TIDMMTO
RNS Number : 3881U
MITIE Group PLC
23 November 2023
23 November 2023
Mitie Group plc
Interim results for the six months to 30 September 2023
Good H1 performance
Revenue +11%; Operating profit +24%; EPS +39%
On track to deliver at least GBP190m full year operating
profit
Highlights
-- Revenue (1) increased 11% to GBP2,132m (H1 FY23: GBP1,923m), reflecting
contract re-pricing, continued growth in Key Accounts, Projects upsell
and infill M&A, partially offset by contract scope reductions
-- Total contract value (TCV) of GBP2.4bn wins/renewals/extensions;
renewal rates of 88%; book to bill ratio of 111% (4)
-- Operating profit before other items (1,2,3) increased 24% to GBP85m
(H1 FY23: GBP68m); operating profit margin (3) increased 50bps to
4.0% (H1 FY23: 3.5%)
-- Basic EPS before other items increased 39% to 5.0p (H1 FY23: 3.6p),
reflecting the increase in operating profit, reduction in net finance
costs and benefit from share buybacks
-- Operating profit after other items of GBP57m (H1 FY23: GBP51m) and
basic EPS of 3.3p (H1 FY23: 2.6p); Other items increased to GBP28m
(H1 FY23: GBP18m) reflecting costs to deliver margin enhancement
initiatives and acquisition costs
-- Free cash inflow of GBP48m (H1 FY23: GBP5m outflow)
-- Five acquisitions completed for a net cash consideration of GBP46m,
extending our capabilities in high growth markets
-- Average daily net debt of GBP156m (H1 FY23: GBP62m), reflecting M&A
spend and ongoing shareholder returns; Closing net debt of GBP113m
(H1 FY23: GBP64m)
-- Strong balance sheet with leverage of 0.6x (average net debt/EBITDA(5)
)
-- Interim dividend increased 43% to 1.0p per share (H1 FY23: 0.7p)
-- First GBP25m tranche of the current GBP50m share buyback programme
completed; second GBP25m tranche launched on 11 October. 34m shares
purchased to date, of which 28m shares held in treasury to satisfy
2020 SAYE scheme
-- The Group remains on track to deliver recently raised guidance for
operating profit before other items of at least GBP190m in FY24 (FY23:
GBP162m)
Results for the six months ended 30 September 2023
Six months to 30 September Six months to 30 September
2023 2022
=========================================== ===========================================
GBPm unless otherwise Before Before
specified other items(2,5) Other items(2) Total other items(2,5) Other items(2) Total
============================ ================= ============== ======== ================= ============== ========
Revenue including share
of JVs & associates 2,132.4 - 2,132.4 1,922.9 - 1,922.9
Group revenue 2,083.3 - 2,083.3 1,874.3 - 1,874.3
Operating profit/(loss)(3) 84.6 (27.8) 56.8 68.0 (17.5) 50.5
Operating profit margin
(3) 4.0% - 2.7% 3.5% 2.6%
Profit/(loss) before tax 80.1 (27.8) 52.3 60.6 (17.5) 43.1
Profit/(loss) for the
period 64.8 (21.9) 42.9 49.1 (13.8) 35.3
Basic earnings per share 5.0p 3.3p 3.6p 2.6p
Interim dividend per share 1.0p 0.7p
Cash generated from
operations 73.0 19.5
Free cash inflow /
(outflow)(5,6) 47.9 (5.0)
Average daily net debt(5) (156.1) (62.0)
Closing net debt(5) (112.7) (64.0)
Total order book(4) GBP9.9bn GBP9.6bn
Return on invested
capital(5) 24.6% 22.8%
---------------------------- ----------------- -------------- -------- ----------------- -------------- --------
1. Including share of joint ventures (JVs) and associates.
2. Other items are described in Note 3 to the condensed
consolidated financial statements . In H1 FY24 GBP11.4m relates to
non-cash amortisation of acquired intangible assets (H1 FY23:
GBP10.6m).
3. Operating profit includes share of profit after tax from JVs
and associates. Operating profit margin is operating profit as a
percentage of revenue including share of JVs and associates.
4. Total order book includes secured fixed term contract work,
variable (including estimated variable work) and project work. Book
to bill ratio is the relationship between orders received during
the period and revenue recognised for the period.
5. Performance before other items, net debt, free cash flow,
EBITDA and return on invested capital are presented as Alternative
Performance Measures. Explanations as to why these measures are
presented, and reconciliations to the equivalent statutory
measures, are set out in the Appendix to the condensed consolidated
financial statements.
6. Prior year comparative restated to exclude the cash outflow
relating to share purchases to satisfy share awards. An explanation
is provided in the Alternative Performance Measures in the Appendix
to the condensed consolidated financial statements.
Commenting on the first six months and the outlook, Phil
Bentley, Group Chief Executive, said:
"We had a good first half with revenue, profits and earnings per
share all up strongly. Our strategy of focusing on Key Accounts
growth and Projects upsell, combined with contract re-pricing and
infill M&A, drove an 11% increase in revenue. The Group's
operating margin before other items increased by 50bps to 4.0%, as
a result of the ongoing delivery of margin enhancement initiatives
and careful management of inflation.
"Our divisions are performing well, and I'm particularly
encouraged by our performance in Technical Services and Central
Government & Defence. My appreciation goes to our 65,000
colleagues for their amazing commitment. Through their hard work,
allied to our technology-led approach, Mitie is transforming the
built environment and the lived experience for our c.3,000
customers.
"The Group is on track to have met, or significantly exceeded,
all of our previous medium-term financial targets and guidance for
FY24, the final year of our current Three-Year Plan
(FY22-FY24).
"At our Capital Markets Event in October we introduced our new
Three-Year Plan (FY25-FY27): From Facilities Management to
Facilities Transformation, which sets out ambitious financial
targets. Our Facilities Transformation strategy will enhance the
built environment of our customers by improving productivity,
working environments, security and cleanliness, whilst reducing
their carbon intensity. This strategy will extend Mitie's market
leadership positions in the UK - the largest and most dynamic FM
market in Europe - and will enable Mitie to reach its full
potential, both financially and through our positive contribution
to the environment and society. I am proud to be leading the Group
through this next stage of our development.
"Looking ahead, we are encouraged by new Key Account wins,
increased revenues from Projects upsell, and the positive momentum
from cost savings initiatives implemented in the first half. The
Group remains on track to deliver recently raised guidance for
operating profit before other items of at least GBP190m in
FY24".
--
Analyst Presentation and Q&A
Phil Bentley (CEO) and Simon Kirkpatrick (CFO) will host a
presentation and Q&A session today (23 November 2023) at 9.30am
at The Shard and via a webcast. For dial in details please contact
kate.heseltine@mitie.com . A copy of the presentation will be
available on the company website in advance of the live
presentation, www.mitie.com/investors .
For further information:
Kate Heseltine M: +44 (0)738 443 9112 E: kate.heseltine@mitie.com
Group IR Director
Claire Lovegrove M: +44 (0)790 027 6400 E: claire.lovegrove@mitie.com
Director of Corporate
Affairs
Richard Mountain M: +44 (0)790 968 4466
FTI Consulting
About Mitie
Founded in 1987, Mitie's job is to look after places where
Britain works, and it is the leading facilities management and
transformation company in the UK. We offer a range of services to
the public sector through our Central Government & Defence and
Communities (Local Government & Education, Healthcare and Care
& Custody) divisions. Our Technical Services (Engineering
Services) and Business Services (Security, Cleaning, Landscapes,
Spain and Waste) divisions serve private sector customers in areas
such as Financial & Professional Services, Industrials, Retail
and Transport, and increasingly the public sector.
Mitie employs 65,000 people. We take care of our customers'
people and buildings, through the 'Science of Service', and we are
transforming facilities to be more flexible, safe, sustainable, and
attractive to all. Mitie continues to execute its technology-led
strategy and in the past twelve months has received multiple awards
and validation for its ambitious near and long-term science-based
emissions reduction targets from the Science Based Targets
initiative (SBTi). Find out more at www.mitie.com .
Chief Executive's strategic review
Overview
Mitie delivered a good financial performance and further
strategic progress in the six months to 30 September 2023 (H1
FY24), the final year of our current Three-Year Plan (FY22 - FY24).
With these H1 results, the Group remains on track to meet, or
significantly exceed, all of its previously set medium-term
guidance and targets in the current financial year.
Shortly after the period end, at our Capital Markets Event on 12
October 2023, Mitie introduced its new Three-Year Plan for FY25 to
FY27: From Facilities Management to Facilities Transformation. The
event outlined how customers' needs for the built environment and
lived experience are changing to meet increasing demand for asset
optimisation; a reduced carbon footprint; higher levels of
assurance for security and cleanliness; whilst embracing
hybrid-working and creating a 'Great Place to Work'.
The plan sets out ambitious new financial targets for the Group,
to measure success and reward shareholders through enhanced returns
over the coming three years, as summarised below.
Metric FY22 - FY24: Targets / FY25 - FY27: New targets
guidance
Annual revenue Mid-to-high single digit High single digit
growth
------------------------- ----------------------------
Operating profit 4.5% to 5.5% 5% by FY27
margin
------------------------- ----------------------------
EBITDA GBP200m >GBP300m by FY27
------------------------- ----------------------------
Annual EPS growth n/a - no target set Higher than revenue growth
despite higher corporation
tax rates
------------------------- ----------------------------
Free cash flow GBP100m per annum GBP150m per annum by FY27
------------------------- ----------------------------
Average leverage 1.0x maximum 0.75x to 1.5x
------------------------- ----------------------------
ROIC >20% c.20%
------------------------- ----------------------------
Mitie's journey over recent years has been transformative. We
are the clear market leader in our industry, overall and in our
core service lines - Cleaning & Hygiene, Security and
Engineering. The new Three-Year Plan and financial targets continue
to build upon our strategic progress and our ambition for the
business to reach its full potential, not just financially but
through its positive contribution to the environment and
society.
The recording and presentations from our Capital Markets Event
are available at: https://www.mitie.com/capital-markets-day/
Accelerating growth
Our technology-led facilities transformation strategy is
expected to deliver accelerated growth through the key pillars of:
1) Key Accounts growth; 2) Projects upsell to existing customers;
and 3) infill M&A to add new capabilities. We are targeting
high single digit revenue growth annually.
During the period, organic growth through Key Accounts (net
contract wins and losses and contract growth) and Projects upsell
contributed 9.2% to revenue growth, inclusive of contract
re-pricing of 4.8%. Infill M&A completed since 1 April 2022
contributed a further 1.7% of inorganic growth.
We were awarded new contract wins and extensions/renewals of
GBP2.4bn TCV in H1 FY24. New Key Accounts included further Amazon
sites, the Defence Infrastructure Organisation in Germany, the Home
Office and Phoenix Group. Notable extensions/renewals included the
Foreign Commonwealth and Development Office, Lloyds Banking Group,
the Ministry of Justice, Network Rail, and Sky.
Mitie's renewal rate of 88% (H1 FY23: +90%) is testament to the
strength of our customer relationships, quality of service and
competitiveness on pricing. We have a large, diversified portfolio
of blue-chip customers, and contract renewals are therefore
completed on a rolling basis throughout each year. During the
period, one c.GBP35m per annum Government contract was not renewed
(as a result of pricing) and will be handed over at the end of
FY24. An additional c.GBP55m per annum contract for a private
sector customer with international operations will be transitioned
to a global facilities management provider in H2. However, Mitie
will continue to deliver higher margin projects work for this
customer in the UK.
Projects upsell to existing customers remained robust, with
projects work being delivered across Mitie's divisions in the key
areas of Buildings Infrastructure, Decarbonisation, Telecoms
Infrastructure and Fire & Security. Demand in each of these
market segments is supported by attractive macro-trends, as set out
at our recent Capital Markets Event. Overall, Projects revenue
across the Group increased by c.45% to GBP437m in the period,
boosted by strong performances in CG&D and Technical Services,
and the contribution from recent acquisitions. Divisional
performance is set out in more detail in the 'Operating
Review'.
During the period, Mitie completed five acquisitions for a
combined consideration of GBP46m, net of cash acquired and
excluding deferred performance-linked consideration and
earnouts.
Our position as the leader in the intelligence and
technology-led Fire & Security market has been enhanced by the
acquisitions of Linx International (April) - a leading risk
management and consulting business; RHI Industrials (May) - a
leading installer of high-tech security and access controls; and
Biservicus (September) - a Spanish security business.
Enhancing our Mechanical & Electrical (M&E) engineering
credentials, within the Buildings Infrastructure segment of our
Projects business, we acquired JCA Engineering (September) - a
leading principal contractor for complex engineering projects
across the UK, with a particular focus on critical environments
such as data centres, healthcare and life sciences. We also
purchased, via a liquidation process, the assets of G2 Energy
(July) - a leading high voltage and battery energy storage
contractor.
After the period end, we acquired Cliniwaste (October) - a
specialist in treating plastic waste, and GBE Converge Group
(November) - a leading independent provider of fire, security and
information and communications technology (ICT) solutions, for a
total consideration of GBP21m (excluding performance-linked
earnouts). GBE has the potential to provide complementary services
to JCA Engineering in critical environments.
Mitie has also reached agreement with its joint venture partner
in the 'Landmarc' military training estate to amend the
shareholders' agreement and received clearance following mandatory
notification under the UK National Security and Investment Act 2021
on 16 November 2023. This will result in Landmarc being
consolidated as a subsidiary of Mitie from this date and will
enable Landmarc to benefit from the wider capabilities of our
business. As highlighted in Mitie's H1 Trading Update (11 October
2023), the consolidation of Landmarc is expected to add c.GBP40m to
Mitie's revenue including share of joint ventures and associates
and c.GBP5m to operating profit in H2 FY24. EPS is not
impacted.
Operating margin progression
We are targeting an operating profit margin, before other items,
of at least 5% by FY27. This will be achieved through our ongoing
programme of margin enhancement initiatives and operational
leverage, alongside the contribution from acquisitions, and an
increase in higher margin projects works. We expect these
management actions to more than offset the continued impact of
inflation and pressure on contract pricing in a highly competitive
environment.
During the period, the Group achieved an operating profit margin
before other items of 4.0%, an increase of 50 bps on the same
period in the prior year (H1 FY23: 3.5%). This increase reflects
improved underlying trading and the delivery of GBP21m of savings
through margin enhancement initiatives, more than offsetting the
net impact of cost inflation that we were unable to pass through to
customers (GBP3m), an additional provision made against one
specific contract (GBP5m) in Communities (explained further in the
Communities Operating Review), the wind down of the Afghan
Relocations and Assistance contract (GBP6m) and the completion of
Covid contracts (GBP3m).
Approximately GBP12m of these savings were delivered through our
Target Operating Model (TOM) programme, which is optimising our
organisational structure, centralising transactional finance teams,
outsourcing certain back-office functions and consolidating systems
and processes.
For example, in Mitie Shared Services various HR support
functions, such as 'right to work' vetting, have been outsourced
with transferred services already delivering productivity
improvements. Within Group Operations, analytical tools and
operational excellence activities are delivering productivity
benefits to contracts, and technology solutions are being rolled
out to our helpdesk to drive efficient workforce management. We
have also been extending lease periods and rolling out dash cams
across our electric vehicle (EV) fleet, helping to reduce incidents
and fines.
The balance of savings in the period were delivered through
further Interserve synergies, Operational Excellence initiatives,
and the continued roll out of Coupa, our digital supplier platform,
across the divisions. The costs associated with the delivery of
margin enhancement initiatives are included in 'cash other
items'.
Looking ahead the focus will shift from overheads to operations
and contract efficiencies. There are savings opportunities in areas
such as contract productivity, where we are increasingly using AI
analysis, from our new Workplace App to drive efficiencies in how
we deploy resources, and in the technologies that are helping to
reduce vehicle accidents and repair costs.
Free cash flow generation
Mitie's free cash flow generation has improved materially over
the past three years, driven by increased EBITDA combined with
tight control over capex and working capital. In H1 FY24, the Group
generated a free cash inflow of GBP48m compared with an outflow of
GBP5m in the same period last year, reflecting strong operating
profit generation and a reduced working capital outflow in H1 FY24,
following the closure of the customer invoice discounting facility
in H1 FY23. The Group remains on track to generate at least GBP100m
of free cash flow in FY24, in line with guidance. This underpins
the delivery of our capital allocation policy, which sets out the
proactive but disciplined use of our financial resources.
Capital allocation
As set out at our recent Capital Markets Event, we will maintain
a progressive dividend policy, targeting a payout ratio of 30-40%,
and we will continue to purchase shares for all employee share
schemes to mitigate shareholder dilution. We will also pursue
infill M&A, primarily targeting higher growth, higher margin
projects businesses in the key areas of Buildings Infrastructure,
Decarbonisation, Telecoms Infrastructure and Fire & Security.
Excess funds will be returned to shareholders through share
buybacks.
The Board has declared an interim dividend of 1.0p per share (H1
FY23: 0.7p per share), consistent with our policy of setting the
interim dividend at one third of the prior year total dividend
(FY23: 2.9p per share). The interim dividend will be paid on 31
January 2024 to all shareholders that are on the register at the
close of business on 15 December 2023. Shares in Mitie will be
quoted ex-dividend on 14 December 2023 and the dividend
reinvestment plan election date is 5 January 2024.
During the period, we purchased 7m shares for GBP7m for employee
incentive schemes (FY24 guidance c.15m shares), and we spent GBP46m
on the five acquisitions outlined above (FY24 guidance c.GBP75m,
depending on the pipeline of opportunities).
The first GBP25m tranche of the current GBP50m share buyback
programme was completed in H1 FY24, with the purchase of 26m shares
at an average price of 96p. Within this tranche, 5m shares were
cancelled and the balance held in treasury to satisfy the 2020 SAYE
scheme vesting in December 2023 (30m shares required in total). The
second GBP25m tranche was launched after the period end, on 11
October 2023. To date, 34m shares have been purchased in total at
an average price of 97p.
Technology leadership
Mitie continues to invest in technology to enhance its unique
Mitie Digital Platform and maintain its position as a leading
provider of technology-led solutions. During the period, Azure
ChatGPT was fully integrated into Aria/ESME (which allows customers
to report issues via an app), delivering improved customer
communications and raising case accuracy to 97%.
Artificial Intelligence / Machine Learning (AI / ML) trials have
been carried out on HVAC units with two of our Key Accounts,
including the introduction of Anomaly Detection and Predictive
Maintenance models to improve energy efficiency and manage remedial
works, with encouraging early results. Internally, Mitie ChatGPT is
now being used for all sales bids to improve quality and response
times.
Mitie is the first in the industry to fully integrate Secure
Government Maximo 7.6, Coupa (digital supplier platform) and SAP,
providing a seamless purchase-to-pay (P2P) suite of products in our
Central Government & Defence division. This has enabled
electronic invoice posting and data /document exchange between the
three key systems. During H1, acquired companies (including RHI
Industrials, Rock, Custom Solar, DAEL, P2ML and 8point8) were fully
migrated onto SAP and Coupa.
Strategic partnerships with global IT companies such as
Microsoft, Vodafone, ServiceNow and Wipro are integral to Mitie's
technology progression. Shortly after the period end, we entered a
strategic go-to-market partnership with Salesforce.com to provide
carbon reporting and pathway to Net Zero solutions to our
customers.
Environment, Social and Governance (ESG)
Mitie is recognised as a leader in ESG among global industry
peers, with these initiatives forming a key part of how we do
business and ensuring we grow sustainably and responsibly. Our
leading credentials also position us well to work with our
customers to realise their own sustainability and Net Zero
ambitions across their built estates.
In April 2023, we received validation from the prestigious
Science Based Targets Initiative (SBTi) following a robust
assessment process, demonstrating our commitment to reducing our
carbon footprint. Our largest carbon emissions relate to our
vehicles and during the period we transitioned a further c.500 from
diesel to electric vehicles (EVs). Our fleet of over 3,800 EVs is
one of the largest in the UK. During the period we won Environment
awards for Net Zero Strategy of the Year (edie); Best Climate
Transition Plan (ESG Investing); and Net Zero Strategy of the Year
(Energy Managers' Association).
We continue to offer career development opportunities and
industry-leading benefits to our colleagues to attract and retain
the best talent. We launched 'Action Now', which is a training
programme aimed at embedding sustainability throughout the business
- from frontline to Boardroom and we embedded the Social Value
platform, 'Thrive', to measure Social Value across our Key
Accounts.
During the period, 60 new apprentices joined the business in
engineering, project management and data analyst roles. We now have
over 1,100 apprentices across the business, enrolled on more than
90 courses, and we were named in the top 100 Apprenticeship
Employers for the second consecutive year. We also joined the 5%
Club, showing our commitment to getting 5% of our workforce onto
'earn and learn' programmes, including apprenticeships.
Our employee listening sessions led by Jennifer Duvalier, our
Non-Executive Director responsible for workforce engagement, with
wider Board member participation, continued in the first half of
the year with seven visits across different parts of the business,
both in the UK and overseas.
Financial highlights
Our good financial results for the six months ended 30 September
2023 demonstrate the resilience of the business, our continued
strategic progress and track record for delivery.
Revenue
Revenue, including share of joint ventures and associates,
increased by 10.9% to GBP2,132m (H1 FY23: GBP1,923m).
Organic growth accounted for 9.2% of the 10.9%, with 4.4% coming
from Key Accounts (net contract wins and losses and contract
growth) and Projects upsell, partially offset by scope reductions
(such as for the Afghan Relocations and Assistance contract in
Business Services). The remaining 4.8% of organic growth came from
c ontract re-pricing. Infill M&A contributed 1.7% of inorganic
growth.
Profitability
Operating profit before other items increased by 24% to GBP84.6m
(H1 FY23: GBP68.0m) and the operating profit margin before other
items increased by 50 bps to 4.0% (H1 FY23: 3.5%), reflecting
improved underlying trading and the delivery of savings through
margin enhancement initiatives, more than offsetting the net impact
of inflation, the provision made against one specific contract in
Communities, the wind down of the Afghan Relocations and Assistance
contract and the completion of Covid contracts.
Basic earnings per share before other items increased by 39% to
5.0p (H1 FY23: 3.6p). Basic earnings per share after other items
increased by 27% to 3.3p (H1 FY23: 2.6p), reflecting improved
profitability partially offset by an GBP8.1m increase in other
items after tax to GBP21.9m (H1 FY23: GBP13.8m), primarily driven
by costs associated with delivering the TOM programme.
Financial position
GBP73.0m of cash from operations (H1 FY23: GBP19.5m) was
generated, leading to a GBP47.9m free cash inflow (H1 FY23: GBP5.0m
outflow). This helped to maintain a strong balance sheet, with
average leverage (average net debt/EBITDA) of 0.6x.
Average net debt was GBP156.1m in H1 FY24 (H1 FY23: GBP62.0m),
and closing net debt at 30 September 2023 was GBP112.7m, an
increase of GBP68.6m from GBP44.1m at 31 March 2023. This increase
since the year end reflects the free cash inflow being more than
offset by capital allocations totalling GBP107m and a GBP10m
increase in lease obligations.
Operating review
As previously announced, from the start of FY24 Spain, Waste and
Landscapes are reported within Business Services and Care &
Custody is reported within Communities. These businesses had
previously been reported within the now redundant Specialist
Services division. Restated prior year comparatives are provided
below.
Business Services
Business Services delivers technology-led Security and Cleaning
& Hygiene services alongside Landscaping and Waste Management
across c.2,000 contracts, with sector expertise in Retail,
Transport, Central Government and Financial & Professional
services. Mitie Spain is also reported within the division.
Business Services, GBPm H1 FY24 Restated(1) Change Restated(1)
H1 FY23 FY23
-------------------------------- --------- ------------ ------- ------------
Revenue 719 708 2% 1,414
Security 408 398 3% 782
Cleaning 194 194 - 390
Spain 51 54 (6)% 102
Waste 38 37 3% 74
Landscapes 28 25 12% 66
Operating profit before other
items 41.7 40.5(2) 3% 92.2(3)
Operating profit margin before
other items 5.8% 5.7%(2) 0.1ppt 6.5%(3)
Total order book GBP2.1bn GBP2.1bn - GBP1.8bn
(1) Restated to reflect the change to divisional reporting from
H1 FY24
(2) Includes GBP2.6m from Covid contracts. Excluding this,
underlying operating profit was GBP37.9m, and the operating profit
margin was 5.4%
(3) Includes GBP7.0m from Covid contracts. Excluding this,
underlying operating profit was GBP85.2m, and the operating profit
margin was 6.1%
Performance highlights
-- Revenue increased by 2% to GBP719m (H1 FY23: GBP708m), reflecting
increased projects and variable works, acquisitions and contract
re-pricing, offset by scope reductions, Covid work completion and
net contract losses
-- Operating profit before other items increased by 3% to GBP41.7m (H1
FY23: GBP40.5m)
-- GBP1.1bn TCV contract wins and renewals/extensions
-- Five acquisitions completed (including two after the period end),
building on our leading position in the UK intelligence and technology-led
Fire & Security market and expanding our security offering in Spain
-- Awards include Best Team, Security Manager of the Year, and Service
to the Customer - British Security Awards 2023; Highly commended
for Security Installation Company of the Year and Security Team of
the Year - Fire & Security Matters Awards 2023; Retailer & Policing
Collaboration and Physical Risk Management Team of the Year - Retail
Risk, Fraud Awards 2023
Operational performance
Business Services delivered an encouraging performance,
benefiting from increased projects and variable works (largely
driven by elevated levels of crime in the Retail sector), the
contribution from recent acquisitions, and contract re-pricing
(combined revenue benefit of 8%). This was partially offset by
scope reductions, such as for the Afghan Relocations and Assistance
contract and the completion of Covid work in FY23 (combined revenue
impact of 6%).
The division secured GBP1.1bn TCV of contract wins and
renewals/extensions, including wins for Amazon, ASDA, Heathrow
Airport, National Portrait Gallery, Phoenix Group, Reach plc, and
Thales. The largest extension was for four years with Network Rail,
while other renewals and extensions included the British
Broadcasting Corporation, Civilian Guard Force, Lloyds Banking
Group and Sky.
Margin enhancement initiatives continued at pace, offsetting the
completion of higher margin Covid work and scope reductions. The
initiatives primarily focused on operational excellence and
improvements in productivity. The division is continuing to
leverage the Workplace+ workforce management app to optimise
workforce productivity and improve workflows across core
services.
Retail is the division's largest sector, with c.GBP300m in core
revenue annually, over 7,000 Mitie colleagues, and a blue-chip
customer base of national retailers and flagship shopping centres.
Our retail customers are facing unprecedented pressures, driven by
changing buying behaviours, rising costs and intense competition;
whilst at the same time being impacted by well publicised increases
in crime - with an estimated GBP1bn annual loss due to in-store
customer theft.
As the market leader in this sector, Mitie has created a
connected security model including bespoke security operations
centres, dynamic risk-based deployment of resources, and end-to-end
crime management solutions delivered through our dedicated crime
analyst teams. Two pivotal initiatives that have gathered momentum
in the period and demonstrate our transformative approach are: 1)
Operation Alliance - the UK's first direct data sharing agreement,
allowing Mitie to aggregate evidence against offenders from
multiple retailers and disrupt organised gangs; and 2) Pegasus -
Mitie has taken the lead in securing funding from multiple
retailers and the Home Office to establish the first police unit
solely dedicated to combating organised retail crime.
Mitie added to its position as the leader in the intelligence
and technology-led Fire & Security market through the
acquisition of three businesses in this area during the period, and
a further acquisition after the period end. Acquisitions included
Linx International (April), RHI Industrials (May), Biservicus in
Spain (September) and GBE Converge Group (November). Mitie also
acquired Cliniwaste (October), a specialist in treating plastic
waste, after the period end.
Spain revenue reduced by 6%, due to new contract wins (+7%)
being offset by the completion of Covid work (-17%) in H1 FY23. New
contract wins included Ajuntament de Cornellà de Llobregat
(municipal governing body) and EMT Madrid (bus company).
Waste revenue increased by 3%, primarily through organic
contract growth. Waste has been successful in extending its
contracts with a major global pharmaceutical company and two major
property management companies, in addition to supporting wider
Group Key Accounts such as BAE.
Landscapes revenue increased by 12%. GBP5.7m TCV of new wins
included Co-op, National Grid, Phoenix Group and Yorkshire Water
whilst extensions were secured with both NHS Property Services and
Amazon. Within Landscapes, Biotecture (living walls specialist)
secured projects with Mace, McLaughlin & Harvey and Rybrook
Group. Mitie Landscapes won Pro Landscaper Sustainable Company of
the Year, reinforcing its strong reputation within the
industry.
Technical Services
Technical Services is the UK's largest provider of Engineering
services to manage facilities and critical assets across c.350
contracts. Through existing capabilities and infill M&A, the
division delivers projects in the high growth areas of Buildings
Infrastructure, Decarbonisation and Telecoms Infrastructure to
support customers in the transformation of their built estates.
Technical Services, GBPm H1 FY24 H1 FY23(1) Change FY23(1)
------------------------------- --------- ----------- ------- ---------
Revenue 636 526 21% 1,154
Maintenance(1) 411 388 6% 808
Projects (1) 225 138 63% 346
Operating profit before other
items 19.5 14.1 38% 34.1
Operating profit margin
before other items 3.1% 2.7% 0.4ppt 3.0%
Total order book GBP1.5bn GBP1.7bn (12)% GBP1.6bn
(1) Projects revenue restated to include projects delivered for
customers as part of large FM contracts (previously reported in
Maintenance).
Performance highlights
-- Revenue increased by 21% to GBP636m (H1 FY23: GBP526m), benefitting
from continued growth in projects and variable works, contract re-pricing,
acquisitions and net new wins
-- Operating profit before other items increased by 38% to GBP19.5m
(H1 FY23: GBP14.1m), reflecting underlying contract growth and margin
enhancement initiatives, partially offset by non-recoverable cost
inflation
-- GBP0.5bn TCV of wins and extensions/renewals
-- JCA Engineering and G2 Energy acquired, expanding our projects capabilities
-- Awards include Project of the Year - CN Specialist Awards (Custom
Solar); People Management and Talent Retention - IWFM Awards 2023
Operational performance
During the period Technical Services benefited from continued
growth in projects and variable works, in particular across larger
IFM contracts, alongside growth from acquisitions since 1 April
2022 and net new contract wins.
Significant new contracts won in H1 included Amazon, Ladbrokes
Coral, Pandora and Phoenix Group, whilst those won in the prior
year (Dublin Airport Authority, NATS and Rivus Fleet Solutions)
continued to perform well. National Grid was won in late FY23 and
mobilised at the end of H1 FY24. The division also secured a
contract extension with Mitie's largest private sector customer,
Lloyds Banking Group, in the period and benefitted from work
related to its branch refurbishment programme.
Following the implementation of Forté, the digital platform to
automate scheduling in Technical Services, efficiency gains are
being delivered in helpdesk services through the launch of a new
Optimiser tool. This enables the system to automatically plan and
deploy engineers in the most effective manner, increasing frontline
productivity, whilst also prioritising jobs so that emergency
requirements are dealt with ahead of standard tasks. The Optimiser
tool will be rolled out to all mobile engineers during H2.
The uptake of Aria, which allows customers to report issues via
an app, continues to reduce helpdesk call volumes. Wider deployment
of the app presents an opportunity for faster response time and
straight through processing of jobs to engineers via the Optimiser
tool.
Overall, the Technical Services operating margin increased by
40bps to 3.1% (H1 FY23: 2.7%). It remains below that of the Group
due to factors including: 1) the division absorbing the management
cost of IFM contracts; 2) a higher depreciation charge relating to
investments in technology; 3) exposure to non-recoverable cost
inflation; and 4) the investment required in recent bolt-on
acquisitions, the majority of which have been integrated into the
Technical Services division to date.
Approximately half of Mitie's projects revenue is delivered
through the Technical Services division. During the period,
capability has been added in design, mechanical and engineering
work, and high-tech building infrastructure such as data centres
through the acquisitions of JCA Engineering and G2 Energy (assets
purchased through a voluntary liquidation process).
Within the area of Decarbonisation, a range of customers have
engaged Rock Power to deploy ultra-rapid charger hubs, such as
MOTO, the motorway service station provider. Rock Power and Custom
Solar have joined forces to deliver the Lakeside solar power
project for Portsmouth City Council, starting in October 2023.
Technical Services continues to lead through the implementation
of new technologies to deliver facilities transformation to
customers. Smart Workplaces was launched in H1 to consult, design
and deliver projects services and optimise facilities management.
More customers are adopting Mitie's digital twin technology through
3D visualisation and building information modelling (BIM) to help
them reimagine their workplaces of the future. Connected Workspace
technologies such as Digital Maintenance are key to asset
optimisation, improving engineering productivity as well as
achieving energy savings to support customers' Net Zero goals. With
more than 20,000 sensors and 700 'connected' buildings, Connected
Workspace continues to be a focus for customers who recognise the
need to implement digital solutions to improve the lived
experience.
Central Government and Defence (CG&D)
The CG&D division provides facilities management services
across central government and defence contracts. CG&D employs
5,600 employees across 24 contracts and 27 government departments
and agencies, at over 3,000 locations across the UK and
overseas.
CG&D, GBPm H1 FY24 H1 FY23(1) Change FY23(1)
-------------------------------- --------- ----------- ------- ---------
Revenue including share of
joint ventures and associates 406 355 15% 828
Central Government 218 198 10% 439
Defence 188 157 20% 389
Operating profit before other
items 34.0 25.5 33% 59.8
Operating profit margin before
other items 8.4% 7.2% 1.2ppt 7.2%
Total order book GBP2.6bn GBP1.8bn 44% GBP2.4bn
(1) No change following the change to divisional reporting
effective from H1 FY24
Performance highlights
-- Revenue increased by 15% to GBP406m (H1 FY23: GBP355m), benefiting
from growth in projects and variable works, contract re-pricing and
a new contract mobilised in the prior year
-- Operating profit before other items increased by 33% to GBP34.0m
(H1 FY23: GBP25.5m), largely reflecting the delivery of margin enhancement
initiatives, contract re-pricing and projects and variable work
-- GBP0.6bn TCV of new wins and extensions/renewals
-- Awards include 8(th) consecutive Gold Award (Ascension Island and
Gibraltar), 12(th) consecutive President Award (Cyprus) - RoSPA Awards
2023; 17(th) consecutive Gold award - Project Armada 2023
Operational performance
The strong performance in CG&D continued into the first half
of FY24, with growth in revenue and operating profit driven by
contract re-pricing, sustained demand for projects and variable
work delivered across government departments such as the Department
for Work and Pensions (DWP) and for Future Defence Infrastructure
Services (FDIS), and a full period of the RAF Mildenhall contract
which mobilised in H2 FY23.
During the period GBP216m TCV of contract extensions were
awarded, including for the DWP, the Foreign and Commonwealth Office
and the Ministry of Justice. GBP352m TCV of new contract wins
included the Defence Infrastructure Organisation overseas estate in
Germany, and soft services for the Government Property Agency
Central region.
Projects work across the division continued to grow, with the
most significant being to support the DWP Critical Security
Infrastructure (CSI) project to upgrade all security related assets
at 597 sites across their estate. CG&D will deliver c.GBP70m of
building infrastructure works, such as to install new and
replacement Mechanical & Electrical equipment, during FY24 and
into FY25. Mitie continues to support the UK Government in
achieving its 2050 decarbonisation target through various
initiatives and technologies, including the refurbishment of
accommodation blocks for the Ministry of Defence to incorporate low
carbon features and energy usage optimisation.
During the period, CG&D continued to roll out and benefit
from the new technologies introduced in FY23, such as Aria and
Mozaic, and expects to complete the roll out of Mitie's new Azure
Secure Cloud infrastructure in H2 FY24. CG&D has built on the
operational excellence initiatives implemented in the prior year,
continuing to improve the utilisation levels of mobile engineers
and increase the proportion of self-delivered work.
The 'Mitie First' strategy to insource services formerly
provided by third parties resulted in an additional GBP6m of
cross-selling revenue synergies in H1 FY24 compared to the same
period in the prior year. The division also started introducing the
Coupa digital supplier platform across contracts to deliver a more
streamlined purchasing process.
Communities
The Communities division delivers sustainable outcomes as a
trusted partner to the public sector across Local Government &
Education, Healthcare and Care & Custody. The division operates
over 100 PFI and traditional commercial contracts.
Communities, GBPm H1 FY24 Restated(1) Change Restated(1)
H1 FY23 FY23
---------------------------------- --------- ------------ --------- ------------
Revenue including share of
joint ventures and associates 371 334 11% 659
Local Government & Education 142 130 9% 240
Healthcare 135 124 9% 250
Care & Custody 94 80 18% 169
Operating profit before other
items 13.8 15.8 (13)% 31.5
Operating profit margin
before other items 3.7% 4.7% (1.0)ppt 4.8%
Total order book GBP3.7bn GBP4.0bn (8)% GBP3.9bn
(1) Restated to reflect the change to divisional reporting from
H1 FY24. Local Government & Education was previously reported
as Education and Campus & Critical.
Performance highlights
-- Revenue increased by 11% to GBP371m (H1 FY23: GBP334m), benefiting
from contract re-pricing, growth in projects work and scope changes
to existing contracts
-- Operating profit before other items of GBP1 3.8m (H1 FY23: GBP15.8m)
reflected reduced losses in our most challenging PFI contract, underlying
contract growth and margin enhancement initiatives, offset by one
contract specific provision
-- GBP0.2bn TCV of contract wins, extensions and scope changes; good
pipeline progression
-- Awards include Estates & Facilities Team of the Year and Highly Commended
for Healthcare Supplier of the Year - Institute of Healthcare Engineering
& Estates Management (IHEEM)
Operational performance
Communities delivered good revenue growth, but a 13% reduction
in operating profit. Positively, profits grew on most contracts,
losses reduced on a large PFI contract, and margin enhancement
initiatives improved profitability. However, these improvements
were more than offset by a GBP4.7m provision on a PFI contract,
where Mitie is liable for rectifying latent defects in fire
stopping arising from original flaws in construction by a third
party.
The division secured GBP0.2bn TCV of contract wins, extensions
and scope changes to existing contracts, including an increase in
the provision of services for the Immigration Escorting Services
contract, and contract extensions at the Heathrow Immigration
Removal Centre, and King George's Hospital.
Projects work included supporting schools affected by Reinforced
Autoclaved Aerated Concrete (RAAC), through remedial works and the
provision of temporary classroom accommodation. Communities also
delivered a number of Public Sector Decarbonisation Scheme (PSDS)
funded green energy schemes, including the provision of air source
heat pumps, variable refrigerant flow (VRF) systems, and solar
panel installations.
Communities has continued to invest in its technical and
technological capabilities. Trials of Mitie's Merlin for Cleaning
application have been successfully completed in a mental health
facility, improving soft services productivity and innovation. A
pilot has been launched using the Internet of Things (IoT) to track
the location of non-static assets, such as wheelchairs, at a major
acute hospital in partnership with Vodafone.
The division is also continuing to make progress in driving
transformation and margin enhancement initiatives across the
business. This helped to deliver an improved performance in its
most challenging contract, reducing losses to GBP2.8m in H1 FY24
(H1 FY23: GBP4.7m). We continue to expect the contract to achieve
profitability in FY26, after further productivity improvements and
re-sets to pricing.
Corporate overheads
Corporate overheads represent the costs of running the Group,
and include costs for central functions such as commercial and
business development, finance, marketing, legal and HR. Corporate
overhead costs have reduced by 12.5% to GBP24.4m (H1 FY23:
GBP27.9m), reflecting overhead savings across functions and shared
services.
Finance review
Alternative Performance Measures
The Group presents its results as those of continuing
operations, before other items. Management believes this is useful
for users of the financial statements, providing both a balanced
view of the financial statements, and relevant information on the
Group's financial performance. Accordingly, the Group separately
reports impairment of goodwill, the cost of restructuring
programmes, acquisition and disposal related costs (including the
impairment and amortisation of acquisition related intangible
assets), gains or losses on business disposals, and other
exceptional items as 'other items'.
Financial performance
The reported Income Statement is set out below:
GBPm unless otherwise specified H1 FY24 H1 FY23
----------------------------------------------------------- ------- -------
Revenue including share of joint ventures and associates 2,132.4 1,922.9
Group revenue 2,083.3 1,874.3
Operating profit before other items 84.6 68.0
Other items (27.8) (17.5)
----------------------------------------------------------- ------- -------
Operating profit 56.8 50.5
Net finance costs (4.5) (7.4)
----------------------------------------------------------- ------- -------
Profit before tax 52.3 43.1
Tax (9.4) (7.8)
----------------------------------------------------------- ------- -------
Profit after tax 42.9 35.3
----------------------------------------------------------- ------- -------
Basic earnings per share before other items 5.0p 3.6p
Basic earnings per share 3.3p 2.6p
----------------------------------------------------------- ------- -------
Revenue
Revenue for H1 FY24 of GBP2,132m, including share of revenue
from joint ventures and associates, has increased by 11% compared
to the same period last year (H1 FY23: GBP1,923m). This growth has
been driven by increased project and variable works, contract
re-pricing, and acquisitions, partially offset by the completion of
Covid contracts in Q1 FY23 and scope reductions. Scope reductions
include the wind down of the Afghan Relocations and Assistance
contract which reduced revenue by GBP16m.
We estimate that the impact of inflation on revenue in H1 FY24
was GBP93m (+4.8%) (H1 FY23: GBP82m), and inorganic revenue from
acquisitions accounted for GBP32m of growth (+1.7%).
Operating profit
Operating profit before other items was GBP84.6m (H1 FY23:
GBP68.0m), an increase of GBP16.6m (+24.4%), largely driven by
margin enhancement initiative savings (GBP20.7m), and net wins,
projects and other trading (GBP12.2m), partially offset by
unrecovered inflation (-GBP3.0m), the wind down of the Afghan
Relocations and Assistance contract (-GBP6.0m), a contract specific
provision in Communities (-GBP4.7m) and the completion of Covid
contracts in Q1 FY23 (-GBP2.6m) .
Of the incremental GBP20.7m of profit from margin enhancement
initiatives in H1, GBP12.1m came from the TOM programme, where
savings from initiatives such as the outsourcing of finance
activities, optimisation of the Group's organisational structure,
and restructuring of the projects business, grew significantly
during the period. As a result of these initiatives, the Group has
removed a further 300 roles during the period. GBP3.8m of
incremental savings from Interserve synergies were realised in the
period, taking the total savings from this programme to GBP55m. The
continued rollout of Coupa, our digital supplier platform,
generated further incremental savings of GBP1.6m, and the
Operational Excellence programme also delivered an additional
GBP3.2m of savings.
Projects contributed GBP12.0m of the profit growth in H1 FY24,
with the most significant organic contribution coming from
Technical Services, predominantly through infrastructure and
engineering works, followed by CG&D. Within this, acquisitions
contributed GBP2.6m of incremental projects profit, including
current year acquisitions (RHI Industrials and JCA Engineering) and
some inorganic growth from prior year acquisitions (Custom Solar
and 8Point8).
The GBP3.0m negative impact on operating profit from inflation
in H1 FY24 represents a 97% recovery rate of cost inflation in the
period. This recovery rate is a reflection of the contractual
protections in place, and is better than expected due to strong
customer relationships.
A provision of GBP4.7m was made in H1 FY24 in Communities for
construction defects on a PFI contract where Mitie did not
undertake the construction, but is nevertheless liable for the
remedial works.
After accounting for GBP27.8m of other items (H1 FY23:
GBP17.5m), operating profit was GBP56.8m (H1 FY23: GBP50.5m).
Other items
GBPm H1 FY24 H1 FY23
------------------------------------------------- ------- -------
Target Operating Model (TOM) (10.2) (1.2)
Digital supplier platform (DSP) (1.8) (2.1)
------------------------------------------------- ------- -------
Margin enhancement initiatives (12.0) (3.3)
Earnout charges (2.6) 0.5
Other acquisition related costs (1.8) (1.7)
------------------------------------------------- ------- -------
Acquisition related costs before amortisation (4.4) (1.2)
Amortisation of acquisition related intangible
assets (11.4) (10.6)
------------------------------------------------- ------- -------
Acquisition related costs (15.8) (11.8)
------------------------------------------------- ------- -------
Workflow optimisation (Project Forté) - (2.4)
Total other items before tax (27.8) (17.5)
------------------------------------------------- ------- -------
Tax 5.9 3.7
------------------------------------------------- ------- -------
Total other items after tax (21.9) (13.8)
------------------------------------------------- ------- -------
The Group incurred GBP27.8m of other items before tax in H1 FY24
(H1 FY23: GBP17.5m), of which GBP11.4m (H1 FY23: GBP10.6m) was the
non-cash impact of the amortisation of acquisition related
intangible assets.
The increase in other items primarily relates to the TOM
programme, reflecting the ramp up of activities in H1 FY24, which
has driven the increased level of savings delivered to date.
Savings for FY24 are expected to be at least GBP35m (previous
guidance c.GBP30m), and costs to deliver for FY24 will be in the
range of GBP15m-GBP20m.
The largest element of acquisition related costs before
amortisation relates to earnout charges, where payments will only
be made if post acquisition performance targets are hit and
employment conditions are satisfied. Based on the acquisitions
completed to date, acquisition related costs before amortisation
for FY24 are expected to be c.GBP10m-GBP15m, with the increased H2
costs being driven by earnout charges on the JCA Engineering
acquisition, which was completed towards the end of H1.
Net finance costs
Net finance costs improved (decreased) by 39% to GBP 4.5m
compared to the same period last year (H1 FY23: GBP7.4m). The de
crease was primarily driven by the improved terms negotiated for
the US Private Placement (USPP) notes, which became effective from
December 2022, together with the amendment fees from the June 2020
refinancing (during Covid) becoming fully paid (by June 2022)
(combined GBP0.9m benefit), and the termination of the Group's
customer invoice discounting facility (GBP0.5m benefit). Finance
income also improved by c.GBP1m due to increased interest rates on
deposited funds.
Tax
The tax charge for the period was GBP9.4m (H1 FY23: GBP7.8m),
comprising a tax charge on profit before other items of GBP15.3m
(H1 FY23: GBP11.5m) and a tax credit for other items of GBP5.9m (H1
FY23: GBP3.7m). The tax charge represents an effective tax rate of
18.0% (H1 FY23: 18.1%), which includes an effective tax rate on
profit before other items of 19.1 % (H1 FY23: 19.0%) offset by a
higher effective rate for the tax credit in other items.
The effective tax rate on profit before other items for H1 FY24
includes the benefit of recognising deferred tax assets related to
the losses acquired with the Interserve business. Excluding the
impact of this benefit, the effective tax rate on profit before
other items would be 24.1%.
The Group made cash payments for corporation tax of GBP6.3m in
the period (H1 FY23: GBP9.0m), of which GBP5.1m (H1 FY23: GBP6.8m)
was paid in the UK, and GBP1.2m (H1 FY23: GBP2.2m) overseas.
Joint ventures and associates
Operating profit includes Mitie's share of the profit after tax
for its joint ventures and associates of GBP4.2m (H1 FY23:
GBP3.6m), primarily relating to Landmarc.
Earnings per share
Basic earnings per share before other items increased to 5.0p
(H1 FY23: 3.6p). This improvement is due to the increase in
operating profit in the period, the reduction in net finance costs,
and the reduction in the weighted average share count, as a result
of the ongoing share buyback programme, to 1,290.6m shares (H1
FY23: 1,375.2m shares).
Basic earnings per share was 3.3p (H1 FY23: 2.6p) with the
improvement reflecting the factors outlined above, partially offset
by the higher levels of other items. As noted above, the increase
in other items was primarily driven by costs associated with
delivering the TOM programme, which has driven additional margin
enhancement initiative savings in the period.
Return on invested capital (ROIC)
GBPm unless otherwise specified H1 FY24 H1 FY23
(R12M)(1) (R12M)(1)
--------------------------------- ----------- -----------------
Operating profit before other
items 178.7 149.6
Tax(2) (30.3) (23.6)
--------------------------------- ----------- -----------------
Operating profit before other
items after tax 148.4 126.0
--------------------------------- ----------- -----------------
Invested capital 602.8 551.8
--------------------------------- ----------- -----------------
ROIC % 24.6% 22.8%
--------------------------------- ----------- -----------------
(1) R12M represents a rolling 12-month basis
(2) Tax charge has been calculated on operating profits before
other items using the effective tax rate of 16.9% (H1 FY23:
15.8%)
ROIC (before other items) on a rolling 12-month basis has
increased by 180 bps to 24.6% in H1 FY24 (H1 FY23: 22.8%) as a
result of the increase in operating profit before other items for
the last 12-month period, partially offset by an increase in
invested capital. The increase in invested capital has been driven
by the acquisitions completed in H1 FY24.
Balance sheet
GBPm H1 FY24 FY23
----------------------------------- ------- -------
Goodwill and intangible assets 606.4 564.9
Property, plant and equipment 163.3 156.9
Interests in joint ventures and
associates 6.1 8.8
Working capital balances (158.4) (179.2)
Provisions (114.2) (111.4)
Net debt (112.7) (44.1)
Net retirement benefit liabilities (0.8) (0.2)
Deferred tax 19 .7 20.4
Other net assets 2.2 5.6
----------------------------------- ------- -------
Total net assets 411.6 421.7
----------------------------------- ------- -------
The Group's reported net assets stood at GBP411.6m at 30
September 2023, a reduction of GBP10.1m since 31 March 2023. Net
debt increased to GBP112.7m (FY23: GBP44.1m), mainly as a result of
the planned capital allocation actions undertaken and working
capital movements, both of which are discussed further below (in
the 'Cash flow and net debt' section).
Goodwill and intangible assets have increased by GBP41.5m since
31 March 2023, predominantly as a result of acquisitions undertaken
during the period. The in-year acquisitions resulted in additional
goodwill of GBP26.1m and acquired customer lists of GBP27.2m, with
the increase partially offset by the amortisation of intangible
assets.
Property, plant and equipment increased by GBP6.4m, due to the
continued expansion of our leased electric vehicle (EV) fleet, with
approximately 500 vehicles added in the six months since the
year-end.
The net deferred tax asset balance has remained broadly
unchanged compared to year-end. The deferred tax assets include
those related to losses acquired with the Interserve business.
Provisions
Provisions at 30 September 2023 of GBP114.2m (FY23: GBP111.4m)
largely comprise contract specific costs of GBP 52.7m (FY23:
GBP49.3m), the insurance reserve of GBP26.3m (FY23: GBP26.2m), and
pension provisions of GBP21.7m (FY23: GBP21.7m) which mainly relate
to Section 75 pension liabilities. The net movement included
GBP14.4m of additional provisions, primarily related to
construction defects on a PFI contract in Communities and insurance
reserve movements, largely offset by utilisations of GBP9.9m. See
Note 10 to the condensed consolidated financial statements for
further details on provisions.
Retirement benefit schemes
Net retirement benefit liabilities are broadly unchanged at
GBP0.8m (FY23: GBP0.2m) as measured on an IAS 19 basis. Whilst an
increase in yields on corporate bonds has reduced the present value
of schemes' pension obligations, this is largely offset by a fall
in the value of the schemes' assets also due, primarily, to rising
bond and gilt yields.
The net liabilities at 30 September 2023 include an accounting
surplus of GBP1.4m (FY23: GBP2.4m) for the main Group scheme, which
includes a separate section for the main scheme acquired with the
Interserve business. The remaining accounting deficit within net
retirement benefit liabilities of GBP2.2m (FY23: GBP2.6m) relates
to a number of smaller defined benefit schemes, including some
Local Government pension schemes. There is also an accounting
surplus related to the Landmarc joint venture, Mitie's GBP1.5m
(FY23: GBP1.5m) share of which is reported within interest in joint
ventures and associates on the balance sheet.
The latest funding valuation of the Mitie Group defined benefit
scheme, as at 31 March 2020, indicated an actuarial deficit of
GBP92.1m. The Group agreed a deficit recovery plan with the
trustees totalling GBP93m over seven years, of which GBP42m had
been paid up to 30 September 2023, including GBP7m paid during H1
FY24.
The next triennial valuation for the main Group scheme, as at 31
March 2023, will conclude in H2 FY24.
Cash flow and net debt
GBPm H1 FY24 H1 FY23
-------------------------------------------------- ------- -------
Operating profit before other items 84.6 68.0
Add back: depreciation, amortisation & impairment 26.3 24.6
-------------------------------------------------- ------- -------
EBITDA before other items 110.9 92.6
Other items(1) (12.2) (7.4)
Other operating movements (3.2) (0.7)
-------------------------------------------------- ------- -------
Operating cash flows before movements in
working capital 95.5 84.5
Working capital movements(2) (22.5) (47.4)
Capex and capital element of lease payments (20.8) (30.7)
Net interest payments (4.9) (7.7)
Tax payments (6.3) (9.0)
Dividends from joint ventures 6.9 5.3
-------------------------------------------------- ------- -------
Free cash inflow/(outflow) 47.9 (5.0)
Share buybacks (25.2) (50.7)
Market purchase of own shares (7.1) (5.7)
Acquisitions and disposals(3) (45.7) (20.2)
Dividends paid (28.6) (19.5)
Lease liabilities and other(4) (9.9) 10.4
-------------------------------------------------- ------- -------
Increase in net debt during the period (68.6) (90.7)
-------------------------------------------------- ------- -------
Closing net debt (112.7) (64.0)
Average daily net debt (156.1) (62.0)
Leverage (average daily net debt/EBITDA before
other items)(5) 0.6x 0.1x
-------------------------------------------------- ------- -------
(1) Other items exclude the non-cash amortisation of acquired
intangible assets and items that will be settled in future periods
such as earnout charges.
(2) Working capital movements have been adjusted to exclude
movements in restricted cash and other adjustments which do not
form part of net debt (as explained in the Alternative Performance
Measures Appendix to the condensed consolidated financial
statements)
(3) Acquisitions and disposals are shown on a net cash/net debt
basis
(4) Lease liabilities and other includes an increase in lease
liabilities in H1 FY24 due to the expansion of the EV fleet. H1
FY23 includes GBP6.0m which was received in respect of the expert's
determination on the Interserve acquisition completion accounts
(5) Leverage is calculated on a 12-month rolling basis, and uses
post-IFRS 16 net debt
The Group generated a free cash inflow of GBP47.9m for H1 FY24,
which was an increase of GBP52.9m compared with H1 FY23, due to the
strong operating profit before other items in H1 FY24 (+GBP16.6m),
and a reduced working capital outflow (+GBP24.9m) as explained
below.
Other items are explained above, but the cash component shown
excludes non-cash amortisation of acquisition related intangible
assets and items that will be settled in future periods such as
earnout charges .
The working capital outflow of GBP22.5m is a result of the
investment required in working capital to support the growth in the
projects business, and the seasonal outflow in H1 as suppliers are
paid for the works performed in the final quarter of the previous
year when volumes peak. The impact of this seasonal outflow was
more significant in H1 FY24 than in the prior period, due to the
particularly high volume of project works completed in Q4 FY23. The
working capital movement in the prior period also included a GBP45m
outflow related to the termination of the customer invoice
discounting facility.
Capex and the capital element of lease payments also decreased
compared to the first six months of FY23 (by GBP9.9m), with spend
on other intangible assets GBP5.8m lower as a result of Forté going
live in H1 FY23, and the receipt of a lease incentive which was
agreed as part of extending the relationship with our lease
provider.
Additionally, both interest and tax payments were lower in H1
FY24, with the decrease in net interest of GBP2.8m predominantly a
result of the improved rates achieved through the refinancing of
the Revolving Credit Facility (RCF) and USPP notes in FY22, and
closure of the customer invoice discounting facility in FY23. Tax
payments were lower by GBP2.7m, with the utilisation of losses
reducing the tax due.
The first GBP25m tranche of share buybacks announced in June
2023 was completed in H1, resulting in the repurchase of 26.2m
shares, of which 4.9m have been cancelled. The remaining 21.3m
shares acquired have been retained in treasury in order to satisfy
the 2020 SAYE scheme. A further GBP7.1m has been spent making
market purchases of 7.3m shares into employee trusts to satisfy
share schemes.
The acquisitions of Linx International, RHI Industrials, JCA
Engineering and Biservicus in H1 FY24 have increased net debt by
GBP45.7m, comprising cash consideration of GBP66.6m partially
offset by net cash of GBP20.9m acquired with these businesses.
The final FY23 dividend of GBP28.6m was paid in August 2023,
with the higher cash outflow reflecting the increased final
dividend per share of 2.2p for FY23 (FY22: 1.4p).
Net debt
Average daily net debt of GBP 156.1m for H1 FY24 was GBP71.8m
higher than in FY23 (GBP84.3m) and GBP94.1m higher than H1 FY23
(GBP62.0m). This resulted in an average leverage ratio (average
daily net debt / EBITDA before other items from continuing
operations) of 0.6x for H1 FY24, compared with 0.1x for H1 FY23.
The Group reported closing net debt of GBP112.7m as at 30 September
2023 (FY23: GBP44.1m).
The increases since FY23 are mainly due to the planned capital
allocation activities, totalling GBP106.6m. These activities relate
to the acquisitions completed in the period (GBP45.7m), shares
bought back (GBP25.2m), share purchases for employee incentive
schemes (GBP7.1m) and dividends paid (GBP28.6m).
Total Financial Obligations (TFO)
GBPm H1 FY24 FY23
------------------------------------- ------- ----
Net debt 112.7 44.1
Net retirement benefit liabilities 0.8 0.2
------------------------------------- ------- ----
Total Financial Obligations
(TFO) 113.5 44.3
------------------------------------- ------- ----
TFO at 30 September 2023 increased broadly in line with the
movement in net debt.
Liquidity and covenants
As at 30 September 2023, the Group had GBP400m of committed
funding arrangements, comprising a GBP250m RCF and GBP150m of USPP
notes. In September 2023, the RCF was increased by GBP100m from
GBP150m to GBP250m , and its maturity was extended to October 2027,
with a further one year extension option at the mutual agreement of
all parties. In December 2022, GBP121.5m of USPP notes matured and
were replaced by GBP120m of new notes, issued on more favourable
terms, with maturities in December 2030 through to 2034. The
remaining GBP30m of USPP notes are due to mature in December
2024.
On 28 July 2023, DBRS Morningstar confirmed Mitie's credit
rating of BBB with a 'stable' outlook.
Mitie's two key covenant ratios are leverage (ratio of
consolidated total net borrowings to adjusted consolidated EBITDA)
and interest cover (ratio of consolidated EBITDA to consolidated
net finance costs), with a maximum of 3.0x and minimum of 4.0x
respectively. Covenant ratios are measured on a post-IFRS 16 basis
with adjustments for leases, being primarily the exclusion of lease
liabilities from net debt and the inclusion of a charge equivalent
to lease payments against EBITDA.
As at 30 September 2023, the Group was operating well within
these ratios at <0x covenant leverage and 56.7x interest cover.
A reconciliation of the calculations is set out in the table
below:
GBPm H1 FY24 H1 FY23
(R12M)(5) (R12M)(5)
--------------------------------------------------- ----- ----------- ------------
Operating profit before other items 178.7 149.9
Add: depreciation, amortisation & impairment 54.1 51.5
---------------------------------------------------------- ----------- ------------
Headline EBITDA 232.8 201.4
Add: covenant adjustments(1) 21.5 20.8
Leases adjustment (2) (39.0) (38.6)
---------------------------------------------------------- ----------- ------------
Consolidated EBITDA (a) 215.3 183.6
Full-year effect of acquisitions & disposals 9.1 2.2
---------------------------------------------------------- ----------- ------------
Adjusted consolidated EBITDA (b) 224.4 185.8
--------------------------------------------------- ----- ----------- ------------
Net finance costs 8.6 17.2
Less: covenant adjustments (0.1) (0.8)
Leases adjustment (3) (4.7) (4.2)
---------------------------------------------------------- ----------- ------------
Consolidated net finance costs (c) 3.8 12.2
--------------------------------------------------- ----- ----------- ------------
Interest cover (ratio of (a) to (c)) 56.7x 15.0x
---------------------------------------------------------- ----------- ------------
Net debt 112.7 64.0
Impact of hedge accounting & upfront fees 2.6 1.3
Leases adjustment (4) (139.1) (118.5)
Consolidated total net cash (d) (23.8) (53.2)
--------------------------------------------------- ----- ----------- ------------
Covenant leverage (ratio of (d) to (b)) < 0x < 0x
---------------------------------------------------------- ----------- ------------
(1) Covenant adjustments for EBITDA relate to share-based
payments charges, and pension administration expenses and past
service costs
(2) Leases adjustment for EBITDA relates to depreciation charge
for leased assets and interest charge for lease liabilities (i.e.
application of a charge equivalent to lease payments)
(3) Leases adjustment for net finance costs relates to interest
charge for lease liabilities (i.e. removal of lease interest)
(4) Leases adjustment for net cash relates to lease liabilities
(i.e. removal of lease liabilities)
(5) R12M represents a rolling 12-month basis
Key risk factors and uncertainties affecting the business
There continue to be risks and uncertainties that may influence
the Group's financial performance and overall success. Our
strategies to counteract these challenges are detailed in the
Group's Annual Report and Accounts 2023 on pages 73 to 82. Although
these risks have not materially changed since the report's
publication, the Group is constantly assessing macro-economic
conditions, currently focused on inflation, rising interest rates,
potential supply chain disruptions, and labour relations in an
inflation driven environment. The Group is diligently monitoring
the repercussions of these events on our employees' wellbeing,
aiming to minimise any consequences concerning mental health,
productivity, and absenteeism. The Group continues to consider
emerging risks and is presently concentrating on addressing both
threats and opportunities in relation to the upcoming general
election, the current retail sector landscape, and the impact of
artificial intelligence.
Responsibility statement
The Directors of Mitie Group plc confirm that, to the best of
their knowledge:
-- the unaudited condensed consolidated financial statements have been
prepared in accordance with UK-adopted International Accounting Standard
34 Interim Financial Reporting; and
-- the interim management report, as required by rules 4.2.7R and 4.2.8R
of the Disclosure Guidance and Transparency Rules, includes a fair
review of:
- important events during the six months ended 30 September 2023
and their impact on the unaudited condensed consolidated financial
statements;
- a description of the principal risks and uncertainties for the
second half of the year; and
- related parties' transactions and changes therein.
The names and functions of the Directors of Mitie Group plc are
available on the Group's website:
www.mitie.com/investors/corporate-governance/our-board.
On behalf of the Board
Phil Bentley
Chief Executive Officer
22 November 2023
INDEPENT REVIEW REPORT TO MITIE GROUP PLC
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2023 is not prepared, in all material respects, in
accordance with UK-adopted International Accounting Standard 34 and
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2023 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes
in equity, the condensed consolidated statement of cash flows and
the related notes 1 to 19.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 1(a), the annual financial statements of
the Group are prepared in accordance with UK-adopted International
Accounting Standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK-adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the Directors have inappropriately
adopted the going concern basis of accounting or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the Group to cease to continue as a going concern.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London, UK
22 November 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Condensed consolidated income statement
For the six months ended 30 September 2023
30 September 30 September
2023 2022
---------------- ---------------- ---------------- ---------------
Before Before
Other Other Other Other
items items Total items items(1) Total
Notes GBPm (1) GBPm GBPm GBPm GBPm GBPm
------------------------- ----- --------- ------------ --------- --------- ----------- ---------
Revenue including share
of joint ventures and
associates 2 2,132.4 - 2,132.4 1,922.9 - 1,922.9
Less: share of revenue
of joint ventures and
associates 2 (49.1) - (49.1) (48.6) - (48.6)
========================= ===== ========= ============ ========= ========= =========== =========
Group revenue 2 2,083.3 - 2,083.3 1,874.3 - 1,874.3
========================= ===== ========= ============ ========= ========= =========== =========
Cost of sales (1,861.4) - (1,861.4) (1,667.6) - (1,667.6)
========================= ===== ========= ============ ========= ========= =========== =========
Gross profit 221.9 - 221.9 206.7 - 206.7
========================= ===== ========= ============ ========= ========= =========== =========
Administrative expenses (142.8) (27.8) (170.6) (142.3) (17.5) (159.8)
Other income 1.3 - 1.3 - - -
Share of profit of joint
ventures and associates 4.2 - 4.2 3.6 - 3.6
========================= ===== ========= ============ ========= ========= =========== =========
Operating profit(2) 2 84.6 (27.8) 56.8 68.0 (17.5) 50.5
========================= ===== ========= ============ ========= ========= =========== =========
Finance income 1.8 - 1.8 0.8 - 0.8
Finance costs (6.3) - (6.3) (8.2) - (8.2)
========================= ===== ========= ============ ========= ========= =========== =========
Net finance costs (4.5) - (4.5) (7.4) - (7.4)
========================= ===== ========= ============ ========= ========= =========== =========
Profit before tax 80.1 (27.8) 52.3 60.6 (17.5) 43.1
========================= ===== ========= ============ ========= ========= =========== =========
Tax 4 (15.3) 5.9 (9.4) (11.5) 3.7 (7.8)
========================= ===== ========= ============ ========= ========= =========== =========
Profit after tax 64.8 (21.9) 42.9 49.1 (13.8) 35.3
========================= ===== ========= ============ ========= ========= =========== =========
Profit for the period
attributable to
owners of the parent 64.8 (21.9) 42.9 49.1 (13.8) 35.3
========================= ===== ========= ============ ========= ========= =========== =========
Earnings per share (EPS)
attributable to
owners of the parent
Basic 6 5.0p 3.3p 3.6p 2.6p
Diluted 6 4.6p 3.0p 3.3p 2.3p
========================= ===== ========= ============ ========= ========= =========== =========
Notes:
1. Other items are as described in Note 3.
2. Including impairment losses on trade receivables, other
receivables and accrued income of GBP1.4m (2022: GBP1.1m).
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
30 September 30 September
2023 2022
Notes GBPm GBPm
------------------------------------------------------- ----- ------------ ------------
Profit for the period 42.9 35.3
======================================================= ===== ============ ============
Items that will not be reclassified to profit
or loss in subsequent periods
Remeasurement of retirement benefit assets/obligations 16 (7.3) 6.4
Share of other comprehensive income of joint ventures - 0.1
Tax credit/(charge) relating to items that will
not be reclassified to profit or loss in subsequent
periods 0.3 (0.8)
======================================================= ===== ============ ============
(7.0) 5.7
======================================================= ===== ============ ============
Items that may be reclassified to profit or loss
in subsequent periods
Exchange differences on translation of foreign
operations (0.4) 1.4
Loss on hedge of a net investment taken to equity - (0.3)
Net losses on cash flow hedges taken to equity (0.1) (0.3)
Tax credit relating to items that may be reclassified
to profit or loss in subsequent periods 0.1 -
(0.4) 0.8
======================================================= ===== ============ ============
Other comprehensive (expense)/income for the period (7.4) 6.5
======================================================= ===== ============ ============
Total comprehensive income for the period attributable
to owners of the parent 35.5 41.8
======================================================= ===== ============ ============
Condensed consolidated statement of financial position
As at 30 September 2023
30 September 31 March
2023 2023
Notes GBPm GBPm
------------------------------------------- ----- ------------ ---------
Non-current assets
Goodwill 7 338.4 312.3
Other intangible assets 268.0 252.6
Property, plant and equipment(1,2) 163.3 156.9
Interests in joint ventures and associates 6.1 8.8
Trade and other receivables 8 23.5 23.5
Contract assets 0.4 0.8
Retirement benefit assets 16 1.4 2.4
Deferred tax assets 19.7 20.4
=========================================== ===== ============ =========
Total non-current assets 820.8 777.7
=========================================== ===== ============ =========
Current assets
Inventories 14.4 13.5
Trade and other receivables 8 768.6 786.8
Contract assets 0.9 1.1
Cash and cash equivalents 11 180.2 248.3
=========================================== ===== ============ =========
Total current assets 964.1 1,049.7
=========================================== ===== ============ =========
Total assets 1,784.9 1,827.4
=========================================== ===== ============ =========
Current liabilities
Trade and other payables 9 (853.5) (899.5)
Deferred income (88.5) (83.3)
Current tax payable (4.2) (0.8)
Financing liabilities 12 (36.0) (32.0)
Provisions 10 (57.7) (54.2)
=========================================== ===== ============ =========
Total current liabilities (1,039.9) (1,069.8)
=========================================== ===== ============ =========
Net current liabilities (75.8) (20.1)
=========================================== ===== ============ =========
Non-current liabilities
Trade and other payables 9 (3.8) (2.3)
Deferred income (20.4) (19.8)
Financing liabilities 12 (250.5) (254.0)
Provisions 10 (56.5) (57.2)
Retirement benefit liabilities 16 (2.2) (2.6)
Total non-current liabilities (333.4) (335.9)
=========================================== ===== ============ =========
Total liabilities (1,373.3) (1,405.7)
=========================================== ===== ============ =========
Net assets 411.6 421.7
=========================================== ===== ============ =========
Notes:
1. Includes right-of-use assets of GBP128.5m (31 March 2023:
GBP123.8m). During the six months ended 30 September 2023,
right-of-use assets increased due to vehicles lease additions of
GBP25.7m, property lease additions of GBP0.4m and GBP1.5m arising
on acquisition of businesses, partially offset by depreciation of
GBP16.9m, lease modifications and reassessments of GBP5.1m,
property lease terminations of GBP0.2m and plant and vehicles lease
terminations of GBP0.7m.
2. Includes owned property, plant and equipment of GBP34.8m (31
March 2023: GBP33.1m). During the six months ended 30 September
2023, owned property, plant and equipment assets increased due to
asset additions of GBP5.2m and GBP1.0m arising on acquisition of
businesses, partially offset by depreciation of GBP4.8m. Owned
property, plant and equipment also increased by GBP0.3m as a result
of movements in exchange rates.
Condensed consolidated statement of financial position
continued
For the six months ended 30 September 2023
30 September 31 March
2023 2023
GBPm GBPm
-------------------------------------------- ------------ --------
Equity
Share capital 33.9 34.0
Share premium 131.9 131.5
Merger reserve 157.0 157.0
Own shares reserve (75.5) (59.0)
Share-based payments reserve 37.1 33.7
Capital redemption reserve 2.7 2.6
Hedging and translation reserve (1.8) (1.4)
Retained profits 126.3 123.3
============================================= ============ ========
Equity attributable to owners of the parent 411.6 421.7
============================================= ============ ========
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2023
30 September 2023
------------- --------- ------------ ------------ ------------ --------------------------------------
Share-based Hedging
payments Capital and
Share Share Merger Own shares reserve redemption translation Retained Total
capital premium reserve(1) reserve GBPm reserve reserve profits equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- --------- ------------ ----------- ------------- ------------ ----------- -------- -------
At 1 April
2023 34.0 131.5 157.0 (59.0) 33.7 2.6 (1.4) 123.3 421.7
-------------- ------- --------- ------------ ----------- ------------- ------------ ----------- -------- -------
Profit for the
period - - - - - - - 42.9 42.9
Other
comprehensive
expense - - - - - - (0.4) (7.0) (7.4)
============== ======= ========= ============ =========== ============= ============ =========== ======== =======
Total
comprehensive
income - - - - - - (0.4) 35.9 35.5
============== ======= ========= ============ =========== ============= ============ =========== ======== =======
Transactions
with owners
Dividends paid - - - - - - - (28.6) (28.6)
Purchase of
own
shares(2) - - - (7.1) - - - - (7.1)
Share
buybacks(3) (0.1) - - (20.4) - 0.1 - (4.8) (25.2)
Share-based
payments - 0.4 - 11.0 3.4 - - (2.8) 12.0
Tax on
share-based
payments - - - - - - - 3.3 3.3
-------------- ------- --------- ------------ ----------- ------------- ------------ ----------- -------- -------
Total
transactions
with owners (0.1) 0.4 - (16.5) 3.4 0.1 - (32.9) (45.6)
============== ======= ========= ============ =========== ============= ============ =========== ======== =======
At 30
September
2023 33.9 131.9 157.0 (75.5) 37.1 2.7 (1.8) 126.3 411.6
============== ======= ========= ============ =========== ============= ============ =========== ======== =======
Notes:
1. The merger reserve represents amounts relating to premiums
arising on shares issued subject to the provisions of Section 612
of the Companies Act 2006.
2. During the period the Employee Benefit Trust acquired 6.9m
ordinary shares through market purchases for a consideration of
GBP6.7m and the Share Incentive Plan Trust acquired 0.4m shares for
a consideration of GBP0.4m.
3. The share buyback resulted in market purchases of 26.2m
ordinary shares, of which 4.9m shares were subsequently cancelled
and 21.3m shares were placed into the Treasury share reserve.
30 September 2022
------------- --------- ---------- ----------- ------------- -----------------------------------------------
Share-based Hedging
payments Capital and
Share Share Merger Own shares reserve redemption translation Retained Total
capital premium reserve(1) reserve GBPm reserve reserve (losses)/profits equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- --------- ------------ ---------- ------------- ------------ ----------- ---------------- -------
At 1 April
2022 35.7 130.6 358.6 (36.9) 27.5 0.9 (2.6) (89.1) 424.7
Profit for the
period - - - - - - - 35.3 35.3
Other
comprehensive
income - - - - - - 0.8 5.7 6.5
============== ======= ========= ============ ========== ============= ============ =========== ================ =======
Total
comprehensive
income - - - - - - 0.8 41.0 41.8
============== ======= ========= ============ ========== ============= ============ =========== ================ =======
Transactions
with owners
Dividends paid - - - - - - - (19.5) (19.5)
Purchase of
own
shares(2) - - - (5.7) - - - - (5.7)
Realisation of
merger
reserve(1) - - (184.5) - - - - 184.5 -
Share
buybacks(3) (1.7) - - - - 1.7 - (50.7) (50.7)
Share-based
payments - - - 3.0 4.6 - - 1.5 9.1
Tax on
share-based
payments - - - - - - - 1.5 1.5
-------------- ------- --------- ------------ ---------- ------------- ------------ ----------- ---------------- -------
Total
transactions
with owners (1.7) - (184.5) (2.7) 4.6 1.7 - 117.3 (65.3)
============== ======= ========= ============ ========== ============= ============ =========== ================ =======
At 30
September
2022 34.0 130.6 174.1 (39.6) 32.1 2.6 (1.8) 69.2 401.2
============== ======= ========= ============ ========== ============= ============ =========== ================ =======
Notes:
1. The merger reserve represents amounts relating to premiums arising
on shares issued subject to the provisions of Section 612 of the Companies
Act 2006. During the six months ended 30 September 2022, the realisation
of the merger reserve included GBP153.2m related to intercompany loans
that were settled as qualifying consideration in connection with the
rights issue during the year ended 31 March 2021, which utilised a
cashbox structure.
2. During the period the Employee Benefit Trust acquired the 2.9m ordinary
shares committed to in the year ended 31 March 2022 as well as a further
10.4m ordinary shares through market purchases for a consideration
of GBP5.7m.
3. The share buyback resulted in market purchases of 68.8m ordinary
shares which were subsequently cancelled during the six months ended
30 September 2022.
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
30 September 30 September
2023 2022
Notes GBPm GBPm
------------------------------------------------------ ----- ------------ ------------
Operating profit before Other items 2 84.6 68.0
Other items 3 (27.8) (17.5)
Adjustments for:
Share-based payments expense 11.6 9.1
Defined benefit pension costs 16 1.9 1.6
Defined benefit pension contributions 16 (8.3) (8.3)
Depreciation of property, plant and equipment 21.7 21.3
Amortisation of intangible assets 15.6 13.2
Share of profit of joint ventures and associates (4.2) (3.6)
Amortisation of contract assets 0.4 0.5
Impairment of non-current assets - 0.2
Operating cash flows before movements in working
capital 95.5 84.5
Increase in inventories (0.8) -
Decrease/(increase) in receivables 35.1 (4.3)
Increase in contract assets (0.1) (0.2)
Increase/(decrease) in deferred income 2.3 (4.5)
Decrease in payables (61.2) (55.5)
Increase/(decrease) in provisions 2.2 (0.5)
====================================================== ===== ============ ============
Cash generated from operations 73.0 19.5
Income taxes paid 4 (6.3) (9.0)
Interest paid(1) (6.8) (8.5)
====================================================== ===== ============ ============
Net cash generated from operating activities 59.9 2.0
====================================================== ===== ============ ============
Investing activities
Acquisition of businesses, net of cash acquired(2) 15 (45.7) (16.6)
Interserve completion accounts settlement(3) - 6.0
Interest received 1.9 0.8
Purchase of property, plant and equipment (5.2) (4.5)
Dividends received from joint ventures and associates 6.9 5.3
Purchase of other intangible assets (3.5) (9.3)
Disposal of property, plant and equipment 0.1 -
Net cash used in investing activities (45.5) (18.3)
====================================================== ===== ============ ============
Notes:
1. Interest paid includes GBP2.6m (2022: GBP2.1m) in relation to
lease liabilities.
2. Acquisition of businesses is net of cash acquired of GBP20.9m
(2022: GBP2.1m). Refer to Note 15.
3. Following the expert's determination on the Interserve
acquisition completion accounts, for which the expert sought a
legal opinion in relation to the interpretation of the complex SPA
requirements, an agreement was reached and GBP6.0m was received in
May 2022.
Condensed consolidated statement of cash flows continued
For the six months ended 30 September 2023
30 September 30 September
2023 2022
Notes GBPm GBPm
--------------------------------------------------- ----- ------------ ------------
Financing activities
Purchase of own shares (7.1) (5.7)
Shares bought back (25.2) (50.7)
Capital element of lease rentals (17.9) (16.9)
Lease incentives received 5.7 -
Repayment of bank loans (8.3) (4.1)
Payment of arrangement fees (1.1) (0.3)
Proceeds received on settlement of share-based
payment transactions 0.4 -
Equity dividends paid 5 (28.6) (19.5)
=================================================== ===== ============ ============
Net cash used in financing activities (82.1) (97.2)
=================================================== ===== ============ ============
Net decrease in cash and cash equivalents (67.7) (113.5)
Net cash and cash equivalents at beginning of
the period 248.3 345.2
Effect of foreign exchange rate changes (0.4) 1.2
=================================================== ===== ============ ============
Net cash and cash equivalents at end of the period 11 180.2 232.9
=================================================== ===== ============ ============
Notes to the condensed consolidated financial statements
For the six months ended 30 September 2023
1. Basis of preparation and significant accounting policies
(a) Basis of preparation
Mitie Group plc (the Company) is a company incorporated in the
United Kingdom and registered in Scotland. The Company's registered
office is at 35 Duchess Road, Rutherglen, Glasgow, G73 1AU. The
Group comprises the Company and all its subsidiaries.
These unaudited condensed consolidated financial statements (the
'condensed consolidated financial statements') for the six months
ended 30 September 2023 have been prepared in accordance with
UK-adopted International Accounting Standard (IAS) 34 Interim
Financial Reporting, and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The condensed consolidated financial statements have been
reviewed by BDO LLP but have not been audited. They do not include
all the information and disclosures required in the annual
financial statements, and therefore should be read in conjunction
with the Group's Annual Report and Accounts for the year ended 31
March 2023 (Annual Report and Accounts 2023).
These condensed consolidated financial statements do not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. A copy of the statutory accounts for the
year ended 31 March 2023 has been delivered to the Registrar of
Companies and is available upon request from the Company's
registered office or at mitie.com/investors. The independent
auditor's report for the year ended 31 March 2023 was unqualified
and did not contain a statement under Section 498(2) or 498(3) of
the Companies Act 2006.
The condensed consolidated financial statements were approved by
the Board of Directors on 22 November 2023.
Going concern
The condensed consolidated financial statements for the six
months ended 30 September 2023 have been prepared on a going
concern basis. In adopting the going concern basis, the Directors
have considered the Group's business activities as set out on pages
6 to 72 of the Annual Report and Accounts 2023 and the principal
risks and uncertainties as set out on pages 73 to 82 and the
viability statement on page 84 of the same.
The Directors have carried out an assessment of the Group's
ability to continue as a going concern for the period of at least
12 months from the date of approval of the condensed consolidated
financial statements (the Going Concern Assessment Period). This
assessment was based on the latest medium-term cash forecasts from
the Group's cash flow model (the Base Case Forecasts), which is
based on the Board approved budget. These Base Case Forecasts
indicate that the debt facilities currently in place are adequate
to support the Group over the Going Concern Assessment Period.
The Group's principal debt financing arrangements as at 30
September 2023 were a GBP250m Revolving Credit Facility (RCF),
which was undrawn as at 30 September 2023, and GBP150m of US
private placement (USPP) notes. These financing arrangements are
subject to certain financial covenants which are tested every six
months on a rolling 12-month basis, as set out in the Finance
review on page 72 of the Annual Report and Accounts 2023.
The RCF was put in place in October 2021, and matures in October
2027. In September 2023, the Group increased the RCF from GBP150m
to GBP250m and its maturity date was extended for one year to
October 2027, with an option to extend for a further one year
period.
Of the USPP notes, GBP120.0m were issued in December 2022 under
a delayed funding agreement to avoid any overlap with the GBP121.5m
(being the
repayment amount after taking account of the cross-currency
interest rate swaps) of notes that matured in the same month. The
new notes are split
equally between 8, 10 and 12 year maturities, and were issued
with an average coupon of 2.94% that is significantly below the
coupon of the maturing
notes. The Base Case Forecasts assume that the remaining
GBP30.0m of USPP notes, which are due to mature in December 2024,
will not be replaced.
Mitie currently operates within the terms of its agreements with
its lenders, with consolidated net cash (i.e. net cash adjusted for
covenant purposes, primarily by the exclusion of lease liabilities)
of GBP23.8m at 30 September 2023. The Base Case Forecasts indicate
that the Group will continue to operate within these terms and that
the headroom provided by the Group's debt facilities currently in
place is adequate to support the Group over the Going Concern
Assessment Period.
The Directors have also completed a reverse stress test using
the Group cash flow model to assess the point at which the
financial covenants, or facility headroom, would be breached. The
sensitivities considered have been chosen after considering the
Group's principal risks and uncertainties.
The primary financial risks related to adverse changes in the
economic environment and/or a deterioration in commercial or
operational conditions are listed below. These risks have been
considered in the context of any further UK budgetary changes,
political uncertainty and the continued impact of the Russian
invasion of Ukraine as well as an inflationary and potential
recessionary economic environment:
-- A downturn in revenues: this reflects the risks of not being able
to deliver services to existing customers, or contracts being terminated
or not renewed;
-- A deterioration of gross margin: this reflects the risks of contracts
being renegotiated at lower margins, or planned cost savings not
being delivered;
-- An increase in costs: this reflects the risks of a shortfall in
planned overhead cost savings, including margin enhancement initiatives
not being delivered, or other cost increases such as sustained
higher cost inflation; and
-- A downturn in cash generation: this reflects the risks of customers
delaying payments due to liquidity constraints, the removal of
ancillary debt facilities or any substantial one-off settlements
related to commercial issues.
As a result of completing this assessment, the Directors
concluded that the likelihood of the reverse stress scenarios
arising was remote. In reaching the conclusion of remote, the
Directors considered the following:
-- All stress test scenarios would require a very severe deterioration
compared to the Base Case Forecasts. Revenue is considered to be
the key risk, as this is less within the control of management.
Revenue would need to decline by approximately 40% by 30 September
2024 (H1 FY25), compared to the Base Case Forecasts, which is considered
to be very severe given the high proportion of Mitie's revenue
that is fixed in nature and the fact that even in a COVID-hit year
ended 31 March 2021, Mitie's revenue excluding Interserve declined
by only 1.6%; and
-- In the event that results started to trend significantly below
those included in the Base Case Forecasts, additional mitigation
actions have been identified that would be implemented, which are
not factored into the stress test scenarios. These include the
short-term scaling down of capital expenditure, overhead efficiency/reduction
measures including cancellation of discretionary bonuses and reduced
discretionary spend, asset disposals and reductions in cash distributions
and share buybacks.
Based on these assessments, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for a period of no less than 12 months from
the date of approval of these condensed consolidated financial
statements. In addition, the Directors have concluded that the
likelihood of the reverse stress scenarios arising is remote and
therefore no material uncertainty exists.
(b) Significant accounting policies
In preparing these condensed consolidated financial statements
for the six months ended 30 September 2023, the Group's accounting
policies and methods of computation are consistent with those
applied in the preparation of the Group's annual consolidated
financial statements for the year ended 31 March 2023, which were
prepared in accordance with UK-adopted International Accounting
Standards in conformity with the requirements of the Companies Act
2006.
None of the new or amended standards and interpretations below
that are effective for the first time for the year ending 31 March
2024 have had a material effect on the Group.
-- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
-- Definition of Accounting Estimates (Amendments to IAS 8)
-- IFRS 17 Insurance Contracts
On 23 May 2023, the International Accounting Standards Board
issued International Tax Reform - Pillar Two Model Rules -
Amendments to IAS 12. The Group has applied the mandatory temporary
exception to the accounting for deferred taxes arising from the
jurisdictional implementation of the Pillar Two rules set out
therein.
None of the new standards and amendments that are not yet
effective are expected to have a material effect on the Group.
Statutory and non-statutory measures of performance
As a result of the non-statutory measures of performance
presented in the condensed consolidated financial statements, the
accounting policy used in determining the non-statutory measures of
performance, which has remained unchanged in the six months ended
30 September 2023, is set out below.
In the condensed consolidated financial statements, the Group
has elected to provide some further disclosures and performance
measures, reported as 'before Other items', in order to present its
financial results in a way that demonstrates the performance of its
operations.
Other items are items of financial performance which management
believes should be separately identified on the face of the
condensed consolidated income statement to assist in understanding
the underlying financial performance achieved by the Group. The
Group separately reports impairment of goodwill, impairment and
amortisation of acquisition related intangible assets, acquisition
and disposal costs, gain or loss on business disposals, cost of
restructuring programmes and other exceptional items and their
related tax effect as Other items. Should these items be reversed,
disclosure of this would also be as Other items.
Separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the
period and the extent to which results are influenced by material
unusual and/or non-recurring items. Further detail of Other items
is set out in Note 3.
In addition, following the guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and Markets
Authority (ESMA), the Group has included an APM appendix to the
condensed consolidated financial statements .
(c) Critical accounting judgements and key sources of estimation
uncertainty
In preparing these condensed consolidated financial statements,
with the exception of judgements relating to the provisional fair
value assessments of assets and liabilities recognised as a result
of the business combinations in Note 15, the significant estimates
and judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the Annual Report and
Accounts 2023.
Critical judgements in applying the Group's accounting
policies
Business combinations - purchase price allocation
When the Group completes a business combination, the fair values
of the identifiable assets and liabilities acquired are recognised
through a purchase price allocation process, the determination of
which requires management judgement.
During the six months ended 30 September 2023, the Group
completed the acquisitions of Linx International Group Limited
(Linx International), R H Irving Industrials Limited (RHI
Industrials), JCA Engineering Limited (JCA Engineering) and
Biservicus Sistemas De Seguridad, S.A.(Biservicus). The most
significant fair value adjustments arising on the acquisitions
related to attributing value to the acquired intangible assets
recognised in the form of customer contracts and relationships.
In determining the fair value of customer contracts and
relationships, the Group used forecast customer cash flows from the
contracts and expected renewal rates and applied an appropriate
discount rate. In determining the cash flows, management used
judgement to estimate revenue growth, profit margins, contract
renewal probability and the average contract duration remaining as
well as the discount rate. Based on management's judgement,
provisional fair values for customer contracts and relationships of
GBP 21.1m for JCA Engineering, GBP5.3m for RHI Industrials, and
GBP0.8m for Biservicus, with corresponding provisional fair values
for deferred tax liabilities in relation to those intangible assets
of GBP5.3m, GBP1.3m and GBP0.2m respectively have been
recognised.
2. Business segment information
The Group's operating segments are established on the basis of
those components of the Group that are evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance. The Group has determined
the chief operating decision maker to be its Board of Directors.
Revenue including share of joint ventures and associates, operating
profit before Other items and operating profit margin before Other
items are the primary measures of performance that are reported to
and reviewed by the Board. Segment assets and liabilities have not
been disclosed as they are not reviewed by the Board.
The Group manages its business on a service division basis. For
the year ending 31 March 2024, the Group has four reportable
segments (2023: eight reportable segments). This follows the
reorganisation of the Group's Specialist Services division, as a
result of which the Landscapes, Spain, and Waste divisions were
moved into the Business Services division, and the Care &
Custody division was moved into the Communities division. The
change in operating segments reflects how the chief operating
decision maker evaluates the divisions and their performance, and
decides on resource allocation.
The comparatives for the six months ended 30 September 2022 have
been restated for the change in the composition of reportable
segments.
Income statement information
Restated(1)
Six months ended 30 Six months ended 30
September 2023 September 2022
------------------------------------- --------------------------------------
Operating
Operating
profit/(loss) margin
before before
Other Other
Revenue(2) Revenue(2) items(3) items(3)
Operating Operating
profit/(loss) margin
before before
Other Other
items(3) items(3)
GBPm GBPm % GBPm GBPm %
------------------------------- ---------- -------------- --------- ---------- -------------- ----------
Business Services 719.0 41.7 5.8 708.3 40.5 5.7
Technical Services 635.9 19.5 3.1 526.3 14.1 2.7
Central Government and Defence
(CG&D)(2) 406.6 34.0 8.4 354.7 25.5 7.2
Communities(2) 370.9 13.8 3.7 333.6 15.8 4.7
Corporate centre - (24.4) - - (27.9) -
=============================== ========== ============== ========= ========== ============== ==========
Total for the Group 2,132.4 84.6 4.0 1,922.9 68.0 3.5
=============================== ========== ============== ========= ========== ============== ==========
Notes:
1. The comparatives for the six months ended 30 September 2022
have been restated for the change in the composition of reportable
segments.
2. Revenue includes share of joint ventures and associates, of
which GBP43.7m (2022: GBP43.0m) is included within CG&D and
GBP5.4m (2022: GBP5.6m) within Communities.
3. Other items are as described in Note 3.
4. No single customer accounted for more than 10% of external
revenue in the six months ended 30 September 2023 or in the
comparative period. The UK Government is not considered a single
customer.
A reconciliation of operating profit before Other items to total
profit before tax is provided below:
Six months Six months
ended 30 ended 30
September September
2023 2022
GBPm GBPm
------------------------------------ ---------- ----------
Operating profit before Other items 84.6 68.0
Other items(1) (27.8) (17.5)
Net finance costs (4.5) (7.4)
==================================== ========== ==========
Profit before tax 52.3 43.1
------------------------------------ ---------- ----------
Note:
1. Other items are as described in Note 3.
Disaggregated revenue
The Group disaggregates revenue from contracts with customers by
sector (government and non-government) and by contract duration
(contracts with a duration from inception of less than two years,
and contracts with a duration from inception of more than two
years). Management believes this best depicts how the nature,
timing and amount of revenue and cash flows are affected by
economic factors. The following table includes a reconciliation of
disaggregated revenue with the Group's reportable segments.
Six months ended 30 September
2023
---------- -------------- ------- ----------------------------------
Sector(1) Contract duration for
timing of revenue recognition
----------------------------------- ----------------------------------
Less than More than
Government Non-government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- -------------- ------- ----------- ----------- --------
Business Services 208.2 510.8 719.0 122.3 596.7 719.0
Technical Services 120.1 515.8 635.9 51.7 584.2 635.9
CG&D 406.6 - 406.6 0.8 405.8 406.6
Communities 370.0 0.9 370.9 - 370.9 370.9
Revenue including joint
ventures and associates 1,104.9 1,027.5 2,132.4 174.8 1,957.6 2,132.4
============================== ========== ============== ======= =========== =========== ========
Less: share of joint ventures
and associates(2) (49.1) - (49.1) - (49.1) (49.1)
============================== ========== ============== ======= =========== =========== ========
Group revenue 1,055.8 1,027.5 2,083.3 174.8 1,908.5 2,083.3
============================== ========== ============== ======= =========== =========== ========
Notes:
1. Sector is defined by the end customer on any contract, for
example, if the Group is a subcontractor to a company repairing a
government building, then the contract would be classified as
government.
2. Share of revenue from joint ventures and associates includes
GBP43.7m and GBP5.4m within the CG&D and Communities segments
respectively.
Restated(1)
Six months ended 30 September 2022
---------- ------------------------------------------------------------
Sector(2) Contract duration for
timing of revenue recognition
------------------------------------ ----------------------------------
Less than More than
Government Non-government Total 2 years 2 years Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- -------------- -------- ----------- ---------- ---------
Business Services 235.1 473.2 708.3 126.1 582.2 708.3
Technical Services 105.3 421.0 526.3 58.5 467.8 526.3
CG&D 354.7 - 354.7 0.7 354.0 354.7
Communities 332.4 1.2 333.6 0.4 333.2 333.6
Revenue including joint
ventures and associates 1,027.5 895.4 1,922.9 185.7 1,737.2 1,922.9
============================== ========== ============== ======== =========== ========== =========
Less: share of joint ventures
and associates(3) (48.6) - (48.6) - (48.6) (48.6)
============================== ========== ============== ======== =========== ========== =========
Group revenue 978.9 895.4 1,874.3 185.7 1,688.6 1,874.3
============================== ========== ============== ======== =========== ========== =========
Notes:
1. The comparatives for the six months ended 30 September 2022
have been restated for the change in the composition of reportable
segments.
2. Sector is defined by the end customer on any contract, for
example, if the Group is a subcontractor to a company repairing a
government building, then the contract would be classified as
government.
3. Share of revenue from joint ventures and associates includes
GBP43.0m and GBP5.6m within the CG&D and Communities segments
respectively.
3. Other items
Other items are items of financial performance which management
believes should be separately identified on the face of the
condensed consolidated income statement to assist in understanding
the underlying financial performance achieved by the Group.
The Group separately reports impairment of goodwill, impairment
and amortisation of acquisition related intangible assets,
acquisition and disposal related costs, gain or loss on business
disposals, cost of restructuring programmes and other exceptional
items as Other items, together with their related tax effect:
Six months ended 30 September
2023
--------------- ----------------------------------------
Acquisition
and disposal
Restructure related Other exceptional
costs costs items Total
GBPm GBPm GBPm GBPm
----------------------------------- ----------- --------------- ----------------- --------
Other items before tax (10.2) (15.8) (1.8) (27.8)
Tax 2.6 2.9 0.4 5.9
=================================== =========== =============== ================= ========
Other items after tax (7.6) (12.9) (1.4) (21.9)
=================================== =========== =============== ================= ========
Six months ended 30 September
2022
--------------- ----------------------------------------
Acquisition
and disposal
Restructure related Other exceptional
costs costs items Total
GBPm GBPm GBPm GBPm
----------------------------------- ----------- --------------- ----------------- --------
Other items before tax (3.6) (11.8) (2.1) (17.5)
Tax 0.7 2.6 0.4 3.7
=================================== =========== =============== ================= ========
Other items after tax (2.9) (9.2) (1.7) (13.8)
=================================== =========== =============== ================= ========
Restructure costs
The Group has been undertaking a major transformation programme
involving the restructuring of operations to reposition the
business for its next phase of growth. The costs are analysed
below:
Six months Six months
ended ended
30 September 30 September
2023 2022
GBPm GBPm
-------------------------------- ------------- -------------
Group transformation programme:
Project Forté(1) - (2.4)
Target Operating Model(2) (10.2) (1.2)
Restructure costs (10.2) (3.6)
Tax 2.6 0.7
================================ ============= =============
Restructure costs net of tax (7.6) (2.9)
================================ ============= =============
Notes:
1. Project Fort é was launched in 2019, primarily focusing on
re-engineering the Technical Services division to modernise and
optimise workflow processes. The project was completed during the
year ended 31 March 2023.
2. The Target Operating Model is the next phase of the Group's
transformation, and includes the further outsourcing of back-office
functions, consolidating systems and processes, and optimising the
organisation structure. The programme is expected to complete by 31
March 2025.
The costs associated with the Group transformation programme
include GBP2.9m of external consultancy costs (2022: GBP1.0m),
fixed-term staff costs of GBP3.3m (2022: GBP2.1m) to manage and
implement changes, redundancy costs of GBP1.4m (2022: GBP0.5m),
dual-run licence costs in relation to decommissioned operating
system of GBP2.3m (2022: GBPnil) and onerous lease costs of GBP0.3m
(2022: GBPnil).
Acquisition and disposal related costs
Six months Six months
ended ended
30 September 30 September
2023 2022
GBPm GBPm
------------------------------------------------------ ------------- -------------
Interserve integration costs - (0.6)
Other acquisition related costs(1) (4.4) (0.6)
Amortisation of acquisition related intangible assets (11.4) (10.6)
Acquisition and disposal costs (15.8) (11.8)
Tax 2.9 2.6
====================================================== ============= =============
Acquisition and disposal costs net of tax (12.9) (9.2)
====================================================== ============= =============
Note:
1. Comprises professional fees of GBP1.6m (2022: GBP1.1m),
performance-based employment-linked earnout charges and adjustments
to contingent consideration after the measurement period of 12
months from the acquisition date had ended of GBP2.6m (2022:
GBP0.5m credit) and fixed-term staff costs of GBP0.2m (2022:
GBPnil).
Other exceptional items
Other exceptional items of GBP1.8m (2022: GBP2.1m) relate to the
implementation of a new digital supplier platform resulting in a
step change in the Group's supply chain management capabilities.
These comprise fixed-term staff costs of GBP1.3m (2022: GBP1.4m)
and third-party implementation costs of GBP0.5m (2022: GBP0.7m).
This implementation, which is transformational in nature, is
expected to be completed during the year ending 31 March 2025.
Cumulative cash costs of GBP9.6m have been recognised within the
condensed consolidated income statement and classified as Other
items since its launch in 2022.
4. Tax
The tax charge for the period has been calculated based upon the
effective tax rate expected to apply to the Group for the year
ending 31 March 2024 using rates substantively enacted by 30
September 2023. The rate of tax on profit before Other items for
the period was 19.1% (2022: 19.0%). The effective rate of tax on
profit before Other items is principally influenced by the
recognition, in accordance with the Group's accounting policy, of
deferred tax assets related to losses acquired with the Interserve
Facilities Management business (Interserve). Other factors are
recurring non - tax deductible expenses and a lower effective tax
rate on overseas profits. The effective tax rate would be 24.1% if
the tax credit arising on the recognition of Interserve losses was
excluded.
The rate of tax on Other items was 21.2% (2022: 21.1%) which was
primarily affected by non-tax deductible expenses.
The Group expects its sustainable effective tax rate to continue
to be approximately equal to the UK statutory rate, which increased
from 19% to 25% with effect from 1 April 2023.
Corporation tax payments for the period amounted to GBP6.3m
(2022: GBP9.0m), of which GBP5.1m (2022: GBP6.8m) was paid in the
UK and GBP1.2m (2022: GBP2.2m) was paid overseas.
The Group has unutilised income tax losses of GBP197.3m (31
March 2023: GBP222.3m) that are available for offset against future
profits. A deferred tax asset has been recognised in respect of
GBP151.4m (31 March 2023: GBP158.4m) of these losses to the extent
that it is probable that taxable profits will be generated in the
future and be available for utilisation. Management has assessed
recovery of this asset with reference to the Group's three-year
forecasts which in management's judgement is the extent that it is
probable that future taxable profit will be available against which
the unused tax losses can be utilised. It is expected that a
further deferred tax asset in respect of GBP18.0m of losses is
likely to be recognised in the remainder of the financial year
ending 31 March 2024. A deferred tax asset has not been recognised
on the remaining GBP27.9m of unrecognised losses at 30 September
2023 because recoverability is uncertain.
The Group has unutilised capital losses of GBP6.2m (31 March
2023: GBP6.2m) on which no deferred tax has been recognised. The
Group expects no future capital profits to arise that would enable
the utilisation of the existing capital losses.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities; or when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
5. Dividends
During the six months ended 30 September 2023, the Group paid
GBP28.6m in respect of the final dividend for the year ended 31
March 2023 of 2.2p per share (31 March 2022: 1.4p). The Board has
declared an interim dividend for the year ending 31 March 2024 of
1.0p per share (31 March 2023: 0.7p per share) which will be paid
on 31 January 2024 to all shareholders on the register at the close
of business on 15 December 2023.
6. Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
Six months Six months
ended ended
30 September 30 September
2023 2022
GBPm GBPm
---------------------------------------------------- ------------- -------------
Profit before Other items attributable to owners of
the parent 64.8 49.1
Other items net of tax(1) (21.9) (13.8)
Profit attributable to owners of the parent 42.9 35.3
==================================================== ============= =============
Note:
1. Other items are as described in Note 3.
Six months Six months
ended ended
30 September 30 September
2023 2022
Number of shares million million
--------------------------------------------------- -------------- -------------
Weighted average number of ordinary shares for the
purpose of basic EPS(1) 1,290.6 1,375.2
Effect of dilutive potential ordinary shares 127.0 133.2
=================================================== ============== =============
Weighted average number of ordinary shares for the
purpose of diluted EPS 1,417.6 1,508.4
=================================================== ============== =============
Note:
1. The weighted average number of ordinary shares in issue
during the period excludes those accounted for in the own shares
reserve.
Six months Six months
ended ended
30 September 30 September
2023 2022
pence per pence per
share share
---------------------------------- ------------- -------------
Basic EPS before Other items(1) 5.0 3.6
Basic EPS 3.3 2.6
Diluted EPS before Other items(1) 4.6 3.3
Diluted EPS 3.0 2.3
---------------------------------- ------------- -------------
Note:
1. Other items are as described in Note 3.
7. Goodwill
GBPm
------------------------------------ ------
Cost
At 31 March 2023 344.8
------------------------------------ ------
Arising on business combinations(1) 26.1
------------------------------------ ------
At 30 September 2023 370.9
==================================== ======
Accumulated impairment losses
At 31 March 2023 32.5
==================================== ======
At 30 September 2023 32.5
==================================== ======
Net book value
At 31 March 2023 312.3
==================================== ======
At 30 September 2023 338.4
==================================== ======
Note:
1. The Group acquired Linx International, RHI Industrials, JCA
Engineering and Biservicus during the six months ended 30 September
2023. Refer to Note 15.
8. Trade and other receivables
30 September 31 March
2023 2023
GBPm GBPm
------------------------------- ------------ --------
Trade receivables 408.8 450.8
Accrued income 294.8 278.9
Prepayments 44.4 40.2
Other receivables 44.1 40.4
=============================== ============ ========
Total 792.1 810.3
=============================== ============ ========
Included in current assets 768.6 786.8
Included in non-current assets 23.5 23.5
=============================== ============ ========
Total 792.1 810.3
=============================== ============ ========
Trade receivables at 30 September 2023 represent 30 days credit
on sales (31 March 2023: 31 days). Management considers that the
carrying amount of trade and other receivables approximates their
fair value.
9. Trade and other payables
30 September 31 March
2023 2023
GBPm GBPm
--------------------------------------- ------------ --------
Trade payables 215.2 230.5
Other taxes and social security 147.7 123.0
Other payables 39.8 22.7
Accruals 454.6 525.6
======================================= ============ ========
Total 857.3 901.8
======================================= ============ ========
Included in current liabilities 853.5 899.5
Included in non-current liabilities(1) 3.8 2.3
======================================= ============ ========
Total 857.3 901.8
======================================= ============ ========
Note:
1. Non-current other payables mainly comprise contingent
consideration and performance-based employment-linked earnouts
arising on the acquisitions of RHI Industrials, Biservicus, JCA
Engineering, Rock, Custom Solar and Esoteric.
Trade payables at 30 September 2023 represent 35 days credit on
trade purchases (31 March 2023: 32 days). Management considers that
the carrying amount of trade and other payables approximates their
fair value.
10. Provisions
Contract
specific Insurance
costs reserve Pension Dilapidations Restructuring Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------- ------- ------------- ------------- ----- -----
At 31 March 2023 49.3 26.2 21.7 8.0 2.5 3.7 111.4
Additional provisions 9.7 3.7 - 0.4 0.3 0.3 14.4
Released to the income statement (1.0) (0.4) - - - (0.3) (1.7)
Utilised (5.3) (3.2) - (0.1) (1.0) (0.3) (9.9)
At 30 September 2023 52.7 26.3 21.7 8.3 1.8 3.4 114.2
================================= ========= ========= ======= ============= ============= ===== =====
Included in current liabilities 23.3 7.8 21.7 0.1 1.8 3.0 57.7
Included in non-current
liabilities 29.4 18.5 - 8.2 - 0.4 56.5
================================= ========= ========= ======= ============= ============= ===== =====
Total 52.7 26.3 21.7 8.3 1.8 3.4 114.2
================================= ========= ========= ======= ============= ============= ===== =====
Contract specific costs
Contract specific costs provisions of GBP52.7m (31 March 2023:
GBP49.3m) comprise onerous contract provisions of GBP11.3m (31
March 2023: GBP10.5m) and other contract specific provisions of
GBP41.4m (31 March 2023: GBP38.8m).
Onerous contract provisions are made where the forecast direct
costs of completing a contract exceed the forecast income from the
contract. These provisions relate mainly to certain long-term PFI
contracts. It is expected that the majority of these provisions
will be utilised over a number of years. Given the long-term nature
of these contracts, the calculation of onerous contract provisions
is a key source of estimation uncertainty, as disclosed in the
Annual Report and Accounts 2023. The Group recognised additional
provisions of GBP4.7m on a PFI contract, where Mitie is liable for
rectifying latent defects in fire stopping arising from original
flaws in construction by a third party, and utilised GBP3.9m in the
period with respect to onerous contract provisions.
Contract specific provisions have been made primarily to cover
remedial and rectification costs required to meet clients' contract
terms, and include a GBP14.7m provision relating to a significant
liability risk on a certain contract which is subject to dispute,
and a GBP5.8m provision relating to a commercial settlement dispute
for a certain contract. The value of these provisions reflects the
single most likely outcome and is expected to be utilised over a
maximum period of eight years. Given the complex nature of these
contracts, the calculation of contract specific provisions is a key
source of estimation uncertainty, as disclosed in the Annual Report
and Accounts 2023. The remaining provision relates to other
potential commercial claims and rectification work for other
contracts. The Group recognised additional provisions of GBP5.0m,
released to the condensed consolidated income statement GBP1.0m and
utilised GBP1.4m in the period with respect to contract specific
provisions.
Insurance reserve
T he Group retains a portion of the exposure in relation to
insurance policies for employer liabilities and motor and fleet
liabilities. Judgement is involved in assessing outstanding
liabilities, the ultimate cost and timing of which cannot be known
with certainty at the statement of financial position date. The
provision includes claims incurred but not yet reported and is
based on information available at the statement of financial
position date. The provision is expected to be utilised over five
years.
The insurance reserve of GBP26.3m is presented gross of an
insurer reimbursement asset of GBP4.2m (31 March 2023: GBP4.0m),
which represents the amount the Group is virtually certain to
recover for claims under its insurance policies. Of this other
receivable, GBP2.8m is presented as non-current.
Pension
The pension provision balance at 30 September 2023 includes
GBP21.7m for Section 75 employer debt liabilities of Robert Prettie
& Co Limited and Mitie FM Limited as a result of their
participation in the Plumbing Scheme. This amount has been recorded
as a current provision, however timing of outflows is dependent on
agreement with the trustee of the Plumbing Scheme and may occur
over a period longer than one year.
Dilapidations
The provision for dilapidations relates to the legal obligation
for leased properties to be returned to the landlord in the
contracted condition at the end of the lease period. This cost
would include repairs of any damage and wear and tear and is
expected to be utilised over the next fourteen years.
Restructuring
The restructuring provision as at 30 September 2023 includes
GBP1.3m of redundancy provision where a detailed formal plan is in
place and a valid expectation in those affected has been raised.
The amount is expected to be utilised within the next year.
11. Cash and cash equivalents
30 September 31 March
2023 2023
GBPm GBPm
-------------------------- ------------ --------
Cash and cash equivalents 180.2 248.3
========================== ============ ========
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The Group operates cash-pooling arrangements with certain
banks for cash management purposes. The carrying amount of the
assets approximates their fair value.
At 30 September 2023, included within cash and cash equivalents
is GBP6.4m (31 March 2023: GBP6.4m) which is subject to various
constraints on the Group's ability to utilise these balances. These
constraints primarily relate to amounts held in project bank
accounts and cash held through a joint operation, where cash is not
available for use by the Group.
12. Financing liabilities
30 September 31 March
2023 2023
GBPm GBPm
---------------------------------------- ------------ --------
Bank loans - under committed facilities - 8.4
Private placement notes 150.0 150.0
Lease liabilities 139.1 129.4
Prepaid arrangement fees (2.6) (1.8)
Total 286.5 286.0
======================================== ============ ========
Included in current liabilities 36.0 32.0
Included in non-current liabilities 250.5 254.0
======================================== ============ ========
Total 286.5 286.0
======================================== ============ ========
In September 2023, the Group increased its revolving credit
facility from GBP150m to GBP250m, and the maturity date was
extended by one year from October 2026 to October 2027, with an
option to extend for a further one year period. All other terms
remain unchanged and the facility was undrawn at the time of the
modification.
In December 2022, the Group issued GBP120.0m of new US private
placement notes (USPP), under a delayed funding agreement to avoid
any overlap with the GBP121.5m (being the repayment amount after
taking account of the cross-currency interest rate swaps) of notes
that matured in the same month. The new notes are split equally
between 8, 10 and 12 year maturities, and were issued with an
average coupon of 2.94% that is significantly below the coupon of
the maturing notes. A further GBP30.0m of USPP notes with a coupon
of 4.04% are due to mature in December 2024.
The revolving credit facility and the US private placement notes
are unsecured but have financial and non-financial covenants and
obligations commonly associated with these arrangements. The Group
was in compliance with these covenants as at 30 September 2023 and
hence all amounts are classified in line with repayment dates.
At 30 September 2023, the Group had available GBP250.0m (31
March 2023: GBP141.6m) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
13. Financial instruments
Fair value estimation
The vast majority of financial instruments are held at amortised
cost. However, the Group holds certain financial instruments on the
statement of financial position at their fair value. Fair value
measurements are classified into three levels, depending on the
degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted
prices in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from other
observable inputs for the asset or liability; and
Level 3 fair value measurements are those derived from valuation
techniques using inputs that are not based on observable market
data.
The following table categorises the Group's financial assets and
liabilities included on the Group's condensed consolidated
statement of financial position which are measured at fair value.
There were no transfers between levels during the period.
30 September 2023 31 March 2023
GBPm GBPm
---------------------------- --------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
------------------------------------ ----- ------- ----- ----- ----- ----- ----- -----
Financial assets held at fair value
through other comprehensive income
==================================== ===== ======= ===== ===== ===== ===== ===== =====
Other receivables(1) - 0.9 - 0.9 - 1.0 - 1.0
Assets measured at fair value - 0.9 - 0.9 - 1.0 - 1.0
==================================== ===== ======= ===== ===== ===== ===== ===== =====
Financial liabilities held at fair
value through profit and loss
==================================== ===== ======= ===== ===== ===== ===== ===== =====
Other payables - - 1.5 1.5 - - 0.5 0.5
==================================== ===== ======= ===== ===== ===== ===== ===== =====
Liabilities measured at fair value - - 1.5 1.5 - - 0.5 0.5
==================================== ===== ======= ===== ===== ===== ===== ===== =====
Note:
1. Other receivables measured at FVTOCI of GBP0.9m (31 March
2023: GBP1.0m) relate to a defined benefit reimbursement asset.
This is considered to fall under level 2 of the fair value
hierarchy.
Certain other payables, which fall into level 3, comprise
contingent consideration of GBP1.5m (31 March 2023: GBP0.5m) on the
acquisitions of Esoteric, RHI Industrials and Biservicus. The fair
value has been determined based on management's best estimate of
achieving future targets or conditions to which the consideration
relates. The most significant unobservable input used in the fair
value measurements is the future forecast performance of the
acquired businesses. A reasonable change in key unobservable inputs
will not have a material impact on the Group.
Credit risk
The Group's credit risk is monitored on an ongoing basis and
formally reported quarterly. The value of business placed with
financial institutions is reviewed on a daily basis. The Group's
credit risk on liquid funds is limited because the external
counterparties are banks with high credit ratings assigned by
international credit rating agencies and are managed through
regular review.
The maximum exposure to credit risk on cash and cash equivalents
at the statement of financial position date is GBP180.2m (31 March
2023: GBP248.3m).
The Group's credit risk is primarily attributable to its
receivable balances from customers. Before accepting a new
customer, the Group uses external credit scoring systems to assess
the potential customer's credit quality and define an appropriate
credit limit which is reviewed regularly.
The maximum exposure to credit risk in relation to trade
receivables, other receivables and accrued income at the statement
of financial position date is their fair value. The Group's
customer base is large and unrelated and, accordingly, the Group
does not have a significant concentration of credit risk with any
one counterparty or group of counterparties.
The amounts presented in the condensed consolidated statement of
financial position in relation to the Group's trade receivables,
other receivables and accrued income balances are presented net of
combined loss allowances of GBP31.3m (31 March 2023: GBP31.1m). The
Group performs an impairment analysis at each reporting date and
measures loss allowances at an amount equal to lifetime expected
credit losses (ECLs) using both quantitative and qualitative
information and analysis based on the Group's historical experience
and forward-looking information. No material changes to credit risk
have been noted since 31 March 2023.
14. Analysis of net debt
30 September 31 March
2023 2023
GBPm GBPm
-------------------------------------------------- ------------ --------
Cash and cash equivalents (Note 11) 180.2 248.3
Adjusted for: restricted cash(1) (6.4) (6.4)
Bank loans - under committed facilities (Note 12) - (8.4)
Private placement notes (Note 12) (150.0) (150.0)
Prepaid arrangement fees (Note 12) 2.6 1.8
-------------------------------------------------- ------------ --------
Net cash before lease obligations 26.4 85.3
Lease liabilities (139.1) (129.4)
================================================== ============ ========
Net debt (112.7) (44.1)
================================================== ============ ========
Note:
1. Restricted cash is subject to various constraints on the
Group's ability to utilise these balances. These constraints
primarily relate to amounts held in project bank accounts and cash
held through a joint operation, where cash is not available for use
by the Group.
Six months Six months
ended 30 ended
September 30 September
Reconciliation of net cash flow to movements in net 2023 2022
debt GBPm GBPm
------------------------------------------------------------ ---------- -------------
Net decrease in cash and cash equivalents (67.7) (113.5)
Decrease in restricted cash and other adjustments(1) - 17.6
Net decrease in unrestricted cash and cash equivalents (67.7) (95.9)
============================================================ ========== =============
Cash drivers
Repayment of bank loans 8.3 4.1
Payment of arrangement fees 1.1 0.3
Capital element of lease rentals 17.9 16.9
Non-cash drivers
Non-cash movement in bank loans (0.1) (0.2)
Non-cash movement in private placement notes and associated
hedges - (0.5)
Non-cash movement in lease liabilities(2) (27.6) (12.9)
Effect of foreign exchange rate changes (0.5) 1.1
============================================================ ========== =============
Increase in net debt during the period (68.6) (87.1)
============================================================ ========== =============
Opening net (debt)/ cash (44.1) 26.7
Debt acquired as part of business combinations - (3.6)
Closing net debt (112.7) (64.0)
============================================================ ========== =============
Notes:
1. Amounts for the six months ended 30 September 2022 include a
decrease of GBP12.9m in restricted cash and a decrease of GBP20.0m
in relation to cash that was held across the Group's bank accounts
at 31 March 2022 in respect of the customer invoice discounting
(CID) facility where cash collected from the Group's customers was
held on trust for the CID facility provider. This is partially
offset by certain payments totalling GBP15.3m which were initiated
on 30 September 2022 but which settled the following working day
and in accordance with the Group's accounting policy were not
derecognised from cash and cash equivalents until the settlement
date.
2. Includes lease liabilities in relation to vehicles lease
additions of GBP26.7m, property lease additions of GBP0.2m, GBP1.5m
arising on acquisition of businesses and modification of lease
terms of GBP0.1m, partially offset by lease terminations of
GBP0.9m.
15. Acquisitions
Linx International
On 5 April 2023, the Group completed the acquisition of the
entire issued share capital of Linx International Group Limited
(Linx International) for cash consideration of GBP1.1m. Linx
International is a leading provider of security consultancy and
technical and management training services.
Linx International contributed GBP1.7m of revenue and GBP0.4m of
operating profit before Other items to the Group's results during
the six months ended 30 September 2023. Goodwill on the acquisition
of Linx International represents the premium associated with taking
over the operations which are considered to strengthen Mitie's
intelligence-led security and risk management offering.
The Group's assessments of the fair values of the assets and
liabilities recognised as a result of the acquisition are
provisional and will be finalised within 12 months of the
acquisition date. The provisional purchase price allocation is as
follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
--------------------------------- ---------- ------------ -----------
Other intangible assets 0.3 - 0.3
Trade and other receivables 0.1 - 0.1
Cash and cash equivalents 0.2 - 0.2
Trade and other payables (0.2) - (0.2)
Current tax liabilities (0.1) - (0.1)
Net identifiable assets acquired 0.3 - 0.3
Goodwill 0.8
--------------------------------- ---------- ------------ -----------
Total cash consideration 1.1
--------------------------------- ---------- ------------ -----------
RHI Industrials
On 2 May 2023, the Group completed the acquisition of the entire
issued share capital of R H Irving Industrials Limited (RHI
Industrials), a long-established specialist designer, manufacturer
and installer of security systems and solutions, as well as
earthing services and all associated civil engineering works.
The transaction consideration comprises an initial cash
consideration of GBP19.1m and contingent consideration with a fair
value of GBP1.2m. The maximum value of contingent consideration is
GBP1.5m.
RHI Industrials contributed GBP7.4m of revenue and GBP0.6m of
operating profit before Other items to the Group's results during
the six months ended 30 September 2023. Goodwill on the acquisition
of RHI Industrials represents the premium associated with taking
over the operations which are considered to strengthen the Group's
existing fire and security system capabilities.
The Group's assessments of the fair values of the assets and
liabilities recognised as a result of the acquisition are
provisional and will be finalised within 12 months of the
acquisition date. The provisional purchase price allocation is as
follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
------------------------------------- ------------------------- ------------ -----------
Customer contracts and relationships - 5.3 5.3
Property, plant and equipment 0.4 - 0.4
Right-of-use assets 0.7 0.4 1.1
Inventories 0.2 - 0.2
Trade and other receivables 4.6 - 4.6
Cash and cash equivalents 1.4 - 1.4
Trade and other payables (2.5) - (2.5)
Provisions - (0.1) (0.1)
Lease liabilities (0.7) (0.4) (1.1)
Deferred tax liabilities (0.1) (1.3) (1.4)
------------------------------------- ------------------------- ------------ -----------
Net identifiable assets acquired 4.0 3.9 7.9
Goodwill 12.4
------------------------------------- ------------------------- ------------ -----------
Total consideration 20.3
Initial cash consideration 19.1
Contingent consideration 1.2
------------------------------------- ------------------------- ------------ -----------
Total consideration 20.3
------------------------------------- ------------------------- ------------ -----------
JCA Engineering
On 3 September 2023, the Group completed the acquisition of the
entire issued share capital of JCA Engineering Limited (JCA
Engineering), a leading critical environment project designer and
principal contractor for mechanical and electrical works, asset
upgrades and replacements, and office fitouts.
The transaction consideration comprises an initial cash
consideration of GBP43.8m.
Amounts up to a maximum of GBP10.5m payable to the former owners
of the business have been treated as remuneration for
post-acquisition employment services because a condition of
receiving the payment is the individuals' continued employment
within the Mitie Group. These amounts are payable based on three
performance periods for the years ending 31 March 2024, 2025 and
2026 up to a maximum of GBP10.5m in total. Once the GBP10.5m
maximum has been reached nothing further will be payable in any
future performance period. These payments are accrued over the
period that the related employment services are received up until
the point at which the consideration becomes payable. As at 30
September 2023, GBP0.8m was included in other payables relating to
these transactions and the expense has been included in
administrative expenses and classified as Other items within the
condensed consolidated income statement.
JCA Engineering contributed GBP11.9m of revenue and GBP0.9m of
operating profit before Other items to the Group's results during
the six months ended 30 September 2023. Goodwill on the acquisition
of JCA Engineering represents the premium associated with taking
over the operations which are considered to strengthen the Group's
critical environment capabilities.
The Group's assessments of the fair values of the assets and
liabilities recognised as a result of the acquisition are
provisional and will be finalised within 12 months of the
acquisition date. The provisional purchase price allocation is as
follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
------------------------------------- ---------- ------------ -----------
Customer contracts and relationships - 21.1 21.1
Property, plant and equipment 0.1 - 0.1
Right-of-use assets - 0.4 0.4
Trade and other receivables 11.6 - 11.6
Deferred tax asset 2.9 - 2.9
Cash and cash equivalents 19.2 - 19.2
Trade and other payables (12.8) - (12.8)
Deferred income (3.3) - (3.3)
Provisions (0.1) - (0.1)
Current tax liabilities (0.7) - (0.7)
Lease liabilities - (0.4) (0.4)
Deferred tax liabilities - (5.3) (5.3)
------------------------------------- ---------- ------------ -----------
Net identifiable assets acquired 1 6.9 15.8 32.7
Goodwill 11.1
------------------------------------- ---------- ------------ -----------
Total cash consideration 43.8
------------------------------------- ---------- ------------ -----------
Biservicus
On 7 September 2023, the Group completed the acquisition of the
entire issued share capital of Biservicus Sistemas De Seguridad,
S.A. (Biservicus), a security business in Spain specialising in the
installation, maintenance, surveillance and operation of fire,
security, and alarm systems.
The transaction consideration comprises an initial cash
consideration equivalent to GBP2.6m and contingent consideration
with a fair value of GBP0.2m, which is also the maximum contingent
consideration payable.
Biservicus contributed GBP0.5m of revenue and GBP0.1m of
operating profit before Other items to the Group's results during
the six months ended 30 September 2023. Goodwill on the acquisition
of Biservicus represents the premium associated with taking over
the operations which are considered to strengthen the Group's
existing fire and security system capabilities.
The Group's assessments of the fair values of the assets and
liabilities recognised as a result of the acquisition are
provisional and will be finalised within 12 months of the
acquisition date. The provisional purchase price allocation is as
follows:
Fair value Provisional
Book value adjustments fair value
GBPm GBPm GBPm
------------------------------------- ---------- ------------ -----------
Customer contracts and relationships - 0.8 0.8
Other intangibles 0.1 - 0.1
Property, plant and equipment 0.5 - 0.5
Inventories 0.1 - 0.1
Trade and other receivables 0.7 - 0.7
Cash and cash equivalents 0.1 - 0.1
Trade and other payables (0.7) - (0.7)
Deferred income (0.3) - (0.3)
Current tax liabilities (0.1) - (0.1)
Deferred tax liabilities - (0.2) (0.2)
------------------------------------- ---------- ------------ -----------
Net identifiable assets acquired 0.4 0.6 1.0
Goodwill 1.8
------------------------------------- ---------- ------------ -----------
Total consideration 2.8
------------------------------------- ---------- ------------ -----------
Initial cash consideration 2.6
Contingent consideration 0.2
------------------------------------- ---------- ------------ -----------
Total consideration 2.8
------------------------------------- ---------- ------------ -----------
Based on estimates made of the full period impact of the above
noted acquisitions, Group revenue and operating profit for the six
months ended 30 September 2023 would have increased by
approximately GBP63.6m and GBP4.9m respectively, if the businesses
had been acquired on 1 April 2023. This would have resulted in
Group revenue of GBP2,146.9m, Group operating profit before Other
items of GBP89.5m and Group operating profit of GBP61.7m.
Three of the four acquisitions made during the period have been
integrated into the Business Services division (Linx International,
RHI Industrials and Biservicus) and JCA Engineering has been
integrated into the Technical Services division.
Cash flows on acquisitions
Six months Six months
ended ended
30 September 30 September
2023 2022
GBPm GBPm
------------------------------------------- --------------- --------------
Cash consideration 66.6 18.7
Less: cash balance acquired (20.9) (2.1)
Net outflow of cash - investing activities 45.7 16.6
=========================================== =============== ==============
G2 Energy Limited asset purchase
On 28 July 2023, Mitie acquired a portfolio of assets from the
liquidators of G2 Energy Limited for cash consideration of GBP0.6m.
The purchase enhances Mitie's high voltage electrical and civil
engineering capabilities. This has been accounted for as an asset
purchase.
16. Retirement benefit schemes
The Group has a number of pension arrangements for
employees:
-- Defined contribution schemes for the majority of its employees;
and
-- Defined benefit schemes which include a group scheme and other
smaller schemes.
The Group operates a number of defined contribution pension
schemes for qualifying employees. During the six months ended 30
September 2023, the Group made a total contribution to defined
contribution schemes of GBP7.5m (2022: GBP6.9m) and contributions
to the auto-enrolment scheme of GBP10.9m (2022: GBP10.1m), which
are included in the income statement charge.
The defined benefit schemes include the Mitie Group plc Pension
Scheme (Group scheme). During the year ended 31 March 2023, a
scheme transfer took place whereby the assets and liabilities of
the Interserve Scheme Part C (Interserve scheme) were transferred
into a segregated section of the Group scheme. The Group scheme now
comprises two segregated sections: Part A (the Group Section) and
Part B (the Interserve Section).
The Group also operates a number of smaller defined benefit
schemes; MacLellan Group 2000 Retirement Benefit Scheme, THK
Insulation Limited Retirement Benefits Scheme and Cyprus Provident
Fund. Due to the size of the smaller schemes, the Directors present
the results and position of these schemes within this Note within
Other schemes with Admitted Body schemes, largely sections of Local
Government pension schemes, in respect of certain employees who
joined the Group under the Transfer of Undertakings (Protection of
Employment) Regulations 2006 (TUPE) or through the acquisition of
subsidiary companies.
In addition, the Group participates in the Landmarc joint
venture scheme. Mitie's share of the surplus in this scheme at 30
September 2023 was GBP1.5m (31 March 2023: GBP1.5m) and this is
reported within interest in joint ventures and associates on the
condensed consolidated statement of financial position.
Principal accounting assumptions at statement of financial
position date
Group section/scheme Interserve section/scheme Other schemes
----------------------------- ----------------------- --------------------------- -----------------------
31 March
30 September 31 March 30 September 30 September 31 March
2023 2023 2023 2023 2023 2023
% % % % % %
----------------------------- ------------- -------- ---------------- --------- ------------- --------
Key assumptions used
for IAS 19 valuation:
Discount rate 5.60 4.75 5.50 4.80 5.50 - 5.60 4.80
Expected rate of pensionable
pay increases 3.30 3.25 3.40 3.40 3.30 - 3.40 3.40
Retail price inflation 3.30 3.25 3.30 3.40 3.30 - 3.40 3.40
Consumer price inflation 2.55 2.50 2.90 2.90 2.55 - 2.90 2.90
Future pension increases 3.35 3.25 3.40 3.40 3.35 - 3.40 3.40
============================= ============= ======== ================ ========= ============= ========
Sensitivity of defined benefit obligations to key
assumptions
The sensitivity of defined benefit obligations to changes in
principal actuarial assumptions is shown below.
Impact on defined
benefit obligations
----------- ------------------- --------------------
Increase/(decrease) Increase/(decrease)
Change in in obligations in obligations
assumption % GBPm
----------------------------- ----------- ------------------- --------------------
Increase in discount
rate 0.1% (1.3) (3.2)
Increase in inflation-linked
assumptions 0.1% 0.8 1.9
Increase in consumer
price inflation (excluding
pay) 0.1% 0.7 1.6
Increase in life expectancy 1 year 2.5 6.4
============================= =========== =================== ====================
Some of the above changes in assumptions may have an impact on
the value of the scheme's investment holdings, such as a change in
discount rates as a result of a change in UK corporate bond
yields.
Amounts recognised in financial statements
Amounts recognised in the condensed consolidated income
statement are as follows:
30 September 30 September
2023 2022
-------- ---------- ---------------- ------- ---------- ----------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ---------- --------- ----- ------- ---------- --------- -----
Current service cost - (0.3) (0.5) (0.8) (0.1) (0.4) (0.9) (1.4)
Past service cost - - (0.2) (0.2) - - - -
Total administration
expense (0.9) - - (0.9) (0.2) - - (0.2)
=========================== ======== ========== ========= ===== ======= ========== ========= =====
Amounts recognised in
operating profit (0.9) (0.3) (0.7) (1.9) (0.3) (0.4) (0.9) (1.6)
Net interest income/(cost) 0.1 0.1 - 0.2 (0.1) - - (0.1)
=========================== ======== ========== ========= ===== ======= ========== ========= =====
Amounts recognised in
profit before tax (0.8) (0.2) (0.7) (1.7) (0.4) (0.4) (0.9) (1.7)
=========================== ======== ========== ========= ===== ======= ========== ========= =====
Amounts recognised in the condensed consolidated statement of
comprehensive income are as follows:
30 September 30 September
2023 2022
-------- ------------ ----------------- ------- ------------ -----------------
Group Interserve Other Group Interserve Other
section section schemes Total scheme scheme schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- ------------ --------- ------ ------- ------------ --------- ------
Actuarial gains arising
due to changes
in financial assumptions 21.4 2.0 9.2 32.6 89.4 11.1 23.9 124.4
Actuarial losses arising
from liability experience (4.9) (0.3) (0.1) (5.3) (11.2) (1.3) (1.8) (14.3)
Movement in asset ceiling,
excluding interest - - (2.3) (2.3) - - (5.6) (5.6)
Return on scheme assets,
excluding interest income (23.1) (3.2) (5.9) (32.2) (76.3) (9.9) (11.7) (97.9)
Return on reimbursement
asset(1) - - (0.1) (0.1) - - (0.2) (0.2)
============================ ======== ============ ========= ====== ======= ============ ========= ======
Amounts recognised in
condensed consolidated
statement of comprehensive
income (6.6) (1.5) 0.8 (7.3) 1.9 (0.1) 4.6 6.4
============================ ======== ============ ========= ====== ======= ============ ========= ======
Note:
1. Included within the consolidated statement of comprehensive
income is GBP0.1m loss related to a reimbursement asset. The
reimbursement asset of GBP0.9m at 30 September 2023 (31 March 2023:
GBP1.0m) is recorded within other receivables.
The amounts included in the condensed consolidated statement of
financial position are as follows:
30 September
2023 31 March 2023
-------- ---------- ------------------ -------- ---------- ------------------
Group Interserve Other Group Interserve Other
section section schemes Total section section schemes Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ---------- --------- ------- -------- ---------- --------- -------
Fair value of scheme assets 155.0 21.8 71.7 248.5 170.3 24.2 77.1 271.6
Present value of defined
benefit obligations(1) (154.0) (21.4) (53.8) (229.2) (169.6) (22.5) (62.2) (254.3)
============================== ======== ========== ========= ======= ======== ========== ========= =======
Surplus without restriction 1.0 0.4 17.9 19.3 0.7 1.7 14.9 17.3
============================== ======== ========== ========= ======= ======== ========== ========= =======
Effect of asset ceiling - - (20.1) (20.1) - - (17.5) (17.5)
============================== ======== ========== ========= ======= ======== ========== ========= =======
Net pension asset/(liability) 1.0 0.4 (2.2) (0.8) 0.7 1.7 (2.6) (0.2)
============================== ======== ========== ========= ======= ======== ========== ========= =======
Note:
1. The 31 March 2023 comparatives have been restated to increase
the asset ceiling by GBP8.8m and reduce the present value of the
defined benefit obligation by GBP8.8m in order to properly show the
full effect of the asset ceiling separately. Some of the effect of
the asset ceiling had been previously included within the defined
benefit obligation. There is no impact on the net retirement
benefit liabilities recognised on the statement of financial
position.
All figures above are shown before deferred tax.
Movements in the present value of defined benefit obligations
were as follows:
Group Interserve Other
section section schemes Total
GBPm GBPm GBPm GBPm
------------------------------------------ -------- ---------- --------- ------
At 31 March 2023(1) 169.6 22.5 62.2 254.3
Current service cost - 0.3 0.5 0.8
Interest cost 4.0 0.5 1.6 6.1
Actuarial gains arising due to changes in
financial assumptions (21.4) (2.0) (9.2) (32.6)
Actuarial losses arising from experience 4.9 0.3 0.1 5.3
Benefits paid (3.1) (0.2) (1.1) (4.4)
Past service cost - - (0.3) (0.3)
At 30 September 2023 154.0 21.4 53.8 229.2
========================================== ======== ========== ========= ======
Note:
1. The 31 March 2023 comparatives have been restated to increase
the asset ceiling by GBP8.8m and reduce the present value of the
defined benefit obligation by GBP8.8m in order to properly show the
full effect of the asset ceiling separately. Some of the effect of
the asset ceiling had been previously included within the defined
benefit obligation. There is no impact on the net retirement
benefit liabilities recognised on the statement of financial
position.
Movements in the fair value of scheme assets were as
follows:
Group Interserve Other
section section schemes Total
GBPm GBPm GBPm GBPm
-------------------------------------------- -------- ---------- --------- ------
At 31 March 2023 170.3 24.2 77.1 271.6
Interest income 4.1 0.6 1.6 6.3
Actuarial losses on assets (23.1) (3.2) (5.9) (32.2)
Contributions from the sponsoring companies 7.7 0.4 0.2 8.3
Contributions from scheme members - - 0.3 0.3
Expenses paid (0.9) - - (0.9)
Benefits paid (3.1) (0.2) (1.1) (4.4)
Past service cost - - (0.5) (0.5)
At 30 September 2023 155.0 21.8 71.7 248.5
============================================ ======== ========== ========= ======
17. Contingent liabilities
Contractual disputes
The Group is, from time to time, party to contractual disputes
that arise in the ordinary course of business. Management does not
anticipate that the outcome of any of these disputes will have a
material adverse effect on the Group's financial position, other
than as already provided for in the financial statements. In
appropriate cases, a provision is recognised based on best
estimates and management judgement but there can be no guarantee
that these provisions (which may be subject to potentially material
revision from time to time) will result in an accurate prediction,
due to the uncertainty of the actual costs and liabilities that may
be incurred.
The Group is currently aware of a possible liability relating to
a certain PFI contract. Management is in the process of
investigating whether a liability to provide rectification works
exists. At this stage of the investigation, no reliable estimate or
likely timing of any possible liability, if it exists, can be
determined at the reporting date.
Multi-employer pension schemes
When the Group (or a subsidiary of the Group) exits
multi-employer pension schemes, pension legislation may require the
Group to fund the Group's share of the total amount of net
liabilities with a one-off cash payment (a Section 75 debt under
the Pensions Act 1995).
The Group continues to have an exposure to Section 75 employer
debts in respect of the participation of Mitie Property Services
(UK) Limited in the Plumbing Scheme, which have been estimated at
GBP2.4m by the Trustee, however no event has occurred to trigger
this debt.
Employment claims
The Group is, from time to time, party to employment disputes,
claims, and other potential liabilities which arise in the ordinary
course of business. Management does not anticipate that any of the
current matters will give rise to settlements, either individually
or in aggregate, which will have a material adverse effect on the
Group's financial position.
18. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this Note.
Mitie Group plc has a related party relationship with the Mitie
Foundation, a charitable company. During the six months ended 30
September 2023, the Group made donations and gifts in kind of
GBP0.1m (2022: GBPnil) to the Foundation.
During the period ended 30 September 2023, the Group recognised
revenue from transactions with joint ventures or associates of
GBP1.4m (2022: GBP1.4m). The amounts due from joint ventures and
associates at 30 September 2023 was GBP0.2m (31 March 2023:
GBP0.4m) and no expense has been recognised in the period for bad
or doubtful debts in respect of the amounts owed by joint ventures
and associates (2022: GBPnil).
All transactions with these related parties were made on terms
equivalent to those that prevail in arm's length transactions.
No other transactions during the period ended 30 September 2023
meet the definition of related party transactions.
19. Events after the reporting period
Landmarc - amendment to shareholders' agreement
The Group holds 51% of the equity shares in Landmarc Support
Services Limited (Landmarc), a jointly controlled entity. The
remaining 49% of the equity shares in Landmarc are held by a single
third party. As at 30 September 2023, management considered
Landmarc to be a joint venture despite the Group having majority
voting rights. This is because, under the terms of the
shareholders' agreement prevalent at that date, joint agreement was
required with the other party to pass resolutions for all
significant activities. Accordingly, the Group did not control
Landmarc and did not recognise it as a subsidiary as at 30
September 2023.
On 10 October 2023, Mitie entered into an agreement with Mitie's
joint venture partner to amend the Landmarc shareholders'
agreement. The change of control in relation to Landmarc required a
mandatory notification under the UK National Security and
Investment Act 2021 due to Landmarc's business of providing
services for the management and operation of the UK Defence
Training Estate. Clearance was granted on 16 November 2023 at which
point the amendments to the shareholders' agreement became
effective. Landmarc will be consolidated as a subsidiary of Mitie
from that date. Given the proximity of the clearance to the
reporting date, management has provided information available at
the time of approval of the condensed consolidated financial
statements. Further disclosures will be made within the Group's
Annual Report and Accounts 2024.
Cliniwaste acquisition
On 10 October 2023, the Group acquired Cliniwaste Holdings
Limited (Cliniwaste) for cash consideration of GBP1.0m. Cliniwaste
specialises in treating plastic waste generated by the NHS and
pharmaceutical manufacturers, turning it into a reusable resource.
This acquisition is part of Mitie's strategy of providing
sustainable waste management solutions to its clients, particularly
in the healthcare and pharmaceutical sectors. Given the proximity
of the acquisition to the reporting date, management has provided
information available at the time of approval of the condensed
consolidated financial statements. Further disclosures will be made
within the Group's Annual Report and Accounts 2024.
Share buyback
On 11 October 2023, the Group announced the launch of the second
GBP25m tranche of the current share buyback programme.
GBE Converge Group acquisition
On 2 November 2023 the Group announced the acquisition of GBE
Converge Group Ltd (GBE), a leading independent provider of fire,
security and information and communications technology (ICT)
solutions, for a maximum cash consideration of GBP27m (comprising
an initial payment of GBP20m and contingent payments of up to GBP7m
over three years, linked to performance). Given the proximity of
the acquisition to the reporting date, management has provided
information available at the time of approval of the condensed
consolidated financial statements. Further disclosures will be made
within the Group's Annual Report and Accounts 2024.
Appendix - Alternative Performance Measures
The Group presents various Alternative Performance Measures
(APMs) as management believes that these are useful for users of
the financial statements in helping to provide a balanced view of,
and relevant information on, the Group's financial performance.
In assessing its performance, the Group has adopted certain
non-statutory measures which, unlike its statutory measures, cannot
be derived directly from its financial statements. The Group
commonly uses the following measures to assess its performance:
Performance before Other items
The Group adjusts the statutory income statement for Other items
which, in management's judgement, need to be disclosed separately
by virtue of their nature, size and incidence in order for users of
the financial statements to obtain a proper understanding of the
financial information and the underlying performance of the
business.
These Other items include impairment of goodwill, impairment and
amortisation of acquisition related intangible assets, acquisition
and disposal related costs, gain or loss on business disposals,
cost of restructuring programmes and other exceptional items.
Further details of these Other items are provided in Note 3.
Six months Six months
ended ended
30 September 30 September
2023 2022
Operating profit GBPm GBPm
------------------------------------- --------------------- ------------- -------------
Operating profit Statutory measures 56.8 50.5
Adjust for: restructure costs Note 3 10.2 3.6
Adjust for: acquisition and disposal
related costs Note 3 15.8 11.8
Adjust for: other exceptional
items Note 3 1.8 2.1
===================================== ===================== ============= =============
Operating profit before Other
items Performance measures 84.6 68.0
===================================== ===================== ============= =============
Reconciliations are provided below to show how the Group's
segmental reported results are adjusted to exclude Other items.
Six months ended 30 Six months ended 30
September 2023 September 2022 (1)
GBPm GBPm
----------------------------- -----------------------------
Adjust Adjust
for: for:
Other Other
items items
Reported (Note Performance Reported (Note Performance
Operating profit/(loss) results 3) measures results 3) measures
------------------------ -------- ------ ----------- -------- ------ -----------
Segment
Business Services 40.3 1.4 41.7 40.0 0.5 40.5
Technical Services 15.8 3.7 19.5 12.2 1.9 14.1
CG&D 34.0 - 34.0 25.5 - 25.5
Communities 13.8 - 13.8 15.7 0.1 15.8
Corporate centre (47.1) 22.7 (24.4) (42.9) 15.0 (27.9)
======================== ======== ====== =========== ======== ====== ===========
Total 56.8 27.8 84.6 50.5 17.5 68.0
======================== ======== ====== =========== ======== ====== ===========
Note:
1. The comparatives for the six months ended 30 September 2022
have been restated for the change in the composition of reportable
segments.
In line with the Group's measurement of profit from operations
before Other items, the Group also presents its basic EPS before
Other items. The table below reconciles this to the statutory basic
EPS.
Six months Six months
ended ended
30 September 30 September
2023 2022
Earnings per share pence pence
---------------------------------- --------------------- ------------- -------------
Statutory basic earnings per
share Statutory measures 3.3 2.6
Adjust for: Other items per share 1.7 1.0
========================================================= ============= =============
Basic earnings per share before
Other items Performance measures 5.0 3.6
================================== ===================== ============= =============
Performance excluding COVID-related contracts
Reconciliations are provided below to show how the Group's
reported results are adjusted to exclude non-recurring short-term
COVID-related contracts.
Six months Six months
ended ended
30 September 30 September
2023 2022
Revenue GBPm GBPm
------------------------------------ --------------------- ------------- -------------
Group revenue Statutory measures 2,083.3 1,874.3
Adjust for: share of revenue
of joint ventures and associates Note 2 49.1 48.6
------------------------------------ --------------------- ------------- -------------
Revenue including share of joint
ventures and associates Performance measures 2,132.4 1,922.9
Adjust for: revenue from short-term
COVID-related contracts(1) - (12.6)
=========================================================== ============= =============
Revenue excluding short-term
COVID-related contracts Performance measures 2,132.4 1,910.3
==================================== ===================== ============= =============
Note:
1. In 2022, includes GBP11.7m attributable to the Business Services segment.
Six months Six months
ended ended
30 September 30 September
2023 2022
Operating profit GBPm GBPm
-------------------------------------- --------------------- ------------- -------------
Operating profit Statutory measures 56.8 50.5
Adjust for: Other items Note 3 27.8 17.5
-------------------------------------- --------------------- ------------- -------------
Operating profit before Other
items Performance measures 84.6 68.0
Adjust for: operating profit
from short-term COVID-related
contracts(1) - (2.6)
============================================================= ============= =============
Operating profit excluding short-term
COVID-related contracts Performance measures 84.6 65.4
====================================== ===================== ============= =============
Note:
1. In 2022, includes GBP2.6m attributable to the Business Services segment.
Net debt and total financial obligations
Net debt is defined as the difference between total borrowings
and cash and cash equivalents. It is a measure that provides
additional information on the Group's financial position.
Restricted cash, which is subject to various constraints on the
Group's ability to utilise these balances, has been excluded from
the net debt measure.
Total financial obligations (TFO) is defined as the Group's net
debt including net retirement benefit liabilities. TFO represents
all debt-like financing items the Group has made use of at period
end.
A reconciliation from reported figures is presented below:
30 September 31 March 30 September
2023 2023 2022
Net debt GBPm GBPm GBPm
----------------------------------- --------------------- ------------ -------- ------------
Cash and cash equivalents Statutory measures 180 .2 248.3 232.9
Adjusted for: restricted cash
and other adjustments (1) Note 14 (6.4) (6.4) (19.9)
Financing liabilities Note 12 (286.5) (286.0) (318.1)
Derivative financial instruments
hedging Private Placement
notes - - 41.1
Net debt Performance measures (112.7) (44.1) (64.0)
Net retirement benefit liabilities Note 16 (0.8) (0.2) 1.1
TFO Performance measures (113.5) (44.3) (62.9)
Note:
1. Included within these amounts is restricted cash of GBP6.4m
(31 March 2023: GBP6.4m; 30 September 2022: GBP4.6m). Amounts at 30
September 2022 also included certain payments totalling GBP15.3m
which were initiated on 30 September 2022 but which settled the
following working day and in accordance with the Group's accounting
policy were not derecognised from cash and cash equivalents until
settlement date.
The Group uses an average net debt measure as this reflects its
financing requirements throughout the period. The Group calculates
its average net debt based on the daily closing figures, including
its foreign currency bank loans translated at the closing exchange
rate for the previous month end. This measure showed average daily
net debt of GBP156.1m for the six months ended 30 September 2023,
compared with GBP84.3m for the year ended 31 March 2023 and
GBP62.0m for the six months ended 30 September 2022.
Free cash flow
Free cash flow is a measure representing the cash that the Group
generates after accounting for cash flows to support operations and
maintain its capital assets. It is a measure that provides
additional information on the Group's financial performance as it
highlights the cash that is available to the Group after operating
and capital expenditure requirements are met. The table below
reconciles net cash generated from operating activities to free
cash inflow/(outflow).
Restated(1)
Six months Six months
ended ended
30 September 30 September
2023 2022
Free cash flow GBPm GBPm
---------------------------------- --------------------- -------------
Net cash generated from operating
activities Statutory measures 59.9 2.0
Add: net decrease in restricted
cash and other adjustments - 17.6
Interest received 1.9 0.8
Dividends received from joint
ventures and associates 6.9 5.3
Purchase of property, plant and
equipment (5.2) (4.5)
Purchase of other intangible
assets (3.5) (9.3)
Disposal of property, plant and
equipment 0.1 -
Lease incentives received 5.7 -
Capital element of lease rentals
paid (17.9) (16.9)
=========================================================
Free cash inflow/(outflow) Performance measures 47.9 (5.0)
================================== =====================
Note:
1. During the year ended 31 March 2023, management updated its
definition of free cash flow to exclude cash outflow on purchase of
own shares. This was due to a change in management's policy on
satisfying share awards to purchasing shares rather than issuing
new shares and was consistent with the exclusion of cash outflow on
share buybacks from free cash flow. The prior year comparative has
been restated to reflect this change.
Earnings before interest, tax, depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation
(EBITDA) is a measure of the Group's profitability. EBITDA is
measured as profit before tax excluding the impact of net finance
costs, Other items, depreciation on property, plant and equipment,
amortisation and impairment of non-current assets and amortisation
of contract assets.
Six months Six months
ended ended
30 September 30 September
2023 2022
EBITDA GBPm GBPm
-------------------------------------- ------------- -------------
Profit before tax Statutory measures 52.3 43.1
====================================== ============= =============
Add: net finance costs 4.5 7.4
============================================================= ============= =============
Operating profit 56.8 50.5
============================================================= ============= =============
Add: Other items Note 3 27.8 17.5
====================================== ============= =============
Operating profit before Other
items 84.6 68.0
============================================================= ============= =============
Add:
Depreciation of property, plant
and equipment 21.7 21.3
Amortisation of non-current assets(1) 4.2 2.6
Amortisation of contract assets 0.4 0.5
Impairment of non-current assets(1) - 0.2
EBITDA Performance measures 110.9 92.6
============= =============
Note:
1. Excludes amounts classified in the condensed consolidated
income statement as Other items.
Return on invested capital
Return on invested capital (ROIC) is a measure of how
efficiently the Group utilises its invested capital to generate
profits. The table below reconciles the Group's net assets to
invested capital and summarises how the ROIC is derived, based on a
12-month rolling operating profit before Other items after tax.
30 September 31 March 30 September
2023 2023 2022
GBPm GBPm GBPm
Net assets Statutory measures 411.6 421.7 402.3
Add:
Non-current liabilities 333.4 335.9 211.8
Current provisions 57.7 54.2 57.3
Current Private Placement
notes - - 162.6
Deduct:
Current derivative financial
assets - - (41.1)
Non-current deferred tax assets (19.7) ( 20.4) (8.2)
Cash and cash equivalents (180.2) ( 248.3) (232.9)
Invested capital Performance measures 602.8 543.1 551.8
Operating profit before Other
items(1) 178.7 162.1 149.6
Tax(2) (30.3) ( 24.3) (23.6)
Operating profit before Other
items after tax(1) 148.4 137.8 126.0
ROIC %(3) Performance measures 24.6% 25.4% 22.8%
Notes:
1. Operating profit is presented on a rolling 12-month basis.
2. The tax charge has been calculated at the effective tax rate
on pre-tax profits before other items of 16.9% (31 March 2023:
15.0%, 30 September 2022: 15.8%).
3. The ROIC metric used for the purposes of the Enhanced
Delivery Plan (EDP) requires further adjustments under the detailed
rules agreed with shareholders.
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END
IR BTBPTMTJTBRJ
(END) Dow Jones Newswires
November 23, 2023 02:00 ET (07:00 GMT)
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