Annual Financial Report

RNS Number : 1517J

MITIE Group PLC

09 June 2014

 



9 June 2014

Mitie Group plc

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

Following the release on 19 May 2014 of the Company's preliminary results for the year ended 31 March 2014 (the 'Preliminary Announcement'), the Company announces that it has published its Annual Report and Accounts for 2014 (the 'Annual Report and Accounts'). 

The Company's 2014 Annual General Meeting will be held at UBS Investment Bank, 1 Finsbury Avenue, London, EC2M 2PP on 9 July 2014 at 2.30pm.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting for 2014 (the 'AGM Notice') are available to view on the Company's website: www.mitie.com.  Hard copies have been mailed to those shareholders who have elected to continue to receive paper communications. 

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

The Preliminary Announcement included a set of financial statements and a review of the development and performance of the Company.  In compliance with Disclosure and Transparency Rule (DTR) 6.3.5 the Company has extracted and set out below certain information from its Annual Report and Accounts 2014.  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 19 May 2014.  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 2014 Annual Report and Accounts.  Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2014 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 2014 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 section below describes identified principal risks to the achievement of our strategic business objectives. These risks are those believed by the Board to be most significant to impact our strategy, our financial and operational performance and ultimately our reputation. There may be other risks which are currently unknown to the group or which may become material in the future. We continue to group risk in four categories: strategic, financial, operational and regulatory.

Strategic risk
	Risk	Mitigation
Contract mobilisation, management and performance	The group continues to see large scale complex integrated facilities management contracts as materially important to the achievement of our strategic objectives. Our ability to successfully mobilise, operate and manage such contracts is critical for the maintenance of our financial position. As our service offering becomes increasingly complex as a business differentiator, we become increasingly reliant on the delivery of sophisticated technological solutions for our clients. These solutions necessarily carry increased risk around design, delivery and successful implementation when compared to our more traditional business activities. Our ability to retain and win new contracts of this type is therefore important for the future success of our business.	Large and complex integrated facilities management contracts are subject to executive management oversight and approval. Teams of experienced bid, mobilisation and operational delivery specialists support these contracts to mitigate the risk of failure at any stage. Regular dialogue occurs with the client's executive management to ensure service delivery remains in line with the client's expectations. 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 ongoing performance.
Company performance and resourcing requirements impacted by change to the market and economic conditions	Mitie's principal macro-economic exposure is to the UK market, with only very limited exposure to the wider global economy. With the UK economy showing some signs of recovery, an expected potential upturn in the pipeline of opportunities for Mitie is anticipated. The need for our business model to adapt and grow with any ongoing economic upturn is therefore paramount. With private sector clients likely to be varied in terms of the volume, value and range of required services, a failure to recognise and respond to these demands may impact the group's ability to win or retain significant business opportunities. Our diverse business portfolio provides resilience during times of economic changes and varying demands on our resources, depending on the way in which the economic cycle affects our client base.	We remain highly focused on delivering sustainable, profitable growth and are completing our exit strategy from more cyclical, margin-diluting markets. Our strategy continues to be reviewed and evolve to ensure high margin growth areas are targeted, underpinned by the right supporting business infrastructure. Our focus on the development of our long-term contract portfolio reduces the group's financial exposure to rapid changes in the economic environment. The acquisition strategy remains targeted on securing opportunities both to help diversify our business offering and to enhance our current services. Entry into new business areas is controlled and requires Board approval.
Protecting our reputation	The strength of our reputation remains a critical component in our ability to achieve our strategic objectives and growth targets. A detrimental impact to 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. We understand clearly that any incident involving major harm to one of our people or our clients/ partners, corrupt practices involving fraud or bribery, weak financial control processes or failure to meet regulatory requirements may significantly impact our reputation. Such an impact could result in contract losses, failure to win new business, financial penalties and difficulties in the future recruitment of key staff.	We recognise that a strong corporate governance framework supported by demonstrable values and behaviours provides the basis for effective reputational management. Our governance framework provides dedicated policies, procedures, training programmes and audit to address specific issues which, if realised, may give rise to reputational impact. Specific elements of this framework were revised, rationalised and strengthened during the year. As our business continues to grow and develop into new sectors we will remain strongly focused on protecting the strength of our reputation through effective governance, leadership and the development of our ethical business framework.
Financial risk
	Risk	Mitigation
Financial strength and access to appropriately scaled and diverse sources of funding	Our financial strength makes us an attractive partner to our clients and stakeholders, including our funding partners. Should our financial performance deteriorate, our ability to access funding on competitive terms could be impacted, causing a restriction in our ability to grow both 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, our ability to manage our cash flow, access to varied sources of funds and working capital. 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 of committed long-term funding.
Reliance on material counterparties	Our business activities are dependent on a number of significant counterparties such as insurers, banks, clients and suppliers. Effective and ongoing 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 and our ability to trade.	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
	Risk	Mitigation
Significant health, safety or environmental incident	Many of our diverse operations, if not effectively managed, have the potential to result in significant harm to our employees, our business partners, members of the public, or to damage the environment. As a major employer our focus on and commitment to safeguarding our people and protecting the environment remains unwavering. Failure to do so could result in a significant incident, affecting an employee, their family, friends and colleagues, or lead to regulatory action, financial impact or damage to our reputation.	The Board maintains its commitment to the highest standards of quality, health, safety and environmental (QHSE) performance, through effective governance, oversight and management standards, with QHSE performance continuing to be the first item on every Board agenda. Our well-established QHSE management systems are certified to the ISO 9001, 14001 and OHSAS 18001 standards and we continue to focus on the importance of values and behaviours through our employee engagement programme Work Safe Home Safe! To support our management system and engagement programme we focus on developing training programmes to ensure every employee, at every level of the business, has the core competencies required to do their work safely. Our programmes are supported by a network of dedicated and experienced QHSE professionals, backed up with the use of external parties to provide specialist technical expertise where required.
System, process or control failure may impact our operational performance	Our operational efficiency and future business performance is increasingly reliant on the use of sophisticated, interdependent business systems, which provide the basis for contract management and business support activities. These systems, in addition to our governance framework of policies and procedures, will remain critical for the control and success of the business as they help to drive innovative solutions to customer requirements, improve operational efficiency via the use of targeted management information and underpin the effectiveness of our business support functions. The business critical nature of these systems means that operational failure may result in a significant impact on operational delivery, contract management and client expectations. Equally the role of systems in ensuring the effectiveness of the business support control and reporting environment may mean that system failure could lead to a breakdown in the controls around high volume transactions and compliance areas such as vetting and employment legislation. Such a breakdown could result in financial or other misstatements occurring or non-compliance fines.	Our core policies provide the basis of our governance framework and these remain under continual review to ensure they remain optimised in line with effective governance practices as the business continues to grow and diversify. Our internal control effectiveness continues to be reviewed formally, supported by a programme of internal audits and self-certification on the operation of key controls and procedures. Business critical systems are tested to ensure effective recovery following a potential disaster scenario and we have in place an assurance programme to test the adequacy of our mitigation activity. Oversight of IT related governance is provided by the IT steering group who continue to monitor the effectiveness of the information security management system which is aligned with recognised international standards.
Retention and attraction of skilled people	We acknowledge the importance of attracting and retaining the best skilled people at all levels of the business to achieve our strategic objectives and helping to deliver our long-term growth aspirations. This is particularly the case where we require specialist technical expertise or management and where the market may be highly competitive. We also recognise the importance of diversity in ensuring a broad range of views are considered when developing strategy and supporting programmes. Challenges in attracting new talent, or developing and retaining our existing employees could impact our ability to achieve our strategic growth objectives. As we continue to grow and diversify into new areas, this risk will continue to be a focus for the Board.	Our career development and talent management programmes are a key focus for our management teams, ensuring a pipeline of opportunities exist for staff at every level of the business. Additionally, succession plans exist for key management to ensure a talent pool is identified, developed and ready for succession if needed. Our focus on training and competency at all levels of the business continues to ensure that we develop our people to enable them to manage the changing profile of our business.
Regulatory risk
	Risk	Mitigation
Non-compliance with the developing regulatory framework	We continue to provide a strong focus on ensuring, as a minimum requirement, legal compliance in all of our business areas, in particular where we enter into new business areas. As a major employer, further development of the regulatory framework in areas where we work may have a material financial impact on the business. Failure to achieve appropriate legal or regulatory compliance could lead to enforcement action, fines, adverse publicity and therefore potential damage to our reputation.	Our legal compliance framework, as a key element of our management system, has been established to ensure proactive identification of legal and regulatory requirements in all our business areas. Our operational teams remain primarily responsible for ensuring legal compliance, supported by experienced teams of functional experts and backed up by our assurance teams. Where required, we obtain specialist technical advice to support our in-house teams. We continue to monitor the developing regulatory framework to allow for effective planning on potential requirements and costs of compliance.

Directors' Responsibility Statement

The following statement is extracted from page 75 of the 2014 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 2014 Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the Preliminary Announcement:

"The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. The Directors are required to prepare the financial statements for the group in accordance with International Financial Reporting Standards as adopted by the EU (IFRS) and Article 4 of the 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 GAAP. The Directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgements and estimates that are reasonable and prudent;

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

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

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Company, safeguarding the assets, taking reasonable steps for the prevention and detection of fraud and other irregularities, and the preparation of a 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;

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

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

Related party transactions

The following extract from the Annual Report and Accounts refers to related party transactions as set out in Note 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 £10.5m (2013: £16.1m) of revenue from contracts with joint ventures and associated undertakings. At 31 March 2014 £7.5m (2013: £2.1m) was outstanding (excluding the loans to joint ventures and associates included in Note 17).

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 £1.5m (2013: £1.1m)."

-Ends-

For further information, contact:

Erica Lockhart

Head of Corporate Affairs, Mitie Group plc

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

Helen Greenwood

Investor and Public Relations Manager

T: [phone]  M: [phone] E: [e-mail]

Notes for editors

What is Mitie?

Mitie is a FTSE250 strategic outsourcing company.

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

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

Find out more at www.mitie.com

 

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