Preliminary Results 2005

MITIE Group PLC 23 May 2005 MITIE Group PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2005 'MITIE has had a good year and I am pleased with the progress that we have made. The business has excellent prospects.' Ian R Stewart, Chief Executive â€¢ Strong financial performance â€¢ Opportunities for growth â€¢ 36% increase in dividend â€¢ Exit from capital intensive businesses is complete â€¢ Share buyback programme FINANCIAL HIGHLIGHTS 2005 2004 ________________________________________________________________________________ Turnover Â£818.6m Â£694.5m 17.9% ________________________________________________________________________________ Profit before tax - pre-goodwill Â£46.9m Â£40.3m 16.3% and exceptional items* ________________________________________________________________________________ Profit before tax - pre-goodwill* Â£38.8m Â£40.3m (3.9%) ________________________________________________________________________________ Profit before tax Â£35.9m Â£38.2m (5.9%) ________________________________________________________________________________ Basic Earnings per share - pre-goodwill 9.6p 8.3p 15.0% and exceptional items** ________________________________________________________________________________ Basic Earnings per share - pre-goodwill** 6.9p 8.3p (16.8%) ________________________________________________________________________________ Basic Earnings per share 6.0p 7.6p (20.8%) ________________________________________________________________________________ Dividend per share 3.4p 2.5p 36.0% ________________________________________________________________________________ *See Group Profit and Loss Account for reconciliation to statutory numbers. **See Note 9 for reconciliation of basic earnings per share. Notes: MITIE: Management Incentive Through Investment Equity ACTIVITY: MITIE, the support services company, maintains, manages and improves buildings and infrastructure for its customers. FOR FURTHER INFORMATION: Ian Stewart, Chief Executive, MITIE Group PLC Mobile: 07979 701002 Ruby McGregor-Smith, Finance Director, MITIE Group PLC Mobile: 07979 701004 John Telling, Head of Corporate Affairs, MITIE Group PLC Mobile: 07979 701006 On 23 May at UBS Investment Bank, 1 Finsbury Avenue Press Room: 020 7568 8736 Switchboard: 020 7567 8000 Chairman's Statement MITIE has an 18-year track record of continual growth. The Company is in an excellent financial position and is well positioned for further success. I am pleased that I am able to report that we have produced another good set of results for this financial year, achieving growth in all of our businesses. I believe that as Chairman my role is to maintain the environment for the executive team to manage the Company successfully and to motivate our employees so that we can maintain our unequalled record of providing excellent services to our customers and achieving consistent growth. These results clearly demonstrate that we have succeeded again. I am determined that we will maintain our excellent performance. Results Turnover rose to Â£818.6 million, an increase of 17.9 % and profit before tax, goodwill amortisation and impairment and exceptional items* rose by 16.3% to Â£46.9 million. Profit before tax after goodwill (Â£2.8 million, 2004: Â£2.2 million) and exceptional items (Â£8.2 million, 2004: Â£nil) fell by 5.9% to Â£35.9 million. Basic earnings per share before goodwill and exceptional items rose by 15.0% to 9.6p. Basic earnings per share fell by 20.8% from 7.6p to 6.0p. The impact of the exceptional items was to reduce earnings per share by 2.7p in the current year. *See Group Profit and Loss Account. Dividend The Board is recommending a final dividend of 1.8p per share making a total of 3.4p for the year, an increase of 36.0%. As stated in previous reports we will continue to review our dividend policy. Share Buyback Programme We commenced a share buyback programme in June 2004 and in the period under review purchased 10,310,006 MITIE Group PLC ordinary shares of 2.5p at an average price of 144.6p. The highest and lowest prices paid were 165.0p and 131.0p respectively. All shares purchased have been cancelled. We will be seeking to renew the authority, granted by Shareholders, to purchase up to 10% of the issued share capital of the Company at the Annual General Meeting ('AGM') on 28 July 2005. Corporate Governance We endeavour to achieve the highest standards of Corporate Governance in the furtherance of our business and achievement of corporate objectives, which is clearly detailed in the Annual Report. Our Difference We provide a range of skilled and semi-skilled services to a wide range of customers in both the private and public sectors. Our people are focused on working hard together, supporting our customers, listening to them and making sure that the services we provide connect with their needs. I would like to thank all of our employees for their hard work and dedication over the year. Without their efforts we would not be able to satisfy our customers and produce results like these. Every one of our thirty thousand employees has made an important contribution. The Executive Directors have experienced a year of change, they have successfully integrated the newly acquired companies and have discharged their responsibilities admirably. I would also like to thank my fellow Non-Executive Directors for the contribution they have made this year. The Non-Executive Directors are faced with increased responsibility and the Company is fortunate to have Directors of such calibre and experience. Success is never easy, but MITIE has been able to achieve consistently high levels of performance because our people are passionate about the quality of service we provide and because of their financial interest in the result. That motivation makes the difference. Outlook We have a clear strategy. We will continue to look for opportunities where it is viable to start new companies. We will continue to grow organically within our chosen markets and look to expand our range of services within our skill base. We will look for opportunities to make bolt-on acquisitions provided our criteria are met. MITIE operates in a market that, although it is competitive, has plenty of opportunities for growth. We are in the business of continuing to grow in order to provide better services for our customers, more opportunities for our employees and improving returns for our shareholders. This Company is well positioned for further success. I am excited about our prospects for the future. David C Ord Chairman Chief Executive's Review This review of our operations has been prepared to enable our shareholders and others to have a balanced and comprehensive understanding of our business and our performance for the year under review. The review provides a wide range of information. For ease of reference, we have included the following list of contents within this section. Overview The business, its markets, values and strategy The MITIE model Our major markets Our structure and services Our values Our strategy Operating Review Performance in the period Dynamics of the business Cash Future prospects Overview MITIE has had a good year and I am pleased with the progress that we have made. 1. Our forward order book has increased with 70% of budgeted revenue secured for 2006. 2. We have experienced good levels of contract renewals across all businesses. 3. Cleaning has been successfully restructured. 4. The recent acquisitions have been successfully integrated and their financial contribution is better than we expected. 5. In the final step of the strategy to exit capital-intensive activities we sold our entire shareholding in MITIE Generation Ltd ('Generation') to a management buyout team on 30 September 2004. 6. During the year we have built a corporate development team focused on acquisitions. 7. We have moved our head office to a more modern building at Emersons Green, north of Bristol, just four miles from Bristol Parkway station. As MITIE grows we need to provide our businesses with an increasingly robust support team. During the year we have reinforced the central team by recruiting a number of additional specialists. 8. We have set up a new department of Corporate Responsibility. The business, its markets, values and strategy The MITIE start-up model MITIE is now 18 years old and has started over 80 companies in accordance with the MITIE model. However we still receive many requests to explain how the model works. In principle the model has not changed since we started, although there have been several refinements. The process normally develops as follows: 1. We will identify a team that wants the opportunity to run their own business. 2. Provided that their business idea fits with our strategy and does not conflict with any of our existing businesses, we interview the team. If we like the team they prepare a business plan which then follows an approval process and is signed off by the Board. 3. The business plan determines the capital requirement. MITIE invests at least 51% of the initial capital required and the management team invest the balance. 4. A limited company is established, placed in the structure depending on the business activity being pursued, sponsored by PLC Director and supported by the Head Office team as appropriate. 5. The team grow their business over the next five to ten years. 6. Between the fifth year and the tenth year the minority shareholders have an option to serve a transfer notice on MITIE Group PLC to earn out their minority interest, which MITIE Group PLC may or may not accept. This must be done within 7 to 14 days after our AGM. 7. In order to calculate the value of the minority stake in the business we use a multiple of ten times post-tax profits averaged over the previous two years, or three years depending on the type of business. The consideration is paid in either cash or MITIE Group PLC shares at the Board's option. 8. If the consideration is paid in MITIE Group PLC shares they cannot be traded for two years post the earnout, but the owners are entitled to receive dividends. 9. The management team stay in place after the earnout and continue to grow the business and progress their career within MITIE. The model continues to attract entrepreneurial managers who want to run their own business in MITIE. Our major markets MITIE operates across the UK and has customers in all major market sectors. Currently 40% of our work comes from the public sector and 60% from the private sector. We believe that this mix of business is healthy for the Company and enhances the long-term sustainability of our revenue stream. We have a relatively low market share in all of these sectors, giving us plenty of opportunity for future growth. Our structure and services MITIE's operating businesses are structured in two divisions; Support Services and Building Services. The divisions are supported by a Head Office team, which provides policies, advice and assistance for Health & Safety, Human Resources, IT, Sales & Marketing, Risk Management, Finance, Legal, Insurance and Property matters. Support Services offers a flexible range of services supporting the occupiers of buildings. These range from Engineering Maintenance and Facilities Management to Security. We listen to our customers and create solutions that meet their needs and resources. Building Services are involved in the construction, refurbishment and repair of buildings. Engineering is predominantly a mechanical and electrical services specialist installing heating, lighting, air conditioning and data cabling. Property Services act as a main contractor improving buildings either by fitting them out, refurbishing or maintaining them. Our values Since MITIE started there has been a set of values that has enabled our entrepreneurial and motivated managers to grow the business successfully. They have been centred on the three core principles of Focus, Connect and Achieve: â€¢ Focus on our goals and those of our customers; â€¢ Connect with our customers at all levels to fulfil their needs; and â€¢ Achieve success by consistently delivering a quality service. The application of these values has enabled the business to grow consistently. Over the years we have developed the values so that our employees understand them clearly and are able to apply them to their daily work. Our strategy Our strategy remains: 1. Grow our existing businesses organically and increase the amount of bundled services that we provide; 2. Start new companies in accordance with the equity model; 3. Make acquisitions in our markets when suitable companies are identified; 4. Invest in market sectors, such as education and social housing, where those markets offer good potential; and 5. Expand our core skills competency so that we are able to offer additional services. Operating Review Performance in the period I am pleased with our performance this year. We have made good progress. Support Services Cleaning On 1 November 2004 we received shareholder approval for our second-generation equity plan for the Cleaning business. We have a young management team within Cleaning, who had previously not had the opportunity to subscribe for equity. They have invested Â£600,000 in the new equity of MITIE Cleaning Services Limited. This is a significant development of the MITIE equity model and will allow the management to share in the additional value they create. This restructuring of the Cleaning business has been successful and the new management team is operating the business on a national basis. The sales and marketing team has been reinforced with the appointment of a Sales and Marketing Director and a National Accounts Director. The specialist businesses that focus on individual market sectors have had a particularly good year gaining significant market share. During the year we have secured many notable contract wins including the new Doncaster Airport, BT Payphones, timetable installation for London Buses, multi-site Co-op retail outlets, Goodrich Engine Control Systems, Barclays Capital, Nokia UK in a bundled service contract with Engineering Maintenance, West Yorkshire Police and Pfizer UK. We started the contract for the Scottish Parliament that was awarded to us in the last financial year but had a delayed start. Cleaning has conducted extensive customer research with the main conclusion that customer satisfaction is directly linked to staff retention. To enhance levels of staff retention Cleaning has launched a major recognition and reward initiative for staff that make an outstanding contribution for clients and fellow MITIE colleagues. Mike McCarthy decided to retire this year; Mike was responsible for our northern Cleaning business. I would like to thank him for the important contribution he had made to MITIE over the years. Catering Catering continues to develop. A new business commenced trading in London that has started well. Catering has secured contracts with IMS Healthcare, Osborne Clarke, GVA Grimley and the National Audit Office. Catering achieved accreditation to the Hospitality Assured standard in October 2004. Hospitality Assured is the world-class standard for service and business excellence in the UK hospitality industry. Since the year-end we have recruited a dynamic team to set up MITIE Catering in the north of England. The Catering business will grow through developing a food service that delivers high levels of customer satisfaction, patronage and daily spend. This will keep client subsidies at a competitive level which, allied to client relationships, will generate high levels of contract retention. The internal operating brand ' ingredients' will continue to be developed, acting as a clear differentiator in the market. Catering will continue to invest in the food concept function dedicated to driving up operating standards in vendor management, commodity selection, kitchen process and food offer ranges. Landscape Landscape has made further progress during the year. It has secured a national contract with Lloyds TSB to maintain grounds and external areas and with Proctor and Gamble in Egham. Landscape has also started to penetrate the public sector and has added a contract with Yorkshire Metropolitan Housing Group to our existing Local Authority and Police contracts. Pest Control Pest Control has had a year of consolidation following its acquisition in the last financial year and has now integrated well into MITIE. They have been awarded a five-year contract with Compass. It has also been awarded work with Safestore and Thameslink. Pest Control has invested in its sales force to achieve its organic growth targets and will concentrate on multi-site retail outlets and railway-related services, in addition to its core market of smaller businesses and local markets. It will continue to focus on maintaining its high levels of customer retention. The company is now the third largest pest control business in the UK. Security Security is performing well, having successfully integrated the acquisitions from the previous year. Notable contract wins include CIS and Re: Sources UK (Publicis). MITIE Security (South West) started trading in September 2004 and on 4 May 2005 we announced the acquisition of Intruder International Ltd ('Intruder'), which is at the forefront of developing integrated networked security solutions. MITIE Security forges long-lasting relationships by understanding and supporting its clients and its people. It achieves this by delivering on its promises of a timely and properly structured security solution that clearly meets the requirements of its clients. The business is primarily a single service provider focused on the manned guarding sector. Its strategy is to move the business to a broader-based security service combining the use of manpower and electronic security. The business has a series of objectives: 1. Complete the national footprint for manned guarding; 2. Achieve an improved geographical balance; and 3. Enhance its electronic security capability based on integrated solutions that utilise clients' existing network infrastructure. Licensing for security officers becomes mandatory in March 2006. We have invested in ten trainers who are qualified to deliver the required Level 1 & 2 training programme and currently have 30% of our officer base that have completed the requisite certified training. By early September 2005 we anticipate 60% of our officer base will be certified and full compliance is targeted by the deadline date. We feel that our commitment and investment in our officer base will fully meet the requirements for licensing set by the Security Industry Authority and we are confident that we will exceed the criteria set for the proposed new Approved Contractor Scheme ('ACS'). The impact of licensing we believe will stimulate further consolidation in the security marketplace as smaller providers struggle to meet the requirements of both the licensing regime and the standards set for ACS status. The short-term impact, as the deadline of March 2006 approaches, could be instability of a short-term nature in the labour supply market. However, in the medium to long-term, standards will rise, margins should improve and a licensed officer will become more highly valued by both customer and employer. Managed Services Managed Services has made good progress this year, focusing on customer satisfaction and retention, which has resulted in the expansion of many existing relationships including our work with Land Securities on their Landflex sites in London and with ShopDirect in Manchester. Managed Services was awarded contracts with Transport for London, 3Com and Crown Castle during the past year. Since the year-end we have regained and expanded our framework contract with RWE NPower for an additional five years. This success has been achieved by closely monitoring customer needs, conducting extensive customer surveys, closely monitoring performance and improving service levels. Managed Services has continued to improve its support functions for human resources, sales and marketing, health and safety, energy management and commercial management. We pay particular attention to the development of our employees to ensure that we have the appropriate skills as the business grows. PFI Our PFI company, which specialises in providing facilities management to PFI school projects, where we take no equity, continues to develop. We now have 15 signed contracts in respect of 33 schools and are preferred bidder on five further contracts. Business Services Business Services had another good year adding further blue-chip customers to their impressive list of leading corporations, financial institutions and professional firms, with contract wins at Morgan Stanley and Societe Generale. The business also renewed contracts in the last year at the London offices of the international law firms of White & Case, Skadden Arps and Sullivan & Cromwell as well as the London Stock Exchange. A growing part of the business is document solutions, involving the entire lifecycle of the document from creation, to print, through to distribution. Future growth will come from: 1. Developing existing relationships with key clients to expand the range of services; 2. Investment in business development and obtaining new clients; and 3. Expanding the range of services to include creative services, print management and distribution. Engineering Maintenance Engineering Maintenance had another successful year. The business is well positioned with one cohesive management structure and a central team supporting the regional operating companies. A national sales and service delivery team has been created to provide national customers with a consistent quality service. Engineering Maintenance has acted as the springboard for other MITIE services to create bundled opportunities. An increased number of customers are recognising the benefits that MITIE can bring as a co-ordinated Group in bundled services contracts. Engineering Maintenance has been awarded a number of notable contracts including Standard Life, the University of Bath, Apsley House, Ayrshire and Highland Councils. Bundled service contract wins included the Department for Education and Skills at their five main sites and Telecom Service Centres. Crucial to the future development of Engineering Maintenance is a highly developed integrated Health, Safety and Environmental management system. Martin Brown has decided to retire this year; Martin was Head of our Engineering Maintenance business. I would like to thank him for the important contribution he had made to MITIE over the years. Building Services Engineering Services The trading climate in Engineering has not improved since our Interim Report and margins continue to be under pressure. In the coming year Engineering Services will be focused on improving margins, even though turnover growth as a consequence may be lower. A key focus of Engineering is to develop long term relationships with forward visibility. The University of Plymouth has recently awarded MITIE an innovative three year Mechanical and Electrical framework contract adding to the current list of frameworks which include Boots, MOD Prime South West, BT/Telereal and Annington Homes. With strong experience in education, Engineering is well positioned for involvement in the Building Schools for the Future programme. In the current schemes MITIE are a Tier 2 Contractor for the Birmingham Framework and have just completed Turves Green School. There has been continued success in the public sector with procurement routes including LIFT and PFI/PPP. The focus on developing specialist solutions for our customers has seen ongoing success. The specialist retail business, whose clients include ASDA and Primark, have completed 14 projects for Marks and Spencer and has now been awarded a major store in Plymouth. The Social Housing business continues to grow with over 80% of its work under partnering contracts. Since the year end, the commitment of Engineering to training and health & safety has been recognised through two industry awards - Mechanical & Electrical Specialist of the Year and HVAC Contractor of the Year. In line with the objective of identifying growth potential in both geographical and specialist markets, an opportunity for the development of regional contracting businesses was identified in the Channel Islands. The establishment of a Jersey office confirmed the potential of this venture and a Guernsey office has since been opened to respond to the opportunities on the Islands. Property Services Property Services has had a good year, building upon the performance in the first six months and seeing increased levels of profitability. A strategic decision was taken to change the corporate and operational structure which was proving to be a barrier to tendering for the larger lucrative markets of social housing, education and health. During the year all of the trade from the wholly-owned subsidiaries were merged into one business to form MITIE Property Services (UK) Ltd. This is already starting to produce improved results and will have a positive impact on performance in the coming year. Property Services has increased its investment in its social housing and local authority team to accelerate growth in this market. Contracts will be performed with directly employed teams for refurbishment, repairs and maintenance. Several long-term contracts have been secured during the period including Pavillion Housing Association, Brent Decent Homes, Warden Housing Association, Poole Housing Association and Southampton City Council, that have a combined order book value in excess of Â£60 million. Other contracts included a major redecoration contract for North West Trains and a refurbishment project for Durham University. MITIE Interiors, the London-based fit-out business, has had a very good year completing substantial projects for Land Securities, Legal & General and Terrafirma. Generation Generation was sold to its management team on 30 September 2004 and marked our exit from capital-intensive businesses. We wish them every success for the future. Dynamics of the business MITIE is fortunate that a high percentage of our work comes from long-term contracts. Support Services is able to grow steadily because it has an excellent record of customer retention and a reputation for providing quality services that meet the needs of the customer. Building Services has traditionally been different with relatively short-term order books, however, this is changing with the trend towards partnering style or framework contracts, which has increased the visibility of Building Services' order book. The percentage of budgeted revenue secured for 2006 is 70% compared to 67% last year. The percentage of revenue secured for 2007 is 44% compared to 42% last year. Cash MITIE is a cash-generative business. We recognise that the assets of the business belong to the shareholders and that it is our responsibility to maximise the long-term return from those assets. During the year we have increased the dividend by 36%, started a share buyback programme and considered several acquisitions. Since the year end we have completed the acquisition of Intruder for a consideration of Â£4 million. The Board regularly reviews the structure of the Group's Balance Sheet, evaluates its optimum structure and continues to make this an important priority. Future prospects The business has excellent prospects. Our markets are favourable despite being very competitive, they have the capacity to sustain future growth. I am confident that we can maintain our progress. I am always delighted to see the passion and commitment of our employees. I would like to thank each and every one of them for keeping that passion alive and for driving our business forward and continuing to support our customers. Ours is not a business that is dependent upon technology or capital assets. It is a business that will succeed or fail based primarily on how good its people are, how well they work together and anticipate and satisfy their customers' needs. The people in MITIE are excellent and are confident about the future. Your Company is in good hands and I am sure we will continue to deliver good results. Ian R Stewart Chief Executive Finance Director's Review 1. Financial Results a) Turnover Total turnover increased by 17.9% to Â£818.6 million (2004: Â£694.5 million). Turnover from continuing business grew by 20.4% to Â£799.7 million. b) Operating profit Total operating profit has increased by 15.1% to Â£42.0 million (2004: Â£36.5 million). Operating profit from continuing operations has increased by 15.7% to Â£40.9 million (2004: Â£35.4 million). c) Exceptional items As the final step of the strategy to exit capital-intensive businesses, the Company sold its entire shareholding in Generation to a management buyout team on 30 September 2004 for a total consideration of Â£12.0 million. The accounting loss on sale comprised: Â£m Loss on sale excluding goodwill 3.4 Goodwill not previously amortised 1.2 Goodwill previously written off to reserves 5.0 --- 9.6 A freehold property was also sold during the year that resulted in a net profit of Â£1.5 million. d) Profit Profit on ordinary activities before tax, goodwill and exceptional items* was Â£46.9 million (2004: Â£40.3 million), an increase of 16.3%. The net profit margin on this basis is 5.7% compared to 5.8% in the previous year. Profit before tax after goodwill (Â£2.8 million, 2004: Â£2.2 million) and exceptional items (Â£8.1 million, 2004: Â£nil) fell by 5.9% to Â£35.9 million. * See Group Profit and Loss Account for reconciliation. e) Goodwill The increase in the goodwill amortisation charge to Â£2.8 million (2004: Â£2.2 million) reflects a full year of goodwill amortisation on the acquisition of three companies in the previous year and the acquisition of the minority shares in the businesses that earned out during the year. f) Taxation The tax charge for the year was Â£14.3 million, a rise of 16.4% on last year's charge of Â£12.3 million. The effective tax rate is 39.8% (2004: 32.2%). The current year effective rate is impacted significantly by the loss on sale of Generation and goodwill amortisation, both of which are not allowable for tax. The effective rate of tax before exceptional items and goodwill is 30.5% (2004: 30.5%). g) Pensions The Group operates two defined benefit pension schemes and a defined contribution scheme for its employees as described in Note 28. The total pension charge for the year was Â£4.3 million (2004: Â£4.5 million) with the defined benefit schemes accounting for Â£3.3 million of this (2004: Â£3.6 million). The Group continues to apply SSAP 24 in accounting for retirement benefits. The introduction of the accounting standard FRS 17: Retirement Benefits has been delayed by the Accounting Standards Board until 2006. The Group has continued to apply the transitional rules and disclosures as detailed in Note 28. At 31 March 2005, the actuary estimated that there was a net deficit of Â£5.0 million (2004: Â£5.0 million) in relation to the defined benefit schemes. The defined benefit schemes have a Minimum Funding Requirement cover of 115%. Contribution rates remain at 7.5% (2004: 7.5%) for employees and at 10% (2004: 10%) for the Group Scheme. h) Acquisitions On 23 August 2004, the Group acquired some or all of the minority interests in the following subsidiaries for a total consideration of Â£3.5m (See Note 22): â€¢ MITIE Air Conditioning (North) Ltd â€¢ MITIE Engineering Services (Retail) Ltd â€¢ MITIE Roofing Services Ltd â€¢ MITIE Security (Scotland) Ltd â€¢ MITIE Greencote Ltd 2. Financial Review a) Returns to Shareholders Earnings per share ('EPS') EPS is based upon profits after tax and minority interests and represents the amount of profit earned by each share. Basic EPS fell by 20.8% to 6.0p (2004: 7.6p). The majority of this is due to the exceptional items which reduced EPS by 2.7p. EPS before exceptional items and goodwill grew by 15.1% from 8.3p in 2004 to 9.6p this year (see Note 9 for reconciliation to basic earnings per share). Dividends In 2004 we set a dividend policy to achieve an annual dividend cover of no more than three times. We also noted that we would review this policy on a regular basis. The dividend total of 3.4p per share is at a cover of 2.9 times. For the purposes of calculating this cover we have ignored the impact of goodwill amortisation and the exceptional items in the year. Share buybacks The Company has acquired 3.4% of its own share capital in the year, equating to 10,310,006 shares, all of which were cancelled. In total these cost Â£14.9 million. b) Treasury Policy Group Treasury has responsibility for managing and reducing financial risk and ensuring sufficient liquidity is available to meet foreseeable needs. It operates within policies and procedures approved by the Board which have not changed during the year. Borrowings are arranged centrally by Group Treasury and made available to operating subsidiaries on commercial terms. The Board's ongoing policy is to finance the Group through retained earnings and borrowings. The Group's exposure to interest rate fluctuations is currently limited to the performance of our net funds position. A portfolio of AAA rated funds, money market deposits and corporate deposit accounts is used to maximise returns from funds while minimising overall exposure to any one financial institution. The maturity profile of banking facilities is reviewed regularly and the facilities are extended and replaced as appropriate well in advance of their expiry. Further details on financial assets and liabilities are given in Note 17 to the Preliminary Announcement. c) Accounting Developments There have been no significant impacts arising as a result of changes in UK Generally Accepted Accounting Principles in the year. d) International Financial Reporting Standards ('IFRS') IFRS will be adopted in the Group's consolidated accounts for the year end 31 March 2006. The Group will publish accounts under IFRS for our 2006 interim results and restate 31 March 2005 figures for comparative purposes. The Group's transition project to prepare for this has continued during the year. Other than the additional disclosures and presentational differences, IFRS is expected to have the most impact for the Group in the following areas: â€¢ Share based payments (IFRS 2) â€¢ Goodwill amortisation (IFRS 3) â€¢ Pensions (IAS 19) â€¢ Deferred tax (IAS 12) We have provided further explanations of each of these items, and where appropriate the estimated financial impact, in the section on International Financial Reporting Standards below. We have also detailed the exemptions taken by the Group on the adoption of IFRS as set out in IFRS 1: First time adoption of International Accounting Standards. e) Cash flows Net funds increased by Â£11.2 million during the year from Â£49.3 million to Â£60.5 million. The total cash inflow in the year was Â£10.5 million (2004: outflow of Â£7.8 million). The Group has generated Â£46.9 million (2004: Â£43.9 million) from operating activities. Tax paid in the year was Â£13.5 million (2004: Â£12.4 million) and net capital expenditure reduced to Â£10.8 million (2004: Â£12.7 million). Of the Â£3.5 million consideration for the acquisitions of minority interests in subsidiaries, Â£0.2 million was in cash. We also received Â£8.9 million on the disposal of a subsidiary undertaking, which represented the overdraft. In the previous year we had a net outflow of Â£23.7 million from acquisitions in the year. f) Investment for the future Acquisitions As noted above, during the year the Group acquired some or all of the minority interests in five of its subsidiaries for a total consideration of Â£3.5 million of which Â£0.2 million was in cash. Since the year-end, on 4 May 2005, the Group acquired the entire share capital of Intruder. The total consideration was Â£4 million. The total consideration can increase by up to a further Â£0.5 million to the extent that the net assets at completion of Intruder exceed Â£0.95 million. The final consideration will be confirmed in our Interim Report for the period ending 30 September 2005. In the year to 31 October 2004, Intruder's turnover was Â£4.31 million, pre-tax profits were Â£0.45 million and net assets were Â£0.94 million as at 31 October 2004. Capital Expenditure As the Group has grown and continues to grow strongly, measuring total capital expenditure does not provide a useful measure of performance; we therefore measure our capital expenditure as a percentage of turnover. Over the last five years this has fallen from 4.6% of turnover to 1.3% in the current year. This clearly reflects the Group's stated objective to move away from capital-intensive businesses. Generation, which was disposed of earlier in the year, was the final step in achieving this objective. This policy allows us to reduce the amount of capital tied up in long-term projects and to direct funds to other areas which generate greater shareholder value. Ruby McGregor-Smith Group Finance Director Group Profit and Loss Account for the year ended 31 March 2005 Note 2005 2004 Â£'000 Â£'000 3 Turnover - Continuing operations 799,737 664,259 - Discontinued operations 18,892 30,254 _____________________________________________________________________________________ 818,629 694,513 3 Cost of sales (651,503) (543,880) _____________________________________________________________________________________ 3 Gross profit 167,126 150,633 _____________________________________________________________________________________ 3 Administrative (125,160) (114,149) expenses _____________________________________________________________________________________ Administrative - before amortisation of (122,335) (111,986) expenses goodwill Operating profit before goodwill amortisation 44,791 38,647 - amortisation of goodwill (2,825) (2,163) _____________________________________________________________________________________ 4 Operating Profit - Continuing operations 40,918 35,355 - Discontinued operations 1,048 1,129 ___________________ 41,966 36,484 _____________________________________________________________________________________ Loss on sale excluding unamortised goodwill (3,366) - Goodwill not previously amortised (1,238) - Goodwill previously written off to reserves (5,013) - _____________________________________________________________________________________ 22b Exceptional loss on sale of discontinued operations (9,617) - 11 Exceptional profit on sale of tangible fixed assets from 1,471 - continuing operations ___________________ Profit on ordinary activities before interest 33,820 36,484 6 Interest 2,117 1,696 ___________________ Profit on ordinary activities before tax 35,937 38,180 7 Tax on profit on ordinary activities (14,315) (12,293) ___________________ Profit on ordinary activities after tax 21,622 25,887 Minority interests (3,174) (2,533) ___________________ Profit for the year 18,448 23,354 8 Dividends - equity (10,196) (7,884) ___________________ 20 Retained profit for the year 8,252 15,470 ___________________ 9 Earnings per ordinary share - Basic 6.0p 7.6p - Diluted 5.9p 7.6p - Basic before goodwill amortisation 6.9p 8.3p - Basic before goodwill amortisation and exceptional items 9.6p 8.3p ___________________ There are no recognised gains and losses for the current financial year or preceding financial year other than as stated in the Group Profit and Loss Account. _____________________________________________________________________________________ Profit on ordinary activities before tax and goodwill and 46,908 40,343 exceptional items _____________________________________________________________________________________ Reconciliation of Movements in Shareholders' Funds for the year ended 31 March 2005 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Profit for the financial year 18,448 23,354 Dividends (10,196) (7,884) ________________________________________________________________________________ 8,252 15,470 Goodwill previously written off included in retained profit for the year 5,013 - Shares issued - in respect of minority interests acquired 3,296 8,128 - own shares acquired (15,015) - - other 1,368 735 ________________________________________________________________________________ Net addition to Shareholders' funds 2,914 24,333 Shareholders' funds at the beginning of the year 129,233 104,900 ________________________________________________________________________________ Shareholders' funds at the end of the year 132,147 129,233 ________________________________________________________________________________ Note of Historical Cost Profits and Losses for the year ended 31 March 2005 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Profit on ordinary activities before tax 35,937 38,180 Difference between the historical cost depreciation charge on revalued assets and the actual depreciation charge for the year calculated on the revalued amount 10 76 Realisation of property revaluation losses/(gains) of previous years 179 (8) ________________________________________________________________________________ Historical cost profits on ordinary activities before tax, minority interests and dividends 36,126 38,248 ________________________________________________________________________________ Historical cost profits for the year retained after tax, minority interests and dividends 8,441 15,538 ________________________________________________________________________________ Group Balance Sheet as at 31 March 2005 Note 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Fixed Assets 10 Intangible assets 49,908 51,937 11 Tangible assets 27,214 40,329 77,122 92,266 ________________________________________________________________________________ Current Assets 12 Work in progress and stocks 6,343 7,055 13 Debtors 179,947 151,868 14 Investments 3,827 2,391 Cash at bank and in hand 57,667 47,165 ________________________________________________________________________________ 247,784 208,479 ________________________________________________________________________________ 15 Creditors - due within one year (173,102) (157,370) ________________________________________________________________________________ Net Current Assets 74,682 51,109 ________________________________________________________________________________ Total Assets less Current Liabilities 151,804 143,375 16 Creditors - due after one year (776) (136) 18 Provisions for Liabilities and Charges (9,241) (7,390) ________________________________________________________________________________ Net Assets 141,787 135,849 ________________________________________________________________________________ Capital and Reserves 19 Called up share capital 7,580 7,736 20 Share premium account 11,577 9,836 20 Merger reserve 44,128 40,895 20 Capital redemption reserve 257 - 20 Revaluation reserve (251) (440) 20 Other reserve 583 994 20 Profit and loss account 68,273 70,212 ________________________________________________________________________________ Equity Shareholders' Funds 132,147 129,233 Equity minority interest 9,640 6,616 ________________________________________________________________________________ 141,787 135,849 ________________________________________________________________________________ Company Balance Sheet as at 31 March 2005 Note 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Fixed Assets 11 Tangible assets 1,215 910 27 Investments in subsidiary undertakings 108,273 110,019 ________________________________________________________________________________ 109,488 110,929 ________________________________________________________________________________ Current Assets 13 Debtors 40,012 39,864 Cash at bank and in hand 5,477 939 ________________________________________________________________________________ 45,489 40,803 ________________________________________________________________________________ 15 Creditors - due within one year (27,690) (30,051) ________________________________________________________________________________ Net Current Assets 17,799 10,752 ________________________________________________________________________________ Net Assets 127,287 121,681 ________________________________________________________________________________ Capital and Reserves 19 Called up share capital 7,580 7,736 20 Share premium account 11,577 9,836 20 Merger reserve 44,128 40,895 20 Capital redemption reserve 257 - 20 Profit and loss account 63,745 63,214 ________________________________________________________________________________ Equity Shareholders' Funds 127,287 121,681 ________________________________________________________________________________ Group Cash Flow Statement for the year ended 31 March 2005 Note 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ 21 Net cash inflow from operating activities 46,890 43,854 ________________________________________________________________________________ Returns on investments and servicing of finance Interest received 2,125 1,693 Interest paid - (39) Interest element of finance lease rentals (47) (26) Minority dividends paid (125) - ________________________________________________________________________________ 1,953 1,628 ________________________________________________________________________________ Tax UK corporation tax paid (13,523) (12,352) ________________________________________________________________________________ (13,523) (12,352) ________________________________________________________________________________ Capital expenditure Payments to acquire tangible fixed assets (14,004) (17,267) Receipts from sales of tangible fixed assets 3,160 4,603 ________________________________________________________________________________ (10,844) (12,664) ________________________________________________________________________________ 22 Acquisitions and disposals Payments to acquire subsidiary undertakings (205) (22,526) Net overdraft acquired with subsidiary - (1,163) undertakings Sale of subsidiary undertakings 8,935 - ________________________________________________________________________________ 8,730 (23,689) ________________________________________________________________________________ Equity dividends paid (9,104) (6,825) ________________________________________________________________________________ Cash inflow / (outflow) before management of 24,102 (10,048) liquid resources and financing ________________________________________________________________________________ Management of liquid resources Net (increase) / decrease in investments (1,436) 1,489 ________________________________________________________________________________ Financing Issue of Ordinary Share capital 3,013 967 Purchase of own shares (14,912) - Net capital element of finance lease rentals (265) (203) ________________________________________________________________________________ (12,164) 764 ________________________________________________________________________________ 24 Increase / (decrease) in cash in the year 10,502 (7,795) ________________________________________________________________________________ Notes to the Preliminary Announcement 1 Preliminary Announcement The preliminary announcement was approved by the Board on 20 May 2005. The financial information as set out does not constitute the Group and Company's statutory accounts for the year ended 31 March 2005 or 2004, but is derived from those Accounts. Statutory accounts for 2004 have been delivered to the Registrar of Companies and those for 2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on those Accounts; their reports were unqualified and did not contain statements under s237(2) or (3) Companies Act 1985. 2 Accounting Policies Accounting Convention The Preliminary Announcement has been prepared under the historical cost convention as modified by the revaluation of certain freehold and long leasehold properties. The Preliminary Announcement has been prepared in accordance with applicable United Kingdom accounting standards. Basis of Consolidation The consolidated Profit and Loss Account and Balance Sheet include the financial statements of MITIE Group PLC and all its subsidiary undertakings. The results of the subsidiary undertakings acquired or sold are included from or up to the effective date of acquisition or sale. Accounting Developments There have been no new UK accounting standards adopted during the year ended 31 March 2005. Goodwill and Intangible Fixed Assets Goodwill is calculated as the surplus of fair value of purchase consideration over fair value attributed to the net assets of subsidiary undertakings acquired. Following the introduction of FRS 10, goodwill in respect of acquisitions made after the financial year ended 31 March 1998 has been capitalised and amortised over its estimated useful economic life of up to 20 years. For acquisitions made before 1 April 1998, goodwill was written off directly to reserves. In the event of a disposal of the businesses concerned, this goodwill will be included in determining the gain or loss on disposal in the Profit and Loss Account. Tangible Fixed Assets Tangible fixed assets are stated at cost or valuation, less depreciation and any provision for impairment. Depreciation is provided on tangible fixed assets on a straight-line basis over the expected useful lives. No depreciation is provided on land. The expected useful lives are as follows: Freehold and long leasehold buildings 50 years Plant 3-14 years Vehicles 4 years Financial Instruments The Group uses derivative financial instruments to reduce exposure to foreign exchange risk. The Group does not hold or issue derivative financial instruments for speculative purposes. For a forward foreign exchange contract to be treated as a hedge, the instrument must be related to actual foreign currency assets or liabilities or to a probable commitment. It must involve the same currency or similar currencies as the hedged item and must also reduce the risk of foreign currency exchange movements on the Group's operations. Gains and losses arising on these contracts are deferred and recognised in the profit and loss account, or as adjustments to the carrying amount of fixed assets, only when the hedged transaction has itself been reflected in the Group's financial statements. If an instrument ceases to be accounted for as a hedge, for example because the underlying hedged position is eliminated, the instrument is marked to market and any resulting profit or loss recognised at that time. Foreign Currency Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction or, if hedged, at the forward contract rate. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date or, if appropriate, at the forward contract rate. Investments Shares in Group companies are stated at cost less provision for impairment in value. Current asset investments are stated at the lower of cost and net realisable value. Leased Assets Assets acquired under finance leases are included in tangible fixed assets and depreciated in accordance with the above policy. Outstanding future lease obligations are shown in creditors. The finance element of the rental payments is charged to the Profit and Loss Account over the period of the lease. Operating lease rentals are charged to the Profit and Loss Account in equal instalments over the lease term. Work in Progress and Stocks Stocks are valued at the lower of cost and net realisable value. Costs represent materials, direct labour and overheads. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate. Amounts recoverable on long-term contracts, which are included in debtors, are stated at the net sales value of the work done, less amounts received as progress payments on account. Excess progress payments are included in creditors as payments on account. Cumulative costs incurred net of amounts transferred to cost of sales, less provision for contingencies and anticipated future losses on contracts, are included as long-term contract balances in stock. All bid costs are expensed as incurred until the stage is reached where it is virtually certain that the contract has been awarded. Tax Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted at the Balance Sheet date. Deferred tax is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Turnover Turnover represents the total amount, excluding sales taxes, receivable in respect of goods and services supplied and contract work completed in the year. Intra-Group transactions are excluded. All turnover arose within the United Kingdom. Profit is recognised on long-term contracts, if the final outcome can be assessed with reasonable certainty, by including in the profit and loss account turnover and related costs as contract activity progresses. Turnover from bundled contracts consists of various components which operate independently of each other and for which reliable fair values can be established. Accordingly, each component is accounted for separately as if it were an individual contractual arrangement. Pensions The Group operates two defined benefit pension schemes. The contributions charged to operating profit are calculated by a qualified actuary so as to spread the cost of the pensions over the employees working lives with the Group. The Group also operates a fully insured defined contribution pension scheme, the assets of which are held in independently administered funds. In respect of this scheme, the pension cost charge represents contributions payable by the Group in the year. The Group has continued to account for pensions in accordance with SSAP 24 as stated above. In November 2000 the Accounting Standards Board (ASB) issued FRS 17 'Retirement Benefits', replacing SSAP 24 'Accounting for Pension Costs'. In November 2002 an amendment to FRS 17 was published, which allowed an extension to the transitional arrangements of FRS 17. The Group is continuing to follow the transitional arrangements under FRS 17. Provisions Provision is made for outstanding insurance claims incurred at the balance sheet date. Provision is made for contingent consideration based on the best estimate of what the Directors believe will become payable in the future. 3 Segmental Analysis The business operates in the two segments as shown below: ACTIVITY TURNOVER PROFIT INTEGRATION PROFIT PROFIT PROFIT PRE-TAX NET BEFORE TAX, COSTS BEFORE BEFORE BEFORE PROFIT ASSETS GOODWILL & TAX & TAX & INTEREST, INTEGRATION GOODWILL GOODWILL TAX & COSTS MARGIN GOODWILL Â£'000 Â£'000 Â£'000 Â£'000 % Â£'000 Â£'000 Â£'000 2005 _____________________________________________________________________________________________________________ Support Services 440,288 29,746 - 29,746 6.8 28,769 27,816 48,283 Building Services 378,341 17,162 - 17,162 4.5 16,022 8,121 33,020 _____________________________________________________________________________________________________________ 818,629 46,908 - 46,908 5.7 44,791 35,937 81,303 Net 60,484 funds _____________________________________________________________________________________________________________ Total 141,787 _____________________________________________________________________________________________________________ 2004 Support Services 347,831 25,504 (1,031) 24,473 7.0 23,871 23,148 41,179 Building Services 346,682 15,870 - 15,870 4.6 14,776 15,032 45,359 _____________________________________________________________________________________________________________ 694,513 41,374 (1,031) 40,343 5.8 38,647 38,180 86,538 Net funds 49,311 _____________________________________________________________________________________________________________ Total 135,849 _____________________________________________________________________________________________________________ Included in the Building Services segment in 2005 are amounts that relate to discontinued activities. These include turnover of Â£18,892,000 (2004: Â£30,254,000) and pre-tax profit of Â£917,000 (2004: Â£883,000). Turnover from each division can be further analysed as follows: TURNOVER 2005 2005 2005 2004 2004 2004 CONTINUING DISCONTINUED TOTAL CONTINUING DISCONTINUED TOTAL ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 _______________________________________________________________________________________ Support Services Cleaning 189,689 - 189,689 151,696 - 151,696 Catering 13,509 - 13,509 10,677 - 10,677 Landscape 1,989 - 1,989 1,257 - 1,257 Pest 4,474 - 4,474 3,268 - 3,268 Control Security 54,147 - 54,147 35,017 - 35,017 Managed Services 102,822 - 102,822 82,870 - 82,870 Engineering Maintenance 73,658 - 73,658 63,046 - 63,046 _______________________________________________________________________________________ Total 440,288 - 440,288 347,831 - 347,831 _______________________________________________________________________________________ Building Services Engineering Services 230,365 - 230,365 188,810 - 188,810 Property Services 129,084 - 129,084 127,618 - 127,618 Generation - 18,892 18,892 - 30,254 30,254 _______________________________________________________________________________________ Total 359,449 18,892 378,341 316,428 30,254 346,682 _______________________________________________________________________________________ Total Group 799,737 18,892 818,629 664,259 30,254 694,513 _______________________________________________________________________________________ OPERATING PROFIT 2005 2005 2005 2004 2004 2004 CONTINUING DISCONTINUED TOTAL CONTINUING DISCONTINUED TOTAL ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS Â£'000 Â£'000 Â£'000 Â£'0000 Â£'000 Â£'000 ___________________________________________________________________________________________ Turnover 799,737 18,892 818,629 664,259 30,254 694,513 Cost of (638,895) (12,608) (651,503) (523,884) (19,996) (543,880) sales ___________________________________________________________________________________________ Gross profit 160,842 6,284 167,126 140,375 10,258 150,633 Administrative expenses (119,924) (5,236) (125,160) (105,020) (9,129) (114,149) ___________________________________________________________________________________________ Operating profit 40,918 1,048 41,966 35,355 1,129 36,484 ___________________________________________________________________________________________ Discontinued operations relate to the disposal of MITIE Generation Ltd on 30 September 2004. 4 Operating profit 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ This is stated after charging/(crediting): Depreciation and other amounts written off tangible fixed assets: - owned assets 10,447 11,802 - leased assets 283 133 Goodwill amortisation 2,825 2,163 Auditors' remuneration - Group 254 194 - Company 25 25 - Other services 36 90 Operating lease rentals - plant and vehicles 1,653 1,082 - other 2,767 2,024 Profit on disposal of fixed assets (233) (884) ________________________________________________________________________________ A more detailed analysis of amounts paid to the Auditors is provided below: 2005 2005 2004 2004 Â£'000 % Â£'000 % ________________________________________________________________________________ Auditors' remuneration - services as Auditors 279 89 219 65 - further assurance services (i) - - 28 8 - tax advisory services 32 10 86 26 - other non-audit services 4 1 4 1 ________________________________________________________________________________ 315 100 337 100 ________________________________________________________________________________ (i) In 2004, Â£28,000 of fees were incurred on acquisitions. Fees in the prior year were included within the cost of investment, and not charged against operating profit. 5 Directors and employees 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ (i) Employment costs Wages and salaries 332,739 282,521 Social security costs 27,190 21,772 Other pension costs 4,253 4,514 ________________________________________________________________________________ 364,182 308,807 ________________________________________________________________________________ 2005 2004 No. No. ________________________________________________________________________________ (ii) The average number of persons employed during the financial year was: Site 27,830 26,667 Administration 2,546 2,360 ________________________________________________________________________________ 30,376 29,027 ________________________________________________________________________________ 6 Interest 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ (i) Interest payable and similar charges Finance leases (47) (26) Other - (39) (ii) Interest receivable and similar income Bank interest 2,071 1,761 Other 93 - ________________________________________________________________________________ 2,117 1,696 ________________________________________________________________________________ 7 Tax on profit on ordinary activities a) Analysis of charge in the year 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ UK corporation tax 15,200 13,326 Adjustment in respect of prior years (505) (295) ________________________________________________________________________________ Total current tax charge for the year (Note 7b) 14,695 13,031 ________________________________________________________________________________ Deferred taxation: Timing differences - origination and reversal (239) (690) Adjustments in respect of prior years - (141) (48) deferred tax ________________________________________________________________________________ Tax on profit on ordinary activities 14,315 12,293 ________________________________________________________________________________ b) Factors affecting tax charge in the year The tax assessed for the year is different from that resulting from applying the standard rate of corporation tax in the UK of 30% (2004: 30%). The differences are set out below. 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Profit on ordinary activities before tax 35,937 38,180 ________________________________________________________________________________ Tax at 30% thereon 10,781 11,454 Expenses not deductible for tax purposes 379 432 Capital allowances less than / (in excess of) depreciation 236 (34) Tax losses not utilised / (utilised) 458 (34) Group relief not paid for - (16) Movement in short-term timing differences - 650 Profit on disposal of property (453) - Loss on disposal of investment 2,885 - Goodwill 848 650 Prior periods (505) (295) Other 66 224 ________________________________________________________________________________ Total current tax charge for the year (Note 7a) 14,695 13,031 ________________________________________________________________________________ The tax effect of the exceptional items is given in Notes 11 and 22b. c) Factors affecting future tax charges The Group is not aware of any factors that may materially affect the future tax charge. 8 Dividends 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Interim dividend 1.6p per 2.5p share 4,885 3,327 (2004: 1.1p per 2.5p share) Proposed final dividend 1.8p per 2.5p share 5,457 4,429 (2004: 1.4p per 2.5p share) Minorities - 128 Adjustments in respect of prior years (146) - ________________________________________________________________________________ 10,196 7,884 ________________________________________________________________________________ Total dividend per 2.5p share for the year 3.4p 2.5p ________________________________________________________________________________ Subject to approval at the Annual General Meeting, the final dividend will be paid on 30 September 2005 to members on the Register on 2 September 2005. 9 Earnings per ordinary share The calculation of earnings per 2.5p share for 2005 and 2004 is based on the profit after tax and minority interest. The weighted average number of shares for this purpose is 306,437,906 (2004: 305,665,870). The diluted earnings per share has been calculated on the basic earnings and the weighted average number of shares plus 4,074,637 (2004: 1,040,263) shares representing the weighted average number of shares under option during the year. Headline earnings per share continues to have widespread acceptance and has been calculated in accordance with the definition in the UK Society of Investment Professionals statement of investment practice No.1, 'The Definition of Headline Earnings', as follows: 2005 2004 ________________________________________________________________________________ Basic earnings per Ordinary Share 6.0p 7.6p Amortisation of goodwill 0.9p 0.7p ________________________________________________________________________________ Earnings per Ordinary Share before goodwill 6.9p 8.3p Exceptional items - loss on sale of discontinued operations 3.1p - - profit on sale of tangible fixed assets (0.4p) - ________________________________________________________________________________ Total exceptional items 2.7p - ________________________________________________________________________________ Earnings per Ordinary Share before goodwill and exceptional items 9.6p 8.3p ________________________________________________________________________________ 10 Fixed assets - Intangible Group GOODWILL Â£'000 ________________________________________________________________________________ Cost At beginning of year 56,188 Additions (See Note 22a) 2,034 Disposals (See Note 22b) (1,406) ________________________________________________________________________________ At end of year 56,816 ________________________________________________________________________________ Amortisation At beginning of year 4,251 Amortised in year 2,825 Disposals (See Note 22b) (168) ________________________________________________________________________________ 6,908 ________________________________________________________________________________ Net book value At end of year 49,908 ________________________________________________________________________________ At beginning of year 51,937 ________________________________________________________________________________ 11 Fixed assets - Tangible Group LONG PLANT FREEHOLD LEASEHOLD AND PROPERTIES PROPERTIES VEHICLES TOTAL Â£'000 Â£'000 Â£'000 Â£'000 ___________________________________________________________________________________ Cost or valuation At beginning of year 5,792 3,166 65,028 73,986 Additions at cost - 87 14,954 15,041 Disposals (1,092) - (10,357) (11,449) Subsidiaries disposed (see Note 22b) - - (25,379) (25,379) ___________________________________________________________________________________ At end of year 4,700 3,253 44,246 52,199 ___________________________________________________________________________________ Cost 2,356 2,833 44,246 49,435 Valuation 1995 2,344 420 - 2,764 ___________________________________________________________________________________ Depreciation At beginning of year 610 285 32,762 33,657 Charge for year 77 121 10,532 10,730 Disposals (138) - (8,384) (8,522) Subsidiaries disposed (See Note 22b) - - (10,880) (10,880) ___________________________________________________________________________________ At end of year 549 406 24,030 24,985 ___________________________________________________________________________________ Net book value At end of year 4,151 2,847 20,216 27,214 ___________________________________________________________________________________ At beginning of year 5,182 2,881 32,266 40,329 ___________________________________________________________________________________ Historic cost net book value 2005 4,320 2,954 20,216 27,490 ___________________________________________________________________________________ 2004 5,629 2,934 32,266 40,829 ___________________________________________________________________________________ No depreciation was charged against freehold or long leasehold buildings up to 1995. For the year ended 31 March 2005, the Profit and Loss Account has been charged with Â£198,000 (2004: Â£163,000) depreciation. The historic cost of revalued properties was Â£3,301,000 (2004: Â£4,591,000). The net book value of plant and vehicles held under finance leases included above was Â£954,000 (2004: Â£564,000). Previous valuations were frozen, as allowed under the transitional provisions of FRS 15. The carrying value relating to the previous valuation performed as at 31 March 1995 has been carried forward. Included in freehold disposals is a property in Scotland, which resulted in an exceptional profit on sale of Â£1,471,000. The net tax effect of this profit on sale is Â£nil. Company PLANT AND VEHICLES Â£'000 ________________________________________________________________________________ Cost At beginning of year 2,612 Additions 736 Disposals (1,095) Transfers to other Group companies (26) ________________________________________________________________________________ At end of year 2,227 ________________________________________________________________________________ Depreciation At beginning of year 1,702 Charge for the year 354 Disposals (1,037) Transfers to other Group companies (7) ________________________________________________________________________________ At end of year 1,012 ________________________________________________________________________________ Net book value At end of year 1,215 ________________________________________________________________________________ At beginning of year 910 ________________________________________________________________________________ 12 Work in progress and stocks GROUP 2004 COMPANY 2004 2005 Â£'000 2005 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Work in progress 6,265 5,965 - - Payments received on account (70) (2,811) - - Goods for resale 148 3,901 - - ________________________________________________________________________________ 6,343 7,055 - - ________________________________________________________________________________ 13 Debtors GROUP 2004 COMPANY 2004 2005 Â£'000 2005 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Trade debtors 156,718 136,899 47 63 Amounts recoverable under contracts 12,093 7,182 - - Owed by subsidiary undertakings - - 35,511 38,884 Other debtors 5,594 3,119 2,588 198 Prepayments and accrued income 4,076 4,668 870 315 Deferred tax 1,466 - - 404 Corporation tax - - 996 - ________________________________________________________________________________ 179,947 151,868 40,012 39,864 ________________________________________________________________________________ Included in Group and Company other debtors is the sum of Â£2,500,000 (2004: Â£nil) falling due after one year. The deferred tax asset of Â£1,466,000 relates to negative capital allowances and other short-term timing differences. The Directors are of the opinion that suitable profits will be available in the periods in which these differences will reverse. The amount credited to the profit and loss account in the year was Â£380,000 (2004: Â£735,000). The remaining movement in deferred tax in the year relates to the disposal of MITIE Generation Ltd. 14 Investments GROUP 2004 COMPANY 2004 2005 Â£'000 2005 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Unlisted investments 3,827 2,391 - - ________________________________________________________________________________ Included in unlisted investments are deposits totalling Â£3,827,000 (2004: Â£2,391,000) held by the Group's insurance subsidiary, which are not readily available for the general purposes of the Group. 15 Creditors - due within one year GROUP 2004 COMPANY 2004 2005 Â£'000 2005 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Obligations under finance leases 241 109 - - Payments received on account 785 205 - - Trade creditors 97,271 87,411 568 72 Owed to subsidiary undertakings - - 15,688 18,925 Corporation tax 7,387 6,490 - - Other taxes and social security 28,703 25,815 932 793 Other creditors 4,070 6,382 3,257 3,357 Accruals and deferred income 29,038 26,469 1,661 2,415 Proposed dividends 5,607 4,489 5,584 4,489 ________________________________________________________________________________ 173,102 157,370 27,690 30,051 ________________________________________________________________________________ 16 Creditors - due after one year GROUP 2004 COMPANY 2004 2005 Â£'000 2005 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Obligations under finance leases 776 136 - - ________________________________________________________________________________ Finance leases are repayable between one and five years and are secured on the related leased assets. 17 Financial assets and liabilities 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Maturity of borrowings The maturity profile of the Group's financial liabilities was as follows: In one year or less, or on demand 241 109 In more than one year, but not more than two 206 71 years In more that two years, but not more than five 570 65 years ________________________________________________________________________________ 1,017 245 ________________________________________________________________________________ Short-term debtors, current asset investments and creditors have been excluded from the analysis. Cash at bank is held at normal commercial rates. Borrowings At the year end, undrawn committed bank borrowing and overdraft facilities amounted to Â£60,000,000 (2004: Â£60,000,000), which are all renewable within one year. Interest rates At 31 March 2005, the Group had financial liabilities of Â£1,017,000 (2004: Â£310,000). These liabilities are under a fixed rate of interest of 6.4% until September 2009 when the liabilities will be fully re-paid. At 31 March 2005, the Group had an interest bearing loan note of Â£2,500,000 (2004: Â£nil). This asset accrues interest at a rate of 1% over bank base rate. Hedging The Group's policy is to use derivative instruments to hedge against any material exposure to movements in exchange rates, however, no such arrangements have been entered into during the course of the year. Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. There are no unrecognised gains or losses at 31 March 2005 (2004: Â£nil). Currency exposure As at 31 March 2005, the Group had no currency exposure (2004: Â£nil). Fair values The Directors consider that the fair value of financial assets and liabilities is not materially different from their book value. Further information on financial instruments is given in the Finance Director's Review. 18 Provisions for liabilities and charges CONTINGENT DEFERRED INSURANCE TOTAL CONSIDERATION TAX RESERVE Â£'000 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Provisions At beginning of year 3,200 90 4,100 7,390 Utilised during the year - (90) (907) (997) Arising during - - 2,848 2,848 the year ________________________________________________________________________________ At end of 3,200 - 6,041 9,241 year ________________________________________________________________________________ Deferred tax in respect of the Group's defined benefit schemes is disclosed in Note 28. During the year the deferred tax liability has reversed to a deferred tax asset of Â£1,466,000 (See Note 13). The provision for insurance claims represents amounts payable by MITIE Reinsurance Company Ltd in respect of outstanding claims incurred at the balance sheet dates. These amounts will become payable as each year's claims are settled. Provision is made for contingent consideration, which will become payable in the future, at the best estimate of the Directors. Further details given in Note 25. 19 Called up share capital ORDINARY SHARES ORDINARY SHARES OF 2.5p OF 2.5p NO. Â£'000 ________________________________________________________________________________ Authorised at 1 April 2004 and 31 March 2005 340,000,000 8,500 ________________________________________________________________________________ 2005 Allotted and fully paid At beginning of year 309,393,539 7,736 ________________________________________________________________________________ Issued as Directors' remuneration 72,812 2 Issued for acquisitions 2,560,052 63 Issued under share option schemes 1,457,383 36 Own shares acquired (10,310,006) (257) ________________________________________________________________________________ At end of year 303,173,780 7,580 ________________________________________________________________________________ 2004 Allotted and fully paid At beginning of year 302,186,614 7,556 ________________________________________________________________________________ Issued as Directors' remuneration 87,959 2 Issued for acquisitions 6,608,203 165 Issued under share option schemes 510,763 13 ________________________________________________________________________________ At end of year 309,393,539 7,736 ________________________________________________________________________________ During the year 72,818 (2004: 87,959) Ordinary Shares of 2.5p were allotted as remuneration in respect of services provided by Directors at a market price of Â£1.62 (2004: Â£1.23) giving rise to share premium of Â£113,000 (2004: Â£106,000). During the year 2,560,052 (2004: 6,608,203) Ordinary Shares of 2.5p were allotted in respect of acquiring minority interests at a mid-market price of Â£1.29 (2004: Â£1.23) giving rise to a merger reserve of Â£3,232,000 (2004: Â£7,962,000). During the year 1,457,383 (2004: 510,763) Ordinary Shares of 2.5p were allotted in respect of share option schemes at a price between Â£0.85 and Â£1.68 (2004: Â£1.02 and Â£1.35) giving rise to share premium of Â£1,628,000 (2004: Â£615,000). During the year 10,310,006 (2004: nil) Ordinary Shares of 2.5p were purchased at market prices between Â£1.31 and Â£1.65. These were then cancelled. This resulted in a capital redemption reserve of Â£257,000 (2004: Â£nil). Options outstanding under the Savings Related Share Option Schemes at 31 March 2005 and 31 March 2004 were as follows: OPTION DATE EXERCISABLE ORDINARY SHARES OF PRICE 2.5p EACH 2005 2004 _____________________________________________________________________________ 85p 2004 34,538 907,592 150p 2005 748,616 881,924 125p 2006 667,062 802,926 110p 2007 1,357,667 1,703,619 120p 2008 1,458,142 1,792,604 120p 2009 1,961,689 - ___________________________ 6,227,714 6,088,665 ___________________________ Options outstanding under the Executive Share Option Schemes at 31 March 2005 and 31 March 2004 were as follows: OPTION DATE EXERCISABLE ORDINARY SHARES OF PRICE 2.5p EACH 2005 2004 _____________________________________________________________________________ 57.75p 2001 - 2008 375,000 692,669 95p 2002 - 2009 474,000 711,000 173.75p 2003 - 2010 469,600 587,600 145p 2004 - 2011 601,900 744,600 117p 2005 - 2012 864,600 1,027,600 99p 2006 - 2013 200,000 200,000 132p 2006 - 2013 1,433,150 1,520,850 127p 2007 - 2014 1,443,100 - _________________________ 5,861,350 5,484,319 _________________________ 20 Share capital and reserves CALLED UP SHARE MERGER CAPITAL REVALUATION OTHER PROFIT TOTAL SHARE PREMIUM RESERVE REDEMPTION RESERVE RESERVE AND LOSS CAPITAL ACCOUNT RESERVE (i) ACCOUNT Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ______________________________________________________________________________________________________ Group At beginning of year 7,736 50,731 - - (440) 994 70,212 129,233 Reclassifica -tion - (40,895) 40,895 - - - - - ______________________________________________________________________________________________________ At beginning of year as restated 7,736 9,836 40,895 - (440) 994 70,212 129,233 Shares issued and premium arising in respect of acquisitions 63 - 3,233 - - - - 3,296 Shares issued and premium arising in connection with exercise of share options and Directors remuneration 38 1,741 - - - (411) - 1,368 Retained profit for the financial year - - - - - - 8,252 8,252 Realisation of property revaluation losses on disposal - - - - 179 - (179) - Additional depreciation on revalued assets - - - - 10 - (10) - Own shares acquired (257) - - 257 - - (15,015) (15,015) Goodwill previously written off included in retained profit for the year - - - - - - 5,013 5,013 ______________________________________________________________________________________________________ Balance at end of year 7,580 11,577 44,128 257 (251) 583 68,273 132,147 ______________________________________________________________________________________________________ Company At beginning of year 7,736 50,731 - - - - 63,214 121,681 Reclassifica- tion - (40,895) 40,895 - - - - - ______________________________________________________________________________________________________ At beginning of year as restated 7,736 9,836 40,895 - - - 63,214 121,681 Shares issued and premium arising in respect of acquisitions 63 - 3,233 - - - - 3,296 Shares issued and premium arising in connection with exercise of share options and Directors remuneration 38 1,741 - - - - - 1,779 Retained profit for the financial year - - - - - - 15,546 15,546 Own shares acquired (257) - - 257 - - (15,015) (15,015) ______________________________________________________________________________________________________ Balance at end of year 7,580 11,577 44,128 257 - - 63,745 127,287 ______________________________________________________________________________________________________ (i) Non-distributable In accordance with the exemption allowed by Section 230(4) of the Companies Act 1985, the Company has not presented its own Profit and Loss Account. The profit attributable to Shareholders in the Accounts of the Company was Â£25,888,000 (2004: Â£17,130,000). Goodwill eliminated against reserves originating prior to the adoption of FRS 10 on 1 April 1998 amounted to Â£21,660,000 (2004: Â£26,673,000). Included in both the Company and the Group share premium accounts in previous years were amounts relating to premiums arising on shares issued subject to the provisions of Section 131 of the Companies Act 1985. These have now been separately reclassified into a separate merger reserve and the comparatives restated. This has had no impact on the results for the year. 21 Net cash inflow from operating activities 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Operating profit 41,966 36,484 Depreciation 10,730 11,935 Amortisation of goodwill 2,825 2,163 Profit on sale of tangible fixed assets (233) (884) Decrease/(increase) in work in progress and stocks 712 (1,369) Increase in debtors (26,613) (39,754) Increase in creditors and provisions 17,503 35,279 ________________________________________________________________________________ 46,890 43,854 ________________________________________________________________________________ 22a Purchase of subsidiary undertakings Acquisition of Minority Interests MITIE AIR MITIE MITIE MITIE MITIE TOTAL CONDITIONING ENGINEERING ROOFING SECURITY GREENCOTE (NORTH) LTD SERVICES SERVICES (SCOTLAND) LTD (RETAIL) LTD LTD LTD Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Minority interest 538 460 407 39 23 1,467 ________________________________________________________________________________ Goodwill 770 588 610 46 20 2,034 ________________________________________________________________________________ Total purchase 1,308 1,048 1,017 85 43 3,501 consideration Shares issued - MITIE Group PLC (1,235) (976) (977) (78) (30) (3,296) ________________________________________________________________________________ Cash consideration being cash outflow in the 73 72 40 7 13 205 period ________________________________________________________________________________ MITIE Group PLC acquired these minority interests on 23 August 2004. 22b Disposal of subsidiary undertaking MITIE Generation Ltd On 30 September 2004, the Company sold its 100% interest in the ordinary share capital of MITIE Generation Ltd. The profit after taxation up to the date of disposal of this company was Â£643,000 and for the last financial year was Â£737,000. The net assets disposed and the related sale proceeds were as follows: 2005 Â£'000 ________________________________________________________________________________ Tangible fixed assets 14,499 Net working capital 2,343 Overdraft (8,882) Other loans (183) Provisions for liabilities and charges (1,358) ________________________________________________________________________________ Net assets 6,419 Goodwill not previously amortised 1,238 Goodwill previously written off to reserves 5,013 ________________________________________________________________________________ 12,670 Loss on disposal (9,617) ________________________________________________________________________________ Total consideration 3,053 ________________________________________________________________________________ Satisfied by: - Loan notes 2,500 - Short-term loan 500 - Cash 53 ________________________________________________________________________________ 3,053 ________________________________________________________________________________ Net cash inflows from sale comprised: Cash consideration 53 Overdraft disposed 8,882 ________________________________________________________________________________ Total cash effect 8,935 ________________________________________________________________________________ The short-term loan of Â£500,000 was settled on 31 March 2005. The interest bearing loan notes of Â£2,500,000 are repayable in full by 1 April 2009. As noted in the Profit and Loss Account, the total loss on disposal is Â£9,617,000. The tax effect of this loss is Â£nil. 23 Analysis of changes in net funds AT 31 MARCH CASHFLOWS NON DISPOSALS AT 31 MARCH 2004 -CASH 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Cash at bank and in hand 47,165 10,502 - - 57,667 Finance (245) - (1,037) 265 (1,017) leases Current asset 2,391 1,436 - - 3,827 investments ________________________________________________________________________________ Net funds 49,311 11,938 (1,037) 265 60,477 ________________________________________________________________________________ 24 Reconciliation of net cash flow to movement in net funds 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Increase/(decrease) in cash in the year 10,502 (7,795) Cash inflow/(outflow) from movement in debt and lease financing 265 (204) Cash inflow/(outflow) from movement in liquid resources 1,436 (1,489) ________________________________________________________________________________ Change in net debt resulting from cash flows 12,203 (9,488) New finance leases (1,037) - ________________________________________________________________________________ Movement in net funds in the year 11,166 (9,488) Net funds at beginning of year 49,311 58,799 ________________________________________________________________________________ Net funds at end of year 60,477 49,311 ________________________________________________________________________________ 25 Contingencies The Company is party with other Group companies to cross guarantees of each other's bank overdrafts. The Company and various of its subsidiaries are, from time to time, parties to legal proceedings and claims that are in the ordinary course of business. The Directors do not anticipate that the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect on the Group's financial position. Included in provisions for liabilities and charges (Note 18) is Â£3,200,000 of contingent consideration relating to the acquisitions of Trident Safeguards Ltd and Eagle Pest Control Services UK Ltd. For Trident Safeguards Ltd Â£2,000,000 is payable at any time between 2006 and 2010 if an agreed profit threshold is met, if this threshold is exceeded then an additional amount will become payable, with the total consideration capped at Â£20,000,000. In total Â£9,228,810 has been paid up to the 31 March 2005. For Eagle Pest Control Services UK Ltd Â£1,200,000 is payable at any time between 2008 and 2013 if an agreed profit threshold is met, if this profit threshold is exceeded then an additional amount will become payable, with the total consideration capped at Â£6,000,000. In total Â£2,800,000 has been paid up to the 31 March 2005. Contingent consideration, to be satisfied in shares, for the acquisition of minority interests in subsidiary undertakings is dependent on future profits of those subsidiaries and is at the discretion of the Company. It is therefore not possible to quantify accurately, in advance, the final amounts that may become payable. In connection with the sale of The Platform Company (UK) Ltd (formerly MITIE Powered Access Ltd), the Group has guaranteed lease commitments amounting to Â£96,000 (2004: Â£1,049,000). These commitments reduce to Â£nil at the end of the next year. Against these guarantees, the Group has received indemnities from the Group's bankers of Â£17,000 (2004: Â£179,000) and from the suppliers of the leased equipment of Â£21,000 (2004: Â£232,000), giving a net contingent liability of Â£58,000 (2004: Â£638,000). In addition, the Group and subsidiaries have given indemnities in respect of performance guarantees amounting to Â£4,115,000 (2004: Â£6,893,000) and import duty guarantees amounting to Â£nil (2004: Â£50,000) issued on its behalf in the ordinary course of business. 26 Commitments 2005 2004 Â£'000 Â£'000 ________________________________________________________________________________ Capital commitments as follows: Contracted for but not provided for 859 - ________________________________________________________________________________ 2005 2005 2004 2004 PROPERTY OTHER PROPERTY OTHER Â£'000 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Annual commitments under operating leases that expire: Within one year 370 322 263 241 In second to fifth years inclusive 1,179 1,746 1,427 389 Over five years 1,383 8 875 - ________________________________________________________________________________ 2,932 2,076 2,565 630 ________________________________________________________________________________ 27 Investments in subsidiary undertakings SHARES AT COST PROVISION FOR IMPAIRMENT NET BOOK VALUE Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ At beginning of year 116,820 (6,801) 110,019 Additions 13,514 - 13,514 Disposals (10,459) - (10,459) Impairment - (4,801) (4,801) ________________________________________________________________________________ At end of year 119,875 (11,602) 108,273 ________________________________________________________________________________ The principal operating subsidiary undertakings are detailed in Note 30. 28 Pensions In November 2000, the Accounting Standards Board (ASB) issued FRS 17 'Retirement Benefits', replacing SSAP 24 'Accounting for Pension Costs'. In November 2002, an amendment to FRS 17 was published, which allowed an extension to the transitional arrangements of FRS 17. The Group is following the transitional arrangements under FRS 17. (a) SSAP 24 The Group operate both defined benefit and defined contribution schemes. The pension charge for the defined contribution schemes for the year is Â£896,000 (2004: Â£914,000). The Group operates two defined benefit pension schemes called the MITIE Group PLC Pension Scheme and the MITIE Group PLC Passport Pension Scheme. In addition, the Group contributes to the Executive Group Limited Shared Cost Section of the Railway Pension Scheme. The assets of the MITIE schemes are held separately from the Group, being invested in equities and with insurance companies. Contributions to the schemes are charged to the Profit and Loss Account so as to spread the cost of pensions over the employees' working lives with the Group. The contributions are determined by a qualified actuary on the basis of triennial valuations using the projected unit credit method. The assets of the Executive scheme are held in separate trustee-administered funds, and the assets and liabilities of the section can be identified separately from those of other scheme sections. The pension charge for defined benefit schemes for the year was Â£3,357,000 (2004: Â£3,600,000). MITIE Group PLC Pension Scheme The most recent valuation was at 6 April 2002. It was assumed that: Investment return - pre retirement 7.00% Investment return - post retirement 5.50% Salary increases 4.50% Present and future pension increases 3.00% The next actuarial valuation which was due as at 6 April 2005 is currently being prepared. The 2002 actuarial valuation showed that the market value of the assets was Â£24,401,000 and that the actuarial value of those assets represented 87% of the benefits that had accrued to members after allowing for expected future increases in earnings. The contributions of the Group and employees are 10% (2004: 10%) and 7.5% (2004: 7.5%) of pensionable earnings respectively. MITIE Group PLC Passport Pension Scheme The most recent valuation was at 6 April 2002. It was assumed that: Investment return - pre retirement 7.00% Investment return - post retirement 5.50% Salary increases 4.50% Present and future pension increases 3.00% The next actuarial valuation which was due as at 6 April 2005 is currently being prepared. The 2002 actuarial valuation showed that the market value of the assets was Â£581,000 and that the actuarial value of those assets represented 67% of the benefits that had accrued to members after allowing for expected future increases in earnings. The contributions of the Group and employees total 32% (2004: 32%), with employees contributing between 1.5% and 6%. Executive Group Limited Shared Cost Section ('the Section') of the Railway Pension Scheme The Group operates a section of the Railway Pension Scheme ('the Scheme'), a funded defined benefit pension scheme. However, there are no longer any employees accruing benefits in the Section. The assets of the Scheme are held in separate trustee-administered funds, and the assets and liabilities of the Section can be identified separately from those of other Scheme Sections. No contributions are currently payable to the Section. In addition, no pension cost for the period has been incurred in respect of the Section, and there is no provision or prepayment held. The Scheme is subject to triennial valuation by independent actuaries. The last valuation was at 31 December 2003 and used the projected unit method, in which the actuarial liability makes allowances for projected earnings. The following were the principal actuarial assumptions applied: Investment returns 5.65% per annum Pension increases 2.50% per annum At the last actuarial valuation date, the value of the assets of the Section were Â£299,000 and, in the opinion of the actuary, this value was sufficient to cover 144% of the benefits that had accrued to members. (b) FRS 17 (Retirement Benefits) As stated above, the Group operates two principal defined benefit pension schemes and contributes to the Executive Group Limited Shared Cost Section of the Railway Pension Scheme. The valuations used for the FRS 17 disclosure have been based on the most recent actuarial valuations at 6 April 2002, updated to 31 March 2005 by a qualified actuary. As required by SSAP 24, the figures included in respect of the Group pension schemes are based on actuarial valuations carried out at 6 April 2002 and this does not take into account any impact of the movement in general stock market values since that date. Any such impact will be reflected in the next SSAP 24 triennial valuation as at 6 April 2005, based upon which subsequent pension costs will be determined until the adoption of FRS 17. The figures currently used for accounting purposes as regards pension costs are likely to change significantly as and when FRS 17 and IFRS are adopted. The costs of death-in-service benefit for members of the Scheme are fully insured by the schemes. The projected unit valuation method has been used. The major financial assumptions used by the actuary were: AT 31 MARCH 2005 AT 31 MARCH 2004 AT 31 MARCH 2003 ________________________________________________________________________________ Discount rate 5.50% 5.50% 5.50% Rate of increase in salaries 3.00% 3.50% 3.50% Rate of increase of pensions in payment (pre April 2002) 3.00% 3.00% 3.00% Rate of increase of pensions in payment (post April 2002) 3.00% 2.75% 2.50% Rate of increase of deferred pensions 3.00% 2.75% 2.50% Inflation assumption 3.00% 2.75% 2.50% ________________________________________________________________________________ The assets of the schemes and expected rates of return were: LONG-TERM VALUE LONG-TERM VALUE LONG-TERM VALUE RATE OF AT RATE OF AT RATE OF AT EXPECTED 31 MARCH EXPECTED 31 MARCH EXPECTED 31 MARCH RETURN AT 31 2005 RETURN AT 2004 RETURN AT 2003 MARCH 2005 31 MARCH 31 MARCH 2004 2003 Â£'000 Â£'000 Â£'000 ________________________________________________________________________________ Equities 7.75% 34,113 7.50% 32,907 7.25% 19,284 Bonds 5.50% 1,774 5.25% 556 5.50% 3,343 Others 5.50% 10,409 4.00% 3,284 4.00% 3,316 Property 7.50% 2,856 7.50% 2,028 - - ________________________________________________________________________________ Total market value of 49,152 38,775 25,943 assets Present value of schemes' (56,223) (45,918) (37,051) liabilities ________________________________________________________________________________ Deficit in the (7,071) (7,143) (11,108) schemes Related deferred tax 2,121 2,143 3,333 asset ________________________________________________________________________________ Net pension liability (4,950) (5,000) (7,775) ________________________________________________________________________________ Analysis of amount that would have been charged to operating profit under FRS 17 AT 31 MARCH AT 31 MARCH 2005 2004 Â£'000 Â£'000 ____________________________________________________________________________________ Current service cost 2,586 2,952 Past service cost 9 224 ____________________________________________________________________________________ Total operating charge 2,595 3,176 ____________________________________________________________________________________ Analysis of amount that would have been charged to interest under FRS 17 AT 31 MARCH AT 31 MARCH 2005 2004 Â£'000 Â£'000 ____________________________________________________________________________________ Expected return on pension schemes' assets 2,836 1,924 Interest cost (2,645) (2,187) ____________________________________________________________________________________ Net return 191 (263) ____________________________________________________________________________________ The amount recognised in the statement of total recognised gains and losses had FRS 17 been operative would have been as follows: AT 31 MARCH AT 31 MARCH 2005 2004 Â£'000 Â£'000 ____________________________________________________________________________________ Actual return less expected return on pension schemes' assets 2,368 3,474 Experience loss on scheme liabilities (977) (165) Changes in financial assumptions underlying the schemes' liabilities (2,272) - ____________________________________________________________________________________ Actuarial (loss)/gain recognised in the statement of total recognised gains and losses (881) 3,309 ____________________________________________________________________________________ Movements in deficit during the year AT 31 MARCH AT 31 MARCH 2005 2004 Â£'000 Â£'000 ____________________________________________________________________________________ Deficit in schemes at beginning of year (7,143) (11,108) Movement in year Current service cost (2,586) (2,952) Contributions 3,357 4,095 Past service costs (9) (224) Other finance income/(loss) 191 (263) Actuarial (loss)/gain (881) 3,309 ____________________________________________________________________________________ Deficit in schemes at the end of the year (7,071) (7,143) ____________________________________________________________________________________ The impact to the Balance Sheet and Reserves at 31 March 2005 of adopting FRS 17 would be as follows: AT 31 MARCH AT 31 MARCH 2005 2004 Â£'000 Â£'000 ____________________________________________________________________________________ Net assets excluding pension liability 141,787 135,849 Net pension liability (4,950) (5,000) ____________________________________________________________________________________ Net assets including pension liability 136,837 130,849 ____________________________________________________________________________________ Profit and loss reserve excluding pension liability 68,376 70,212 Net pension liability (4,950) (5,000) ____________________________________________________________________________________ Profit and loss reserve including pension liability 63,426 65,212 ____________________________________________________________________________________ History of experience gains and losses AT 31 AT 31 AT 31 MARCH MARCH MARCH 2005 2004 2003 ________________________________________________________________________________ Difference between the expected and actual return on scheme assets: Amount (Â£'000) 2,368 3,474 (5,061) Percentage of scheme assets 5% 9% 20% ________________________________________________________________________________ Experience gains and losses on scheme liabilities: Amount (Â£'000) (977) (165) (6,035) Percentage of the present value of scheme liabilities 2% 0% 23% ________________________________________________________________________________ Changes in financial assumptions underlying the schemes assets: Amount (Â£'000) (2,272) - - Percentage of the present value of scheme liabilities 4% - - ________________________________________________________________________________ Total actuarial (loss)/gain in the statement of total recognised gains and losses: Amount (Â£'000) (881) 3,309 (11,096) Percentage of the present value of scheme liabilities 2% 7% - ________________________________________________________________________________ 29 Related party transactions During the year the Group received interest of Â£10,000 (2004: Â£15,000) on loan notes with The Platform Holding Company Limited; a company in which C S Acheson held a Directorship. In addition, this company paid rent to the Group of Â£36,000 (2004: Â£36,000). No fees were paid by the Platform Holding Company Limited in respect of the services provided by C S Acheson either to MITIE or C S Acheson (2004: Â£nil). No balances were outstanding at the year end (2004: Â£nil). During the year the Group provided services amounting to Â£139,000 (2004: Â£110,000) to The Bristol Port Company Ltd; a company in which D C Ord held a Directorship. At the end of the year the amount owed to the Group was Â£12,000 (2004: Â£10,000). During the year the Group provided services amounting to Â£700,000 (2004: Â£160,000) to Sir Robert McAlpine Ltd; a company in which C McAlpine held a Directorship. At the end of the year the amount owed to the Group was Â£292,000 (2004: Â£15,000). During the year I R Stewart paid Â£8,000 (2004: Â£nil) to the Group and subsidiary undertakings in respect of goods and services in the ordinary course of business. No balances were outstanding at the year end (2004: Â£nil). During the year the Group earned interest of Â£85,000 (2004: Â£nil) on loan notes and loans with Generation (UK) Ltd; a company in which I R Stewart held a Directorship. In addition, the company paid rent to the Group of Â£90,000 (2004: Â£nil). Â£72,000 was outstanding at the year end (2004: Â£nil). No fees were paid by Generation (UK) Limited in respect of the services provided by I R Stewart either to MITIE or I R Stewart (2004: Â£nil). 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 Company has taken advantage of the exemption in FRS 8 not to disclose transactions with companies within the Group. 30 Principal operating subsidiary and associated companies The companies set out below are those which were part of the Group at 31 March 2005 and in the opinion of the Directors significantly affected the Group's results and net assets during the year. AT 31 MARCH 2005 % ORDINARY SHARES OWNED Cleaning MITIE Cleaning Ltd 1, 2 96 MITIE Cleaning (Midlands) Ltd 1, 2 96 MITIE Cleaning (North) Ltd 1, 2 96 MITIE Cleaning Services Ltd 2 96 MITIE Cleaning (South East) Ltd 1, 2 96 MITIE Cleaning (Southern) Ltd 1, 2 96 MITIE Cleaning (South Wales) Ltd 1, 2 96 MITIE Cleaning (South West) Ltd 1, 2 96 MITIE Industrial Cleaning (North) Ltd 59 MITIE Olscot Ltd 1, 2 96 MITIE Services (Retail) Ltd 2 56 MITIE Transport Services Ltd 2 86 Catering MITIE Catering Services Ltd 51 MITIE Catering Services (London) Ltd 61 MITIE Catering Services (Northern) Ltd 100 Landscape and Pest Control Eagle Pest Control Services (UK) Ltd 100 MITIE Landscape (Northern) Ltd 2 56 MITIE Landscape (Southern) Ltd 2 57 Security MITIE Security Ltd 100 MITIE Security (North) Ltd 2 53 MITIE Security (Scotland) Ltd 2 81 MITIE Security (South West) Ltd 54 MITIE Trident Security Ltd 100 Managed Services MITIE Business Services Ltd 52 MITIE Managed Services Ltd 100 MITIE Managed Services (Southern) Ltd 100 MITIE Managed Services (South West and Wales) Ltd 69 MITIE PFI Ltd 100 Engineering Maintenance MITIE Engineering Maintenance Ltd 100 MITIE Engineering Maintenance (Caledonia) Ltd 57 MITIE Engineering Maintenance (North)Ltd 51 MITIE Engineering Maintenance (South West) Ltd 53 Engineering MITIE Air Conditioning (London) Ltd 65 MITIE Air Conditioning (Midlands) Ltd 67 MITIE Air Conditioning (North) Ltd 100 MITIE Air Conditioning (Scotland) Ltd 70 MITIE Air Conditioning (South West) Ltd 100 MITIE Air Conditioning (Wales) Ltd 54 MITIE Air Conditioning (West) Ltd 51 MITIE Cleanrooms Ltd 80 MITIE Engineering Ltd 68 MITIE Engineering Projects Ltd 63 MITIE Engineering Services Ltd 100 MITIE Engineering Services (Bristol) Ltd 100 MITIE Engineering Services (Cardiff) Ltd 100 MITIE Engineering Services (Eastern) Ltd 100 MITIE Engineering Services (Edinburgh) Ltd 52 MITIE Engineering Services (Guernsey) Ltd 100 MITIE Engineering Services (Jersey) Ltd 100 MITIE Engineering Services (Leeds) Ltd 56 MITIE Engineering Services (Liverpool)Ltd 51 MITIE Engineering Services (London) Ltd 100 MITIE Engineering Services (Midlands) Ltd 55 MITIE Engineering Services (North) Ltd 100 MITIE Engineering Services (North East) Ltd 65 MITIE Engineering Services (Peninsula) Ltd 100 MITIE Engineering Services (Retail) Ltd 93 MITIE Engineering Services (Scotland) Ltd 100 MITIE Engineering Services (South East) Ltd 100 MITIE Engineering Services (South West) Ltd 100 MITIE Engineering Services (Swansea) Ltd 54 MITIE Engineering Services (West Midlands) Ltd 59 MITIE Environmental Ltd 51 MITIE Scientific Projects Ltd 69 MITIE Scotgate Ltd 1 51 MITIE Technology Ltd 53 Property Services MITIE Flooring (Southern) Ltd 68 MITIE Greencote Ltd 100 MITIE Interiors Ltd 54 MITIE McCartney Fire Protection Ltd 75 MITIE Property Services Ltd 100 MITIE Property Services (Eastern) Ltd 68 MITIE Property Services (UK) Ltd 100 Administration Cole Motors Ltd 100 MITIE Property Investments Ltd 100 MITIE Reinsurance Company Ltd 100 Notes 1 Shareholdings held by intermediate subsidiary undertakings 2 Denotes company operates 13 four-weekly period All companies were incorporated in and operate within the United Kingdom, except for MITIE Reinsurance Company Ltd and MITIE Engineering Services (Guernsey) Ltd, which are registered and operate in Guernsey, and MITIE Engineering Services (Jersey) Ltd, which was registered and operates in Jersey. Certain companies (as noted in the table above) operate on the basis of 13 four-weekly periods and have drawn up their accounts to 2 April 2005. Adjustments have been made on consolidation to exclude the results of these companies for the period from 31 March 2005 to that date. The Group has a 33% interest in an associate company, Service Management International Ltd. As this is not considered material, separate disclosure of its results, assets or liabilities have not been included. The companies listed above represent the principal operating subsidiary companies of the Group. A full list of subsidiary companies will be annexed to the next annual return. International Financial Reporting Standards ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS') (unaudited) Introduction From the year ended 31 March 2006 onwards MITIE Group PLC will be adopting IFRS in its consolidated financial statements in compliance with European Union regulation. This will lead to a number of changes in reported financial data, which will also be reflected in the Group's comparative financial information for the prior period. The Group started its IFRS project in 2004. The project has entailed an assessment of the impacts of IFRS on the Group's accounting policies and reported results as well as ensuring appropriate processes are in place to capture relevant information going forward. The work is on track to provide an analysis of the full impact of the adoption of IFRS on the Group's audited 2005 and 2006 results and respective balance sheets. Other than the format of presentation, there is not expected to be any cash flow impact from the adoption of IFRS. We will disclose the full impact of the adoption of IFRS on our audited 2005 results with our Interim Results for the period ending 30 September 2005. It is possible that other adjustments may come to light, as we complete our work, which will impact the Company in the preparation of the first full set of IFRS Financial Statements. In addition, the process of approving standards and interpretations is still ongoing by the International Accounting Standards Board and European Commission and as such further amendments may arise from this process. In the meantime, we set out below the main decisions taken on first time adoption and a summary of the main areas of impact on the Group's operating profit and balance sheet together with indicative estimates of the related amounts. IFRS 1 Exemptions IFRS 1 'First-time adoption of International Accounting Standards' sets out the procedures the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The Group is required to determine its IFRS accounting policies and apply these retrospectively to determine its opening balance sheet under IFRS. The standard allows a number of exceptions to this general principle to assist companies in their transition to reporting under IFRS. The Group will take the following significant exemptions: â€¢Share-based payments: only equity instruments granted after 7 November 2002 and that had not vested prior to 1 April 2005 will be included in the charge to income for the year ended 31 March 2005. â€¢Business combinations: business combinations prior to our transition date (1 April 2004) will not be restated. â€¢Employee benefits: all actuarial gains and losses will be recognised in equity at the transition date. This is to maintain consistency with the treatment under FRS 17 and the policy going forward of taking actuarial gains or losses directly to reserves via the Statement of Recognised Income and Expense. Summary of main areas of impact 1. Share based payments Under IFRS 2, the imputed fair value at the date of grant of options issued to employees under savings related and executive share option schemes will be charged to operating profit on a straight line basis over the relevant vesting period. This will result in a reduction in the Group's reported operating profit, as the cost will be higher than that currently charged under UK GAAP. The impact is estimated to be around Â£0.5m in the year to 31 March 2005. 2. Business combinations: Goodwill and other intangibles Under IFRS3, goodwill is no longer amortised and instead is assessed annually for impairment. Goodwill arising on acquisitions before 1 April 2004 will not be restated; other intangible assets arising from acquisitions after 1 April 2004 will be separately identified and amortised over their estimated useful economic lives, which may be over shorter periods than goodwill has previously been amortised. As a result of this change, the Group's operating profit will be increased by the amount of goodwill amortisation under UK GAAP. For the year to 31 March 2005, this amounted to Â£2.8m. In the year to 31 March 2006, the Group's operating profit will be impacted by any impairment of goodwill and the amortisation of other purchased intangible assets on acquisitions post 1 April 2004. 3. Employee Benefits Under IAS 19 Pensions are charged to the Profit and Loss Account using a different basis of accounting from SSAP 24. IAS 19 uses a balance sheet approach (similar to FRS 17, the impact of which is provided in Note 28 to the Preliminary Announcement) for pensions cost accounting rather than a determination based on long term actuarial assumptions. The profit and loss expense is determined using annually derived assumptions as to salary inflation, investment returns and discount rates, past service costs, net actuarial gain/ loss recognised in year based on prevailing conditions at the start of the year. Any surplus or deficit on defined benefit schemes at the balance sheet date is recognised in the Balance Sheet. Where actual experience differs from the assumptions made, actuarial gains and losses will be recognised through the Statement of Recognised Income and Expense. The adoption of IAS 19 is not anticipated to result in a significant change to operating profit compared to SAAP 24 for 2005 or 2006. At 1 April 2005, the gross value of the deficit that will now be recognised as a liability in the Balance Sheet will be Â£7.6 million with a corresponding entry to reduce shareholders' equity. 4. Deferred Tax IAS 12 Income Taxes requires deferred tax to be recognised in full. The principal adjustments are in respect of deferred tax on pension liabilities (point 3 above) and share based payments (point 1 above). The deferred tax arising partially offsets the adjustments above and will be reflected as above (e.g. deferred tax arising on pension deficit at 1 April 2005 will be reflected as an increase in shareholders' equity). 5. Leases IAS 17 establishes a new methodology to determine whether leases are to be treated as operating or finance leases. This particularly affects leases over land and buildings which must be split into their constituent parts and assessed separately. A review of the Group's portfolio of operating leases is being undertaken to determine whether the current operating lease treatment remains appropriate under IAS 17. END OF PRELIMINARY ANNOUNCEMENT This information is provided by RNS The company news service from the London Stock Exchange

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Tuesday, 1st October 2024

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