Annual Financial Report

RNS Number : 8573A

MITIE Group PLC

10 June 2016

 

10 June 2016

Mitie Group plc

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

Following the release on 23 May 2016 of the Company's preliminary results for the year ended 31 March 2016 (the 'Preliminary Announcement'), the Company announces that it has published its Annual Report and Accounts for 2016 (the 'Annual Report and Accounts'). 

The Company's 2016 Annual General Meeting will be held at UBS, 1 Finsbury Avenue, London, EC2M 2PP on 12 July 2016 at 11.30am.

Copies of the Annual Report and Accounts and the Notice of the Annual General Meeting for 2016 (the 'AGM Notice') are available to view on the Company's website: www.mitie.com.  Hard copies have been mailed to those shareholders who have elected to continue to receive paper communications. 

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

The Preliminary Announcement included a set of financial statements and a review of the development and performance of the Company.  In compliance with Disclosure and Transparency Rule (DTR) 6.3.5 the Company has extracted and set out below certain information from its Annual Report and Accounts 2016.  This information is included herein solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on the Company as to how to make public its annual financial reports.  It should be read in conjunction with the Company's Preliminary Announcement issued on 23 May 2016.  Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  This material is not a substitute for reading the full Annual Report and Accounts.  Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report and Accounts.

The information contained in this announcement and in the Preliminary Announcement does not constitute the Group's statutory accounts but is derived from those accounts.  The statutory accounts for the year ended 31 March 2016 have been approved by the Board and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Principal Risks and Uncertainties

Identified principal risks to the achievement of our strategic business objectives are outlined in the section below, together with their potential impact and the mitigation measures in place. The Board believe these risks to be the most significant with the potential to impact our strategy, our financial and operational performance and, ultimately, our reputation. There may be other risks which are currently unknown to the group or which may become material in the future. Our key risk categories continue to be: strategic, financial, operational, and regulatory.
 

Strategic
Risk Event	Controls and mitigation
Continuing uncertainty in economic environment (including Brexit) creates unstable operating and investment environment for Mitie and its clients
Our principal macroeconomic exposure remains the UK, with only very limited exposure to the wider global economy. We are closely monitoring the outcomes of the 2015 Spending Review and the potential for changes in government spending; we await the outcome of the Brexit referendum and potential resulting policy changes to determine the impact on future contract opportunities. Regulatory wage inflation and other labour costs together with restrictions on specific terms and conditions in relation to certain labour models provides further challenge. Our ability to recognise and respond to variations in the volume, value and range of services required, particularly from our private sector clients, may impact the Group's ability to win or retain significant business opportunities. Resilience is provided by our diverse business portfolio during times of economic change, with varying demands on our resources dependent on the way in which our client base responds to the economic cycle.	The group continues to target strategic high-margin growth areas, underpinned by the right supporting business infrastructure. Development of a long-term contract portfolio combining a mix of both public and private sector contracts mitigates the financial impact of rapid changes in the economic environment. The Board retains formal oversight and approval of entry into new business areas, supported by a targeted and considered acquisition strategy to enhance our capabilities in complementary areas.
Protecting our reputation
Maintaining our strong reputation is critical for the achievement of our strategic objectives. Our growth and financial targets could be significantly impacted through an adverse impact to our reputation leading to a loss of confidence from our current, or potential, client base. Such an impact on reputation could be caused by any incident involving major harm to one of our people or one of our clients/partners, or others affected by our services, inadequate financial control processes, a failure to comply with regulatory requirements or corrupt practices involving fraud or bribery. Incidents of these types would potentially result in financial penalties, losses of key contracts, an inability to win new business, and/or an inability to retain key staff and recruit new staff. The impact would therefore be potentially greater than the impact of the underlying incident alone.	Our strong corporate governance framework supported by our core values and behaviours forms the basis for ensuring the protection of our reputation. This framework is communicated throughout the business. A strong and consistent 'tone from the top' is provided by our senior management to ensure our values and expected behaviours are clear and understood by everyone. Our code of conduct forms the cornerstone of our ethical business framework, linking together our policies, procedures, training programmes and expectations of employee behaviour. As our business continues to grow and develop into new sectors we will remain strongly focused on protecting the strength of our reputation through effective governance, leadership and the continued enhancement of our ethical business framework.
Financial
Risk Event	Controls and mitigation
Financial strength and access to appropriately scaled and diverse sources of funding
Although we are an attractive partner to our clients and stakeholders (including our funding partners) due to our financial strength, deterioration in our financial performance could limit our ability to grow either organically or through acquisition by restricting our ability to access competitively termed funding or by increased costs of borrowing. Given that staff costs remain our most significant	We maintain strong banking, debt finance and equity relationships, and a diverse committed long-term funding portfolio. Our established financial governance arrangements provide oversight of our financial performance including daily monitoring of bank balances, regular forecasting of cash flow and regular financial performance and balance sheet reviews.

 

expenditure, the availability of funding from a variety of sources, strong cash flow and working capital remain central to our ability to pay our people regularly and at specific times. Funding is therefore critical to the ongoing success and continuity of our business.	We have a diverse committed long-term funding portfolio and strong banking, debt finance and equity relationships.
Reliance on material counterparties
We are reliant on several significant counterparties such as insurers, banks, clients and suppliers to maintain our business activities. Our ability to trade and the operational and financial effectiveness of our business could be materially affected by a failure of one of these key counterparties. The need to maintain effective ongoing relationships with our material counterparties is therefore critical if the Group is to meet its strategic objectives.	The impact of any potential failure of one counterparty is limited due to the development of a diverse range of robust counterparties. A formal review of material counterparty risk is undertaken at Board, divisional and business level.
Operational
Risk Event	Controls and mitigation
Contract bidding, mobilisation and delivery
We see an increasingly complex service offering as a business differentiator to our clients, supported by ever more sophisticated and complex technological solutions, and maintaining our strong financial position is dependent upon our ability to successfully bid, mobilise and deliver large scale, complex integrated facilities management contracts.	Our executive management team oversee our bid, mobilisation and delivery processes for large integrated facilities management contacts. Teams of experienced bid, mobilisation and delivery experts support the contracts through each stage of development to ensure operation within the delegated authority.
When compared to our more traditional business activities, these solutions necessarily carry increased risk around bidding, design, delivery and successful implementation. Our ability to manage these risks is therefore critical to ensuring the group's growth.	A focus on developing long-term client relationships occurs - supported by a strengthened framework to retain our existing client base. The development and deployment of sophisticated technical solutions to facilitate improved contract delivery is governed by our Board, with governance arrangements operating to provide assurance on their ongoing performance.
Significant health, safety or environmental incident
We undertake a broad and diverse range of services for our clients, some of which are potentially hazardous and so the potential to cause significant harm to our employees, our business partners, members of the public, or to damage the environment exists. We maintain an unwavering commitment to safeguarding our people, others who potentially could be affected by our activities, and protecting the environment wherever we operate. Failure to maintain our high standards could result in a significant incident affecting an employee, their family, friends or colleagues; or lead to regulatory action, financial impact or damage to our reputation.	The Board maintains a strong focus on providing effective governance, oversight and management standards and a commitment to achieving the highest standards of quality, health, safety and environmental (QHSE) performance, with QHSE performance continuing to be the first item on every Board agenda. Our well established and award winning employee engagement programme, Work Safe Home Safe, was strengthened during the year, and we continued to maintain our QHSE management systems which are certified to the ISO 9001, 14001 and OHSAS 18001 standards. To support our management system and engagement programme we focus on developing training programmes to ensure every employee, at every level of the business, has the core competencies required to do their work safely.

 

Intentional/unintentional business disruption through system, process or control failure
Our business is underpinned by operational efficiency, with future business performance built upon the use of sophisticated, interdependent business systems, with greater use and reliance on such systems increasing in the future as we provide more sophisticated services to our client base. These systems, combined with our governance framework of policies and procedures, remain critical for the control and success of the business and the achievement of our strategic objectives. Due to the business critical nature of these systems, operational failure may result in a significant impact on operational delivery, or contract management and client expectations, with a breakdown in the controls around high volume transactions and compliance areas such as vetting and employment legislation caused by system failure. As a result of either operational or system failure, financial misstatements, fines for statutory non-compliance and loss of client and/or regulator confidence could occur.	Our governance framework, specifically our core policies and procedures is continually reviewed and optimised to ensure it remains effective and is fit for purpose as our business grows and diversifies. We formally review the effectiveness of internal controls, supported by a programme of internal audits and self-certification on the operation of key controls and procedures. Business critical systems are formally identified and subject to testing to ensure effective recovery following a potential disaster scenario. IT-related governance oversight is provided by the IT Board (comprising executive management) who continue to monitor the effectiveness of the information security management system, which is aligned with recognised international standards. Cyber security arrangements and the threat of malicious attacks on our systems are under continual surveillance operationally and monitored by the Board. We have undertaken Cyber Essentials certification and are working towards Cyber Essential Plus. An assurance programme is in place to test the adequacy of our mitigation activity.
Attracting and retaining the right people in the right places
To achieve our strategic objectives and deliver our long term growth aspirations, we need to retain our most skilled people at all levels of the business, as well as attracting new staff to join us. Of particular importance is the need to have access to a diverse range of views and experience and to attract specific technical expertise where the market may be highly competitive. Failure to retain and develop our existing employees or to attract new talent could impact our ability to achieve our strategic growth objectives.	We focus on training and competency at all levels of the business to ensure the development of our people to enable them to successfully manage the changing profile of our business - putting the right people, with the right skills, in the right places. We aim to reward achievement by offering promotion, by ensuring a pipeline of opportunities exists for staff at every level of the business. Talent management and succession planning therefore continues to be a key focus for our management teams. We are also looking to the future and aiming to develop the next generation of leaders via our established graduate programme.
Regulatory
Risk Event	Controls and mitigation
Non-compliance with the developing regulatory framework
Our ability, as a major employer, to respond to the developing legal and regulatory framework in areas such as national living wage, healthcare and the broad range of applicable operational laws is essential to ensure we meet our strategic targets and avoid potential material financial and reputational impacts associated with non-compliance. Labour legislation, including the National Living Wage, apprentice levy and changes to pension legislation contribute to a change in the cost of our more labour intensive services. As a minimum requirement we demand legal and regulatory compliance in all of our business areas, covering all our activities, with strong management oversight of our compliance status - particularly where we operate in a new or changing business environment.	Our governance framework, comprising our code of conduct, policies and procedures and specific training activity forms the cornerstone of our legal and regulatory compliance programme. Responsibility for ensuring legal and regulatory compliance remains primarily with our operational management teams, supported where necessary with specific technical expertise and related assurance activity. Management oversight occurs via divisional and Group Risk Committees. Challenges associated with changes to labour legislation are being addressed through a change to our business model, including increased focus on technological solutions and a drive for greater operational efficiency in our core services. The developing regulatory framework is proactively monitored to plan and budget for ongoing compliance.

Directors' Responsibility Statement

The following statement is extracted from page 100 of the Annual Report and Accounts and is repeated here for the purposes of Disclosure and Transparency Rule 6.3.5 to comply with Disclosure and Transparency Rule 6.3.  This statement relates solely to the Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the Preliminary Announcement:

"The Directors are responsible for preparing the Annual Report, the Directors' remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing the parent company financial statements, the Directors are required to:

-      select suitable accounting policies and then apply them consistently;

-      make judgements and accounting estimates that are reasonable and prudent;

-      state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements; and

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

In preparing the group financial statements, International Accounting Standard 1 requires that Directors:

-      properly select and apply accounting policies;

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

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

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other

irregularities, and for the preparation of a Directors' remuneration report which complies with the relevant requirements of the Companies Acts, Listing Rules and Disclosure and Transparency Rules.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of each Director's knowledge:

-      the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

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

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

Related party transactions

The following extract from the Annual Report and Accounts refers to related party transactions as set out in Note 38:

"Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

During the year, the group derived £0.8m (2015: £0.3m) of revenue from contracts with joint ventures and associated undertakings. At 31 March 2016 trade and other receivables of £nil (2015: £nil) were outstanding and loans to joint ventures and associates of £nil (2015: £1.1m) were included in Financing assets.

Mitie Group plc has a related party relationship with the Mitie Foundation, a charitable company, as R McGregor-Smith and S C Baxter are two of the trustees of the Foundation. During the year, the group made donations of £79,000 (2015: £25,000) and gifts in kind of £267,000 (2015: £277,000) to the Foundation. At the end of the year £nil (2015: £23,000) was due to the Foundation and the Foundation had £nil (2015: £11,000) held within creditors as an amount accrued to Mitie Group plc.

No material contract or arrangement has been entered into during the year, nor existed at the end of the year, in which a Director had a material interest.

The group's key management personnel are the Directors and Non-Executive Directors whose remuneration is disclosed in the audited section of the Directors' remuneration report. The share-based payment charge for key management personnel was £0.7m (2015: £1.6m)."

-Ends-
 

 

For further information, contact:

Erica Lockhart

Executive Affairs Director, Mitie Group plc

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

Lauren Hepburn

Investor and Public Relations Manager, Mitie Group plc

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

Notes for editors

What is Mitie?

Mitie is a FTSE250 strategic outsourcing company.

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

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

Find out more at www.mitie.com

 

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