Interim Results

MITIE Group PLC 08 December 2003 EMBARGO: THE CONTENTS OF THIS RELEASE ARE SUBJECT TO EMBARGO UNDER STOCK EXCHANGE REGULATIONS UNTIL 0700 AM 8 DEC 2003 MITIE Group PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 'We have produced another good performance in the first six months and we are confident that MITIE will have a successful year.' Ian R Stewart, Chief Executive. • Turnover growth driven by expansion in support services • Consistent profit margins • Successful integration of acquisitions • 38% increase in dividend • High levels of contract retentions and awards FINANCIAL HIGHLIGHTS 2003 2002 Turnover £316.3m £277.1m up 14% Profit before tax - pre goodwill £ 18.5m £ 16.0m up 16% Profit before tax £ 17.6m £ 15.4m up 14% Earnings per share - pre goodwill 3.7p 3.5p up 6% Earnings per share 3.4p 3.3p up 3% Dividend per share 1.1p 0.8p up 38% Notes: MITIE: Management Incentive Through Investment Equity ACTIVITY: MITIE, the services company, maintains, manages and improves buildings and infrastructure for its customers. FOR FURTHER INFORMATION: On 8 December 2003: Ian Stewart, Chief Executive, MITIE Group PLC Mobile: 07979 701002 Ruby McGregor-Smith, Finance Director, MITIE Group PLC Mobile: 07979 701004 John Telling, Corporate Affairs, MITIE Group PLC Mobile: 07979 701006 at UBS Investment Bank, 1 Finsbury Avenue Press Room: 020 7568 8737 Switchboard: 020 7567 8000 Subsequently: MITIE Group PLC, Head Office 01934 862006 Chief Executive's Review David Telling This review takes place at a time of great sadness throughout MITIE and beyond. Our founder, David Telling, died on 31 October 2003 after a long illness. Many tributes have already been paid by a host of luminaries to the amazing commercial and entrepreneurial abilities of David. I would like to take this opportunity to pay my own tribute. I first met David in 1973 when his former company HAT acquired ICC Cleaning Services for whom I then worked. Life was never dull working for David in those days but nothing was to compare with the fireball of energy that was released after the hostile acquisition of HAT by BET in 1986. That event proved to be the catalyst that brought together two fundamental elements in David's philosophy - Opportunity and Ownership. The opportunity to become successful and an environment that allowed you to own that success and not to have it snatched from you by people and events outside your control. Underpinning the concept of MITIE was David's innate belief in fairness and justice. A belief that you could structure a highly successful company that could decide its own future free from the pain, the grief and the traumas caused by commercial predators. Without David's drive and focus MITIE would not exist. His vision was to form a Group in which the employees were given the opportunity to acquire equity in their own companies which on earn-out would provide them with wealth far and away beyond their wildest dreams. He was selfless and an inspirational leader. The words 'thank you' and gratitude just do not convey the depth of appreciation the employee shareholders of MITIE have. The best tribute we can ever pay to David is to keep his vision burning brightly. To make sure that his legacy lives on not just for this, but also for succeeding generations of MITIE entrepreneurs. Operational Review Our results for the period show a consistent level of growth and I am pleased with our performance. We have maintained margins across all of our services. The two acquisitions, Trident Safeguards Ltd and Eagle Pest Control Services UK Ltd, are being successfully integrated and four traditional MITIE start-up companies have commenced trading. We have continued to increase our market share and have made particularly good progress in Catering Services and Security. Financial results MITIE has performed well over the six months to 30 September 2003. We have maintained the growth in profit and turnover at rates in excess of 10%. • Turnover was £316.3m, an increase of 14.2% over last year. • Profit before tax (pre goodwill) increased by 15.7% to £18.5m. • Earnings per share (pre goodwill) rose by 5.7% to 3.7p. At 30 September 2003, our cash balance was £38.2m. This is £16.8m lower than our March 2003 figure. £11.4m of this change relates to the acquisitions of Trident Safeguards and Eagle Pest Control and the remainder relates to the increased working capital requirements of MITIE in the period. Subsequent to 30 September 2003, we acquired Executive Holdings Ltd for £9.99m (see note 6). As we have previously stated, we recognise that cash ultimately belongs to our Shareholders and that it is our responsibility to ensure that they receive the maximum long term return on their assets. We intend to maintain a reasonable level of cash within the business. This will ensure that we have a solid Balance Sheet that will give our customers continued assurance about MITIE's financial stability. We also intend to continue with strategic bolt on acquisitions where appropriate. Dividend The Board has declared an interim dividend of 1.1p per share (2002:0.8p), an increase of 38%. Historically MITIE has increased dividends in line with earnings. The Board has decided that, in recognition of the cash generative nature of our business and the reduction in emphasis on capital-intensive activities, the dividend cover can now be reduced. Revenue visibility Our forward visibility of revenue continues to increase as contract terms lengthen. As a result, 54% of next year's revenue is already committed. Market sectors MITIE has a broad mix of customers and performs over 22,000 contracts each year. We source our work from the majority of market sectors. In the first half of the year, 67% of our work came from the private sector and 33% from the public sector. Operational Performance Support Services Support Services has continued to make good progress. The companies continue to work together to deliver combinations of our services. Examples of bundled contract awards in the past six months include: Brent Cross Shopping Centre, which had been a maintenance contract but is now a full FM contract where we are delivering management, cleaning, security, maintenance and waste management; Dell Computer Corporation, where we are delivering cleaning and security; and Newcastle City Airport, where we are providing cleaning and maintenance services. Support Services is becoming an increasingly important part of MITIE and will be our main focus for future growth. Cleaning Cleaning has performed satisfactorily in the period and has been successful in securing contract extensions and renewals with the Palace of Westminster and BNFL Magnox in Oldbury (South West). Contract awards included Clifford Chance, Del Monte and Computacenter. We started MITIE Industrial Cleaning (North) Ltd and MITIE Services (Retail) Ltd which has secured contracts with Tesco and the John Lewis Partnership. Catering Services Catering has developed well. It has completed the mobilisation of the Rolls-Royce contract and has renewed and doubled the size of its contract with the MoD for the Cotswolds and Gloucestershire Garrisons. Landscaping Services and Pest Control Services Landscaping continues to gain further business and expand geographically with a new landscape company in the North. Our pest control acquisition, Eagle Pest Control, has produced initial results in line with targets and we are pleased with the way the business is being integrated. Security Services The acquisitions of Trident Safeguards and post period end Executive Holdings Ltd have taken our security business to a different level. We now have a business that is of sufficient critical mass that we can service our customers nationally. The Trident team has integrated well and the initial results are encouraging. Managed Services Managed Services has had an excellent period of trading. The National Probation Service contracts are now fully mobilised and we have been awarded additional work with Land Securities Trillium for Employment Services. In addition, a number of FM contracts have been secured to deliver services to PFI projects over the next 25 years. Business Services Business Services is carving a niche in London providing post room, telephony, document handling, and reception services to law firms and financial institutions. Contract awards in the period include The Financial Services Authority and Rolls-Royce in Derby. Engineering Maintenance Engineering Maintenance has produced solid results and increased its national contracts base with awards which include Ashworth Hospital and the National Blood Transfusion Service. The rate of contract renewals has been high and we are seeing the benefit of its focus on providing a first class quality service with well trained competent employees. Building Services Building Services is more exposed to the cyclical nature of the construction market and has not been growing at its historic rates. There are some encouraging signs but a consistent picture has yet to emerge. Engineering Services Engineering has suffered due to contract start dates being deferred, but I am pleased to say that during the last two months of the period under review, there were signs that this situation was beginning to ease. The South East is still showing few signs of a private sector recovery and the business has diversified into a higher number of public sector contracts. The regions, however, remain strong, particularly the South West, Wales and the North of England. Contract awards include a significant contract with Annington Homes for utilities and infrastructure maintenance. Our company which specialises in social housing has extended its contract with Rochdale City Council. We have started two new companies to extend our regional coverage, MITIE Engineering Services (North East) Ltd and MITIE Engineering Services (Edinburgh) Ltd. Property Services Property Services has had a slower start to the year than was anticipated. The South East region has experienced a difficult first six months. Although, orders are now beginning to flow in and we are looking forward to a better second half of the year. The major contract award has been with Royal Sun Alliance to perform maintenance and repair works in Scotland and the South of England. Other significant contracts include a roofing project with Halifax Schools and a repair and painting term contract with Warwick County Council. A contract to fit out the Superstar Dressing Rooms at the BBC TV Centre in White City has been won, together with work for Arcadia. Generation Generation has performed steadily during the first six months. A new branch has been opened in Northampton to increase national coverage. Generation has now started to supply equipment to the film industry. Outlook MITIE has had a history of continuous growth for over sixteen years. We have a business that is sufficiently flexible to be able to respond to change and produce good results. As the needs of our customers change we will always ensure that we are in a position to react to their demands. We have a loyal and highly skilled workforce together with motivated management who respond to the increasing demand for integrated, self delivered services, nationally. The Board remains confident that this trend will continue and we will have another successful year. Ian R Stewart Chief Executive 8 December 2003 Summary Group Profit & Loss Account -------------------------------------------------- Six months to 30 September Year to 31 March 2003 2002 2003 (unaudited) (unaudited) (audited) £'000's £'000's £000's -------- -------- -------- Turnover - Continuing 316,321 273,503 562,288 operations - Discontinued - 3,552 3,552 operations -------- -------- -------- 316,321 277,055 565,840 ---------------------------- -------- --- -------- --- -------- --- Operating profit (before goodwill amortisation) 17,529 15,289 32,648 Goodwill amortisation (885) (577) (2,324) ---------------------------- -------- --- -------- --- -------- --- Operating Profit - Continuing 16,644 14,434 30,046 operations - Discontinued - 278 278 operations -------- -------- -------- 16,644 14,712 30,324 Interest receivable 932 668 1,465 -------- -------- -------- Profit before tax 17,576 15,380 31,789 Tax (5,748) (4,731) (10,188) -------- -------- -------- Profit after tax 11,828 10,649 21,601 Minority interest (1,621) (933) (2,125) -------- -------- -------- Profit for the period 10,207 9,716 19,476 Dividend (3,327) (2,392) (5,736) -------- -------- -------- Retained profit 6,880 7,324 13,740 -------- -------- -------- Earnings per share - Basic 3.4p 3.3p 6.5p - Diluted 3.4p 3.3p 6.5p - Basic before goodwill amortisation 3.7p 3.5p 7.3p -------- -------- -------- Profit on ordinary activities before taxation and goodwill amortisation and impairment 18,461 15,957 34,113 Summary Group Balance Sheet -------------------------------------------------- At At At 30 30 31 September September March 2003 2002 2003 (unaudited) (unaudited) (audited) £000's £000's £000's -------- -------- --------- Fixed assets Intangible assets 37,108 23,092 24,291 Tangible assets 40,625 37,921 37,277 -------- -------- --------- 77,733 61,013 61,568 -------- -------- --------- Cash at bank and in hand 38,157 48,098 54,960 Current asset investments 6,344 3,931 3,880 Other current assets 143,692 99,810 117,588 Creditors - due within one year (135,947) (107,978) (122,381) -------- -------- --------- Net current assets 52,246 43,861 54,047 -------- -------- --------- Total assets less current liabilities 129,979 104,874 115,615 Creditors - due after more than one year (3,417) - (29) Provision for liabilities and charges (5,262) (1,145) (3,022) -------- -------- --------- 121,300 103,729 112,564 -------- -------- --------- Capital and Reserves Called up share capital 7,561 7,474 7,556 Share premium account 42,278 39,221 42,048 Other reserves 486 (497) 486 Profit & loss account 61,690 51,476 54,810 -------- -------- --------- Equity Shareholders' funds 112,015 97,674 104,900 Minority interest 9,285 6,055 7,664 -------- -------- --------- 121,300 103,729 112,564 -------- -------- --------- Summary Group Cash Flow -------------------------------------------------- Six months to 30 September Year to 31 March 2003 2002 2003 (unaudited)(unaudited)(audited) £'000's £'000's £'000's Net cash inflow from operating activities 13,562 21,800 48,474 Returns on investments and servicing of finance 793 668 1,495 Tax paid (5,630) (4,823) (10,655) Capital expenditure (8,444) (5,836) (8,007) Acquisitions (11,375) (961) (4,766) Disposals - 12,919 11,380 Equity dividends paid (3,423) (2,154) (7,035) -------- -------- --------- Net cash inflow before financing (14,517) 21,613 30,886 Management of liquid resources (2,464) - (3,880) Financing Issue of share capital 235 2,170 2,862 Cash outflow from decrease in debt (57) (791) (14) -------- -------- --------- (Decrease)/increase in cash in the period (16,803) 22,992 29,854 -------- -------- --------- Reconciliation of net cash flow to movements in net funds: (Decrease)/increase in cash in the period (16,803) 22,992 29,854 Cash inflow from movement in debt and lease financing 69 791 765 Cash inflow from movement in liquid resources 2,464 - 3,880 -------- -------- --------- Movement in net funds in the period (14,270) 23,783 34,499 Opening net funds 58,799 24,300 24,300 -------- -------- --------- Closing net funds 44,529 48,083 58,799 -------- -------- --------- Reconciliation of operating profit to operating cash flows : Operating profit 16,644 14,712 30,324 Depreciation 6,173 5,301 10,845 Amortisation of goodwill 885 577 2,324 Profit on sale of tangible fixed assets (499) (283) (525) (Increase)/decrease in working capital (9,641) 1,493 5,506 -------- -------- --------- Net cash inflow from operating activities 13,562 21,800 48,474 -------- -------- --------- Notes 1 Basis of preparation The Interim Financial Statements have been prepared on the basis of accounting policies consistent with those set out in the Group's Annual Report & Accounts for the year ended 31 March 2003 and were approved by the Board of Directors on 5 December 2003. The accounting information contained in the Interim Report for 2004 does not comprise a full set of accounts within the meaning of Section 240 of the Companies Act 1985. The interim results for the periods to 30 September 2002 and 2003 are unaudited and unreviewed by our auditors. The financial information for the year ended 31 March 2003 has been extracted from the Annual Report & Accounts which received an unqualified auditors' report and has been delivered to the Registrar of Companies. 2 Segmental analysis -------- ------- -------- -------- ------- Activity TURNOVER PRE-TAX PROFIT PROFIT BEFORE PRE-TAX PROFIT BEFORE TAX INTEREST, TAX PROFIT AND AND GOODWILL MARGIN GOODWILL £'000 £'000 £'000 £'000 % -------- ------- -------- -------- ------- Six months to 30 September 2003 Support Services 159,611 10,333 10,751 10,433 6.5% Building Services 156,710 7,243 7,710 7,096 4.6% -------- ------- -------- -------- ------- ------------------- -------- ------- -------- -------- ------- Total 316,321 17,576 18,461 17,529 5.6% ------------------- -------- ------- -------- -------- ------- Six months to 30 September 2002 Support Services 126,223 7,878 8,075 7,910 6.2% Building Services 150,832 7,502 7,882 7,379 5.0% ------------------- -------- ------- -------- -------- ------- Total 277,055 15,380 15,957 15,289 5.6% ------------------- -------- ------- -------- -------- ------- Included within the Support Services segment above are amounts that relate to companies acquired in the year. These include turnover of £7,135,000 (2002: £nil) and pre-tax profit of £406,000 (2002: £nil). Included within the Building Services segment above are amounts that relate to discontinued activities. These include turnover of £nil (2002: £3,552,000) and pre-tax profit of £nil (2002: £202,000). ----------- ---------- --------- -------- Turnover 2003 2002 2002 TOTAL CONTINUING CONTINUING DISCONTINUED ACTIVITIES* ACTIVITIES OPERATIONS £'000 £'000 £'000 £'000 ----------- ---------- --------- -------- Support Services Cleaning 74,510 66,764 - 66,764 Catering Services 4,448 1,914 - 1,914 Landscaping and Pest Control 1,408 - - - Security 11,175 3,003 - 3,003 Managed Services 39,018 31,882 - 31,882 Engineering Maintenance 29,052 22,660 - 22,660 ---------------- ----------- ---------- --------- -------- Total 159,611 126,223 - 126,223 ---------------- ----------- ---------- --------- -------- Building Services Engineering 82,746 74,245 - 74,245 Property Services 58,603 59,749 - 59,749 Generation 15,361 13,286 3,552 16,838 ---------------- ----------- ---------- --------- -------- Total 156,710 147,280 3,552 150,832 ---------------- ----------- ---------- --------- -------- *There are no discontinued activities in the period 3 Dividend The interim dividend of 1.1p per Ordinary Share will be paid on 31 March 2004 to Shareholders on the Register on 5 March 2004. 4 Earnings per share The calculation of earnings per share is based upon the profit for the period attributable to holders of Ordinary Shares. The weighted average number of Ordinary Shares in issue for the period was 302,302,600 (30 September 2002 - 295,922,364; year to 31 March 2003 - 297,979,470). The calculation of diluted earnings per share using the principles of FRS14 is based on a weighted average number of shares, allowing for the exercise of outstanding share options, of 302,513,600 (30 September 2002 - 297,572,232; year to 31 March 2003 -298,190,470). The calculation of earnings per share before goodwill amortisation follows the guidelines set down by the Institute of Investment Management and Research (IIMR) and is based on the profit after deduction of tax and minority interest but before goodwill amortisation of £885,000 (2003 - £577,000; year to 31 March 2003 - £2,324,000). 5 Purchase of subsidiary undertakings ----------- --------- --------- Eagle Pest Trident Total Control Safeguards Services UK Ltd Ltd £'000 £'000 £'000 ----------- --------- --------- Fixed assets 472 109 581 Work in progress and stocks 77 - 77 Debtors 1,024 3,965 4,989 Bank and cash 197 (275) (78) Creditors (630) (2,717) (3,347) Tax (107) (320) (427) ----------------------------- ----------- --------- --------- 1,033 762 1,795 Goodwill 3,039 10,663 13,702 ----------------------------- ----------- --------- --------- Total purchase consideration 4,072 11,425 15,497 Contingent consideration (1,200) (3,000) (4,200) ----------------------------- ----------- --------- --------- Cash consideration 2,872 8,425 11,297 Bank and cash acquired (197) 275 78 ----------------------------- ----------- --------- --------- Cash outflow in the period 2,675 8,700 11,375 ----------------------------- ----------- --------- --------- The book values which also equate to the provisional fair values of the assets and liabilities acquired are noted above. The effects of the acquisitions on the results for the Group for the half year to 30 September 2003 are not material and therefore are not shown separately on the Profit & Loss Account and Summary Group Cash Flow. Trident Safeguards was acquired on 2 July 2003. The company's profit before taxation was £303,000 in the period from acquisition to 30 September 2003 (year ended 31 March 2003: £812,000). Eagle Pest Control was acquired on 3 July 2003. The company's profit before taxation was £103,000 in the period from acquisition to 30 September 2003 (year ended 31 March 2003: £447,000). 6 Subsequent events On 7 October 2003, MITIE acquired minority shareholdings of the following four subsidiary companies in accordance with their Shareholders' Agreements: MITIE Engineering Maintenance Ltd ('MEM'); MITIE Property Services (Midlands) Ltd ('MPS Midlands'); MITIE Engineering Services (Peninsula) Ltd ('MES Peninsula'); and MITIE Greencote Ltd ('Greencote'). The total consideration for all four acquisitions amounted to £8,339,000 satisfied as to £211,000 in cash and as to the remaining £8,128,000 by the issue of 6,608,203 new Ordinary Shares of 2.5p each in MITIE, valued at £1.23 per share (being the mid market price per MITIE share on 2 October 2003). As a result of these acquisitions MITIE now owns 100% of MEM, MPS Midlands and MES Peninsula and 96.9% of Greencote. On 4 November 2003, MITIE acquired 100% of the issued share capital of Executive Holdings Ltd ('Executive'), a security and cleaning business, for £9.99m. Executive's unaudited accounts for the 52 weeks to 6 October 2003 showed turnover of £39.3m and operating profit before amortisation of £638,000. There will be limited synergy benefit in the current financial year, but targeted cost savings of £1.25m are expected in 2004/2005. The last audited accounts for Executive are for the 32 weeks ending 6 October 2002 and show turnover of £23.8m, operating profit before amortisation of £180,000, loss before tax of £923,000 and net assets of £3.8m. Included in the loss before tax was an amount of £660,000 for the goodwill impairment of a business in which Executive no longer has an interest. Included in the net assets was an amount of £5.6m of goodwill. Copies of this statement will be posted to all Shareholders and will be available to the public from the Company's Head Office at The Stable Block, Barley Wood, Wrington, Bristol BS40 5SA. This information is provided by RNS The company news service from the London Stock Exchange

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