Annual Financial Report

10 June 2013

MITIE Group PLC

 

MITIE Group PLC (the "Company") - Annual Financial Report

Following the release on 20 May 2013 of the Company's preliminary results for the year ended 31 March 2013 (the 'Preliminary Announcement'), the Company announces that it has published its Annual Report and Accounts for 2013 (the 'Annual Report and Accounts').  

The Company's 2013 Annual General Meeting will be held at UBS Investment Bank, 1 Finsbury Avenue, London, EC2M 2PP on 9 July 2013 at 2.30pm.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting for 2013 (the 'AGM Notice') are available to view on the Company's website: www.mitie.com.  Hard copies have been mailed to those shareholders who have elected to continue to receive paper communications. 

 

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

 

The Preliminary Announcement included a set of financial statements and a review of the development and performance of the Company.  In compliance with Disclosure and Transparency Rule (DTR) 6.3.5 the Company has extracted and set out below certain information from its Annual Report and Accounts 2013.  This information is included herein solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on the Company as to how to make public its annual financial reports.  It should be read in conjunction with the Company's Preliminary Announcement issued on 20 May 2013.  Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  This material is not a substitute for reading the full 2013 Annual Report and Accounts.  Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2013 Annual Report and Accounts.

 

The information contained in this announcement and in the Preliminary Announcement does not constitute the Group's statutory accounts but is derived from those accounts.  The statutory accounts for the year ended 31 March 2013 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

Principal Risks and Uncertainties

The risks and uncertainties described below are those considered to be of most relevance and material importance to the board by virtue of their ability to adversely impact our people, our operations, our financial performance and our reputation.  Risks are grouped in four categories: strategic, financial, operational, and regulatory. There may be other risks and uncertainties which are unknown to the group or which could become material in the future. These risks may cause the group's results to vary materially from historic and expected results.

 

 

Category	Areas of risk	Mitigation
Strategic risk
Material contract management, performance and retention	Large scale complex integrated contracts such as our integrated facilities management contract for Lloyds Banking Group are becoming increasingly important to the group.  In this regard such contracts have a material impact on the performance of the group and effective contract management along with sound financial and operational performance is paramount.   In some areas of our business and contract portfolio we are also increasingly delivering sophisticated technological solutions for our clients which carry higher delivery and operational risk than contracts in some of our traditional business areas.   The group's ability to manage and retain its large and complex contracts is critical both as a business differentiator and in order to maintain its strong financial position.	Executive oversight and approval for all large scale strategic bids occurs and continues throughout the mobilisation and operational phases.  We have experienced operational, financial, bid and mobilisation teams across our business to support our contracts. Formal contract reviews are undertaken on a regular basis, both internally and with the client, to ensure effective performance and financial management.  We have specialist expertise to manage complex technological solutions, with third party support available where required.  Our Board governs and reviews the investment in and support for the development and deployment of technical solutions and these programmes have governance and review structures in place to monitor their on-going performance.
Developing new territories and markets	To ensure that the group continues its strong record of profitable growth it is important that we develop the management and systems infrastructure to identify new growth opportunities and in particular,  enable the development of our business in new markets and territories.  Failure to do this will limit the growth of our business and may be detrimental to our ability to retain existing work.	Our strategic plan addresses new market and new territory development.  We have identified requirements for local and sector resource, and our management systems have been adjusted to reflect our new market exposures and growing international presence.  Entry into new business areas is controlled and requires board approval.
Protecting our reputation	We recognise that our reputation is critical for the successful achievement of our strategic objectives and the growth of our business.  As such we continue to formally manage potential exposures and business risks which may, if crystallised, have a significant impact on our reputation.  Failure to manage our reputation may lead to a loss in market confidence in our ability to retain or undertake new client work and may affect our financial performance and growth prospects.  In particular, we are conscious that a significant health and safety incident involving our people, our clients or the general public, inappropriate behaviour including bribery, corrupt practices and fraud, and the failure to meet the requirements of legislation and regulation, could have a material detrimental impact on our corporate reputation.  Such incidents may lead to our inability to win or retain contracts, to financial penalties or fines, or to our inability to attract and retain high quality people to work at MITIE.	Our governance framework - including dedicated policies and procedures, monitoring and review processes, communication methods and training programmes, addresses specific areas that may give rise to reputational impact.  These management systems continue to adjust to reflect the changing nature of our business and the potential for reputational damage that may occur as a result of a significant incident occurring.
Uncertain market conditions and economic climate	MITIE's principal macro-economic exposure is to the UK market.  We also have limited exposures to certain other European economic conditions and our international growth aspirations have been challenged by the continuing uncertainty in the global economy more generally.  It is important that our business model adapts to the on-going economic conditions.  The continuing uncertain economic conditions have led to a change in clients' spending in some areas that both positively and negatively affects our business. Our business is exposed to a broad range of sectors which, whilst adding resilience to our portfolio, means we are sensitive to the economic conditions that influence the trading performance of our clients.  This effect can be both positive and negative for MITIE, providing growth opportunities and potential threats to client spend levels and credit worthiness which could negatively affect our financial performance.	On the downside, instability in our core UK market has caused programme delays and cancellations as well as a change in the viability of certain markets.  However, this is countered on the positive side by the increasing attractiveness of our core outsourced services as a means to add value to our clients and provide growth for MITIE.  We continue to maintain a diverse portfolio of clients across a range of sectors and are strategically moving away from more cyclical markets.  We moved into the healthcare sector during the year 2012/13 and away from our traditional engineering and contracting markets in order to increase the group's resilience to economic changes.  Our focus on the development of our long term contract portfolio reduces the group's financial exposure to rapid changes in the economic environment.
Financial risk
Financial strength and access to funding	Our financial strength makes us an attractive partner to our clients and stakeholders, including our funding partners. Should our financial performance deteriorate, our ability to access funding on competitive terms could be impacted, causing a restriction in our ability to grow organically and through acquisition and an increase in the cost of borrowing which could affect our financial performance.  Our most significant area of expenditure is staff costs, which have to be paid regularly and at specific times.  Our ability to do this is reliant upon the continued availability of funding and on our ability to manage our cash flow.  It is critical to the success and continuity of our business.	We continue to monitor our financial performance very closely via our mature financial governance arrangements, with daily monitoring of bank balances, weekly cash flow forecasting and regular financial performance and balance sheet reviews.  We continue to maintain our strong banking, debt finance and equity relationships, with a diverse portfolio in place to minimise risk. During the year we increased the diversity of our funding sources and have extended the term of our US private placement loan note borrowings, whilst fixing interest rates into the medium and longer term.   This has given certainty to aspects of our longer term costs of finance and has further reduced our exposure to changes in the UK banking market.
Reliance on material counterparties	Our business activities are dependent on a number of significant counterparties such as insurers, banks, clients and suppliers.  Effective and on-going relationships with our material counterparties will underpin the group's ability to meet its strategic objectives.  The failure of a key subcontractor, supplier, financing or other partner could have a detrimental impact on the operational and financial effectiveness of our business.	We have strategically developed a diverse and robust counterparty base, limiting the dependency of any one counterparty and hence the impact of any potential failure.  A formal review of material counterparty risk is undertaken by the Board and at divisional and business level.
Operational risk
Significant health, safety or environmental incident	The scale and scope of our business activities, if not appropriately managed, have the potential to cause harm to employees, third parties and the environment.  Managing this area of risk and the protection of our people and the environment is a major priority for the group.  Failure to do so could result in a significant incident including death, leading to regulatory action, financial impact and damage to our reputation.	The Board has formal oversight of the group's health, safety and environmental performance, it being the first item on every board agenda.  We continue to operate formal quality, health, safety and environmental  management systems, certified to the ISO 9001, 14001 and OHSAS 18001 standards.  Our employee engagement programme - Work Safe Home Safe! -continues to focus on promoting core values and safe working behaviours.  Our training programmes in core competency areas continue to address specific workplace hazards and environmental management.  Our incident, accident and insurance experience is utilised to inform our operating practices, risk mitigation strategies and levels of insurance cover to minimise the incidence and impact of this risk.
System, process or control failure may impact our operational performance	Our business uses increasingly sophisticated systems, with interdependencies, to support our operational activities, performance management and business support functions.  The success of these systems, along with our programmes of internal control and our policies and procedures is critical for the operation, governance and control of our business and will play a major role in driving future operational efficiency and business performance.  Our control systems are designed to identify changes to legislation and regulation, and to ensure our operational and financial procedures, including areas such as employee vetting and right to work legislative requirements that affect all our people, remain relevant and up to date.  In particular, our failure to comply with legislative or regulatory changes or to maintain controls that affect high transaction volumes could expose the group to material penalties, financial misstatements or errors.	Our internal control effectiveness is reviewed formally and we operate regular audits and self-certification on the operation of key controls and procedures. Our policies and procedures are regularly reviewed to ensure they remain compliant with the law and with our requirements for sound governance practices.  We formally test our business critical systems to ensure effective recovery following a potential disaster scenario and have in place an assurance programme to test the adequacy of our mitigation activity. Our IT steering group oversees all IT-related governance arrangements, implemented via our IT policy and procedure framework, and we continue to implement an information security management system aligned  with recognised international standards.
Retention and attraction of skilled people who work to our group values	We understand that our ability to deliver our strategic objectives relies on retaining our talented employee base, developing future talent internally and attracting the best new talent in the marketplace.  We aim to operate as a responsible group and recognise that the appropriate ethical behaviour of our people is critical to the success and desired impact that our business has.  Failure to develop our people, attract new talent or to ensure our people always work to our values could result in the inability to deliver our strategic objectives and would place a restriction on our ability to grow, particularly into new market areas.	We continue to implement our talent management programme to provide career development and have in place succession plans for key management.  We also continue to successfully operate our executive management training programme at Cranfield University.  Our focus on training and competency at all levels of the business continues to ensure we develop our people to enable them to manage the changing profile of our business. We have a clear set of group values that describe our expectations for the way our business should be managed and how our people should behave and there is a stated zero tolerance for fraudulent behaviour, bribery or corruption, implemented through our ethical business practices policy.  Our employee engagement programme continues to drive recognition of our core values and we operate a confidential whistle-blowing line for employees to raise concerns in confidence. We have provided bespoke anti-bribery and corruption training for our management teams.
Regulatory risk
Exposure to legislative non-compliance	We are strongly focused on ensuring legal compliance in all of our business areas.  Failure to do this could lead to enforcement action, fines, adverse publicity and therefore potential damage to our reputation.	Our management systems provide a framework for assessing legal compliance and proactively recognising the requirements of new legislation.  We obtain specialist technical advice where required to support in-house expertise, train our management teams who have operational responsibility for ensuring compliance and have an audit programme in place to assess specific compliance areas.

 

 

Directors' Responsibility Statement

The following statement is extracted from page 61 of the 2013 Annual Report and Accounts and is repeated here for the purposes of Disclosure and Transparency Rule 6.3.5 to comply with Disclosure and Transparency Rule 6.3.  This statement relates solely to the 2013 Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the Preliminary Announcement:

 

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

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

 

-     properly select and apply accounting policies;

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

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

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

 

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

 

-     select suitable accounting policies and then apply them consistently;

-     make judgements and estimates that are reasonable and prudent;

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

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

 

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

 

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

To the best of each Director's knowledge the financial statements, prepared in accordance with the applicable set of accounting standards and contained within this Annual Report and Accounts, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group and the undertakings included in the consolidation taken as a whole, and the management report, which is incorporated into the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with the description of the principal risks and uncertainties they face."

 

Related party transactions

The following extract from the Annual Report and Accounts refers to related party transactions as set out in Note 36:

 

"Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the year, the group derived £16.1m (2012: £9.1m) of construction revenue from contracts with joint ventures and associated undertakings. At 31 March 2013 £2.1m (2012: £1.5m) was outstanding. No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a Director had a material interest. The group's key management personnel are the Directors and Non-Executive Directors whose remuneration is disclosed in the audited section of the Directors' remuneration report. The share-based payment charge for key management personnel was £1.1m (2012: £1.0m)."

           

Notes to editors

For further information, please contact:

Erica Lockhart, Head of Corporate Affairs

T: 020 3123 8179 M: 07979 784488

John Telling, Group Corporate Affairs Director

T: 020 3123 8673 M: 07979 701006