Annual Financial Report

RNS Number : 7540P

MITIE Group PLC

10 June 2015

 



10 June 2015

Mitie Group plc

Mitie Group plc (the "Company") - Annual Financial Report

Following the release on 18 May 2015 of the Company's preliminary results for the year ended 31 March 2015 (the 'Preliminary Announcement'), the Company announces that it has published its Annual Report and Accounts for 2015 (the 'Annual Report and Accounts'). 

The Company's 2015 Annual General Meeting will be held at Rothschild, New Court, St Swithin's Lane, London EC4N 8AL on 13 July 2015 at 2.30pm.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting for 2015 (the 'AGM Notice') are available to view on the Company's website: www.mitie.com.  Hard copies have been mailed to those shareholders who have elected to continue to receive paper communications. 

Copies of the Annual Report and Accounts, the AGM Notice, and the form of proxy in relation to the AGM are being submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do.

The Preliminary Announcement included a set of financial statements and a review of the development and performance of the Company.  In compliance with Disclosure and Transparency Rule (DTR) 6.3.5 the Company has extracted and set out below certain information from its Annual Report and Accounts 2015.  This information is included herein solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on the Company as to how to make public its annual financial reports.  It should be read in conjunction with the Company's Preliminary Announcement issued on 18 May 2015.  Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  This material is not a substitute for reading the full Annual Report and Accounts.  Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report and Accounts.

The information contained in this announcement and in the Preliminary Announcement does not constitute the Group's statutory accounts but is derived from those accounts.  The statutory accounts for the year ended 31 March 2015 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Principal Risks and Uncertainties

Identified principal risks to the achievement of our strategic business objectives are outlined in the section below, together with their potential impact and the mitigation measures in place. The Board believe these risks to be the most significant with the potential to impact our strategy, our financial and operational performance and, ultimately, our reputation. There may be other risks which are currently unknown to the group or which may become material in the future. Our key risk categories continue to be: strategic, financial, operational, and regulatory.

Strategic risks
	Risk	Mitigation
Contract bidding, mobilisation and management	Central to achieving our strategy is the successful delivery of our contract portfolio, particularly our large scale, complex integrated FM contracts. Our strong financial position relies on our ability to successfully bid, mobilise, operate and manage such contracts. We see an increasingly complex service offering as a business differentiator to our clients, supported by more sophisticated and complex technological solutions. When compared to our more traditional business activities, these solutions necessarily carry increased risk around bidding, design, delivery and successful implementation. Winning new and retaining existing contracts of this nature continues to be critical for the future success of our business.	Our bid, mobilisation and contract management processes operate under strict delegated authorities and are subject to rigorous executive management oversight and approval for the large and complex integrated FM contracts. These contracts are supported by teams of experienced bid, mobilisation and operational delivery specialists to mitigate the risk of failure at any stage. On-going contract assurance occurs together with regular client dialogue to ensure service delivery remains in line with the client's expectations. Through these activities we aim to develop long term client relationships, supported by a strengthened framework to retain our existing client base. Investment and support for the development and deployment of technical solutions is governed by our Board to provide assurance on their on-going performance.
Company performance and resourcing requirements impacted by change to the market and economic conditions	The UK market remains our principal macro-economic exposure, with only very limited exposure to the wider global economy. We anticipate a continued improvement in the pipeline of new opportunities and so our business model needs to adapt and grow with any on-going economic upturn. Our ability to recognise and respond to variations in the volume, value and range of services required, particularly from our private sector clients, may impact the Group's ability to win or retain significant business opportunities. Resilience is provided by our diverse business portfolio during times of economic change, with varying demands on our resources dependent on the way in which our client base responds to the economic cycle. We are well placed to adapt to any policy changes from the Government.	We continue to be focused on the delivery of sustainable, profitable growth and during the year we completed our exit strategy from more cyclical, complex, margin-diluting markets and have de-risked the business as a result. We continue to strategically target growth areas with good margins, underpinned by the right supporting business infrastructure and our financial exposure to rapid changes in the economic environment is mitigated through the continued development of our long term diverse contract portfolio. Formal control occurs over entry into new business areas and is subject to Board approval.
Protecting our reputation	Maintaining a strong reputation is vital to our success as a business. A loss in market confidence in our ability to maintain current business or undertake new client opportunities may be caused by an adverse impact to our reputation which may, in turn, significantly affect our financial performance and growth prospects; this is particularly the case in our public sector contracts where the need for transparency is paramount. Significant impact to our reputation could be caused by any incident involving major harm to one of our people or our clients/partners, corrupt practices involving fraud or bribery, inadequate financial control processes or failure to comply with regulatory requirements. Impacts of this type would potentially result in financial penalties, losses of key contracts, an inability to win new business and challenges in retaining key staff and recruiting new staff.	The basis for effective reputational management is a strong corporate governance framework supported by clear and demonstrable values and behaviours, clearly communicated at all levels of our business. Our governance and ethical business frameworks provide a set of linked policies, procedures, training programmes and audits, all centred on our code of conduct (One Code), to address specific issues which, if realised, may give rise to reputational impact. These frameworks were further strengthened in 2014/15 to ensure our people are aware of their responsibilities. A strong and consistent 'tone from the top' is provided by our senior management to ensure our values and expected behaviours are clear and understood by everyone. We have also strengthened our public relations and external communications programme to ensure a fair and balanced view of our services is provided to our clients and other interested parties. As our business continues to grow and develop into new sectors we will remain strongly focused on protecting the strength of our reputation through effective governance, leadership, the continued enhancement of our ethical business framework, and through maintaining open and transparent relationships with all stakeholders.
Financial risks	Risk	Mitigation
Financial strength and access to appropriately scaled and diverse sources of funding	Our financial strength makes us an attractive partner to our clients and stakeholders (including our funding partners). Our ability to grow if our financial performance deteriorates, by weakening profitability and limiting our ability to access diverse sources of funding on competitive terms, causing an increase in the cost of borrowing or cash flow issues which could, in turn, further affect our financial performance. As a people business staff costs remain our most significant area of expenditure. Our ability to pay our people and suppliers regularly and at specific times relies upon funding being continually available and, in particular, our ability to manage our cash flow and working capital exposures.	We have mature financial governance arrangements in place, providing oversight and monitoring of our financial performance including daily monitoring of bank balances, cash flow reporting on a daily and weekly basis and regular financial performance and balance sheet reviews, which include detailed working capital reviews. We have strong banking, debt finance and equity relationships, a diverse committed long term funding portfolio and appropriate levels of gearing for our business.
Reliance on material counterparties	We depend on a number of significant counterparties such as insurers, banks, clients and suppliers to maintain our business activities. The failure of a key business partner, supplier, subcontractor, financer or other provider could materially affect the operational and financial effectiveness of our business and our ability to trade. Ensuring on-going relationships with our material counterparties will underpin the Group's ability to meet its strategic objectives. Lloyds Banking Group is a material counterparty to the Group, providing both banking facilities and being our largest client, accounting for 7% of the Group's revenue.	We are limited on the dependency of any one counterparty and hence the impact of any potential failure, through strategic development of a diverse and robust counterparty base. The Board undertakes a formal review of material counterparty risk at divisional and business level.
Operational risks	Risk	Mitigation
Significant health, safety or environmental incident	Due to our diverse operational portfolio, the potential to cause significant harm to our employees, our business partners, members of the public, or to damage the environment will always exist. We have an unwavering commitment to safeguarding our people and protecting the environment wherever we operate. Failure to maintain our high standards could result in a significant incident affecting an employee, their family, friends or colleagues or lead to regulatory action, financial impact or damage to our reputation.	The Board, through effective governance, oversight and management standards maintains its commitment to the highest standards of quality, health, safety and environmental (QHSE) performance, which remains the first item on every Board agenda. Our performance is achieved through two cornerstones, QHSE management systems and employee engagement. Our well established management systems are certified to the ISO 9001, 14001 and OHSAS 18001 standards, and our Work Safe Home Safe! programme is central to achieving employee engagement, having been revised and strengthened during the year. To support our management system and engagement programme we focus on developing training programmes to ensure every employee, at every level of the business, has the core competencies required to do their work safely. We have a network of dedicated and experienced QHSE professionals who strive to deliver continual improvement in support of the operational delivery of our services.
System, process or control failure may impact our operational performance	Sophisticated, interdependent business systems underpin our operations. Such systems form the basis for our contract management and business support activities and we foresee increasing future reliance on such capability. These systems, in conjunction with our governance framework of policies and procedures, will help to drive innovation in customer requirements, improve our operational efficiency and provide the foundation of our business support functions. As such they remain critical for the control and success of the business and the achievement of our strategic aims. Operational failure may result in a significant impact on operational delivery, contract management and client expectations due to the business critical nature of these systems. System failure could also result in a breakdown in the controls around high volume transactions and compliance areas such as vetting and employment legislation. Financial or other misstatements, fines through statutory non-compliance issues and loss of client and/or regulator confidence could occur as a result.	The basis of our governance framework is provided by our core policies, which are subject to continual review and optimisation to manage our growing and diversifying business requirements in line with sound governance practice. Our internal control effectiveness continues to be reviewed formally, supported by a programme of internal audits and self-certification on the operation of key controls and procedures. Formal testing of our business critical systems occurs to ensure effective recovery following a potential disaster scenario and we have in place an assurance programme to test the adequacy of our mitigation activity. IT related governance oversight is provided by the IT steering group (compromising senior management) who continue to monitor the effectiveness of the information security management system, which is aligned with recognised international standards.
Attracting and retaining skilled people	Attracting and retaining the best skilled people at all levels of the business is critical. This is particularly the case in ensuring we have access to a diverse range of views and experience and in attracting specific expertise at both managerial and operational levels where the market may be highly competitive. Failure to attract new talent, or to develop and retain our existing employees, could impact our ability to achieve our strategic growth objectives. As we continue to grow and diversify into new areas, this risk will continue to be a focus for the Board.	To ensure a pipeline of opportunities exist for staff at every level of the business our career development and talent management programmes are a key focus for our management teams. Additionally, to ensure a talent pool is identified, developed and ready for succession if needed, succession plans exist for key management. We are also aiming to develop the next generation of leaders via our graduate programme. Our focus on training and competency at all levels of the business continues to ensure that we develop our people and enable them to successfully manage the changing profile of our business.
Regulatory risks	Risk	Mitigation
Non-compliance with the developing regulatory framework	As a major employer, further development of the regulatory and legal framework in areas where we work may have a material financial and reputational impact on the business. As such we continue to provide a strong focus on ensuring, as a minimum requirement, legal and regulatory compliance in all of our business areas, in particular where we enter into new areas. Failure to achieve this could lead to enforcement action, fines, adverse publicity and therefore potential damage to our reputation, all of which would threaten the ability to achieve our strategic objectives.	A key element of our management system is the legal compliance framework, developed to ensure proactive identification of legal and regulatory requirements in our diverse range of business areas. Our operational teams remain primarily responsible for ensuring legal compliance, supported by experienced teams of functional experts and backed up by our assurance teams. Where required we obtain specialist technical advice to support our in-house teams. We continue to proactively monitor the developing regulatory framework to plan and budget for on-going compliance.

Directors' Responsibility Statement

The following statement is extracted from page 85 of the Annual Report and Accounts and is repeated here for the purposes of Disclosure and Transparency Rule 6.3.5 to comply with Disclosure and Transparency Rule 6.3.  This statement relates solely to the Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the Preliminary Announcement:

"The Directors are responsible for preparing the Annual Report, the Directors' remuneration report and the financial statements in accordance with applicable law and regulations. The Directors are required to prepare the financial statements for the group in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and Article 4 of the International Accounting Standard (IAS) Regulation and have chosen to prepare Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP).

In the case of IFRS accounts, IAS 1 requires that financial statements present fairly for each financial year the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with IFRS where applicable. The Directors are also required to:

-      properly select and apply accounting policies;

-      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-      provide additional disclosures when compliance with the specific IFRS requirements is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and,

-      make an assessment of the Company's ability to continue as a going concern.

In the parent company accounts, the Directors have elected to prepare the financial statements in accordance with UK GAAP. The Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgements and estimates that are reasonable and prudent;

-      state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

-      prepare financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Company, safeguarding of the assets, the reasonable steps taken for the prevention and detection of fraud and other irregularities, and the preparation of a Directors' remuneration report which complies with the relevant requirements of the Companies Acts, Listing Rules and Disclosure and Transparency Rules (DTRs).

The Directors are also responsible for the maintenance and integrity of the Company website. Financial statements published by the Company on this website are prepared in accordance with UK legislation which may differ from legislation in other jurisdictions.

To the best of each Director's knowledge:

-      the financial statements, prepared in accordance with the applicable set of accounting standards and contained within this Annual Report and Accounts, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group and the undertakings included in the consolidation taken as a whole;

-      the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-      the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy."

Related party transactions

The following extract from the Annual Report and Accounts refers to related party transactions as set out in Note 37:

"Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

During the year, the group derived £0.3m (2014: £10.5m) of revenue from contracts with joint ventures and associated undertakings. At 31 March 2015 trade and other receivables of £nil (2014: £7.5m) were outstanding and loans to joint ventures and associates of £1.1m (2014: £14.8m) were included in Financing assets.

Mitie Group plc has a related party relationship with the Mitie Foundation, a charitable company, as R McGregor-Smith and S C Baxter are two of the trustees of the Foundation. During the year, the group made donations of £25,000 (2014: £63,000) and gifts in kind of £277,000 (2014: £298,000) to the Foundation. At the end of the year £23,000 (2014: £17,000) was due to the Foundation and the Foundation had £11,000 (2014: £3,000) held within creditors as an amount accrued to Mitie Group plc.

No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a Director had a material interest.

The group's key management personnel are the directors and Non-Executive Directors whose remuneration is disclosed in the audited section of the Directors' remuneration report. The share-based payment charge for key management personnel was £1.6m (2014: £1.5m)."

-Ends-

For further information, contact:

John Telling

Group Corporate Affairs Director, Mitie Group plc

T: [phone]                    E: [e-mail]

M: 07979 701006

Helen Greenwood

Investor & Public Relations Manager, Mitie Group plc

T: [phone]                    E: [e-mail]

Notes for editors

What is Mitie?

Mitie is a facilities management company.

We work with people who want to perform better - now and in the future. We help our clients to run more efficient and effective businesses by looking after their facilities, their energy needs and the people they're responsible for.

We're all about developing our people to excel every day, challenge the status quo, and inspire change in the way people live and work.

Find out more at www.mitie.com

 

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