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MITIE Group PLC (MTO)

  Print          Annual reports

Thursday 09 June, 2022

MITIE Group PLC

Full year results for the year ended 31 March 2022

RNS Number : 2558O
MITIE Group PLC
09 June 2022
 

9 June 2022

Mitie Group plc

LEI number: 213800MTCLTKEHWZMJ03

 

Full year results for the twelve months to 31 March 2022

"Strong financial performance, reinstated final dividend and share buyback announced"

 

Highlights

 

· Revenue including share of joint ventures and associates1 of £3,997m, up 58% (FY21: £2,529m), boosted by new contract wins, as well as good growth at Interserve Facilities Management (Interserve) and £448m from flexible rapid-response COVID-related contracts

· Operating profit before other items1,2 of £167m, up 184% (FY21: £59m) with higher operating profit margin of 4.2% (FY21: 2.3%) due to the contribution from the higher margin, flexible rapid-response COVID contracts

· Operating profit after other items of £72m (FY21: £4m), reflecting the stronger performance this year

· The legacy Interserve business has performed well with 90% of contracts renewed in the period and cost synergies of £30m

· New contract wins, renewals/extensions and projects of approximately £3. 8bn total contract value, with renewal rates of 90%.  Book to bill ratio of 105%1

· Average daily net debt for the year ended 31 March 2022 fell to £25m (FY21: £47m); net cash of £27m at year end

· Free cash inflow3 of £133m (FY21: outflow of £25m) due to increased profitability and lower working capital

· Acquisitions of £27m in fast growing, high return businesses; disposal of Mitie Document Management for £40m

· EPS before other items of 9.2p significantly increased due to higher operating profit combined with a lower effective tax rate (FY21: 3.1p)

· Final dividend recommended of 1.4 pence per share, taking total dividend for FY22 to 1.8 pence per share (FY21: nil)

· Initial £50m share buyback programme launched as part of strategy to increase returns to shareholders

 

Results for the twelve months ended 31 March 2022

 

Continuing operations1

£m unless otherwise specified

Twelve months to

31 March 2022


Twelve months to

31 March 20211,2


 


Before other items3

Other items3

Total

Before  other  items3

Other items3

Total

 

Revenue including share of JVs & associates

3,997


3,997

2,529


2,529

 

Group revenue

3,903


3,903

2,499


2,499

 

Operating profit

167

(95)3

 72

59

(55)

4

 

Operating profit margin

4.2%

 

1.8%

2.3%

 

0.2%

 

Profit/(loss) before tax

147

(95)

52

41

(55)

(14)

 

Profit/(loss) for the period

128

(97)

31

33

(47)

(14)

 

Basic earnings/(loss) per share

9.2p


2.2p

3.1p

-

(1.3)p

 

Dividend per share



1.8p



Nil

 

Cash generated from operations



264



39

 

Free cash flow3



133



(25)

 

Average daily net (debt)



(25)



(47)

 

Closing net cash/(debt)



27



(87)


Total order book 4



£9.5bn



£9.3bn

 

1.  From continuing operations. The results of the Document Management business and the operations in the Nordics and Poland, which were disposed in H1 FY22, are represented within discontinued operations as described in Note 5 to the condensed consolidated financial statements. 

2.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for Software as a Service (SaaS) arrangements as a result of the International Financial Reporting Interpretations Committee (IFRIC) agenda decision. Refer to Note 1 to the condensed consolidated financial statements. 

3.  Other items are as described in Note 4 to the condensed consolidated financial statements.  In FY22 £68.0 m relates to non-cash items, including amortisation of intangible assets (£21.9m) and Interserve completion accounts receivable adjustment (£45.6m).

4.  Total order book includes secured fixed term contract work, variable (including estimated unsecured work) and project work.

Commenting on the FY22 results, Phil Bentley, Group Chief Executive, said:

 

" Through our investment-led strategy, Mitie has reached an inflection point earlier than anticipated.  We delivered a strong financial performance in FY22, with good underlying growth.  The Group is now able to leverage its capital base to focus on long-term value creation, accelerating investment in growth and delivering enhanced shareholder returns.

 

"Thanks to the hard work of our 72,000 colleagues, Mitie has recovered strongly from the pandemic, delivering a r ecord £4bn of revenue in FY22 , operating profit of £167m and free cash flow of £133m. The Interserve business is performing strongly under our stewardship and our ability to rapidly mobilise flexible contracts led to robust COVID-related business.  Our underlying business performed well in the year, growing 14%.

 

"Our strategy - focused on accelerating growth, enhancing margins and improving cash generation - is creating a strong platform to further improve earnings.   Our robust balance sheet and significant free cash flow allowed for continued investment in high return acquisitions across decarbonisation (Rock Power Connections and Biotecture), telecoms maintenance (DAEL Ventures UK), and intelligent security (Esoteric).  Two further telecoms maintenance businesses (P2ML and 8point8) were acquired early in FY23 and today we announce we have entered into a Sale & Purchase Agreement (SPA) for Custom Solar, a solar power solutions company.

 

"Underpinning our strategy is our 'Science of Service' offering , which we launched in the final quarter of FY22.  This provides a solution to our customers whose workspaces require greater hygiene, intelligent security, and critical asset monitoring backed by data analytics, whilst our internal technology is driving productivity gains and cost efficiencies, supporting our margin enhancement strategy.  Our technology is a key driver of both our new contract wins including projects - up to £2.1bn TCV in the year - and our high renewals rates - 90% in the period.

 

"As part of our strategic focus on long-term value creation, our revised medium term capital allocation policy will focus on investments in high margin bolt-on acquisitions, whilst increasing shareholder returns.  The Board is recommending a reinstatement of the final dividend of 1.4p and Mitie will now commence an initial £50m share buyback programme.

 

"The current year has started well, with significant contract wins from Hammerson, Netflix, Poundland, and Primark as well as renewals/extensions of our contracts to support military bases in Cyprus, Ascension Islands, and the Falklands. This new business momentum, together with a full year's contribution from significant contract wins including FDIS and BAE and the uptick in Government projects and variable works (as our customers experience higher utilisation rates across their buildings), gives us confidence in our growth outlook. The impact of inflation on our business continues to be well managed and we will see further benefits this year from our margin enhancement initiatives. As a result, in FY23, after excluding the £448m COVID related contract work that was delivered in FY22, we expect to deliver mid to high single digit revenue growth, together with good operating margin progress."

-END-

This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of the Company is Peter Dickinson, Chief of Staff and General Counsel.

 

The Chief Executive's Review, Operating Review and Finance Review follow from page 4.

 

Analyst Presentation and Q&A

Phi l Bentley (CEO) and Simon Kirkpatrick (CFO) will host a presentation and Q&A session today (9 June 2022) at 9.30am at The Shard and via a webcast.  For dial in details please contact [email protected] .  A copy of the presentation will be available on the company website in advance of the live presentation, www.mitie.com/investors .

 

For further information

 

Fiona Lawrence

Group IR Director

 

M: +44 (0)738 443 9112

E: [email protected]

Claire Lovegrove

Head of Media Relations

M: +44 (0)790 027 6400

 

 

E: [email protected]

 

Richard Mountain

FTI Consulting

M: +44 (0)790 968 4466


 

 

About Mitie


Founded in 1987, Mitie's job is to look after places where Britain works and is the leading facilities management company in the UK. We offer a range of services to the Public Sectors in Central Government and Defence and Communities (Healthcare, Education and Campus & Critical).  Our Technical Services (Engineering Services, Energy, Water and Real Estate Services) and Business Services (Security, Cleaning and Office Services) divisions serve private sector customers in Telecoms, Financial & Professional Services, Transport and Industrials and increasingly to the public sector. Finally, our Specialist Services (Care & Custody, Landscapes, Waste Management and Spain) division serves both the public and private sectors in these niche businesses.

 

Mitie acquired Interserve's facilities management business on 30 November 2020 and now employs 72,000 people. We are the champion of the 'Frontline Heroes' who have kept Britain working during the COVID pandemic. We take care of our customers' people and buildings, through the 'Science of Service', delivering essential services and deploying industry-leading technology to create safe and effective workspaces.


The business continues to execute its technology-led strategy and in the past twelve months has received multiple awards - the top three from each division are listed below.  Find out more at
www.mitie.com .

 

Corporate

· Top Employer, Top Employers Institute, 2022

· UK Inclusive Top 50 Employers, Inclusive Companies, 2021

· A- Climate Change score, CDP, 2021

 

Business Services

· Outstanding Contract Security Company (Guarding), Outstanding Security Performance Awards, 2022

· Security Guarding Company of the Year, Fire & Security Matters, 2022

· Sustainable Company of the Year, Cleaning Excellence Awards, 2021

 

Central Government & Defence

· RoSPA Gold Award, Royal Society for the Prevention of Accidents, 2022

· Collaboration Award, IWFM Impact Awards, 2021

· Government Outsourcing Awards - Best low carbon capital project with Landmarc and Defence Infrastructure Organisation (DIO)

 

Communities

· Gold Award, National Union of Students Green Impact competition, 2022

· People's Choice Award, Government Property Awards, 2021

· Green Apple Award, The Green Organisation, 2021

 

Technical Services

· Fleet of the Year (Over 1,000 vehicles), Fleet News Awards, 2022

· RoSPA Gold Award, Royal Society for the Prevention of Accidents, 2022

· Positive Climate Action award, IWFM Impact Awards, 2021

 

Waste

· RoSPA Waste Management & Recycling Industry Sector Award, Royal Society for the Prevention of Accidents, 2022

· Three Stars for 'Bin the Bag' campaign, Zero Waste Awards, 2021

· Green Apple for Environmental Best Practice, Green Apple Awards, 2020

 

Landscapes 

· RoSPA Gold Award, Royal Society for the Prevention of Accidents, 2022

· Best Landscaping Company Over £5m Turnover, ProLandscaper Business Awards, 2021

· Three Gold Leaf Awards, plants at work

 

Chief Executive's strategic review

 

Overview

 

Through our investment-led strategy, Mitie has reached an inflection point earlier than anticipated.  We delivered a strong financial performance in FY22, with good underlying growth.  The Group is now able to leverage its capital base to focus on long-term value creation, accelerating investment in growth and delivering enhanced shareholder returns.

 

Margin-accretive growth strategy

 

We announced a new strategy last June which focuses on accelerating growth, enhancing margins, and improving cash generation.  Our strategy targets mid-single digit revenue growth, margins of 4.5-5.5%, sustainable free cash flow, and a return on invested capital ( ROIC) in excess of 20%, over the medium term.

 

Mitie's strategy is to be the market leader in its core businesses of Cleaning, Security and Technical Services, deploying industry-leading technology and skills ('Science of Service') in post-COVID workspaces, as the strategic partner of both the public and private sectors, and be recognised as a 'Great Place to Work'. 

 

Accelerated growth

 

Our priority is to retain and grow existing contracts alongside a focus on winning new contracts.  In FY22, we won, renewed, or extended contracts including projects with a total contract value (TCV) of up to £3.8bn.

 

We have invested in sales during the year, and FY22 represented our most successful year of contract wins (including projects) with up to £2. 1bn TCV, including BAE, the Defence Infrastructure Organisation (DIO) (Future Defence Infrastructure Services contract (FDIS) (Scotland & Northern Ireland)), Home Office, Legal & General, FMSP Clyde, Westfield shopping centres, City of Edinburgh Council and Swansea University.  We have already won c. £100m TCV in FY23 including Hammerson, Netflix, Poundland and Primark which in total adds £56m of annualised new contract revenue for FY23.

 

A total of £1.7bn TCV of contracts were renewed or extended in the year, including Co-op, Gibraltar, Heathrow Airport, Marks & Spencer and Department for Transport.  Our renewal rate is 90%, which is slightly lower than historical rates due to a small number of contract losses and our decision not to seek the renewal of a number of low margin contracts.

 

Prior to the acquisition, Interserve's contract renewal rates were significantly lower than Mitie's.  It is therefore pleasing that we have renewed or extended 90% of Interserve contracts that have come up for renewal.  These renewals are driven by Mitie's technology and innovative solutions, and our improved customer service - reflected in a 31 point improvement in our Interserve customer net promoter score to +13 points (from -18 points).  Since the year end, we have successfully extended the contract for the overseas military bases in Cyprus, Ascension Islands, and the Falklands , continuing our solid track record of renewing former Interserve customer contracts.

 

As part of the Interserve acquisition, we highlighted the opportunity to insource work contracted to third parties by Interserve.  For the full year we have insourced £36.5m of contracts, largely across the waste, landscapes and security service lines.

 

Our total order book ( secured fixed term contract work, variable (including estimated unsecured work) and project work) has increased to £9.5bn (FY21: £9.3bn) driven by new wins across the Central Government & Defence and Technical Services divisions, and renewals in Business Services.  The book to bill ratio (the relationship between orders received and revenue recognised) is 105%.  The pipeline is buoyant and includes opportunities from the latest Government framework RM6232, which offers significant opportunities for growth.

 

Complementing our organic growth initiatives, our strategy also includes expanding our portfolio through infill acquisitions in high growth sectors.  In total, £27m was invested in telecoms site acquisition and maintenance, decarbonisation and intelligent security businesses.  DAEL Ventures UK was acquired on 5 August 2021, Rock Power Connections on 1 November 2021, Esoteric on 17 November 2021 and Biotecture on 1 February 2022.  Since the year end, we have added two further telecoms site acquisition and maintenance companies to the telecoms division, P2ML and 8point8, and today announce we have entered into a Sale & Purchase Agreement (SPA) for Custom Solar, a solar power solutions company.  During the year we sold the Document Management business for £40m.  Acquisitions will be funded out of free cash flow or from existing debt facilities, whilst maintaining leverage below 1x average net debt to EBITDA before other items. 

 

Margin enhancement

 

Margin enhancement is a key focus of our strategy.  Our goal is to d eliver margins of between 4.5% and 5.5% over the medium term.  This will be achieved from the Interserve cost synergies, improving the performance of the handful of Interserve loss-making contracts, a focus on operational excellence to improve contract profitability, savings from automating workflow management and better procurement processes. 

 

In FY22, we delivered £30m of Interserve cost synergies, ahead of our target of £ 25m due to an earlier than expected reduction in headcount.  Overall, 459 roles have been removed, of which 275 were in this period , and three further properties were exited, taking the total to 11 properties.  The increased scale of the Group has generated a further £5m of procurement savings in the year.  With an exit run rate of £40m in FY22, we are on course to achieve our newly revised higher cost synergy target of £45m by the end of FY23.

 

Further margin enhancement will come from improving the performance of the small number of loss-making contracts acquired with Interserve in our Communities division.  A new management team was put in place on 1 April 2021 and, utilising expertise from around the Group and externally, good progress has been made improving operational KPIs.  This has helped to reduce financial penalties and improve customer NPS.  While we have made good progress in FY22, there is still further work to be done to bring these loss-making contracts up to and beyond the 'break-even' point.

 

Following the success of our operational excellence initiative in the Communities division, we have now extended this initiative more broadly across other parts of the Group in order to eliminate process waste, reduce the Cost of Poor Quality, and minimise workflow variation.  Deep dive diagnostics into key contracts have already identified up to £10m of savings over the next two years.

 

The digital supplier platform went live in several Mitie divisions in the final quarter of FY22, providing the Group with real visibility of where we spend our customers', and our own, money with our Supply Chain.  Through this system we control our purchases using a digital catalogue and ensure complete transparency over our £1.4bn of third-party spend.  We are targeting £10m of savings over FY23 and FY24.  The transparency over our third-party spend also highlights insourcing opportunities in those areas where Mitie delivers equivalent services, such as Landscaping, Waste, Cleaning and Projects.

 

Workflow automation, which incorporates Workplace Plus and Forté, is expected to release £15m from overhead savings by FY24.  Our Workplace Plus scheduling and attendance solution and InTouch mobile app have been rolled out to all of our frontline Cleaning and Security workforce.  This brings efficiency in workforce management at scale, allows our employees to access their pay details and shift plans directly from their mobile phones, and enables supervisors to support frontline colleagues working on customer sites with any queries, 24/7.

 

By successfully consolidating all our finance operations including those from Interserve into Mitie's SAP platform, we are driving further efficiencies in the 'back office' process.  A fifth (19%) of our customers' bills are now generated and issued automatically with Forté enabling further automation across billing and financial processing. 

 

Through our industry-leading IBM computer aided FM (CAFM) solutions we now actively manage over one million assets for our customers, allowing us to dynamically schedule our engineers, ensuring they are always in the location where the work needs to be done, with the tools and information they need for the job and, using Forté,  linking into the billing and financial processing.

 

Through our "big data" solutions we can produce real-time reporting on how buildings and their equipment are performing. This gives us the insights required to drive operational excellence for our customers, as well as providing access to MI via Mitie's award-winning Mozaic software, which has now been rolled out to around 150 customers.  Our award winning, AI-driven Aria app and chatbot Esme, which enable customers and their employees to manage their spaces and raise any issues that need resolving through a simple app without a need to contact call centres, are also being rolled out to Mitie customers.

 

Lastly, additional cost savings are expected to mitigate any inflationary costs which we are not able to pass through to our customers.  This is focused particularly on a reduction in spans and layers, and further operational automation related to process efficiency of core functions and outsourcing. 

 

Cash generation

 

Mitie generated £133m of free cash in FY22 from increased profitability and further improvements in working capital management.   During the year £27m was invested in four bolt-on acquisitions in the high growth sectors of telecoms site acquisition and maintenance, decarbonisation and intelligent security, and £5.7m was returned to shareholders through the interim dividend.

 

Ensuring that we continue to generate good operating cash flows is a key strategic priority, and we have improved working capital efficiency in FY22 by reducing overdue debt and speeding up billing cycles.  Robotic process automation solutions for customer billing have helped us to deliver a two-day reduction in our DSO, and automation in our payment process has delivered enhanced accuracy and transparency over supplier payments, ensuring that our suppliers are paid on time.

 

In addition, we are focused on reducing our non-trading cash outflows.  Our priorities are to return capex and other items to more normalised levels, following the integration of Interserve and completion of Project Forté , and to reduce our finance costs following the renegotiation of our financing arrangements, including more recently the planned termination of our invoice discounting facility, and to reduce our cash tax through the utilisation of tax losses acquired with Interserve.

 

Capability enablers

 

Our growth and margin enhancement strategy is underpinned by three capability enablers: the Science of Service, creating a great place to work, and leading the industry in ESG/decarbonisation. 

 

The Science of Service

 

In the past few years, we have made substantial investments to develop cloud-based platforms which allow us to put technology and data at the centre of all our services to customers.  In a post-COVID world, our customers are looking for innovation to promote reassurance and wellbeing in the return to work, to drive productivity, and to prioritise sustainability.  Our technology provides this reassurance and innovation, enabling us to win and retain customers.

 

Our new approach, which is called the 'Science of Service', is powered by technology, driven by data and made exceptional by our people.  It is already providing organisations with real-time visibility using remote monitoring of critical assets and building management systems, as well as sensor technology and intelligence gathering. 

 

Our Technical Service Operations Centre (TSOC) which opened in Manchester in December, uses cutting-edge workplace technology to monitor thousands of pieces of equipment remotely, from boilers to lighting systems.  It enables teams of specialist engineers to run diagnostics, adjust settings, and to predict when maintenance is needed.  65% of faults on remotely monitored assets have been fixed directly from the TSOC rather than sending out a technician.  Customers are handing over access to their building management systems allowing Mitie to manage their environment.  One customer alone has reduced energy consumption by 16% since Mitie began monitoring their sites.

 

As part of this new approach, in the second half of FY22, we launched 'Mitie Intelligence Services', which is a risk assurance solution that integrates intelligence, technology and people.  Our Intelligence Services will support customers to build robust, risk-based security strategies to protect their businesses, both today and into the future.  This follows the opening of the Cleaning & Hygiene Centre of Excellence in February 2022, which showcases our demand-led cleaning and chemical free approach, using Merlin sensors, robotics, and other new technologies.  Laboratory results from our 'Citrox Protect' anti-COVID product, provide cleaning and hygiene reassurance for our customers. 

 

Creating a 'Great place to work'

 

With 72,000 colleagues at Mitie, a key enabler to our strategy is creating a 'Great place to work', and improving the skills and performance of our workforce, to deliver improved customer service, and empower our people to strive to continually improve performance.

 

Mitie's ambition is to be the destination employer of choice in the facilities management industry.  During FY22, we brought together the HR functions of Mitie and Interserve to create a team focused on employee experience, integrating 20,000 former Interserve employees into our systems and ways of working.

 

We continue to be a market leader in the provision of benefits to our frontline colleagues.  We launched new and enhanced benefits in FY22, including a salary advance offering, enabling our colleagues to draw down on the pay that they have earned in advance of payday, and enhanced maternity pay, adding to life assurance and Virtual GP benefits that we introduced in FY21.  We have also introduced an improved share incentive plan (SIP), our Mitie Matching Share Plan, through which our people receive a free share for every two that they buy, and will award up to 100 free shares to all our UK colleagues for the second year running.

 

Finally, listening and responding to colleagues' feedback is a crucial part of our commitment to becoming a 'Great place to work' and our annual Upload Survey showed an increase in participation rates to 47% with an engagement score of 50%. This was a 5ppt decrease compared to last year's survey (which was undertaken during COVID when engagement levels across large organisations saw a positive increase) but ahead of the 46% reported for FY20.

 

ESG & decarbonisation

 

Environmental, social and governance (ESG) initiatives form a key part of our philosophy of the way we do business at Mitie.  Our ambition is to be Net Zero carbon by 2025 ; we are committed to science-based targets to decarbonise our supply chain by 2035, as well as generate increased social value both internally with our colleagues and around the country.  

 

We are evolving our approach to equality, diversity and inclusion (ED&I) throughout the business, leading from the top.  This year we welcomed a new Head of ED&I to support our drive to nurture, support and develop our truly diverse and inclusive workforce, ensuring our colleagues broadly represent our customers, suppliers and the communities in which we operate. 

 

Mitie's ESG strategy has evolved from managing risk to become a driver of growth opportunities Our decarbonisation offering is focused on reducing carbon emissions across buildings, corporate estates, and fleet, enabling us to focus our skills on a high growth, high margin sector, whilst protecting the planet for future generations.  Through engineering design, delivery, and maintenance, underpinned by consulting and advisory support, we are supporting our customers to deliver their Net Zero carbon ambitions.

 

As part of our strategy to grow our decarbonisation offering we acquired Rock Power Connections a specialist in the design and installation of new high voltage electric supplies, including EV charging installation, and today we have entered into a Sale & Purchase Agreement (SPA) for Custom Solar, a solar power solutions company , specialising in development, design, installation and maintenance of solar systems for corporations and public institutions.

 

Through our decarbonisation project work we have supported customers to secure substantial public funding, including Essex County Council's £7m grant to install air source heat pumps, solar panels and window upgrades.  At the University of Sussex, Southwark Council, University College London Hospitals, Lloyds Bank Group, Vodafone, and Rolls Royce we delivered major projects to install air source heat pumps, solar panels, LED lighting and building fabric improvements.

 

We have also won a number of awards, including 'infrastructure project of the year' though Landmarc joint venture, at the Government Opportunities Public Procurement Awards. This was for the Net-Zero Carbon Accommodation Programme (NetCAP), which is transforming the lived experience for the Armed Forces using the UK Defence Training Estate to train whilst supporting the Ministry of Defence with its net-zero carbon goals.

 

Leveraging the Interserve acquisition

 

The operational integration of Interserve is complete.  We have identified a further £3m of cost synergies taking the new total to £45m by the end of FY23 and we are making good progress towards our revenue synergies target of £100m.

 

Our market-leading technology has been instrumental in renewing 90% of Interserve contracts and our ongoing investment in customer service has helped to significantly improve Interserve's NPS from -18 to +13, although with more work to do to get towards the +51 Mitie customer NPS.

 

We have prioritised the roll-out of Mitie's customer facing technology to Interserve customers, with the Mozaic MI dashboard now up and running for 13 customers, and a further seven in progress.  Aria, the workplace app, is now live or 'in delivery' with several Interserve customers, with over 5,000 users able to place service requests and manage their workspaces through automated booking. The roll-out of other Connected Workspace products such as Digital WorkPlace, Digital Maintenance, and UVC cleaning are in progress for another 12 of our strategic customers. 

 

All former Interserve employees are now migrated to Mitie's HR and payroll systems.  We have rolled out Learning Hub licences, and access to our e-learning content, and have made apprenticeships available to 20,000 former Interserve colleagues.  In addition, all former Interserve colleagues receive the enhanced Mitie benefits package, including free shares, life assurance and salary advances.

 

We now have a cohesive organisation and are embedding the Mitie culture and values across the entire workforce to provide a market-leading service to our customers.

 

Rapid response, flexible contracts for Government

 

We have been at the forefront of the Government's strategic response to COVID, standing up almost 300 COVID testing centres at short notice, rapidly mobilising 10,000 people across the UK and supporting the testing of 12m people.  We trained 4,000 people to conduct 10,000 'Amber list' checks per day, and recruited 1,500 employees to manage security at 70 'Red list' hotels.

 

In addition, we mobilised 1,000 people to provide support at 84 hotels for Afghan refugees, and mobilised a significant contract to provide security for UK ports post-Brexit.

 

Financial performance

 

Revenue

 

Revenue including share of joint ventures and associates, from continuing operations, and including the contribution from Interserve, was £3,997m, an increase of 58% compared with the same period last year (FY21: £2,529m).  This strong performance has been driven by public sector wins in Business Services and Central Government & Defence (CG&D), including rapidly mobilising short-term contracts as well as longer term (7+3 year) contracts, such as the Future Defence Infrastructure Services contract (FDIS) for Scotland and Northern Ireland.  Project works have increased significantly in FY22, notably in CG&D, and whilst Technical Services remains the division most significantly impacted by COVID due to a reduction in variable works, revenues from higher margin variable and project works have improved in the second half of the year. Excluding the revenue contribution from Interserve of £1,359m (FY21: £450m for four months) and the £448m from short-term COVID-related contracts (FY21: £155m), revenue growth in the underlying business in FY22 was 14%. 

 

Operating profit

 

Operating profit before other items, from continuing operations, was £167m in FY22, 184% ahead of the prior year (FY21: £59m), with margins of 4.2% (FY21: 2.3%).  Excluding COVID-related contracts, the operating profit margin before other items from continuing operations for FY22 was 3.0%.  This improvement reflects the strong revenue performance, cost saving initiatives, including £30m of Interserve cost synergies, and £59.6m of profit from the short-term COVID-related contracts, where the rapid mobilisation and flexibility requirements of the customer attracted higher margins.

 

Cash flow and balance sheet

 

Mitie has delivered free cash flow of £133m in FY22, as a result of the good operating profits and another good working capital performance.  We invested £27m in acquisitions in FY22, received £40m of proceeds from disposals, bought 22.9m shares for the Employee Benefit Trust and £5.7m was returned to shareholders via the interim dividend.

 

Average daily debt has improved to £25m (FY21: £47m).  The FY21 average daily net debt included £91m benefit of deferring payments under HMRC's Time to Pay (TTP) scheme, which was repaid in H2 FY21.  Closing net cash was £27m (FY21: £87m net debt).

 

Following the refinancing announced at the half year and the cash flow generated during the year, we now have a balance sheet which is strong, stable and flexible, to support future growth opportunities and increase returns to shareholders.

 

Inflation

 

As discussed in November 2021, 80%-90% of our contracts contain change of law and/or inflation clauses, enabling us to pass on the majority of inflation cost increases through to our customers. 

 

With labour cost inflation currently below headline market inflation rates, and with good contractual protection against inflation, to date, we have seen little impact to the bottom line from either labour or material cost inflation.  We have encountered cost inflation 'hot spots' across the business, where the cost of materials or specific areas of the labour market have increased at accelerated rates.  We remain confident with our previous guidance of an inflationary impact to the business of no more than £10 - 20m in FY23 which we will mitigate with our programme of cost savings.

 

Capital allocation

 

As the business has recovered well from the COVID pandemic, generating significant free cashflows in FY22, and is making good progress towards the delivery of its margin-accretive growth strategy, the Board has set out a revised medium term capital allocation policy.  The policy is focused on investing in bolt-on acquisitions to drive future growth, and increased shareholder returns, whilst maintaining leverage (average net debt/EBITDA) below 1x.

 

The Board intends to progress steadily towards a dividend pay-out of 30-40% and thereafter deliver long-term dividend growth in line with earnings growth, provided it is supported by cash flow and underlying earnings, and is justified in the context of our capital allocation strategy when taking into account M&A opportunities, and market outlook.

 

The Board is therefore recommending a final dividend of 1.4 pence per share which, when added to the dividend paid in respect of the first six months of the year, takes the total dividend for FY22 to 1.8 pence per share.  The final dividend will be paid on 5 August 2022.

 

Consistent with the Group's capital allocation strategy and reflecting our good cash flow generation, robust balance sheet and the positive outlook for the business, the Board today announces the launch of an initial £50m share buyback programme.

 

Outlook

 

The current year has started well, with significant contract wins from Poundland, Netflix and Primark as well as renewals/extensions from our MOD contracts in Cyprus, Ascension Islands, and the Falklands. This new business momentum, together with a full year's contribution from significant contracts won last year including FDIS and BAE Systems and the uptick in projects and variable works (as our customers see higher utilisation rates across their buildings), gives us confidence in our growth outlook.

 

The impact of inflation on our business continues to be well managed and we will see further benefit this year from our margin enhancement initiatives. As a result, in FY23, after excluding the £448m COVID related contract work that was delivered in FY22, we expect to deliver mid to high single digit revenue growth, together with good operating margin progress.

 

Operating review

 

Following the Interserve Facilities Management (Interserve) acquisition Mitie now operates under five divisions, with management expertise aligned along customer and service delivery lines.

 

Interserve was acquired by Mitie on 30 November 2020 and contributed a full twelve months of trading from 1 April 2021, to 31 March 2022, but only four months of trading in the year ending 31 March 2021.

 

The Group disposed of the Document Management business and the operations in the Nordics and Poland in the year ended 31 March 2022.  The results of these operations have been removed from Business Services and Technical Services respectively and included within discontinued operations.  All financial information reported below is for 'continuing operations' and is stated before other items.

 

Business Services

 

Business Services delivers Cleaning, Security and Office Services.  Business Services has also been responsible for Mitie's rapid-response COVID-related UK Government contracts across testing centres and quarantine services and, more recently security for hotels accommodating Afghan refugees.  On 1 April 2021, Business Services integrated several hundred contracts from the former Business & Industry division of Interserve, including sizeable contracts with the BBC, B&Q and TfL.  The Business Services healthcare (hospital) contracts were transferred to Communities from 1 April 2021 to create a focused Healthcare business unit and are therefore excluded from the Business Services comparative figures.

 

Business Services, £m

FY22

FY21

Change, %

Revenue

1,522

1,023

49%

Security1

1,127

709

59%

Cleaning

395

314

26 %

Operating profit before other items

108

48

125%

Operating profit margin before other items, %

7.1%

4.7%

2.4ppt

Total order book

£1.7bn

£1.7bn

-

Number of employees

38,092

40,782

(7)%

1 Document Management was sold on 30 September 2021 and is therefore excluded from 'continuing operations'.  The retained Office Services operations of Vetting and Front of House are reported within Security

 

Performance highlights

 

· Revenue growth of 49% to £1,522m (FY21: £1,023m) including £429m of rapid-response, flexible COVID-related revenue (FY21: £132m); underlying revenue growth of 11%

· Operating profit was 125% ahead of FY21 at £108m, boosted by higher margin short-term, flexible COVID-related contracts

· Up to £1.3bn TCV of new, renewed, or extended contracts including BBC, TfL, JLL, AS Watson, Broadway Bradford and Stansted Airport

· Acquisition of leading Counter Surveillance Measures specialist, Esoteric, on 17 November 2021

· Outstanding Security Performance Awards - Outstanding Contract Security Company (Guarding) (Feb 2022); Fire & Security Matters - Security Guarding Company of the year (April 2022) ; Cleaning Excellence Awards - Sustainable Company of the Year (Nov 2021)

 

Operational performance

 

Business Services had a very strong year supporting the UK Government with rapid response, flexible COVID-related services responding to increased demand for deep cleans from existing customers, and winning new contracts.

 

COVID-related contracts contributed revenue of £429m in the year (FY21: £132m).  Mitie mobilised almost 300 testing centres and mobile sites, assisting in the testing of 12 million members of the public, and employing 10,000 people.  In addition, Mitie provided security services to 'Red list' hotels - securing 70 hotels at the peak, with 1,500 officers, and conducted 2.5m home visits for travellers returning from 'Amber list' countries, training 4,000 officers.  All of these contracts have now ended.

 

Business Services won £0.5bn TCV of new contracts and projects , including BAE, Hitachi Rail, Westfield Shopping Centres, WPP Group and Hyundai, alongside £0.8bn TCV of renewals or extensions, including Marks & Spencer, AS Watson and NFU Mutual. 

 

In line with the Group's strategy to lead in the 'Science of Service', in the second half of the year, Business Services launched 'Mitie Intelligence Services', which is a risk assurance solution that integrates intelligence, technology and people.  Intelligence Services  supports customers to build risk-based security strategies to protect their businesses.   The Cleaning & Hygiene Centre of Excellence was opened earlier this year, showcasing demand-led cleaning through Merlin sensor technology, new technologies, robotics and products such as 'Citrox Protect', which provides cleaning and hygiene reassurance for our customers. 

 

Central Government and Defence (CG&D)

 

The CG&D business provides facilities management services across central government and defence contracts.  FY22 includes a full 12 months of Interserve revenue, whereas FY21 only included the four - month period from 1 December 2020 to 31 March 2021.

 

CG&D, £m

FY22

FY21

Change, %

Revenue including our share of joint ventures and associates

669

226

196 %

Central Government

379

127

198%

Defence

290

99

193%

Operating profit before other items

38

10

280%

Operating profit margin before other items, %

5.7%

4.4%

1.3ppt

Total order book

£1.6bn

£1.2bn

33%

Number of employees

5,578

5,302

5%

 

Performance highlights

 

· Revenue of £669m benefited from in-year contract wins and good growth in project work in the fourth quarter; the prior year reflects the final four months of FY21, which is historically the strongest period for CG&D

· Operating profit of £38m benefited from the increase in higher margin project works in the year, with margins improving to 5.7 %

· New contract wins of up to £0.7bn in the year with renewals or extensions worth £0.3bn ( 100% retention rate)

· CG&D won the best low carbon capital project with Landmarc and Defence Infrastructure Organisation ( DIO) at the recent Government Outsourcing Awards.  Landmarc designed and built replacement Net Zero accommodation units reducing our customer's energy costs and upgrading ageing assets

· The division also won the IWFM best Collaboration award with DIO for its work on the International Defence Estate

 

Operational performance

 

CG&D employs c.5,500 employees across 22 contracts and 30 government departments and agencies, at 3,000 locations across the UK and overseas.  This includes the maintenance of the 1% of the UK land mass that is reserved for the defence training estate.

When Interserve was acquired, our focus was on investing in technology and people to deliver operational excellence to our customers.  Mite has introduced Aria, Mozaic and new Azure Secure Cloud infrastructure, and has been rewarded with 100% renewal rates for contracts across Central Government & Defence. 

 

CG&D won the DIO Future Defence Infrastructure Services (FDIS) contract across Scotland and Northern Ireland; a seven-year deal worth up to £646m TCV, providing grounds, reactive and scheduled maintenance services.

 

In FY22 Mitie was awarded the Overseas Prime Contract for Gibraltar, a 7 - 10 year deal worth up to £1 55 - £200m TCV, providing maintenance and repair to maritime, accommodation, fuel storage and logistics assets. Since the year end Mitie has also been awarded contract extensions in the South Atlantic Islands until 23 April 2025 (TCV £117m), and Cyprus until 21 August 2024 (TCV £140m).

 

Project work across the Central Government portfolio increased in the final quarter of the year, including for DWP, where Mitie has continued to add services for customers looking to manage 'back to work' initiatives post COVID, and with decarbonisation projects to assist the Government in achieving their 2050 decarbonisation target.

 

Our 'Mitie First' strategy, insourcing services formerly provided by third parties, resulted in £20m of cross-sell revenue synergies.

 

CG&D has pre-qualified for the latest (£4bn) framework RM6232 which offers significant opportunities for growth.  A number of new bids are in train, on which final decisions are awaited.

 

Communities

 

The Communities division comprises the former Interserve Communities division and Mitie's Healthcare business, Essex County Council and PFI contracts.  Communities focuses on three sectors: Healthcare, Education and Campus & Critical.  A new management team was put in place at the start of the financial year with a focus on growing the division and turning around underperforming contracts.

 

Communities, £m

FY22

FY21

Change, %

Revenue

460

265

74%

Healthcare

225

119

89 %

Education

129

100

29%

Campus & Critical

106

46

130%

Operating profit before other items

20

16

25 %

Operating profit margin before other items, %

4.3%

6.0%

(1.7) ppt

Total order book

£3.7bn

£4.0bn

(8)%

Number of employees

8,513

8,231

3%

 

Performance highlights

 

· Revenue of £460m increased 74% (FY21: £265m) reflecting an uplift from a full 12 month contribution from  Interserve contracts  

· Operating profit increased to £20m (FY21: £16m) following the inclusion of twelve months of Interserve. However, this is at lower margin which is reflected in the year - on - year margin decline

· New wins and renewals of £0.1bn TCV across Hospitals (John Radcliffe, Oxford) and Education (Swansea University)

 

Operational performance

 

The Communities division operates over 100 contracts.  Within the former Interserve PFI contracts there are eight underperforming contracts, which impact the overall performance of the Communities division.  During FY22, a turnaround plan was implemented, including new account management to oversee an improvement in underlying trading performance alongside longer-term structural changes.   Financially these contracts are currently loss-making, and, as highlighted in the FY21 Annual Report and Accounts, provisions have been made for the forecast net losses over the remaining terms of the contracts, which totalled £13m at 31 March 2022 after the utilisation of £5m in FY22.  Whilst Communities made good progress in FY22, there is further work to be done to bring the handful of remaining loss-making contracts up to and beyond the 'break-even' point.

 

Operationally, good progress has been made during the year, with the Communities division focused on implementing standardised Mitie processes into its contracts, particularly across the former Interserve portfolio, and improving customer relationships.  This investment has led to improved operational compliance, with compliance performance now in line with the rest of the Group while also reducing the maintenance backlog, predominantly in the former Interserve portfolio, by almost 80%.  This investment and the ability to leverage Mitie's Technical Services expertise to deliver operational excellence for our customers was one of the key opportunities to add value when Interserve was acquired.

 

The division has made good technological progress in FY22 through the 'Science of Service', implementing remote sensor technology (which provides an IT solution for real time updates on cleaning and portering ) across five hospital contracts, and introducing robotic cleaning (Watford Hospital) and advanced UV cleaning (Hinchingbrooke).

 

During the year the Communities division invested in a new leadership team including a focus on business development and sales, with a particular focus on experience with local authorities where there are good growth opportunities.

 

Technical Services

 

Technical Services is a leading supplier of technical services and project delivery to a range of predominantly private sector customers, with an increasing focus on providing customers with solutions to their Green Energy, Decarbonisation, Connected Workspace and Mobile Telecoms challenges. From 1 April 2021, Technical Services incorporated contracts from the former Business & Industry division of Interserve, and Essex County Council and PFI contracts were transferred to Communities. The Technical Services comparative figures have been adjusted accordingly.

 

Technical Services, £m

FY22

FY21

Change, %

Revenue

973

751

30%

Maintenance

829

619

34%

Projects

144

132

9%

Operating profit before other items

30

11

173%

Operating profit margin before other items, %

3.1%

1.5%

1.6ppt

Total order book

£1.7bn

£1.6bn

6%

Number of employees

9,029

10,073

(10)%

 

Performance highlights

 

· Revenue of £973m, up 30% as customers recovered from the impact of COVID, the full year impact of revenue from former Interserve Business & Industry contracts, acquisitions and new wins

· Operating profit of £30m almost trebled (FY21: £11m) driven by the increased revenue, cost savings and synergies

· £0. 6bn TCV new wins including projects (City of Edinburgh Council and Legal & General); £0.5bn TCV of retentions (Network Rail, Eaton)

· The creation of one of the UK's largest telecoms support services companies following the successful acquisition of DAEL Ventures UK, P2ML (April 2022) and 8point8 (May 2022)

· The acquisition of Rock Power Connections, growing our presence in the provision of electric vehicle charging points and establishing a core competency in the connection of high voltage networks to the grid

 

Operational performance

 

Technical Services has been the division most impacted by COVID with a significant decline in variable and project works as buildings remained closed or underutilised. The Maintenance business is now significantly ahead of pre-COVID levels, with a steady improvement in work volumes during FY22 as our customers returned to their places of work and transport providers such as airports and rail networks saw a steady increase in passengers. As highlighted at the half year, the Projects business remained challenging in line with the wider market.  As a result, it made slower progress than expected, as material shortages and high material prices caused customers to delay projects meaning that the business is not yet back to pre-COVID levels of activity.

 

Technical Services continues to be at the forefront of our 'Science of Service' ambitions using our leading edge technology to set us apart from our competitors by optimising employee wellbeing, enhancing estate intelligence and providing smart decarbonisation and green energy solutions. Connected Workspace is a critical component of our new wins and scope expansion with existing customers as they adapt to new, hybrid ways of working. There are now 11,000 desk sensors being remotely monitored to book desks and 78,000 triggered alarms were dealt with remotely - saving engineer journeys.  Our UVC disinfection system technology has been installed in ten customers ensuring a safe working environment.

 

Technical Services won £ 0.6bn (TCV) of contracts with Costa, BAE Systems and Legal & General, enhanced service offerings to Amazon and Primark and extended terms with Network Rail, Scottish Government, Sky and Red Bull.

 

Our strategic focus of investing in sectors focusing on high growth businesses such as telecoms services and decarbonisation saw us complete the acquisition of DAEL Ventures UK and Rock Power Connections. Following the acquisition of two other telecoms services companies in early FY23, P2ML and 8point8, Mitie is now one of the largest Telecoms Support Services businesses in the UK, with capability to support all aspects of cell site acquisition, design, construction, and ongoing site maintenance.

 

The growth of our decarbonisation offering for our customers was enhanced by the acquisition, during the year, of Rock Power Connections - a high voltage connections and electric vehicle charging installation company. Technical Services has also grown energy-related revenues through decarbonisation projects for Lloyds Banking Group, Rolls - Royce, and Royal Mail.

 

Specialist Services

 

The Specialist Services division encompasses Care & Custody, Landscapes and Waste, with the addition of Interserve's Spanish operations.

 

Specialist Services, £m

FY22

FY21

Change, %

Revenue

373

264

41%

Care & Custody

136

109

25%

Landscapes

55

50

10%

Spain

105

31

239%

Waste

77

74

4 %

Operating profit before other items

33

24

37%

Operating profit margin before other items, %

8.8%

9.1%

( 0.3)ppt

Total order book

£0.8bn

£0.7bn

14%

Number of employees

10,118

8,892

14%

 

Performance highlights

 

· Revenue of £373m was 41% higher than the same period last year (FY21: £264m) and operating profit of £33m was 37% ahead of the prior year (FY21: £24m) including a full 12 months of Interserve's Spain operations and good growth across each business unit

· Care & Custody revenue increased by 25%, following new contract wins

· Landscapes won £51m TCV of new contracts or renewals/extensions.  This includes £3m of contracts formerly subcontracted by Interserve

· Spain revenue of £105m boosted by full year impact (as prior year comparator only included four months of results), but also good underlying performance due to rapid response COVID-related work at numerous airports

· Waste showed steady growth driven by contract wins and recovery in footfall

 

Operational performance

 

Care & Custody contract wins for Dungavel Immigration Removal Centre (IRC) (TCV £66m over eight years) and Derwentside IRC (TCV £11m over two years) were both successfully mobilised in H1 FY22 with service delivery commencing in H2 FY22.   During H2 FY22, a contract extension was also secured for Heathrow IRC until November 2023. Within Police Services, in H2 FY22 new contracts were secured with Derbyshire Police, Lincolnshire Police and South West Police consortium (service delivery for all to commence in FY23).  Contracts with British Transport Police and Leicestershire Police were successfully renewed in FY22, while extensions were secured for Greater Manchester Police, Cheshire Police, South Wales Police and Staffordshire Police.

 

These contract wins, renewals and extensions are being driven by our high-quality innovative service offerings which are supported by technology, information sharing and social value offerings. Care & Custody continues to work very closely with the Home Office to ensure a flexible approach to help deal with the challenges in immigration services, including the ramp up of services to deal with the increasing volume of small boat arrivals on the South Coast.

 

Care & Custody is well placed to benefit from a buoyant pipeline including prisons management, a key growth market in the Justice sector with a total pipeline of £2.5bn. During H2 FY22, Care & Custody commenced the submission of prisons management bid proposals on a targeted basis.

 

Landscapes reported steady growth in the period, driven by both net wins and the acquisition in the second half of Biotecture, a specialist in designing, building and maintaining 'living walls' for interior and exterior urban landscapes.  Landscapes won £33m TCV of new contracts or projects, with £18m of renewals or extensions. This included insourcing £3m of contracts from the former Interserve business, including at DWP and supporting CG&D on the FDIS contract, allowing expansion into Scotland and Northern Ireland with a footprint stretching to 11,500 sites.  Renewals in the period included Amazon, Co-op, West Midlands Trains and NHS Property Services. Since joining Mitie, Biotecture has secured £0.3m with Canary Wharf Management associated with the opening of the Elizabeth line, with further works completed for South West Trains, enhancing sustainability at a number of stations.

 

Spain performed well with revenue and margin ahead of last year benefiting from additional rapid response COVID-related activities, particularly at airport operator AENA.

 

Waste revenue was 4% ahead of prior year driven by new contract wins for AF Blakemore, testing centres and Magnox, the insourcing of services previously sub-contracted by Interserve, mainly Communities and CG&D such as DEFRA, and additional recovery across contracts as footfall improved. During the year Waste saw a rationalisation of sites across NHS Trust contracts, however new wins with FDIS, BAE, Wincanton, NHS Nottingham and Hammerson are all being mobilised in the first quarter of FY23, supporting future growth.

 

Corporate overheads

 

Corporate overheads represent the costs of running the Group and include costs for central functions such as commercial and business development, finance, marketing, legal and HR. Corporate overhead costs have increased to £61.4m in FY22 (FY21: £50.3m). The increase reflects the absorption of central costs from Interserve, higher accruals for share-based incentive schemes based on the improved outlook and temporary pay reductions during COVID in the prior period being reinstated.

 

Finance review

 

Alternative Performance Measures

 

The Group presents its results as those of continuing operations, before other items.  Management believes this is useful for users of the financial statements, providing both a balanced view of the financial statements, and relevant information on the Group's financial performance.  Accordingly, the Group separately reports impairment of goodwill, cost of restructuring programmes, acquisition and disposal related costs (including the impairment and amortisation of acquisition related intangible assets), gains or losses on business disposals and other exceptional items as 'other items'.

 

Financial performance

 

The reported income statement from continuing operations is set out below:

 

Continuing operations,

£m unless otherwise specified

 

FY22

Restated

FY21 1,2

Revenue including share of joint ventures and associates

3,996.8

2,528.8

Group revenue

3,903.3

2,499.0

Operating profit before other items

166.9

58.8

Other items

(94.8)

(54.8)

Operating profit

72.1

4.0

Net finance costs

(19.8)

(17.7)

Profit/(loss) before tax

52.3

(13.7)

Tax

(21.0)

(0.4)

Profit/(loss) after tax

31.3

(14.1)

Basic earnings per share before other items

9.2p

3.1p

Basic earnings/(loss) per share

2.2p

(1.3)p

1  The Group disposed of the Document Management business and operations in the Nordics and Poland in H1 FY22. The results of these operations are re-presented within discontinued operations (see Note 5 to the condensed consolidated financial statements).

2 The comparatives for FY21 have been restated for a change in accounting policy related to upfront configuration and customisation costs incurred in implementing Software as a Service (SaaS) arrangements (see Note 1 to the condensed consolidated financial statements). 

Revenue

 

Revenue from continuing operations for FY22 of £3,996.8m, including share of revenue from joint ventures and associates, has increased by 58% compared with the prior year.  This significant increase primarily relates to the acquisition of the Interserve Facilities Management (Interserve) business, which contributed 12 months of revenue in FY22 (FY21: 4 months), and increased revenue from the rapid-response COVID-related contracts.

 

Excluding Interserve revenue of £1,358.7m (FY21: £449.9m) and COVID-related contract revenue of £448.5m (FY21: £155.3m), revenue from continuing operations has grown by £266.0m (14%) in FY22.  This growth has been driven by wins in Business Services and a recovery in Technical Services, which was the division hardest hit by the COVID pandemic in the prior year, albeit it is not yet back to pre-COVID levels.  The rapid-response, flexible COVID-related contracts were largely complete by the end of FY22.

 

Operating profit

 

Operating profit from continuing operations before other items was £166.9m (FY21: £58.8m), an increase of £108.1m (184%) from FY21.  This increase was primarily a result of the full year effect of the acquisition and integration of the Interserve business, with the delivery of £30.2m of associated cost synergies in FY22 (FY21: £5.0m), and an increased contribution from the flexible, rapid-response COVID-related contracts of £59.6m (FY21: £12.0m).

 

These improvements have been supplemented by a growth in profit from net wins in the year, and have been partly offset by an increase in share-based payments charges for management incentives, reflecting the stronger outlook for the business now that it has emerged from the COVID pandemic.  The operating profit margin before other items from continuing operations increased to 4.2% in the year (FY21: 2.3%), due to the growth in higher margin, flexible, rapid-response COVID-related contracts, increased delivery of project works in CG&D, and the ongoing recovery of variable and project works in Technical Services.  Excluding COVID-related contracts, the operating profit margin before other items from continuing operations for FY22 was 3.0%.

 

After accounting for £(94.8)m of other items (FY21: £(54.8)m), operating profit fromcontinuing operations was £72.1m (FY21: £4.0m).

 

Other items

 

Other items, £m

FY22

FY21

Interserve acquisition related costs

(2.4)

(14.8)

Interserve integration costs

(16.2)

(8.8)

Interserve settlement of contractual disputes

9.8

-

Interserve completion accounts adjustment to consideration

(45.6)

-

Interserve amortisation of acquisition related intangible assets

(19.1)

(6.7)

Sub-total - Interserve related other items

(73.5)

(30.3)

Workflow optimisation (Project Forté)

(10.2)

(10.6)

Property transformation

(0.4)

(11.3)

Digital supplier platform

(4.4)

-

Amortisation of non-Interserve acquisition related intangible assets

(2.8)

(2.2)

Other

(3.5)

(0.4)

Sub-total - Non-Interserve related other items

(21.3)

(24.5)

Total other items from continuing operations before tax

(94.8)

(54.8)

Gain on disposal of the Document Management business

16.0

-

Other items related to discontinued operations

1.0

2.9

Total other items before tax

(77.8)

(51.9)

Tax

(2.0)

7.1

Total other items after tax

(79.8)

(44.8)

 

Other items in FY22 resulted from the latter stages of the Group's transformation programme (primarily Project Forté and the digital supplier platform) and acquisitions,which includes costs associated with the Interserveacquisitionandintegration, and the gain on disposal of the Document Management business.

 

The Interserve related other items in FY22 include an adjustment to consideration of £45.6m following the conclusion of the completion accounts process, which is covered further below.  Also included are the cost s ofresources deployed to implement theintegration, which make up the majority of the £16.2m of Interserve integration costs, andtheamortisationchargeof £ 19.1 m related to the reductionintheintangibleasset valueofthe acquiredcustomer contractsandrelationships,reflectingthepassageoftime towards thecontracts'forecast expirydates.  The acquisition related costs of £2.4m are one-off professional fees.  The £9.8m income is a result of an agreement being reached on certain contractual disputes related to pre-acquisition activity. 

 

Non-Interserve related other items in FY22 include the costs of implementing Project Forté and the digital supplier platform, both of which are critical components of the transformation programme.  Project Forté involves the re-engineering ofTechnicalServices' workflow processes, and is ready for deployment with the data cut-over currently ongoing.  Both projects will complete in FY23.

 

Other items from discontinued operations in FY22 relate to the disposal of the Document Management business on 30 September 2021, the disposal of operations in the Nordics and Poland on 1 June 2021 and the settlement of a contractual dispute related to the previous disposal of the Social Housing business.  Total consideration for the Document Management business (before debt-free/cash-free and normalised working capital reductions of £3.3m) was £40.0m, which realised a gain on disposal of £16.0m. 

 

Net finance costs

 

Net finance costs from continuing operations increased by 12% to £ 19.8m in FY22 (FY21: £17.7m). The increase was driven by a combination of the full year effect of the additional finance costs related to the June 2020 refinancing (which secured a temporary relaxation of financial covenants as a result of COVID) and the accelerated write-off of the associated arrangement fees when this facility was replaced by the new revolving credit facility (RCF), which was signed in October 2021.  These higher costs were partially offset by the part-year benefit of the improved terms of the new RCF. 

 

The new £150m RCF, together with the agreed refinancing of the US Private Placement (USPP) notes due to mature in December 2022, are expected to reduce future interest costs by approximately £3m on an annualised basis from December 2022.  This will add to the annual savings of approximately £1m related to the planned closure of the Group's customer invoice discounting facility.

 

Tax

 

Profit before tax and other items (from continuing operations) of £147.1m (FY21: £41.1m) resulted in a taxcharge of £19.0m(FY21: £7.9m),representing an effective tax rateof 12.9% (FY21: 19.2%). 

 

The effective tax rate for FY22 reflects the increase in the rate of UK corporation tax from 19% to 25%, with effect from 1 April 2023, which was substantively enacted during FY22.  As a result, deferred tax balances (including those arising from historical Interserve losses) have been recalculated using the higher rate where appropriate, resulting in a £9.0m tax credit before other items related to an increase in net deferred tax assets.  If the impact of the tax rate change was excluded, the tax charge on profit before other items from continuing operations would be £28.0m, representing an effective tax rate of 19.0% which is broadly in line with FY21.  The effective tax rate is expected to be below the headline corporation tax rate over the next year, as tax losses are converted into deferred tax assets.

 

Including other items, the tax charge from continuing operations was £21.0m (FY21: £0.4m), which equates to an effective tax rate of 40.2% for FY22.  The tax charge for other items from continuing operations of £2.0m comprises a tax credit of £6.1m related to other items before tax, and a tax charge of £8.1m in respect of the tax rate change resulting in an increase in the deferred tax liabilities related to acquired intangible assets. The tax credit related to other items before tax represents a low effective tax rate of 6.4%, primarily due to the non-tax deductible nature of certain other items charges.

 

Mitie is a significant contributor of revenues to the UK Exchequer, paying £864.3m in the year (FY21: £640.0m).  Of this total, £148.0m relates to taxes borne by Mitie (principally UK corporation tax and employer's National Insurance contributions) and £716.3m relates to taxes collected by Mitie on behalf of the UK Exchequer (principally VAT, income tax under PAYE and employees' National Insurance contributions).

 

The Group paid corporation tax of £16.2m in the year (FY21: £1.0m), of which £14.1m was paid in the UK and £2.1m overseas.

 

Joint ventures and associates

 

Operating profit for FY22 includes Mitie's share of the resultsofjoint ventures andassociatesthat were acquiredaspartof theInterservetransaction, net of tax.  £6.6m (FY21: £1.9m) was reported within operating profit before other items, and a chargeof£2.4m (FY21: £1.2m) was reported in other items for amortisation of acquired intangible assets.

 

Earnings per share

 

Basic earnings per share before other items from continuing operations increased significantly to 9.2p (FY21: 3.1p). This is as a result of the higher profit before tax, driven by the higher operating profit before other items noted above, combined with the lower effective tax rate.

 

Basic earnings per share from continuing operations was 2.2p (FY21: loss per share of (1.3)p), with the increase reflecting the factors outlined above, partially offset by the impact of the higher level of other items in FY22.

 

Return on invested capital (ROIC)

 

Continuing operations,

£m unless otherwise specified

 

FY22

Restated1

FY21

Operating profit before other items

166.9

58.8

Tax2

(21.5)

(11.3)

Operating profit before other items after tax

145.4

47.5

Invested capital

486.6

576.7

ROIC3

29.9%

8.2%

1 Re-presented for discontinued operations, restated for Software as a Service (SaaS) accounting and invested capital for Interserve restatements

2  Tax charge has been calculated at the effective tax rate for the year on pre-tax profits before other items for continuing operations of 12.9% (FY21: 19.2%)

3 The ROIC metric used for the purposes of the Enhanced Delivery Plan (EDP) requires further adjustments under the detailed rules agreed with shareholders

 

ROIC (before other items, on continuing operations) has increased to 29.9% in FY22 (FY21: 8.2%), with the increase due to a combination of the significantly stronger operating profit before other items, the lower effective tax rate and the lower invested capital.  The lower invested capital primarily relates to the ongoing improvements to working capital made in FY22, and a £45.6m reduction in the receivable related to the Interserve completion accounts process (see below). 

 

Balance sheet

 

 

£m

 

FY22

Restated1

FY21

Goodwill and intangible assets

560.2

555.8

Property, plant and equipment

143.9

117.9

Interest in joint ventures and associates

11.9

11.0

Working capital balances

(239.2)

(166.2)

Provisions

(117.0)

(123.6)

Net cash/(debt)

26.7

(86.7)

Net retirement benefit liabilities

(12.2)

(42.5)

Deferred tax

11.1

19.8

Other net assets

40.4

72.0

Total net assets

425.8

357.5

1 The comparatives for FY21 have been restated for measurement period adjustments in respect of the Interserve acquisition (see Notes 2 and 20 to the condensed consolidated financial statements) and a change in accounting policy related to upfront configuration and customisation costs incurred in implementing Software as a Service (SaaS) arrangements (see Note 1 to the condensed consolidated financial statements)

 

Overall, the Group reported net assets of £425.8 m at 31 March 2022, which is an increase of £68.3m compared with 31 March 2021, driven mainly by the retained profit for the year from continuing and discontinued operations of £50.7m, which resulted in a significantly improved net cash/(debt) balance, combined with a £30.3m reduction in net retirement benefit liabilities.

 

Property, plant and equipment has increased by £26.0m, primarily as a result of entering leases for new properties, including the new Technical Services Operations Centre (TSOC) in Manchester.  The majority of this increase were not cash costs in FY22, as they relate to future lease commitments which must be recorded as lease liabilities on the balance sheet under IFRS 16, together with the related assets.  The new leases therefore have no initial impact on net assets.  The reduction in working capital balances and net retirement benefit liabilities, together with the changes related to the acquisition of Interserve, are explained below.

 

Acquisition of Interserve

 

The acquisition of Interserve was completed on 30 November 2020.  At 31 March 2021, provisional values were reported for the acquisition accounting, including £3.3m for goodwill, which was based on £138.7m for the acquired identifiable net assets and liabilities on the balance sheet, and total consideration of £142.0m.

 

The £142.0m comprised £199.6m of consideration paid to the seller (£105.0m cash paid and £94.6m shares issued) less an adjustment for management's best estimate of the amounts due back to Mitie of £57.6m (subsequently revised down to £52.7m).  The £57.6m was the amount claimed by Mitie under the completion accounts mechanism in the Share Purchase Agreement (SPA), for which a corresponding receivable was recognised on the balance sheet at 31 March 2021.  Given that the SPA terms related to the completion accounts mechanism were complex and would be the subject of a commercial negotiation and, in the absence of an agreement, an expert determination process, the estimated value of the receivable was inherently uncertain.  As previously disclosed, it was therefore recognised that the final amount agreed could be materially different from the estimate.

 

Under IFRS, the value of goodwill must be finalised within a 12-month measurement period from the date of acquisition (the Measurement Period), which was 29 November 2021 in the case of Interserve.  Adjustments were made during the Measurement Period reducing the value attributed to the net assets acquired by £7.7m, from £138.7m to £131.0m.  This change was predominantly due to an increase in provisions for certain PFI contracts, where new information had been received about facts and circumstances that existed as at the acquisition date.

 

The provisional value of consideration was also revised during the Measurement Period, reducing the £57.6m completion accounts receivable to £52.7m, with a corresponding adjustment of £4.9m being made to increase the total consideration from £142.0m to £146.9m.

 

As a result of these two adjustments, to reduce the value of the net assets acquired by £7.7m, and to increase the consideration by £4.9m, goodwill on the acquisition of Interserve was increased by £12.6m to £15.9m.

 

Subsequent to the end of FY22, the expert determination relating to the £52.7m completion accounts claim has concluded.  Following the expert's determination, for which the expert sought a legal opinion in relation to the interpretation of the complex SPA requirements, an agreement was reached for the seller to pay £7.1m to Mitie, of which £1.1m was settled during H2 FY22 and £6.0m was settled in May 2022.  As the Measurement Period had already ended, the consequent £45.6m reduction in the receivable could not be adjusted against acquisition goodwill, and so has been recognised as a charge in the consolidated income statement and classified as other items.

 

Further details on the acquisition of Interserve are set out in Note 20 to the condensed consolidated financial statements.

 

Change in accounting policy

 

During FY22, Mitie has changed its accounting policy such that distinct upfront configuration and customisation costs incurred in implementing 'software as a service' (SaaS) arrangements are generally now recognised as operating expenses when the services are received, rather than capitalised as intangible assets.

 

This change in accounting policy follows the International Financial Reporting Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangement.

 

As a resultof thechangeinaccounting policy,the income statement andbalancesheet for prior periods havebeen restated, resulting in an increase in operating profit and profit after tax of £0.5m and £0.4m respectively for FY21, and a reduction in intangible assets of £5.7m and £5.2m at 1 April 2020 and 31 March 2021 respectivelyAs a consequenceof theaccounting policychange, the restatedcash generated fromoperationsfor FY21 decreasedby £0.9m,with a corresponding decrease in cash used in investing activities.

 

Provisions

 

Provisions at 31 March 2022 largely comprise contract specific costs of £56.3m, the insurance reserve of £26.0m and pension provisions of £23.7m.  Provisions have reduced by £6.6m during the year, largely reflecting the utilisation of provisions related to contract specific costs.

 

Retirement benefit schemes

 

Net retirement benefit liabilities have reduced to £12.2 m at 31 March 2022 (31 March 2021:£42.5m),principally due to Mitie's contributions, scheme investment returns and an increase in the discount rate related to movements in corporate bond yields.

 

The netliabilitiesat 31 March 2022 include a net accounting surplus of £1.6m (FY21: surplus of £3.0m) forascheme acquired withtheInterserve business.  There is alsoanaccounting surplus related to a pension scheme within a joint venture acquired with Interserve,Mitie's£3.8m share ofwhichisreportedwithin interestin joint ventures and associates on the balance sheet.

 

The latest funding valuation of the Mitie Group defined benefit scheme as at 31 March 2020, indicated an actuarial deficit of £92.1m. TheGroup has agreed a deficit recoveryplanwith thetrustees totalling£92.8m over seven years, of which £21.5m had beenpaid to 31 March 2022

 

An initial funding valuation as at 31 December 2020 for the main scheme acquired with Interserve was received during the year, which indicated an actuarial deficit of £1.6m.

 

Government support

 

During FY22, the Group participated in the UK Government's Coronavirus Job Retention Scheme (CJRS) until the scheme finished on 30 September 2021.  However, in FY22 the Group fully repaid sums received under the CJRS relating to all furloughed colleagues employed directly at Mitie's own operations (£4.1m), which was accrued in FY21.  No further claims were made in respect of these colleagues during FY22.

 

Cash flow and net debt

 

 

£m

 

FY22

Restated

FY211,2

Operating profit before other items (continuing operations)

166.9

58.8

Add back: depreciation, amortisation & impairment

51.6

45.1

EBITDA before other items (continuing operations)

218.5

103.9

Other movements (including other items)

(14.6)

(28.6)

Working capital movements

60.0

(36.4)

Cash generated from operations

263.9

38.9

Capex, capital leases, interest & other

(131.1)

(63.4)

Free cash inflow/(outflow)

132.8

(24.5)

Rights issue

-

190.4

Acquisitions & disposals

5.0

(84.0)

Dividend paid

(5.7)

-

Lease liabilities & other

(18.7)

(15.6)

Decrease in net debt during the year

113.4

66.3

Closing net cash/(debt)

26.7

(86.7)

Average net (debt)

(24.7)

(47.1)

Leverage ratio3

0.1x

0.5x

1  The Group disposed of the Document Management business and operations in the Nordics and Poland in H1 FY22. The results of these operations are re-presented within discontinued operations.

2 The comparatives for FY21 have been restated for a change in accounting policy related to upfront configuration and customisation costs incurred in implementing Software as a Service (SaaS) arrangements (see Note 1 to the condensed consolidated financial statements).

3 Leverage ratio is calculated as average daily net debt / EBITDA before other items on continuing operations.

 

Free cash inflow for FY22 was £132.8m, an increase of £157.3m compared with FY21.  This significant improvement was driven by operating profit before other items, which increased by £108.1m due to the factors noted above, and continued improvements in working capital.

 

The cash inflow from working capital of £60.0m in FY22, compares favourably with an outflow of £36.4m in FY21.  This improvement was driven primarily by a two-day reduction in days sales outstanding (DSO) in the year (approximately £29m inflow), following ongoing improvements to our application billing and aged debt reporting processes, an increase of approximately £10m in the accrual for incentives as a result of the strong Group performance, and a small cash inflow from working capital as a result of the overall growth in the business (approximately £8m impact).  The customer invoice discounting facility gave rise to a net £12.8m cash inflow due to the timing of receipts, partially offset by a reduction in utilisation as part of the wind down to closure of the facility.

 

These improvements within cash generated from operations were partially offset by cash outflows from 'Other movements' and 'Capex, capital leases, interest & other'.

 

Other movements of £14.6m include a cash outflow from other items of £26.8m, which largely relates to incremental roles and professional fees associated with implementing the Interserve integration, Project Forté and the digital supplier platform, and professional fees related to other acquisitions.  This is partially offset by the add back of the non-cash share-based payments expense.

 

Capex, capital leases, interest and other resulted in a cashoutflow of £131.1m.  Capex of £35.6m is higher than in the prior year due to Interserve integration spend and Project Forté capex.  Capital lease repayments have increased by £5.8m to £33.9m in the year as a result of the increase in the size of the vehicle fleet post-acquisition of Interserve, and interest paid of £17.5m has remained broadly flat year on year.  Tax paid in the year was £16.2m.

 

Capex, capital leases, interest and other also includes a £13.8m cash outflow related to the purchase of 22.9m of Mitie's own shares, for the employee benefit trust (EBT), related to the expected future vesting of share-based payment schemes. 

 

The acquisitions and disposals in FY22 resulted in a net inflow of £5.0m , with the cash inflow from the disposal of the Document Management business (gross proceeds of £40m before debt-free/cash-free and normalised working capital reductions of £3.3m) more than offsetting the cash outflow on the acquisitions of DAEL Ventures UK, Rock Power Connections, Biotecture and Esoteric.

 

The interim dividend declared for H1 FY22 amounted to £5.7m and was paid in February 2022.

 

Lease liabilities and other movements of £18.7m for FY22 largely relate to lease liabilities for new properties, including the new TSOC in Manchester.  Other movements in FY21 primarily comprised lease liabilities of £14.2m acquired with the Interserve business, such as the vehicle fleet.

 

In the first half of FY23, a net cash outflow is expected as a result of unwinding the customer invoice discounting facility (see below), accounting for the three new acquisitions, paying the dividend and commencing the share buyback programme.

 

Net debt

 

Average daily net debt of £24.7m for FY22 was £22.4m lower than in FY21, despite the £91m benefit in FY21 of taxes deferred under HMRC's 'Time To Pay' (TTP) scheme (which were repaid by the end of FY21).  Excluding the benefit of TTP, average net debt in FY22 improved by £113m.  This resulted in a leverage ratio (average daily net debt / EBITDA before other items on continuing operations) of 0.1x for FY22 (FY21: 0.5x).

 

Average net debt will increase in FY23 as a result of closing the customer invoice discounting facility and implementing the acquisition, dividend and share buyback plans.

 

The Group reported closing net cash of £26.7m at 3 1 March 2022 (FY21: net debt of £86.7m), reflecting strong cash generation from the business in the year.

 

Total Financial Obligations (TFO)

 

£m

FY22

FY21

Net (cash)/debt

(26.7)

86.7

Customer invoice discounting facility

44.5

51.7

Net retirement benefit liabilities

12.2

42.5

Total Financial Obligations (TFO)

30.0

180.9

 

TFO for FY22 fell significantly, benefiting from strong cash generation from the enlarged business, together with a reduction in the net retirement benefit liabilities.

 

Since year end, the Group has begun to wind down its customer invoice discounting facility, as part of its intention to simplify its financial arrangements and ensure its facilities are used as efficiently as possible.  While TFO will remain broadly unchanged, this is expected to increase average net debt by approximately £45m and reduce finance costs by approximately £1m each year.  In addition, this is expected to increase the Group's reported DSO by approximately 4 days.

 

Liquidity and covenants

 

At 31 March 2022, the Group had £301.5m of committed funding arrangements. These comprised a £150 .0m RCF, which was signed in October 2021 with a maturity date of 2025, and £151.5m of USPP notes.  In November 2021, a delayed funding agreement was entered into for the refinancing of the £121.5m USPP notes due to mature in December 2022, with £120.0m of new notes to be issued on more favourable terms, with 8-12 year maturities, commencing in December 2022.  The remaining £30m of USPP notes are due to mature in December 2024.

 

With effect from 10 June 2021, DBRS Morningstar assigned Mitie a credit rating of BBB with a 'stable' outlook.

 

Under the terms of Mitie's new and renegotiated facilities, Mitie's two key covenant ratios are now calculated on a post-IFRS 16 basis, with appropriate adjustments for leases.  The covenant ratios are leverage (ratio of consolidated total net borrowings to adjusted consolidated EBITDA) and interest cover (ratio of consolidated EBITDA to consolidated net finance costs), with a maximum of 3.0x and minimum of 4.0x respectively.

 

At 31 March 2022, the Group was operating well within these ratios at <0x covenant leverage and 16.2x interest cover.  A reconciliation of the calculations is set out in the table below:

 

 

£m


 

FY22

 

FY21

Operating profit before other items 1


169.8

63.4

Add: depreciation, amortisation & impairment1


51.8

46.9

Headline EBITDA1


221.6

110.3

Add: covenant adjustments2


19.9

22.2

IFRS 16 EBITDA adjustment 3 (FY21 only)


-

(28.0)

Leases adjustment 4 (FY22 onwards)


(36.3)

-

Consolidated EBITDA

(a)

205.2

104.5

Full-year effect of acquisitions & disposals


(2.0)

23.4

Adjusted consolidated EBITDA

(b)

203.2

127.9

Net finance costs1


19.7

17.4

Less: covenant adjustments


(3.0)

(1.8)

IFRS 16 finance costs adjustment 3 (FY21 only)


-

(3.3)

Leases adjustment 5 (FY22 onwards)


(4.0)

-

Consolidated net finance costs

(c)

12.7

12.3

Interest cover (ratio of (a) to (c))

16.2x

8.5x

Net (cash) / debt


(26.7)

86.7

Impact of hedge accounting and upfront fees


1.5

2.8

IFRS 16 net debt adjustment 3 (FY21 only)


-

(106.4)

Leases adjustment 6 (FY22 onwards)


(122.5)

-

Accounting policy change for recognition of BACS


-

(5.6)

Consolidated total net (cash)

(d)

(147.7)

(22.5)

Covenant leverage (ratio of (d) to (b))

< 0x

< 0x

1 Continuing and discontinued operations

2 Covenant adjustments to EBITDA relate to share-based payments charges, and pension administration expenses and past service costs

3 IFRS 16 adopted in financial covenants from FY22 onwards

4 Leases adjustment for EBITDA relates to depreciation charge for leased assets and interest charge for lease liabilities

5 Leases adjustment for net finance costs relates to interest charge for lease liabilities

6 Leases adjustment for net cash relates to lease liabilities

 

 

Condensed consolidated income statement

For the year ended 31 March 2022

 





2022



Restated1,2

2021


Notes

Before
other items
£m

Other
items3
£m

Total
£m

Before
other items
£m

Other
items3
£m

Total
£m

Continuing operations








 Revenue including share of joint ventures and associates


3,996.8

-

3,996.8

2,528.8

-

2,528.8

 Less: share of revenue of joint ventures and associates

12

(93.5)

-

(93.5)

(29.8)

-

(29.8)

Group revenue

3

3,903.3

-

3,903.3

2,499.0

-

2,499.0









Cost of sales


(3,451.5)

-

(3,451.5)

(2,222.7)

-

(2,222.7)

Gross profit


451.8

-

451.8

276.3

-

276.3









Administrative expenses


(291.5)

(102.2)

(393.7)

(219.4)

(53.6)

(273.0)

Other income


-

9.8

9.8

-

-

-

Share of profit/(loss) of joint ventures and associates

12

6.6

(2.4)

4.2

1.9

(1.2)

0.7

Operating profit/(loss)4

3

166.9

(94.8)

72.1

58.8

(54.8)

4.0









Finance income


0.2

-

0.2

0.5

-

0.5

Finance costs


(20.0)

-

(20.0)

(18.2)

-

(18.2)

Net finance costs


(19.8)

-

(19.8)

(17.7)

-

(17.7)









Profit/(loss) before tax


147.1

(94.8)

52.3

41.1

(54.8)

(13.7)









Tax

7

(19.0)

(2.0)

(21.0)

(7.9)

7.5

(0.4)

Profit/(loss) from continuing operations after tax


128.1

(96.8)

31.3

33.2

(47.3)

(14.1)









Discontinued operations








Profit from discontinued operations before tax

5

3.0

17.0

20.0

5.4

2.9

8.3

Tax

7

(0.6)

-

(0.6)

(0.7)

(0.4)

(1.1)

Profit from discontinued operations after tax

5

2.4

17.0

19.4

4.7

2.5

7.2









Profit/(loss) for the year attributable to
owners of the parent


130.5

(79.8)

50.7

37.9

(44.8)

(6.9)









Earnings/(loss) per share (EPS) attributable to
owners of the parent








From continuing operations:








Basic

9

9.2p


2.2p

3.1p


(1.3)p

Diluted

9

8.3p


2.0p

3.1p


(1.3)p

Total Group:








Basic

9

9.4p


3.6p

3.5p


(0.6)p

Diluted

9

8.5p


3.3p

3.5p


(0.6)p

Notes:

1.  The Group disposed the Document Management business and operations in the Nordics and Poland during the year ended 31 March 2022. The results of these operations for the year ended 31 March 2021 have been re-presented within discontinued operations. Refer to Note 5.

2.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for Software as a Service (SaaS) arrangements as a result of the International Financial Reporting Interpretations Committee (IFRIC) agenda decision. Refer to Note 1.

3.  Other items are as described in Note 4.

4.  Including net impairment losses on trade receivables and accrued income of £0.8m (2021: £6.2m).

 

Condensed consolidated statement of comprehensive income

For the year ended 31 March 2022

 


Notes

2022
£m

Restated1

2021
£m

Profit/(loss) for the year


50.7

(6.9)





Items that will not be reclassified to profit or loss in subsequent years




Remeasurement of net defined benefit pension liabilities

21

22.1

(5.4)

Share of other comprehensive income of joint ventures

12

0.7

0.4

Tax (charge)/credit relating to items that will not be reclassified to profit or loss in subsequent years

7

(3.8)

1.0



19.0

(4.0)

Items that may be reclassified to profit or loss in subsequent years




Exchange differences on translation of foreign operations


0.1

(0.9)

Net losses on cash flow hedges taken to equity2


(0.5)

(1.1)

Tax credit relating to items that may be reclassified to profit or loss in subsequent years

7

0.1

0.1



(0.3)

(1.9)





Other comprehensive income/(expense) for the year


18.7

(5.9)





Total comprehensive income/(expense) for the year attributable to owners of the parent


69.4

(12.8)

Notes:

1.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

2.  Net losses on cash flow hedges taken to equity include fair value gains of £5.1m (2021: £13.7m losses) on derivative financial instruments used for hedging private placement notes. These gains are netted against reclassifications related to foreign exchange losses on private placement notes of £5.6m (2021: £12.6m gains).

 

 

Condensed consolidated balance sheet

As at 31 March 2022

 


Notes

2022
£m

Restated1

2021
£m

Restated1

2020
£m

Non-current assets





Goodwill

10

301.3

294.8

278.9

Other intangible assets

11

258.9

261.0

44.9

Property, plant and equipment


143.9

117.9

110.8

Interests in joint ventures and associates

12

11.9

11.0

-

Derivative financial instruments


-

14.6

28.0

Other receivables

13

7.8

8.3

3.3

Contract assets


1.6

2.4

3.2

Retirement benefit assets

21

1.6

3.0

-

Deferred tax assets

16

11.1

22.3

32.6

Total non-current assets


738.1

735.3

501.7






Current assets





Inventories


11.9

12.7

4.8

Trade and other receivables

13

704.0

678.8

414.6

Contract assets


1.6

1.5

1.6

Derivative financial instruments


19.6

-

0.2

Current tax receivable


1.0

4.4

2.1

Cash and cash equivalents

17

345.2

196.2

139.5

Total current assets


1,083.3

893.6

562.8






Total assets


1,821.4

1,628.9

1,064.5






Current liabilities





Trade and other payables

14

(841.2)

(701.8)

(513.4)

Deferred income


(83.5)

(84.8)

(35.9)

Current tax payable


(4.1)

(3.8)

-

Financing liabilities

18

(171.1)

(28.7)

(24.3)

Provisions

15

(54.7)

(55.5)

(41.4)

Total current liabilities


(1,154.6)

(874.6)

(615.0)






Net current (liabilities)/assets


(71.3)

19.0

(52.2)






Non-current liabilities





Trade and other payables

14

(2.8)

(0.5)

(0.3)

Deferred income


(32.6)

(30.1)

(15.6)

Financing liabilities

18

(129.5)

(250.1)

(296.4)

Provisions

15

(62.3)

(68.1)

(11.8)

Retirement benefit liabilities

21

(13.8)

(45.5)

(46.7)

Deferred tax liabilities

16

-

(2.5)

(2.9)

Total non-current liabilities


(241.0)

(396.8)

(373.7)






Total liabilities


(1,395.6)

(1,271.4)

(988.7)






Net assets


425.8

357.5

75.8

Note:

1.  The comparatives as at 31 March 2021 and 31 March 2020 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision (refer to Note 1) and the comparatives as at 31 March 2021 have also been restated for measurement period adjustments in respect of the Interserve acquisition (refer to Note 2, Note 16 and Note 20).

 

 

Condensed consolidated balance sheet continued

As at 31 March 2022

 



2022
£m

Restated1

2021
£m

Restated1

2020
£m

Equity





Share capital


35.7

35.6

9.3

Share premium


130.6

130.6

130.6

Merger reserve


358.6

358.6

99.9

Own shares reserve


(36.9)

(28.8)

(34.2)

Other reserves2


28.4

14.5

9.5

Hedging and translation reserve


(2.6)

(2.3)

(0.4)

Retained losses


(88.0)

(150.7)

(138.9)

Equity attributable to owners of the parent


425.8

357.5

75.8

Notes:

1.  The comparatives as at 31 March 2021 and 31 March 2020 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

2.  Other reserves include the share-based payments reserve and the capital redemption reserve.

 

 

Condensed consolidated statement of changes in equity

For the year ended 31 March 2022

 


Share
capital
£m

Share
premium
£m

Merger
reserve
£m

Own shares
reserve
£m

Other
reserves1
£m

Hedging and
translation
reserve
£m

Retained
losses2
£m

Restated2

Total
equity
£m

At 1 April 20202

9.3

130.6

99.9

(34.2)

9.5

(0.4)

(138.9)

75.8

Loss for the year2

-

-

-

-

-

-

(6.9)

(6.9)

Other comprehensive expense

-

-

-

-

-

(1.9)

(4.0)

(5.9)

Total comprehensive expense2

-

-

-

-

-

(1.9)

(10.9)

(12.8)

Transactions with owners









Issue of shares3

26.3

-

261.7

-

-

-

-

288.0

Rights issue expenses4

-

-

(3.0)

-

-

-

-

(3.0)

Share-based payments

-

-

-

5.4

5.0

-

(0.9)

9.5

Total transactions with owners

26.3

-

258.7

5.4

5.0

-

(0.9)

294.5

At 31 March 20212

35.6

130.6

358.6

(28.8)

14.5

(2.3)

(150.7)

357.5










At 1 April 20212

35.6

130.6

358.6

(28.8)

14.5

(2.3)

(150.7)

357.5

Profit for the year

-

-

-

-

-

-

50.7

50.7

Other comprehensive income

-

-

-

-

-

(0.3)

19.0

18.7

Total comprehensive income

-

-

-

-

-

(0.3)

69.7

69.4

Transactions with owners









Dividends paid

-

-

-

-

-

-

(5.7)

(5.7)

Issue of shares

0.1

-

-

(0.1)

-

-

-

-

Purchase of own shares

-

-

-

(13.8)

-

-

-

(13.8)

Share-based payments

-

-

-

5.8

13.9

-

(1.1)

18.6

Tax on share-based payments

-

-

-

-

-

-

(0.2)

(0.2)

Total transactions with owners

0.1

-

-

(8.1)

13.9

-

(7.0)

(1.1)

At 31 March 2022

35.7

130.6

358.6

(36.9)

28.4

(2.6)

(88.0)

425.8

Notes:

1.  Other reserves include the share-based payments reserve and the capital redemption reserve.

2.  The comparatives for the year ended 31 March 2021 and as at 1 April 2020 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

3.  As part of the consideration for Interserve acquisition, 248.4 million shares were issued during the year ended 31 March 2021 with a premium of £88.4m arising (see Note 20). In addition, 805.1 million shares were issued during the year ended 31 March 2021 with a premium of £173.3m arising in connection with the rights issue which utilised a cash box structure. These share issues qualified for merger relief under Section 612 of the Companies Act 2006, so that the total premium arising of £261.7m was not required to be credited to share premium.

4.  Under the cash box structure, the Group received £193.4m from the rights issue, after deduction of issue costs of £7.9m. The remaining £3.0m of rights issue expenses were paid by the Group.

 

 

 

Condensed consolidated statement of cash flows

For the year ended 31 March 2022

 


Notes

2022
£m

Restated1

2021
£m

Continuing operations - operating profit before other items2

3

166.9

58.8

Continuing operations - other items2

4

(94.8)

(54.8)

Discontinued operations - operating profit after other items2

5

19.9

8.0

Adjustments for:




Share-based payments expense


18.6

9.5

Defined benefit pension costs

21

4.4

2.0

Defined benefit pension contributions

21

(14.2)

(12.2)

Depreciation of property, plant and equipment


41.6

34.4

Amortisation of intangible assets

11

27.2

16.1

Amortisation of customer contracts and relationships for joint ventures arising on business combinations

12

2.4

1.2

Share of profit of joint ventures and associates

12

(6.6)

(1.9)

Amortisation of contract assets


1.7

1.7

Impairment of non-current assets


3.7

13.7

Loss on disposal of property, plant and equipment


0.5

-

Gain on disposal of businesses

5

(13.0)

(1.2)

Interserve completion accounts adjustment

20

45.6

-

Operating cash flows before movements in working capital


203.9

75.3





Decrease/(increase) in inventories


0.9

(1.7)

Increase in receivables


(66.0)

(4.3)

Increase in contract assets


(1.0)

(0.8)

(Decrease)/increase in deferred income


(2.6)

6.7

Increase/(decrease) in payables


135.9

(34.9)

Decrease in provisions


(7.2)

(1.4)

Cash generated from operations


263.9

38.9





Income taxes paid


(16.2)

(1.0)

Interest paid


(17.5)

(15.9)

Net cash generated from operating activities


230.2

22.0





Investing activities




Acquisition of businesses, net of cash acquired3

20

(24.9)

(64.6)

Disposal of businesses, net of cash disposed

5

29.9

-

Interest received


0.3

0.8

Purchase of property, plant and equipment


(15.4)

(7.6)

Dividends received from joint ventures and associates

12

4.0

0.8

Purchase of other intangible assets

11

(20.2)

(14.1)

Disposal of property, plant and equipment


0.4

1.0

Net cash used in investing activities


(25.9)

(83.7)

Notes:

1.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

2.  The Group disposed the Document Management business and operations in the Nordics and Poland during the year ended 31 March 2022. The results of these operations are re-presented within discontinued operations. Operating profit after Other items from discontinued operations comprises profit before net finance income and tax of £6.9m (2021 restated: £6.8m) and gain on disposal before tax of £13.0m (2021: £1.2m). Refer to Note 5.

3.  Acquisition of businesses is net of cash acquired of £4.8m (2021: £40.4m). Refer to Note 20.

 

 

 

Condensed consolidated statement of cash flows continued

For the year ended 31 March 2022

 


Notes

2022
£m

2021
£m

Financing activities




Proceeds from issue of ordinary shares


-

193.4

Purchase of own shares


(13.8)

-

Rights issue expenses paid


-

(3.0)

Capital element of lease rentals


(33.9)

(28.1)

Repayment of bank loans


-

(40.5)

Payment of arrangement fees


(1.7)

(2.8)

Equity dividends paid

8

(5.7)

-

Net cash (used in)/generated from financing activities


(55.1)

119.0





Net increase in cash and cash equivalents


149.2

57.3

Net cash and cash equivalents at beginning of the year


196.2

139.5

Effect of foreign exchange rate changes


(0.2)

(0.6)

Net cash and cash equivalents at end of the year

17

345.2

196.2

The above statement of consolidated cash flows includes cash flows from both continuing and discontinued operations. Further details of the cash flows relating to discontinued operations are shown in Note 5.

 

Reconciliation of net cash flow to movements in net debt

Notes

2022
£m

2021
£m

Net increase in cash and cash equivalents


149.2

57.3

Increase in restricted cash and cash held on trust1


(18.8)

(18.7)

Net increase in unrestricted cash and cash equivalents


130.4

38.6

Cash drivers




Repayment of bank loans


-

40.5

Payment of arrangement fees


1.7

2.8

Capital element of lease rentals


33.9

28.1

Non-cash drivers




Non-cash movement in bank loans


(2.0)

(1.1)

Non-cash movement in private placement notes and associated hedges


(0.7)

(1.1)

Non-cash movement in lease liabilities2


(49.6)

(41.1)

Effect of foreign exchange rate changes


(0.3)

(0.4)

Decrease in net debt during the year


113.4

66.3





Opening net debt


(86.7)

(153.0)

Closing net cash/(debt)

19

26.7

(86.7)

Notes:

1.  As at 31 March 2022, £20.0m cash (2021: £nil) was held across the Group's bank accounts in respect of the CID facility, where cash collected from the Group's customers was held on trust for the CID facility provider. This cash was subsequently remitted to the CID facility provider by 5 April 2022.

2.  Included within the non-cash movement in lease liabilities is £ 0.7 m (2021: £14.2m) of lease liabilities arising on acquisition of businesses and £1.5m (2021: £nil) of lease liabilities on business disposals.

 

 

Notes to the condensed financial statements

For the year ended 31 March 2022

1.  Basis of preparation and significant accounting policies

(a)  Basis of preparation

The financial information in this announcement has been extracted from the Group's Annual Report and Accounts for the year ended 31 March 2022 and is prepared in accordance with UK-adopted International Accounting Standards.

Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS and the financial information set out does not constitute the Company's statutory accounts for the current or prior years.

Statutory accounts for the years ended 31 March 2022, 31 March 2021 and 31 March 2020 have been reported on by the Independent Auditor. The independent auditor's reports for the years ended 31 March 2022 and 31 March 2021 were unqualified and did not draw attention to any matters by way of emphasis. The independent auditor's report for the year ended 31 March 2020 was unqualified but did draw attention to a material uncertainty relating to going concern. The independent auditor's reports for the years ended 31 March 2022, 31 March 2021 and 31 March 2020 did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the years ended 31 March 2021 and 31 March 2020 have been filed with the Registrar and the statutory accounts for the year ended 31 March 2022 will be delivered following the Company's annual general meeting.

The condensed financial statements have been prepared on the historical cost basis, except for certain financial instruments which are required to be measured at fair value.

Going concern

The condensed financial statements for the year ended 31 March 2022 have been prepared on a going concern basis. In adopting the going concern basis, the Directors have considered the Group's business activities and the principal risks and uncertainties.

The Directors have carried out an assessment of the Group's ability to continue as a going concern for the period of at least 12 months from the date of approval of the Group's financial statements (the Going Concern Assessment Period). This assessment was based on the latest medium-term cash forecasts from the Group's cash flow model (the Base Case Forecasts), which is based on the Board approved budget. These Base Case Forecasts indicate that the debt facilities currently in place are adequate to support the Group over the Going Concern Assessment Period.

The Group's principal debt financing arrangements as at 31 March 2022 were a £150m revolving credit facility, of which £141.5m was undrawn as at 31 March 2022, and £151.5m of US private placement (USPP) notes (being the repayment amount after taking account of the cross-currency swaps hedging the principal amount), of which £121.5m are due to mature in December 2022.  The revolving credit facility was put in place in October 2021, maturing in October 2025 (with an option to extend for a further year, subject to lenders' approval), on significantly more favourable terms than the previous facility.  These financing arrangements are subject to certain financial covenants which are tested every six months on a rolling 12-month basis.

The issue of £120.0m of new USPP notes has also been agreed, under a delayed funding arrangement in December 2022, avoiding any overlap with the existing £121.5m of notes that mature in the same month.  The new notes are split equally between 8, 10 and 12 year maturities, and will be issued with an average coupon that is significantly below the current coupon. The remaining £30m of USPP notes are due to mature in December 2024, which is outside of the Going Concern Assessment Period.

Mitie currently operates within the terms of its agreements with its lenders, with consolidated net cash (i.e. net cash adjusted for covenant purposes, with appropriate adjustments for leases) of £147.7m at 31 March 2022. The Base Case Forecasts indicate that the Group will continue to operate within these terms and that the headroom provided by the Group's strong cash position and the debt facilities currently in place is adequate to support the Group over the Going Concern Assessment Period.

The Directors have also completed a reverse stress test using the Group cash flow model to assess the point at which the covenants, or facility headroom, would be breached.  The sensitivities considered have been chosen after considering the Group's principal risks and uncertainties.

The primary financial risks related to adverse changes in the economic environment and/or a deterioration in commercial or operational conditions are listed below.  These risks have been considered in the context of any potential further impact of COVID-19, as well as the potential impact of the Russian invasion of Ukraine:

·

A downturn in revenues: this reflects the risks of not being able to deliver services to existing customers, or contracts being terminated or not renewed;

·

A deterioration of gross margin: this reflects the risks of contracts being renegotiated at lower margins, or planned cost savings not being delivered;

·

An increase in costs: this reflects the risks of a shortfall in planned overhead cost savings, including the margin enhancement initiatives not being delivered, or other cost increases such as sustained higher cost inflation; and

·

A downturn in cash generation: this reflects the risks of customers delaying payments due to liquidity constraints, the removal of ancillary debt facilities or any substantial one-off settlements related to commercial issues.

As a result of completing this assessment, the Directors concluded that the likelihood of the reverse stress scenarios arising was remote. In reaching the conclusion of remote, the Directors considered the following:

·

All stress test scenarios would require a very severe deterioration compared to the Base Case Forecasts. Revenue is considered to be the key risk, as this is less within the control of management. Revenue would need to decline by approximately 34% in the year ending 31 March 2023, compared to the Base Case Forecasts, that are based on mid-single digit underlying revenue growth (which excludes COVID related revenues). A 34% decline in revenue is considered to be very severe given the high proportion of Mitie's revenue that is fixed in nature and the fact that even in a COVID-hit year, Mitie's revenue excluding Interserve declined by only 1.6%.

·

In the event that results started to trend significantly below those included in the Base Case Forecasts, additional mitigation actions have been identified that would be implemented, which are not factored into the reverse stress test scenarios. These include the short-term scaling down of capital expenditure, overhead efficiency / reduction measures including cancellation of discretionary bonuses and reduced discretionary spend, asset disposals and reductions in cash distributions and share buybacks.

Based on these assessments, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of no less than 12 months from the date of approval of these consolidated financial statements. In addition, the Directors have concluded that the likelihood of the reverse stress scenarios arising is remote and therefore no material uncertainty exists.

Accounting standards that are newly effective in the current year

The following amendments became effective during the year ended 31 March 2022:

Interest Rate Benchmark Reform Phase 2 (IBOR) amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were issued by the IASB in August 2020 to provide practical expedients and reliefs in relation to modifications of financial instruments and leases that arise from the transition from IBOR to an alternative benchmark rate. Phase 2 also provides further reliefs to hedge accounting requirements. These amendments were effective for the Group from 1 April 2021.

The impact of IBOR reform on the Group is not material.

IFRS 16 COVID-19 Related Rent Concessions

On 28 May 2020, the IASB issued COVID-19 Related Rent Concessions amendments to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic.

The Group has not received COVID-19 related rent concessions during the year and therefore these amendments do not impact the Group.

Accounting standards that are not yet mandatory and have not been applied by the Group

On 14 May 2020, the IASB published amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The changes specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. The amendments are effective for annual periods beginning on or after 1 January 2022 and will be effective for the Group for the year ending 31 March 2023. The Group is currently in the process of assessing the impact of this amendment. 

Statutory and non-statutory measures of performance

The condensed financial statements contain all the information and disclosures required by the relevant accounting standards and regulatory obligations that apply to the Group.

In the condensed financial statements, the Group has elected to provide some further disclosures and performance measures, reported as 'before other items', in order to present its financial results in a way that demonstrates the performance of continuing operations.

Other items are items of financial performance which management believes should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. The Group separately reports impairment of goodwill, impairment and amortisation of acquisition related intangible assets, acquisition and disposal costs, gain or loss on business disposals, cost of restructuring programmes and other exceptional items and their related tax effect as Other items. Should these items be reversed, disclosure of this would also be as Other items.

Separate presentation of these items is intended to enhance understanding of the financial performance of the Group in the year and the extent to which results are influenced by material unusual and/or non-recurring items. Further detail of Other items is set out in Note 4.

In addition, following the guidelines on Alternative Performance Measures (APMs) issued by the European Securities and Markets Authority (ESMA), the Group has included an APM appendix to the condensed financial statements.

(b)  Accounting policy change

During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing Software as a Service (SaaS) arrangements in response to the International Financial Reporting Interpretations Committee (IFRIC) agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements. The new accounting policy is presented below.

SaaS arrangements are service contracts providing the Group with the right to access the provider's cloud-based application software over the contract period. Previously, Mitie's accounting policy was to capitalise the upfront configuration and customisation costs in implementing SaaS arrangements and to subsequently amortise them over their useful economic life.

In response to the clarification provided by the IFRIC agenda decision, Mitie has changed its accounting policy such that distinct upfront configuration and customisation costs incurred in implementing SaaS arrangements are recognised as operating expenses when the services are received. Some of these costs incurred are for the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of and recognition criteria for an intangible asset. These costs are recognised as intangible software assets and amortised over the useful life of the software on a straight-line basis.

The change in accounting policy has been accounted for retrospectively and, accordingly, the comparative information for 31 March 2021 and 1 April 2020 have been restated as summarised below.

 

Impact on the condensed consolidated income statement and statement of comprehensive income


For the year ended 31 March 2021


As reported

£m

Impact of changes in accounting policy

£m

Discontinued operations restatement1

£m

As restated

£m

Group revenue from continuing operations

2,559.5

-

(60.5)

2,499.0

Cost of sales

(2,274.9)

-

52.2

(2,222.7)

Gross profit from continuing operations

284.6

-

(8.3)

276.3

Administrative expenses

(277.0)

0.5

3.5

(273.0)

Share of profit of joint ventures and associates

0.7

-

-

0.7

Total operating profit from continuing operations

8.3

0.5

(4.8)

4.0

Net finance costs

(17.4)

-

(0.3)

(17.7)

Loss from continuing operations before tax

(9.1)

0.5

(5.1)

(13.7)

Tax

(1.0)

(0.1)

0.7

(0.4)

Loss from continuing operations after tax

(10.1)

0.4

(4.4)

(14.1)

Profit from discontinued operations after tax

2.8

-

4.4

7.2

Loss for the year attributable to owners of the parent

(7.3)

0.4

-

(6.9)

Total comprehensive expense for the year attributable to owners of the parent

(13.2)

0.4

-

(12.8)

Note:

1. The Group disposed the Document Management business and operations in the Nordics and Poland during the year ended 31 March 2022. The results of these operations are re-presented within discontinued operations. Refer to Note 5.

 

Impact on earnings per share


For the year ended 31 March 2021

Pence per share

As reported

Impact of changes in accounting policy

Discontinued operations restatement1

As restated

From continuing operations





Basic loss per share

(0.9)p

-

(0.4)p

(1.3)p

Diluted loss per share

(0.9)p

-

(0.4)p

(1.3)p

 

 




Total Group

 




Basic loss per share

(0.6)p

-

(0.0)p

(0.6)p

Diluted loss per share

(0.6)p

-

(0.0)p

(0.6)p

Note:

1. The Group disposed the Document Management business and operations in the Nordics and Poland during the year ended 31 March 2022. The results of these operations are re-presented within discontinued operations. Refer to Note 5.

 

Impact on the condensed consolidated balance sheet


31 March 2021

1 April 2020



As reported
£m

Impact of changes in accounting policy

£m

As restated
£m

As reported
£m

Impact of changes in accounting policy

£m

As restated
£m

Other intangible assets

266.2

(5.2)

261.0

50.6

(5.7)

44.9

Current tax receivable

3.5

0.9

4.4

1.1

1.0

2.1

Net assets

361.8

(4.3)

357.5

80.5

(4.7)

75.8

Retained losses

(146.4)

(4.3)

(150.7)

(134.2)

(4.7)

(138.9)

Equity attributable to owners of the parent

361.8

(4.3)

357.5

80.5

(4.7)

75.8

 

Impact on the condensed consolidated statement of cash flows


For the year ended 31 March 2021


As reported

£m

Impact of changes in accounting policy

£m

As restated

£m

Operating profit

11.5

0.5

12.0

Amortisation of intangible assets

17.5

(1.4)

16.1

Operating cash flows before movements in working capital

76.2

(0.9)

75.3

Cash generated from operations

39.8

(0.9)

38.9

Net cash generated from operating activities

22.9

(0.9)

22.0

Purchase of other intangible assets

(15.0)

0.9

(14.1)

Net cash (used in)/generated from investing activities

(84.6)

0.9

(83.7)

Cash and cash equivalents

196.2

-

196.2

 

2. Critical accounting judgements and key sources of estimation uncertainty

The preparation of consolidated financial statements under IFRS requires management to make judgements, estimates and assumptions that affect amounts recognised for assets and liabilities at the reporting date and the amounts of revenue and expenses incurred during the reporting period. Actual results may differ from these judgements, estimates and assumptions.

Critical judgements in applying the Group's accounting policies

The following are the critical judgements, made by management in the process of applying the Group's accounting policies, that have the most significant effect on the amounts recognised in the Group's financial statements.

Revenue recognition

The Group's revenue recognition policies are central to how the Group measures the work it has performed in each financial year.

Due to the size and complexity of the Group's contracts, management is required to form a number of key judgements in the determination of the amount of revenue and profits to record, and related balance sheet items such as contract assets, accrued income and deferred income to recognise. This includes an assessment of the costs the Group incurs to deliver the contractual commitments and whether such costs should be expensed as incurred or capitalised. These judgements are inherently subjective and may cover future events such as the achievement of contractual performance targets and planned cost savings or discounts.

For certain contracts, key judgements were made concerning contract renewals and amendments which, for example, directly impact the timing of revenue recognition in addition to the phasing of upfront payments to, or from customers which are deferred to the balance sheet and unwound over the expected contract term. Management considers this to be an area of judgement due to the determination of whether a modification represents a separate contract based on its assessment of the stand-alone selling price, rather than a termination of the existing contract and establishment of a new contract for which the revised contract price would be recognised from the date of modification.

Some of the Group's contracts include variable consideration where management assesses the extent to which revenue is recognised. For certain contracts, key judgements were made on whether it is considered highly probable that a significant reversal of revenue will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

Profit before other items

Other items are items of financial performance which management believes should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. Determining whether an item should be classified within Other items requires judgement as to whether an item is or is not part of the underlying performance of the Group.

Other items after tax of £79.8m were charged (2021: £44.8m) to the consolidated income statement for the year ended 31 March 2022. Included within the net charge were material one-off charges in respect of the implementation of the digital supplier platform of £4.4m which, in management's judgement, is a material one-off programme delivering a step change in the Group's supplier chain management capabilities and therefore meets the Group's definition to be categorised as Other items.  Also included within other exceptional items is income of £9.8m, arising as a result of commercial negotiations with a certain customer leading to de-recognition of pre-acquisition liabilities with respect to Interserve, which in management's judgement is a material one-off income and meets the Group's policy for being categorised as Other items.  A complete analysis of the amounts included in Other items is detailed in Note 4.

Recoverability of trade receivables and accrued income

The Group has material amounts of billed and unbilled work outstanding at 31 March 2022. Receivables are recognised initially at cost (being the same as fair value) and subsequently at amortised cost less any allowance for impairment, to ensure that amounts recognised represent the recoverable amount. The Group recognises a loss allowance for expected credit losses (ECLs) on all receivable balances from customers using a lifetime credit loss approach and includes specific allowance for impairment where there is evidence that the Group will not be able to collect amounts due from customers, subsequent to initial recognition. Management applies judgement on specific allowances for impairment based on the information available at each reporting date which includes information about past events, current conditions and forecasts of the future economic condition of customers.

IFRS 16 - Determining the lease term of contracts with renewal and termination options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any period covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has several lease contracts that include extension and termination options. Management applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for the Group to exercise either the renewal or termination option. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate the lease.

Business combination - purchase price allocation

When the Group completes a business combination, the fair value of the identifiable assets and liabilities acquired are recognised through a purchase price allocation process, the determination of which requires management judgement.

Interserve acquisition

The Group completed the acquisition of Interservefm (Holdings) Limited (Interserve) on 30 November 2020. Under IFRS 3 Business Combinations, the fair value of assets and liabilities must be finalised within a 12-month measurement period following the date of acquisition (the Measurement Period), which ended on 29 November 2021 in the case of Interserve. During the Measurement Period, the Group performed further analysis of balances acquired as part of the Interserve transaction and decreased the fair value of the net identifiable assets acquired as reported at 31 March 2021 by £7.7m to £131.0m. This was predominantly due to increases in provisions for certain PFI contracts where new information had been received about facts and circumstances that existed as at the acquisition date, which in management's judgement, if known, would have affected the measurement of the amounts recognised at the acquisition date.

During the Measurement Period, the fair value of the consideration for the Group's acquisition of Interserve was increased by £4.9m to £146.9m. This was due to a reduction in management's best estimate of the amount expected to be received through the completion accounts process and other mechanisms allowed by the Share Purchase Agreement (SPA), from £57.6m to £52.7m, primarily reflecting the removal of certain liabilities on the acquisition balance sheet and adjustments arising from the completion accounts process. This estimate was based on the facts and circumstances that were present and known during the Measurement Period, although the outcome of the completion accounts process remained inherently uncertain at the end of the Measurement Period, given that the SPA terms related to the completion accounts mechanism were complex, and the completion accounts would be the subject of commercial negotiation and, in the absence of agreement, an expert determination process.  As previously disclosed, it was therefore recognised that the final amount agreed could be materially different from the estimate. The completion accounts process (and expert determination) has since been concluded.  Following the expert's determination, for which the expert sought a legal opinion in relation to the interpretation of the complex SPA requirements, an agreement was reached for the seller to pay £7.1m to the Group, of which £1.1m was settled during the second half of the year ended 31 March 2022 and £6.0m was settled in May 2022. The resulting £45.6m reduction in the related receivable has been recognised as an adjusting post balance sheet event in the consolidated income statement and classified as Other items, given that the Measurement Period had ended.

The changes made to the fair value of the net identifiable assets acquired and the consideration during the Measurement Period resulted in an increase in the goodwill balance of £12.6m to £15.9m which has been retrospectively adjusted (see Note 20). 

The impact of the retrospective adjustment on the condensed consolidated balance sheet at 31 March 2021 is shown below.


31 March 2021



As reported
£m

Interserve measurement period adjustments
£m

Impact of change in accounting policy1

£m

As restated
£m

Goodwill

282.2

12.6

-

294.8

Other intangible assets

266.2

-

(5.2)

261.0

Deferred tax assets

32.0

(9.7)

-

22.3

Total non-current assets

737.6

2.9

(5.2)

735.3

Current trade and other receivables

683.6

(4.8)

-

678.8

Current tax receivable

3.5

-

0.9

4.4

Total current assets

897.5

(4.8)

0.9

893.6

Total assets

1,635.1

(1.9)

(4.3)

1,628.9

Current trade and other payables

(701.5)

(0.3)

-

(701.8)

Current deferred income

(84.5)

(0.3)

-

(84.8)

Current provisions

(48.3)

(7.2)

-

(55.5)

Total current liabilities

(866.8)

(7.8)

-

(874.6)

Net current assets

30.7

(12.6)

0.9

19.0

Deferred tax liabilities

(12.2)

9.7

-

(2.5)

Total non-current liabilities

(406.5)

9.7

-

(396.8)

Total liabilities

(1,273.3)

1.9

-

(1,271.4)

Net assets

361.8

-

(4.3)

357.5

Note:

1.  The comparatives as at 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

 

DAEL and Rock acquisitions

On 5 August 2021 the Group completed the acquisition of DAEL Ventures Limited (DAEL) and on 1 November 2021 the Group completed the acquisition of Rock Power Connections Limited (Rock). The most significant fair value adjustments arising on the acquisitions of DAEL and Rock related to attributing value to the acquired intangible assets recognised in the form of customer contracts and relationships.

In determining the fair value of customer contracts and relationships, the Group used forecast customer cash flows from the contracts and expected renewal rates and applied an appropriate discount rate specific to the asset. In determining the cash flows, management used judgement to estimate revenue growth, profit margins, contract renewal probability and the average contract duration remaining as well as the discount rate. This analysis indicated provisional fair values for customer contracts and relationships of £5.0m for DAEL and £2.5m for Rock with corresponding provisional deferred tax liabilities in relation to those intangible assets of £1.2m and £0.6m respectively.

Classification of disposed businesses as discontinued operations

On 1 June 2021, the Group completed the sale of Mitie Norge AS, Mitie Sverige AB and Mitie Polska Sp z.o.o (together, the Nordics and Poland operations). On 30 September 2021, the Group also completed the sale of Mitie Business Services Limited and Mitie Business Services UK Limited (together, the Document Management business).

The results of the Nordics and Poland operations have been classified as discontinued operations as the disposal related to specific geographical areas of operations and was part of a single co-ordinated plan. The results of the Document Management business have been classified as discontinued operations as the disposed business represented a separate major line of business and the disposal was part of a single co-ordinated plan. Comparative information has been re-presented to show the results of the Nordics and Poland operations and the Document Management business as discontinued operations.

Allocation of goodwill

The Group adopted a relative value approach based on operating profit before depreciation, amortisation, impairment and Other items to allocate goodwill to the disposed businesses and to reallocate goodwill related to the reorganisation of the divisional structure.  As a result, goodwill of £14.4m allocated to the Document Management business and £1.4m allocated to the Nordics and Poland operations have been disposed. These amounts have been excluded from the carrying value of goodwill within the Business Services and Technical Services CGUs, respectively. These amounts are included in the net assets for the disposed businesses used in the determination of the gain or loss on disposal. Further details are included in Notes 5 and 10.

Similarly, as a result of Mitie's reorganisation of its divisional structure, goodwill has been reallocated between CGUs based on a relative value approach. Consequently, goodwill of £60.9m has been reallocated from the Technical Services CGU to the Communities CGU and £8.9m has been reallocated from the Business Services CGU to the Communities CGU.

Landmarc joint venture

The Group holds 51% of the equity shares in Landmarc Support Services Limited (Landmarc), a jointly-controlled entity, through its shareholding in Interserve. The remaining 49% of the equity shares in Landmarc are held by a single third party. Management considers Landmarc to be a joint venture despite the Group having majority voting rights. This is because, under the terms of the shareholder agreement, joint agreement is required with the other party to pass resolutions for all significant activities. Accordingly, the Group does not exert control on Landmarc to recognise it as a subsidiary.

The Group accounts for its investment in Landmarc using the equity method. See Note 12.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty, that have the most significant effect on the carrying value of assets and liabilities as at 31 March 2022, are discussed below:

Provisions and contingent liabilities

The Company and various of its subsidiaries are, from time to time, party to legal proceedings and claims that are in the ordinary course of business. Judgements are required in order to assess whether these legal proceedings and claims are probable, and the liability can be reasonably estimated, resulting in a provision or, alternatively, whether the items meet the definition of contingent liabilities.

Provisions are liabilities of uncertain timing or amount and therefore in making a reliable estimate of the quantum and timing of liabilities, judgement is applied and re-evaluated at each reporting date. The Group recognised provisions at 31 March 2022 of £117.0m (2021 restated: £123.6m). Further details are included in Note 15.

On 13 May 2020, Interserve Group Limited (IGL) announced that it was subject to a cyber-attack, which affected elements of the Interserve Group's IT systems (including enterprise resource planning and human resource systems), including elements related to the Interserve entities acquired by Mitie (the Cyber Incident).

The Cyber Incident was reported to the Information Commissioner's Office (ICO) on 5 May 2020. The ICO subsequently advised IGL that it considered it likely that IGL had breached certain articles of the GDPR. It was therefore possible that IGL or members of the Interserve Group could be subject to any regulatory action in respect of the Cyber Incident which, if they were found in breach of their obligations under the GDPR, could result in a remedial order or fine.

On 27 April 2022, the ICO subsequently issued a Notice of Intent (NOI) to IGL, advising that it is minded to issue IGL with a penalty notice under section 155 of the UK's Data Protection Act 2018.  The NOI contains a confirmation that the ICO is satisfied that IGL is the controller with primary responsibility for the matters which gave rise to the breach of certain articles of the GDPR.

In accordance with the Share Purchase Agreement dated 25 June 2020 (SPA), pursuant to which Mitie acquired the Interserve entities from How Group Limited (HGL), HGL agreed to indemnify Mitie against any penalty that the ICO might impose on the Interserve entities acquired by Mitie in relation to the Cyber Incident (the Cyber Indemnity).  The Cyber Indemnity was, alongside other indemnities given by HGL, secured by escrow arrangements, pursuant to which £40.0m was held in an escrow account for a period of two years (until 30 November 2022).

Management reasonably believe that, having regard to the NOI (including the confirmation that IGL is the relevant controller for the purposes of the ICO's investigation), the former Interserve entities, acquired on 30 November 2020, will not be subject to any regulatory action in respect of the Cyber Incident which could result in a remedial order or fine. Further details are included in Note 22.

Onerous contract provisions

Onerous contract provisions totalling £13.2m have been recognised at 31 March 2022 (2021 restated: £17.6m). These primarily arose on the acquisition of Interserve and include a measurement period adjustment of £6.4m (see Note 20).

Onerous contract assessments are performed by the Group at an individual contract level at each reporting date. Determining the carrying value of onerous contract provisions requires assumptions and complex judgements to be made about the future performance of the Group's contracts. The level of uncertainty in the estimates made, either in determining whether a provision is required, or in the measurement of a provision booked, is linked to the complexity of the underlying contract.

The major sources of judgement when measuring the level of provision to book are:

·

the level of accuracy in forecasting future variable revenue and costs to complete the contract;

·

the ability of the Group to maintain or improve operational performance to ensure cost assumptions are in line with expected levels, including contract specific key performance indicators (KPIs);

·

identifying cost saving initiatives that are considered to be probable in terms of timing and scale; and

·

expectations around the resolution of contract specific disputes and the likelihood of incurring future costs associated with remediation or reactive work.

 

The range of possible future outcomes in respect of judgements and assumptions made to determine the carrying value of the Group's onerous contract provisions could result in a material increase or decrease in the value of the provisions, and hence on the Group's profitability in the next financial year. To mitigate this, management regularly compares actual contract performance against previous forecasts used to measure the onerous contract provisions and considers if revised judgements are required.

The Directors have assessed the range of possible outcomes on contracts requiring an onerous contract provision, based on facts and circumstances that were present and known at the balance sheet date. To the extent that sensitivities around the major sources of estimation identified above in measuring the provision, in aggregate, the assessed range of possible future outcomes on these contracts in the next financial year could potentially lead to a reduction in the provision of up to £10m or a further increase of up to £19m being recognised.

An onerous contract provision has not been recognised on a certain contract which made a loss of £8.7m in the year ended 31 March 2022 (2021: £3.9m) and has 18 years remaining on the contract. This contract was acquired as part of the acquisition of Interserve, and a detailed turnaround plan is in the process of being implemented. Based on the plan, management expects that the contract will return to profitability and will record a cumulative profit for the remaining term of the contract.

Other contract specific provisions

In addition to the onerous contract provisions, the Group has recognised £43.1m of contract specific provisions at 31 March 2022 (2021 restated: £42.9m). These have been recognised primarily to cover costs required to meet specific contractual obligations.

Within this total, £14.7m relates to a certain contract where a significant liability has been estimated in relation to a commercial dispute. Management sought external assistance to value the potential risk exposure to the Group. The actual exposure to the Group may differ from the amount provided at 31 March 2022 due to the compounding effect of multiple variables associated with the particular issues involved in the dispute. The value of the provision represents management's best estimate. Management considers that to the extent that it is agreed or determined that the Group is found to have a liability, the assessed range of possible future outcomes could potentially lead to a reduction in the provision of up to £3m or a further increase of up to £9m being recognised, and other possible outcomes could increase the liability further. Management will continue to assess the provision recorded in arriving at its best estimate of any potential resolution at each subsequent reporting date.

Provisions in relation to certain contracts are also subject to independent adjudication and negotiation with the customers.

Measurement of defined benefit pension obligations

The net pension liability at 31 March 2022 was £12.2m (2021: £42.5m), which includes a retirement benefit asset of £1.6m (2021: £3.0m).

The measurement of defined benefit obligations requires judgement. It is dependent on material key assumptions including discount rates, life expectancy rates and future contribution rates. See Note 21 for further details and a sensitivity analysis for the key assumptions.

The Group also participates in four multi-employer defined benefit pension schemes, including the Plumbing & Mechanical Services (UK) Industry Pension Scheme (the Plumbing Scheme). The Group has recognised provisions of £21.7m at 31 March 2022 (2021: £21.7m) for Section 75 employer debts in respect of the participation of Robert Prettie & Co. Limited and Mitie FM Limited in the Plumbing Scheme.

Deferred tax assets

The Group has recognised deferred tax assets of £11.1m (2021 restated: £22.3m), refer to Note 16. Recovery of these assets is subject to the Group generating taxable profits in future years. Management has assessed recovery of these assets with reference to the Group's medium-term forecasts.

3.  Business segment information

The Group manages its business on a service division basis. At 31 March 2022, the Group had eight reportable segments and the information, as reported, is consistent with information presented to the Board of Directors, which is the Group's chief operating decision maker. Revenue including share of joint ventures and associates, operating profit before other items and operating profit margin before other items are the primary measures of performance that are reported to and reviewed by the Board.

The information presented for the year ended 31 March 2021 has been re-presented to reflect changes in the divisional structure, following the acquisition of Interserve, implemented during the year ended 31 March 2022. Mitie has reorganised its divisional structure into eight reportable segments: Business Services, Technical Services, Central Government & Defence (CG&D), Communities, Care & Custody, Landscapes, Waste and Spain. As part of the reorganisation, three new divisions have been formed related to businesses acquired with Interserve, namely Communities, CG&D and Spain. In addition, Mitie's PFI and Healthcare operations have been transferred to Communities from Technical Services and Business Services respectively. Care & Custody, Landscapes, Waste and Spain have been aggregated and categorised as Specialist Services, however, each of these businesses individually meets the IFRS 8 Operating Segments criteria for being a separate operating segment.

Segment assets and liabilities have not been disclosed as they are not reviewed by the Board.

Income statement information


2022

Restated1

2021


Revenue3
£m

Operating profit/(loss) before other items4
£m

Operating margin before other items4
%

Revenue3
£m

Operating profit/(loss) before other items2,4
£m

Operating
margin before other items2,4
%

Business Services

1,522.0

107.5

7.1

1,022.9

47.6

4.7

Technical Services

972.9

30.0

3.1

751.2

11.0

1.5

CG&D3

669.4

38.4

5.7

225.5

10.1

4.5

Communities3

460.0

19.9

4.3

265.0

16.6

6.3

Specialist Services

372.5

32.5

8.7

264.2

23.8

9.0

Care & Custody

135.7

9.9

7.3

108.8

7.4

6.8

Landscapes

55.0

9.2

16.7

50.2

8.4

16.7

Waste

76.7

8.3

10.8

74.6

6.7

9.0

Spain

105.1

5.1

4.9

30.6

1.3

4.2

Corporate centre

-

(61.4)

-

-

(50.3)

-

Total from continuing operations

3,996.8

166.9

4.2

2,528.8

58.8

2.3

Document Management

25.5

2.8

11.0

47.5

4.7

9.9

Nordics and Poland

1.9

0.1

5.3

13.0

0.4

3.1

Total from discontinued operations

27.4

2.9

10.6

60.5

5.1

8.4

Total Group

4,024.2

169.8

4.2

2,589.3

63.9

2.5

Notes:

1.  Re-presented due to the change in divisional structure and to classify the Document Management business and operations in the Nordics and Poland as discontinued operations. See Note 5.

2.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

3.  Revenue includes share of joint ventures and associates, of which £85.1m (2021: £27.2m) is included within CG&D and £8.4m (2021: £2.6m) within Communities.

4.  Other items are as described in Note 4.

5.  No single customer accounted for more than 10% of external revenue in the year ended 31 March 2022 or in the comparative year. The UK Government is not considered a single customer.

 

A reconciliation of segment operating profit before other items to total profit/(loss) before tax is provided below:


2022

Restated1,2

2021


From continuing operations
£m

From discontinued operations
£m

Total Group

£m

From continuing operations
£m

From discontinued operations
£m

Total Group

£m

Operating profit before other items

166.9

2.9

169.8

58.8

5.1

63.9

Other items3

(94.8)

17.0

(77.8)

(54.8)

2.9

(51.9)

Net finance (costs)/income

(19.8)

0.1

(19.7)

(17.7)

0.3

(17.4)

Profit/(loss) before tax

52.3

20.0

72.3

(13.7)

8.3

(5.4)

Notes:

1.  Re-presented to classify the Document Management business and operations in the Nordics and Poland as discontinued operations. See Note 5.

2.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

3.  Other items are as described in Note 4.

Geographical segments

Revenue, operating profit and operating margin from external customers by geographical segment are shown below:




2022



Restated1

2021


Revenue2
£m

Operating
profit before other items4
£m

Operating margin before other items4
%

Revenue2
£m

Operating
profit before other items3,4
£m

Operating
margin before other items3,4
%

United Kingdom

3,844.5

160.3

4.2

2,446.9

56.3

2.3

Other countries

152.3

6.6

4.3

81.9

2.5

3.1

Continuing operations

3,996.8

166.9

4.2

2,528.8

58.8

2.3

United Kingdom

25.5

2.8

11.0

47.5

4.7

9.9

Other countries

1.9

0.1

5.3

13.0

0.4

3.1

Discontinued operations

27.4

2.9

10.6

60.5

5.1

8.4

Total Group

4,024.2

169.8

4.2

2,589.3

63.9

2.5

Notes:

1.  Re-presented to classify the Document Management business and operations in the Nordics and Poland as discontinued operations. See Note 5.

2.  Revenue includes share of joint ventures and associates.

3.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

4.  Other items are as described in Note 4.

 

The carrying amount of non-current assets, excluding interest in joint ventures and associates, derivative financial instruments and deferred tax assets, by geographical segment is shown below:


2022
£m

Restated1,2

2021
£m

United Kingdom

700.3

676.4

Other countries

14.8

11.0

Total

715.1

687.4

Notes:

1.  The comparatives as at 31 March 2021 have been restated for measurement period adjustments in respect of the Interserve acquisition (refer to Note 2 and Note 20).

2.  The comparatives as at 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

 

Supplementary information


2022

Restated1

2021


Depreciation of property, plant and equipment
£m

Amortisation of intangible assets
£m

Amortisation of contract assets
£m

Other items2
£m

Depreciation of property, plant and equipment
£m

Amortisation of intangible assets3
£m

Amortisation of contract assets
£m

Other items2
£m

Business Services

1.9

2.3

-

17.6

2.7

1.2

-

19.2

Technical Services

0.8

0.7

1.0

21.1

0.5

0.6

1.0

20.9

CG&D

0.3

0.2

-

(3.5)

0.1

-

-

5.2

Communities

0.9

-

-

10.9

0.1

-

-

1.5

Specialist Services

2.5

-

0.7

3.1

2.1

-

0.7

4.0

Care & Custody

0.3

-

0.7

1.2

0.3

-

0.7

1.9

Landscapes

0.9

-

-

0.6

0.8

-

-

0.8

Waste

0.3

-

-

0.9

0.6

-

-

1.3

Spain

1.0

-

-

0.4

0.4

-

-

-

Corporate centre

35.0

24.0

-

45.6

28.5

14.3

-

4.0

Continuing operations

41.4

27.2

1.7

94.8

34.0

16.1

1.7

54.8

Catering

-

-

-

-

-

-

-

1.6

Healthcare

-

-

-

-

-

-

-

(2.1)

Pest Control

-

-

-

-

  -

-

-

(0.7)

Social Housing

-

-

-

(4.0)

-

-

-

(2.0)

Document Management

0.2

-

-

(16.0)

0.4

-

-

-

Nordics and Poland

-

-

-

3.0

-

-

-

0.3

Discontinued operations

0.2

-

-

(17.0)

0.4

-

-

(2.9)

Total Group

41.6

27.2

1.7

77.8

34.4

16.1

1.7

51.9

Notes:

1.  Re-presented due to the change in divisional structure and to classify the Document Management business and operations in the Nordics and Poland as discontinued operations. See Note 5.

2.  Other items are as described in Note 4. 

3.  The comparatives for the year ended 31 March 2021 have been restated for the change in accounting policy for SaaS arrangements as a result of the IFRIC agenda decision. Refer to Note 1.

 

Disaggregated revenue

The Group disaggregates revenue from contracts with customers by sector (government and non-government) and by contract duration (contracts with a duration from inception of less than two years, and contracts with a duration from inception of more than two years). Management believes this best depicts how the nature, timing and amount of revenue and cash flows are affected by economic factors. The following table includes a reconciliation of disaggregated revenue with the Group's reportable segments.


2022




Sector1

Contract duration for timing of revenue recognition


Government
£m

Non-government
£m

Total
£m

Less than
2 years
£m

More than
2 years
£m

Total
£m

Business Services

686.6

835.4

1,522.0

682.0

840.0

1,522.0

Technical Services

275.5

697.4

972.9

79.2

893.7

972.9

CG&D

669.4

-

669.4

0.7

668.7

669.4

Communities

452.1

7.9

460.0

18.2

441.8

460.0

Specialist Services

259.5

113.0

372.5

85.0

287.5

372.5

Care & Custody

135.7

-

135.7

50.1

85.6

135.7

Landscapes

20.0

35.0

55.0

18.5

36.5

55.0

Waste

31.0

45.7

76.7

14.1

62.6

76.7

Spain

72.8

32.3

105.1

2.3

102.8

105.1

Continuing operations including joint ventures and associates

2,343.1

1,653.7

3,996.8

865.1

3,131.7

3,996.8

Less: Joint ventures and associates2

(93.5)

-

(93.5)

-

(93.5)

(93.5)

Continuing operations excluding joint ventures and associates

2,249.6

1,653.7

3,903.3

865.1

3,038.2

3,903.3

Document Management

1.7

23.8

25.5

0.1

25.4

25.5

Nordics and Poland

-

1.9

1.9

-

1.9

1.9

Discontinued operations

1.7

25.7

27.4

0.1

27.3

27.4

Total Group excluding joint ventures and associates

2,251.3

1,679.4

3,930.7

865.2

3,065.5

3,930.7

Notes:

1.  Sector is defined by the end customer on any contract, for example, if the Group is a subcontractor to a company repairing a government building, then the contract would be classified as government.

2.  Revenue from joint ventures and associates includes £85.1m and £8.4m within the CG&D and Communities segments respectively.


20211




Sector2

Contract duration for timing of revenue recognition


Government
£m

Non-
government
£m

Total
£m

Less than
2 years
£m

More than
2 years
£m

Total
£m

Business Services

271.7

751.2

1,022.9

247.3

775.6

1,022.9

Technical Services

193.4

557.8

751.2

69.3

681.9

751.2

CG&D

225.5

-

225.5

-

225.5

225.5

Communities

263.1

1.9

265.0

8.0

257.0

265.0

Specialist Services

168.8

  95.4

264.2

80.9

183.3

264.2

Care & Custody

108.8

-

108.8

23.6

85.2

108.8

Landscapes

13.1

37.1

50.2

15.4

34.8

50.2

Waste

25.4

49.2

74.6

12.9

61.7

74.6

Spain

21.5

9.1

30.6

29.0

1.6

30.6

Continuing operations including joint ventures and associates

1,122.5

1,406.3

2,528.8

405.5

2,123.3

2,528.8

Less: Joint ventures and associates3

(29.8)

-

(29.8)

-

(29.8)

(29.8)

Continuing operations excluding joint ventures and associates

1,092.7

1,406.3

2,499.0

405.5

2,093.5

2,499.0

Document Management

3.4

44.1

47.5

0.2

47.3

47.5

Nordics and Poland

-

13.0

13.0

-

13.0

13.0

Discontinued operations

3.4

57.1

60.5

0.2

60.3

60.5

Total Group excluding joint ventures and associates

1,096.1

1,463.4

2,559.5

405.7

2,153.8

2,559.5

Notes:

1.  Re-presented due to the change in divisional structure and to classify the Document Management business and operations in the Nordics and Poland as discontinued operations. See Note 5.

2.  Sector is defined by the end customer on any contract, for example, if the Group is a subcontractor to a company repairing a government building, then the contract would be classified as government.

3.  Revenue from joint ventures and associates includes £27.2m and £2.6m within the CG&D and Communities segments respectively.

 

Transaction price allocated to the remaining performance obligations

The table below shows the secured forward order book for each segment at the reporting date with the time bands of when the Group expects to recognise secured revenue on its contracts with customers. Secured revenue corresponds to all fixed work contracted with customers and excludes the impact of any anticipated contract extensions, and new contracts with customers.




2022



20211


Less than
1 year
£m

More than
1 year
£m

Total
secured revenue
£m

Less than
1 year
£m

More than
 1 year
£m

Total
secured revenue
£m

Business Services

638.8

805.5

1,444.3

812.8

696.5

1,509.3

Technical Services

443.9

779.9

1,223.8

493.0

594.8

1,087.8

CG&D2

346.3

502.8

849.1

347.3

481.3

828.6

Communities2

275.2

2,582.4

2,857.6

252.6

2,852.1

3,104.7

Specialist Services

194.7

484.4

679.1

138.5

425.4

563.9

Care & Custody

120.1

397.8

517.9

99.7

345.2

444.9

Landscapes

32.1

68.8

100.9

0.2

61.9

62.1

Waste

7.0

8.6

15.6

7.8

13.3

21.1

Spain

35.5

9.2

44.7

30.8

5.0

35.8