, the Group Financial
Controller, and other representatives or specialists as required. Going
forward each division will present its key risks and mitigations along
with the status of any follow-up actions to the Audit Committee for
review at least once each financial year and more frequently should
circumstances require;
• The strengthening of the Group finance function is now largely
complete; this has become a function which is capable of setting and
monitoring financial and accounting policy as well as supporting the
commercial and financial objectives of each division and the Group
as a whole; and
• The size of the Internal Audit team has been increased through
external recruitment bringing new external perspectives alongside
additional capacity. A comprehensive risk focused programme of
work has been successfully delivered in FY 18/19, and a similar
detailed plan for FY 19/20 has been developed by the Head of Internal
Audit in consultation with management and the Audit Committee.
• The outsourcing of the finance back office to Genpact was completed
during 2018; a second phase of work is now underway to rationalise,
simplify and standardise processes across the Group to promote
efficiency and improved financial control. A key enabler of this phase
will be to move the Engineering Services division from a legacy finance
system onto the Group’s SAP platform as well as more general
improvements to accounting and control processes.
Audit Committee members
Mark Reckitt was the Chairman of the Audit Committee from
July 2015 until July 2018. Mary Reilly succeeded Mark as Chair of
the Audit Committee on 31 July 2018, having been a member of the
Committee since 1 September 2017. Mary has a wealth of experience
as a non-executive director and chairing audit and risk committees.
She has extensive relevant and recent accounting, finance and
management experience. Mary’s full biography can be found on page 52.
At the date of this report the Audit Committee comprises independent
Non-Executive Directors who are all considered appropriately
experienced to fulfil their duties.
Chair
Mary Reilly
Mark Reckitt
Committee
members
Nivedita Krishnamurthy Bhagat
Philippa Couttie
Roger Yates
from 31 July 2018
until 31 July 2018
from 22 May 2018
from 31 July 2018
Frequency of Audit Committee meetings
During the year ended 31 March 2019, the Audit Committee met seven
times. For the Directors’ attendance, see table on page 55. Invitations to
attend meetings are normally extended to the Group’s external auditor,
the Chairman, the Senior Independent Director, the Chief Executive
Officer, the Chief Financial Officer, the Director of Group Finance, the
Group Financial Controller, and the Head of Internal Audit.
The Audit Committee also meets with the external auditor and the
Head of Internal Audit without the Executive Directors present.
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Having joined the Board in September 2017, I saw the scope and impact
of many of the issues identified during FY 16/17. It is encouraging to see
the substantial progress that has been made since then and in particular
to note that in the main the matters presented for consideration by the
Audit Committee, while often still complex and judgemental, are more
in the nature of those which would typically arise in a group of this scale
and with this mix of businesses and contracts.
In addition to fulfilling its normal programme of activities this year the
areas of focus for the Audit Committee have been:
• Ensuring the continued development of the Internal Audit function
by supporting recruitment and challenging the audit plan to ensure
maximum impact through alignment of audits with the risks faced by
each division and the Group more generally;
• Assessing the judgements made by management in respect of
the acquisition and disposals made by the Group. In particular the
Audit Committee has assessed management’s approach to and
assumptions made in respect of the valuation of intangible assets
associated with Vision Security Group as well as the associated gain
on purchase, the gains and losses on disposals included in the income
statement in respect of the disposal of Mitie Pest Control Limited
and the Social Housing business, and the provisions made for legacy
liabilities retained by the Group as part of the disposal of the Social
Housing business;
• Evaluating the approach taken by management to support the
going concern and viability statements set out on pages 86, 87
and 47 respectively;
• Considering whether the Annual Report and Accounts provide
sufficient information to understand the financial position and
prospects of the Group; and
• Following the successful early adoption of IFRS 15 ‘Revenue from
contracts with customers’, considering the process followed by
management to assess the impact of IFRS 9 ‘Financial Instruments’
and to embed the accounting requirements of this standard and
IFRS 15 into the Group’s monthly accounting processes.
Further detail regarding the Audit Committee and its work can be
found on PG 64-67.
In conclusion, the Audit Committee can provide positive assurance to
the Board, that the Annual Report and Accounts, when taken as a whole,
is fair, balanced and understandable, and provides shareholders with
sufficient and appropriate information to enable an assessment of the
Group’s position and performance, business model and strategy.
As Chair of the Audit Committee, I will be available at the 2019 AGM
to answer any questions about the work of the Audit Committee.
Mary Reilly
Chair of the Audit Committee
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Audit Committee report continued
Key purpose of the Audit Committee
The Audit Committee provides effective governance of the
appropriateness of the Group’s financial reporting and the
performance of both the Internal Audit function and the external
auditor. The Audit Committee also supports the Board in meeting its
responsibilities in respect of overseeing the Group’s internal control
systems, business risk management, and related compliance activities.
The Audit Committee’s Terms of Reference are available at
www.mitie.com/investors/corporate-governance.
The role of the Audit Committee in relation
to 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-yearly financial 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 disclosures 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 position and performance,
business model and strategy.
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 year-end audit.
Significant issues considered by the
Audit Committee during the year
The Audit Committee gives attention to matters it considers to be
important by virtue of their size, complexity, level of judgement required,
or 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, the external auditor, the Head of Internal Audit,
the Group Financial Controller, and other relevant Mitie employees.
The Audit Committee considered the significant matters set out
below during the course of the financial year. In all cases, papers were
presented to the Audit Committee by management, setting out the
relevant facts, material accounting estimates, and the judgements
associated with each item. The external auditor provided a paper
setting out its 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. For each
area of judgement, the Audit Committee concurred with the
treatment adopted and any relevant disclosure presented in the
Annual Report and Accounts.
Revenue recognition
The Group adopted IFRS 15 ‘Revenue from contracts with customers’
from 1 April 2017. While this standard has in general reduced the level
of judgement required in respect of revenue and profit recognition,
the Audit Committee has considered papers prepared by management
setting out the ongoing activity to embed this standard into monthly
reporting and contract performance measurement processes as well as
the approach taken to judgemental areas such as contract modifications,
mobilisation costs, pre-contract costs, and the recognition of revenue as
performance obligations are achieved.
Provisioning for legacy contractual liabilities
Under the terms of the disposal of the Social Housing business the
Group retained liability for certain contractual issues for completed
contracts. Management has made judgements to arrive at the provisions
recorded in the financial statements. The Audit Committee has
considered papers prepared by management setting out the basis
for these judgements.
Fair value of assets and liabilities acquired
During November 2018 the Group concluded the acquisition of Vision
Security Group Limited and its subsidiary companies. As required by
IFRS 3 ‘Business Combinations’, the Group has carried out work to
assess the fair value of the consideration paid, and the assets and liabilities
acquired. Such an assessment includes the evaluation of intangible assets
which were not previously recognised by the acquired entities.
The Audit Committee has considered papers prepared by management
detailing the process, assumptions, and methodology applied to assess
the fair value of those intangible assets, the value of the consideration
and the resulting income statement credit of £8.8m representing a gain
on bargain purchase.
The Audit Committee concurs with the assessment made by
management in respect of these matters.
Assessment of the outcome of completion settlements
During the year the Group has completed the disposal of Mitie Pest
Control Limited and the Social Housing business and the acquisition
of Vision Security Group Limited. All these transactions include a
completion accounts process for the final determination of the
consideration due.
These processes are ongoing and so the Audit Committee has
considered papers prepared by management detailing the current status
of each negotiation and management’s assessment of the likely outcome.
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Adoption of IFRS 9 and the potential impact of IFRS 16
The Group adopted IFRS 9 ‘Financial instruments’ from 1 April 2018
and will be required to adopt IFRS 16 ‘Leases’ for the year ending
31 March 2020.
The Audit Committee has considered papers prepared by management
in respect of the impact of the adoption of IFRS 9, the potential impact
of IFRS 16, and the disclosures made in Note 1 to the consolidated
financial statements.
The Audit Committee is satisfied that the disclosures made within the
financial statements in respect of:
• IFRS 9 are sufficient to gain a proper understanding of the impact
on the Group of the changes in the measurement and disclosure
of financial instruments brought about by the adoption of this
standard; and
• IFRS 16 are sufficient to gain a proper understanding of the substantial
change in the presentation of the Group’s income statement and
balance sheet which will arise when this standard is adopted for the
year ending 31 March 2020.
Valuation of goodwill
The Group has made a number of acquisitions in previous periods
and carries goodwill as an intangible asset on its balance sheet in
respect of the businesses acquired (see Note 12) to the consolidated
financial statements.
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 (CGU) and considers the balance sheet
value of the goodwill compared to the net present value of the post-tax
cash flows that are expected to be generated by that CGU. The
approach involves an estimation of the future cash flows expected to be
derived from each CGU and the selection of appropriate discount rates,
which are then applied to the cash flows to calculate a net present value.
The assumptions underpinning the review of the carrying value of
goodwill 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 Audit Committee has considered papers prepared by management
detailing the assumptions and methodology applied to assess the carrying
value of goodwill. The Audit Committee concurs with the assessment
made by management in respect of this matter.
Other material accounting judgements
Management has continued to operate the structured process, first
introduced in September 2017, for the identification of material
accounting judgements made in arriving at the results. The judgements
with a significant actual or potential impact upon Group results are
presented to the Audit Committee for consideration.
The Audit Committee has considered papers prepared by management
in respect of the following matters:
• The recoverability of trade receivables and accrued income;
• Disclosure of contingent liabilities related to the Group’s participation
in multi-employer pension schemes;
• Disclosures in respect of other contingent liabilities;
• Provisioning for commercial settlements, disputes and other
contractual liabilities;
• Provisions related to the indemnity provided as part of the disposal
of the Healthcare business during FY 16/17; and
• The need for provisions in respect of potentially onerous contracts.
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The Audit Committee has reviewed the information provided by
management as well as the views expressed by the external auditor.
The Audit Committee concurs with the judgements made by
management in respect of the accounting for and disclosure of
these matters.
Use of Alternative Performance Measures (APMs)
The Company’s performance measures continue to include some
measures which are not defined or specified under IFRS.
The Audit Committee has considered presentation of these additional
measures in the context of the guidance issued by the FRC in relation
to the use of APMs, challenge from the external auditor, and the
requirement that such measures provide meaningful insight for
shareholders into the results and financial position of the Group.
The Audit Committee concurs with the judgements made by
management in respect of the presentation of the APMs. Furthermore,
the Audit Committee concludes that clear and meaningful descriptions
have been provided for the APMs used, that the relationship between
these measures and the IFRS measures is clearly explained, that the
IFRS measures are afforded equal prominence to the APMs, and that
the APMs support understanding of the financial statements.
A reconciliation of the APMs to the IFRS measures is provided in the
Appendix – Alternative Performance Measures on pages 163 to 165.
Review of the Group’s going concern and
viability statements
The Audit Committee has considered the evidence that supports the
Directors’ conclusion that the Group has adequate financial resources
to continue in operation for the foreseeable future and can therefore
prepare its financial statements on a going concern basis.
The Audit Committee considered papers detailing management’s
assessment of the prospects and performance of the Group including:
• The future business plans of the Group;
• The potential impact of acquisition or disposal 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 the related covenants;
• The projected drawn positions and headroom available on the core
committed financing facilities; and
• Those matters reviewed in connection with the Viability Statement.
The Audit Committee also reviewed and considered the disclosures
related to 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 relation to
preparing the financial statements on a going concern basis can be found
in the Directors’ report: other disclosures on pages 86 to 87, 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 47.
Mitie Group plc | Annual Report and Accounts 2019
65
Audit Committee report continued
Internal audit development and review of findings
During FY 17/18, the Audit Committee requested that Internal Audit
expand its scope of work to include greater coverage of the commercial
risks and issues faced by the Group and the associated mitigating
processes and controls. Additionally, a focus on the effectiveness and
consistency of controls contained within Group-wide processes was
agreed. Following this request the size of the Internal Audit team was
increased. The Group continued to make use of Grant Thornton to
support the delivery of the Internal Audit plan, utilising specialist
resource to assist in certain areas, notably IT audits.
The Internal Audit programme during FY 18/19 has included:
• A review of the programme by the IS and Legal functions to ensure
that the Company is compliant with the new data privacy (GDPR)
regulations, and how this has been embedded into the ongoing
activities and business units;
• A comprehensive audit of the processes and procedures to bring
new employees into the Company, including the relevant security
and vetting assessments and induction processes;
• An audit of the effectiveness of the controls and risk management
processes in the mobilisation of the new Detention & Escorting
Services Home Office contract within the Care & Custody
division; and
• A review of the projects business within the Engineering Services
division, which has undergone significant change during the year,
having absorbed the roofing and painting businesses from the former
Property Management division.
The Head of Internal Audit reviews the content and focus of the Internal
Audit plan throughout the year to ensure it reflects the risk profile of
the business, resulting in a number of amendments to the plan originally
presented to the Audit Committee in March 2018. This has, in part, been
due to the sale of the Social Housing and Pest Control businesses and
acquisition of VSG, as well as the significant amount of process and
organisational transformation affecting both the risk and control
processes. All of the changes to the Internal Audit plan were
communicated to and approved by the Audit Committee.
The Audit Committee reviewed the updates provided by the Head
of Internal Audit at meetings throughout the year, which included
developments in the internal control environment, highlighting
improvements and areas requiring greater focus. During the year,
there continued to be a number of audits rated as unsatisfactory or
requiring improvement, which is reflective of the targeting of internal
audit activity to processes and areas where internal controls are
suspected to require improvement.
The Audit Committee also monitored the status of the actions
undertaken by management to address the findings from internal audit
reports. Whilst the number of actions completed after the original
planned closure dates has not increased, there is still more work to
be done to ensure that sufficient time and resource is assigned to
completing actions. The Audit Committee continues to monitor the
closure of actions closely and challenge management to ensure they
are addressed on a timely basis.
Tax strategy
The Chief Financial Officer presented a paper to the Audit Committee
detailing the Group’s tax strategy and associated governance, planning
and attitude to risk. The Audit Committee considered this paper and
was satisfied with the approach being taken by the Group.
External audit
Each year the Audit Committee reviews the performance of the
external auditor in respect of audit related services and non-audit
services and is committed to ensuring the independence, effectiveness
and objectivity of the external auditor.
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.
In addition to receiving written reports from the auditor and
from management, the Audit Committee also conducted private
meetings with the external auditor and separately with management.
These meetings provide the opportunity for open discussion and
feedback on the audit process, the responsiveness of management,
and the effectiveness of both internal and external audit teams.
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 its independent audit services and
when formulating its 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 its own work;
• Make management decisions for the Group;
• Create a conflict of interest; or
• Find itself in the role of advocate for the Group.
The non-audit services policy identifies the various types of
non-audit services which might be required and determines the
analysis to be undertaken along with the level of authority required
before the external auditor can be considered for such work. Further,
the policy is consistent with the Financial Reporting Council’s ethical
standards policy.
When considering the appointment of the external auditor for
non-audit services, the following factors are taken into account:
• The quality of work provided by the external auditor;
• Representations provided by the external auditor regarding
independence and objectivity, along with internal controls
implemented 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.
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A summary of the fees paid to the external auditor is given in Note 6 to
the financial statements. The only other service provided to the Group
for the year ended 31 March 2019 was the review of the interim financial
statements. The Audit Committee considered reports from both
management and the external auditor, none of which raised concerns
about auditor independence. The Audit Committee confirms that the
requirements of the non-audit services policy have been met throughout
the year.
Appointment and reappointment of the external auditor
The Group undertook a competitive external audit tendering process in
2017 and BDO LLP was selected as the Group’s auditor with effect from
19 September 2017, replacing Deloitte LLP.
Scott McNaughton is the lead partner on the audit for the year ended
31 March 2019 and was the lead partner in the previous year.
The Audit Committee considers annually the need to tender the audit
for audit quality or independence reasons. There are no contractual
obligations in place that restrict the Group’s choice of statutory 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 Processes and Audit Committee
Responsibilities) Order 2014.
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 policies and procedures to support the business by
providing an operational internal control framework; and
• Clearly defined responsibilities, delegated in accordance with the
Group’s delegated authorities and authorisation registers.
Accountability for internal control and risk management systems is
devolved into each division and any control weaknesses within divisions
are investigated and resolved. Management and the Committee seek to
ensure that their cause is understood, and mitigating actions are taken
to limit the potential for recurrence. In view of the work of the Internal
Audit function, management and the external auditor, it is considered
unlikely that a weakness within a particular division would have a
significant impact on the Group.
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. The Group
has continued to operate its ‘Speak up’ service via an independent
third-party provider. Reporting of matters raised through this service
is to the Board of Directors.
Mitie Group plc | Annual Report and Accounts 2019
67
Nomination Committee report
Report from the Nomination
Committee Chairman
Key responsibilities of the Nomination Committee
The key responsibilities of the Nomination Committee include:
• To identify and nominate candidates to fill board vacancies as and
when they arise;
• To ensure plans are in place for an orderly succession to Board and
senior management positions and oversee the development of a
diverse pipeline for succession;
• To keep under review the number of external directorships held by
each Non-Executive Director;
• To review the results of the Board performance evaluation process
that relate to the composition of the Board; and
• To keep the Board Inclusion Policy under review to ensure its
effectiveness and alignment with best practice.
The Nomination Committee’s Terms of Reference are available at
www.mitie.com/investors/corporate-governance.
Key activities during the year
Composition
As indicated in last year’s report, Mark Reckitt and Larry Hirst stood
down from the Board on 31 July 2018. As announced in August 2018,
Jack Boyer stood down from the Board with effect from 31 August 2018.
As it does annually, and in light of the above changes, the Nomination
Committee reviewed the composition and leadership of the Board and
each of its Committees. The Nomination Committee is satisfied that the
Board’s composition and diversity 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.
A skills matrix can be found on page 69.
In accordance with the Code, all Directors will stand for re-election at
the 2019 AGM.
Succession planning and talent development
The Board recognises the importance of planning for the future and
the succession planning process. During the year, the Nomination
Committee considered the ongoing succession planning and refreshing
of the Board.
The Committee also reviewed the work undertaken within the business
during the year to identify, develop, engage and nurture talent across the
Group and in particular at the level immediately below the Executive
Leadership Team, the Group Leadership Team.
During the year, a full talent review was conducted, and work continues
to identify personalised development plans for those recognised as
having the highest potential. The Committee also considered the work
underway to increase the performance and capability of the Group’s
senior leaders. Firm foundations are now established within Mitie to
build a more visible talent and succession process.
Nomination Committee members
At the date of this report the Nomination Committee comprises:
Chairman Derek Mapp
Phil Bentley
Committee
members
Paul Woolf
Nivedita Krishnamurthy Bhagat
Jack Boyer
Philippa Couttie
Jennifer Duvalier
Larry Hirst
Mark Reckitt
Mary Reilly
Roger Yates
until 31 March 2019
until 31 March 2019
until 31 August 2018
until 31 July 2018
until 31 July 2018
Frequency of Nomination Committee meetings
During the year ended 31 March 2019, the Nomination Committee
met twice. For the Directors’ attendance, see table on page 55.
In accordance with the UK Corporate Governance Code (the Code),
membership of the Committee comprises a majority of independent
Non-Executive Directors, all of whom are considered to be
appropriately experienced to fulfil their duties. Phil Bentley and Paul
Woolf stood down from the Committee on 31 March 2019.
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 appropriate balance to be maintained and
ensures the continued effectiveness of the Board.
The Committee considers the length of service of the Board as a whole
so that the membership of the Board is regularly refreshed, taking into
account the challenges and opportunities facing the Group, and the skills,
expertise and diversity required for the future.
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Mitie Group plc | Annual Report and Accounts 2019
Director time commitments
During the year, the Committee reviewed the time commitments for
each Non-Executive Director to ensure there are no concerns regarding
overcommitment. The review considered the number and scope of
appointments, as well as the size and type of company in which roles are
held, the views of major shareholders and current published guidelines
and recommendations.
The Committee noted the significant vote against the re-election of
Mary Reilly at the 2018 AGM and the Company’s update statement
published on 31 January 2019 which can be found at
www.mitie.com/investors/corporate-governance.
The majority of the votes received against Mary’s re-election were
attributable to one of the Company’s major shareholders whose policy
is not to support non-executives with more than two other equivalent
positions with other companies or organisations. Non-executive
directors holding a position of chair of an audit committee are also
not expected to hold more than one other position.
Members of the Board have met with the major shareholder and have
sought to provide reassurance that Mary has sufficient time to dedicate
to her duties. Director time commitments also formed part of the
discussion held with major shareholders at a shareholder dinner held
in March 2019.
The Board remains confident that all Board members have sufficient
time to dedicate to their duties.
Board diversity and inclusion
Mitie has a Group-wide Equality, Diversity and Inclusion Policy that
clearly states its commitment to the inclusion and diversity of all
employees at all levels.
As an extension to the Group-wide policy, during the year the Board
adopted a Board Inclusion Policy, which recognises the importance of
Board membership reflecting diversity in its broadest sense and sets
objectives for diversity at Board level.
The Board, through the Nomination Committee, is committed to:
• Ensuring its membership reflects a combination of demographics,
skills, experience, race, age, gender, educational and professional
backgrounds which provides a range of perspectives, insights and
challenges needed to support good decision making and reflects the
diverse workforce at Mitie;
• With regard to gender diversity, the Board maintains a balance so that,
as a minimum, 30% of the Directors are women provided that this
remains consistent with the skills and diversity requirements when
seeking a new appointment to the Board; and
• Supporting and monitoring activities to increase the percentage of
senior management roles held by women and other
under-represented groups across Mitie.
The Committee is pleased to report that as at 31 March 2019,
50% of the Board is female. It is the Board’s intention that female
representation on the Board will be maintained at a level higher than
that recommended by the Hampton-Alexander review, although it is
recognised that there may be periods of time when the balance falls
below during the search and recruitment process.
Across the Group female employees account for c.32% of the
workforce. 11% of the Executive Leadership Team, and 24% of the
Group Leadership Team are female.
During the year, Phil Bentley set a strategic objective to increase the
number of women in science, technology, engineering and mathematics
(STEM) roles across the Group. To support this objective, the Group
has joined the WISE campaign which enables and energises people in
business to increase the participation, contribution and success of
women in STEM. The partnership will help us to generate and share
fresh insight and knowledge about the causes of and solutions to gender
imbalance in STEM – from classroom to boardroom. It also cements
our commitment to making Mitie a great place to work, demonstrating
our value of ‘our diversity makes us stronger’.
Further details of the Group’s commitment to diversity and the diversity
of Mitie’s people can be found in the sustainability section of our website
at www.mitie.com.
Derek Mapp
Chairman of the Nomination Committee
Disclosure Committee
Overview and purpose
The Disclosure Committee assists and informs the decisions of
the Board concerning the identification of inside information and
makes recommendations about how and when the Company
should disclose that information in accordance with the
Company’s disclosure policy.
The Chairman of the Disclosure Committee is the Chief
Executive Officer and the other members of the Committee
are the Chairman of the Board, the Chief Financial Officer,
the General Counsel & Company Secretary and the Group
Legal Director.
The Committee met once during the year to approve the
announcement relating to the sale of Mitie Pest Control Limited.
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Derek
Mapp
Phil
Bentley
Paul
Woolf
Nivedita
K Bhagat
Philippa
Couttie
Jennifer
Duvalier
Mary
Reilly
Roger
Yates
Skill
Leadership and business operations
Strategy development
Corporate governance
Audit/risk management and assurance
Remuneration/HR
Commercial
Technology/digital
Finance
Investment community
Public sector experience
Mitie Group plc | Annual Report and Accounts 2019
69
Directors’ remuneration report
Statement from the
Remuneration Committee Chair
We are committed to
providing remuneration that
is both fair and reflective
of Company performance.
Jennifer Duvalier
Chair of the Remuneration Committee
On behalf of the Board, I am pleased to present the Directors’
remuneration report for the year ended 31 March 2019.
I was pleased to be appointed as Chair of the Remuneration Committee
from 31 August 2018. My thanks go to Jack Boyer, who served as Chair of
the Committee from October 2014, for his support when I took over
the role.
Remuneration decisions and outcomes
Salary
With regard to fixed pay, it has been agreed that salaries for the
Executive Directors will not be increased for FY 19/20 and so will remain
£900,000 for Phil Bentley (since appointment in November 2016) and
£430,000 for Paul Woolf (since appointment in November 2017).
The report is split into three main parts:
• Executive remuneration at a glance. This sets out a summary of
our approach, including how we intend to operate under our policy
and remuneration outcomes during the year;
• The Annual Report on Remuneration. This provides more detail
on the above, as well as setting out other remuneration-related
disclosures;
• Summary of our policy. Our existing policy was approved by 99.7% of
shareholders at the 2018 AGM and I would like to thank shareholders
for their continued support. No changes are proposed to our policy
this year and a summary of the policy has been included on pages 71
to 73. The full Policy approved at the 2018 AGM is available on our
website (www.mitie.com/investors/corporate-governance) and in
the Annual Report and Accounts 2018.
The Remuneration Committee has addressed a number of issues during
the year. I have described below the approach the Committee has taken,
together with the context in which key decisions were made.
FY 18/19 bonus
The Committee assessed outcomes over the period with respect to
operating profit, organic revenue, Net Promoter Score (NPS), employee
engagement and individual performance and determined that bonuses
of 79.4% and 78.4% of the maximum were appropriate for Phil Bentley
and Paul Woolf respectively. Achievement against these measures is
described in more detail in the Annual Report on Remuneration.
Furthermore, the Committee challenged itself to ensure that these
bonus outcomes were appropriate in the round and was comfortable
that these bonus levels are commensurate with strong organisational
and individual performance.
2016 LTIP awards
Following his appointment, Phil Bentley received a Long Term Incentive
Plan (LTIP) award in November 2016. This award vests subject to the
extent to which the annual bonus targets that apply for FY 17/18, FY
18/19 and FY 19/20 are met and a bonus paid. 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. In any event, no vesting will actually occur until 2020.
The bonus targets that applied for FY 17/18 and FY 18/19 are deemed to
have been met and therefore a bonus in two of the three years has been
achieved to date.
Incentives approach for FY 19/20
For FY 19/20, incentive opportunities will remain the same for Phil
Bentley and Paul Woolf. For bonus, this will be 160% and 120% of salary
respectively. For LTIP, this will be 200% and 150% of salary respectively.
For the FY 19/20 bonus, we will have the same split of financial and
strategic targets. The mix of measures will be as follows: 35% organic
revenue growth; 35% operating profit; 10% on receivables; 10% on
individual objectives; and 10% on other strategic targets. For the LTIP, we
will continue to use 50% adjusted EPS and 50% cash conversion targets.
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Mitie Group plc | Annual Report and Accounts 2019
The Remuneration Committee
The members of the Remuneration Committee are all Non-Executive
Directors. During the year ended 31 March 2019, the Committee met
five times. For the Directors’ attendance, see table on page 55.
The Committee has 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 Committee is
also responsible for setting the remuneration for other senior executives,
including at least, the Executive Leadership Team.
The Committee’s terms of reference are available at
www.mitie.com/investors/corporate-governance.
Corporate governance developments
The Committee noted with interest corporate governance
developments during the year. In particular, the updated July 2018 UK
Corporate Governance Code introduced a number of requirements
which apply to the Company from 1 April 2019. We are very mindful of
these developments and will report to shareholders in our 2020 Annual
Report on Remuneration on our approach and policies (e.g. pension
provision and post-cessation shareholding requirements).
Conclusion
We will be seeking approval for the Directors’ remuneration report
(advisory vote) at the 2019 AGM. I welcome your views and feedback
on the report.
The Committee regularly consults with the Chief Executive Officer
and the Group HR Director on various matters relating to the
appropriateness of rewards for the Executive Directors.
Jennifer Duvalier
Chair of the Remuneration Committee
jennifer.duvalier@mitie.com
However, the Chief Executive Officer 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 Officer and Group HR Director
attended the meetings by invitation only.
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Key features of our remuneration policy
Our philosophy – The Committee believes in an approach to executive pay
which is commensurate with value creation for shareholders
The table below highlights the key features of our policy and our approach which aligns the Executive Directors’ remuneration
arrangements with the shareholder experience. The full policy can be found on our website at www.mitie.com.
1 Track record
in taking a
responsible
and appropriate
approach to pay
(e.g. exercise
of negative
discretion)
2 Shareholding
guideline of
200% of salary
in conjunction
with enhanced
malus and
clawback
provisions
3 Bonus deferral
– 50% of the
bonus deferred
into shares
for at least
two years
4 LTIP holding
period of two
years after
vesting –
five-year
time horizon
Mitie Group plc | Annual Report and Accounts 2019
71
Directors’ remuneration report continued
Executive remuneration
at a glance
Key principles of the policy
Mitie’s remuneration policy is based on a number of principles:
1 Reward should be
aligned with the
shareholder experience
2 The majority of the
package should be
performance-related
The performance-related incentive
arrangements are designed to align the
interests of Executive Directors with
those of shareholders and to promote
the Group’s long-term success.
The majority of reward opportunity
for Executive Directors is provided
through performance-related
incentives linked to the Group’s
strategic goals and taking account
of the Group’s attitude to risk; reward
under these incentives is linked to both
individual and Group performance.
3 The policy should
be comprehensive
and simple
The overall remuneration policy
is designed to be comprehensive
without becoming overcomplicated
and to encourage Executive Directors
to concentrate on profitable growth.
Summary of remuneration policy
Executive Directors’ remuneration is made up of the following elements:
Fixed
Variable
Base salary
Benefits
Pension
Annual bonus
LTIP
Total
Executive incentives and link to strategy
The following table sets out how the intended measures across the incentive plans for FY 19/20 support the Group’s strategy and KPIs:
Sustained and
renewed profit growth
Quality client base
Strong cash-
generative business
Individual objectives
Other strategic targets
Annual bonus
35% operating
profit
35% organic
revenue growth
10% reduction in
receivables
10% individual
objectives
10% other strategic
targets
LTIP
50% adjusted EPS
50% cash conversion
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Mitie Group plc | Annual Report and Accounts 2019
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All employee incentive arrangements
The Company also operates SAYE share option and Share Incentive Plan arrangements, allowing employees to participate in share ownership and
to share in corporate success over the medium term.
Summary of how we intend to operate our policy for FY 19/20
This table summarises the approach for remuneration arrangements for Executive Directors (Phil Bentley as CEO and Paul Woolf as CFO) for
FY 18/19 under the policy approved by shareholders at the 2018 AGM, alongside how we intend to apply our policy in FY 19/20.
At a glance
Base salary
Maximum bonus
opportunity
Bonus deferral
Bonus performance
measures – mix
Bonus performance
measures – metrics
Maximum LTIP
opportunity
LTIP performance
measures
FY 18/19
CEO: £900,000
CFO: £430,000
CEO: 160% of salary
CFO: 120% of salary
FY 19/20
CEO: £900,000
CFO: £430,000
CEO: 160% of salary
CFO: 120% of salary
50% of bonus deferred into shares which
vest after at least two years
50% of bonus deferred into shares which
vest after at least two years
70% financial, 30% strategic
70% financial, 30% strategic
Financial: organic revenue growth, operating profit
Strategic: Net Promoter Score (NPS), employee
engagement, individual
Mix: 35% organic revenue growth, 35% operating
profit, and 10% each on customer NPS, employee
engagement and individual strategic objectives
Financial: organic revenue growth, operating profit
Strategic: reduction in receivables, individual, other
strategic
Mix: 35% organic revenue growth, 35% operating
profit, 10% reduction in receivables and 10% each
on individual objectives and other strategic targets
CEO: 200% of salary
CFO: 150% of salary
CEO: 200% of salary
CFO: 150% of salary
50% adjusted EPS and 50% cash conversion
50% adjusted EPS and 50% cash conversion
LTIP holding period of
two years after vest
Shares released after at least five years
(vesting after three years plus two-year
holding period)
Shares released after at least five years
(vesting after three years plus two-year
holding period)
Share ownership
requirements
Malus and clawback
provisions
200% of salary
200% of salary
As per policy approved by shareholders at 2018 AGM As per policy approved by shareholders at 2018 AGM
Mitie Group plc | Annual Report and Accounts 2019
73
Directors’ remuneration report continued
Executive remuneration
at a glance continued
Summary of remuneration outcomes for the year ended 31 March 2019
The following provides a summary of incentive outcomes and the single total figure of remuneration for Executive Directors. Full details can be found
later in our Annual Report on Remuneration.
Annual bonus in respect of FY 18/19
The Committee assessed outcomes over the period with respect to operating profit, organic revenue, Net Promoter Score (NPS), employee
engagement and individual performance and determined that bonuses of 79.4% and 78.4% of the maximum were appropriate for Phil Bentley and Paul
Woolf respectively. Achievement against these measures is described in more detail in the Annual Report on Remuneration. Furthermore, the
Committee challenged itself to ensure that these bonus outcomes were appropriate in the round and was comfortable that these bonus levels are
commensurate with strong organisational and individual performance. Please see table on page 76 for further detail.
2016 LTIP awards
Following his appointment, Phil Bentley received an LTIP award in November 2016. This award vests subject to the extent to which the annual bonus
targets that apply for FY 17/18, FY 18/19 and FY 19/20 are met and a bonus paid. 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. In any event, no vesting will actually
occur until 2020. Paul Woolf does not hold any 2016 LTIP awards. The bonus targets that applied for FY 17/18 and FY 18/19 are deemed to have been
met and therefore a bonus in two of the three years has been achieved to date.
Single figure for FY 18/19
The table below reports a single figure of total remuneration for each of the Executive Directors for the financial year ended 31 March 2019 and their
comparative figures for the financial year ended 31 March 2018.
Phil Bentley
Paul Woolf
£
Salary
Benefits
Pension
Bonus
Total
£
Salary
Benefits
Pension
Bonus
Total
2019
900,000
25,406
180,000
1,143,542
2,248,948
2019
430,000
1,716
43,000
404,609
879,325
£
Salary
Benefits
Pension
Bonus
Total
£
Salary
Benefits
Pension
Bonus
Total
2018
900,000
22,549
180,000
–
1,102,549
2018
166,136
686
16,614
–
183,436
Note: Paul Woolf joined the Company and Board as Chief Financial Officer on 13 November 2017 and the information above for 2018 comprises his earnings from that date to
31 March 2018. Both Phil Bentley and Paul Woolf waived their FY 17/18 bonus and there were no LTIP pay-outs for them in 2018 and 2019.
Further information on the above is provided in the Annual Report on Remuneration.
74
Mitie Group plc | Annual Report and Accounts 2019
Annual Report
on Remuneration
Executive Director remuneration (subject to audit)
The table below reports a single figure of total remuneration for each of the Executive Directors for the financial year ended 31 March 2019 and their
comparative figures for the financial year ended 31 March 2018.
Phil Bentley
Paul Woolf
Total
Year
2019
2018
2019
2018
2019
2018
Salary
Benefits
Pension Annual bonus
LTIP
Total
£900,000
£900,000
£430,000
£166,136
£25,406
£22,549
£1,716
£180,000
£180,000
£1,143,542
–
£43,000
£404,609
£686
£16,614
–
–
–
–
–
£2,248,948
£1,102,549
£879,325
£183,436
£3,128,273
£1,533,216
Notes:
Paul Woolf joined the Board as Chief Financial Officer on 13 November 2017. The information in the table for 2018 above confirms his earnings as an Executive Director from that date.
The difference in the totals for 2018 is attributable to earnings for former Executive Director, Sandip Mahajan, between 1 April 2017 and his resignation from the Board on 13
November 2017.
Benefits relate to the cost to the Group of private medical cover, car allowance and financial/tax planning advice.
The pension benefit disclosed above comprises cash allowances in lieu of pension contributions for Phil Bentley of 20% of salary and for Paul Woolf at 10% of salary.
Bonus payable in respect of the financial year includes any deferred element at face value at the date of award. Further information about how the level of the award for the year
ended 31 March 2019 was determined is provided on pages 76 and 77.
For any new Executive Director appointments, the Remuneration Committee will consider the alignment of pension arrangements with the
wider workforce.
Non-Executive Director remuneration (subject to audit)
The fees for the Non-Executive Directors for the financial year ended 31 March 2019 and their comparative figures for the financial year ended 31 March 2018 are set
out below:
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Derek Mapp1
Nivedita Krishnamurthy Bhagat
Jack Boyer2
Philippa Couttie
Jennifer Duvalier3
Larry Hirst4
Mark Reckitt5
Mary Reilly6
Roger Yates7
Total*
2019
£’000
225
52
25
52
57
20
20
57
59
2018
£’000
201
43
60
20
35
59
60
30
5
567
575
Notes:
*
All amounts were paid in cash and no other benefits were received in the year. The difference in the total for 2018 is attributable to fees for former Non-Executive Director,
Roger Matthews, between 1 April 2017 and his stepping down from the Board on 26 July 2017.
1. Derek Mapp joined the Board on 9 May 2017 as Chairman-elect and took over as Chairman and Chairman of the Nomination Committee at the AGM on 26 July 2017.
2. Jack Boyer resigned from the Board on 31 August 2018.
3. Jennifer Duvalier assumed the role of Chair of the Remuneration Committee upon Jack Boyer’s resignation.
4. Larry Hirst retired from the Board on 31 July 2018.
5. Mark Reckitt resigned from the Board on 31 July 2018.
6. Mary Reilly assumed the role of Chair of the Audit Committee upon Mark Reckitt’s resignation.
7. Roger Yates assumed the role of Senior Independent Director upon Larry Hirst’s retirement.
Mitie Group plc | Annual Report and Accounts 2019
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Directors’ remuneration report continued
Annual Report
on Remuneration continued
Base salary and benefits
Commencing 1 November 2016, and to be first reviewed in April 2020, the annual base salary for Phil Bentley is £900,000.
Commencing 13 November 2017, and reviewed in April 2018, the annual base salary for Paul Woolf was £430,000. The review of Paul Woolf’s base
salary in April 2019 resulted in no change in base salary.
Benefits are as described in the notes to the Executive Director remuneration table on page 75. No changes in benefits are planned for the year ending
31 March 2020.
A review of Non-Executive Director fees was undertaken by the Board in March 2019 which resulted in no change to fees.
Chairman fees2
Non-Executive Director core fees3
Additional fees:
Senior Independent Director
Chair of a Committee
20191
£’000
225
52
7
8
2018
£’000
225
52
7
8
Notes:
1. The core fees of £52,000 per annum paid to each Non-Executive Director (including the Chairman) will total £312,000 for the year ending 31 March 2020. Total fees including
additional duties are expected to amount to £508,000 for the year ending 31 March 2020 (£567,000 actual for the year ended 31 March 2019).
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 chairman or a member of other Committees.
3. For Non-Executive Directors, individual fees comprise the core fee and additional supplemental fees for the Senior Independent Director and for chairing Committees to reflect
the greater responsibility and time commitment required.
Annual Bonus Plan
Annual Bonus Plan awards were made in respect of the year ended 31 March 2019. Phil Bentley was eligible for a maximum bonus opportunity of 160%
of base salary and Paul Woolf was eligible for a maximum bonus opportunity of 120% of base salary.
The awards were structured by reference to performance against a blend of financial (70% of the bonus opportunity) and strategic targets
(the remaining 30%). At the threshold level of performance for financial targets, 25% of the maximum bonus opportunity is due, 50% of the maximum
bonus opportunity is due at the target level and 100% at the maximum level. Between these points the out-turn is determined on a linear sliding scale
basis.
As the financial performance ranges excluded the impact of IFRS 15 and acquisitions and disposals during the year, the performance ranges have been
adjusted for these impacts and the out-turn has been assessed by comparing the reported FY 18/19 results after the impact of IFRS 15, acquisitions and
disposals with the adjusted performance ranges:
Performance
measure
Weighting
Adjusted
performance range
Out-turn
Operating profit1
35% of the award
Revenue2
35% of the award
Customer Net
Promoter Score
10% of the award
Employee engagement
10% of the award
£79.5m threshold
£83.7m target
£87.9m maximum
£2.15bn threshold
£2.26bn target
£2.37bn maximum
+ 1pts threshold
+ 3pts target
+ 5pts maximum
+ 1ppts threshold
+ 3ppts target
+ 5ppts maximum
Individual strategic
objectives
10% of the award
n/a
Notes:
1. Operating profit before other items from continuing operations.
2. Revenue from continuing operations.
The out-turn was £88.2m resulting in an outcome of 100% of the maximum
for this element, being 35% of the maximum bonus opportunity.
The out-turn was £2.22bn resulting in an outcome of 41.2% of the maximum
for this element, being 14.4% of the maximum bonus opportunity.
The out-turn was +22pts resulting in an outcome of 100% of the maximum
for this element, being 10% of the maximum bonus opportunity.
The out-turn was +12ppts resulting in an outcome of 100% of the maximum
for this element, being 10% of the maximum bonus opportunity.
The Committee considered performance against the strategic objectives set
out below and determined that the out-turn was 100% and 90% of the
maximum for the CEO and CFO respectively, being 10% and 9% of the
maximum bonus opportunity.
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The individual strategic objectives set for the CEO and CFO were as follows:
CEO
Strategic objectives
Strategy
Customers
People
Drive business development agenda, with a focus on exiting non-core businesses and adding technology capability;
Strengthen balance sheet to reduce average net debt; and
Head external messaging for Connected Workspace demonstrating its value to clients.
Champion the embedding of unitary account management; and
Retention of top accounts.
Ensure leadership team stability and upgrade talent; and
Increase women recruited into Science, Technology, Engineering and Maths (STEM) roles.
Shareholder relations
Maintain core shareholder support.
CFO
Strategic objectives
Costs
People
Increase cash from the ‘order to cash’ working capital cycle and reduce finance costs from the organisation as part of Finance
transformation.
Upgrade finance talent measured by an increase in the number of GLT/high-potential employees.
Customer/Technology
Implement standard chart of accounts and unitary account management for Mitie’s top 50 integrated accounts.
The bonus structure and assessment was as follows:
Financial performance
Non-financial performance
Total bonus payable
% of
salary
payable at
threshold
% of
salary
payable at
target
% of
salary
payable at
maximum
28%
21%
56%
42%
112%
84%
% of
salary
payable
79%
59%
% of
salary
payable at
threshold
% of
salary
payable at
target
% of
salary
payable at
maximum
0%
0%
24%
18%
48%
36%
% of
salary
payable
48%
35%
Total
bonus
£
1,143,542
404,609
Cash
£
571,771
202,305
Deferred
shares
£
571,771
202,304
Phil Bentley
Paul Woolf
The Annual Bonus Plan will be operated on similar terms for the year ending 31 March 2020. Phil Bentley’s maximum bonus opportunity for FY 19/20 will
remain at 160% of base salary and Paul Woolf’s at 120% of base salary. Awards will be payable by reference to performance against a blend of financial
(70% of the bonus opportunity) and strategic targets (the remaining 30%). However, if none of the financial targets have been achieved, no bonus will be
payable by reference only to the strategic targets. 50% of any bonus entitlement will be deferred. 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.
LTIP awards granted in 2018 (subject to audit)
On 2 August 2018, the following conditional LTIP awards were granted to the Executive Directors:
Phil Bentley
Paul Woolf
Award
Performance
LTIP Aug 18
Performance
LTIP Aug 18
Type
Nil-cost
options
Nil-cost
options
Number
of shares1
Face value
(£’000)
% of salary
1,180,327
1,800
200%
422,950
645
150%
Performance
conditions
Performance
conditions are
set out in the
table below
Performance
period
% vesting
at threshold
Three financial
years ending
31 March 2021
25%
Notes:
1. Number of shares was calculated based on the average closing share price for up to five business days preceding the date of grant giving a share price of 152.50p.
LTIP awards granted in 2018 were simplified to two performance measures, adjusted EPS and cash conversion. These awards will vest in 2021
conditional on performance against the following measures:
Performance
measure
Earnings Per
Share (EPS)
growth
Weighting
50% of
the award
Performance range
5% – 12% pa
Cash conversion
50% of
the award
75% – 85% pa
Vesting of portion of the award
(performance period three years ending 31 March 2021)
Zero vesting if EPS growth, as adjusted by the Committee as appropriate, is less than 5%
pa. If EPS growth is equal to 5% pa, 25% of the award will vest. If Mitie achieves EPS
growth of 8.5% pa, 70% of the award will vest. If EPS growth of 12% pa or more is
achieved, all the awards will vest. Between 5% and 8.5% and 8.5% and 12%, the proportion
of awards vesting will be determined on a linear sliding scale basis.
Zero vesting if cash conversion is less than 75% pa. At 75% pa cash conversion, 25% of the
award will vest. 70% of the award will vest if Mitie achieves 80% pa cash conversion. Full
vesting for this portion will occur if 85% pa cash conversion is achieved. Between 75% and
80% and 80% and 85%, the proportion of awards vesting will be determined on a linear
sliding scale basis.
To reflect the impact of any changes in or adoption of new IFRS accounting standards, the Committee will consider adjusting financial targets
appropriately for subsisting LTIP awards, ensuring that they are not materially easier or harder to satisfy than the original targets. Any amended targets
determined by the Committee will be disclosed to shareholders in the next Directors’ Remuneration Report.
Mitie Group plc | Annual Report and Accounts 2019
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Directors’ remuneration report continued
Annual Report
on Remuneration continued
The grant of 2019 LTIP awards to the Executive Directors will be made in due course. The performance conditions that apply to the awards follow
the same construct as in 2018 with two measures: (i) EPS; and (ii) cash conversion, each accounting for 50% of the award with the following
performance conditions:
Performance
measure
Earnings Per
Share (EPS)
growth
Weighting
50% of
the award
Performance range
5% – 10% pa
Cash conversion
50% of
the award
80% – 90% pa
Vesting of portion of the award
(performance period three years ending 31 March 2021)
Zero vesting if EPS growth, as adjusted by the Committee as appropriate, is less than 5%
pa. If EPS growth is equal to 5% pa, 25% of the award will vest. If Mitie achieves EPS
growth of 7.5% pa, 70% of the award will vest. If EPS growth of 10% pa or more is
achieved, all the awards will vest. Between 5% and 7.5% and 7.5% and 10%, the proportion
of awards vesting will be determined on a linear sliding scale basis.
Zero vesting if cash conversion is less than 80% pa. At 80% pa cash conversion, 25% of the
award will vest. 70% of the award will vest if Mitie achieves 85% pa cash conversion. Full
vesting for this portion will occur if 90% pa cash conversion is achieved. Between 80% and
85% and 85% and 90%, the proportion of awards vesting will be determined on a linear
sliding scale basis.
Details of July 2016 LTIP awards vesting in July 2019
The Committee assessed the outcome of the July 2016 LTIP awards (based on FY 18/19 results before the impact of IFRS 15) granted under the plan
against a basket of performance measures:
Performance
measure
Earnings Per
Share (EPS)
growth
Relative Total
Shareholder
Return (TSR)
Weighting
25% of
the award
20% of
the award
Strategic
objectives
25% of
the award
Performance range
3% – 8% pa
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% pa, 25% of the award will vest. If Mitie achieves EPS
growth of 8% pa, all the awards will vest. Between these two points the proportion of
awards vesting will be determined on a linear sliding scale basis.
Outperformance
against the Business
Support Services subsector
of the FTSE 350
Support Services index
Zero vesting if Mitie’s TSR growth is less than the median of the index. If Mitie’s TSR
growth 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 the strategic objectives are not met. Straight line vesting between zero
and maximum based on Remuneration Committee assessment of performance against
objectives.
Cash conversion
30% of
the award
75% – 85% pa
Zero vesting if cash conversion is less than 75% pa. At cash conversion of 75% pa, 25% of
the award will vest. 70% of the award will vest if Mitie achieves cash conversion of 80% pa.
Full vesting for this portion will occur if cash conversion of 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.
Following a review of actual performance, under a formulaic outcome, there would have been no vesting under the EPS, TSR and strategic elements, and
some vesting under the cash conversion element. However, the Committee exercised negative discretion and determined that these awards granted to
senior management should lapse in their entirety. No current Executive Director has July 2016 LTIP awards.
Details of November 2016 LTIP award vesting in 2020
Following his appointment, Phil Bentley received an LTIP award in November 2016. This award vests subject to the extent to which the annual bonus
targets that apply for FY 17/18, FY 18/19 and FY 19/20 are met and a bonus paid. 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. In any event, no vesting will actually
occur until 2020. The bonus targets that applied for FY 17/18 and FY 18/19 are deemed to have been met and therefore a bonus in two of the three
years has been achieved to date.
Loss of office payments (subject to audit)
As set out in the Annual Report and Accounts 2018, Sandip Mahajan ceased to be a Director of Mitie Group plc and took up the role of Chief Financial
Transformation Officer on 13 November 2017. Full details of Sandip’s departure terms were disclosed in the 2018 Annual Report and Accounts and a
summary made available on the Company’s website in the relevant Section 430(2B) Companies Act 2006 statement.
Sandip left the employment of the Company on 12 November 2018 as indicated.
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Payments to past Directors (subject to audit)
There have been no payments to past Directors during FY 18/19 that relate to their period of employment as a Director.
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 Officer and Mitie’s UK salaried non-contract population, which is considered
the most appropriate group for comparison purposes.
%
Chief Executive Officer
Average pay based on Mitie’s UK salaried non-contract employees1
Salary
Benefits
0.0%
7.83%
4.25%
17.87%2
Bonus
nm3
194.26%
Notes:
1. Reflects the change in average annual pay for salaried non-contract UK employees employed throughout the two financial years ended 31 March 2019. 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.
2. Includes car/car allowance, private medical benefit and private fuel.
3. Phil Bentley voluntarily waived the bonus payable in FY 17/18.
Relative spend on pay
The table below shows the total cost of remuneration in the Group, compared with dividends distributed.
Aggregate employee remuneration
Equity dividends
Year ended
31 March 2019
£m
Year ended
31 March 2018
£m
1,244
14
1,119
5
Change
11.2%
180.0%
Assessing pay and performance
The table below provides a summary of the Chief Executive Officer’s single figure remuneration over the past ten years, as well as the pay-out and
vesting levels of variable pay plans in relation to the maximum opportunity. The chart below shows the historical TSR performance over the same period.
These indices (FTSE 250, FTSE 350 Support Services and FTSE 350) have been chosen as they are widely recognised and Mitie has been a member of
these indices during the period:
TSR (Rebased to 100)
400
350
300
250
200
150
100
March 09
March 10
March 11
March 12
March 13
March 14
March 15
March 16
March 17
March 18
March 19
Mitie
FTSE 250
FTSE 350 SS
FTSE 350
2010
2011
2012
2013
2014
2015
2016
2017
Ruby
McGregor-
Smith1
2017
Phil
Bentley1
2018
2019
£1,703,031 £2,324,443 £2,431,773 £2,105,131 £1,447,266 £1,525,824 £2,448,161
£530,628
£479,073 £1,102,549
£2,248,948
100%
100%
100%
85%
90%
50%
73%
0%
waived
waived
79%
100%
100%
87.2%
57.2%
0%
25%
69.5%
0%
n/a
n/a
n/a
Single figure
remuneration
Annual bonus
element (actual
as a % of max)
LTIP element
(actual vesting
as a % of max)
Note:
1. Ruby McGregor-Smith stepped down as Chief Executive Officer on 12 December 2016. Phil Bentley joined the Board on 1 November 2016 and assumed the position of
Chief Executive Officer on 12 December 2016. The figures above include Phil Bentley’s remuneration from 1 November 2016.
Mitie Group plc | Annual Report and Accounts 2019
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Annual Report
on Remuneration continued
Share ownership (subject to audit)
Phil Bentley2
Paul Woolf3
Number of
shares
owned as at
31 March 20191
Value
of target
holding
1,999,749
48,967
£1,800,000
£860,000
Target
shareholding
926,328
552,841
Percentage
of salary
held as at
31 March 2019
Percentage
of target
achieved as at
31 March 2019
Compliance with share
ownership guidelines
432%
18%
216%
9%
Achieved
Not achieved but compliant
Notes:
1. Includes shares owned by connected persons.
2. Value of target holding is 200% of base salary for Phil Bentley. In accordance with Phil Bentley’s service contract, he acquired shares worth 400% of salary on 21 November 2016.
His target shareholding is the value of his target holding divided by the share price of 194.3p on 21 November 2016.
3. In accordance with the Company’s share ownership policy, Paul Woolf is required to build and maintain, through the retention of vested share options, a shareholding of 200% of
base salary. His target shareholding is calculated using the average closing share price of 155.6p for the five business days prior to the start of the financial year ended 31 March 2019.
Directors’ outstanding share interests (subject to audit)
The following tables provide the outstanding share interests for the Executive Directors:
Directors’ interests granted under the LTIP
Options
outstanding
as at 31 March
2018
Year of
grant
Granted in
year3
Lapsed
in year
Phil Bentley
Paul Woolf
Nov 2016¹
Jul 20172
Aug 2018
Nov 20172
Aug 2018
879,077
669,393
–
143,269
–
–
–
1,180,327
–
422,950
–
–
–
–
–
Exercised
in year
Options
outstanding
as at 31 March
20194
–
–
–
–
–
879,077
669,393
1,180,327
143,269
422,950
Exercise
price
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Nil-cost
Earliest normal
exercise date5
May 2020
Jul 2020
Aug 2021
Nov 2020
Aug 2021
Notes:
1. The performance criteria applicable to the November 2016 award run are linked to the achievement of a bonus payment in the three financial years ending 31 March 2020.
If Phil earns a bonus in one of these years 25% of the award vests, 67% vests if a bonus is earned in two of the years and 100% vests if a bonus is earned in all three years.
The bonus targets that applied for FY17/18 and FY18/19 are deemed to have been met and therefore a bonus in two of the three years has been achieved to date.
2. The performance criteria applicable to the 2017 awards were disclosed in the previous Directors’ Remuneration Report.
3. The performance criteria applicable to the 2018 awards are provided on page 77.
4. The market price of the Company’s shares as at 31 March 2019 was 149.2p. The highest and lowest prices during the year were 196.8p and 105.8p respectively.
5. Awards are subject to an additional two-year holding period.
Directors’ share ownership
Executive Directors
Phil Bentley
Paul Woolf
Non-Executive Directors
Derek Mapp
Nivedita Krishnamurthy Bhagat
Jack Boyer1
Philippa Couttie
Jennifer Duvalier
Larry Hirst2
Mark Reckitt3
Mary Reilly
Roger Yates
Number of ordinary shares beneficially owned
as at 31 March 2019 (or date of cessation if earlier)
Number of ordinary shares beneficially owned
as at 31 March 2018 (or date of appointment if later)
1,999,749
48,967
140,000
0
5,000
0
18,469
25,000
4,000
11,708
50,000
1,852,656
48,967
140,000
0
5,000
0
18,469
25,000
4,000
0
0
Notes:
1. Jack Boyer resigned from the Board on 31 August 2018.
2. Larry Hirst retired from the Board on 31 July 2018.
3. Mark Reckitt resigned from the Board on 31 July 2018.
80
Mitie Group plc | Annual Report and Accounts 2019
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 2019
All share plans (maximum 10%)
Discretionary share plans (maximum 5%)
Dilution
5.7%
2.3%
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 Annual Report and Accounts 2018 was passed at the Company’s 2018 AGM.
At the Company’s 2018 AGM, a resolution was passed to approve the 2018 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
2018 Directors’ remuneration policy – 2018 AGM
2018 Directors’ remuneration report – 2018 AGM
Votes in
favour
276.8m
99.7%
245.8m
88.8%
Votes
against
0.8m
0.3%
31.0m
11.2%
Withheld1
0.1m
–
0.9m
–
Note:
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.
In September 2017, following a retender process and the resignation of Deloitte LLP as Mitie’s auditor, the Committee appointed Deloitte LLP as
independent remuneration advisors. The advisors attended Committee meetings and provided advice and analysis of executive remuneration. During
their tenure, 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. The advisors’ total cost of advice to the Committee for the year was £57,950
(such fees being charged in accordance with their standard terms of business).
The Committee specifically considered the position of the advisors and was satisfied that the advice the Committee received from them was objective
and independent, given that they provided no other services to the Company.
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Mitie Group plc | Annual Report and Accounts 2019
81
Directors’ report: other disclosures
Directors’
report
The Directors present their Annual Report, together with the audited
financial statements of the Company and the Group, for the year ended
31 March 2019.
Board of Directors
The names of all persons who served as Directors of the Company at
any time during the year are set out on page 56.
The Directors’ report required under the Companies Act 2006
comprises the corporate governance statement on pages 53 to 69,
with both the Directors’ remuneration report on pages 70 to 81
and Strategic report on pages 1 to 48 incorporated by reference.
The corporate governance statement on pages 53 to 69 fulfils the
requirement under Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (DTR) 7.2.1.
For the purposes of DTR 4.1.8R, the management report for the year
ended 31 March 2019 comprises the Strategic report and this Directors’
report.
Listing Rule (LR) 9.8.4
The information required to be disclosed by LR 9.8.4 can be found in the
following locations:
Details of any long-term
incentive schemes
Shareholder waiver
of dividends and
future dividends
Page reference
Directors’ remuneration report on
pages 70 to 81 and Note 31 to the
consolidated financial statements
Directors’ report: other disclosures
on page 86
No shareholder is considered a controlling shareholder as defined in
the Financial Conduct Authority Handbook.
The remaining disclosures required by LR 9.8.4 are not applicable to
the Company.
Principal Group activities
The Company is the holding company of the Group and its principal
activity is to provide management services to the Group. The Group’s
activities are focused on the provision of strategic outsourcing
services, further details of which can be found on pages 4 and 5 of
the Strategic report.
The Company does not have any branches registered overseas, but
the Company’s subsidiaries have registrations/branches across the United
Kingdom, Republic of Ireland, Guernsey, Jersey, Belgium, Finland, France,
Germany, Ghana, Kenya, the Netherlands, Nigeria, Norway, Poland,
Singapore, Spain, Sweden, Switzerland and the United Arab Emirates.
Details of the Company’s subsidiaries are set out in Note 35 to the
consolidated financial statements.
Given the nature of its activities, no material research and development
work is carried out by the Group.
The Board’s view on the likely future development of the Group is set
out in the Strategic report on pages 1 to 48.
Full biographical details, including Committee membership and external
appointments, are set out on pages 50 to 52.
The Board considered the independence of all Non-Executive
Directors during the year and determined that, as at 31 March 2019,
all Non-Executive Directors continued to be independent in mind and
judgement, and free from any material relationship that could interfere
with their ability to discharge their duties effectively.
Director appointments
The rules governing the appointment and replacement of Directors are
set out in the Company’s Articles of Association (the Articles), the Code,
the Companies Act 2006 and other related legislation.
Directors’ conflicts of interest
In accordance with the Articles, the Board has a policy on the declaration
and management of Directors’ conflicts of interests. Any potential
situation or transactional conflict must be reported as soon as possible
to the Chairman, Chief Executive Officer and General Counsel &
Company Secretary. Where a potential conflict is authorised under
statutory powers and powers granted under the Articles, such conflict
is kept under ongoing review.
Executive Directors are permitted to accept appointments outside
the Group provided that permission is sought from the Chairman
and Chief Executive Officer and that the additional responsibilities
do not interfere with the Director’s ability to discharge his/her duties
effectively. Executive Directors are entitled to retain fees earned from
any external appointments. Neither Phil Bentley nor Paul Woolf held
any external positions during FY 18/19. External positions held by the
Chairman and Non-Executive Directors are detailed in their biographies
on pages 50 to 52.
Indemnification of Directors and insurance
The Directors and the Company Secretary benefit from an indemnity
provision under the Articles. In addition, all Directors and the General
Counsel & Company Secretary have been granted a qualifying
third-party indemnity provision as defined by Section 234 of the
Companies Act 2006, which has been in force throughout the year
and remains in force as at the date of this report.
Certain subsidiary directors have also been granted a qualifying
third-party indemnity provision which has been in force throughout
the year and remains in force as at the date of this report.
The Group maintains directors’ and officers’ liability insurance which
provides appropriate cover for any legal action brought against the
Group’s directors and/or officers.
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Mitie Group plc | Annual Report and Accounts 2019
Articles of Association
The Articles were adopted at the 2017 AGM. Any future amendment
to the Articles must be made in accordance with their provisions, the
Companies Act 2006 and related legislation. The Articles are available
at www.mitie.com/investors/corporate-governance.
Restrictions on the transfer of shares
The Company is not aware of any agreements between holders of its
securities which may result in restrictions on the transfer of securities
or voting rights. No person has any special rights of control over the
Company’s share capital.
Share capital
The Group is financed through equity share capital and debt instruments.
Details of the Company’s share capital are given in Note 28 to the
consolidated financial statements. Details of the Group’s debt instruments
are set out in Note 22 to the consolidated financial statements.
The Company has a single class of shares divided into ordinary shares
of 2.5 pence each (Ordinary Shares). The Ordinary Shares are entitled
to one vote each per share at general meetings and have no right to any
fixed income.
In accordance with the Articles, holders of Ordinary Shares are entitled
to participate in any dividends pro-rata to their holding. The Board may
propose and pay interim dividends and recommend a final dividend to
shareholders for approval at an AGM. A final dividend may be declared
by the shareholders at an AGM by ordinary resolution, but such dividend
cannot exceed the amount recommended by the Board.
Powers of the Company to issue or buy back
its own shares
The Company did not allot any Ordinary Shares during the year,
undertake any market purchases of its own shares or distribute any
shares from treasury. Exercisable awards under the Mitie Group plc 2011
Save As You Earn Scheme and Mitie Group plc 2001 and 2011 Executive
Share Option Schemes were underwater during the year, and no awards
were exercised. The total number of Ordinary Shares held by the
Company in treasury as at 31 March 2019 remained unchanged at
7,748,108 (representing 2.1% of the issued share capital of the Company).
At the 2018 AGM, shareholders authorised:
• The Directors to allot Ordinary Shares up to an aggregate nominal
amount of £914,842.64, representing 10% of the issued share capital
(excluding treasury shares) as at 12 June 2018;
• The dis-application of pre-emption rights over allotted shares up to an
aggregate nominal value equal to £457,421.32, equating to 5% of Mitie’s
issued share capital (excluding treasury shares) and 4.90% of the issued
share capital including treasury shares, each as at 12 June 2018;
• The dis-application of pre-emption rights over allotted shares up to
an aggregate nominal value of £457,421.32, equating to 5% of Mitie’s
issued share capital (excluding treasury shares) and 4.90% of the issued
share capital including treasury shares, each as at 12 June 2018, in
connection with the financing (or refinancing, if the authority is to be
used within six months of the original transaction) of an acquisition or
specified capital investment; and
• The Company to make market purchases of its own shares up to
a total of 36,593,706 Ordinary Shares (representing 10% of the issued
share capital as at 12 June 2018 (excluding treasury shares)).
These authorities will expire on the earlier of 30 September 2019 or
the conclusion of the 2019 AGM. A renewal of these authorities will
be put to shareholders at the 2019 AGM. Further details can be found
in the notes to the relevant meeting notice which can be found on
Mitie’s website.
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.
Certain Ordinary Shares previously issued in consideration for the
acquisition by the Company of shares held by minority shareholders
in subsidiaries of the Group under the Mitie Model have contractual
restrictions placed upon them. These restrictions prevent recipients
from selling those Ordinary Shares and/or attach clawback provisions,
which typically apply for a maximum period of two years from allotment.
Under Mitie’s Rules on Share Dealing, persons with access to certain
confidential company information or inside information are required
to follow a clearance to deal procedure and may be restricted from
dealing in the Company’s shares. Persons subject to these requirements
are notified individually and appropriately informed of the rules.
Significant interests in the Company’s share capital
As at 31 March 2019 the Company had been notified of significant
holdings of voting rights in its Ordinary Shares under the Disclosure
Guidance and Transparency Rules as set out below.
Number of
Ordinary Shares
% of share
capital at the
date of
notification
Silchester International Investors LLP
Aggregate of Standard Life Aberdeen plc
FMR LLC
Harris Associates L.P.
Brandes Investment Partners LP
Heronbridge
62,210,238
53,532,509
19,717,936
18,393,003
18,117,242
18,366,728
17.00%
14.63%
5.38%
5.12%
5.05%
5.00%
Changes that occurred between the end of the period under review and
5 June 2019, the latest practicable date prior to the date of this report,
are set out below.
Number of
Ordinary Shares
% of share
capital at the
date of
notification
Aggregate of Standard Life Aberdeen plc
56,214,197
15.36%
Directors’ interests in the Company’s share capital are set out in the
Directors’ remuneration report on page 80.
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83
Directors’ report: other disclosures continued
Dialogue with shareholders
The Board is committed to ongoing and proactive dialogue with
shareholders. A full programme of formal and informal events,
institutional investor meetings and presentations is held throughout the
year. This programme of shareholder engagement aims to ensure that
the performance, strategies and objectives of the Group are clearly
communicated to the investment community and provide a forum for
institutional shareholders to address any corporate governance issues.
The programme is led by the Executive Directors with support from the
Investor Relations team. The Chairman is responsible for ensuring that
the Board is made aware of any issues and concerns of major shareholders.
The Company acknowledges that there was a significant minority vote
against one resolution at the 2018 AGM which related to the election
of Mary Reilly as a Non-Executive Director. 76.26% of votes cast were in
favour of this resolution. The majority of the votes received against were
attributable to one of the Company’s major shareholders whose policy
is not to support non-executives with more than two other equivalent
positions with other companies or organisations. Non-executive
directors holding a position of chair of an audit committee are also not
expected to hold more than one other position. Mary Reilly currently
holds external appointments as set out in her biography on page 52.
Members of the Board met with the major shareholder and have sought
to provide reassurance that Mary has sufficient time to dedicate to her
duties. The Board, through the Nomination Committee, regularly
reviews and considers the time commitments for each Director to
ensure there are no concerns regarding overcommitment. The Board
remains confident that Mary has sufficient time to dedicate to her duties.
The Board is regularly kept informed of any investor feedback,
stockbroker updates and detailed analyst reports. The Head of Investor
Relations also updates the Board at every Board meeting as set out
under Board activities on page 57.
The Chairman and Senior Independent Director are available to meet
with shareholders upon request. All Directors were present at the 2018
AGM and will attend the 2019 AGM.
Mitie has a specific area dedicated to investor relations on its
website (www.mitie.com) where the items below are made available
to shareholders:
• Latest Group information;
• Financial reports;
• Corporate governance and sustainability matters;
• Half-year and full-year results presentations;
• Major shareholder information; and
• All regulatory announcements.
Annual General Meeting
Shareholders are invited to attend Mitie’s 2019 AGM, which will be held
on 30 July 2019 at 11.30 am at Linklaters LLP, One Silk Street, London
EC2Y 8HQ.
Employee involvement
Details of how Mitie encourages employee involvement can be found in
the Strategic report on pages 34 to 37.
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Mitie Group plc | Annual Report and Accounts 2019
Diversity and inclusion
The Board is responsible for driving the diversity agenda throughout
the Group. During the year the Board adopted the Board Inclusion Policy
as an extension to its existing Group-wide Inclusion Policy. The Board
Inclusion Policy includes a commitment to maintaining a minimum of
30% female representation on the Board as recommended by the
Hampton-Alexander review, provided that this remains consistent with
the skills and diversity requirements when seeking a new appointment to
the Board. Female representation on the Board increased from 36% at
the start of the year to 50% as at 31 March 2019.
The Group’s approach to business is underpinned by a belief that
all individuals should be treated fairly and have access to equal
opportunities. To attract, recruit, develop and retain the very best
people at all levels, Mitie is committed to respecting and embracing talent
and working to support a culture that is inclusive and reflective of Mitie’s
visions and values. Objectives of Mitie’s Group-wide Inclusion Policy
include that:
• No job applicant or employee will receive less favourable treatment
on the grounds of sex, race, age, ethnic origin, marital status,
pregnancy and maternity, civil partnership status, any gender
re-assignment, religion or belief, sexual orientation, disability or
part-time/fixed-term work;
• Inclusion, equality and diversity will be promoted within the
workplace; and
• An environment will be created where anyone believing they have
been subjected to discrimination, victimisation, bullying or harassment
in the workplace, is entitled and feels safe to raise such concerns.
In implementing the policy, Mitie:
• Ensures that all policies, processes, procedures and practices underpin
delivery of the Inclusion Policy;
• Cascades lessons learned and shares best practice throughout the
business; and
• Identifies key issues and recommends any changes.
During FY 18/19 five diversity networks were established. The networks
host a variety of face-to-face and virtual events and contribute to online
platforms designed to interact and share ideas.
Diversity networks
Enable
Raises awareness of disability-related topics across
the business, while offering support and guidance to
colleagues and line managers
Engender
Works to engender equality for men and women
at Mitie
Generations
Supports Mitie’s age-diverse workforce
Kaleidoscope
Proud To Be
Ensures an inclusive working environment for people of
all ethnicities, and above all, encouraging Mitie’s BAME
(Black, Asian and Minority Ethnic) talent across the
business to succeed
Is all about educating, informing and inspiring Mitie
employees to be themselves by promoting an inclusive
culture in the workplace, particularly around LGBTQ
In connection with the Group’s wider diversity initiatives and Inclusion
Policy, Mitie is committed to:
• Giving full and fair consideration to applications for employment
by disabled persons, having regard to their particular aptitudes
and abilities;
• Continuing the employment of, and arranging appropriate training for,
employees who have become disabled during their employment; and
• The training of, career development and promotion of
disabled employees.
In recognition of Mitie’s diversity-related initiatives, Mitie was named
17th in the Excellence in Diversity Awards Inclusive Top 50 UK
Employers in November 2018.
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Culture
The ‘Mitie Way’ of doing business and ‘One Mitie’ unitary approach of
working with clients continues to be advanced. The Mitie Way has many
elements to it including purpose, vision, culture, values and branding, and
covers all aspects of the business, from ‘who we are’ to ‘what we do’ and
‘how we do it’.
Greenhouse gas emissions
Mitie is committed to reducing its carbon emissions and environmental
impact and has been actively recording and managing greenhouse gas
emissions (GHG) since 2010, when an ambitious target to reduce
Scope 1 and Scope 2 carbon footprint intensity by 35% was set.
Absolute emissions
Emissions
Total Scope 1 (tCO2e)*
Emissions from fuel combustion across fleet
Emissions from gas combustion at occupied buildings (excluding landlord sites)
Total Scope 2 (tCO2e)
Emissions from the purchase of electricity across occupied buildings
(excluding landlord sites)
Total Scope 1 & 2 (tCO2e)
Intensity
Emissions ratio
tCO2e/£m revenue (Scope 1 & 2)
The Group continues to report total GHG emissions annually using the
financial control approach. The methodology used aligns with Defra’s
Environmental reporting guidelines and uses the Government’s GHG
reporting conversion factors to quantify emissions.
For the year ended 31 March 2019, Mitie had reduced its emissions
intensity by 37.4% against its FY 09/10 baseline and 4.1% against FY 17/18.
Absolute emissions have also decreased by 19.5% against the FY 09/10
baseline and 3.8% against FY 17/18.
FY 09/10
(baseline)
41,343
40,277
1,066
3,490
3,490
44,833
FY 09/10
(baseline)
26.07
FY 17/18
35,974
35,272
702
1,524
1,524
37,498
FY 18/19
35,230
34,688
542
857
857
36,087
Change
against
baseline %
Change
against
FY 17/18 %
-14.8%
-13.9%
-49.2%
-75.4%
-75.4%
-19.5%
-2.1%
-1.7%
-22.8%
-43.8%
-43.8%
-3.8%
FY 17/18
17.02
FY 18/19
16.32
Change
against
baseline %
–37.4%
Change
against
FY 17/18 %
– 4.1%
* Refrigerant data has been excluded due to difficulties obtaining accurate data on landlord managed sites; however, this data is not considered material.
Mitie’s efforts to reduce its carbon emissions focus on reducing the impact of its fleet, which contributes 96% of its total Scope 1 and Scope 2 footprint.
Mitie has pledged to run at least 20% of its company small van and car fleet using electric vehicles by 2020. A fleet transformation project is underway to
standardise current vehicles with newer, more efficient vehicles. Part of this project has been to ensure that all commercial vehicles are installed with
telematics to improve driver behaviour.
Further information on these calculations can be found in the GHG methodology statement available on our website www.mitie.com.
Environmental data
Further details on the Group’s environmental performance can be found in the table below:
2009/10
(baseline)
2017/18
2018/19
Change
against
baseline %
Change
against
previous year %
Energy
Electricity consumed across occupied buildings (kWh)
Gas consumed across occupied buildings (kWh)
Fuel used by fleet for business travel (kWh)
9,091,141
7,980,537
5,540,091
4,949,461
3,417,254
3,261,106
184,088,382
154,681,158
148,488,776
Total organisational energy consumption (kWh)
201,160,060
165,170,710
155,167,136
-62.4%
-59.1%
-19.3%
-22.9%
-38.3%
-34.1%
-4.0%
-6.1%
Water
Water consumed across occupied buildings (m3)
29,306
40,012
28,106
-4.1%
-29.8%
Waste
Total waste to landfill (tonnes)
Total waste recycled (tonnes)
Total waste generated across occupied buildings (tonnes)
Recycling rate
989
447
1,436
31%
336
541
877
62%
231
371
602
62%
-76.6%
-17.0%
-58.1%
+31 ppts
-31.2%
-31.4%
-31.4%
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Mitie Group plc | Annual Report and Accounts 2019
85
Directors’ report: other disclosures continued
Political donations
Mitie has a long-standing policy of not making any political donations.
However, 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. At the 2018 AGM shareholders
granted the Company and its subsidiaries authority to make political
donations up to a total aggregate cap of £50,000 until the 2019 AGM.
A renewal of this authority will be put to shareholders at the 2019 AGM.
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 and employee share
scheme rules. 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.
Financial results
A detailed commentary on the operational and financial results of the
Group for the year is contained within the Strategic report, including
the Finance review on pages 22 to 25.
The Group’s profit before tax from continuing operations for the
financial year was £36.4m (2018: £15.4m loss).
Dividends
An interim dividend of 1.33p per Ordinary Share (2018: 1.33p) with
a total value of £4.8m (2018: £4.8m) was paid to shareholders on
12 February 2019.
The Directors recommend a final dividend of 2.67p per Ordinary Share
(2018: 2.67p) with a total value of £9.6m (2018: £9.6m) based upon the
number of shares in issue as at 5 June 2019. Subject to approval at the
2019 AGM, the final dividend will be paid on 9 August 2019 to
shareholders on the register as at close of business on 28 June 2019.
The final dividend of 2.67p per share recommended by the Directors for
the year ended 31 March 2018 was replaced by an interim dividend of
2.67p declared by the Directors on 31 July 2018 as the Notice of 2018
AGM omitted a resolution seeking shareholder approval of the final
dividend.
The total dividend per Ordinary Share for the year ended 31 March 2019
will be 4.0p (2018: 4.0p).
As at 31 March 2019, the Company had distributable reserves of £64.6m
(2018: £117.5m).
Mitie operates a Dividend Re-Investment Plan (DRIP) which allows
shareholders to use their cash dividend to purchase additional Ordinary
Shares. Further detail on the operation of the DRIP and how to apply
can be found on page 166 and are available from Mitie’s Registrar, Link
Asset Services.
The trustees of the Company’s Employee Benefit Trust waived dividends
payable during the year and have agreed to waive future dividends.
In accordance with Section 726 of the Companies Act 2006, no
dividends are paid on shares held in treasury.
Financial instruments
The Group’s financial instruments include bank borrowing facilities,
finance leases, overdrafts, US private placement loan notes and
derivatives which 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 23 to the consolidated financial statements.
Statement of the Directors in respect of the
Annual Report and Accounts
In accordance with 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 Group’s position and performance, business
model and strategy. When arriving at this position the Board was assisted
by various processes including the following:
• The Annual Report and Accounts is drafted by senior management
with overall coordination by the General Counsel & 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 General Counsel & Company
Secretary and external advisors; and
• The final draft is reviewed by the Audit Committee prior to
consideration by the Board.
Details of the basis on which the Company generates and preserves
value over the longer term and the strategy for delivering the Company’s
objectives are set out in the Strategic report.
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 Directors have considered
principal risks and uncertainties affecting the Group which are described
on pages 38 to 46.
The Directors have considered the Group’s financial position which
incorporates the Parent Company with reference to latest forecasts and
the actual performance for the period. The Group benefits from a
well-diversified portfolio of service offerings and has a broad, diverse
customer base.
The Group currently operates well within the financial covenants
associated with its committed funding lines. These include £191.5m of
US Private Placement debt maturing in December 2019, December
2022 and December 2024. The Group also benefits from a committed
multi-currency revolving credit facility of £275.0m, which will mature in
July 2021. Together with the US Private Placements, this gives the Group
total committed funding of £466.5m, of which £221.9m was undrawn at
31 March 2019.
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The Group’s US Private Placement 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 2019, both covenant tests were passed. The Group is
forecasting to remain within its banking covenants over the next
twelve months and has stress-tested these calculations for reasonable
possible adverse variances in trading and cash performance.
After making enquiries, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational existence
for a period of at least twelve months from the date of approval of the
financial statements. Accordingly, the Group and Parent Company
continues to adopt the going concern basis of accounting in preparing
the consolidated financial statements.
Viability statement
This statement is detailed in full on pages 47 and 48.
In accordance with the Code, the Directors have assessed the viability
of the Group over a three-year period to 31 March 2022 taking into
account the Group’s current position and the potential impact of the
principal risks set out in the Strategic report. Based on this assessment
the Directors have a reasonable expectation that the Group is and will
continue to be viable.
Disclosure of information to the auditor
Each Director in office as at the date of this Directors’ report
confirms that:
• So far as he/she is aware, there is no relevant audit information
of which the Company’s auditor is 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 auditor is aware
of that information.
This statement is given, and should be interpreted in accordance with,
Section 418 of the Companies Act 2006.
By order of the Board
Peter Dickinson
General Counsel & Company Secretary
5 June 2019
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Directors’ report: statement of Directors’ responsibilities
Website publication
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company’s website in accordance
with legislation in the United Kingdom governing the preparation and
dissemination of financial statements, which may vary from legislation
in other jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors’ responsibilities pursuant to DTR4.1
The Directors confirm that to the best of their knowledge:
• The Group financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by
the European Union and Article 4 of the IAS Regulation and give a
true and fair view of the assets, liabilities, financial position and profit
and loss of the Group; and
• The management report includes a fair review of the development
and performance of the business and the financial position of the
Group and the Company, together with a description of the principal
risks and uncertainties that they face.
By order of the Board
Phil Bentley
Chief Executive Officer
5 June 2019
Paul Woolf
Chief Financial Officer
5 June 2019
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 and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare 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
applicable law and have elected to prepare the Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and
applicable law) including FRS 101 Reduced Disclosure Framework.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that these give a true and fair view
of the state of affairs of the Group and Company and of their profit or
loss for the period.
In preparing these financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable,
relevant, reliable and prudent;
• For the Group financial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the European Union,
subject to any material departures disclosed and explained in the
financial statements;
• For the Company financial statements, state whether applicable
United Kingdom Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
• Prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group or Company will
continue in business;
• Prepare a Directors’ report, a Strategic report and Directors’
remuneration report which comply with the requirements of the
Companies Act 2006.
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 its 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.
The Directors are responsible for ensuring that the Annual Report and
Accounts, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
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96
Independent auditor’s
report to the members
of Mitie Group plc
Consolidated income statement
Consolidated statement
of comprehensive income
97 Consolidated balance sheet
99
Consolidated statement
of changes in equity
100 Consolidated statement
of cash flows
102 Notes to the consolidated
financial statements
158 Company balance sheet
159 Company statement
of changes in equity
160 Notes to the Company
financial statements
163 Appendix – Alternative Performance
Measures (APMs)
166 Shareholder information
Exceptional,
every day
for our
employees
Mitie’s people are our most critical asset.
As a major UK employer with 52,500
colleagues, we take our responsibility
towards our people seriously.
Improving our employment offer to our
colleagues has been a key focus of the
past year as we look to consolidate our
position as one of the UK’s most dynamic,
forward-thinking and sustainable facilities
management companies. In FY 18/19 we
launched People Hub – a single source for
all people-related matters – and Learning
Hub to further our colleagues’ careers.
Read more on PG 34-37
No17
top 50 UK
employers
5
core values that
drive our business
Mitie Group plc | Annual Report and Accounts 2019
89
Independent auditor’s report
Independent auditor’s report
Independent auditor’s report
to the members of Mitie Group Plc
to the members of Mitie Group plc
Opinion
We have audited the financial statements of Mitie Group plc (the Parent Company) and its subsidiaries (the Group) for the year ended 31 March 2019
which 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 Notes
to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and International Financial Reporting Standards (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 Generally Accepted Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally
Accepted Accounting Practice).
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 2019 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly prepared in accordance with 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; 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of
the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 38 to 46 that describe the principal risks and explain how they are being managed or mitigated;
• the Directors’ confirmation set out on page 47 in the annual report 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 Directors’ statement set out on page 88 in the financial statements about whether the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties to the Group and
the Parent Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• whether the Directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on pages 47 and 48 in the annual report 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.
Key audit matters
A summary of our key audit matters and the assessment against prior year is as follows:
Risk
Appropriateness of revenue recognition
Contractual matters and provisions
Risk consistent with prior year
Yes – incorporates compliance with IFRS 15 in current year
Yes – with specific contractual matters being considered in each year
Recoverability of trade receivables and accrued income
Yes
Acquisition of Vision Security Group
New risk following current year acquisition
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The prior year key audit matters also included the transition to IFRS 15, presentation of other items in the consolidated financial statements and
impairment of goodwill in the Property Management division.
Whilst compliance with IFRS 15 remains a risk in respect of revenue recognition, following adoption in the prior year the key audit matter in respect
of transition is no longer applicable. In addition, the Social Housing business within the Property Management division has been disposed of in the year
and therefore impairment of goodwill relating to the division is no longer considered to be a key audit matter.
With the exception of a £20.0m provision being required in respect of a Section 75 pension liability (see Notes 4 and 32), the quantum of amounts
recorded as other items and the level of judgement reduced, this is therefore no longer considered to be a key audit matter.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified including those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. 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.
Appropriateness of revenue recognition
Key Audit Matter
Following the adoption of IFRS 15 in the prior year, the level of
judgement applied by management in respect of revenue and profit
recognition has significantly reduced.
There remains however an assessment of new and modified contracts to
ensure compliance with IFRS 15 as well as the cut-off risk in respect of
recognition of accrued income. Unbilled accrued income at the year-end
totalled £132.6m (see Note 15).
The accounting policies and critical judgements applied are disclosed in
Notes 1 and 2.
Judgements include:
• Interpretation of contract terms;
• Assessment of revenue recognised in respect of projects with an
over time revenue recognition requirement;
• Mobilisation and pre-contract costs capable of being capitalised; and
• Assessment of revenue recognition based on performance obligations
being achieved.
Recoverability of trade receivables and accrued income
Key Audit Matter
Material amounts of the 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.
Trade receivables and accrued income are disclosed in Note 15 to the
financial statements. Credit risk associated with trade receivables is disclosed
in Note 23 to the financial statements.
In addition, in the current year, the Group has adopted IFRS 9 ‘Financial
Instruments’, which includes the requirements to determine the provision
for expected credit losses. This has resulted in a pre-tax adjustment to
opening reserves and receivables of £2.5m.
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 within the Engineering
division which require a manual ageing of unbilled accrued income balances,
increasing the risk of error.
How we addressed the Key Audit Matter in the Audit
We completed the following audit procedures:
• Reviewed the basis of revenue recognised against the
requirements of IFRS 15 and challenged and where necessary
corroborated to underlying audit evidence the key judgements
made by management;
• Tested a sample of new and modified contracts in the year to
confirm revenue recognition in accordance with IFRS 15;
• Obtained a sample of contracts to confirm that fixed revenue
had been appropriately recognised including recalculating the
expected revenue for the year;
• Tested a sample of contract related assets to supporting
documentation to ensure revenue had been recognised in line
with IFRS 15;
• For specific divisional revenue streams we tested the operating
effectiveness of controls including the testing of IT controls over
key operating systems; and
• Tested a sample of accrued income balances to supporting
documentation, which included procedures such as: assessing
proof of works; confirming customer acceptance; reviewing
customer correspondence; and ensuring cut-off had been
appropriately applied.
How we addressed the Key Audit Matter in the Audit
For a sample of these balances we have challenged the validity
of the recorded debtors and accrued income as well as the
completeness of provisions and expected credit losses by a
number methods including:
• Where possible, confirming aged balances to
post year-end cash receipts;
• Examining client approval of works orders or
contractual commitments;
• Reviewing evidence of work performed and status
of negotiations;
• Testing the accuracy of ageing of trade receivable and
accrued income (including the manual ageing requirement
in the Engineering division);
• Reviewing in-house legal counsel reports for any
material disputes;
• Scrutinising the methodology and assumptions used in
calculating the expected credit loss provision; and
• Analytical procedures to consider consistency in the
provisioning methodology to the prior year.
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Independent auditor’s report continued
Independent auditor’s report to the members of Mitie Group Plc continued
Contractual matters and provisions
Key Audit Matter
How we addressed the Key Audit Matter in the Audit
Under the terms for the disposal of the Social Housing business the
Group retained specific contractual liabilities and provided certain
indemnities to the buyers relating to closed contracts.
We examined the Social Housing disposal documentation and held
discussions with in-house legal counsel to confirm the contractual
liabilities retained and indemnities given.
Whilst certain liabilities have now been settled in full there remain
contractual matters that require significant judgement in estimating the
quantum of provisions required.
We have read internal and external documentation to evaluate the
provisions recorded to ensure they are materially complete and
correctly calculated.
There is a risk that the provisions included as contract specific costs and
disposal indemnities in Note 19 and also disclosed within other items in
Note 4 are not complete.
For all matters we have reviewed the disclosures included in the
financial statements to ensure that they are complete and also fair,
balanced and understandable.
Acquisition of Vision Security Group
Key Audit Matter
During the year, the Group acquired Vision Security Group Limited for net
consideration of £8.2m.
There are several judgemental areas in the accounting for the acquisition
including;
• Fair value of consideration, specifically related to an adjustment of
£5.28m being recorded prior to reaching a final agreement of the
completion accounts with the sellers;
• Fair value of the opening acquisition balance sheet assets and liabilities;
• Adoption of IFRS 9 and 15 into the opening acquisition balance
sheet; and
• Valuation and the useful economic life of the separately identifiable
customer relationship intangible asset.
In determining the completion accounts adjustments and arriving at
their best estimate, management have obtained third-party accounting
and legal support.
The transaction resulted in a gain in bargain purchase of £8.8m which has
been recorded as a credit within the income statement.
The Group’s accounting policy for business combinations is disclosed in
Note 1, the judgements made in Note 2 and further detail concerning the
transaction within Note 30.
How we addressed the Key Audit Matter in the Audit
Our audit procedures included:
• With the support of our internal specialists we assessed
the fair value of consideration, specifically in respect of the
completion accounts adjustments made by management.
This included reviewing management papers and judgements,
the sale and purchase agreements, correspondence with the
vendors and third-party reports obtained by management to
support their assessment;
• Substantively audited acquisition net book values of assets
and liabilities and resulting fair value adjustments including the
adoption of IFRS 9 and 15; and
• With the support of our internal valuation specialists we
challenged the key inputs, assumptions and methodology
used by management in determining the fair values of
intangible assets acquired.
In light of the assessed gain on bargain purchase we challenged
management on its recognition.
We have also reviewed the relevant disclosure in the financial
statements to assess compliance with the requirements of IFRS 3
and also the disclosure in Note 2 of the significant estimates and
judgements made.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit and in evaluating the effect of misstatements. We consider materiality
to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the
basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account
of the nature of identified misstatements and the particular circumstances of their occurrence, when evaluating their effect on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the Group financial statements to be £3.8m and for the Parent Company to
be £2.9m. Performance materiality, based on our assessment of past misstatements and the control environment was calculated based on 70% of
our materiality.
The materiality we applied in respect of the Group financial statements equates to 5% of continuing profit before other items and tax. Parent Company
materiality was set at 1% of net assets, and capped at 75% of Group materiality.
We consider the use of 5% of continuing profit before other items to be the most appropriate performance measure for the basis as it removes the
impact of certain one-off or exceptional items impacting the underlying profit of the Group and is also a key measure for stakeholders. Other items are
detailed in Note 4 to the Group financial statements.
We set component materiality between £0.9m and £2.6m based on the overall size and respective risk of each component.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £190,000 as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
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Mitie Group plc | Annual Report and Accounts 2019
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An overview of the scope of our audit
The Group operates through a number of legal entities, which form reporting components – the reporting components are consistent with the
segmental analysis as disclosed in Note 3 to the financial statements with the exception of Vision Security Group which is treated as a separate
component for audit purposes but forms part of the Security division within the segmental analysis. All components were subject to full scope
audits with the exception of certain overseas entities which were disaggregated from the division and were subject to desktop review procedures.
All audits and desktop review procedures were completed by BDO LLP.
The audit procedures were carried out over 95% of Group revenue, profit before other items and total assets.
2019
Total revenue
2019
Profit before
other items
2019
Total assets
Full audit
Desktop reviews
The Group audit team set component materiality levels as detailed above with work on all components being performed by the Group auditors under
the direction and supervision of the Group engagement partner. With the exception of the non-significant components, the Group engagement partner
visited all component locations and attended various telephone conference meetings through the planning, fieldwork and completion stages of the audit.
We also gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered
the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and
significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the financial statements, including, but not
limited to, the Companies Act 2006, the UK Listing Rules and tax legislation.
Our tests included agreeing the financial statement disclosures to underlying supporting documentation, enquiries with management and enquiries of in-
house legal counsel. There are inherent limitations in the audit procedures described above and, the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any
key audit matters relating to irregularities, including fraud. As in all of our audits, we also addressed the risk of management override of internal controls,
including testing journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due
to fraud.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the
financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the
financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements
or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 86 – the statement by the Directors that they consider 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 Group’s performance,
business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on pages 62 to 67 – the section describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 53 – the parts of the Directors’ statement required
under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by
the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Independent auditor’s report continued
Independent auditor’s report to the members of Mitie Group Plc continued
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we
have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
• 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 and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 88, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the Audit Committee on 19 September 2017 to audit the financial
statements for the year ending 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement is two years, covering
the years ended 31 March 2018 and 31 March 2019.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent
of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scott McNaughton (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
5 June 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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Consolidated income statement
For the year ended 31 March 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Finance income
Finance costs
Net finance costs
Profit/(loss) before tax
Tax
Profit/(loss) from continuing operations after tax
Discontinued operations
Profit/(loss) from discontinued operations
Profit/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings/(loss) per share (EPS) attributable to
equity holders of the parent
From continuing operations:
Basic
Diluted
From continuing and discontinued operations:
Basic
Diluted
8
3
9
5
11
11
11
11
Before
other items
£m
Notes
Other
items3
£m
2019
Total
£m
Before
other items
£m
Other
items3
£m
20181,2
Total
£m
3
2,221.4
(1,923.9)
297.5
–
–
–
2,221.4
2,030.6
(1,923.9)
(1,762.8)
297.5
267.8
–
–
–
2,030.6
(1,762.8)
267.8
(209.3)
88.2
(38.0)
(38.0)
(247.3)
50.2
3,6
0.2
(14.0)
(13.8)
–
–
–
0.2
(14.0)
(13.8)
(16.5)
(184.6)
83.2
0.1
(16.6)
(82.1)
(82.1)
(266.7)
1.1
–
–
–
0.1
(16.6)
(16.5)
74.4
(38.0)
36.4
66.7
(82.1)
(15.4)
(13.8)
60.6
7.4
(30.6)
(6.4)
30.0
(11.1)
55.6
3.1
63.7
63.7
–
63.7
16.8p
16.7p
17.7p
17.5p
(2.2)
(32.8)
(32.8)
–
(32.8)
0.9
30.9
30.9
–
30.9
8.3p
8.3p
8.6p
8.5p
5.6
61.2
60.1
1.1
61.2
15.2p
15.1p
16.8p
16.7p
10.0
(72.1)
(15.1)
(87.2)
(87.2)
–
(87.2)
(1.1)
(16.5)
(9.5)
(26.0)
(27.1)
1.1
(26.0)
(4.9)p
(4.9)p
(7.6)p
(7.6)p
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Re-presented to classify the Pest Control and Social Housing businesses as discontinued operations. See Note 1.
3. Other items are as described in Note 4.
Mitie Group plc | Annual Report and Accounts 2019
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Consolidated statement of comprehensive income
For the year ended 31 March 2019
Profit/(loss) for the year
Items that will not be reclassified subsequently to profit or loss
Re-measurement 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 on hedge of a net investment taken to equity
Net gains on cash flow hedges arising during the year
Income tax (charge)/credit relating to items that may be reclassified
Other comprehensive (expense)/income for the financial year
Total comprehensive income/(expense) for the financial year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
32
9
27
9
2019
£m
30.9
(13.9)
2.4
(11.5)
(0.3)
0.1
2.2
(0.3)
1.7
20181
£m
(26.0)
19.7
(3.4)
16.3
0.1
0.4
0.1
0.1
0.7
(9.8)
17.0
21.1
(9.0)
21.1
–
(10.1)
1.1
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
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Consolidated balance sheet
As at 31 March 2019
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interest in joint ventures and associates
Derivative financial instruments
Contract assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Contract assets
Current tax assets
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Deferred income
Current tax liabilities
Financing liabilities
Provisions
Total current liabilities
Net current liabilities
Non-current liabilities
Deferred income
Financing liabilities
Provisions
Retirement benefit liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net liabilities
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i
g
e
t
a
r
t
S
e
c
n
a
n
r
e
v
o
G
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
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Notes
2019
£m
20181
£m
12
13
14
23
16
20
15
16
21
17
18
22
19
18
22
19
32
20
293.8
50.7
29.0
–
16.4
4.5
38.7
433.1
5.6
435.2
1.6
–
108.4
550.8
309.6
38.3
33.6
0.8
6.1
1.8
36.7
426.9
6.9
386.0
0.4
6.3
59.8
459.4
983.9
886.3
(533.9)
(54.9)
(0.3)
(40.7)
(50.6)
(496.8)
(46.2)
–
(0.8)
(25.2)
(680.4)
(569.0)
(129.6)
(109.6)
(18.4)
(224.8)
(6.0)
(63.8)
(2.9)
(18.8)
(258.6)
(6.3)
(56.8)
(0.8)
(315.9)
(341.3)
(996.3)
(910.3)
(12.4)
(24.0)
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
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97
Consolidated balance sheet continued
As at 31 March 2019
Equity
Share capital
Share premium account
Merger reserve
Own shares reserve
Other reserves
Hedging and translation reserve
Retained losses
Equity attributable to equity holders of the parent
Notes
2019
£m
20181
£m
28
29
29
29
29
29
9.3
130.6
104.2
(38.1)
10.3
(5.6)
(223.1)
(12.4)
9.3
130.6
104.2
(43.4)
11.3
(7.3)
(228.7)
(24.0)
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
The consolidated financial statements of Mitie Group plc, company registration number SC019230 were approved by the Board of Directors and
authorised for issue on 5 June 2019. They were signed on its behalf by:
Phil Bentley
Chief Executive Officer
Paul Woolf
Chief Financial Officer
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Total
equity
£m
(18.4)
(26.0)
17.0
(9.0)
(4.8)
8.2
2.3
1.1
–
1.1
–
–
Consolidated statement of changes in equity
For the year ended 31 March 2019
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Own
shares
reserve
£m
Other
reserves1
£m
Hedging and
translation
reserve
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Adjusted balance at 1 April 2017
9.2
130.6
91.8
(42.2)
10.3
(8.0)
(212.4)
(20.7)
Loss for the year
Other comprehensive income
Total comprehensive expense
Dividends paid
Share-based payments
Acquisitions and other movements
in non-controlling interests
At 31 March 2018
At 1 April 2018
Impact of change in accounting policy2
Adjusted balance at 1 April 2018
Profit for the year
Other comprehensive (expense)/income
Total comprehensive income
Dividends paid
Share-based payments
Other movements
At 31 March 2019
–
–
–
–
–
0.1
9.3
9.3
–
9.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.9
1.0
(27.1)
(27.1)
16.3
17.0
(10.8)
(10.1)
(4.8)
0.3
(4.8)
8.2
–
0.7
0.7
–
–
–
12.4
(8.1)
(1.0)
3.4
(3.4)
–
130.6
104.2
(43.4)
130.6
104.2
(43.4)
–
–
–
130.6
104.2
(43.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.3
–
9.3
130.6
104.2
(38.1)
–
11.3
11.3
–
11.3
–
–
–
–
(1.0)
–
10.3
(7.3)
(228.7)
(24.0)
(7.3)
(228.7)
(24.0)
–
(2.1)
(2.1)
(7.3)
(230.8)
(26.1)
–
1.7
1.7
–
–
–
30.9
(11.5)
19.4
30.9
(9.8)
21.1
(14.4)
(14.4)
0.9
1.8
5.4
1.8
(5.6)
(223.1)
(12.4)
–
–
–
–
–
–
–
–
–
–
–
(24.0)
(24.0)
(2.1)
(26.1)
30.9
(9.8)
21.1
(14.4)
5.4
1.8
(12.4)
Notes:
1. Other reserves include the share-based payments reserve, the revaluation reserve and the capital redemption reserve. See Note 29.
2. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impacts as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
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Consolidated statement of cash flows
For the year ended 31 March 2019
Continuing operations – operating profit before other items1
Continuing operations – other items1
Discontinued operations – operating loss after other items1
Adjustments for:
Share-based payments expense
Defined benefit pension costs
Past service costs and curtailments
Defined benefit pension contributions
Depreciation of property, plant and equipment
Amortisation of intangible assets
Amortisation of contract assets
Share of profit of joint ventures and associates
Impairment of goodwill
Impairment of intangible assets
Gain on bargain purchase
Gain on disposal of property, plant and equipment
(Gain)/loss on disposal of subsidiaries
Other
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Increase in receivables
Increase in contract assets
Increase/(decrease) in deferred income
Increase/(decrease) in payables
Increase in provisions
Cash generated from/(used in) operations
Income taxes received
Interest paid
Net cash generated from/(used in) operating activities
Investing activities
Acquisition of subsidiaries, net of cash acquired2
Disposal of subsidiaries, net of cash disposed2
Dividends received from joint ventures and associates
Interest received
Purchase of property, plant and equipment
Purchase of other intangible assets
Disposal of property, plant and equipment
Net cash generated from/(used in) investing activities
Notes
4
31
32
32
32
14
13
16
5
12
13
30
5
27
30
5
14
13
2019
£m
88.2
(38.0)
(2.0)
5.0
1.8
1.6
(11.6)
11.6
9.0
0.8
(0.5)
–
1.1
(8.8)
(0.8)
(17.9)
–
39.5
0.4
(51.7)
(4.7)
5.1
33.4
25.5
47.5
4.7
(12.4)
39.8
(9.3)
52.8
–
0.2
(12.1)
(11.2)
4.7
25.1
2018
£m
83.2
(82.1)
(9.4)
4.6
3.1
1.9
(4.7)
12.8
13.5
0.1
(0.8)
34.6
10.4
–
(0.1)
0.2
(0.1)
67.2
(0.1)
(43.2)
(2.3)
(12.8)
(21.2)
4.5
(7.9)
11.6
(13.5)
(9.8)
–
(9.7)
0.6
0.2
(15.8)
(9.0)
1.6
(32.1)
Notes:
1. Re-presented to classify the Pest Control and Social Housing businesses as discontinued operations. See Note 1.
2. Disposal of subsidiaries, net of cash disposed of £52.8m for the year ended 31 March 2019 is stated net of £5.3m of transaction costs (see Note 5). The net cash inflow from acquisition and disposal
of subsidiaries was £40.9m (2018: £9.7m outflow) including costs of £2.6m related to the VSG acquisition (see Note 4).
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Consolidated statement of cash flows continued
For the year ended 31 March 2019
Financing activities
Increase/(repayments) of obligations under finance leases
Private placement notes repaid and associated hedges settled
(Repayments of)/proceeds from bank loans
Proceeds from re-issue of treasury shares
Purchase of non-controlling interests
Equity dividends paid
Net cash used in financing activities
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
27
27
29
30
10
2019
£m
0.2
–
(2.1)
–
–
(14.4)
(16.3)
48.6
59.8
–
21
108.4
2018
£m
(1.5)
(60.2)
38.3
3.4
(3.0)
(4.8)
(27.8)
(69.7)
129.1
0.4
59.8
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 5.
Reconciliation of net cash flow to movements in net debt
Notes
Cash drivers
Net increase/(decrease) in cash and cash equivalents
Decrease/(increase) in bank loans
Private placement notes repaid and associated hedges settled
(Increase)/repayments of obligations under finance leases
Non-cash drivers
Non-cash movement in bank loans
Non-cash movement in private placement notes and associated hedges
Effect of foreign exchange rate changes
Decrease/(increase) in net debt during the year
Opening net debt
Closing net debt
27
27
27
27
27
26
2019
£m
48.6
2.1
–
(0.2)
(0.2)
2.2
0.3
52.8
2018
£m
(69.7)
(38.3)
60.2
1.5
(0.7)
0.3
0.4
(46.3)
(193.5)
(140.7)
(147.2)
(193.5)
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Notes to the consolidated financial statements
For the year ended 31 March 2019
1. Basis of preparation and significant accounting policies
(a) Basis of preparation
The Group’s financial statements for the year ended 31 March 2019 have been prepared in accordance with International Financial Reporting Standards
(IFRS) adopted for use in the European Union and therefore the Group’s financial statements comply with Article 4 of the EU IAS Regulation.
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.
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 Directors have considered principal risks and uncertainties affecting the Group which are described on
pages 38 to 46.
The Group currently operates well within the financial covenants associated with its committed funding lines. These include £191.5m (being the
repayment amount based on the original dollar exchange rates when issued) of US Private Placement debt maturing in December 2019, December
2022 and December 2024 and a committed multi-currency revolving credit facility of £275.0m which will expire in July 2021. These facilities give the
Group total committed funding of £466.5m, of which £221.9m was undrawn at 31 March 2019.
The key ratios in these financial covenants are net debt to covenant EBITDA and covenant EBITDA to net finance costs. These covenants are tested on
a rolling 12-month basis as at the September and March reporting dates. At 31 March 2019, both covenant tests were passed. The Group is forecasting
to remain within its banking covenants over the next twelve months and has stress-tested these calculations for reasonable possible adverse variances
in trading and cash performance.
Supported by the liquidity provided by committed banking facilities, notwithstanding the Group is in a net current liability position, the Directors
have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly,
the Group continues to adopt the going concern basis of accounting in preparing the condensed consolidated financial statements.
Discontinued operations
On 30 September 2018, the Group completed the sale of Mitie Pest Control Limited (Pest Control) which previously formed a separate major line
of business of the Group as part of the Cleaning & Environmental Services division. As a result of the disposal, the results of the Pest Control business
have been classified as discontinued operations and comparative information has been restated.
On 19 November 2018, the Group entered into an agreement to sell Mitie Property Management Limited and MPS Housing Limited, together
the Social Housing business, which previously formed a separate major line of business of the Group as part of the Property Management division.
As a result of the disposal, which was completed on 30 November 2018, the results of the Social Housing business have been classified as discontinued
operations and comparative information has been restated. The remaining roofing and painting activities of the former Property Management division
have been integrated into the Engineering Services division.
Accounting standards that are newly effective in the current year
With the exception of the adoption of IFRS 9 which is discussed below, none of the new standards and amendments that are effective for the first time
this year have had a material effect on the Group.
IFRS 9 ‘Financial instruments’ became effective for the Group starting 1 April 2018 and replaces the requirements of IAS 39 ‘Financial instruments:
recognition and measurement’. The main changes introduced by the new standard are new classification and measurement requirements for certain
financial assets, a new Expected Credit Loss (ECL) model for the impairment of financial assets, revisions to the hedge accounting model, and
amendments to disclosures. The Group elected, from 1 April 2018, to continue to apply the hedge accounting guidance in IAS 39 ‘Financial instruments:
recognition and measurement’.
With respect to loss allowances for trade receivables, IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ECL model. The Group, from 1 April
2018, measures loss allowances for trade receivables and accrued income at an amount equal to lifetime expected credit losses using both quantitative
and qualitative information and analysis based on the Group’s historical experience and forward-looking information. The Group has determined that
the transition to IFRS 9 resulted in an additional loss allowance for trade receivables and accrued income as at 1 April 2018 of £2.5m and gave rise to a
tax credit of £0.4m. The additional loss allowance has been applied as an adjustment to opening retained earnings at 1 April 2018 and therefore, the
prior year comparative information is not restated.
Other than as stated above, the accounting policies and methods of calculation adopted in the preparation of these Group consolidated financial
statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 March 2018,
which were prepared in accordance with IFRS as issued by the International Accounting Standards Board and as adopted by the EU.
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Accounting standards that are not yet mandatory and have not been applied by the Group
With the exception of IFRS 16 which is discussed below, none of the new standards and amendments that are not yet effective are expected to have
a material effect on the Group.
IFRS 16 ‘Leases’ became effective for the Group from 1 April 2019 and replaces the requirements of IAS 17 ‘Leases’. An asset representing the Group’s
right as a lessee to use a leased item, and a liability for future lease payments, will be recognised for all leases, subject to limited exemptions for short-
term leases and low-value lease assets. The costs of leases will be recognised in the consolidated income statement split between depreciation of the
lease asset and a finance charge on the lease liability. This is similar to the accounting for finance leases under IAS 17, but substantively different to the
accounting for operating leases (under which no lease asset or lease liability was recognised and rentals payable were charged to the consolidated
income statement on a straight-line basis).
During the year, management set up a project team to review the Group’s leasing arrangements in light of the new lease accounting rules in IFRS 16.
At 31 March 2019, the Group has non-cancellable operating lease commitments of £72.0m (see Note 25). Of these commitments, £1.4m relates to
short-term leases and £0.1m to low-value leases which will be recognised on a straight-line basis as an expense in the consolidated income statement.
For the remaining lease commitments, the Group expects to recognise, at 1 April 2019, right-of-use assets in the range of £82.0m to £87.0m, and lease
liabilities in the range of £81.0m to £86.0m (after adjustments for prepayments and accrued lease payments recognised as at 31 March 2019). Overall
net assets will be in the range of £4.0m lower to £6.0m higher and net current liabilities will be higher by between £21.0m and £26.0m due to the
presentation of a portion of lease liabilities as a current liability.
As a result of adopting the new rules, for the year ending 31 March 2020, the Group expects net profit before tax to increase by between £nil and
£3.0m. Operating profit is expected to increase by between £24.0m and £29.0m as the operating lease rentals payable which were previously included
in operating profit are excluded, with this increase being offset by additional depreciation of between £22.0m and £24.0m as the right-of-use assets are
depreciated. In addition, operating cash flows are expected to increase by between £24.0m and £29.0m as repayment of the lease liabilities is reclassified
as cash used in financing activities.
The Group’s activities as a lessor are not material and therefore, there is no significant impact from these activities on the consolidated financial
statements as a result of adopting IFRS 16. However, certain additional disclosure may be required in the notes to the consolidated financial statements.
(b) Significant accounting policies
The significant accounting policies adopted in the preparation of the Group’s IFRS financial information are set out below.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Mitie Group plc and all its subsidiaries. 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 equity holders of the parent.
Statutory and non-statutory measures of performance
The financial statements contain all the information and disclosures required by the relevant accounting standards and regulatory obligations that apply
to the Group.
In the financial statements, the Group has elected to provide some further disclosures and performance measures, reported as ‘before other items’,
in order to present its financial results in a way that demonstrates the performance of continuing operations.
Other items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist
in understanding the underlying financial performance achieved by the Group. The Group separately reports the impairment of goodwill, the cost of
restructuring programmes, acquisition and disposal costs including the write-off and amortisation of acquisition related intangible assets, the results of
and costs associated with disposals, and other exceptional items and their related tax effect as other items. Should these items be reversed, disclosure of
this would also be as other items.
Separate presentation of these items is intended to enhance understanding of the financial performance of the Group in the period and the extent
to which results are influenced by material unusual and/or non-recurring items. Further detail of other items is set out in Note 4.
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 pages 163 to 165.
Revenue recognition policy
The Group operates contracts with a varying degree of complexity across its service lines, so a range of methods is used for the recognition of revenue
based on the principles set out in IFRS 15. Revenue represents income recognised in respect of services provided during the period based on the
delivery of performance obligations and an assessment of when control is transferred to the customer.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
1. Basis of preparation and significant accounting policies continued
IFRS 15 provides a single, principles based five-step model to be applied to all sales contracts as outlined below. It is based on the transfer of control
of goods and services to customers and replaces the separate models for goods, services and construction contracts
Step 1 – Identify the contract(s) with a customer
For all contracts with customers, the Group determines if the arrangement creates enforceable rights and obligations. This assessment results in
certain Framework arrangements or Master Service Agreements (MSAs) not meeting the definition of contracts under IFRS 15 unless they specify
the minimum quantities to be ordered. Usually the work order and any change orders together with the Framework or MSA will constitute the
IFRS 15 contract.
Duration of contract
The Group frequently enters into contracts with customers which contain extension periods at the end of the initial term, automatic annual renewals,
and/or termination for convenience and break clauses that could impact the actual duration of the contract. As the term of the contract impacts the
period over which amortisation of contract assets and revenue from performance obligations may be recognised, the Group applies judgement to
assess the impact that such clauses have in determining the relevant contract term. In forming this judgement, management considers certain influencing
factors including the amount of discount provided, the presence of significant termination penalties in the contract, and the relationship, experience
and performance of contract delivery with the customer and/or the wider industry, in understanding the likelihood of extension or termination of the
contract.
Contract modifications
The Group’s contracts are frequently amended for changes to customer requirements such as change orders and variations. A contract modification
takes place when the amendment creates new enforceable rights and obligations or changes the existing price or scope (or both) of the contract, and
the modification has been approved. Contract modifications can be approved in writing, by oral agreement, or implied by customary business practices.
If the parties to the contract have not approved a contract modification, revenue is recognised in accordance with the existing contractual terms.
If a change in scope has been approved but the corresponding change in price is still being negotiated, the Group estimates the change to the total
transaction price.
Contract modifications are accounted for as a separate contract if the contract scope changes due to the addition of distinct goods or services and
the change in contract price reflects the standalone selling price of the distinct goods or services. The facts and circumstances of any modification are
considered in isolation as these are specific to each contract and may result in different accounting outcomes.
Step 2 – Identify the performance obligations in the contract
Performance obligations are the contractual promises by the Group to transfer distinct goods or services to a customer. For arrangements with multiple
components to be delivered to customers such as in the Group’s integrated facilities management contracts, the Group applies judgement to consider
whether those promised goods or services are:
distinct and accounted for as separate performance obligations;
combined with other promised goods or services until a bundle is identified that is distinct; or
i.
ii.
iii. part of a series of distinct goods or services that are substantially the same and have the same pattern of transfer over time i.e. where the customer
is deemed to have simultaneously received and consumed the benefits of the goods or services over the life of the contract, the Group treats the
series as a single performance obligation.
Step 3 – Determine the transaction price
At contract inception, the total transaction price is determined, being the amount to which the Group expects to be entitled and has rights under the
contract. This includes the fixed price stated in the contract and an assessment of any variable consideration, up or down, resulting from e.g. discounts,
rebates, service penalties. Variable consideration is typically estimated based on the expected value method and is only recognised to the extent it is
highly probable that a subsequent change in its estimate would not result in a significant revenue reversal.
Step 4 – Allocate the transaction price to the performance obligations in the contract
The Group allocates the total transaction price to the identified performance obligations based on their relative stand-alone selling prices. This is
predominantly based on an observable price or a cost plus margin arrangement.
Step 5 – Recognise revenue when or as the entity satisfies its performance obligations
For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. Where revenue is recognised
over time, the Group applies the relevant output or input revenue recognition method for measuring progress that depicts the Group’s performance
in transferring control of the goods or services to the customer.
Certain long-term contracts use output methods based upon surveys of performance completed, appraisals of results achieved, or milestones reached
which allow the Group to recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred
to date relative to the remaining goods or services under the contract.
Under the input method, measured progress and revenue are recognised in direct proportion to costs incurred where the transfer of control is most
closely aligned to the Group’s efforts in delivering the service.
Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15, allowing revenue to be recognised at the amount which
the Group has the right to invoice, where that amount corresponds directly with the value to the customer of the Group’s performance obligations
completed to date.
If performance obligations do not meet the criteria to recognise revenue over time, revenue is recognised at the point in time when control of the
goods or services passes to the customer. This may be at the point of physical delivery of goods and acceptance by a customer or when the customer
obtains control of an asset or service in a contract with customer-specified acceptance criteria. Sales of goods are recognised when goods are delivered
and control has passed to the customer.
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Mitie Group plc | Annual Report and Accounts 2019
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Long-term complex contracts
The Group has a number of long-term complex contracts which are predominantly integrated facilities management arrangements. Typically, these
contracts involve the provision of multiple service lines, with a single management team providing an integrated service. Such contracts tend to be
transformational in nature where the business works with the customer to identify and implement cost saving initiatives across the life of the contract.
The Group considers the majority of services provided within integrated facilities management contracts meet the definition of a series of distinct goods
or services that are substantially the same and have the same pattern of transfer over time. The series constitutes services provided in distinct time
increments (e.g. monthly or quarterly) and therefore the Group treats the series of such services as one performance obligation.
The Group also delivers major project-based services under long-term complex contracts that include performance obligations under which revenue
is recognised over time as value from the service is transferred to the customer. This may be where the Group has a legally enforceable right to
remuneration for the work completed to date, and therefore revenue will be recognised in line with the associated transfer of control.
Repeat service-based contracts (single and bundled contracts)
The Group operates a number of single or joint-service line arrangements where repeat services meet the definition of a series of distinct services that
are substantially the same (e.g. the provision of cleaning, security, catering, waste, and landscaping services). They have the same pattern of transfer of
value to the customer as the series constitutes core services provided in distinct time increments (e.g. monthly or quarterly). The Group therefore treats
the series of such services as one performance obligation.
Short-term service-based arrangements
The Group delivers a range of other short-term service based performance obligations and professional services work across certain reporting
segments for which revenue is recognised at the point in time when control of the service has transferred to the customer. This may be at the point
when the customer obtains control of the service in a contract with customer-specified acceptance criteria e.g. the delivery of a strategic operating
model or report.
Other revenue
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Contract costs
The Group incurs pre-contract expenses (e.g. legal costs) when it is expected to enter into a new contract. The incremental costs to obtain a contract
with a customer are recognised within contract assets if it is expected that those costs will be recoverable. Costs to obtain a contract that would have
been incurred regardless of whether the contract was obtained are recognised as an expense in the period.
Contract fulfilment costs
Costs incurred to ensure that the project or programme has appropriate organisational, operational and technical infrastructures, and mechanisms in
place to enable the delivery of full services under the contract target operating model, are defined as contract fulfilment costs. Only costs which meet
all three of the criteria below are included within contract assets on the balance sheet:
the costs directly relate to the contract (e.g. direct labour, materials, subcontractors);
the Group is building an asset that will subsequently be used to deliver contract outcomes; and
the costs are expected to be recoverable i.e. the contract is expected to be profitable after amortising the capitalised costs.
i.
ii.
iii.
Contract fulfilment costs covered within the scope of another accounting standard, such as inventories, intangible assets, or property, plant and
equipment are not capitalised as contract fulfilment assets but are treated in accordance with the other standard.
Amortisation and impairment of contract assets
The Group amortises contract assets (pre-contract costs and contract fulfilment costs) on a systematic basis that is consistent with the entity’s transfer
of the related goods or services to the customer. The expense is recognised in the income statement in the period.
A capitalised pre-contract cost or contract fulfilment cost is derecognised either when it is disposed of or when no further economic benefits are
expected to flow from its use.
The Group is required to determine the recoverability of contract related assets at each reporting date. An impairment exists if the carrying amount
of any asset exceeds the amount of consideration the entity expects to receive in exchange for providing the associated goods and services, less the
remaining costs that relate directly to providing those goods and services under the relevant contract. In determining the estimated amount of
consideration, the Group uses the same principles as it does to determine the contract transaction price which includes estimates around variable
consideration. An impairment is recognised immediately where such losses are forecast.
Accrued income and deferred income
The Group’s customer contracts include a diverse range of payment schedules which are often agreed at the inception of long-term contracts
under which it receives payments throughout the term of the arrangement. Payments for goods and services transferred at a point in time may
be at the delivery date, in arrears or part payment in advance.
Where revenue recognised at the period end date is more than amounts invoiced, the Group records accrued income for the difference.
Where revenue recognised at the period end date is less than amounts invoiced, the Group recognises deferred income for the difference.
Certain arrangements with customers include a contractual obligation to make redundancies for which the Group is reimbursed for the costs
incurred. Revenue is not recognised on these transactions. Instead, the Group expenses all redundancy costs in the period they are incurred and
any reimbursement credit is matched against the associated cost included in the income statement up to the value of the redundancy cost incurred.
Any cash payments received from the customer in excess of the associated cost of redundancy are deferred over the contract term and unwound
in line with the other services being delivered.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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For the year ended 31 March 2019
1. Basis of preparation and significant accounting policies continued
Where price step-downs are required in a contract and output is not decreasing, revenue is deferred from initial periods to subsequent periods
in order for revenue to be recognised on a consistent basis.
Providing the option for a customer to obtain extension periods or other services at a significant discount may lead to a separate performance obligation
where a material right exists. Where this is the case, the Group allocates part of the transaction price from the original contract to deferred income
which is then amortised over the discounted extension period or recognised immediately when the extension right expires.
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 recognised directly in equity.
On consolidation, the assets and liabilities of the Group’s foreign operations, including goodwill and fair value adjustments arising on their acquisition, are
translated into sterling at exchange rates prevailing at the balance sheet date. Income and expenses are translated into sterling at average exchange rates
for the period. Exchange differences arising are recognised directly in equity in the Group’s hedging and translation reserve. On disposal of a foreign
operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
Finance costs
Finance costs consist of interest and other costs that are incurred in connection with the borrowing of funds. Finance costs are recognised in the income
statement in the period in which they are incurred, with the finance charges relating to the direct cost of debt issue spread over the period to
redemption using the effective interest method.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because
it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities
in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax
rates and legislation that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities; or when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at
the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
Acquisition costs incurred are expensed. The acquiree identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are
recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance
with IFRS 5 ‘Non-current assets held for sale and discontinued operations’, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Negative goodwill representing a gain from
a bargain purchase, is recognised directly in the income statement.
Where applicable, the consideration for an acquisition includes any assets or liabilities resulting from a contingent consideration arrangement, measured
at fair value at the acquisition date. Subsequent changes in such fair values are adjusted against the cost of acquisition where they result from additional
information, obtained within one year from the acquisition date, about facts and circumstances that existed at the acquisition date. All other subsequent
changes in the fair value of contingent consideration classified as an asset or liability are recognised in the income statement, in accordance with IFRS 9.
Changes in the fair value of contingent consideration classified as equity are not recognised.
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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 IFRS 9, when applicable,
of an investment in an associate or a joint venture.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets,
liabilities and contingent 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.
Other intangible assets
Other intangible assets identified in a business acquisition are capitalised at fair value as at the date of acquisition.
Customer relationships are amortised over their useful lives based on the period of time over which they are anticipated to generate benefits.
Other acquisition related intangibles include acquired software and technology which are amortised over their useful lives.
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. Software and development expenditure
includes internally generated intangible assets and is amortised over its useful life once it has been brought into use.
Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment
losses. Intangible assets are reviewed for impairment annually, or more frequently when there is an indication that they may be impaired.
Amortisation expense is charged to administrative expenses in the income statement on a straight-line basis over its useful life.
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:
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Freehold buildings and long leasehold property
Leasehold improvements
Plant and vehicles
50 years
period of the lease
3–10 years
The Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss.
Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to
which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced
to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or CGU) in prior years. A reversal of an impairment loss is recognised as income immediately.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
1. Basis of preparation and significant accounting policies continued
Joint ventures and associates
The Group has an interest in joint ventures which are entities in which the Group has joint control. The Group also has an interest in associates which
are entities in which the Group has significant influence.
The Group accounts for its interest in joint ventures and associates using the equity method. Under the equity method the Group’s share of the post-tax
result of joint ventures and associates is reported as a single line item in the consolidated income statement.
The Group’s interest in joint ventures and associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s
share of net assets.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Costs represent materials, direct labour and overheads incurred in bringing the inventories to their present condition and location.
Net realisable value is based on estimated selling price less further costs expected to be incurred to completion and estimated selling costs. Provision
is made for obsolete, slow moving or defective items where appropriate.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the
instrument. The Group derecognises financial assets and liabilities only when the contractual rights and obligations are transferred, discharged or expire.
Financial assets comprise trade and other receivables and cash and cash equivalents. The classification of financial assets under IFRS 9 is generally based
on the business model in which a financial asset is managed and its contractual cash flow characteristics. All of the Group’s cash flows from customers are
solely payments of principal and interest, and do not contain a significant financing component. Financial assets generated from all of the Group’s revenue
streams are therefore initially measured at their transaction price (as defined in IFRS 15) and are subsequently remeasured at amortised cost. Cash and
cash equivalents comprise cash in hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount
of cash and are subject to an insignificant risk of changes in value.
The assessment of impairment of trade receivables and accrued income from 1 April 2018 is in accordance with IFRS 9. The Group recognises a loss
allowance for expected credit losses (ECL) on all receivable balances from customers subsequently measured at amortised cost, using the ‘simplified
approach’ permitted under IFRS 9. In the prior year under IAS 39, appropriate allowances for estimated irrecoverable amounts were recognised
including where there was objective evidence that the asset was impaired.
The Group uses a non-recourse customer invoice discounting facility (CID facility) under which certain trade receivable balances are sold to the Group’s
relationship banks. The arrangement with the banks is such that the customers remit cash directly to the Group and the Group transfers the collected
amounts to the banks. The trade receivables are sold without recourse to the Group, and therefore the trade receivable balance is derecognised.
Financial liabilities comprise trade payables, financing liabilities, bank and other borrowings, deferred consideration and contingent consideration. These
are measured at initial recognition at fair value and subsequently at amortised cost with the exception of contingent consideration which is measured at
fair value through profit or loss. Bank and other borrowings are stated at the amount of the net proceeds after deduction of transaction costs. Finance
charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement.
Included within the Group’s trade creditors balance are amounts relating to payments due to UK suppliers which make use of bank provided supply
chain finance arrangements to allow supplier early payment by the bank. Amounts are settled by the Group in accordance with each supplier’s normal
payment terms and payments continue to be classified within cash generated by operations. The Group does not receive any additional guarantees and
does not pay any interest in relation to these amounts.
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
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Mitie Group plc | Annual Report and Accounts 2019
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Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, including cross-currency interest rate swaps and forward foreign exchange contracts, to manage the
Group’s exposure to financial risks associated with interest rates and foreign exchange. Derivative financial instruments are initially recognised at fair
value at the date the derivative contract is entered into and are subsequently remeasured to their fair value, determined by reference to market rates,
at each balance sheet date and included as financial assets or liabilities as appropriate. The resulting gain or loss is recognised in the income statement
immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income
statement depends on the nature of the hedge relationship.
The Group may designate certain hedging instruments including derivatives as either fair value hedges, cash flow hedges, or hedges of net investments
in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its
risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing
basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values
or cash flows of the hedged item.
Fair value hedges
Hedges are classified as fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability. Changes in the fair
value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement immediately, together with any changes
in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in
the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is
discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies
for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to the income
statement from that date.
Cash flow hedges
Hedges are classified as cash flow hedges when they hedge the exposure to changes in cash flows that are attributable to a particular risk associated
with either a recognised asset or liability or a forecast transaction. The effective portion of changes in the fair value of derivatives that are designated
and qualify as cash flow hedges are recognised in other comprehensive income and accumulated in equity within the Group’s translation and hedging
reserve. The gain or loss relating to any ineffective portion is recognised immediately in the income statement.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to the income statement in the periods when
the hedged item is recognised in the income statement, in the same line as the recognised hedged item. However, when the forecast transaction that is
hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred
from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when
the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting.
Any gain or loss recognised in other comprehensive income at that time is accumulated in equity and is recognised when the forecast transaction is
ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is
recognised immediately in the income statement.
Hedges of net investments in foreign operations
Hedges are classified as net investment hedges when they hedge the foreign currency exposure to changes in the Group’s share in the net assets of
a foreign operation. Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in the Group’s translation and
hedging reserve. The gain or loss relating to any ineffective portion is recognised immediately in the income statement. Gains or losses on the hedging
instrument relating to the effective portion of the hedge accumulated in equity are reclassified to the income statement in the same way as exchange
differences relating to the foreign operation as described above.
Leasing
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly to the income statement.
Capitalised leased assets are depreciated over the shorter of the estimated life of the asset or the lease term.
Leases where the lessor retains substantially all the risks and benefits incidental to ownership of the asset are classified as operating leases. Operating
lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Any lease incentives are amortised
on a straight-line basis over the non-cancellable period for which the Group has contracted to lease the asset, together with any further terms for which
the Group has the option to continue to lease the asset if, at the inception of the lease, it is judged to be reasonably certain that the Group will exercise
the option.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement
net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
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Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
1. Basis of preparation and significant accounting policies continued
Onerous contract provisions (OCPs) arise when the unavoidable costs of meeting contractual obligations exceed the remuneration expected to
be received. Unavoidable costs include total contract costs together with a rational allocation of shared costs that can be directly linked to fulfilling
contractual obligations which have been systematically allocated to OCPs on the basis of key cost drivers, except where this is impracticable and contract
revenue is used as a proxy for activity. The provision is calculated as the lower of the termination costs payable for an early exit and the expected net
cost to fulfil the Group’s unavoidable contract obligations. Where a customer has an option to extend a contract and it is likely that such an extension
will be made, the expected net cost arising during the extension period is included within the calculation. However, where a profit can be reasonably
expected in the extension period, no credit is taken on the basis that such profits are uncertain given the potential for the customer to either not extend
or offer an extension under lower pricing terms.
Share-based payments
The Group operates a number of executive and employee share option schemes. Equity-settled share-based payments to employees are measured at
the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market based vesting conditions. For grants of share
options and awards, the fair value as at the date of grant is calculated using the Black-Scholes model, Monte Carlo model or the share price at grant date,
and the corresponding expense is recognised on a straight-line basis over the vesting period based on the Group’s estimate of shares that will eventually
vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-
market based vesting conditions. Save As You Earn (SAYE) options are treated as cancelled when employees cease to contribute to the scheme,
resulting in an acceleration of the remainder of the related expense.
Restricted shares are issued as part of the consideration for acquisitions made by the Company attached with a condition that the relevant recipient
continues their employment with the Group for a fixed vesting period of time. Restrictions will remain attached to the shares if the recipient leaves
employment with the Group prior to completion of the vesting period of the shares. The fair value of the restricted shares is the share price at the
date the acquisition agreement was signed.
The credits in respect of the amounts charged are included within the share-based payment reserve in equity until such time as the vesting periods
or share restrictions expire.
The own shares reserve in equity includes the shares owned by the Employee Trust, treasury shares and restricted shares issued as part of the
consideration for acquisitions. When shares are transferred to employees upon exercise of options and awards or when restricted shares held
by employees are released from their restrictions, the own shares reserve is reduced by the relevant cost or value.
Retirement benefit costs
The Group operates a number of defined contribution retirement benefit schemes for all qualifying employees. Payments to the defined contribution
and stakeholder pension schemes are charged as an expense as they fall due.
In addition, the Group operates and participates in a number of defined benefit schemes. In respect of the schemes in which the Group makes
contributions under Admitted Body status to clients’ defined benefit schemes in respect of certain employees who transferred to the Group under
TUPE, the Group accounts for its legal and constructive obligations over the period of its participation which is for a fixed period only.
For the defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses on obligations, the return on scheme assets (excluding interest) and the effect
of the asset ceiling (if applicable) are recognised in full in the period in which they occur. They are recognised in the statement of comprehensive income.
Defined benefit pension costs (including curtailments) are recognised in the income statement, in either administrative expenses or other items,
whilst the net interest cost is recognised in finance costs.
The retirement benefit liability recognised in the balance sheet represents the present value of the defined benefit obligation, as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions
to the plan.
The Group participates in four multi-employer defined benefit pension schemes. For three of these schemes the Group’s share of the assets and
liabilities is minimal. The fourth scheme is the Plumbing & Mechanical Services (UK) Industry Pension Scheme (the Plumbing Scheme), a funded multi-
employer defined benefit scheme. The Plumbing Scheme was founded in 1975 and to date has had over 4,000 employers, with circa 400 remaining.
Historically, the size and complexity of the Plumbing Scheme has meant the trustee is unable at this time to identify the assets and liabilities of the scheme
which are attributable to the Group. The Group has recently received a Section 75 employer debt notice in respect of the participation of Robert
Prettie & Co Limited in the Plumbing Scheme (refer to Note 19 and Note 32). One Group company, Mitie Property Services (UK) Limited, continues
to participate in the Plumbing Scheme, however no apportionment of the assets and liabilities attributable to this company is available and consequently,
the Group accounts for its contributions as if they were paid to a defined contribution scheme.
For schemes where sufficient information is not available to use defined benefit accounting, no liability is recognised on the balance sheet, however,
the obligations are disclosed as contingent liabilities in Note 33.
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2. Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group’s accounting policies
The preparation of consolidated financial statements under IFRS requires management to make judgements, estimates and assumptions that affect
amounts recognised for assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the reporting period.
Actual results may differ from these judgements, estimates and assumptions.
The judgements and estimates which have the most significant effect on the reported result for the year ended 31 March 2019 and upon the carrying
value of assets and liabilities of the Group as at 31 March 2019 are described below.
Revenue recognition
The Group’s revenue recognition policies, which are set out under Revenue recognition in Note 1, are central to how the Group measures the work
it has performed in each financial year.
For certain contracts, key judgements were made concerning contract extensions and amendments which, for example, directly impact the timing
of revenue recognition in addition to the phasing of upfront payments to, or from customers which are deferred to the balance sheet and unwound
over the expected contract term. The Group has deferred pre-contract costs of £2.2m to the balance sheet within contract assets following its
assessment of contract modifications during the year (refer to Note 16). Management considers this to be an area of judgement due to the
determination of whether a modification represents a separate contract based on its assessment of the stand-alone selling price, rather than a
termination of the existing contract and establishment of a new contract for which the revised contract price would be recognised from the date
of modification.
Profit before other items
‘Other items’ are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist
in understanding the underlying financial performance achieved by the Group. Determining whether an item should be classified within other items
requires judgement as to whether an item is or is not part of the underlying performance of the Group.
Other items after tax of £32.8m (2018: £87.2m) were charged to the income statement for the year ended 31 March 2019. An analysis of the amounts
included in other items is detailed in Note 4.
Recoverability of aged debtors and accrued income
The Group has material amounts of billed and unbilled work outstanding at year end as outlined in Note 23. Where balances become subject to dispute,
the risk of recoverability increases. As a consequence, there is significant management judgement involved in assessing whether these balances have been
earned and in assessing the recoverability of these balances which involves consideration of the Group’s contractual rights and work performed as well
as the status of ongoing commercial negotiations. The judgement as to whether an amount has become irrecoverable is an assessment made by the
Directors in the determination of the total expected credit loss recognised by the Group under IFRS 9. The Group has recognised a total loss allowance
of £19.2m (2018: £17.3m) in respect of both aged and disputed trade and other receivable balances at 31 March 2019.
Key sources of estimation uncertainty
Revenue recognition, contract assets and contract liabilities
Due to the size and complexity of the Group’s contracts, management is required to form a number of key judgements and estimates in the
determination of the amount of revenue and profits to record, and related balance sheet items such as contract assets, accrued income and deferred
income to recognise (refer to Note 1). This includes an assessment of the costs the Group incurs to deliver the contractual commitments and whether
such costs should be expensed as incurred or capitalised. These judgements are inherently subjective and may cover future events such as the
achievement of contractual performance targets and planned cost savings or discounts. The Directors do not consider that any reasonably foreseeable
change in this source of estimation would have a material impact on the Group’s financial statements.
Provisions and contingent assets and liabilities
The Company and various of its subsidiaries are, from time to time, party to legal proceedings and claims that are in the ordinary course of business.
Judgements are required in order to assess whether these legal proceedings and claims are probable and the liability can be reasonably estimated,
resulting in a provision or, alternatively, whether the items meet the definition of contingent liabilities.
Provisions are liabilities of uncertain timing or amount and therefore in making a reliable estimate of the quantum and timing of liabilities judgement
is applied and re-evaluated at each reporting date. The Group recognised provisions at 31 March 2019 of £56.6m (2018: £31.5m). Further details
are included in Note 19.
The Directors are working to ensure that, through a combination of insurance claims and recourse to suppliers a proportion of the £16.1m costs
(refer to Note 4) incurred in respect of rectification works for the Social Housing property maintenance contracts, including the £12.1m recorded
in provisions (refer to Note 19), are recovered. The amount and timing of any recoveries is yet to be determined.
Measurement of defined benefit pension obligations
The net pension liability at 31 March 2019 was £63.8m (2018: £56.8m).
The measurement of defined benefit obligations requires judgement. It is dependent on material key assumptions including discount rates,
life expectancy rates, and future contribution rates. See Note 32 for further details and a sensitivity analysis for the key assumptions.
The Group also participates in four multi-employer defined benefit pension schemes, including the Plumbing & Mechanical Services (UK) Industry
Pension Scheme (the Plumbing Scheme). A provision of £20.0m has been made for Section 75 employer debts in respect of the participation of
Robert Prettie & Co. Limited in the Plumbing Scheme. The Group has a further potential exposure to Section 75 employer debts in respect of the
participation of Mitie Property Services (UK) Limited in the Plumbing Scheme, which has been disclosed as a contingent liability due to the inherent
uncertainty regarding the amount of any liability.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
2. Critical accounting judgements and key sources of estimation uncertainty continued
Gain on bargain purchase
The Group has recognised an £8.8m gain on the purchase of Vision Security Group Limited. The value of this gain is subject to the assessment of the fair
value of the acquired assets and liabilities and the finalisation of the consideration to be paid through agreement of the completion accounts with the
seller of the business. See Note 30 for further details.
The fair value of the acquired assets includes £14.9m representing the value of intangible assets associated with customer relationships acquired.
This valuation is based upon forecast cash flows which are subject to significant management judgement and estimation.
Allocation of goodwill to discontinued operations
The Directors have made a judgement to determine the allocation of goodwill to the discontinued operations to arrive at the gain/loss on disposal.
This allocation was carried out with reference to the forecast performance of those activities compared to the forecast performance of the cash-
generating units the activities were previously part of.
Gain/(loss) on disposal of discontinued operations
The Group has recognised a gain of £26.7m on the disposal of Mitie Pest Control Limited and a loss of £11.7m on the disposal of the Social Housing
business, refer to Note 5.
The value of these gains and losses is subject to finalisation of the consideration to be paid through agreement of the completion accounts with
the purchasers of these businesses. The Directors have made a judgement as to the likely outcome of each completion accounts settlement.
Deferred tax assets
The Group has recognised deferred tax assets of £38.7m (2018: £36.7m), refer to Note 20. The Directors have assessed recovery of these assets
with reference to the Group’s medium-term forecasts. Recovery of these assets is subject to the Group generating taxable profits in future years.
Impairment of goodwill
In assessing the key sources of estimation uncertainty, the Directors no longer consider impairment of goodwill as a key source of estimation.
The Directors do not consider that any reasonably foreseeable change in this source of estimation would have a material impact on the Group’s
financial statements.
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Mitie Group plc | Annual Report and Accounts 2019
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3. Business segment information
The Group manages its business on a service division basis. At 31 March 2019, the Group has six strategic divisions which are its reportable segments
and the information, as reported, is consistent with information presented to the Board. Revenue, operating profit before other items and operating
profit margin before other items are the primary measures of performance that are reported to and reviewed by the Board, which is the Group’s
chief operating decision maker.
The information presented for the year ended 31 March 2018 has been restated to reflect the changes in management reporting, implemented in the
year ended 31 March 2019, of certain business unit activities transferring between Engineering Services, Professional Services and Corporate centre,
the integration into Engineering Services of the roofing and painting activities which previously formed part of Property Management, and the
classification of Pest Control and Social Housing as discontinued operations.
2019
20181
Engineering Services
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Corporate centre
Total from continuing operations
Pest Control
Social Housing
Total from discontinued operations
Total
Operating
profit/(loss)
before
other items2
£m
Operating
margin before
other items2
%
58.7
30.7
5.6
17.5
3.9
5.2
(33.4)
88.2
2.4
1.6
4.0
92.2
6.5
5.7
4.3
4.3
3.6
3.8
–
4.0
20.2
1.8
4.0
4.0
Revenue
£m
905.7
536.5
131.4
404.4
107.3
136.1
–
2,221.4
11.9
89.1
101.0
2,322.4
Revenue
£m
886.3
432.0
131.2
384.1
59.9
137.1
–
2,030.6
22.3
150.8
173.1
Operating
profit/(loss)
before other
items2
£m
Operating
margin before
other items2
%
54.1
27.5
5.6
19.6
1.9
5.6
(31.1)
83.2
2.6
3.8
6.4
6.1
6.4
4.3
5.1
3.2
4.1
–
4.1
11.7
2.5
3.7
4.1
2,203.7
89.6
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Other items are as described in Note 4.
3. No single customer accounted for more than 10% of external revenue in 2019 or 2018.
A reconciliation of segment operating profit/(loss) before other items to total profit/(loss) before tax is provided below:
Operating profit before other items
Other items2
Net finance costs
Total from continuing operations
Operating profit before other items
Other items2
Net finance income
Total from discontinued operations
Profit/(loss) before tax
2019
£m
88.2
(38.0)
(13.8)
36.4
4.0
(6.0)
0.1
(1.9)
34.5
20181
£m
83.2
(82.1)
(16.5)
(15.4)
6.4
(15.8)
0.1
(9.3)
(24.7)
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Other items are as described in Note 4.
IFRS 8 requires that a measure of segment assets should be disclosed only if that amount is regularly provided to the chief operating decision maker and
consequently no segment assets are disclosed.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
3. Business segment information continued
Geographical segments
United Kingdom
Other countries
Continuing operations
United Kingdom
Other countries
Discontinued operations
Total
2019
Operating
profit/(loss)
before
other items2
£m
Operating
margin
before
other items2
%
85.6
2.6
88.2
4.0
–
4.0
92.2
4.0
2.6
4.0
4.0
–
4.0
4.0
Revenue
£m
2,122.2
99.2
2,221.4
101.0
–
101.0
2,322.4
Operating
profit/(loss)
before
other items2
£m
20181
Operating
margin
before
other items2
%
82.9
0.3
83.2
6.4
–
6.4
89.6
4.3
0.3
4.1
3.7
–
3.7
4.1
Revenue
£m
1,920.6
110.0
2,030.6
173.1
–
173.1
2,203.7
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Other items are as described in Note 4.
Supplementary information
Depreciation
of property,
plant and
equipment
£m
Amortisation
of intangible
assets
£m
Amortisation
of contract
assets
£m
Engineering Services
Security
Professional Services
Cleaning & Environmental
Services
Care & Custody
Catering
Corporate centre
Continuing operations
Healthcare
Pest Control
Social Housing
Discontinued operations
Total
Note:
1. Other items are as described in Note 4.
0.9
1.5
0.2
4.1
0.4
1.0
3.2
11.3
–
0.1
0.2
0.3
11.6
0.5
0.2
0.1
1.0
–
0.1
7.0
8.9
–
–
0.1
0.1
9.0
–
–
0.2
–
0.6
–
–
0.8
–
–
–
–
0.8
2019
Other
items1
£m
6.2
1.6
0.8
2.0
0.1
0.1
27.2
38.0
(2.0)
(27.6)
35.6
6.0
44.0
Depreciation
of property,
plant and
equipment
£m
Amortisation
of intangible
assets
£m
Amortisation
of contract
assets
£m
1.2
1.8
0.3
4.0
0.3
1.5
3.2
2.5
0.9
0.7
0.3
–
0.2
8.6
12.3
13.2
–
0.2
0.3
0.5
–
0.1
0.2
0.3
12.8
13.5
–
–
–
–
0.1
–
–
0.1
–
–
–
–
0.1
2018
Other
items1
£m
3.7
0.4
0.6
1.1
0.1
–
76.2
82.1
–
–
15.8
15.8
97.9
116
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
Disaggregated revenue
The Group disaggregates revenue from contracts with customers by sector (government and non-government) and by contract duration (contracts
with a duration from inception of less than two years, and contracts with a duration from inception of more than two years). The Group believes this
best depicts how the nature, timing and amount of revenue and cash flows are affected by economic factors. The following table includes a
reconciliation of disaggregated revenue with the Group’s reportable segments.
Engineering Services
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Government
£m
Non-
government
£m
368.3
88.3
21.5
109.2
107.3
537.4
448.2
109.9
295.2
–
5.7
130.4
Contract duration for timing of revenue
recognition
2019
Less than
2 years
£m
More than
2 years
£m
122.4
80.1
5.4
–
–
17.4
783.3
456.4
126.0
404.4
107.3
118.7
Total
£m
905.7
536.5
131.4
404.4
107.3
136.1
Sector1
Total
£m
905.7
536.5
131.4
404.4
107.3
136.1
Continuing operations
700.3
1,521.1
2,221.4
225.3
1,996.1
2,221.4
Pest Control
Social Housing
Discontinued operations
Total
–
89.1
89.1
11.9
–
11.9
11.9
89.1
101.0
–
54.1
54.1
11.9
35.0
46.9
11.9
89.1
101.0
789.4
1,533.0
2,322.4
279.4
2,043.0
2,322.4
Note:
1. Sector is defined by the end customer on any contract e.g. if the Group is a subcontractor to a construction company for the building of a public hospital, then the contract would be classified
as government.
Engineering Services
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Sector1
Contract duration for timing of revenue recognition
2018
Government
£m
Non-
government
£m
368.4
83.9
13.8
89.8
59.9
4.6
517.9
348.1
117.4
294.3
–
132.5
Total
£m
886.3
432.0
131.2
384.1
59.9
137.1
Less than
2 years
£m
137.4
55.7
8.9
–
–
1.6
More than
2 years
£m
748.9
376.3
122.3
384.1
59.9
135.5
Total
£m
886.3
432.0
131.2
384.1
59.9
137.1
Continuing operations
620.4
1,410.2
2,030.6
203.6
1,827.0
2,030.6
Pest Control
Social Housing
Discontinued operations
Total
–
150.8
150.8
771.2
22.3
–
22.3
22.3
150.8
173.1
–
91.6
91.6
22.3
59.2
81.5
22.3
150.8
173.1
1,432.5
2,203.7
295.2
1,908.5
2,203.7
Note:
1. Sector is defined by the end customer on any contract e.g. if the Group is a subcontractor to a construction company for the building of a public hospital, then the contract would be classified
as government.
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Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
3. Business segment information continued
Transaction price allocated to the remaining performance obligations
The table below shows the forward order book for each segment at the reporting date with the time bands of when the Group expects to recognise
secured revenue on its contracts with customers. Secured revenue corresponds to fixed work contracted with customers and excludes the impact of
any anticipated contract extensions, and new contracts with customers.
Engineering Services
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Less than
1 year
£m
More than
1 year
£m
2019
Total
secured
revenue
£m
360.4
1,442.3
1,802.7
478.3
29.7
275.5
100.8
7.2
493.2
57.2
387.6
495.8
19.3
971.5
86.9
663.1
596.6
26.5
Less than
1 year
£m
390.7
300.1
45.8
276.0
100.8
8.2
More than
1 year
£m
1,648.5
340.7
99.1
380.3
569.3
26.5
2018
Total
secured
revenue
£m
2,039.2
640.8
144.9
656.3
670.1
34.7
Continuing operations
1,251.9
2,895.4
4,147.3
1,121.6
3,064.4
4,186.0
Pest Control
Social Housing
Discontinued operations
Total
4. Other items
–
–
–
–
–
–
–
–
–
3.0
76.3
79.3
2.0
228.0
230.0
5.0
304.3
309.3
1,251.9
2,895.4
4,147.3
1,200.9
3,294.4
4,495.3
Other items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist
in understanding the underlying financial performance achieved by the Group.
The Group separately reports the impairment of goodwill, the cost of restructuring programmes, acquisition and disposal costs including the write-off
and amortisation of acquisition related intangible assets, the results of and costs associated with disposals, and other exceptional items and their related
tax effect as other items:
Continuing operations
Administrative expenses
Other items before tax
Tax
Other items after tax
Discontinued operations
Other items before tax
Tax
Other items after tax
Total
Impairment
of goodwill
£m
Restructure
costs
£m
Acquisition &
disposal
related costs
£m
Gain on
bargain
purchase
Gain/(loss)
on disposal
£m
Other
exceptional
items
£m
2019
Total
£m
(38.0)
(38.0)
7.4
(23.0)
(23.0)
4.0
–
–
–
–
(19.0)
(30.6)
17.9
(0.9)
17.0
(23.1)
4.5
(18.6)
(6.0)
3.8
(2.2)
(15.1)
(15.1)
2.8
(12.3)
(0.8)
0.2
(0.6)
(8.7)
(8.7)
0.6
(8.1)
–
–
–
8.8
8.8
–
8.8
–
–
–
–
–
–
–
–
–
–
–
(12.9)
(8.1)
8.8
17.0
(37.6)
(32.8)
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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a
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e
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a
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e
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e
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i
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a
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F
i
Continuing operations
Administrative expenses
Other items before tax
Tax
Other items after tax
Discontinued operations
Other items before tax
Tax
Other items after tax
Impairment
of goodwill
£m
Restructure
costs
£m
Acquisition &
disposal
related costs
£m
Gain on
disposal
£m
Other
exceptional
items
£m
(22.7)
(22.7)
–
(22.7)
(11.9)
–
(11.9)
(47.0)
(47.0)
8.7
(38.3)
(0.3)
0.1
(0.2)
(8.4)
(8.4)
0.4
(8.0)
–
–
–
2018
Total
£m
(82.1)
(82.1)
10.0
(72.1)
(15.8)
0.7
(15.1)
(4.0)
(4.0)
0.9
(3.1)
(3.6)
0.6
(3.0)
–
–
–
–
–
–
–
–
Total
(34.6)
(38.5)
(8.0)
Impairment of goodwill
No charges in respect of the impairment of goodwill have been made in the year ended 31 March 2019.
(6.1)
(87.2)
During the year ended 31 March 2018, the Directors assessed the recoverability of the goodwill allocated to the former Property Management CGU
and recorded an impairment charge of £34.6m. Following the disposal of the Social Housing business, the remaining goodwill of the roofing and painting
activities previously reported in Property Management, has been integrated into the Engineering Services CGU. See Note 12.
Restructure costs
The restructure costs relate to costs of organisational change associated with the Group’s Project Helix transformation programme including the
transition costs associated with the outsourcing of certain back-office transactional processes.
These costs are analysed below:
Redundancy payments2
Cost of change team3
Expenditure and provisions in respect of property closure4
Expenditure in respect of Project Helix transformation activities5
Expenditure in respect of other transformation projects
Impairment of intangible assets6
Restructuring costs
Taxation
Restructuring costs net of taxation
Continuing
operations
£m
Discontinued
operations
£m
(4.2)
(0.7)
(0.2)
(10.0)
–
–
(15.1)
2.8
(12.3)
(0.5)
–
–
–
(0.3)
–
(0.8)
0.2
(0.6)
2019
Total1
£m
(4.7)
(0.7)
(0.2)
(10.0)
(0.3)
–
(15.9)
3.0
(12.9)
Continuing
operations
£m
Discontinued
operations
£m
(4.5)
(0.7)
(4.8)
(26.6)
–
(10.4)
(47.0)
8.7
(38.3)
(0.3)
–
–
–
–
–
(0.3)
0.1
(0.2)
2018
Total1
£m
(4.8)
(0.7)
(4.8)
(26.6)
–
(10.4)
(47.3)
8.8
(38.5)
Notes:
1. Includes £13.5m (2018: £34.8m) in respect of the Project Helix transformation activities.
2. Costs in respect of roles made redundant as a result of the Project Helix transformation and other projects to restructure the Group’s activities.
3. Incremental costs of teams involved in the management of Project Helix transformation activities.
4. Costs in respect of property dilapidations, lease termination, and asset impairments crystallised following decisions to vacate certain of the Group’s properties as part of the overall Project Helix
transformation.
5. Expenditure in respect of Project Helix transformation projects includes £0.3m (2018: £0.6m) of recruitment costs in respect of achieving the new target operating model, £1.6m (2018: £8.2m)
related to dual running and knowledge transfer costs as part of the transfer of the transactional back-office activities to a third-party provider, £6.3m (2018: £4.8m) of transformation project
delivery costs, £1.8m in respect of Genpact mobilisation (2018: £nil) and £nil (2018: £13.0m) of professional fees in respect of advice and consultancy activities associated with the design and
execution of the Project Helix transformation activities.
6. Impairment of intangible assets relates to systems and processes which are redundant due to the changes to the Group’s strategy including the outsourcing of certain back-office transactional
processes. See Note 13.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
4. Other items continued
Gain/(loss) on disposal
During the year ended 31 March 2019, the Group completed the sale of the Pest Control and Social Housing businesses. See Note 5 for further details.
Acquisition and disposal related costs
Acquisition and disposal related costs from continuing operations include the impairment and amortisation charge for acquisition related intangibles
£1.5m (2018: £2.6m), the charge for restricted shares issued per Note 31 of £3.9m (2018: £3.4m), costs of £2.6m (2018: £nil) related to the VSG
acquisition, costs of £0.4m (2018: £nil) related to the settlement of claims associated with previous acquisitions, costs of £0.3m (2018: £2.2m) relating
to the aborted disposal of the former Property Management division, and £nil (2018: £0.2m) related to the disposal of the Healthcare division.
Gain on bargain purchase
A credit of £8.8m (2018: £nil) representing a gain on bargain purchase in respect of the acquisition of Vision Security Group Limited (VSG) has been
recognised from continuing operations. See Note 30.
Other exceptional items
Other exceptional items are analysed below:
Regulatory investigation1
IFRS 9/15/16 adoption project2
Costs incurred and provision for settlement of contractual disputes3
Provision for indemnified costs4
Contract termination receipt5
Pension scheme past service costs (including curtailments)6
Cost of equalising Guaranteed Minimum Pensions7
Pension scheme Section 75 debt8
Gain on closure of Mitie Reinsurance9
Property dilapidations10
Other exceptional items
Taxation
Other exceptional items net of taxation
Continuing
operations
£m
Discontinued
operations
£m
(1.1)
(0.7)
–
–
–
–
(1.6)
(20.0)
0.4
–
(23.0)
4.0
(19.0)
–
–
(20.5)
(2.6)
–
–
–
–
–
–
(23.1)
4.5
(18.6)
2019
Total
£m
(1.1)
(0.7)
(20.5)
(2.6)
–
–
(1.6)
(20.0)
0.4
–
(46.1)
8.5
(37.6)
Continuing
operations
£m
Discontinued
operations
£m
(2.3)
(0.8)
–
–
2.0
(1.9)
–
–
–
(1.0)
(4.0)
0.9
(3.1)
–
–
(3.3)
–
–
–
–
–
–
(0.3)
(3.6)
0.6
(3.0)
2018
Total
£m
(2.3)
(0.8)
(3.3)
–
2.0
(1.9)
–
–
–
(1.3)
(7.6)
1.5
(6.1)
Notes:
1. Legal and professional costs of £1.1m (2018: £2.3m) have been incurred in respect of the closed FRC investigation into the Company’s treatment of healthcare goodwill and accrued income
in the Company’s audited accounts for the year ended 31 March 2016, the closed FCA investigation in connection with the timeliness of a profit warning announced by the Company on
19 September 2016, the manner of preparation and content of the Company’s financial information, position and results for the period ended 31 March 2016, and regarding the Company’s own
investigation into the same matters, facts and circumstances which were subject to FCA and FRC investigation.
2. Professional fees and interim staff costs of £0.7m (2018: £0.8m) have been incurred in respect of the projects to adopt IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from contracts with
customers’, and IFRS 16 ‘Leases’,
3. The £20.5m charge for the year ended 31 March 2019 (2018: £3.3m) relates to the Social Housing business and includes £3.4m in respect of the settlement of a contract dispute, £16.1m for the
estimated costs of rectification works and legal advice associated with certain of the Group’s property maintenance contracts, of which £12.1m is included in provisions at 31 March 2019, and
£1.0m for other contractual disputes. This amount is disclosed separately due to the size of the potential cost and the fact that they arise from closed contracts.
4. The £2.6m charge for the year ended 31 March 2019 represents the estimated costs arising from certain indemnities provided in relation to the disposal of the Social Housing business.
This amount is included in provisions at 31 March 2019.
5. The loss of two major contracts in the year ended 31 March 2018 resulted in a one-off termination receipt amounting to £2.0m. These amounts are disclosed separately due to the size of the
payments received and the fact that the loss of contracts of this size is an unusual event for the Group.
6. As a result of the closure of the Mitie Group plc Pension Scheme to future accrual from October 2017, a past service cost (including curtailments) of £1.9m was incurred in the year ended
31 March 2018. See Note 32 for further details.
7. Following judgment issued by the High Court on 26 October 2018 in the case involving Lloyds Banking Group relating to the equalisation of Guaranteed Minimum Pensions (GMP) the Group has
recognised additional retirement benefit liabilities for the estimated financial impact of this ruling on the Group scheme. The effect of GMP equalisation has been recognised in the income
statement as a plan amendment; the charge has been included within other items due to the size and non-recurring nature of the amount. See Note 32 for further details.
8. Estimated Section 75 debt in relation to the participation of Robert Prettie & Co Limited in the Plumbing & Mechanical Services (UK) Industry Pension Scheme. See Note 32 for further details.
9. During the year ended 31 March 2019 the Group liquidated its captive insurance company Mitie Reinsurance Company Limited resulting in a net income of £0.4m after settling all
outstanding liabilities.
10. As part of the rationalisation of the Group’s property portfolio a review of the potential liabilities for leasehold property dilapidation costs was carried out and resulted in a one-off £1.3m charge
in the year ended 31 March 2018.
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Mitie Group plc | Annual Report and Accounts 2019
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5. Discontinued operations and disposal of subsidiaries
On 30 September 2018, the Group completed the sale of Mitie Pest Control Limited (Pest Control) for cash consideration of £40.0m before tax
and transaction costs. The results of the Pest Control business have been classified as discontinued operations and comparative information has been
restated. The Group recognised a net gain on disposal of £26.7m, reported in profit from discontinued operations and recognised in other items
(see Note 4).
On 19 November 2018, the Company signed an agreement for the sale of Mitie Property Management Limited and MPS Housing Limited (together
the Social Housing business) and this transaction was subsequently completed on 30 November 2018. The results of the Social Housing business have
been classified as discontinued operations and comparative information has been restated. The Group has retained liability, and made provisions where
appropriate, for certain legacy contracts of the Social Housing business so these are not included within liabilities held for sale. The Group recognised
a net loss on disposal of £11.7m, reported in profit from discontinued operations and recognised in other items (see Note 4).
The Group has determined that the Healthcare Indemnity provision should be partly released by £2.0m. This has been recorded as a gain on disposal.
The results of these discontinued operations are detailed below.
There were no disposals in the financial year ended 31 March 2018.
Income statement of discontinued operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of profit of joint ventures and associates
Operating profit before other items1
Other items3
Net finance income
Profit/(loss) before tax
Tax
Profit/(loss) from discontinued operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of profit of joint ventures and associates
Operating profit before other items2
Other items3
Net finance income
Profit/(loss) before tax
Tax
Profit/(loss) from discontinued operations
Pest Control
£m
Social Housing
£m
11.9
(6.7)
5.2
(2.8)
–
2.4
–
0.1
2.5
(0.3)
2.2
89.1
(72.9)
16.2
(15.1)
0.5
1.6
(23.9)
–
(22.3)
4.0
(18.3)
Pest Control
£m
Social Housing
£m
22.3
(16.2)
6.1
(3.5)
–
2.6
(0.1)
0.1
2.6
(0.5)
2.1
150.8
(115.8)
35.0
(32.0)
0.8
3.8
(15.7)
–
(11.9)
0.3
(11.6)
2019
Total
£m
101.0
(79.6)
21.4
(17.9)
0.5
4.0
(23.9)
0.1
(19.8)
3.7
(16.1)
2018
Total
£m
173.1
(132.0)
41.1
(35.5)
0.8
6.4
(15.8)
0.1
(9.3)
(0.2)
(9.5)
Notes:
1. The £1.6m operating profit before other items in Social Housing for the year ended 31 March 2019 includes a £1.4m loss in respect of a contract which has been terminated and £2.6m
of recharges in respect of Group central services.
2. The £3.8m operating profit before other items in Social Housing for the year ended 31 March 2018 includes an increased debt provision of £1.2m in addition to £2.3m of recharges in respect
of Group central services.
3. Other items are as described in Note 4.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
5. Discontinued operations and disposal of subsidiaries continued
Gain/(loss) on disposal of discontinued operations
Total consideration
Net assets disposed
Release of indemnity provision
Transaction costs
Total gain/(loss) on disposal before tax
Taxation
Net gain/(loss) on disposal of discontinued operations
Healthcare
£m
Pest Control1
£m
Social Housing
£m
–
–
2.0
–
2.0
–
2.0
38.4
(8.6)
–
(2.2)
27.6
(0.9)
26.7
22.5
(31.1)
–
(3.1)
(11.7)
–
(11.7)
2019
Total
£m
60.9
(39.7)
2.0
(5.3)
17.9
(0.9)
17.0
Note:
1. Total consideration of £39.2m has been received in cash, but £0.8m is expected to be returned through agreement of the completion accounts with the purchaser of the business.
2. Deferred contribution of £0.2m in the year to 31 March 2018 was payable to the purchaser.
3. Includes goodwill of £3.3m relating to Pest Control and £12.5m relating to Social Housing and cash balances of £3.6m.
Profit for the year from discontinued operations
Loss for the year from discontinued operations
Gain on disposal of discontinued operations
Profit/(loss) for the year from discontinued operations
Total comprehensive income/(expense) for the year from discontinued operations
Equity holders income/(expense)
Cash flows from discontinued operations
Net cash used in operating activities
Net cash generated from investing activities
Net cash generated from financing activities
Increase/(decrease) in cash and cash equivalents
Earnings/(loss) per share from discontinued operations
Basic earnings before other items per share1
Basic earnings/(loss) per share
Diluted earnings before other items per share1
Diluted earnings/(loss) per share
Note:
1. Other items are as described in Note 4.
2019
£m
(16.1)
17.0
0.9
2019
£m
0.9
2019
£m
(9.4)
52.6
–
43.2
2019
p
0.9
0.2
0.9
0.2
2018
Healthcare2
£m
(0.2)
–
–
–
(0.2)
–
(0.2)
2018
£m
(9.5)
–
(9.5)
2018
£m
(9.5)
2018
£m
(9.0)
0.2
1.3
(7.5)
2018
p
1.6
(2.7)
1.6
(2.7)
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
Joint ventures and associates of discontinued operations
The Social Housing disposal group included a 30% interest in an associate, Pyramid Plus South LLP, a limited liability partnership registered in the
United Kingdom. The Group’s interest in the associate was accounted for in the consolidated financial statements using the equity method.
The summarised financial information set out below for the year ended 31 March 2019 has been taken from unaudited management accounts
of the associate.
Revenue
Operating profit
Group’s share of profit of associate in discontinued operations
Current assets
Current liabilities
Net assets
Group’s share of interest in associate
During the 2019 financial year the Group received dividends from Pyramid Plus South LLP of £nil (2018: £0.6m).
2019
£m
9.3
1.8
0.5
2019
£m
–
–
–
–
2018
£m
12.2
2.6
0.8
2018
£m
3.8
(1.2)
2.6
0.8
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Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
6. Operating profit/(loss)
Operating profit/(loss) has been arrived at after charging:
Continuing and discontinued operations
Depreciation of property, plant and equipment (Note 14)
Amortisation of other intangible assets (Note 13)
Amortisation of contract assets
Impairment of goodwill (Note 12)
Impairment of other intangible assets (Note 13)
Gain on disposal of property, plant and equipment
Gain on disposal of subsidiaries (Note 5)
Impairment losses recognised on trade receivables (Note 23)
Impairment (gains)/losses recognised on accrued income (Note 23)
Operating lease rentals
2019
£m
11.6
9.0
0.8
–
1.1
(0.8)
(17.9)
1.1
(1.6)
26.5
20181
£m
12.8
13.5
0.1
34.6
10.4
–
–
2.3
2.0
25.1
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
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 – BDO LLP
Fees payable to the Company’s auditor and its associates for the audit of the Company’s
subsidiaries pursuant to legislation – BDO LLP
Fees payable to the Company’s auditor and its associates for the audit of the Company’s
subsidiaries pursuant to legislation – Deloitte LLP
Total audit fees
Other audit related services to the Group – BDO LLP
Tax services – BDO LLP
Total non-audit fees
Total
2019
£’000
40
2018
£’000
40
1,520
1,161
–
1,560
127
–
127
87
1,288
93
6
99
1,687
1,387
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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7. Staff costs
The average number of people employed during the financial year was:
Number of people
Engineering Services
Security
Professional Services
Cleaning & Environmental Services
Care & Custody
Catering
Corporate centre
Continuing operations
Pest Control
Social Housing
Discontinued operations
Total Group
2019
8,711
15,011
1,059
20,301
1,976
2,384
38
20181
8,900
14,804
1,029
21,706
1,051
2,505
37
49,480
50,032
190
737
927
50,407
198
831
1, 029
51,061
Note:
1. The information presented for the year ended 31 March 2018 has been restated to reflect the integration into Engineering Services of the roofing and painting activities which previously formed
part of Property Management and the transfer of certain business unit activities between Engineering Services and Professional Services.
The number of people employed at 31 March was:
Continuing operations
Discontinued operations
Total Group
Aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payments (Note 31)
Share-based payments acquisition related costs (Notes 4 and 31)
Total
Details of Directors’ remuneration is provided below:
Directors’ emoluments
Share-based payments
Total
2019
52,492
–
52,492
2018
47,394
1,632
49,026
2019
£m
2018
£m
1,125.4
1,020.7
89.8
23.6
1.1
3.9
77.1
17.0
1.2
3.4
1,243.8
1,119.4
2019
£m
3.7
0.8
4.5
2018
£m
2.1
0.6
2.7
None of the Directors accrued benefits under the defined benefit scheme, or were members of the defined contribution schemes for the years ended
31 March 2019 and 31 March 2018. Details of loss of office payments (subject to audit) are disclosed in the remuneration report on page 78.
The total amount payable to the highest paid Director in respect of emoluments was £2.2m (2017: £1.1m).
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
8. Finance costs
Continuing operations
Interest on bank facilities
Interest on private placement loan notes
Bank fees
Interest on obligations under finance leases
Unwinding of discounts on provisions
Loss arising on fair value hedges
Net interest on defined benefit pension scheme assets and liabilities
Total
9. Tax
Continuing and discontinued operations
Current tax1
Deferred tax (Note 20)
Tax charge for the year
Continuing operations
Discontinued operations
Tax charge for the year
2019
£m
2018
£m
4.2
7.8
0.5
0.1
0.1
–
1.3
3.2
9.1
2.0
–
0.2
0.1
2.0
14.0
16.6
2019
£m
3.4
0.2
3.6
6.4
(2.8)
3.6
20181
£m
(5.6)
6.9
1.3
1.1
0.2
1.3
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated. The Group recognised a current tax asset of £0.4m on transition to IFRS 9.
Corporation tax is calculated at 19% (2018: 19%) of the estimated taxable profit for the year. A reconciliation of the tax charge to the elements of profit
before tax per the consolidated income statement elements is as follows:
Continuing and discontinued operations
Profit/(loss) before tax
Tax at UK rate of 19% (2018: 19%)
Reconciling tax charges for:
Non-tax deductible charges
Share-based payments
Gain on disposal of businesses
Impairment of goodwill
Overseas tax rates
Impact of change in statutory tax rates
Prior year adjustments
Tax charge/(credit) for the year
Effective tax rate for the year
Before
other items
£m
78.5
14.9
0.9
0.3
–
–
(0.2)
(0.4)
(0.7)
14.8
18.9%
Other
items2
£m
(44.0)
(8.4)
–
0.7
(4.0)
–
–
0.5
–
(11.2)
25.5%
2019
Total
£m
34.5
6.5
0.9
1.0
(4.0)
–
(0.2)
0.1
(0.7)
3.6
Before
other items
£m
73.2
13.9
0.5
(0.1)
–
–
(0.3)
0.1
(2.1)
12.0
10.4%
16.4%
Other
items2
£m
(97.9)
(18.6)
1.1
–
–
6.6
–
0.2
–
(10.7)
10.9%
20181
Total
£m
(24.7)
(4.7)
1.6
(0.1)
–
6.6
(0.3)
0.3
(2.1)
1.3
(5.3)%
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Other items are as described in Note 4.
In addition to the amounts charged to the consolidated income statement, tax relating to retirement benefit costs amounting to a £2.4m credit
(2018: £3.4m charge) has been taken directly to the statement of comprehensive income together with a £0.3m charge relating to share-based
payments and hedged items (2018: £0.1m credit).
The UK corporation tax rate will reduce from 19% 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 2019 reflect this change. 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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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
10. Dividends
Amounts recognised as distributions in the year:
Second interim dividend for the year ended 31 March 2018 of 2.67p (2017 final dividend: nil) per share1
Interim dividend for the year ended 31 March 2019 of 1.33p (2018: 1.33p) per share
Amounts paid in 2019 and 2018
Proposed final dividend for the year ended 31 March 2019 of 2.67p (2018: 2.67p) per share
2019
£m
9.6
4.8
14.4
9.6
2018
£m
–
4.8
4.8
9.6
Note:
1. On 7 June 2018, the Company announced its final results for the year ended 31 March 2018. The announcement included a recommendation by the Board of a final dividend of 2.67p per share
payable on 6 August 2018. On 28 June 2018 the Company circulated its Notice of 2018 Annual General Meeting (the Notice). The Notice omitted a resolution seeking shareholder approval
of the final dividend. In order for the dividend to be paid to shareholders on 6 August 2018 in accordance with the previously published timetable, on 31 July 2018 the Board declared a second
interim dividend of 2.67p per share in place of the proposed final dividend.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
11. Earnings per share
Basic and diluted earnings per share have been calculated in accordance with IAS 33 ‘Earnings per share’.
The calculation of the basic and diluted EPS is based on the following data:
From continuing operations
Net profit before other items attributable to equity holders of the parent
Other items net of tax2
Net profit/(loss) attributable to equity holders of the parent
From continuing and discontinued operations
Net profit before other items attributable to equity holders of the parent
Other items net of tax2
Net profit/(loss) 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 earnings before other items per share2
Basic earnings/(loss) per share
Diluted earnings before other items per share2
Diluted earnings/(loss) per share
From continuing and discontinued operations:
Basic earnings before other items per share2
Basic earnings/(loss) per share
Diluted earnings before other items per share2
Diluted earnings/(loss) per share
2019
£m
60.6
(30.6)
30.0
2019
£m
63.7
(32.8)
30.9
2019
million
360.8
2.2
363.0
2019
p
16.8
8.3
16.7
8.3
17.7
8.6
17.5
8.5
20181
£m
54.5
(72.1)
(17.6)
20181
£m
60.1
(87.2)
(27.1)
2018
million
357.9
1.9
359.8
20181
p
15.2
(4.9)
15.1
(4.9)
16.8
(7.6)
16.7
(7.6)
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Other items are as described in Note 4.
The weighted average number of ordinary shares in issue during the year excludes those accounted for in the own shares reserve (see Note 29).
The dilutive potential ordinary shares relate to instruments that could potentially dilute basic earnings per share in the future, such as share options.
The loss for the year ended 31 March 2018 means that the identified potentially dilutive shares are anti-dilutive for the purposes of calculating diluted
earnings per share.
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Mitie Group plc | Annual Report and Accounts 2019
12. Goodwill
Cost
At 1 April 2017
Impact of foreign exchange
At 31 March 2018
Disposal of subsidiaries
At 31 March 2019
Accumulated impairment losses
At 1 April 2017
Impairment of property goodwill
At 31 March 2018
Disposal of subsidiaries
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
At 1 April 2017
£m
358.9
0.3
359.2
(32.9)
326.3
15.0
34.6
49.6
(17.1)
32.5
293.8
309.6
343.9
Acquisition of Vision Security Group
On 26 October 2018, the Group acquired Vision Security Group Limited (VSG). There is no goodwill recognised on acquisition as the consideration
paid was less than VSG’s net assets at the acquisition date, giving rise to a gain on bargain purchase, see Note 30.
Disposal of Social Housing
On 19 November 2018, the Company signed an agreement for the sale of Mitie Property Management Limited and MPS Housing Limited (together,
the Social Housing business). This transaction completed on 30 November 2018 and the associated carrying amount of goodwill of £12.5m has been
included in net assets disposed. See Note 5.
Disposal of Pest Control
On 30 September 2018, the Group completed the sale of Mitie Pest Control Limited (Pest Control) and the associated goodwill of £3.3m has been
included in net assets disposed. See Note 5.
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.
Goodwill has been allocated to CGUs, which align with the business segments, as this is how goodwill is monitored by the Group internally. The £23.1m
net carrying value of goodwill associated with the roofing and painting activities which previously formed part of Property Management has been
transferred into the Engineering Services CGU.
The Group tests goodwill at least annually for impairment or more frequently if there are indicators that goodwill may be impaired.
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Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
12. Goodwill continued
A summary of the goodwill balances and the discount rates used to assess the forecast cash flows from each CGU are as follows:
Engineering Services1
Security
Professional Services
Cleaning & Environmental Services
Catering
Social Housing
Total
Note:
Pre-tax
discount rate
%
Post-tax
discount rate
%
Goodwill
2019
£m
Goodwill
2018
£m
10.1
10.1
13.3
11.9
12.1
9.3
9.3
10.3
9.3
9.8
130.9
101.7
15.7
29.8
15.7
–
130.9
101.7
15.7
33.1
15.7
12.5
293.8
309.6
1. The information presented for the year ended 31 March 2018 has been restated to reflect the integration into Engineering Services of the roofing and painting activities previously reported
in Property Management.
Key assumptions
The recoverable amounts for each CGU are determined by the value in use which is derived from discounted cash flow calculations. The key
assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to revenue and direct costs
during the forecast period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to the CGUs. The long-term growth rates are based on forecast inflation. Changes in revenue and direct costs are based on past
performance and expectations of future changes in the market, operating model, and cost base.
Growth rates and terminal values
For all CGUs the Group prepares cash flow forecasts derived from the most recent budgets for the year ending 31 March 2020 and the Group
medium-term plan to 31 March 2024 which have been approved by the Board, and a terminal value using a long-term growth assumption of 1.5%.
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 8.8% at 31 March 2019 (2018: 7.7%), and is adjusted for the risks specific to the business being assessed and the market in which
the CGU operates. All CGUs have the same access to the Group’s treasury functions and borrowing lines to fund their operations.
Sensitivity analysis
A sensitivity analysis has been performed and the Directors have concluded that no reasonably foreseeable change in the key assumptions would result
in an impairment of the goodwill of any of the Group’s CGUs.
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Mitie Group plc | Annual Report and Accounts 2019
13. Other intangible assets
Cost
At 1 April 2017
Additions
At 31 March 2018
Additions
Acquisition of subsidiaries
Disposals
Disposal of subsidiaries
At 31 March 2019
Amortisation
At 1 April 2017
Charge for the year
Impairment of software and development expenditure
At 31 March 2018
Charge for the year
Impairment of software and development expenditure
Disposals
Disposal of subsidiaries
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
At 1 April 2017
Acquisition related
Customer
relationships
£m
Total
acquisition
related
£m
Software and
development
expenditure
£m
Other
£m
88.4
–
88.4
–
14.9
–
–
10.9
–
10.9
–
–
–
–
99.3
–
99.3
–
14.9
–
–
103.3
10.9
114.2
83.4
2.2
–
85.6
1.2
–
–
–
9.6
0.4
–
10.0
0.3
–
–
–
93.0
2.6
–
95.6
1.5
–
–
–
86.8
10.3
97.1
16.5
2.8
5.0
0.6
0.9
1.3
17.1
3.7
6.3
97.3
9.0
106.3
11.2
–
(31.3)
(6.0)
80.2
50.4
10.9
10.4
71.7
7.5
1.1
(31.3)
(2.4)
46.6
33.6
34.6
46.9
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Total
£m
196.6
9.0
205.6
11.2
14.9
(31.3)
(6.0)
194.4
143.4
13.5
10.4
167.3
9.0
1.1
(31.3)
(2.4)
143.7
50.7
38.3
53.2
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 ended 31 March 2018, the Group impaired £10.4m of software and development expenditure related to intangible assets with the
impairment recognised within restructuring costs in other items (see Note 4).
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Total
£m
89.6
15.8
–
(4.4)
101.0
12.1
–
71.5
10.7
(0.2)
(2.4)
79.6
8.0
0.3
(17.3)
(23.8)
0.2
(2.4)
68.4
46.3
11.1
(0.2)
(2.1)
55.1
10.8
0.1
(17.2)
(1.7)
47.1
21.3
24.5
25.2
0.2
(3.4)
86.1
57.3
12.8
–
(2.7)
67.4
11.6
–
(19.9)
(2.0)
57.1
29.0
33.6
32.3
Freehold
properties
£m
Leasehold
properties
£m
Plant and
vehicles
£m
Notes to the consolidated financial statements continued
For the year ended 31 March 2019
14. Property, plant and equipment
Cost
At 1 April 2017
Additions
Reclassifications within property, plant and equipment
Disposals
At 31 March 2018
Additions
Reclassifications within property, plant and equipment
Disposals
Acquisition of subsidiaries
Disposal of subsidiaries
At 31 March 2019
Accumulated depreciation and impairment
At 1 April 2017
Charge for the year
Reclassifications within property, plant and equipment
Disposals
At 31 March 2018
Charge for the year
Reclassifications within property, plant and equipment
Disposals
Disposal of subsidiaries
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
At 1 April 2017
1.3
0.2
–
(1.2)
0.3
–
–
–
–
(0.3)
–
0.4
–
–
(0.3)
0.1
–
–
–
(0.1)
–
–
0.2
0.9
16.8
4.9
0.2
(0.8)
21.1
4.1
(0.3)
(6.5)
–
(0.7)
17.7
10.6
1.7
0.2
(0.3)
12.2
0.8
(0.1)
(2.7)
(0.2)
10.0
7.7
8.9
6.2
The net book value of plant and vehicles held under finance leases included above was £0.7m (2018: £0.7m).
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Mitie Group plc | Annual Report and Accounts 2019
15. Trade and other receivables
Trade receivables
Accrued income
Prepayments
Other receivables2
Total
Included in current assets
Included in non-current assets
Total
2019
£m
233.6
132.6
27.1
41.9
435.2
435.2
–
435.2
20181
£m
205.0
131.4
21.3
28.3
386.0
386.0
–
386.0
Notes:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
2. Within other receivables for the year ended 31 March 2019 is £4.5m relating to the acquisition of VSG (see Note 30). This balance represents amounts expected to be recovered following
finalisation of the consideration to be paid, and is subject to agreement of the completion accounts with the seller of the business.
The Group makes use of a non-recourse customer invoice discounting facility under which certain trade receivable balances are sold to the Group’s
relationship banks. As these trade receivables are sold without recourse, the Group has derecognised them, and so they are not included within trade
receivables. The Group has reduced the amount of invoice discounting from £76.3m as at 31 March 2018 to £73.2m as at 31 March 2019.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
Information about the Group’s exposure to credit risk and its loss allowance against the balance of trade receivables and accrued income, is provided
in Note 23.
16. Contract assets
At 1 April 2017
Additions
Amortised in the period
At 31 March 2018
Additions
Amortised in the period
At 31 March 2019
Included in current assets
Included in non-current assets
Total
Pre-contract
costs
£m
Contract
fulfilment
costs
£m
–
–
–
–
2.2
–
2.2
0.7
1.5
2.2
–
2.3
(0.1)
2.2
2.5
(0.8)
3.9
0.9
3.0
3.9
Total
£m
–
2.3
(0.1)
2.2
4.7
(0.8)
6.1
1.6
4.5
6.1
Contract assets are amortised on a straight-line basis over the contract life which is consistent with the transfer of services to the customer to which
the asset relates. Management has determined that no impairment of contract assets is required as at 31 March 2019.
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Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
17. Trade and other payables
Payments received on account
Trade creditors
Other taxes and social security
Other creditors
Accruals
Total
Included in current liabilities
Included in non-current liabilities
Total
2019
£m
0.6
160.3
97.1
45.0
230.9
533.9
533.9
–
533.9
2018
£m
0.2
191.3
79.9
29.2
196.2
496.8
496.8
–
496.8
Trade creditors at 31 March 2019 represents 50 days credit on trade purchases (2018 restated: 58 days).
Included within the Group’s trade creditors balance is £20.0m (2018: £45.1m) relating to payments due to UK suppliers which make use of bank
provided supply chain finance arrangements. During the year ended 31 March 2019 these arrangements were used by c.200 suppliers, with a maximum
facility available of £50.0m. The Group settles these amounts in accordance with each supplier’s agreed payment terms.
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
18. Deferred income from contracts with customers
The significant changes in deferred income are as follows:
At 1 April
Revenue recognised that was included in the deferred income balance at the beginning of the year
Increase due to cash received, excluding amounts recognised as revenue during the year
Acquisition of subsidiaries
Disposal of subsidiaries
At 31 March
Included within current liabilities
Included within non-current liabilities
Total
2019
£m
65.0
(44.9)
50.0
4.9
(1.7)
73.3
2019
£m
54.9
18.4
73.3
2018
£m
30.1
(15.9)
50.8
–
–
65.0
2018
£m
46.2
18.8
65.0
Deferred income relating to customer contracts mobilising in the year amounted to £5.8m (2018: £2.6m). For any amounts which do not relate
to specific contractual performance obligations, the income is deferred to the balance sheet and amortised over the period to which the contracted
services are delivered to the customer.
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Mitie Group plc | Annual Report and Accounts 2019
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19. Provisions
At 1 April 2017
Amounts recognised in the balance sheet
Amounts recognised in the income statement
Utilised within captive insurance subsidiary
Unwinding of discount
Utilised in the year
At 31 March 2018
Amounts recognised in the income statement
Utilised within captive insurance subsidiary
Unwinding of discount
Utilised in the year
Reclassification
At 31 March 2019
Included in current liabilities
Included in non-current liabilities
Total
Legal
costs
£m
Disposal
indemnities
£m
Restructuring
£m
Deferred
contingent
consideration
£m
Insurance
reserve
£m
Contract
specific
costs
£m
Pension
£m
Dilapidations
£m
2.0
–
3.2
–
–
6.0
–
–
–
–
(1.1)
(1.1)
4.1
0.2
–
–
4.9
0.6
–
–
–
–
1.2
–
–
–
1.2
–
–
–
(4.0)
(0.2)
(1.2)
–
0.3
0.3
–
0.3
–
5.3
5.3
–
5.3
–
–
–
–
–
0.3
12.5
–
–
–
–
–
4.0
(0.1)
–
(0.3)
(1.1)
–
–
–
–
–
–
–
–
–
–
15.3
2.5
(0.1)
–
(3.3)
0.6
15.0
9.0
6.0
15.0
5.8
–
(1.3)
–
–
(2.1)
2.4
11.5
–
–
(0.6)
(0.6)
12.7
12.7
–
12.7
–
–
–
–
–
–
–
20.0
–
–
–
–
20.0
20.0
–
20.0
–
3.4
–
–
0.2
–
3.6
–
–
0.1
(0.4)
–
3.3
3.3
–
3.3
Total
£m
26.6
3.4
7.1
(0.1)
0.2
(5.7)
31.5
34.8
(0.1)
0.1
(9.7)
–
56.6
50.6
6.0
56.6
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 utilisation of the provision represents the settlement of a contractual claim related to a contract of the now discontinued Social Housing business.
The disposal indemnities provision relates to indemnities provided following the disposal by the Group of the Healthcare and Social Housing
businesses. The amount recognised in the income statement represents a £2.6m charge in respect of Social Housing net of a £2.0m release in
respect of Healthcare.
The restructuring provision relates to costs of organisational change associated with the Group’s Project Helix transformation programme including
the transition costs associated with the outsourcing of certain back-office transactional processes.
The insurance reserve provides for the self-insured element of fleet and liability claims that will typically settle over three to five years. This includes
a provision for claims that are expected but have not yet been reported.
The contract specific cost provisions relate to various obligations arising in the ordinary course of providing services in line with commercial contracts.
The £11.5m charge for the year ended 31 March 2019 includes the £12.1m estimated costs of rectification works associated with certain property
maintenance contracts of the now discontinued Social Housing business, all of which are included within other items. Refer to Note 4 for further details.
The pension provision relates to the Section 75 employer debt liabilities of Robert Prettie & Co Limited as a result of that company’s participation in the
Plumbing Scheme. This liability is expected to be settled during the year ended 31 March 2020. See Notes 32 and 33.
The provision for dilapidations relates to the legal obligation for leased properties to be returned to the landlord in the contracted condition at the end
of the lease period. This cost would include repairs of any damage and wear and tear.
Contingent asset
The Directors are working to ensure that, through a combination of insurance claims and recourse to suppliers a proportion of the £16.1m costs
incurred in respect of rectification works for the Social Housing property maintenance contracts, including the £12.1m recorded in provisions above,
are recovered. The amount and timing of any recoveries is yet to be determined.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
20. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting
period:
At 1 April 2017
(Charge)/credit to income
(Charge)/credit to equity and the
statement of comprehensive income
At 31 March 2018
Acquisition of subsidiaries
Disposal of subsidiaries
(Charge)/credit to income
Credit/(charge) to equity and the
statement of comprehensive income
At 31 March 2019
Accelerated tax
depreciation
£m
Retirement
benefit
liabilities
£m
Intangible
assets
acquired
£m
6.5
(0.3)
–
6.2
0.3
(0.3)
(1.2)
–
5.0
12.6
0.3
(3.4)
9.5
–
–
2.3
2.4
14.2
(1.1)
0.3
–
(0.8)
(2.5)
0.5
(0.1)
–
(2.9)
Losses
£m
25.8
(7.0)
–
18.8
–
–
(1.5)
–
17.3
Share
options
£m
0.7
(0.1)
0.1
0.7
–
–
0.4
(0.3)
0.8
Short-term
timing
differences
£m
1.6
(0.1)
–
1.5
0.2
(0.2)
(0.1)
–
1.4
Total
£m
46.1
(6.9)
(3.3)
35.9
(2.0)
–
(0.2)
2.1
35.8
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
2019
£m
38.7
(2.9)
35.8
2018
£m
36.7
(0.8)
35.9
The Group has unutilised income tax losses of £102.3m (2018: £112.8m) that are available for offset against future profits. In addition, the Group has
£0.8m (2018: £0.8m) of capital losses. A deferred tax asset has been recognised in respect of £92.8m (2018: £102.7m) of losses to the extent that
it is probable that taxable profits will be generated in the future and be available for utilisation. Deferred tax has been calculated using the corporation
tax rate disclosed in Note 9.
21. Cash and cash equivalents
Cash and cash equivalents
2019
£m
108.4
2018
£m
59.8
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 £nil (2018: £0.4m) held by the Group’s insurance subsidiary, which are not readily available
for the general purposes of the Group. The Group’s insurance subsidiary was liquidated during the year.
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Mitie Group plc | Annual Report and Accounts 2019
22. Financing liabilities
Bank loans – under committed facilities
Private placement notes
Obligations under finance leases (Note 24)
Total
Included in current liabilities
Included in non-current liabilities
Total
2019
£m
52.1
211.9
1.5
265.5
40.7
224.8
265.5
2018
£m
54.3
203.8
1.3
259.4
0.8
258.6
259.4
The £275.0m bank facility and the private placement notes are unsecured but have financial and non-financial covenants and obligations commonly
associated with these arrangements. The final maturity dates of all facilities remained unchanged. The Group was in compliance with these covenants
as at 31 March 2019 and hence all amounts are classified in line with repayment dates.
Included in current financing liabilities are £0.7m (2018: £0.8m) of obligations under finance leases (see Note 24).
With the exception of derivative financial instruments, all financing liabilities are held at amortised cost. 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 23).
At 31 March 2019, the Group had available £221.9m (2018: £219.3m) 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
the applicable LIBOR.
Details of the Group’s contingent liabilities are provided in Note 33.
The weighted average interest rates paid during the year on overdrafts and loans outstanding were as follows:
Overdrafts
Bank loans
Private placement notes
2019
%
2.7
1.6
4.1
2018
%
2.0
1.5
3.9
Private placement notes
Following the issue on 16 December 2010 of US$96.0m and £40.0m of private placement (PP) notes in the United States Private Placement market,
the Group issued a further US$153.0m and £55.0m of PP notes on 13 December 2012. 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. US$96.0m of these PP notes were settled in
December 2017 upon maturity, along with the associated swaps which had been designated as fair value hedges. The amount, maturity and interest
terms of the remaining PP notes are shown below.
Tranche
9 year
10 year
10 year
10 year
12 year
Maturity date
16 December 2019
16 December 2022
16 December 2022
16 December 2022
16 December 2024
Amount
£40.0m
US$76.0m
US$77.0m
£25.0m
£30.0m
Interest terms
£ fixed at 4.38%
US$ fixed at 3.85%
US$ fixed at 3.85%
£ fixed at 3.87%
£ fixed at 4.00%
Swap interest
n/a
£ fixed at 4.02%
£ fixed at 4.02%
n/a
n/a
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
23. Financial instruments
Classification
The Group’s principal financial assets are cash and cash equivalents, trade receivables and derivative financial instruments. With the exception
of derivative financial instruments, all financial assets are held and measured at amortised cost.
The Group’s principal financial liabilities are trade and other payables and financing liabilities. All financial liabilities are held and measured
at amortised cost.
Derivative financial instruments are measured initially at fair value at the date the contract is entered into and are subsequently remeasured
to their fair value through the income statement unless they are designated as hedges for which hedge accounting can be applied.
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases
for recognition of income and expense) for each class of financial asset, financial liability and equity instrument are disclosed in Note 1.
Risk management objectives
The Group’s treasury department monitors and manages the financial risks relating to the operations of the Group. These risks include those arising
from interest rates, foreign currencies, liquidity, credit and capital management. The Group seeks to minimise the effects of these risks by using effective
control measures and, where appropriate, derivative financial instruments to hedge certain risk exposures. The use of financial derivatives is governed
by Group policies and reviewed regularly. Group policy is to not trade in financial instruments. The risk management policies remain unchanged from
the previous year.
Interest rate risk
The Group’s activities expose it to the financial risks of interest rates. The Group’s treasury function reviews its risk management strategy on a regular
basis and will, as appropriate, enter into derivative financial instruments in order to manage interest rate risk.
Interest rate sensitivity
The interest rate sensitivity has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the
balance sheet date. All financial liabilities, other than financing liabilities, are interest free.
If underlying interest rates had been 0.5% higher/lower and all other variables were held constant, the Group’s profit after tax for the year ended
31 March 2019 and reserves would decrease/increase by £0.8m (2018: £0.7m).
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 foreign operations. The Group considers
the need to hedge its exposures as appropriate and will enter into forward foreign exchange contracts to mitigate any significant risks.
In addition, the Group has fully hedged the US dollar exposure on its private placement notes into sterling using cross-currency interest rate swaps
(see Hedging activities below).
At 31 March 2019 £9.2m (2018: £9.3m) of cash and cash equivalents were held in foreign currencies. Included in bank loans were £13.1m
(2018: £15.7m) of loans denominated in foreign currency.
Liquidity risk
The Group monitors its liquidity risk using a cash flow projection model which considers the maturity of the Group’s assets and liabilities and the
projected cash flows from operations. Bank loans under committed facilities, which allow for appropriate headroom in the Group’s daily cash
movements, are then arranged. Details of the Group’s bank facilities can be found in Note 22.
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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 2019
Trade creditors
Other creditors
Financing liabilities
Financial liabilities1
Financial liabilities at 31 March 2018
Trade creditors
Other creditors
Financing liabilities
Financial liabilities1
Within
one year
£m
In the second
to fifth years
£m
After
five years
£m
160.1
40.9
102.0
303.0
–
–
162.6
162.6
–
–
30.9
30.9
Within
one year
£m
In the second
to fifth years
£m
After
five years
£m
191.3
29.2
65.6
286.1
–
–
198.9
198.9
–
–
31.5
31.5
Total
£m
160.1
40.9
295.5
496.5
Total
£m
191.3
29.2
296.0
516.5
Note:
1. Financial liabilities maturity profile is exclusive of the £16.4m (2018: £6.1m) derivative asset which would naturally offset the settlement value of the maturing private placement notes in
financing liabilities.
Credit risk
The Group’s credit risk is monitored on an ongoing basis and formally reported quarterly. The value of business placed with financial institutions
is reviewed on a daily basis.
The Group’s credit risk on liquid funds and derivative financial instruments is limited because the external counterparties are banks with high credit
ratings assigned by international credit rating agencies and are managed through regular review.
The Group’s credit risk is primarily attributable to its receivable balances from customers. Before accepting a new customer, the Group uses external credit
scoring systems to assess the potential customer’s credit quality and define an appropriate credit limit which is reviewed regularly.
The maximum exposure to credit risk in relation to trade receivables and accrued income at the balance sheet date is the fair value of trade receivables
and accrued income. The Group’s customer base is large and unrelated and, accordingly, the Group does not have a significant concentration of credit
risk with any one counterparty or group of counterparties.
The amounts presented in the balance sheet in relation to the Group’s trade receivables and accrued income balances are presented net of loss
allowances. The Group measures loss allowances at an amount equal to lifetime expected credit losses (ECLs) using both quantitative and qualitative
information and analysis based on the Group’s historical experience, and forward-looking information.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
23. Financial instruments continued
The following table provides information about the Group’s exposure to credit risk and ECLs against customer balances as at 31 March 2019
under IFRS 9:
Trade receivables at 31 March 2019
Current (not overdue)
1-30 days overdue
31-60 days overdue
61-90 days overdue
More than 90 days overdue
Total
Gross
carrying
amount
210.3
26.4
6.5
1.7
7.9
Loss
allowance
(11.9)
(1.9)
(0.5)
(0.3)
(4.6)
2019
£m
Net
carrying
amount
198.4
24.5
6.0
1.4
3.3
252.8
(19.2)
233.6
Trade receivables at 31 March 2019 represents 29 days revenue (2018 restated: 26 days).
The following table provides information about the ageing of trade receivables as at 31 March 2018 under IAS 39:
Neither impaired nor past due
Not impaired and less than three months overdue
Not impaired and more than three months overdue
Provision for doubtful debts
Total
20181
£m
163.6
37.4
21.3
(17.3)
205.0
Note:
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
The following table provides the movement in the allowance for impairment in respect of trade receivables and accrued income:
At 1 April
Impact of change in accounting policy
Impairment losses/(gains) recognised
Amounts written off as uncollectable
Acquisition of subsidiaries
Disposal of subsidiaries
At 31 March
Note:
2019
£m
Trade
receivables
Accrued
income
Trade
receivables
17.3
1.5
1.1
(1.5)
1.9
(1.1)
19.2
6.5
1.0
(1.6)
–
0.1
(0.4)
5.6
16.2
–
2.3
(1.2)
–
–
17.3
20181
£m
Accrued
income
4.5
–
2.0
–
–
–
6.5
1. The Group has adopted IFRS 9 starting 1 April 2018 using the transition option available in the standard by disclosing the impact as an adjustment to opening retained earnings at the date of initial
application. Under this option, the comparative information is not restated.
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 26 and equity
per the consolidated statement of changes in equity.
The Group is not subject to externally imposed regulatory capital requirements.
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Mitie Group plc | Annual Report and Accounts 2019
Hedging activities
Cash flow hedges
The Group holds a number of cross-currency interest rate swaps designated as cash flow hedges on US$153.0m of PP notes. Biannual fixed interest
cash flows denominated in US dollars arising over the periods to December 2022 from the US Private Placement market are exchanged for fixed
interest cash flows denominated in sterling. All cash flow hedges were assessed as being highly effective as at 31 March 2019.
Hedge of net investment in foreign operations
Included in bank loans at 31 March 2019 was a borrowing of €9.5m (2018: €9.5m) which has been designated as a hedge of the net investment in the
Republic of Ireland business of Dalkia FM, and is being used to hedge the Group’s exposure to foreign exchange risk on this investment. Gains or losses
on the translation of the borrowing are transferred to equity to offset gains or losses on the translation of the net investment.
Derivative financial instruments
The carrying values of derivative financial instruments at the balance sheet date were as follows:
Derivative financial instruments hedging private placement notes1
Total
Included in current assets
Included in non-current assets
Total
Note:
Assets
2019
£m
Assets
2018
£m
16.4
16.4
–
16.4
16.4
6.1
6.1
–
6.1
6.1
1. Derivative financial instruments hedging private placement notes comprise cross-currency interest rate swaps designated as cash flow hedges.
Derivative financial instruments are measured at fair value.
Fair value measurements are classified into three levels, depending on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from other observable inputs for the asset or liability; and
• Level 3 fair value measurements are those derived from valuation techniques using inputs that are not based on observable market data.
The Directors consider that the Group’s derivative financial instruments fall into Level 2. There were no transfers between levels during the year. Fair
values of these instruments are calculated based on a discounted cash flow analysis using appropriate market information for the duration of the
instruments. All contracts are gross settled.
24. Obligations under finance leases
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Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Present value of lease obligations
Less: amount due for settlement within 12 months
Amount due for settlement after 12 months
Minimum lease payments
2019
£m
0.7
0.8
1.5
1.5
(0.7)
0.8
2018
£m
0.8
0.5
1.3
1.3
(0.8)
0.5
The average remaining lease term is 18 months (2018: 20 months). For the year ended 31 March 2019, the average effective borrowing rate was 3.8%
(2018: 1.4%). 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.
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
25. Operating lease commitments
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
2019
£m
25.3
41.4
5.3
72.0
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.
26. Analysis of net debt
Cash and cash equivalents (Note 21)
Bank loans (Note 22)
Private placement notes (Note 22)
Derivative financial instruments hedging private placement notes (Note 23)
Net debt before obligations under finance leases
Obligations under finance leases (Note 24)
Net debt
2019
£m
108.4
(52.1)
(211.9)
16.4
(139.2)
(1.5)
(140.7)
2018
£m
23.7
39.2
13.2
76.1
2018
£m
59.8
(54.3)
(203.8)
6.1
(192.2)
(1.3)
(193.5)
Net debt excludes amounts in respect of customer invoice discounting referred to in Note 15 and amounts in respect of supply chain financing
referred to in Note 17.
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27. Notes to the consolidated statement of cash flows
Cash conversion
Operating profit/(loss)
Depreciation
Amortisation
Impairment of goodwill and intangible assets
Earnings before interest, tax, depreciation and amortisation
(EBITDA)
Continuing
operations
£m
Discontinued
operations
£m
50.2
11.3
9.7
1.1
72.3
(2.0)
0.3
0.1
–
(1.6)
2019
Total
£m
48.2
11.6
9.8
1.1
70.7
Continuing
operations
£m
Discontinued
operations
£m
1.1
12.3
13.2
33.1
59.7
(9.4)
0.5
0.3
11.9
3.3
2018
Total
£m
(8.3)
12.8
13.5
45.0
63.0
Cash generated from/(used in) operations
56.9
(9.4)
47.5
1.1
(9.0)
(7.9)
Free cash flow
Cash generated from/(used in) operations
Purchase of property, plant and equipment
Purchase of other intangible assets
Disposal of property, plant and equipment
Income taxes received
Interest received
Interest paid
Free cash flow
47.5
(12.1)
(11.2)
4.7
4.7
0.2
(12.4)
21.4
(7.9)
(15.8)
(9.0)
1.6
11.6
0.2
(13.5)
(32.8)
Opening
balance
£m
Total cash
movements
£m
Reclassification
of senior debt
£m
Fair value
changes
£m
Other FX
movements
£m
Other non-
cash
movements
£m
2019
Closing
balance
£m
Cash flows
Non-cash changes
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Long-term borrowings – bank loans
Long-term borrowings – private placement
loan notes
Short-term borrowings – private placement
loan notes
Finance lease obligations
Financing liabilities
Derivative financial instruments
Net financing liabilities
(54.3)
(203.8)
–
(1.3)
(259.4)
6.1
(253.3)
2.1
–
–
(0.2)
1.9
–
1.9
–
40.0
(40.0)
–
–
–
–
–
(8.1)
–
–
(8.1)
10.3
2.2
0.3
(0.2)
–
–
–
0.3
–
0.3
(52.1)
(171.9)
(40.0)
(1.5)
–
–
–
(0.2)
(265.5)
–
16.4
(0.2)
(249.1)
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
28. Share capital
Ordinary shares of 2.5p
Allotted and fully paid
At 1 April 2017
Issued for acquisitions
At 31 March 2018
Issued for acquisitions
At 31 March 2019
Number
million
369.1
4.6
373.7
–
373.7
£m
9.2
0.1
9.3
–
9.3
During the year ended 31 March 2018, 4.6m ordinary shares of 2.5p were allotted in respect of the acquisition of non-controlling interests at an issue
price between 266.3p and 278.8p giving rise to share premium of £nil and merger reserve of £12.4m.
29. Reserves
Share premium account
The share premium account represents the premium arising on the issue of equity shares.
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.
The merger reserve increased by £12.4m in the year ended 31 March 2018 as a result of the issue of 4.6m ordinary shares of 2.5p for the acquisition
of non-controlling interests.
Own shares reserve
The Group uses shares held in the Employee Benefit Trust to satisfy conditional awards under the Group’s LTIP, CSP and DBP share schemes and
shares held in the SIP Trust to provide matching shares under the SIP scheme. During the year the trust distributed 0.3m (2018: 0.7m) shares at a cost
of £0.8m (2018: £1.6m) to satisfy awards under those schemes.
The Company uses Treasury shares to satisfy share options under the Group’s ESOS and SAYE share schemes. No Treasury shares have been issued
to satisfy options under the Group’s share schemes in the year. During the year ended 31 March 2018, proceeds from the issue of 1.5m Treasury
shares to satisfy options under these share schemes were £3.4m at a cost of £4.3m, with the loss of £0.9m being recognised in retained earnings.
The own shares reserve at 31 March 2019 represents the cost of 12.7m (2018: 13.0m) ordinary shares in Mitie Group plc held for the purposes of
the share schemes, with a weighted average of 13.8m (2018: 13.8m) shares during the year, as well as the £2.6m (2018: £7.1m) value of the remaining
restricted shares issued as consideration to acquire non-controlling interests that is required to be treated as remuneration.
In the year ended 31 March 2019, the £5.3m (2018: £6.9m) movement includes £4.5m (2018: £1.0m) which has been released against the share-based
payments reserve following the expiration of the required continuing employment period in relation to restricted shares and £0.8m (2018: £5.9m) for
the cost of shares distributed to satisfy awards under the Group’s share schemes. The £8.1m credit to own shares reserve in the year ended 31 March
2018 represented the restricted shares issued as part of the acquisition of non-controlling interests.
Other reserves
Other reserves are comprised of the share-based payments reserve of £9.4m (2018: £10.4m), the revaluation reserve of £(0.2)m (2018: £(0.2)m),
the capital redemption reserve of £0.9m (2018: £0.9m) and other reserves of £0.2m (2018: £0.2m).
The share-based payments reserve represents credits in respect of the vesting period of equity-settled share-based payment transactions (see Note 31)
and credits in respect of the vesting period of restricted shares issued as part of the acquisition of non-controlling interests.
Hedging and translation reserve
The hedging and translation reserve of £(5.6)m (2018: £(7.3m) includes balances in respect of the Group’s cash flow hedges (see Note 23). A net cash
flow hedge credit during the year of £2.2m (2018: £0.1m credit) is included within other comprehensive income. The hedging and translation reserve
also includes balances arising on translation of the Group’s foreign operations and in respect of net investment hedges of which the combined
movement was a charge of £0.2m during the year (2018: £0.5m credit). An income tax charge of £0.3m (2018: £0.1m credit) has been recognised
on these movements.
Other movements in reserves
A movement of £1.8m (2018: £nil) has been reflected in retained earnings representing the recovery of consideration for the purchase of certain
non-controlling interests in the year ended 31 March 2017.
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30. Acquisitions
Current year acquisitions – purchase of Vision Security Group
On 26 October 2018, the Group acquired a 100% shareholding in Vision Security Group Limited (VSG). VSG is a leading security services provider
offering integrated security systems, manned guarding and key holding services, with a team of approximately 6,000 employees servicing more than
1,400 guarding locations and over 5,000 systems locations across the UK and Ireland.
The acquisition of VSG further strengthens the position of Mitie’s Total Security Management business (Mitie TSM) as one of the leading providers of
integrated and risk-based security services in the UK. In particular, the combination will offer opportunities to accelerate the growth of Mitie’s premium
technology-enabled and intelligence-led security solutions.
Consideration of £12.7m (on a debt free, cash free basis) was paid in cash at completion, and funded through Mitie’s own cash resources. £4.5m of the
cash consideration paid is expected to be to be returned through agreement of the completion accounts with the seller of the business.
The Group’s provisional assessment of the fair values of the assets and liabilities recognised as a result of the acquisition has been based on total
consideration of £8.2m following expected adjustments to the completion accounts. The purchase price allocation is as follows:
Software and development expenditure
Property, plant and equipment
Customer relationships
Current tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred income from contracts with customers
Current tax liabilities
Deferred tax liabilities
Net identifiable assets acquired
Less: bargain purchase in other items
Consideration
Book value
£m
Provisional fair
value adjustment
£m
Fair value
£m
0.1
0.5
–
0.5
0.7
41.5
1.6
(29.8)
(4.0)
(0.1)
–
11.0
(0.1)
(0.3)
14.9
–
(0.2)
(4.2)
–
(1.2)
(0.9)
–
(2.0)
6.0
–
0.2
14.9
0.5
0.5
37.3
1.6
(31.0)
(4.9)
(0.1)
(2.0)
17.0
(8.8)
8.2
The Group concluded that the value of the order backlog and the customer relationships to drive renewal of the contracts held by VSG was
an intangible asset which has been valued at £14.9m at acquisition and has been recorded as a non-current intangible asset under the caption
‘Customer relationships’. The asset will amortise to the income statement in line with the forecast expiry of the underlying customer relationships
over a 10-year period.
The Group has recorded a bargain purchase gain of £8.8m in the consolidated income statement within other items. This represents the excess of net
identifiable assets acquired of £17.0m over the consideration of £8.2m.
Acquired receivables
The fair value of acquired trade and other receivables was £37.3m. The gross contractual amount for trade and other receivables due was £39.3m,
against which £2.0m is the expected credit loss.
Revenue and profit contribution
The acquired business contributed revenues of £79.6m and net profit of £1.4m to the Group for the period from 26 October 2018 to 31 March 2019.
If the acquisition had occurred on 1 April 2018, consolidated pro-forma revenue and profit before tax for continuing operations for the year ended
31 March 2019 would have been £2,332.1m and £31.9m respectively. These amounts have been calculated using the subsidiary’s results and adjusting
them for:
• Differences in the accounting policies between the Group and the subsidiary; and
• The additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment
and intangible assets had applied from 1 April 2018, together with the consequential tax effects.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
30. Acquisitions continued
Purchase consideration – cash outflow
Outflow of cash to acquire subsidiaries, net of cash acquired:
Cash consideration
Less: cash balance acquired
Less: recovery of consideration1
Net outflow of cash – investing activities
Note:
2019
£m
12.7
(1.6)
(1.8)
9.3
1. Recovery of consideration amounting to £1.8m was in respect of the purchase of certain non-controlling interests in the year ended 31 March 2017. See Note 28.
Acquisition related costs
Acquisition related costs of £2.6m are included in administrative expenses and recognised in other items (see Note 4) in the income statement and
in operating cash flows in the statement of cash flows.
Prior year acquisitions – purchase of non-controlling interests
On 19 July 2017, the Company purchased the minority 49% shareholding in Source Eight Limited. The consideration paid was £4.0m, satisfied with
£3.0m in cash and £1.0m in unrestricted shares. A further £5.1m of shares were issued which were subject to sale restrictions related to continuing
employment. Regarding shares issued, 2,196,708 ordinary shares were issued, with a nominal value of 2.5p per share in Mitie Group plc (Mitie shares)
at a fair value of 278.8p, of which 1,838,028 Mitie shares were subject to sale restrictions related to continuing employment.
In addition, on 20 October 2017 the Company purchased the remaining minority shareholdings in five Mitie Model companies. The consideration paid
was £3.4m, satisfied through the issue of unrestricted shares. A further £3.0m of shares were issued which were subject to sale restrictions related to
continuing employment. Regarding shares issued, 2,396,381 Mitie shares were issued at a fair value of 266.3p, of which 1,139,697 Mitie shares were
subject to sale restrictions related to continuing employment. The shareholdings purchased, primarily held by certain of the employees and senior
management of the relevant subsidiary companies, are detailed below:
• Mitie Care and Custody Limited (MCCL) – 6.86% of the issued share capital, comprising 42,505 B ordinary shares of £0.01 each, for a consideration
of £0.4m satisfied by the issue of 169,328 Mitie shares;
• Mitie Events & Leisure Services Limited (MELSL) – 24.08% of the issued share capital, comprising 205,000 B ordinary shares of £0.01 each,
for a consideration of £0.4m satisfied by the issue of 144,555 Mitie shares;
• Mitie Facilities Management Limited (Ireland) (MFML) – 5.63% of the issued share capital, comprising 146,000 B ordinary shares of €0.01 each,
for a consideration of £0.2m satisfied by the issue of 72,228 Mitie shares;
• Mitie Catering Services Limited (MCSL) – 18.55% of the issued share capital, comprising 333,677 D ordinary shares of £0.01 each, for a consideration
of £2.9m satisfied by the issue of 1,072,416 Mitie shares; and
• Mitie Waste & Environmental Services Limited (MWESL) – 27.71% of the issued share capital, comprising 332,500 B ordinary shares of £0.01 each,
for a consideration of £2.5m satisfied by the issue of 937,854 Mitie shares;
The above acquisitions have been completed based on transfer of consideration of the fair value of the shareholdings of the respective entities. As part
of the above transactions Mitie Group issued unrestricted and restricted shares. The restricted shares are attached with a condition that the relevant
recipient continues in employment with the Group for a fixed vesting period of time. Restrictions will remain attached to the shares if the recipient
leaves employment with the Group prior to completion of the vesting period of the shares.
As a result of the acquisitions outlined above Mitie Group owns 100% of the issued share capital of all of the above entities.
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31. Share-based payments
The Company has six equity-settled share schemes. The Group has also awarded performance-related bonuses for Executive Directors which are
deferred in conditional shares under the Mitie Group plc 2010 Deferred Bonus Plan (DBP) 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 and renewed in 2015. The conditional 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 conditional 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.
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 conditional 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.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
31. Share-based payments continued
Restricted Shares
In addition, in certain cases restricted shares are issued to individuals. The restricted shares are attached with a condition that the relevant recipient
continues their employment with the Group for a fixed vesting period of time. Restrictions will remain attached to the shares if the recipient leaves
employment with the Group prior to completion of the vesting period of the shares.
Details of the awards and share options outstanding are as follows:
2019
2018
2019
Number of
conditional
share awards
(million)
Number of
conditional
share awards
(million)
Number of
share options
(million)
Weighted
average
exercise price
(p)
Number of
share options
(million)
2018
Weighted
average
exercise price
(p)
Outstanding at 1 April
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March
8.1
7.8
(2.8)
(0.3)
12.8
9.0
4.3
(4.5)
(0.7)
8.1
8.2
4.3
(4.0)
–
8.5
247
137
243
–
190
11.9
2.7
(4.9)
(1.5)
8.2
Exercisable at the end of the year
2.0
249
3.2
The Group recognised the following expenses related to share-based payments:
Discretionary share plans
Non-discretionary share plans
Share-based payments acquisition related costs
2019
£m
0.2
0.9
3.9
5.0
258
229
267
239
247
240
2018
£m
0.2
1.0
3.4
4.6
The movement on the share-based payments reserve, which is part of other reserves, relates to the charge to the income statement for the year of
£5.0m (2018: £4.6m). This comprises: i) £3.9m in respect of the vesting period of restricted shares issued as part of the acquisition of minority interests;
and ii) £1.1m of equity-settled share-based payment transactions. The share-based payments charge for the year is net of income statement credits of
£2.1m relating to changes in assumptions relating to the likelihood of options vesting.
In addition, there has been: i) a release of £4.5m against the own shares reserve on the expiry of restrictions attached to restricted shares issued; and ii)
a release of £0.8m to retained earnings regarding share options that were previously exercised, lapsed, forfeited or cancelled.
The weighted average share price at the date of exercise for awards and share options exercised during the year was 139p (2018: 252p).
The conditional share awards and share options outstanding at 31 March 2019 had exercise prices (other than nil in the case of the LTIP, CSP, DBP
and the matching shares under the SIP) ranging from 137p – 256p (2018: 212p – 256p) and a weighted average remaining contractual life of 3.6 years
(2018: 3.6 years). In the year ended 31 March 2019, options were granted in respect of the SAYE, LTIP, CSP and matching shares under the SIP.
The aggregate of the estimated fair values of those options granted was £14.0m (2018: £10.6m).
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Mitie Group plc | Annual Report and Accounts 2019
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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 (%)
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 (%)
2019
2018
258 – 318
258 – 318
0 – 260
23 – 29
3 – 4
0 – 260
23 – 29
3 – 4
(0.3) – 1.1
(0.3) – 1.1
1.6 – 4.7
1.6 – 4.7
2019
2018
180 – 267
180 – 267
23 – 27
34 – 37
3
23 – 27
34 – 37
3
0.22 – 0.68
0.22 – 0.68
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.
32. Retirement benefit schemes
The Group has a number of pension arrangements for employees:
• Defined contribution schemes for the majority of its employees; and
• Defined benefit schemes which include a group scheme and other smaller schemes.
The Group operates a number of defined contribution pension schemes for qualifying employees. The Group has a defined benefit pension scheme
called the Mitie Group plc Pension Scheme (Group scheme) where Mitie Group plc is the principal employer. The Group participates in a number
of other defined benefit schemes (Other schemes) in respect of certain employees who joined the Group under the Transfer of Undertakings
(Protection of Employment) Regulations 2006 (TUPE) or through the acquisition of subsidiary companies.
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 £8.0m (2018: £9.0m) and contributions to the auto-
enrolment scheme of £8.6m (2018: £4.3m), which are included in the income statement charge. The Group expects to make contributions of a similar
amount in the year ending 31 March 2020.
Defined benefit schemes
Group scheme
The Group scheme provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends
on members’ length of service and their final pensionable pay.
The Group scheme closed to new members in 2006, with new employees able to join one of the defined contribution schemes. The main Group
scheme was closed with effect from October 2017.
Pensions in payment are generally increased in line with RPI inflation, subject to certain caps and floors. Benefits are payable on death and other events
such as withdrawal from active service.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
31. Share-based payments continued
The Group scheme is operated under the UK regulatory framework. Benefits are paid to members from the trust-administered fund, where the
Trustee is responsible for ensuring that the scheme is sufficiently funded to meet current and future benefit payments. Plan assets are held in trust and
are governed by pension legislation. If investment experience is worse than expected or the actuarial assessment of the scheme’s liabilities increases,
the Group’s financial obligations to the scheme rise.
The nature of the relationship between the Group and the Trustee is also governed by regulations and practice. The Trustee must agree a funding plan
with the sponsoring company such that any funding shortfall is expected to be met by additional contributions and investment outperformance. In order
to assess the level of contributions required, triennial valuations are carried out with the scheme’s obligations measured using prudent assumptions
(which are determined by the Trustee with advice from the scheme actuary). The most recent triennial valuation was carried out as at 31 March 2017
and was concluded in March 2019.
The Trustee’s other duties include managing the investment of the scheme’s assets, administration of plan benefits and exercising of discretionary
powers. The Group works closely with the Trustee to manage the scheme.
Other defined benefit schemes
Grouped together under Other schemes are a number of schemes to which the Group makes contributions under Admitted Body status to clients’
(generally local government or government entities) defined benefit schemes in respect of certain employees who transferred to Mitie under TUPE.
The valuations of the Other schemes are updated by an actuary at each balance sheet date.
For the Admitted Body schemes, which are largely sections of the Local Government Pension Scheme, the Group will only participate for a finite period
up to the end of the relevant contract. The Group is required to pay regular contributions, as decided by the relevant scheme actuaries and detailed
in each scheme’s Contributions Certificate, which are calculated every three years as part of a triennial valuation. In a number of cases contributions
payable by the employer are capped and any excess is recovered from the entity that the employees transferred from. In addition, in certain cases,
at the end of the contract the Group will be required to pay any deficit (as determined by the scheme actuary) that is assessed for its notional section
of the scheme.
Multi-employer schemes
As a result of historic acquisition activity and staff transfers following contract wins, the Group participates in four multi-employer pension schemes.
The total contributions to these schemes for the financial year ending 31 March 2020 are anticipated to be £0.1m. For three of these schemes,
the Group’s share of the assets and liabilities is minimal.
The fourth scheme is the Plumbing & Mechanical Services (UK) Industry Pension Scheme (the Plumbing Scheme) a funded multi-employer defined
benefit scheme. The Plumbing Scheme was founded in 1975 and to date has had over 4,000 employers, with circa 400 remaining. Historically, the size
and complexity of the Plumbing Scheme has meant the trustee is unable at this time to identify the assets and liabilities of the scheme which are
attributable to the Group. The Group has recently received a Section 75 employer debt notice in respect of the participation of Robert Prettie & Co
Limited in the Plumbing Scheme (refer to Note 19 and Note 33). One Group company, Mitie Property Services (UK) Limited, continues to participate
in the Plumbing Scheme, however no apportionment of the assets and liabilities attributable to this company is available and consequently, the Group
accounts for its contributions as if they were paid to a defined contribution scheme.
The April 2014 valuation of the Plumbing Scheme indicated a surplus on technical provisions basis of £19.0m, on liabilities of £1.47bn. The Annual Member
update issued by the Plumbing Scheme in October 2018 stated that the draft triennial valuation as at 5 April 2017 showed a surplus on a technical
provisions basis.
As set out in Note 19, a provision of £20.0m has been made for Section 75 employer debts in respect of the participation of Robert Prettie & Co.
Limited in the Plumbing Scheme.
As set out in Note 33 the Group has a further potential exposure to Section 75 employer debts in respect of the participation of Mitie Property
Services (UK) Limited in the Plumbing Scheme, which has been disclosed as a contingent liability.
Further information in respect of the Group scheme and Other schemes
The table below sets out the details of the latest funding valuation of the Group scheme as at 31 March 2017.
Following the £3.0m paid in November 2017, the Group paid additional contributions of £10.5m to the Group scheme during the year ended 31 March
2019, including amounts of £3.8m and £1.8m in respect of the disposals of the Pest Control business and Social Housing business.
Under the concluded schedule for payments, a further £64.8m is payable in instalments by 31 March 2025, which, if the assumptions above are borne
out in practice, should eliminate the deficit by 31 March 2025.
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Mitie Group plc | Annual Report and Accounts 2019
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The Group made contributions to the Other schemes of £0.3m in the year (2018: £0.3m). The Group expects to make contributions of around £0.3m
to the Other schemes in the year ending 31 March 2020.
Details of latest funding valuation
Date of latest funding valuation
Assets at valuation date
Funding liabilities at valuation date
Deficit at valuation date
Group scheme
31 March 2017
£178.7m
£252.7m
£74.0m
The total contribution rate was set at between 40.1% and 45.0% of annual pay for the remaining active members. The employer contribution rate is the
balance of the total cost after the deducting the employee rate, which ranges depending on status and earnings. The total contribution excludes any
allowances for expenses met by the scheme.
The following table sets out details of the membership of the Group scheme at 31 March 2017:
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
182
19.8%
£8.4m
853
53.9%
£4.6m
640
26.3%
£2.7m
Accounting assumptions
The assumptions used in calculating the accounting costs and obligations of the Group’s defined benefit pension schemes, as detailed below, are set after
consultation with independent, professionally qualified actuaries.
The discount rate used to determine the present value of the obligations is set by reference to market yields on high-quality corporate bonds.
The assumptions for price inflation are set by reference to the difference between yields on longer-term conventional government bonds and index-
linked bonds. The assumption for increases in pensionable pay takes into account expected salary inflation, the cap at CPI, and how often the cap is likely
to be exceeded.
A UK High Court judgment was issued on 26 October 2018 relating to Guaranteed Minimum Pensions (GMP). Although the ruling relates to
Lloyds Banking Group pension schemes, it is expected to create a precedent for other UK defined benefit pension schemes. The ruling requires the
equalisation of member benefits earned between 1990 and 1997 to address gender inequality in instances where GMP benefits are currently unequal.
Whilst there remains some uncertainty, the Group has made a provision for the estimated financial impact of this ruling on the Group scheme, based
on a comparison of the cumulative value of members’ benefits with the benefits of a notional member of the opposite gender (method C2 under the
terminology of the High Court Judgment). A past service cost of £1.6m based on the broad profile of the fund (i.e. age profile, service profile and
GMP proportion) has been recognised within other items in the year ended 31 March 2019.
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
Group scheme
Other schemes
2019
%
2.40
3.20
3.20
2.20
3.50
2018
%
2.60
3.10
3.10
2.10
3.40
2019
%
2.40
3.20
3.20
2.20
3.50
2018
%
2.60
3.10
3.10
2.10
3.40
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
32. Retirement benefit schemes continued
Post retirement life expectancy:
Current pensioners at 65 – male
Current pensioners at 65 – female
Future pensioners at 65 – male
Future pensioners at 65 – female
Life expectancy for the other schemes is that used by the relevant scheme actuary.
The sensitivity of defined benefit obligations to changes in principal actuarial assumptions is shown below.
Sensitivity of defined benefit obligations to key assumptions
Group scheme
2019
Years
2018
Years
88.0
89.0
89.0
90.0
88.0
89.0
89.0
90.0
Increase in discount rate
Increase in RPI inflation*
Increase in CPI inflation (excluding pay)
Increase in salary growth
Increase in life expectancy
Change in
assumption
0.1%
0.1%
0.1%
0.1%
1 year
Impact on defined benefit obligations
Increase/(decrease)
in obligations
%
Increase/(decrease)
in obligations
£m
(2.0)%
0.8%
0.7%
0.0%
4.0%
(4.9)
2.0
1.7
–
10.4
*
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
Past service cost (including curtailments)
Net interest cost
Amounts recognised in profit/(loss) before tax
Group
scheme
£m
Other
schemes
£m
(0.4)
(1.1)
(1.5)
(1.6)
(1.2)
(4.3)
(0.3)
–
(0.3)
–
(0.1)
(0.4)
2019
Total
£m
(0.7)
(1.1)
(1.8)
(1.6)
(1.3)
(4.7)
Group
scheme
£m
Other
schemes
£m
(1.7)
(1.1)
(2.8)
(1.9)
(1.9)
(6.6)
(0.3)
–
(0.3)
–
(0.1)
(0.4)
2018
Total
£m
(2.0)
(1.1)
(3.1)
(1.9)
(2.0)
(7.0)
The past service cost (including curtailments) in the year ended 31 March 2019 was the cost of equalising Guaranteed Minimum Pensions and in the year
ended 31 March 2018 was a result of an increase in liabilities driven by the closure of the main Group scheme.
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Amounts recognised in the consolidated statement of comprehensive income are as follows:
Actuarial (losses)/gains arising due to changes in
financial assumptions
Actuarial (losses)/gains arising from liability experience
Actuarial gains due to changes in demographic assumptions
Movement in asset ceiling
Return on scheme assets, excluding interest income
Group
scheme
£m
Other
schemes
£m
(13.6)
(1.3)
–
–
1.3
(0.9)
–
0.1
–
0.5
2019
Total
£m
(14.5)
(1.3)
0.1
–
1.8
(13.6)
(0.3)
(13.9)
Group
scheme
£m
Other
schemes
£m
8.6
(1.1)
5.9
–
4.6
18.0
0.8
0.8
0.2
(0.5)
0.4
1.7
The amounts included in the consolidated balance sheet in respect of the Group’s 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
190.5
(251.9)
(61.4)
Other
schemes
£m
13.1
(15.5)
(2.4)
2019
Total
£m
203.6
(267.4)
(63.8)
Group
scheme
£m
182.3
(237.1)
(54.8)
Other
schemes
£m
12.1
(14.1)
(2.0)
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) arising due to changes in financial
assumptions
Actuarial losses/(gains) arising from experience
Actuarial gains due to changes in demographic assumptions
Movement in asset ceiling
Benefits paid
Past service cost (including curtailments)
At 31 March
Group
scheme
£m
237.1
Other
schemes
£m
14.1
0.4
6.0
–
13.6
1.3
–
–
(8.1)
1.6
251.9
0.3
0.4
0.1
0.9
–
(0.1)
–
(0.2)
–
15.5
2019
Total
£m
251.2
0.7
6.4
0.1
14.5
1.3
(0.1)
–
(8.3)
1.6
Group
scheme
£m
248.5
1.7
6.5
–
(8.6)
1.1
(5.9)
–
(8.1)
1.9
267.4
237.1
Other
schemes
£m
14.8
0.3
0.4
0.1
(0.8)
(0.8)
(0.2)
0.5
(0.2)
–
14.1
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2018
Total
£m
9.4
(0.3)
6.1
(0.5)
5.0
19.7
2018
Total
£m
194.4
(251.2)
(56.8)
2018
Total
£m
263.3
2.0
6.9
0.1
(9.4)
0.3
(6.1)
0.5
(8.3)
1.9
251.2
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
153
151
Notes to the consolidated financial statements continued
For the year ended 31 March 2019
32. Retirement benefit schemes continued
The defined benefit obligations of the Group scheme are analysed by participant status as at 31 March 2017 below:
Active
Deferred
Pensioners
At 31 March
Movements in the fair value of scheme assets were as follows:
At 1 April
Interest income
Actuarial gains on assets
Contributions from the sponsoring companies
Contributions from scheme members
Expenses paid
Benefits paid
At 31 March
The history of experience adjustments is as follows:
Group
scheme
£m
182.3
4.8
1.3
11.3
–
(1.1)
(8.1)
190.5
Other
schemes
£m
12.1
0.3
0.5
0.3
0.1
–
(0.2)
13.1
2019
£m
190.5
(251.9)
(61.4)
(1.3)
0.5%
1.3
0.7%
2019
£m
13.1
(15.5)
(2.4)
–
–
0.5
4.0%
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in the scheme
Experience (losses)/gains on scheme liabilities
Percentage of scheme liabilities
Experience gains/(losses) on scheme assets
Percentage of scheme assets
Fair value of scheme assets
Present value of defined benefit obligations
Deficit in the scheme
Experience gains/(losses) on scheme liabilities
Percentage of scheme liabilities
Experience gains/(losses) on scheme assets
Percentage of scheme assets
154
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
2019
£m
51.4
131.0
69.5
251.9
Other
schemes
£m
11.3
0.3
0.4
0.3
–
–
(0.2)
12.1
2016
£m
156.9
(191.3)
(34.4)
3.1
(1.6)%
(6.2)
(4.0)%
2016
£m
9.5
(10.6)
(1.1)
–
–
Group
scheme
£m
177.8
4.6
4.6
4.4
–
(1.0)
(8.1)
182.3
2017
£m
177.8
(248.5)
(70.7)
0.8
(0.3)%
18.7
10.5%
2017
£m
11.3
(14.8)
(3.5)
–
–
1.3
11.5%
(0.6)
(6.1)%
2018
£m
48.3
123.3
65.5
237.1
2018
Total
£m
189.1
4.9
5.0
4.7
–
(1.0)
(8.3)
194.4
Group scheme
2015
£m
162.2
(197.1)
(34.9)
1.2
(0.6)%
13.0
8.0%
Other schemes
2015
£m
9.5
(10.4)
(0.9)
(0.1)
0.9%
0.8
8.4%
2019
Total
£m
194.4
5.1
1.8
11.6
0.1
(1.1)
(8.3)
203.6
2018
£m
182.3
(237.1)
(54.8)
(1.1)
0.5%
4.6
2.5%
2018
£m
12.1
(14.1)
(2.0)
0.8
(5.6)%
0.4
3.3%
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Fair values of the assets held by the schemes were as follows:
Equities
Government bonds
Corporate bonds
Property
Diversified growth fund
Cash
Total fair value of assets
Group
scheme
£m
Other
schemes
£m
51.7
27.1
51.9
16.8
37.0
6.0
7.5
4.0
0.1
1.0
–
0.5
2019
Total
£m
59.2
31.1
52.0
17.8
37.0
6.5
Group
scheme
£m
Other
schemes
£m
66.3
26.9
22.0
9.5
45.6
12.0
7.0
–
3.8
0.9
–
0.4
2018
Total
£m
73.3
26.9
25.8
10.4
45.6
12.4
190.5
13.1
203.6
182.3
12.1
194.4
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 56% (2018: 67%) of the assets are held in equities, property and pooled investment vehicles which seek a higher expected level of return over
the long term.
The property assets represent quoted property investments.
Risks and risk management
The Group scheme, in common with the majority of UK plans, has a number of risks. These areas of risk and the ways in which the Group has sought
to manage them, are set out in the table below.
The risks are considered from both a funding perspective, which drives the cash commitments of the Group, and from an accounting perspective,
i.e. the extent to which such risks affect the amounts recorded in the Group’s 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 (56%) 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 19% of its
assets in DGFs which seek to maintain high levels of return whilst achieving lower volatility than direct equity funds. The allocation to return seeking assets
is monitored to ensure it remains appropriate given the scheme’s long-term objectives. The investment in bonds is discussed further below.
Changes in
bond yields
Falling bond yields tend to increase the funding and accounting obligations. However, the investment in corporate and government bonds offers a degree of
matching, i.e. the movement in assets arising from changes in bond yields partially matches the movement in the funding or accounting obligations. In this way,
the exposure to movements in bond yields is reduced.
Inflation risk The majority of the scheme’s benefit obligations are linked to inflation. Higher inflation will lead to higher liabilities (although caps on the level of inflationary
increases are in place to protect the plan against extreme inflation). The majority of the Group scheme’s assets are either unaffected by inflation (fixed interest
bonds) or loosely correlated with inflation (equities), meaning that an increase in inflation will also increase the deficit.
Life
expectancy
The majority of the scheme’s obligations are to provide a pension for the life of the member, so increases in life expectancy will result in an increase in the
obligations.
Areas of risk management
Although investment decisions in the scheme are the responsibility of the Trustee, the Group takes an active interest to ensure that pension plan
risks are managed efficiently. The Group and Trustee have agreed a long-term strategy for reducing investment risk where appropriate.
Certain benefits payable on death before retirement are insured.
33. Contingent liabilities
Contractual disputes, guarantees and indemnities
The Company and various of its subsidiaries are, from time to time, party to contractual disputes that arise in the ordinary course of business.
The Directors do not anticipate that the outcome of any of these disputes will have a material adverse effect on the Group’s financial position,
other than as already provided for in the 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.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
155
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Notes to the consolidated financial statements continued
For the year ended 31 March 2019
33. Contingent liabilities continued
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 £23.0m (2018: £21.7m) in the ordinary course of business. These are not expected to result in any material financial loss.
Multi-employer pension schemes
The Group participates in several industry multi-employer defined benefit schemes, including the Plumbing & Mechanical Services (UK) Industry
Pension Scheme (Plumbing Scheme). The total contributions to these schemes for the financial year ending 31 March 2020 are anticipated to be
£0.1m. The size and complexity of the Plumbing Scheme has meant the trustee is unable at this time to identify the assets and liabilities of the scheme
which are attributable to the Group. Consequently, the Group accounts for its contributions as if they were paid to a defined contribution scheme.
When the Group (or a subsidiary of the Group) exits such schemes (typically by ceasing to have any active employees in the scheme), pension legislation
may require the Group to fund the Group’s share of the total amount of net liabilities with a one-off cash payment (a Section 75 debt under the
Pensions Act 1995).
On 27 March 2018, the trustee of the Plumbing Scheme provided participating employers with a summary of the draft actuarial valuation of the
Plumbing Scheme as at 5 April 2017. That summary detailed the results of the valuation on three measures:
• technical provisions - the amount of money the Plumbing Scheme needs to meet all its obligations and pay benefits in respect of past service as they
fall due, based on the scheme assets and the economic position as at 5 April 2017. This measure showed a surplus of £45m on liabilities of £1.885bn;
• Pension Protection Fund (PPF) - the amount used to set the Plumbing Scheme’s PPF levies. The benefits under this basis are lower than the scheme’s
own benefits and the assumptions are prescribed by the Pension Regulator. This measure showed a deficit of £412m on liabilities of £2.342bn; and
• solvency – this is an estimate of the cost of insuring all of the Plumbing Scheme’s benefits as at 5 April 2017 with an insurer and is the basis required
for Section 75 debt calculations. This measure showed a deficit of £658m on liabilities of £2.588bn.
On 23 April 2019 the trustee of the Plumbing Scheme issued a Section 75 debt estimate to Robert Prettie & Co Limited. A provision for this debt has
been made. See Note 19.
The Group continues to have an exposure to Section 75 debts in respect of the participation of Mitie Property Services (UK) Limited in the Plumbing
Scheme, however no event has occurred to trigger this debt.
Employment claims
The Company and its subsidiaries are, from time to time, party to employment disputes, claims, and other potential liabilities which arise in the ordinary
course of business. The Directors do not anticipate that any of the current matters will give rise to settlements, either individually or in aggregate, which
will have a material adverse effect on the Group’s financial position.
34. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in
this Note.
During the year, the Group derived £0.5m (2018: £0.8m) of revenue from contracts with joint ventures and associated undertakings and received £nil
(2018: £0.6m) of dividends. At 31 March 2019 trade and other receivables from joint ventures and associates of £nil (2018: £0.2m) were outstanding
and loans to joint ventures and associates of £nil (2018: £nil) were included in financing assets.
Mitie Group plc has a related party relationship with the Mitie Foundation, a charitable company. During the year, the Group made donations and gifts
in kind of £0.4m (2018: £0.3m) to the Foundation.
No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a Director had a material
interest.
The Group’s key management personnel include the Executive Directors, Non-Executive Directors and the Executive Leadership team. Details of the
Directors’ remuneration is included in Note 7. The underlying remuneration for other key management personnel, including the share-based payments
charge is £4.0m (2018: £4.4m).
Short-term employment benefits
Pension
Share-based payments
At 31 March
2019
£m
3.5
0.2
0.3
4.0
2018
£m
3.7
0.3
0.4
4.4
The Company’s preferred supplier for delivering apprenticeships to its employees is Aspire Achieve Advance Limited (3aaa), a company whose
chairman is also Mitie Group plc’s Non-Executive Chairman. The Company pays into a government mandated Apprenticeship Levy Fund, and 3aaa
withdraw from that fund to provide the apprenticeship training. On 11 October 2018, the directors of 3aaa presented a petition to the Court for the
compulsory winding up of the company. This petition was accepted by the Court and the Official Receiver was appointed as liquidator on 24 October
2018. During the year ended 31 March 2019, 3aaa withdrew £0.6m (2018: £0.2m) from the fund in respect of training provided or to be provided.
156
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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35. Subsidiaries
The companies set out below are those which were part of the Group at 31 March 2019.
Company
Care & Custody (Health) Limited
Cole Motors Limited‡
Creativevents Limited‡
Direct Enquiries Holdings Limited‡
Jabez Holdings Limited*
Mitie Aviation Security Limited X
Mitie Belgium BVBA
Mitie Belgium Security BVBA
Mitie Built Environment Limited‡
Mitie Business Services Limited
Mitie Business Services UK Limited‡ x
Mitie Care and Custody Limited x
Mitie Catering Services Limited x
Mitie Cleaning & Environmental Services Limited
Mitie Cleaning Services Limited‡
Mitie Client Services Limited
Mitie Company Secretarial Services Limited*
Mitie Compliance Ltd‡
Mitie Deutschland GmbH
Mitie Document Solutions Limited*
Mitie Dormant (No. 1) 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 NI 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.
Country of incorporation
2019
% voting rights and
ownership interest
2019
% nominal
value owned
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Belgium
Belgium
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
157
155
Notes to the consolidated financial statements continued
For the year ended 31 March 2019
35. Subsidiaries continued
Company
Mitie Norge Aksjeselskap
Mitie PFI Limited
Mitie Polska Sp. z o.o.
Mitie Property Services (UK) 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+
Mitie Transport Services Limited‡
Mitie Treasury Management Limited+
Mitie Trustee Limited*
Mitie Waste & Environmental Services Limitedx
Mitie Work Wise Limited‡
Parkersell Limited‡
Procius Limited‡
Robert Prettie & Co Limited
Service Management International Asia Pacific PTE. Ltd.
Source Eight Limited‡X
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‡
Vision Security Group Limited
Vision Security Group Systems Limited‡
VSG Payroll Services Limited*
VSG Staff Hire Limited*
VSG Systems Direct Limited*
Wealthy Thoughts Limited*
Country of incorporation
2019
% voting rights and
ownership interest
2019
% nominal
value owned
Norway
United Kingdom
Poland
United Kingdom
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
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
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* These entities were dormant during the year ended 31 March 2019 and will take the exemption from preparing and filing financial statements for the year ended 31 March 2019 (by virtue of
Section 448A of the Companies Act 2006).
‡ These subsidiaries have taken advantage of the audit exemption under Section 479A of the Companies Act 2006 for the year ended 31 March 2019. As such, Mitie Group plc has provided a
guarantee against all debts and liabilities in these subsidiaries as at 31 March 2019.
+ Held directly by the Company.
x The Company holds direct minority interest in these companies.
^ The Company has voting control of these companies through direct interests in a class of shares representing fewer than 50% of the total issued share capital of the companies.
158
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Mitie Group plc | Annual Report and Accounts 2019
The registered office of all subsidiaries is The Shard, Level 12, 32 London Bridge Street, London, SE1 9SG with the exception of
the following:
Company
Mitie Belgium BVBA
Mitie Belgium Security BVBA
Mitie Deutschland GmbH
Registered office address
Regus Brussels South Station, Marcel Broodthaersplein 8 (box 5), 1060 Brussels (Sint-Gillis), Belgium
Regus Brussels South Station, Marcel Broodthaersplein 8 (box 5), 1060 Brussels (Sint-Gillis), Belgium
Meßstetter Straße 8, 70567, Stuttgart, Germany
Mitie Engineering Services (Guernsey) Limited
Martello Court, Admiral Park, St Peter Port, GY1 3HB, Guernsey
Mitie Engineering Services (Jersey) Limited
13 Castle Street, St Helier, JE4 5UT, Jersey
Mitie España, S.L.
Osborne Clarke, Avenida Diagonal, 477, Planta 20, 08036, Barcelona, Spain
Mitie Facilities Management Limited
108 Q House, Furze Road, Sandyford, Dublin 18, Ireland
Mitie France SAS
Mitie NI Limited
Mitie Nederland B.V.
Mitie Norge Aksjeselskap
Mitie Polska Sp. z o.o.
Mitie Schweiz GmbH
Mitie Suomi Oy
Mitie Sverige AB
Service Management International
Asia Pacific PTE. Ltd.
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
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
65 Chulia Street, #38-02/03, OCBC Centre, Singapore, 049513
Source8 Delivery (Nigeria) Limited
235 Ikorodu Road, Ilupeju, Lagos, Nigeria
Source8 Services FZLLC
17 The Iridium Building, Um Suqueim Road, Al Barsha, Dubai, PO BOX 391186, United Arab Emirates
No subsidiaries have non-controlling interests that are material to the Group.
36. Events after the reporting period
There are no material post balance sheet events that require adjustment or disclosure in the annual report.
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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157
Company balance sheet
As at 31 March 2019
Non-current assets
Investments in subsidiary undertakings
Deferred tax asset
Total non-current assets
Current assets
Debtors
Total current assets
Total assets
Creditors: amounts falling due within one year
Provisions
Total current liabilities
Net current liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Merger reserve
Own shares reserve
Other reserves
Retained earnings
Equity shareholders’ funds
Notes
3
5
4
6
7
2019
£m
528.3
2.6
530.9
88.4
88.4
2018
£m
557.0
0.8
557.8
98.2
98.2
619.3
656.0
(88.3)
(11.3)
(99.6)
(67.4)
(14.8)
(82.2)
(11.2)
16.0
519.7
573.8
9.3
130.6
104.2
(38.1)
23.3
290.4
519.7
9.3
130.6
104.2
(43.4)
22.9
350.2
573.8
The Company reported a loss for the financial year ended 31 March 2018 of £45.4m (2018: £12.7m).
The financial statements of Mitie Group plc, company registration number SC019230, were approved by the Board of Directors and authorised
for issue on 5 June 2019. They were signed on its behalf by:
Phil Bentley
Chief Executive Officer
Paul Woolf
Chief Financial Officer
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Mitie Group plc | Annual Report and Accounts 2019
Company statement of changes in equity
For the year ended 31 March 2019
At 1 April 2017
Loss for the year
Share-based payments
Acquisitions and other movements
Dividends paid
At 31 March 2018
Loss for the year
Share-based payments
Dividends paid
At 31 March 2019
Share
capital
£m
9.2
–
–
0.1
–
9.3
–
–
–
Share
premium
account
£m
130.6
–
–
–
–
130.6
–
–
–
Merger
reserve
£m
91.8
–
–
12.4
–
104.2
–
–
–
Own shares
reserve
£m
Other
reserves
£m
(42.2)
–
6.9
(8.1)
–
(43.4)
–
5.3
–
25.3
–
(2.4)
–
–
22.9
–
0.4
–
23.3
9.3
130.6
104.2
(38.1)
Details of dividends paid to shareholders are given in Note 10 to the consolidated financial statements.
Profit
and loss
account
£m
367.4
(12.7)
0.3
–
(4.8)
350.2
(45.4)
–
(14.4)
290.4
Total
£m
582.1
(12.7)
4.8
4.4
(4.8)
573.8
(45.4)
5.7
(14.4)
519.7
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
161
159
Notes to the Company financial statements
For the year ended 31 March 2019
1. Significant 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.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of Company financial statements in accordance with FRS 101 requires management to make judgements, estimates and assumptions
that affect amounts recognised for assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the reporting
period. Actual results may differ from these judgements, estimates and assumptions.
The key area of judgement that has the most significant effect on the amounts recognised in the financial statements is the review for impairment
of investment carrying values.
(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 investment’s
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 (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 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 temporary 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. Temporary 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 temporary 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
Intercompany loans are all assessed as being repayable on demand. The assessment of impairment of receivables from 1 April 2018 is in accordance
with IFRS 9. The Group recognises a loss allowance for expected credit losses (ECL) on receivable balances subsequently measured at amortised cost,
using the ‘general approach’ permitted under IFRS 9. In the prior year under IAS 39, 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.
162
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Share-based payments
Details of the Group’s share option schemes are provided in Note 31 to the consolidated financial statements. The costs of options and conditional awards
over the Company’s shares granted 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 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 32 to the consolidated financial statements sets out details of the IAS 19 ‘Employee benefits’ net pension liability of the
scheme amounting to £61.4m (2018: £54.8m).
2. Loss 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 2019 of
£45.4m (2018: £12.7m).
The auditor’s remuneration for audit services to the Company was £40,000 (2018: £40,000).
3.
Investments in subsidiary undertakings
Shares at cost
At 1 April 2018
Capital contribution re share-based payments
Disposals
At 31 March 2019
Provision for impairment
At 1 April 2018
Charged to income statement
Disposals
At 31 March 2019
Net book value
At 31 March 2019
At 31 March 2018
A listing of subsidiaries is given in Note 35 to the consolidated financial statements.
4. Debtors
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.
£m
616.5
5.7
(27.0)
595.2
59.5
7.4
–
66.9
528.3
557.0
2018
£m
96.3
1.8
0.1
–
98.2
2019
£m
78.0
0.3
0.1
10.0
88.4
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
163
161
Notes to the Company financial statements
For the year ended 31 March 2019
5. Deferred tax
Deferred tax asset at 1 April 2018
Credit to income statement
Deferred tax asset at 31 March 2019
6. Creditors: amounts falling due within one year
Overdrafts
Trade creditors
Amounts owed to subsidiary undertakings
Corporation tax liability
Other taxes and social security
Accruals and deferred income
Losses
£m
–
1.7
1.7
Share-based
payment
timing
difference
£m
0.8
(0.3)
0.5
2019
£m
18.4
4.0
53.2
–
0.4
12.3
88.3
Total
£m
0.8
1.4
2.2
2018
£m
24.8
4.4
28.5
0.6
(0.2)
9.3
67.4
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 22 to the consolidated financial statements.
7. Provisions
Provisions
2019
£m
11.3
2018
£m
14.8
The movement in the provisions balance of £3.5m is due to amounts recognised in the income statement of £2.0m relating to the Healthcare
provision and £0.2m utilised from the provision, £1.2m utilised in the year relating to the restructuring provision and other movements of £0.1m.
Refer to Note 19 to the consolidated financial statements.
8. Contingent liabilities
Per Note 33 to the consolidated financial statements, Mitie Group plc has taken the audit exemption for a number of subsidiaries by virtue
of Section 479A of the Companies Act.
A parent company guarantee has been provided for these entities under Section 479C of the Companies Act:
9. Share-based payments
The Company has six equity-settled share schemes as described in Note 31 to the consolidated financial statements.
The Company recognised an expense of £0.6m (2018: £0.4m) 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 31 to the consolidated financial statements.
10. Related parties
The Company makes management charges to 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 34 to the consolidated financial statements.
The Directors are remunerated by the Company for their services to the Group as a whole. No remuneration was paid to them specifically
in respect of their services to Mitie Group plc for either year. Detailed disclosures of Directors’ remuneration and share interests are given in the
audited section of the Directors’ remuneration report on pages 70 to 81. The Company had no (2018: two) employees throughout year.
Under FRS 101 the Company is exempt from disclosing key management personnel compensation and transactions with other companies wholly
owned by Mitie Group plc. There were no other related party transactions during the year ended 31 March 2019 (2018: £nil).
164
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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
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.
view of, and relevant information on, the Group’s financial performance.
In assessing its performance, the Group has adopted certain non-statutory measures because, unlike its statutory measures, these cannot be derived
In assessing its performance, the Group has adopted certain non-statutory measures because, unlike its statutory measures, these cannot be derived
directly from its financial statements. The Group commonly uses the following measures to assess its performance:
directly from its financial statements. The Group commonly uses the following measures to assess its performance:
Performance before other items
Performance before other items
The Group adjusts the statutory income statement for certain other items which, in the Directors’ judgement, need to be disclosed separately by virtue
The Group adjusts the statutory income statement for certain other items which, in the Directors’ judgement, need to be disclosed separately by virtue
of their nature, size and incidence in order for users of the financial statements to obtain a proper understanding of the financial information and the
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.
underlying performance of the business.
These other items include the impairment of goodwill, amortisation of acquisition related intangible assets, acquisition and disposal costs, the gain or loss
These other items include the impairment of goodwill, amortisation of acquisition related intangible assets, acquisition and disposal costs, the gain or loss
on business disposals, the cost of restructuring programmes and other exceptional items.
on business disposals, the cost of restructuring programmes and other exceptional items.
Further details of these other items are provided in Note 4.
Further details of these other items are provided in Note 4.
Operating profit/(loss) from operations
Operating profit/(loss) from operations
Operating profit from continuing operations
Operating profit from continuing operations
Face of the consolidated income statement
Face of the consolidated income statement
Adjust for: impairment of goodwill
Adjust for: impairment of goodwill
Adjust for: restructure costs
Adjust for: restructure costs
Adjust for: acquisition and disposal related costs
Adjust for: acquisition and disposal related costs
Adjust for: gain on bargain purchase
Adjust for: gain on bargain purchase
Adjust for: other exceptional items
Adjust for: other exceptional items
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Operating profit before other items from continuing operations
Operating profit before other items from continuing operations
Performance measures
Performance measures
Operating loss from discontinued operations1
Operating loss from discontinued operations1
Adjust for: impairment of goodwill
Adjust for: impairment of goodwill
Adjust for: restructure costs
Adjust for: restructure costs
Adjust for: gain on disposal
Adjust for: gain on disposal
Adjust for: other exceptional items
Adjust for: other exceptional items
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Note 4
Operating profit before other items from discontinued operations
Operating profit before other items from discontinued operations
Performance measures
Performance measures
Operating profit before other items – Group
Operating profit before other items – Group
Performance measures
Performance measures
Note:
Note:
2019
2019
£m
£m
50.2
50.2
–
–
15.1
15.1
8.7
8.7
(8.8)
(8.8)
23.0
23.0
88.2
88.2
(2.0)
(2.0)
–
–
0.8
0.8
(17.9)
(17.9)
23.1
23.1
4.0
4.0
92.2
92.2
2018
2018
£m
£m
1.1
1.1
22.7
22.7
47.0
47.0
8.4
8.4
–
–
4.0
4.0
83.2
83.2
(9.4)
(9.4)
11.9
11.9
0.3
0.3
–
–
3.6
3.6
6.4
6.4
89.6
89.6
1. Operating loss for discontinued operations comprises the loss before finance income and tax of £19.9m (2018: £9.4m) and the gain on disposal before tax of £17.9m (2018: £nil). See Note 5.
1. Operating loss for discontinued operations comprises the loss before finance income and tax of £19.9m (2018: £9.4m) and the gain on disposal before tax of £17.9m (2018: £nil). See Note 5.
Reconciliations are provided below to show how the Group’s segmental statutory results are adjusted to exclude other items.
Reconciliations are provided below to show how the Group’s segmental statutory results are adjusted to exclude other items.
Operating profit/(loss) from operations
Operating profit/(loss) from operations
Reported
Reported
results
results
Other items
Other items
(Note 4)
(Note 4)
Performance
Performance
measures
measures
Reported
Reported
results
results
Other items
Other items
(Note 4)
(Note 4)
Performance
Performance
measures
measures
2019
2019
£m
£m
2018
2018
£m
£m
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a
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F
i
Segment
Segment
Engineering Services
Engineering Services
Security
Security
Professional Services
Professional Services
Cleaning & Environmental Services
Cleaning & Environmental Services
Care & Custody
Care & Custody
Catering
Catering
Corporate centre
Corporate centre
Total from continuing operations
Total from continuing operations
Healthcare
Healthcare
Pest Control
Pest Control
Social Housing
Social Housing
Total from discontinued operations
Total from discontinued operations
Total – Group
Total – Group
52.5
52.5
29.1
29.1
4.8
4.8
15.5
15.5
3.8
3.8
5.1
5.1
(60.6)
(60.6)
50.2
50.2
2.0
2.0
30.0
30.0
(34.0)
(34.0)
(2.0)
(2.0)
48.2
48.2
6.2
6.2
1.6
1.6
0.8
0.8
2.0
2.0
0.1
0.1
0.1
0.1
27.2
27.2
38.0
38.0
(2.0)
(2.0)
(27.6)
(27.6)
35.6
35.6
6.0
6.0
44.0
44.0
58.7
58.7
30.7
30.7
5.6
5.6
17.5
17.5
3.9
3.9
5.2
5.2
(33.4)
(33.4)
88.2
88.2
–
–
2.4
2.4
1.6
1.6
4.0
4.0
92.2
92.2
50.4
50.4
27.1
27.1
5.0
5.0
18.5
18.5
1.8
1.8
5.6
5.6
(107.3)
(107.3)
1.1
1.1
–
–
2.6
2.6
(12.0)
(12.0)
(9.4)
(9.4)
(8.3)
(8.3)
3.7
3.7
0.4
0.4
0.6
0.6
1.1
1.1
0.1
0.1
–
–
76.2
76.2
82.1
82.1
–
–
–
–
15.8
15.8
15.8
15.8
97.9
97.9
54.1
54.1
27.5
27.5
5.6
5.6
19.6
19.6
1.9
1.9
5.6
5.6
(31.1)
(31.1)
83.2
83.2
–
–
2.6
2.6
3.8
3.8
6.4
6.4
89.6
89.6
In line with the Group’s measurement of profit/(loss) from operations before other items, the Group also presents its basic earnings per share before
other items for continuing operations. The table below reconciles this to the statutory basic earnings per share.
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
1
165
163
Appendix – Alternative Performance Measures (APMs) continued
Statutory measures
In line with the Group’s measurement of profit/(loss) from operations before other items, the Group also presents its basic earnings per share before
Earnings per share
other items for continuing operations. The table below reconciles this to the statutory basic earnings per share.
Statutory basic earnings/(loss) per share
Earnings per share
Adjust for: losses from discontinued operations
Statutory basic earnings/(loss) per share
Statutory basic earnings/(loss) per share from continuing operations
Adjust for: losses from discontinued operations
Adjust for: other items per share
Statutory basic earnings/(loss) per share from continuing operations
Basic earnings per share before other items from continuing operations
Adjust for: other items per share
Organic revenue and order book
Basic earnings per share before other items from continuing operations
The Group adjusts revenue and order book from continuing operations for the impact of acquisitions to show organic measures in order for users
of the financial statements to obtain a proper understanding of the underlying movements in these business measures.
Organic revenue and order book
The Group adjusts revenue and order book from continuing operations for the impact of acquisitions to show organic measures in order for users
of the financial statements to obtain a proper understanding of the underlying movements in these business measures.
8.6
2019
p
(0.3)
8.6
8.3
(0.3)
8.5
8.3
16.8
8.5
Performance measures
Performance measures
Statutory measures
2019
£m
2019
p
16.8
(7.6)
2018
p
2.7
(7.6)
(4.9)
2.7
20.1
(4.9)
15.2
20.1
2018
£m
2018
p
15.2
2018
£m
Reported
revenue
Organic
2019
revenue
£m
(performance
measures)
Organic
revenue
(performance
measures)
905.7
Organic revenue by segment for continuing operations
Reported
revenue
Adjust for:
acquisition of
subsidiaries
Adjust for:
acquisition of
subsidiaries
–
Note 3
Reported
revenue
905.7
Segment
Organic revenue by segment for continuing operations
Engineering Services
Segment
Security
432.0
Engineering Services
886.3
Professional Services
131.2
432.0
Security
Cleaning & Environmental Services
384.1
131.2
Professional Services
Care & Custody
59.9
384.1
Cleaning & Environmental Services
Catering
137.1
59.9
Care & Custody
Total for continuing operations
2,030.6
137.1
Catering
The Group’s disclosure of its order book is aimed to provide insight into its future revenue and performance. The Group’s order book represents the
Total for continuing operations
2,030.6
transaction price allocated to the remaining performance obligations on its contracts with customers. This secured revenue corresponds to fixed work
contracted with customers and excludes the impact of any anticipated contract extensions, and new contracts with customers.
The Group’s disclosure of its order book is aimed to provide insight into its future revenue and performance. The Group’s order book represents the
transaction price allocated to the remaining performance obligations on its contracts with customers. This secured revenue corresponds to fixed work
2018
£m
contracted with customers and excludes the impact of any anticipated contract extensions, and new contracts with customers.
456.9
905.7
131.4
456.9
404.4
131.4
107.3
404.4
136.1
107.3
2,141.8
136.1
536.5
905.7
131.4
536.5
404.4
131.4
107.3
404.4
136.1
107.3
2,221.4
136.1
(79.6)
–
–
(79.6)
–
–
–
–
–
–
(79.6)
–
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Reported
revenue
886.3
2019
£m
2,141.8
2,221.4
Note 3
(79.6)
Organic order book for continuing operations
Segment
Organic order book for continuing operations
Engineering Services
Segment
Security
Engineering Services
Professional Services
Security
Cleaning & Environmental Services
Professional Services
Care & Custody
Cleaning & Environmental Services
Catering
Care & Custody
Total for continuing operations
Catering
Total for continuing operations
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Note 3
Reported
order book
Reported
order book
1,802.7
Adjust for:
acquisition of
subsidiaries
Adjust for:
acquisition of
subsidiaries
–
Organic
2019
order book
£m
(performance
measures)
Organic
order book
(performance
measures)
1,802.7
971.5
1,802.7
86.9
971.5
663.1
86.9
596.6
663.1
26.5
596.6
4,147.3
26.5
4,147.3
(209.0)
–
–
(209.0)
–
–
–
–
–
–
(209.0)
–
762.5
1,802.7
86.9
762.5
663.1
86.9
596.6
663.1
26.5
596.6
3,938.3
26.5
(209.0)
3,938.3
2018
Reported
£m
order book
Reported
order book
2,039.2
640.8
2,039.2
144.9
640.8
656.3
144.9
670.1
656.3
34.7
670.1
4,186.0
34.7
4,186.0
166
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
Net debt
The Group includes the carrying value of its derivative financial instruments in its balance sheet in its performance net debt measure as this carrying value
represents the fair value of cross-currency interest rate swaps on the US$ private placement notes which form part of the Group’s financing liabilities.
The table below shows the reconciliation of statutory net debt to the performance net debt measure.
Net debt
Cash and cash equivalents
Financing liabilities
Net debt
Note 21
Note 22
Statutory measures
Derivative financial instruments hedging private placement notes
Note 23
2019
£m
108.4
(265.5)
(157.1)
16.4
2018
£m
59.8
(259.4)
(199.6)
6.1
Net debt
Performance measures
(140.7)
(193.5)
The Group uses an average net debt measure as this reflects its financing requirements throughout the period. The Group calculates its average net
debt based on the daily closing figures, including its foreign currency bank loans translated at the closing exchange rate for the previous month end.
In line with the performance net debt measure, the average net debt includes the fair value of cross-currency interest rate swaps on the US$ private
placement notes. This performance measure shows average net debt of £302.0m for the year ended 31 March 2019, compared with £286.1m
for the year ended 31 March 2018.
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Mitie Group plc | Annual Report and Accounts 2019
Mitie Group plc | Annual Report and Accounts 2019
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Dividend reinvestment plan (DRIP)
Mitie has a dividend reinvestment plan (DRIP) to enable you to build
your shareholding by using your cash dividends under a standing
election to buy additional shares in Mitie. If you would like to receive
further information, including details of how to apply, please call Link
Asset Services on 020 8639 3402 or contact them by sending an
email to: enquiries@linkgroup.co.uk
Mitie online share portal
Mitie has a portal where shareholders can register and can then
login to:
• Access information on shareholdings and movements;
• Update address details;
• View dividend payments received and register bank mandate
instructions;
• Sell Mitie shares;
• Complete an online proxy voting form; and
• Register for e-communications allowing Mitie to notify
shareholders by email that certain documents are available to view
on its website. This will further reduce Mitie’s carbon footprint as
well as reduce costs.
If you wish to register, please sign up at
www.mitie-shares.com
Corporate website
This report can be downloaded in PDF from the Mitie website,
which also contains additional general information about Mitie.
Please visit www.mitie.com
Shareholder information
Shareholder
information
Overview
HY 19/20 half-yearly results
21 November 2019
Dividends
FY 18/19 interim dividend (1.33p paid)
12 February 2019
27 June 2019
28 June 2019
15 July 2019
9 August 2019
30 July 2019
FY 18/19 final dividend (2.67p proposed):
– Ex-div date
– Record date
– Last date for receipt/revocation of
DRIP mandate
– Payment date
Annual General Meeting
2019 Annual General Meeting
Registered office
Mitie Group plc
35 Duchess Road
Rutherglen
Glasgow
G73 1AU
Telephone: 0117 970 8800
Email: info@mitie.com
Website: www.mitie.com
Registered in Scotland under company number: SC019230
Registrars
Link 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 9.00 am – 5.30 pm Mon – Fri,
excluding bank holidays.
166
Mitie Group plc | Annual Report and Accounts 2019
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 the expectations
disclosed or implied by the forward-looking statements contained
in this document. 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 at the date
of this document.
Designed and produced by MerchantCantos
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Mitie Group plc
Registered Office
35 Duchess Road
Rutherglen
Glasgow
G73 1AU
UK
Head Office
The Shard
Level 12
32 London Bridge Street
London
SE1 9SG
UK
T: +44 (0) 330 678 0710
E: info@mitie.com
Registration number: SC19230
More information
Visit our corporate website:
www.mitie.com/investors
Follow us on twitter:
@wearemitie
Visit ourLinkedIn page:
www.linkedin.com/company/mitie/
Watch our latest content:
www.youtube.com/user/mitiegroupplc
Front cover image
Anthony Smallwood, Telecoms Climbing
Engineer. Anthony is completing planned
preventative maintenance at height,
checking the integrity of the structure,
antennas and equipment.