Final Results

MITIE Group PLC 07 July 2003 MITIE Group PLC ('MITIE') PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2003 'We continue to deliver profitable growth by remaining focused on our core activities and putting our customers first' David M Telling, Chairman â€¢ Sixteenth consecutive year of profitable growth â€¢ Business model continues to develop with eight companies started in the year â€¢ Cash balances at 31 March 2003 of Â£55.0 million â€¢ Strategic acquisitions in security and pest control FINANCIAL HIGHLIGHTS 2003 2002 Turnover Â£565.8M Â£518.9M Up 9% Profit before tax - pre-goodwill (i) Â£34.1M Â£31.0M Up 10% Profit before tax Â£31.8M Â£30.4M Up 5% Earnings per share - pre-goodwill (ii) 7.3p 6.8p Up 8% Earnings per share 6.5p 6.5p Cash Â£55.0M Â£25.1M Up 119% Dividend per share 1.9p 1.6p Up 19% (i) The reconciliation to the statutory proforma profit before tax is shown within the Group Profit and Loss Account (ii) Reconciliation of earnings per share is shown in note 9 to the Preliminary Announcement -------------------------------------------------------------------------------- Notes: MITIE: Management Incentive Through Investment Equity ACTIVITY: MITIE Group PLC provides Support and Building Services to the owners and occupiers of commercial, government and industrial premises. FOR FURTHER INFORMATION: On 7 July 2003 Ian Stewart, Chief Executive, MITIE Group PLC Mobile: 07979 701002 Ruby McGregor-Smith, Group Finance Director, MITIE Group PLC Mobile: 07979 701004 John Telling, Corporate Affairs, MITIE Group PLC Mobile: 07979 701006 at UBS Warburg, 1 Finsbury Avenue 020 7588 8736 020 7567 8000 (Switchboard) Subsequently: MITIE Group PLC Head Office 01934 862006 Chairman's Statement I am pleased to be able to report that MITIE's 2003 results show a sixteenth consecutive year of profitable growth and very positive cash flow. MITIE has made good progress and our Support Services Division has had a particularly strong year despite changing economic conditions that have tightened our markets over the past twelve months. Our commitment to delivering service levels that enable customers to achieve their own objectives underpins this continuing success. Results Turnover rose to Â£565.8 million, an increase of 9% and profit before tax, goodwill amortisation and impairment rose by 10% to Â£34.1 million. Earnings per share (pre-goodwill amortisation and impairment) rose by 8% to 7.3p (Note 7). We have increased our cash balance by Â£29.9 million to Â£55.0 million. Your Board is recommending a final dividend of 1.1p per share, making a total of 1.9p for the year, an increase of 19%. Corporate Developments Development of the MITIE business model has continued strongly throughout the financial year. We have started eight new companies. Managed Services and Engineering Maintenance have increased their national coverage. We have introduced our Engineering discipline into niche markets such as social housing, utilities and technology and in the South East of England, we have started a landscape business and an interior contracting business. In January 2003, we signed our biggest ever contract, worth over Â£100 million. The contract with Rolls-Royce provides opportunities for all of our businesses and is the first major example of how MITIE companies, working together, can benefit our customers on a national basis. We have continued our strategy of reducing our exposure to capital-intensive businesses. We sold our Access contracting companies in June 2002 and we are closing both MITIE Lindsay Ltd and MITIE HydroCat Ltd. Since the year end, we have completed the acquisitions of Trident Safeguards Ltd, a manned guarding security company and Eagle Pest Control Services UK Ltd. These acquisitions will accelerate our development in markets where we see good potential. People These positive results have only been possible because of the hard work, dedication and motivation of our people who are achieving considerable success in difficult times. I would like to thank all of them for their efforts this year. MITIE people understand that their own success comes from satisfying their customers. In order to achieve this, they take the time to understand their customers' goals and the contribution that MITIE can make towards reaching them. Our management team has been strengthened by the appointment of Ruby McGregor-Smith as Group Finance Director in December 2002 and she has already added considerable value. We have also increased the number of Non-Executive Directors. Manish J Chande was appointed in July 2002, David C Ord in October 2002 and Cullum McAlpine in April 2003. Between them they have a wide range of skills and experience that will add considerably to the strength of the Board. Three people who have contributed greatly to MITIE's success have retired during the year. Nigel Swiffen retired as a Non-Executive Director after 11 years; John Urquhart as Head of Corporate Affairs after enthusiastically representing the Company for 10 years; and Marshall Thomas as Group Chief Accountant who joined MITIE shortly after its formation in 1987. I thank them all for their period of loyal service and wish them well in their retirement. Outlook MITIE has enjoyed success for over fifteen years and will, I believe, deliver further profitable growth over the years to come. The current year has started in line with expectations and we will develop by building on the many unique qualities that MITIE can offer and by continually seeking to enhance Shareholder value. The strength in depth of our management puts us in a position where, even in the most challenging of market conditions, we are able to make progress. We have 23,000 highly talented and motivated people who understand the MITIE philosophy of putting customers first. Our capacity to deliver services nationally ensures that we are well placed to benefit from the continuing trend towards outsourcing and the bundling of services. Our companies are realising significant benefits from working together and this is a trend I expect to continue. These attributes, combined with the extra growth of our start-up companies, mean that we are well placed for the future. MITIE is known for quality in services, customers and earnings. Your Company will remain focused on its core activities and continue to grow the business by putting its customers first. David M Telling Chairman Chief Executive's Review Our progress this year is a tribute to our dedicated workforce. The goal that I set last year was for MITIE to become the first choice provider of Support and Building Services to the owners and occupiers of industrial, commercial and government buildings. I believe that we are making good progress towards this. Market Opportunities The markets in which we operate continue to change as our customers seek new methods of procurement. As a Group, we will continue to review our strategy regularly to ensure that the solutions we offer meet the needs of existing and potential clients. We currently see three areas of opportunity which we are ideally placed to serve: 1. Single Service: Specialist single service companies have been the basis for MITIE's ongoing success. However, our share of the total potential market is still below 2% - leaving considerable opportunity for expansion. Our aim is for each of our single service companies to capture 5% of their respective market and where appropriate, to start new companies to help achieve this. 2. Bundled Services: Many of our major clients such as Dell Computer Corporation and MCI are approaching us to see if we can provide more than one service. Rolls-Royce is a good example. They have demonstrated their confidence in MITIE by awarding us a comprehensive contract across a number of our services and this is a trend that I see continuing. In these cases, MITIE selects the best individual or team to run the contract. The customer is able to retain an active role in the management of their facility whilst benefiting from a combination of specialist operating companies providing a bundled service under a single point of contact. 3. Facilities Management: Many customers want to focus completely on their core activity. In this case, MITIE Managed Services can look after the customer's complete property portfolio from estate management to the management and provision of a multi-activity and services contract. Revenue visibility We have continued to see an improvement in the visibility of our future earnings. This is an encouraging trend and one that I expect to continue. The percentage of budgeted revenue secured for 2004 is 64% at 31 March 2003, compared to 61% last year. The percentage of budgeted revenue secured for 2005 is 33% at 31 March 2003, compared to 32% last year. Margins It is a tribute to our management that they have been able to produce consistently high margins in such a competitive environment. By listening to our customers and delivering our services in the most cost-effective way, we are confident that we can maintain this trend. During the first half of this year the margin in our Support Services Division was affected by one-off bid costs relating to our involvement in two large government/PFI contracts, but I am pleased to report that margins in the second half of the year reflect an improved performance. With greater exposure to economic fluctuations, margins within the Building Services Division have been under pressure. Our decision to close the marine portion of MITIE Lindsay Ltd and MITIE HydroCat Ltd businesses - because of their high capital requirements and extreme vulnerability to changes in market conditions - also impacted on performance in this Division. We have withdrawn completely from the marine market and incorporated the industrial painting capability within our existing Property Services companies. PFI (Private Finance Initiative) We said in our Interim Report that we have decided not to be involved in PFI projects as an equity investor. This remains our policy. Any reference, therefore, to PFI projects is purely as a facility manager or service provider. Cash The planned reduction in our exposure to the capital-intensive parts of our business resulted in the receipt of Â£11.4 million and at the end of this financial year, we had a positive cash balance of Â£55.0 million. We expect that we will continue to be cash generative. We recognise that cash ultimately belongs to the Shareholders and that it is my responsibility to ensure that they receive the maximum long term return on our assets. The appointment of Colin Hale as Strategic Development Director last year was as a result of our stated intention to look at small strategic acquisitions that can accelerate our development in some key areas. The recent acquisitions of Trident Safeguards Ltd and Eagle Pest Control Services UK Ltd show a strong cultural fit with MITIE and will have an impact on our long term development. Trident Safeguards Ltd adds considerably to our Security discipline in the South East of England. Eagle Pest Control Services UK Ltd will allow us to self-deliver a service that our customers frequently request. We will continue to review the efficiency of our balance sheet and will manage our assets with the best interests of our Shareholders in mind. Chief Executive's Review of Building Services operations This has been an encouraging year for Engineering Services. There are positive trends in the regional markets and niche sectors despite the downturn in activity in the South East. We have expanded through the start-ups of MITIE Environmental Ltd, MITIE Technology Ltd, MITIE Engineering Projects Ltd and the acquisition of Scotgate Engineering Services Ltd. Public sector opportunities including hospitals, universities and other education facilities provided various interesting contracts. We have increased the number of longer term framework contracts and we retain a number of notable private sector clients as well as productive partnerships, such as with Land Securities Trillium Ltd. The progress made by our niche trading companies in securing sizeable projects for national retailers such as ASDA, Woolworths, Boots and Marks & Spencer has been based on gaining a firm understanding of their culture and objectives and we will continue to apply this principle across all of our businesses. MITIE Scientific Projects Ltd has secured new contracts as well as preferred contractor status and ongoing projects with major customers including Johnson & Johnson and GlaxoSmithKline. Property Services exceeded internal targets for the year and contributed good forward visibility of earnings with a number of best value and five year partnering initiatives and a significant proportion of repeat business including our contract with Birmingham City Council. We have expanded our capability in the interiors and refurbishment market with the establishment of MITIE Interiors Ltd. Contracts were secured with British Telecom for Scotland, the North East of England, London and the Home Counties. As part of our constant drive to improve margins and increase quality, we have recruited a procurement specialist to focus on the reduction of our cost base. Corporate responsibility underpins the discipline and we have committed serious financial resource towards the training and development of our people with particular emphasis on Health & Safety. The initiative of MITIE Property Services (Southern) Ltd in teaming up with a school in Portsmouth to form the MITIE Construction Skills Centre has proved so successful that we are rolling the scheme out in other areas. Each initiative will create opportunities for children to gain hands-on experience in the various trades associated with our work. Following last year's restructuring, Access has achieved an increase in turnover of 40%. The company has developed some significant partnerships and continues to bring innovative safety products successfully to market. Branches which focus on light access equipment continue to show good growth and we will strengthen our position further with the opening of a branch in Northampton in Autumn 2003. Chief Executive's Review of Support Services operations Our Support Services Division has had an excellent year. The companies in the Division are working well together and there has been an increase in the number of contracts where MITIE companies are providing bundled services - a trend which will provide a strong foundation for future growth. The Cleaning discipline continues to make progress, retaining contracts which were re-tendered during the year and winning major public and private sector contracts. These include Tesco, Avon & Somerset Constabulary, Worcestershire County Council, Terry's Chocolate Factory and BNFL at Sellafield. Cleaning also received a Premises & Facilities Management Health & Safety Award in partnership with BNFL Oldbury. Catering Services had a year of consolidation. The prospects for the year to come are good following contract wins including The Society of Motor Manufacturers & Traders in London and the Construction Industry Training Board HQ in Norfolk. An internal operating brand, 'ingredients', was launched and is being rolled out throughout our premium catering contracts. MITIE Landscape (Southern) Ltd commenced trading in July 2002 and has already secured contracts including Shell International Residential Estate, MCI and Novartis. This is our first company in grounds maintenance and we intend to develop national coverage with additional start up companies. Our Security business has continued to grow nationally. It has been successful in a number of joint ventures with MITIE Managed Services including Clariant UK. It has also won contracts for Coca-Cola Ltd and Maryhill Shopping Centre in Glasgow. Managed Services has expanded rapidly over the last year with two major five year contract wins for the Home Office, covering some 540 buildings across the North and South West. With complete UK coverage following the start of MITIE Managed Services (South West & Wales) Ltd in January 2003, we are in a strong position to bid for some larger scale national contracts. Managed Services has secured further facilities management contracts as service provider on PFI schools projects and additional private sector clients including IMS Healthcare. Business Services continued its rapid growth and now serves seven of the world's top 20 law firms including Linklaters and Clifford Chance. New contracts were secured in the banking sector and our work for Barclays Capital, Merrill Lynch and other large financial institutions expanded in scope. Engineering Maintenance has had a very successful year. Our national coverage has increased with the establishment of MITIE Engineering Maintenance (Caledonia ) Ltd and MITIE Engineering Maintenance (North) Ltd. We have also merged the two South West businesses to reduce overheads and improve efficiency. Engineering Maintenance has taken the lead role in the Rolls-Royce contract which also includes cleaning, catering, security and landscaping. There was a bundled services success with Dell Computers, a new contract with the Royal Courts of Justice in London, a national contract with HQ Global and extended business with RAF Waddington and the Foreign & Commonwealth Office. The Support Services Division is well placed to produce further growth as it benefits from an increase in the tendency towards bundled services and the increasingly sophisticated technical and commercial demands of our customers. Health, Safety and the Environment Individual Managing Directors within the Group recognise and accept responsibility for both Health, Safety and the Environment. They are supported by 26 advisors who make up the department from whom the Health, Safety and Environment Committee is formed. This committee is chaired by the Head of Health & Safety who reports directly to me. I continue to drive improvements to the way in which we manage safety and the environment. Quality It is only by remaining 100% committed to quality in all its aspects that we will help our customers to meet their objectives and build on our own competitiveness. The Chairman's Quality Award this year is based on financial leadership, the first criteria of the Business Excellence Model as promoted by the British Quality Foundation. Final assessments will be made in July 2003 with awards presented to regional winners at the Annual General Meeting in September 2003. The overall winners will receive a prize of MITIE Group shares. Next year, we will take customer service and results as our topic, followed in successive years by the remaining three criteria. Conclusion MITIE has continued to make progress in a challenging year. This is a tribute to our dedicated workforce who are our main asset and the envy of our competition. I would like to take this opportunity of expressing my sincere thanks for their hard work and loyalty. I look forward to another successful year in 2003-2004. Ian R Stewart Chief Executive Group Profit and Loss Account for the year ended 31 March 2003 Note 2003 2002 Â£'000 Â£'000 ----- ------------------------------------------------------- --------------------- Turnover Continuing operations 562,288 493,829 Discontinued operations 3,552 25,023 ----- ------------------------------------------------------- --------------------- 565,840 518,852 3 Cost of sales (439,932) (397,954) ----- ------------------------------------------------------- --------------------- 3 Gross profit 125,908 120,898 ----- ------------------------------------------------------- --------------------- 3 Administrative expenses - before amortisation and (93,260) (90,291) impairment of goodwill Operating profit before goodwill amortisation and 32,648 30,607 impairment - amortisation and impairment of (2,324) (640) goodwill ----- ------------------------------------------------------- --------------------- 4 Operating profit Continuing operations 30,046 29,040 Discontinued operations 278 927 ----- ------------------------------------------------------- --------------------- 30,324 29,967 6 Interest 1,465 390 ----- ------------------------------------------------------- --------------------- Profit on ordinary activities before tax 31,789 30,357 7 Tax on profit on ordinary activities (10,188) (9,027) ----- ------------------------------------------------------- --------------------- Profit on ordinary activities after tax 21,601 21,330 Equity minority interest (2,125) (2,712) ----- ------------------------------------------------------- --------------------- Profit for the financial year 19,476 18,618 8 Dividends - equity (5,736) (4,623) ----- ------------------------------------------------------- --------------------- 20 Retained profit for the financial year 13,740 13,995 ----- ------------------------------------------------------- --------------------- 9 Earnings per - basic 6.5p 6.5p Ordinary Share - diluted 6.5p 6.4p - basic before goodwill 7.3p 6.8p amortisation and impairment There are no recognised gains and losses for the current financial year or preceding financial year other than as stated in the Group Profit and Loss Account. ------------------------------------------------------------------------------------ Profit on ordinary activities before taxation and goodwill 34,113 30,997 amortisation and impairment ------------------------------------------------------------------------------------ Reconciliation of Movements in Shareholders' Funds for the year ended 31 March 2003 2003 2002 Â£'000 Â£'000 ------------------------------------------------------------- ------ ------ Profit for the financial year 19,476 18,618 Dividends (5,736) (4,623) ------------------------------------------------------------- ------ ------ 13,740 13,995 Goodwill previously written off included in retained profit 321 - for the year Shares issued - in respect of subsidiaries acquired 14,032 9,308 - to QUEST (see Note 20) 910 2,153 less amounts funded within Group (553) (1,644) - other 1,959 513 ------------------------------------------------------------- ------ ------ Net addition to Shareholders' funds 30,409 24,325 Shareholders' funds at the beginning of the year 74,491 50,166 ------------------------------------------------------------- ------ ------ Shareholders' funds at the end of the year 104,900 74,491 ------------------------------------------------------------- ------ ------ Note of Historical Cost Profits and Losses for the year ended 31 March 2003 2003 2002 Â£'000 Â£'000 ------------------------------------------------------------- ------ ------ Profit on ordinary activities before tax 31,789 30,357 Difference between the historical cost depreciation charge on revalued assets and the actual depreciation charge for the year calculated on the revalued amount 5 (11) ------------------------------------------------------------- ------ ------ Historical cost profits on ordinary activities before tax 31,794 30,346 ------------------------------------------------------------- ------ ------ Historical cost profits for the year retained after tax, minority interests and dividends 13,745 13,984 ------------------------------------------------------------- ------ ------ Group Balance Sheet as at 31 March 2003 Note 2003 2002 Â£'000 Â£'000 ------------------------------------------------------- ------ ------ Fixed Assets 10 Intangible assets 24,291 14,724 11 Tangible assets 37,277 45,082 ------ ------ 61,568 59,806 ------------------------------------------------------- ------ ------ Current Assets 12 Work in progress and stocks 25,272 23,706 13 Debtors 92,316 87,137 14 Investments 3,880 - Cash at bank and in hand 54,960 25,106 ------------------------------------------------------- ------ ------ 176,428 135,949 ------------------------------------------------------- ------ ------ 15 Creditors - due within one year (122,381) (110,987) ------------------------------------------------------- ------ ------ Net Current Assets 54,047 24,962 ------------------------------------------------------- ------ ------ Total Assets less Current Liabilities 115,615 84,768 16 Creditors - due after one year (29) (27) 18 Provision for liabilities and charges (3,022) (1,496) ------------------------------------------------------- ------ ------ Net Assets 112,564 83,245 ------------------------------------------------------- ------ ------ Capital and Reserves 19 Called up share capital 7,556 7,220 20 Share premium account 42,048 25,483 20 Revaluation reserve (508) (503) 20 Other reserve 994 - 20 Profit and loss account 54,810 42,291 ------------------------------------------------------- ------ ------ Equity Shareholders' funds 104,900 74,491 Equity minority interest 7,664 8,754 ------------------------------------------------------- ------ ------ 112,564 83,245 ------------------------------------------------------- ------ ------ This Preliminary Announcement was approved by the Board of Directors on 4 July 2003. Signed on behalf of the Board of Directors. David M Telling Chairman Ruby McGregor-Smith Group Finance Director Company Balance Sheet as at 31 March 2003 Note 2003 2002 Â£'000 Â£'000 ------------------------------------------------------- ------ ------ Fixed Assets 10 Tangible assets 708 872 27 Investments in subsidiary undertakings 66,087 53,930 ------------------------------------------------------- ------ ------ 66,795 54,802 ------------------------------------------------------- ------ ------ Current Assets 13 Debtors 29,804 19,333 Cash at bank and in hand 16,734 11,548 ------------------------------------------------------- ------ ------ 46,538 30,881 ------------------------------------------------------- ------ ------ 15 Creditors - due within one year (17,645) (16,569) ------------------------------------------------------- ------ ------ Net Current Assets 28,893 14,312 ------------------------------------------------------- ------ ------ Net Assets 95,688 69,114 ------------------------------------------------------- ------ ------ Capital and Reserves 19 Called up share capital 7,556 7,220 20 Share premium account 42,048 25,483 20 Profit and loss account 46,084 36,411 ------------------------------------------------------- ------ ------ 95,688 69,114 ------------------------------------------------------- ------ ------ This Preliminary Announcement was approved by the Board of Directors on 4 July 2003. Signed on behalf of the Board of Directors. David M Telling Chairman Ruby McGregor-Smith Group Finance Director Group Cash Flow Statement for the year ended 31 March 2003 Note 2003 2002 Â£'000 Â£'000 ------------------------------------------------------- ------ ------ 21 Net cash flow from operating activities 48,474 37,295 Returns on investments and servicing of finance Interest received 1,537 502 Interest paid (41) (33) Interest element of finance lease rentals (1) (6) ------------------------------------------------------- ------ ------ 1,495 463 ------------------------------------------------------- ------ ------ Tax UK corporation tax paid (10,669) (9,264) ACT recovered 14 481 ------------------------------------------------------- ------ ------ (10,655) (8,783) ------------------------------------------------------- ------ ------ Capital expenditure Payments to acquire tangible fixed assets (16,016) (15,015) Receipts from sales of tangible fixed assets 8,009 3,364 ------------------------------------------------------- ------ ------ (8,007) (11,651) ------------------------------------------------------- ------ ------ 22 Acquisitions and disposals Payments to acquire subsidiary undertakings (4,977) (1,457) Net cash acquired with subsidiary undertakings 211 - Sale of subsidiary undertakings 4,984 2,367 Net cash disposed with subsidiary undertakings 6,396 - ------------------------------------------------------- ------ ------ 6,614 910 ------------------------------------------------------- ------ ------ Equity dividends paid (7,035) (2,090) ------------------------------------------------------- ------ ------ Cash inflow before management of liquid resources and financing 30,886 16,144 ------------------------------------------------------- ------ ------ Management of liquid resources Net increase in investments (3,880) - ------------------------------------------------------- ------ ------ Financing Issue of Ordinary Share capital 2,862 2,838 Net unsecured loans received - 35 Net capital element of finance lease rental (14) (29) payments Debt due within one year Repayment of unsecured loans - (17) ------------------------------------------------------- ------ ------ 2,848 2,827 ------------------------------------------------------- ------ ------ 24 Increase in cash in the year 29,854 18,971 ------------------------------------------------------- ------ ------ Notes to the Preliminary Announcement 1 Preliminary Announcement The financial information as set out does not constitute the Group and Company's statutory accounts for the year ended 31 March 2003 or 2002, but is derived from those Accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered following the Company's Annual General Meeting. The auditors have reported on those Accounts; their reports were unqualified and did not contain statements under s237(2) or (3) Companies Act 1985. 2 Accounting Policies Accounting Convention The Preliminary Announcement has been prepared under the historical cost convention as modified by the revaluation of certain freehold and long leasehold properties. The Preliminary Announcement has been prepared in accordance with applicable United Kingdom accounting standards. Basis of Consolidation The Preliminary Announcement consolidates the Profit and Loss Account and Balance Sheet of MITIE Group PLC and all its subsidiary undertakings. The results of the subsidiary undertakings acquired or sold are included from or up to the effective date of acquisition or sale. Goodwill and Intangible Fixed Assets Goodwill is calculated as the surplus of fair value of purchase consideration over fair value attributed to the net assets of subsidiary undertakings acquired. Following the introduction of FRS 10, goodwill in respect of acquisitions made after the financial year ended 31 March 1998 has been capitalised and amortised over its estimated useful economic life of up to 20 years. For acquisitions made before 1 April 1998, goodwill was written off directly to reserves as a matter of accounting policy. In the event of a disposal of the businesses concerned, this goodwill will be included in determining the gain or loss on disposal in the Profit and Loss Account. Tangible Fixed Assets Tangible fixed assets are stated at cost or valuation, less depreciation and any provision for impairment. Depreciation is provided on tangible fixed assets on a straight line basis over the expected useful lives. No depreciation is provided on land. Freehold and long leasehold buildings 50 years Plant 3-14 years Vehicles 4 years Financial Instruments The Group uses financial instruments to hedge its exposure to foreign currency risk. To the extent that such instruments are matched against an underlying asset or liability, they are accounted for using hedge accounting. Gains or losses and premiums or discounts are matched to the underlying transactions being hedged. Investments Shares in Group companies are stated at cost less provision for impairment in value. Current asset investments are stated at the lower of cost and net realisable value. Leased Assets Assets acquired under finance leases are included in tangible fixed assets and depreciated in accordance with the above policy. Outstanding future lease obligations are shown in creditors. The finance element of the rental payments is charged to the Profit and Loss Account over the period of the lease. Operating lease rentals are charged to the Profit and Loss Account in equal instalments over the lease term. Work in Progress and Stocks Work in progress and stocks are valued at the lower of cost, including appropriate overheads and net realisable value. Provision is made for foreseeable losses. Costs represent materials, direct labour and overheads. Net realisable value is based upon estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate. Long term contracts are dealt with in accordance with SSAP 9 (revised). A prudent level of profit is taken based on estimated percentage completion if the final outcome can be reliably assessed. All bid costs are expensed as incurred until the stage is reached where it is virtually certain that the contract has been awarded. Deferred Tax Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in Preliminary Announcements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Turnover Turnover represents the total amount, excluding sales taxes, receivable in respect of goods and services supplied and contract work completed in the year. Intra Group transactions are excluded. All turnover arose within the United Kingdom. Pensions The Group operates two defined benefit pension schemes. The amounts charged to operating profit are the current service costs and gains and losses on settlements and curtailments. The Group also operates a fully insured defined contribution pension scheme, the assets of which are held in independently administered funds. In respect of this scheme, the pension cost charge represents contributions payable by the Group in the year. The Group has continued to account for pensions in accordance with SSAP 24 as illustrated above. In November 2000, the Accounting Standards Board (ASB) issued FRS 17 'Retirement Benefits', replacing SSAP 24 'Accounting for Pension Costs'. In November 2002, an amendment to FRS 17 was published which allowed an extension to the transitional arrangements of FRS 17. The probability of implementation is uncertain and partly dependent upon proposals from the International Accounting Standards Board (IASB). The Group will take advice to ensure that it continues to adopt the best practice in respect of accounting for retirement benefits. The Group is in the second year of the transitional arrangements under FRS 17. Provisions Provision is made for outstanding insurance claims incurred at the balance sheet date. 3 Segmental analysis Activity TURNOVER PRE-TAX PROFIT PRE-TAX NET PROFIT BEFORE TAX PROFIT ASSETS AND MARGIN GOODWILL Â£'000 Â£'000 Â£'000 % Â£'000 ---------------- ----------- ----------- ----------------- ---------------- ----------- 2003 Support Services 259,884 18,760 18,988 7.2 24,912 Building Services 305,956 13,029 15,125 4.3 28,853 ---------------- ----------- ----------- ----------------- ---------------- ----------- 565,840 31,789 34,113 5.6 53,765 Net funds 58,799 ---------------- ----------- ----------- ----------------- ---------------- ----------- Total 112,564 ---------------- ----------- ----------- ----------------- ---------------- ----------- 2002 Support Services 227,872 16,316 16,345 7.2 23,762 Building Services 290,980 14,041 14,652 4.8 35,183 ---------------- ----------- ----------- ----------------- ---------------- ----------- 518,852 30,357 30,997 5.9 58,945 Net funds 24,300 ---------------- ----------- ----------- ----------------- ---------------- ----------- Total 83,245 Included within the Building Services segment above are amounts that relate to discontinued activities. These include turnover of Â£3,552,000 (2002: Â£25,023,000) and pre-tax profit of Â£202,000 (2002: Â£481,000). Turnover 2003 2003 TOTAL 2002 2002 TOTAL CONTINUING DISCONTINUED CONTINUING DISCONTINUED ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Support Services Cleaning 145,264 - 145,264 135,458 - 135,458 Catering and Landscaping 4,648 - 4,648 4,032 - 4,032 Security 7,139 - 7,139 3,528 - 3,528 Managed 52,294 - 52,294 49,517 - 49,517 Services Engineering Maintenance 50,539 - 50,539 35,337 - 35,337 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Total 259,884 - 259,884 227,872 - 227,872 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Building Services Engineering 164,454 - 164,454 138,202 - 138,202 Property Services 110,034 - 110,034 107,844 - 107,844 Access 27,916 3,552 31,468 19,911 25,023 44,934 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Total 302,404 3,552 305,956 265,957 25,023 290,980 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Operating Profit 2003 2003 TOTAL 2002 2002 TOTAL CONTINUING DISCONTINUED CONTINUING DISCONTINUED ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Turnover 562,288 3,552 565,840 493,829 25,023 518,852 Cost of sales (437,563) (2,369) (439,932) (380,973) (16,981) (397,954) --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Gross Profit 124,725 1,183 125,908 112,856 8,042 120,898 Administrative expenses (94,679) (905) (95,584) (83,816) (7,115) (90,931) --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Operating Profit 30,046 278 30,324 29,040 927 29,967 --------------------- ------------- -------------- ------------ ------------ -------------- ---------- Discontinued operations relate to the companies sold during the year as described in Note 22b. 4 Operating profit 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- -------- -------- This is stated after charging/ (crediting): Depreciation and other amounts written off tangible fixed assets: - owned assets 10,499 11,784 - leased assets 346 25 Goodwill amortisation 1,219 640 Goodwill impairment 1,105 - Auditors' remuneration - Group 145 134 - Company 25 23 Operating lease rentals - plant and vehicles 983 1,022 - other 2,075 2,512 Profit on disposal of fixed assets (525) (678) -------------------------------------------------------------- -------- -------- A more detailed analysis of amounts paid to the Auditors. 2003 2002 Â£'000 % Â£'000 % ---------------------------------------------------------- ------ ----- ------ ----- Auditors' fees - services as Auditors 170 52 157 61 - further assurance services - - - - - tax advisory services 133 41 101 39 - other non-audit services 22 7 - - ---------------------------------------------------------- ------ ----- ------ ----- 325 100 258 100 ---------------------------------------------------------- ------ ----- ------ ----- 5 Directors and employees 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- -------- -------- (i) Employment costs Wages and salaries 222,199 203,866 Social security costs 17,842 14,695 Other pension costs 3,251 3,034 -------------------------------------------------------------- -------- -------- 243,292 221,595 -------------------------------------------------------------- -------- -------- 2003 2002 No. No. (ii) The average number of persons employed during the financial year was: Site 21,158 22,303 Administration 1,927 1,964 -------------------------------------------------------------- -------- -------- 23,085 24,267 -------------------------------------------------------------- -------- -------- 6 Interest 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- -------- -------- (i) Interest payable and similar charges Finance leases (4) (5) Other (50) (41) (ii) Interest receivable and similar income Bank Interest 1,519 436 -------------------------------------------------------------- -------- -------- 1,465 390 -------------------------------------------------------------- -------- -------- 7 Tax on profit on ordinary activities a) Analysis of charge in the year 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- --------- -------- UK corporation tax at 30% (2002 30%) 10,459 9,526 Adjustment in respect of prior years 22 (75) -------------------------------------------------------------- --------- -------- Total current tax (Note 7b) 10,481 9,451 -------------------------------------------------------------- --------- -------- Deferred taxation: Timing differences - origination and reversal (240) 11 Adjustments in respect of prior years - deferred tax (53) (435) -------------------------------------------------------------- --------- -------- Tax on profit on ordinary activities 10,188 9,027 -------------------------------------------------------------- --------- -------- b) Factors affecting tax charge in the year The tax assessed for the year is greater (2002: greater) than that resulting from applying the standard rate of corporation tax in the UK of 30% (2002: 30%). The differences are set out below. 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- --------- -------- Profit on ordinary activities before tax 31,789 30,357 -------------------------------------------------------------- --------- -------- Tax at 30% thereon 9,537 9,107 Expenses not deductible for tax purposes 303 291 Capital allowances in excess of depreciation 383 140 Movement in short term timing differences 14 - Profit on disposal of tangible fixed assets (158) (210) Goodwill 697 192 Prior periods 22 (75) Other (317) 6 -------------------------------------------------------------- --------- -------- Current tax charge for the year (Note 7a) 10,481 9,451 -------------------------------------------------------------- --------- -------- c) Factors affecting future tax charges The Group is not aware of any factors that may materially affect the future tax charge. 8 Dividends 2003 2002 Â£'000 Â£'000 -------------------------------------------------------------- --------- -------- Interim dividend 0.8p per 2 1/2 p share (2002 0.7p per 2 1/2 p share) 2,417 2,021 Proposed final dividend 1.1p per 2 1/2 p share (2002 0.9p per 2 1/2 p share) 3,319 2,602 -------------------------------------------------------------- --------- -------- 5,736 4,623 -------------------------------------------------------------- --------- -------- Total dividend per 2 1/2 p share for the year 1.9p 1.6p -------------------------------------------------------------- --------- -------- Subject to approval at the Annual General Meeting, the final dividend will be paid on 30 September 2003 to members on the register on 5 September 2003. 9 Earnings per ordinary share The calculation of earnings per 2 1/2p share for 2003 and 2002 is based upon the profit after tax and minority interest. The weighted average number of shares for this purpose is 297,979,470 (2002: 284,250,155). The diluted earnings per share has been calculated on the basic earnings and the weighted average number of shares less 211,000 (2002: additional shares 4,813,163) shares representing the fair value of the weighted average number of shares under option during the year. Headline earnings per share continues to have widespread acceptance and has been calculated in accordance with the definition in the UK Society of Investment Professionals statement of investment practice No.1, 'The Definition of Headline Earnings', as follows: 2003 2002 -------------------------------------------------------------- --------- -------- Basic earnings per Ordinary Share 6.5p 6.5p Adjustments Amortisation and impairment of goodwill 0.8p 0.3p -------------------------------------------------------------- --------- -------- Headline earnings per Ordinary Share 7.3p 6.8p -------------------------------------------------------------- --------- -------- 10 Fixed assets - Intangible GOODWILL GOODWILL IMPAIRMENT TOTAL ATTACHED TO SALE OF ASSETS Â£'000 Â£'000 Â£'000 Â£'000 ------------------------- --------- -------------- ---------------- ------------ Cost At beginning of year 13,910 700 1,380 15,990 Additions 12,469 - - 12,469 Disposals - (700) - (700) ------------------------- --------- -------------- ---------------- ------------ At end of year 26,379 - 1,380 27,759 ------------------------- --------- -------------- ---------------- ------------ Amortisation At beginning of year 944 116 206 1,266 Amortised in year 1,144 6 69 1,219 Impairment charge - - 1,105 1,105 Disposals - (122) - (122) ------------------------- --------- -------------- ---------------- ------------ 2,088 - 1,380 3,468 ------------------------- --------- -------------- ---------------- ------------ Net book value At end of year 24,291 - - 24,291 ------------------------- --------- -------------- ---------------- ------------ At beginning of 12,966 584 1,174 14,724 year ------------------------- --------- -------------- ---------------- ------------ 11 Fixed assets - Tangible Group FREEHOLD LONG LEASEHOLD PLANT AND TOTAL PROPERTIES PROPERTIES VEHICLES Â£'000 Â£'000 Â£'000 Â£'000 ------------------------- --------- -------------- ---------------- ------------ Cost or valuation At beginning of year 6,129 1,909 74,117 82,155 Additions at cost 42 853 15,121 16,016 Disposals - (23) (18,415) (18,438) Subsidiaries disposed - (181) (9,988) (10,169) ------------------------- --------- -------------- ---------------- ------------ At end of year 6,171 2,558 60,835 69,564 ------------------------- --------- -------------- ---------------- ------------ Cost 2,881 1,773 60,835 65,489 Valuation 1995 3,290 785 - 4,075 ------------------------- --------- -------------- ---------------- ------------ Depreciation At beginning of year 479 234 36,360 37,073 Charge for year 88 55 10,702 10,845 Disposals - (23) (11,327) (11,350) Subsidiaries disposed - (53) (4,228) (4,281) ------------------------- --------- -------------- ---------------- ------------ End of year 567 213 31,507 32,287 ------------------------- --------- -------------- ---------------- ------------ Net book value At end of year 5,604 2,345 29,328 37,277 ------------------------- --------- -------------- ---------------- ------------ At beginning of year 5,650 1,675 37,757 45,082 ------------------------- --------- -------------- ---------------- ------------ Historic cost net book value 2003 6,132 2,325 29,328 37,785 ------------------------- --------- -------------- ---------------- ------------ 2002 6,120 1,655 37,757 45,532 ------------------------- --------- -------------- ---------------- ------------ No depreciation was charged against freehold or long leasehold buildings up to 1995. For the year ended 31 March 2003, the Profit and Loss Account has been charged with Â£166,000 (2002: Â£148,000) depreciation. The historic cost of revalued properties was Â£5,078,000 (2002: Â£4,173,000). The net book value of plant and vehicles held under finance leases included above was Â£nil (2002: Â£nil). Previous valuations were frozen as allowed under the transitional provisions of FRS 15. The carrying value relating to the previous valuation performed as at 31 March 1995 has been carried forward in this year's Preliminary Announcement. 11 Fixed assets - Tangible Company PLANT AND VEHICLES Â£'000 ----------------------------------------------------------------- ----------- Cost At beginning of year 2,224 Additions 358 Disposals (437) ----------------------------------------------------------------- ----------- At end of year 2,145 ----------------------------------------------------------------- ----------- Depreciation At beginning of year 1,352 Charge for the year 387 Disposals (302) ----------------------------------------------------------------- ----------- At end of year 1,437 ----------------------------------------------------------------- ----------- Net book value At end of year 708 ----------------------------------------------------------------- ----------- At beginning of year 872 ----------------------------------------------------------------- ----------- 12 Work in progress and stocks GROUP COMPANY 2003 2002 2003 2002 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------- ------- ---------- ---------- --------- Work in progress 39,939 43,346 - - Payments received on account (17,787) (21,324) - - Goods for resale 3,120 1,684 - - ------------------------------- ------- ---------- ---------- --------- 25,272 23,706 - - ------------------------------- ------- ---------- ---------- --------- 13 Debtors GROUP 2002 COMPANY 2002 2003 Â£'000 2003 Â£'000 Â£'000 Â£'000 ---------------------------------- ------- -------- -------- -------- Trade debtors 86,542 82,013 7 - Owed by subsidiary undertakings - - 28,215 17,115 Other debtors 2,650 2,065 1,173 1,677 Prepayments and accrued income 3,124 3,045 409 541 ACT recoverable - 14 - - ---------------------------------- ------- -------- -------- -------- 92,316 87,137 29,804 19,333 ---------------------------------- ------- -------- -------- -------- Included in other debtors is the sum of Â£209,000 (2002: Â£314,000) falling due after one year. 14 Investments GROUP 2002 COMPANY 2002 2003 Â£'000 2003 Â£'000 Â£'000 Â£'000 ---------------------------------- ------- -------- -------- -------- Unlisted investments 3,880 - - - ---------------------------------- ------- -------- -------- -------- Included in unlisted investments are deposits totalling Â£3,880,000 held by the Group's insurance subsidiary which are not readily available for the general purposes of the Group. 15 Creditors - due within one year GROUP COMPANY 2003 2002 2003 2002 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------- ------- -------- -------- -------- Bank loans unsecured and overdraft - - - 32 Obligations under finance leases 12 28 - - Payments received on account 1,706 2,876 - - Trade creditors 78,163 71,673 895 416 Owed to subsidiary undertakings - - 9,810 7,362 Corporation tax 5,807 5,269 - - Other taxes and social security 18,188 16,003 479 335 Other creditors 4,762 1,309 - 262 Accruals and deferred income 10,270 9,057 3,137 3,539 Proposed dividends 3,473 4,772 3,324 4,623 ------------------------------------- ------- -------- -------- -------- 122,381 110,987 17,645 16,569 ------------------------------------- ------- -------- -------- -------- 16 Creditors - due after one year GROUP 2002 COMPANY 2002 2003 Â£'000 2003 Â£'000 Â£'000 Â£'000 ----------------------------------- ------- -------- -------- -------- Obligations under finance leases 29 27 - - ----------------------------------- ------- -------- -------- -------- Finance leases are repayable between one and two years and are secured by related leased assets. 17 Financial assets and liabilities 2003 2002 Â£'000 Â£'000 ---------------------------------------------------------------------------- ------- ------- Maturity of Borrowings The maturity profile of the Group's financial liabilities was as follows: In one year or less, or on demand 12 28 In more than one year but not more than two years 29 27 ---------------------------------------------------------------------------- ------- ------- 41 55 ---------------------------------------------------------------------------- ------- ------- Short term debtors, current asset investments and creditors have been excluded from the analysis. Cash at bank is held at normal commercial rates. Borrowings At the year end, undrawn committed bank borrowing facilities amounted to Â£60,000,000 (2002: Â£35,000,000) which are all renewable within one year. Interest rates At 31 March 2003, the Group had financial liabilities of Â£41,000 (2002: Â£55,000). These liabilities are under a fixed rate of interest at normal commercial rates. Included within liabilities are immaterial amounts in respect of finance leases. Hedging The Group's policy is to use derivative instruments to hedge against exposure to movements in exchange rates. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. There are no unrecognised gains or losses at 31 March 2003. Currency exposure As at 31 March 2003, the Group had no currency exposure. Fair values The Directors consider that the fair value of financial assets and liabilities is not materially different to their book value. 18 Provision for liabilities and charges DEFERRED TAX INSURANCE RESERVE Â£'000 Â£'000 2003 Â£'000 --------------------------------- ------------ ----------------- -------- Provisions At beginning of year 1,496 - 1,496 Disposal during the year (366) - (366) Arising during the year (302) 2,194 1,892 --------------------------------- ------------ ----------------- -------- At end of year 828 2,194 3,022 --------------------------------- ------------ ----------------- -------- Deferred tax in respect of the Group's defined benefit schemes is disclosed in Note 28. The balance relates to the excess of net capital allowances over depreciation. The provision for insurance claims represents amounts payable by MITIE Reinsurance Company Ltd in respect of outstanding claims incurred at the balance sheet dates. This is expected to be utilised over the next year. The subsidiary established during the year is the Group's self insurance company. 19 Called up share capital ORDINARY SHARES OF 2 1/2p NUMBER Â£'000 --------------------------------------------------- ---------------- ------- Authorised 340,000,000 8,500 --------------------------------------------------- ---------------- ------- 2003 Allotted and fully paid At beginning of year 288,783,767 7,220 --------------------------------------------------- ---------------- ------- Issued as Directors' remuneration 70,808 2 Issued for acquisitions 10,586,208 265 Issued under share option schemes 2,745,831 69 --------------------------------------------------- ---------------- ------- At end of year 302,186,614 7,556 --------------------------------------------------- ---------------- ------- 2002 Allotted and fully paid At beginning of year 279,638,628 6,991 Issued as Directors' remuneration 60,000 2 Issued for acquisitions 6,737,040 168 Issued under share option schemes 2,348,099 59 --------------------------------------------------- ---------------- ------- At end of year 288,783,767 7,220 --------------------------------------------------- ---------------- ------- Options outstanding under the Savings Related Share Option Schemes at 31 March 2003 were as follows: OPTION PRICE DATE ORDINARY SHARES OF 2 1/2 P EACH EXERCISABLE 2003 2002 ------------ ----------- ------------- ------------- 31 1/2 p 2001 - 95,276 37 1/2 p 2002 10,488 917,056 85 p 2004 1,038,124 1,250,988 150 p 2005 1,049,922 1,334,768 125 p 2006 944,244 1,153,332 110 p 2007 2,109,354 - ------------- ------------- 5,152,132 4,751,420 ------------- ------------- Options outstanding under the Executive Share Option Schemes at 31 March 2003 were as follows: OPTION PRICE DATE ORDINARY SHARES OF 2 1/2 P EACH EXERCISABLE 2003 2002 ------------ ----------- ------------- ------------- 21 p 1998 - 2005 - 50,000 31 1/2 p 1999 - 2006 - 40,000 50 p 2001 - 2006 - 1,500,000 57 3/4 p 2001 - 2008 1,036,400 1,256,400 95 p 2002 - 2009 931,000 1,016,000 173 3/4 p 2003 - 2010 698,000 813,600 145 p 2004 - 2011 809,600 892,600 117 p 2005 - 2012 1,121,050 - 99 p 2006 - 2013 200,000 - ------------ ----------- ------------- ------------- 4,796,050 5,568,600 ------------ ----------- ------------- ------------- 20 Share capital and reserves CALLED UP SHARE REVALUATION OTHER SHARE PREMIUM RESERVE RESERVE PROFIT CAPITAL ACCOUNT (i) ACCOUNT AND LOSS TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ---------------- -------- ---------- ------------ ---------- ---------- -------- Group At beginning of 7,220 25,483 (503) - 42,291 74,491 year Shares issued 336 - - - - 336 Net premium - 16,012 - - - 16,012 arising on shares issued Retained profit - - - - 13,740 13,740 for the financial year Additional - - (5) - 5 - depreciation on revalued assets Issue of shares in - 553 - - (553) - connection with the exercise of share options Goodwill - - - - 321 321 transferred to Profit and Loss Account on disposal of subsidiaries Transfer to other - - - 994 (994) - reserve ---------------- -------- ---------- ------------ ---------- ---------- -------- Balance at end of 7,556 42,048 (508) 994 54,810 104,900 year ---------------- -------- ---------- ------------ ---------- ---------- -------- Company At beginning of 7,220 25,483 - - 36,411 69,114 year Shares issued 336 - - - - 336 Net premium - 16,012 - - - 16,012 arising on shares issued Retained profit - - - - 10,226 10,226 for the year Issue of shares in - 553 - - (553) - connection with the exercise of share options ---------------- -------- ---------- ------------ ---------- ---------- -------- Balance at end of 7,556 42,048 - - 46,084 95,688 year ---------------- -------- ---------- ------------ ---------- ---------- -------- (i) Other reserve is non-distributable The profit attributable to Shareholders in the Accounts of the Company was Â£15,962,000 (2002: Â£8,504,000). Prior to the adoption of FRS 10 on 1 April 1998, goodwill eliminated against reserves amounted to Â£26,673,000 (2002: 26,994,000). During the year, 949,831 (2002: 1,576,593) Ordinary Shares of 2 1/2p each were issued to the MITIE Group PLC Qualifying Employee Share Ownership Trust (QUEST). The difference between the market value and the option price receivable has been eliminated against the Profit and Loss Account. Included in both the Company and the Group share premium accounts are amounts relating to premiums arising on shares issued subject to the provisions of Section 131 of the Companies Act 1985. 21 Net cash inflow from operating activities 2003 2002 Â£'000 Â£'000 ---------------------------------------------------------- ------- ------- Operating profit 30,324 29,967 Depreciation 10,845 11,809 Amortisation and impairment of goodwill 2,324 640 Profit on sale of tangible fixed assets (525) (678) (Increase)/ Decrease in work in progress and stocks (1,566) 514 (Increase) in debtors (5,193) (16,706) Increase in creditors 12,265 11,749 ---------------------------------------------------------- ------- ------- 48,474 37,295 ---------------------------------------------------------- ------- ------- 22a Purchase of subsidiary undertakings ALIGNMENT FAIR VALUE BOOK VALUE OF ACCOUNTING POLICIES Â£'000 Â£'000 Â£'000 ------------------------------------------------- ----------- ----------- Fixed assets 122 (55) 67 Work in progress and 228 - 228 stocks Debtors 1,227 - 1,227 Bank and cash 211 - 211 Creditors (825) - (825) Tax (191) - (191) Minority interest 5,823 - 5,823 ------------------------------------------------- ----------- ----------- 6,595 (55) 6,540 Goodwill 12,469 ------------------------------------------------- ----------- ----------- Total purchase 19,009 consideration Shares issued - MITIE Group ( 14,032) PLC ------------------------------------------------- ----------- ----------- ------------------------------------------------- ----------- ----------- Cash consideration 4,977 Bank and cash acquired (211) ------------------------------------------------- ----------- ----------- 4,766 ------------------------------------------------- ----------- ----------- The effect of the acquisitions on the results for the Group for the year are not material and therefore are not shown separately on the Profit and Loss Account. The businesses' contributions to Group net operating cash flow, interest paid, tax paid and capital expenditure were not material. The above items relate principally to the acquisition of minority interests in MITIE Managed Services (North and Scotland) Ltd (formerly MITIE Managed Services Ltd) in May 2002 and MITIE Deeds Ltd in December 2002 and were accounted for by the acquisition method of accounting. Scotgate Engineering Services Ltd which was acquired in December 2002 earned a profit after taxation of Â£58,000 in the six month period ended 31 March 2003 (year ended 30 September 2002: Â£366,000), of which a loss of Â£25,000 arose in the period from 1 October 2002 to 19 December 2002. 22b Disposal of subsidiary undertakings 2003 Â£'000 ---------------------------------------------------------------------- ------ Tangible fixed assets 5,888 Net working capital 4,393 Overdraft (6,396) Finance lease (55) ---------------------------------------------------------------------- ------ Net assets 3,830 Minorities (202) Related goodwill - Post FRS 10 578 - Pre FRS 10 321 ---------------------------------------------------------------------- ------ 4,527 Profit on disposal 457 ---------------------------------------------------------------------- ------ Total consideration 4,984 - cash 4,984 Overdraft disposed 6,396 ---------------------------------------------------------------------- ------ Total cash effect 11,380 ---------------------------------------------------------------------- ------ The above items relate principally to the disposal of MITIE Access Ltd, MITIE Access (Northern) Ltd, MITIE Access (North East) Ltd, MITIE Access (Scotland) Ltd and MITIE Access (Southern) Ltd in June 2002. The profit after taxation up to the date of disposal of these companies was Â£140,000 and for the last financial year was Â£315,000. The businesses contributions to Group net operating cash flow, interest paid, tax paid and capital expenditure were not material. 23 Analysis of changes in net funds AT 31 CASHFLOWS NON ACQUISITIONS DISPOSALS AT 31 MARCH CASH MARCH 2002 FLOWS 2003 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ------------ -------- ---------- ------- ---------- --------- ------ Cash at bank 25,106 23,240 - (4,766) 11,380 54,960 and in hand ------------ -------- ---------- ------- ---------- --------- ------ Net cash 25,106 23,240 - (4,766) 11,380 54,960 Debt due (751) - 751 - - - within one year Finance (55) (41) - - 55 (41) leases ------------ -------- ---------- ------- ---------- --------- ------ Debt (806) (41) 751 - 55 (41) financing ------------ -------- ---------- ------- ---------- --------- ------ Current asset - 3,880 - - - 3,880 investments ------------ -------- ---------- ------- ---------- --------- ------ Net funds 24,300 27,079 751 (4,766) 11,435 58,799 ------------ -------- ---------- ------- ---------- --------- ------ 24 Reconciliation of net cash flow to movement in net funds 2003 2002 Â£'000 Â£'000 -------------------------------------------------------- ------- ------- Increase in cash during year 29,854 18,971 Cash inflow from movement in debt and lease financing 765 11 Cash inflow from movement in liquid resources 3,880 - -------------------------------------------------------- ------- ------- Movement in net funds in the year 34,499 18,982 Net funds at beginning of year 24,300 5,318 -------------------------------------------------------- ------- ------- Net funds at end of year 58,799 24,300 -------------------------------------------------------- ------- ------- 25 Contingencies The Company is party with other Group companies to cross guarantees of each other's bank overdrafts. The Company and various of its subsidiaries are, from time to time, parties to legal proceedings and claims which are in the ordinary course of business. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position. Contingent consideration, to be satisfied in shares, for the acquisition of subsidiary undertakings is dependent upon future profits of those subsidiaries and at the discretion of MITIE. It is not possible to quantify accurately, in advance, the final amounts which may become payable. In connection with the sale of The Platform Company (UK) Ltd (formerly MITIE Powered Access Ltd), the Group has guaranteed lease commitments amounting to Â£2,723,000. These commitments reduce to Â£1,049,000 and Â£nil at the end of the next two years respectively. Against these guarantees, the Group has received indemnities from the Group's bankers of Â£464,000 and from the suppliers of the leased equipment of Â£602,000, giving a net contingent liability of Â£1,656,000. 26 Commitments 2003 2002 Â£'000 Â£'000 ------------------------------------------------------------ ------- ------- Capital commitments as follows: Contracted for but not provided for in the Accounts 161 - ------------------------------------------------------------ ------- ------- 2003 2002 PROPERTY OTHER PROPERTY OTHER Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------- -------------- -------- ------- Annual commitments under operating leases which expire: Within one year 345 144 313 49 In second to fifth years inclusive 658 251 792 802 Over five years 1,179 5 882 5 ------------------------------------------- -------------- -------- ------- 2,182 400 1,987 856 ------------------------------------------- -------------- -------- ------- 27 Investment in subsidiary undertakings SHARES AT PROVISION FOR NET BOOK COST IMPARIMENT VALUE Â£'000 Â£'000 Â£'000 ---------------------------------- ---------- -------------- ------------ At beginning of year 56,696 (2,766) 53,930 Additions 18,602 - 18,602 Disposals (2,410) - (2,410) Provisions in the year (net) - (4,035) (4,035) ---------------------------------- ---------- -------------- ------------ At end of year 72,888 (6,801) 66,087 ---------------------------------- ---------- -------------- ------------ The principal operating subsidiary undertakings are detailed in Note 31. 28 Pensions In November 2000, the Accounting Standards Board (ASB) issued FRS 17 'Retirement Benefits', replacing SSAP 24 'Accounting for Pension Costs'. In November 2002, an amendment to FRS 17 was published which allowed an extension to the transitional arrangements of FRS 17. The probability of implementation is uncertain and partly dependent upon proposals from the International Accounting Standards Board (IASB). The Group will take advice to ensure that it continues to adopt the best practice in respect of accounting for retirement benefits. The Group is in the second year of the transitional arrangements under FRS 17 and the required disclosures to the extent not given in (a) are set out in (b). (a) SSAP 24 The Group operates two defined benefit pension schemes called the MITIE Group PLC Pension Scheme and the MITIE Group PLC Passport Pension Scheme. The assets of both Schemes are held separately from the Group, being invested in UK equities and with insurance companies. Contributions to the Schemes are charged to the Profit and Loss Account so as to spread the cost of pensions over the employees working lives with the Group. The contributions are determined by a qualified actuary on the basis on triennial valuations using the projected unit credit method. The pension charge for the year was Â£3,251,000 (2002: Â£3,034,000). MITIE Group PLC Pension Scheme The most recent valuation was at 6 April 2002. It was assumed that: Investment return - pre retirement 7.00% Investment return - post retirement 5.50% Salary increases 4.50% Present and future pension increases 3.00% The next actuarial valuation is due on 6 April 2005. The 2002 actuarial valuation showed that the market value of the assets was Â£24,401,000 and that the actuarial value of those assets represented 87% of the benefits that had accrued to members after allowing for expected future increases in earnings. The contributions of the Group and employees are 10% (2002 10%) and 7.5% (2002 7.5%) of pensionable earnings respectively. MITIE Group PLC Passport Pension Scheme The most recent valuation was at 6 April 2002. It was assumed that: Investment return - pre retirement 7.00% Investment return - post retirement 5.50% Salary increases 4.50% Present and future pension increases 3.00% The next actuarial valuation is due on 6 April 2005. The 2002 actuarial valuation showed that the market value of the assets was Â£581,000 and that the actuarial value of those assets represented 67% of the benefits that had accrued to members after allowing for expected future increases in earnings. The contributions of the Group and employees total 32% (2002 23.5%) with employees contributing between 1.5% and 6%. (b) FRS 17 (Retirement Benefits) As stated above, the Group operates two defined benefit pension schemes. The valuations used for the FRS 17 disclosure have been based on the most recent actuarial valuations at 6 April 2002, updated to 31 March 2003 by a qualified actuary. As required by SSAP 24, the figures included in the Preliminary Announcement in respect of the Group pension schemes are based on actuarial valuations carried out at 6 April 2002. This does not take into account any impact of the fall in general stock market values since that date. Any such impact will be reflected in the next SSAP 24 triennial valuation as at 6 April 2005 based upon which subsequent pension costs will be determined until the adoption of FRS 17. The figures currently used for accounting purposes as regards pension costs are likely to change significantly as and when FRS17 is adopted. The costs of death in service benefit for members of the scheme are fully insured by the Schemes. The projected unit valuation method has been used. The major financial assumptions used by the actuary were: AT 31 MARCH AT 31 MARCH 2003 2002 ------------------------------------------------------------- ------------ ------------ Discount rate 5.50% 6.25% Rate of increase in salaries 3.50% 3.50% Rate of increase of pensions in payment (pre April 2002) 3.00% 3.00% Rate of increase of pensions in payment (post April 2002) 2.50% 3.00% Rate of increase of deferred pensions 2.50% 2.75% Inflation assumption 2.50% 2.75% ------------------------------------------------------------- ------------ ------------ The assets of the Schemes and expected rates of return were: LONG TERM RATE OF VALUE AT LONG TERM RATE OF VALUE AT RETURN EXPECTED AT 31 MARCH EXPECTED RETURN AT 31 MARCH 31 MARCH 2003 2003 31 MARCH 2002 Â£'000 2002 Â£'000 ------------------------------------- ---------- ------------------ ----------- Equities 7.25% 19,284 7.25% 18,947 Bonds 5.50% 3,343 5.75% 3,022 Others 4.00% 3,316 5.00% 2,825 ------------------------------------- ---------- ------------------ ----------- Total market 25,943 24,794 value of assets Present value of (37,051) (25,850) Schemes' liabilities ------------------------------------- ---------- ------------------ ----------- Deficit in the (11,108) (1,056) schemes Related deferred 3,333 317 tax asset ------------------------------------- ---------- ------------------ ----------- Net pension (7,775) (739) liability ------------------------------------- ---------- ------------------ ----------- Analysis of amount that would have been charged to operating profit under FRS 17 AT 31 MARCH 2003 Â£'000 ---------------------------------------------------------------- ----------- Current service cost 2,285 ---------------------------------------------------------------- ----------- Total operating charge 2,285 ---------------------------------------------------------------- ----------- Analysis of amount that would have been charged to interest under FRS 17 AT 31 MARCH 2003 Â£'000 ---------------------------------------------------------------- ----------- Expected return on pension Schemes' assets 1,836 Interest cost (1,723) ---------------------------------------------------------------- ----------- Net return 113 ---------------------------------------------------------------- ----------- The amount recognised in the statement of total recognised gains and losses had FRS 17 been operative would have been as follows: % OF SCHEME AT 31 MARCH ASSETS 2003 Â£'000 -------------------------------------------------- ------------ ----------- Actual return less expected return on pension 20% (5,061) Schemes' assets Changes in financial assumptions underlying the 23% (6,035) Schemes' liabilities -------------------------------------------------- ------------ ----------- Actuarial loss recognised in the statement of total (11,096) recognised gains and losses -------------------------------------------------- ------------ ----------- Movements in deficit during the year AT 31 MARCH 2003 Â£'000 -------------------------------------------------- ------------ ----------- Deficit in Schemes at beginning of year (1,056) Movement in year Current service cost (2,285) Contributions 3,216 Past service costs - Other finance income 113 Actuarial loss (11,096) -------------------------------------------------- ------------ ----------- Deficit in Schemes at the end of the year (11,108) -------------------------------------------------- ------------ ----------- The impact to the Balance Sheet and Reserves at 31 March 2003 of adopting FRS 17 would be as follows: AT 31 MARCH AT 31 MARCH 2003 2002 Â£'000 Â£'000 -------------------------------------------------- ------------ ----------- Net assets excluding pension liability 112,564 83,245 Net pension liability (7,775) (739) -------------------------------------------------- ------------ ----------- Net assets including pension liability 104,789 82,506 -------------------------------------------------- ------------ ----------- Profit and loss reserve excluding pension 54,810 42,291 liability Net pension liability (7,775) (739) -------------------------------------------------- ------------ ----------- Profit and loss reserve including pension 47,035 41,552 liability -------------------------------------------------- ------------ ----------- 29 Other interests in shares The Company has been notified of the following interests in 3% or more of the issued share capital of the Company as at 3 July 2003. NUMBER OF ORDINARY SHARES OF % OF SHARE 2 1/2 P EACH CAPITAL --------------------------------- --------------------------- ----------- Fidelity Corp. and Fidelity 24,529,883 8.12 International Ltd Prudential plc 12,273,605 4.06 --------------------------------- --------------------------- ----------- 30 Subsequent events On 2 July 2003, the Group acquired the entire share capital of Trident Safeguards Ltd ('Trident'). The consideration comprises an initial amount of Â£8,200,000 payable in cash on completion with additional consideration according to future profitability payable in cash and loan notes. The additional consideration is split as follows: â€¢ Â£1,000,000 payable on the first anniversary of the acquisition if an agreed profit threshold for the year ended 31 March 2004 is met; â€¢ Â£2,000,000 payable at any time between 2006 and 2010 if an agreed profit threshold is met; and â€¢ if this threshold is exceeded then an additional amount will become payable, with the total consideration for Trident capped at Â£20,000,000. In the year to 31 March 2003, Trident's turnover was Â£23,400,000, pre-tax profits of Â£812,000 and the company had net assets of Â£933,000. On 3 July 2003, the Group acquired the entire share capital of Eagle Pest Control Services UK Ltd ('Eagle'). The consideration comprises initial consideration of Â£2,800,000 payable in cash with additional consideration based on future profitability, also payable in cash. The additional consideration is split as follows: â€¢ Â£1,200,000 payable at any time between 2008 and 2013 if an agreed profit threshold is met; and â€¢ if this profit threshold is exceeded then an additional amount will become payable, with the total consideration for Eagle capped at Â£6,000,000. In the year to 31 March 2003, Eagle's turnover was Â£4,139,000, pre-tax profits of Â£447,000 and the company had net assets of Â£1,124,000. 31 Principal Operating Subsidiary and Associated Companies The companies set out below are those which were part of the Group at 31 March 2003 and in the opinion of the Directors significantly affected the Group's results and net assets during the year. AT 31 MARCH 2003 % ORDINARY SHARES OWNED ------------------------------------------------------------------------------ Scotland B MITIE Engineering Services (Scotland) 100 Ltd B MITIE Engineering Maintenance (Caledonia) 62 Ltd S MITIE Envirocare Ltd 100 B MITIE HydroCat Ltd 100 B MITIE Lindsay Ltd 96 S MITIE Olscot Ltd 100 S MITIE Security (Scotland) Ltd 61 B MITIE Property Services (Scotland) Ltd 100 B MITIE McCartney Fire Protection Ltd 72 ------------------------------------------------------------------------------ North B MITIE Air Conditioning (North) Ltd 51 S MITIE Cleaning (North) Ltd 100 B MITIE Engineering Services (Leeds) Ltd 56 B MITIE Engineering Services (North) Ltd 100 B MITIE Engineering Maintenance (North) 69 Ltd B MITIE Greencote Ltd 69 B MITIE Engineering Services (Liverpool) 70 Ltd B MITIE Engineering Projects Ltd 62 B MITIE Property Services (North East) 100 Ltd B MITIE Property Services (North West) 100 Ltd S MITIE Security (North) Ltd 80 ------------------------------------------------------------------------------ Midlands B MITIE Air Conditioning (Midlands) Ltd 61 S MITIE Cleaning (Midlands) Ltd 100 B MITIE Engineering Services (Midlands) 55 Ltd B MITIE Property Services (Midlands) Ltd 56 B MITIE Roofing Services Ltd 60 ------------------------------------------------------------------------------ South East B MITIE Air Conditioning (London) Ltd 65 S MITIE Business Services Ltd 51 S MITIE Cleaning (South East) Ltd 100 S MITIE Cleaning (Southern) Ltd 100 B MITIE Engineering Maintenance Ltd 68 B MITIE Engineering Services (Eastern) 100 Ltd B MITIE Engineering Services (London) Ltd 100 B MITIE Engineering Services (South East) 100 Ltd S MITIE Landscape (Southern) Ltd 64 B MITIE Flooring (Southern) Ltd 57 B MITIE Interiors Ltd 67 B MITIE Property Services (Eastern) Ltd 63 B MITIE Property Services (London) Ltd* 100 B MITIE Property Services (Southern) Ltd 100 B MITIE Roofing (South East) Ltd 100 S MITIE Security (Southern) Ltd 90 ------------------------------------------------------------------------------ South West B Cole Motors Ltd 100 B MITIE Air Conditioning (South West) Ltd 100 B MITIE Air Conditioning (Wales) Ltd 54 S MITIE Air Conditioning (West) Ltd 51 S MITIE Cleaning (South Wales) Ltd 100 S MITIE Cleaning (South West) Ltd 100 S MITIE Engineering Maintenance (South 56 West) Ltd B MITIE Engineering Services (Bristol) Ld 100 B MITIE Engineering Services (Cardiff) 100 Ltd B MITIE Engineering Services (Peninsula) 52 Ltd B MITIE Engineering Services (South West) 100 Ltd B MITIE Engineering Services (Swansea) 56 Ltd S MITIE Managed Services (South West and 73 Wales) Ltd B MITIE Property Services (Western) Ltd 100 B MITIE Roofing (South West) Ltd 100 ------------------------------------------------------------------------------ National S MITIE Catering Services Ltd 51 B MITIE Cleanrooms Ltd 65 B MITIE Engineering Services (Retail) Ltd 54 B MITIE Environmental Ltd 62 B MITIE Generation Ltd * 100 S MITIE Managed Services Ltd 100 S MITIE PFI Ltd 100 B MITIE Scotgate Ltd 62 B MITIE Scientific Projects Ltd 51 B MITIE Technology Ltd 66 S Service Management International Ltd 33 ------------------------------------------------------------------------------ Administration B MITIE Access Systems Ltd 100 S MITIE Cleaning Ltd 100 B MITIE Engineering Services Ltd 100 MITIE Property Investments Ltd 100 B MITIE Property Services Ltd 100 MITIE QUEST Trustee Ltd 100 MITIE Reinsurance Company Ltd 100 * Shareholdings held by intermediate subsidiary undertakings B Building Services S Support Services ------------------------------------------------------------------------------ All companies were incorporated in and operate within the United Kingdom, except for MITIE Reinsurance Company Ltd which was registered and operates in Guernsey. Certain companies operate on the basis of 13 four weekly periods and have drawn up their accounts to 5 April 2003. Adjustments have been made on consolidation to exclude the results of these companies for the period from 31 March 2003 to that date. The Group has a 33% interest in an associate company, Service Management International Ltd. As this is not considered material, separate disclosure of its results, assets or liabilities have not been included in the Preliminary Announcement. The companies listed above represent the principal operating subsidiary companies of the Group. A full list of subsidiary companies will be annexed to the next annual return. END OF PRELIMINARY ANNOUNCEMENT This information is provided by RNS The company news service from the London Stock Exchange

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