Final Results
MITIE Group PLC
07 July 2003
MITIE Group PLC
('MITIE')
PRELIMINARY RESULTS FOR THE YEAR
ENDED 31 MARCH 2003
'We continue to deliver profitable growth by remaining focused on our
core activities and putting our customers first' David M Telling, Chairman
• Sixteenth consecutive year of profitable growth
• Business model continues to develop with eight
companies started in the year
• Cash balances at 31 March 2003 of £55.0 million
• Strategic acquisitions in security and pest control
FINANCIAL HIGHLIGHTS 2003 2002
Turnover £565.8M £518.9M Up 9%
Profit before tax - pre-goodwill (i) £34.1M £31.0M Up 10%
Profit before tax £31.8M £30.4M Up 5%
Earnings per share - pre-goodwill (ii) 7.3p 6.8p Up 8%
Earnings per share 6.5p 6.5p
Cash £55.0M £25.1M Up 119%
Dividend per share 1.9p 1.6p Up 19%
(i) The reconciliation to the statutory proforma profit before tax is
shown within the Group Profit and Loss Account
(ii) Reconciliation of earnings per share is shown in note 9 to the Preliminary
Announcement
--------------------------------------------------------------------------------
Notes:
MITIE: Management Incentive Through Investment Equity
ACTIVITY: MITIE Group PLC provides Support and Building Services to the
owners and occupiers of commercial, government and industrial
premises.
FOR FURTHER INFORMATION:
On 7 July 2003
Ian Stewart, Chief Executive, MITIE Group PLC Mobile: 07979 701002
Ruby McGregor-Smith, Group Finance Director,
MITIE Group PLC Mobile: 07979 701004
John Telling, Corporate Affairs, MITIE Group PLC Mobile: 07979 701006
at UBS Warburg, 1 Finsbury Avenue 020 7588 8736
020 7567 8000 (Switchboard)
Subsequently:
MITIE Group PLC Head Office
01934 862006
Chairman's Statement
I am pleased to be able to report that MITIE's 2003 results show a sixteenth
consecutive year of profitable growth and very positive cash flow.
MITIE has made good progress and our Support Services Division has had a
particularly strong year despite changing economic conditions that have
tightened our markets over the past twelve months. Our commitment to delivering
service levels that enable customers to achieve their own objectives underpins
this continuing success.
Results
Turnover rose to £565.8 million, an increase of 9% and profit before tax,
goodwill amortisation and impairment rose by 10% to £34.1 million. Earnings per
share (pre-goodwill amortisation and impairment) rose by 8% to 7.3p (Note 7). We
have increased our cash balance by £29.9 million to £55.0 million. Your Board is
recommending a final dividend of 1.1p per share, making a total of 1.9p for the
year, an increase of 19%.
Corporate Developments
Development of the MITIE business model has continued strongly throughout the
financial year. We have started eight new companies. Managed Services and
Engineering Maintenance have increased their national coverage. We have
introduced our Engineering discipline into niche markets such as social housing,
utilities and technology and in the South East of England, we have started a
landscape business and an interior contracting business.
In January 2003, we signed our biggest ever contract, worth over £100 million.
The contract with Rolls-Royce provides opportunities for all of our businesses
and is the first major example of how MITIE companies, working together, can
benefit our customers on a national basis.
We have continued our strategy of reducing our exposure to capital-intensive
businesses. We sold our Access contracting companies in June 2002 and we are
closing both MITIE Lindsay Ltd and MITIE HydroCat Ltd.
Since the year end, we have completed the acquisitions of Trident Safeguards
Ltd, a manned guarding security company and Eagle Pest Control Services UK Ltd.
These acquisitions will accelerate our development in markets where we see good
potential.
People
These positive results have only been possible because of the hard work,
dedication and motivation of our people who are achieving considerable success
in difficult times. I would like to thank all of them for their efforts this
year.
MITIE people understand that their own success comes from satisfying their
customers. In order to achieve this, they take the time to understand their
customers' goals and the contribution that MITIE can make towards reaching them.
Our management team has been strengthened by the appointment of Ruby
McGregor-Smith as Group Finance Director in December 2002 and she has already
added considerable value. We have also increased the number of Non-Executive
Directors. Manish J Chande was appointed in July 2002, David C Ord in October
2002 and Cullum McAlpine in April 2003. Between them they have a wide range of
skills and experience that will add considerably to the strength of the Board.
Three people who have contributed greatly to MITIE's success have retired during
the year. Nigel Swiffen retired as a Non-Executive Director after 11 years; John
Urquhart as Head of Corporate Affairs after enthusiastically representing the
Company for 10 years; and Marshall Thomas as Group Chief Accountant who joined
MITIE shortly after its formation in 1987. I thank them all for their period of
loyal service and wish them well in their retirement.
Outlook
MITIE has enjoyed success for over fifteen years and will, I believe, deliver
further profitable growth over the years to come. The current year has started
in line with expectations and we will develop by building on the many unique
qualities that MITIE can offer and by continually seeking to enhance Shareholder
value.
The strength in depth of our management puts us in a position where, even in the
most challenging of market conditions, we are able to make progress. We have
23,000 highly talented and motivated people who understand the MITIE philosophy
of putting customers first. Our capacity to deliver services nationally ensures
that we are well placed to benefit from the continuing trend towards outsourcing
and the bundling of services. Our companies are realising significant benefits
from working together and this is a trend I expect to continue. These
attributes, combined with the extra growth of our start-up companies, mean that
we are well placed for the future.
MITIE is known for quality in services, customers and earnings. Your Company
will remain focused on its core activities and continue to grow the business by
putting its customers first.
David M Telling
Chairman
Chief Executive's Review
Our progress this year is a tribute to our dedicated workforce.
The goal that I set last year was for MITIE to become the first choice provider
of Support and Building Services to the owners and occupiers of industrial,
commercial and government buildings. I believe that we are making good progress
towards this.
Market Opportunities
The markets in which we operate continue to change as our customers seek new
methods of procurement. As a Group, we will continue to review our strategy
regularly to ensure that the solutions we offer meet the needs of existing and
potential clients. We currently see three areas of opportunity which we are
ideally placed to serve:
1. Single Service: Specialist single service companies have been the basis
for MITIE's ongoing success. However, our share of the total potential
market is still below 2% - leaving considerable opportunity for expansion.
Our aim is for each of our single service companies to capture 5% of their
respective market and where appropriate, to start new companies to help
achieve this.
2. Bundled Services: Many of our major clients such as Dell Computer
Corporation and MCI are approaching us to see if we can provide more than
one service. Rolls-Royce is a good example. They have demonstrated their
confidence in MITIE by awarding us a comprehensive contract across a number
of our services and this is a trend that I see continuing.
In these cases, MITIE selects the best individual or team to run the
contract. The customer is able to retain an active role in the management
of their facility whilst benefiting from a combination of specialist
operating companies providing a bundled service under a single point of
contact.
3. Facilities Management: Many customers want to focus completely on their
core activity. In this case, MITIE Managed Services can look after the
customer's complete property portfolio from estate management to the
management and provision of a multi-activity and services contract.
Revenue visibility
We have continued to see an improvement in the visibility of our future
earnings. This is an encouraging trend and one that I expect to continue. The
percentage of budgeted revenue secured for 2004 is 64% at 31 March 2003,
compared to 61% last year. The percentage of budgeted revenue secured for 2005
is 33% at 31 March 2003, compared to 32% last year.
Margins
It is a tribute to our management that they have been able to produce
consistently high margins in such a competitive environment. By listening to our
customers and delivering our services in the most cost-effective way, we are
confident that we can maintain this trend.
During the first half of this year the margin in our Support Services Division
was affected by one-off bid costs relating to our involvement in two large
government/PFI contracts, but I am pleased to report that margins in the second
half of the year reflect an improved performance.
With greater exposure to economic fluctuations, margins within the Building
Services Division have been under pressure. Our decision to close the marine
portion of MITIE Lindsay Ltd and MITIE HydroCat Ltd businesses - because of
their high capital requirements and extreme vulnerability to changes in market
conditions - also impacted on performance in this Division. We have withdrawn
completely from the marine market and incorporated the industrial painting
capability within our existing Property Services companies.
PFI (Private Finance Initiative)
We said in our Interim Report that we have decided not to be involved in PFI
projects as an equity investor. This remains our policy. Any reference,
therefore, to PFI projects is purely as a facility manager or service provider.
Cash
The planned reduction in our exposure to the capital-intensive parts of our
business resulted in the receipt of £11.4 million and at the end of this
financial year, we had a positive cash balance of £55.0 million. We expect that
we will continue to be cash generative.
We recognise that cash ultimately belongs to the Shareholders and that it is my
responsibility to ensure that they receive the maximum long term return on our
assets. The appointment of Colin Hale as Strategic Development Director last
year was as a result of our stated intention to look at small strategic
acquisitions that can accelerate our development in some key areas. The recent
acquisitions of Trident Safeguards Ltd and Eagle Pest Control Services UK Ltd
show a strong cultural fit with MITIE and will have an impact on our long term
development. Trident Safeguards Ltd adds considerably to our Security discipline
in the South East of England. Eagle Pest Control Services UK Ltd will allow us
to self-deliver a service that our customers frequently request.
We will continue to review the efficiency of our balance sheet and will manage
our assets with the best interests of our Shareholders in mind.
Chief Executive's Review of Building Services operations
This has been an encouraging year for Engineering Services. There are positive
trends in the regional markets and niche sectors despite the downturn in
activity in the South East. We have expanded through the start-ups of MITIE
Environmental Ltd, MITIE Technology Ltd, MITIE Engineering Projects Ltd and the
acquisition of Scotgate Engineering Services Ltd.
Public sector opportunities including hospitals, universities and other
education facilities provided various interesting contracts. We have increased
the number of longer term framework contracts and we retain a number of notable
private sector clients as well as productive partnerships, such as with Land
Securities Trillium Ltd.
The progress made by our niche trading companies in securing sizeable projects
for national retailers such as ASDA, Woolworths, Boots and Marks & Spencer has
been based on gaining a firm understanding of their culture and objectives and
we will continue to apply this principle across all of our businesses.
MITIE Scientific Projects Ltd has secured new contracts as well as preferred
contractor status and ongoing projects with major customers including Johnson &
Johnson and GlaxoSmithKline.
Property Services exceeded internal targets for the year and contributed good
forward visibility of earnings with a number of best value and five year
partnering initiatives and a significant proportion of repeat business including
our contract with Birmingham City Council. We have expanded our capability in
the interiors and refurbishment market with the establishment of MITIE Interiors
Ltd. Contracts were secured with British Telecom for Scotland, the North East of
England, London and the Home Counties.
As part of our constant drive to improve margins and increase quality, we have
recruited a procurement specialist to focus on the reduction of our cost base.
Corporate responsibility underpins the discipline and we have committed serious
financial resource towards the training and development of our people with
particular emphasis on Health & Safety.
The initiative of MITIE Property Services (Southern) Ltd in teaming up with a
school in Portsmouth to form the MITIE Construction Skills Centre has proved so
successful that we are rolling the scheme out in other areas. Each initiative
will create opportunities for children to gain hands-on experience in the
various trades associated with our work.
Following last year's restructuring, Access has achieved an increase in turnover
of 40%. The company has developed some significant partnerships and continues to
bring innovative safety products successfully to market. Branches which focus on
light access equipment continue to show good growth and we will strengthen our
position further with the opening of a branch in Northampton in Autumn 2003.
Chief Executive's Review of Support Services operations
Our Support Services Division has had an excellent year. The companies in the
Division are working well together and there has been an increase in the number
of contracts where MITIE companies are providing bundled services - a trend
which will provide a strong foundation for future growth.
The Cleaning discipline continues to make progress, retaining contracts which
were re-tendered during the year and winning major public and private sector
contracts. These include Tesco, Avon & Somerset Constabulary, Worcestershire
County Council, Terry's Chocolate Factory and BNFL at Sellafield. Cleaning also
received a Premises & Facilities Management Health & Safety Award in partnership
with BNFL Oldbury.
Catering Services had a year of consolidation. The prospects for the year to
come are good following contract wins including The Society of Motor
Manufacturers & Traders in London and the Construction Industry Training Board
HQ in Norfolk. An internal operating brand, 'ingredients', was launched and is
being rolled out throughout our premium catering contracts.
MITIE Landscape (Southern) Ltd commenced trading in July 2002 and has already
secured contracts including Shell International Residential Estate, MCI and
Novartis. This is our first company in grounds maintenance and we intend to
develop national coverage with additional start up companies.
Our Security business has continued to grow nationally. It has been successful
in a number of joint ventures with MITIE Managed Services including Clariant UK.
It has also won contracts for Coca-Cola Ltd and Maryhill Shopping Centre in
Glasgow.
Managed Services has expanded rapidly over the last year with two major five
year contract wins for the Home Office, covering some 540 buildings across the
North and South West. With complete UK coverage following the start of MITIE
Managed Services (South West & Wales) Ltd in January 2003, we are in a strong
position to bid for some larger scale national contracts. Managed Services has
secured further facilities management contracts as service provider on PFI
schools projects and additional private sector clients including IMS Healthcare.
Business Services continued its rapid growth and now serves seven of the world's
top 20 law firms including Linklaters and Clifford Chance. New contracts were
secured in the banking sector and our work for Barclays Capital, Merrill Lynch
and other large financial institutions expanded in scope.
Engineering Maintenance has had a very successful year. Our national coverage
has increased with the establishment of MITIE Engineering Maintenance (Caledonia
) Ltd and MITIE Engineering Maintenance (North) Ltd. We have also merged the two
South West businesses to reduce overheads and improve efficiency. Engineering
Maintenance has taken the lead role in the Rolls-Royce contract which also
includes cleaning, catering, security and landscaping. There was a bundled
services success with Dell Computers, a new contract with the Royal Courts of
Justice in London, a national contract with HQ Global and extended business with
RAF Waddington and the Foreign & Commonwealth Office.
The Support Services Division is well placed to produce further growth as it
benefits from an increase in the tendency towards bundled services and the
increasingly sophisticated technical and commercial demands of our customers.
Health, Safety and the Environment
Individual Managing Directors within the Group recognise and accept
responsibility for both Health, Safety and the Environment. They are supported
by 26 advisors who make up the department from whom the Health, Safety and
Environment Committee is formed. This committee is chaired by the Head of Health
& Safety who reports directly to me. I continue to drive improvements to the way
in which we manage safety and the environment.
Quality
It is only by remaining 100% committed to quality in all its aspects that we
will help our customers to meet their objectives and build on our own
competitiveness. The Chairman's Quality Award this year is based on financial
leadership, the first criteria of the Business Excellence Model as promoted by
the British Quality Foundation. Final assessments will be made in July 2003 with
awards presented to regional winners at the Annual General Meeting in September
2003. The overall winners will receive a prize of MITIE Group shares. Next year,
we will take customer service and results as our topic, followed in successive
years by the remaining three criteria.
Conclusion
MITIE has continued to make progress in a challenging year. This is a tribute to
our dedicated workforce who are our main asset and the envy of our competition.
I would like to take this opportunity of expressing my sincere thanks for their
hard work and loyalty. I look forward to another successful year in 2003-2004.
Ian R Stewart
Chief Executive
Group Profit and Loss Account
for the year ended 31 March 2003
Note 2003 2002
£'000 £'000
----- ------------------------------------------------------- ---------------------
Turnover
Continuing operations 562,288 493,829
Discontinued operations 3,552 25,023
----- ------------------------------------------------------- ---------------------
565,840 518,852
3 Cost of sales (439,932) (397,954)
----- ------------------------------------------------------- ---------------------
3 Gross profit 125,908 120,898
----- ------------------------------------------------------- ---------------------
3 Administrative expenses
- before amortisation and (93,260) (90,291)
impairment of goodwill
Operating profit before goodwill amortisation and 32,648 30,607
impairment
- amortisation and impairment of (2,324) (640)
goodwill
----- ------------------------------------------------------- ---------------------
4 Operating profit
Continuing operations 30,046 29,040
Discontinued operations 278 927
----- ------------------------------------------------------- ---------------------
30,324 29,967
6 Interest 1,465 390
----- ------------------------------------------------------- ---------------------
Profit on ordinary activities before tax 31,789 30,357
7 Tax on profit on ordinary activities (10,188) (9,027)
----- ------------------------------------------------------- ---------------------
Profit on ordinary activities after tax 21,601 21,330
Equity minority interest (2,125) (2,712)
----- ------------------------------------------------------- ---------------------
Profit for the financial year 19,476 18,618
8 Dividends - equity (5,736) (4,623)
----- ------------------------------------------------------- ---------------------
20 Retained profit for the financial year 13,740 13,995
----- ------------------------------------------------------- ---------------------
9 Earnings per - basic 6.5p 6.5p
Ordinary Share
- diluted 6.5p 6.4p
- basic before goodwill 7.3p 6.8p
amortisation and impairment
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 taxation and goodwill 34,113 30,997
amortisation and impairment
------------------------------------------------------------------------------------
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 March 2003
2003 2002
£'000 £'000
------------------------------------------------------------- ------ ------
Profit for the financial year 19,476 18,618
Dividends (5,736) (4,623)
------------------------------------------------------------- ------ ------
13,740 13,995
Goodwill previously written off included in retained profit 321 -
for the year
Shares issued
- in respect of subsidiaries acquired 14,032 9,308
- to QUEST (see Note 20) 910 2,153
less amounts funded within Group (553) (1,644)
- other 1,959 513
------------------------------------------------------------- ------ ------
Net addition to Shareholders' funds 30,409 24,325
Shareholders' funds at the beginning of the year 74,491 50,166
------------------------------------------------------------- ------ ------
Shareholders' funds at the end of the year 104,900 74,491
------------------------------------------------------------- ------ ------
Note of Historical Cost Profits and Losses
for the year ended 31 March 2003
2003 2002
£'000 £'000
------------------------------------------------------------- ------ ------
Profit on ordinary activities before tax 31,789 30,357
Difference between the historical cost depreciation
charge on revalued assets and the actual depreciation
charge for the year calculated on the revalued amount 5 (11)
------------------------------------------------------------- ------ ------
Historical cost profits on ordinary activities before tax 31,794 30,346
------------------------------------------------------------- ------ ------
Historical cost profits for the year retained after tax,
minority interests and dividends 13,745 13,984
------------------------------------------------------------- ------ ------
Group Balance Sheet
as at 31 March 2003
Note 2003 2002
£'000 £'000
------------------------------------------------------- ------ ------
Fixed Assets
10 Intangible assets 24,291 14,724
11 Tangible assets 37,277 45,082
------ ------
61,568 59,806
------------------------------------------------------- ------ ------
Current Assets
12 Work in progress and stocks 25,272 23,706
13 Debtors 92,316 87,137
14 Investments 3,880 -
Cash at bank and in hand 54,960 25,106
------------------------------------------------------- ------ ------
176,428 135,949
------------------------------------------------------- ------ ------
15 Creditors - due within one year (122,381) (110,987)
------------------------------------------------------- ------ ------
Net Current Assets 54,047 24,962
------------------------------------------------------- ------ ------
Total Assets less Current Liabilities 115,615 84,768
16 Creditors - due after one year (29) (27)
18 Provision for liabilities and charges (3,022) (1,496)
------------------------------------------------------- ------ ------
Net Assets 112,564 83,245
------------------------------------------------------- ------ ------
Capital and Reserves
19 Called up share capital 7,556 7,220
20 Share premium account 42,048 25,483
20 Revaluation reserve (508) (503)
20 Other reserve 994 -
20 Profit and loss account 54,810 42,291
------------------------------------------------------- ------ ------
Equity Shareholders' funds 104,900 74,491
Equity minority interest 7,664 8,754
------------------------------------------------------- ------ ------
112,564 83,245
------------------------------------------------------- ------ ------
This Preliminary Announcement was approved by the Board of Directors on 4 July
2003.
Signed on behalf of the Board of Directors.
David M Telling
Chairman
Ruby McGregor-Smith
Group Finance Director
Company Balance Sheet
as at 31 March 2003
Note 2003 2002
£'000 £'000
------------------------------------------------------- ------ ------
Fixed Assets
10 Tangible assets 708 872
27 Investments in subsidiary undertakings 66,087 53,930
------------------------------------------------------- ------ ------
66,795 54,802
------------------------------------------------------- ------ ------
Current Assets
13 Debtors 29,804 19,333
Cash at bank and in hand 16,734 11,548
------------------------------------------------------- ------ ------
46,538 30,881
------------------------------------------------------- ------ ------
15 Creditors - due within one year (17,645) (16,569)
------------------------------------------------------- ------ ------
Net Current Assets 28,893 14,312
------------------------------------------------------- ------ ------
Net Assets 95,688 69,114
------------------------------------------------------- ------ ------
Capital and Reserves
19 Called up share capital 7,556 7,220
20 Share premium account 42,048 25,483
20 Profit and loss account 46,084 36,411
------------------------------------------------------- ------ ------
95,688 69,114
------------------------------------------------------- ------ ------
This Preliminary Announcement was approved by the Board of Directors on 4 July
2003.
Signed on behalf of the Board of Directors.
David M Telling
Chairman
Ruby McGregor-Smith
Group Finance Director
Group Cash Flow Statement
for the year ended 31 March 2003
Note 2003 2002
£'000 £'000
------------------------------------------------------- ------ ------
21 Net cash flow from operating activities 48,474 37,295
Returns on investments and servicing of
finance
Interest received 1,537 502
Interest paid (41) (33)
Interest element of finance lease rentals (1) (6)
------------------------------------------------------- ------ ------
1,495 463
------------------------------------------------------- ------ ------
Tax
UK corporation tax paid (10,669) (9,264)
ACT recovered 14 481
------------------------------------------------------- ------ ------
(10,655) (8,783)
------------------------------------------------------- ------ ------
Capital expenditure
Payments to acquire tangible fixed assets (16,016) (15,015)
Receipts from sales of tangible fixed assets 8,009 3,364
------------------------------------------------------- ------ ------
(8,007) (11,651)
------------------------------------------------------- ------ ------
22 Acquisitions and disposals
Payments to acquire subsidiary undertakings (4,977) (1,457)
Net cash acquired with subsidiary undertakings 211 -
Sale of subsidiary undertakings 4,984 2,367
Net cash disposed with subsidiary undertakings 6,396 -
------------------------------------------------------- ------ ------
6,614 910
------------------------------------------------------- ------ ------
Equity dividends paid (7,035) (2,090)
------------------------------------------------------- ------ ------
Cash inflow before management of liquid
resources and financing 30,886 16,144
------------------------------------------------------- ------ ------
Management of liquid resources
Net increase in investments (3,880) -
------------------------------------------------------- ------ ------
Financing
Issue of Ordinary Share capital 2,862 2,838
Net unsecured loans received - 35
Net capital element of finance lease rental (14) (29)
payments
Debt due within one year
Repayment of unsecured loans - (17)
------------------------------------------------------- ------ ------
2,848 2,827
------------------------------------------------------- ------ ------
24 Increase in cash in the year 29,854 18,971
------------------------------------------------------- ------ ------
Notes to the Preliminary Announcement
1 Preliminary Announcement
The financial information as set out does not constitute the Group and Company's
statutory accounts for the year ended 31 March 2003 or 2002, but is derived from
those Accounts. Statutory accounts for 2002 have been delivered to the
Registrar of Companies and those for 2003 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 Preliminary Announcement consolidates the Profit and Loss Account and
Balance Sheet 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.
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 as a matter of accounting policy.
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.
Freehold and long leasehold buildings 50 years
Plant 3-14 years
Vehicles 4 years
Financial Instruments
The Group uses financial instruments to hedge its exposure to foreign currency
risk. To the extent that such instruments are matched against an underlying
asset or liability, they are accounted for using hedge accounting. Gains or
losses and premiums or discounts are matched to the underlying transactions
being hedged.
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
Work in progress and stocks are valued at the lower of cost, including
appropriate overheads and net realisable value. Provision is made for
foreseeable losses.
Costs represent materials, direct labour and overheads. Net realisable value is
based upon 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.
Long term contracts are dealt with in accordance with SSAP 9 (revised). A
prudent level of profit is taken based on estimated percentage completion if the
final outcome can be reliably assessed.
All bid costs are expensed as incurred until the stage is reached where it is
virtually certain that the contract has been awarded.
Deferred Tax
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 Preliminary Announcements. 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.
Pensions
The Group operates two defined benefit pension schemes. The amounts charged to
operating profit are the current service costs and gains and losses on
settlements and curtailments.
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
illustrated 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 probability of
implementation is uncertain and partly dependent upon proposals from the
International Accounting Standards Board (IASB). The Group will take advice to
ensure that it continues to adopt the best practice in respect of accounting for
retirement benefits. The Group is in the second year of the transitional
arrangements under FRS 17.
Provisions
Provision is made for outstanding insurance claims incurred at the balance sheet
date.
3 Segmental analysis
Activity TURNOVER PRE-TAX PROFIT PRE-TAX NET
PROFIT BEFORE TAX PROFIT ASSETS
AND MARGIN
GOODWILL
£'000 £'000 £'000 % £'000
---------------- ----------- ----------- ----------------- ---------------- -----------
2003
Support Services 259,884 18,760 18,988 7.2 24,912
Building Services 305,956 13,029 15,125 4.3 28,853
---------------- ----------- ----------- ----------------- ---------------- -----------
565,840 31,789 34,113 5.6 53,765
Net funds 58,799
---------------- ----------- ----------- ----------------- ---------------- -----------
Total 112,564
---------------- ----------- ----------- ----------------- ---------------- -----------
2002
Support Services 227,872 16,316 16,345 7.2 23,762
Building Services 290,980 14,041 14,652 4.8 35,183
---------------- ----------- ----------- ----------------- ---------------- -----------
518,852 30,357 30,997 5.9 58,945
Net funds 24,300
---------------- ----------- ----------- ----------------- ---------------- -----------
Total 83,245
Included within the Building Services segment above are amounts that relate to
discontinued activities. These include turnover of £3,552,000 (2002:
£25,023,000) and pre-tax profit of £202,000 (2002: £481,000).
Turnover 2003 2003 TOTAL 2002 2002 TOTAL
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS
£'000 £'000 £'000 £'000 £'000 £'000
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Support Services
Cleaning 145,264 - 145,264 135,458 - 135,458
Catering and Landscaping 4,648 - 4,648 4,032 - 4,032
Security 7,139 - 7,139 3,528 - 3,528
Managed 52,294 - 52,294 49,517 - 49,517
Services
Engineering Maintenance 50,539 - 50,539 35,337 - 35,337
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Total 259,884 - 259,884 227,872 - 227,872
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Building
Services
Engineering 164,454 - 164,454 138,202 - 138,202
Property Services 110,034 - 110,034 107,844 - 107,844
Access 27,916 3,552 31,468 19,911 25,023 44,934
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Total 302,404 3,552 305,956 265,957 25,023 290,980
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Operating Profit 2003 2003 TOTAL 2002 2002 TOTAL
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS
£'000 £'000 £'000 £'000 £'000 £'000
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Turnover 562,288 3,552 565,840 493,829 25,023 518,852
Cost of sales (437,563) (2,369) (439,932) (380,973) (16,981) (397,954)
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Gross Profit 124,725 1,183 125,908 112,856 8,042 120,898
Administrative expenses (94,679) (905) (95,584) (83,816) (7,115) (90,931)
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Operating Profit 30,046 278 30,324 29,040 927 29,967
--------------------- ------------- -------------- ------------ ------------ -------------- ----------
Discontinued operations relate to the companies sold during the year as
described in Note 22b.
4 Operating profit
2003 2002
£'000 £'000
-------------------------------------------------------------- -------- --------
This is stated after charging/ (crediting):
Depreciation and other amounts written off tangible fixed
assets:
- owned assets 10,499 11,784
- leased assets 346 25
Goodwill amortisation 1,219 640
Goodwill impairment 1,105 -
Auditors' remuneration - Group 145 134
- Company 25 23
Operating lease rentals - plant and vehicles 983 1,022
- other 2,075 2,512
Profit on disposal of fixed assets (525) (678)
-------------------------------------------------------------- -------- --------
A more detailed analysis of amounts paid to the Auditors.
2003 2002
£'000 % £'000 %
---------------------------------------------------------- ------ ----- ------ -----
Auditors' fees - services as Auditors 170 52 157 61
- further assurance services - - - -
- tax advisory services 133 41 101 39
- other non-audit services 22 7 - -
---------------------------------------------------------- ------ ----- ------ -----
325 100 258 100
---------------------------------------------------------- ------ ----- ------ -----
5 Directors and employees
2003 2002
£'000 £'000
-------------------------------------------------------------- -------- --------
(i) Employment costs
Wages and salaries 222,199 203,866
Social security costs 17,842 14,695
Other pension costs 3,251 3,034
-------------------------------------------------------------- -------- --------
243,292 221,595
-------------------------------------------------------------- -------- --------
2003 2002
No. No.
(ii) The average number of persons employed during the
financial year was:
Site 21,158 22,303
Administration 1,927 1,964
-------------------------------------------------------------- -------- --------
23,085 24,267
-------------------------------------------------------------- -------- --------
6 Interest
2003 2002
£'000 £'000
-------------------------------------------------------------- -------- --------
(i) Interest payable and similar charges
Finance leases (4) (5)
Other (50) (41)
(ii) Interest receivable and similar income
Bank Interest 1,519 436
-------------------------------------------------------------- -------- --------
1,465 390
-------------------------------------------------------------- -------- --------
7 Tax on profit on ordinary activities
a) Analysis of charge in the year
2003 2002
£'000 £'000
-------------------------------------------------------------- --------- --------
UK corporation tax at 30% (2002 30%) 10,459 9,526
Adjustment in respect of prior years 22 (75)
-------------------------------------------------------------- --------- --------
Total current tax (Note 7b) 10,481 9,451
-------------------------------------------------------------- --------- --------
Deferred taxation:
Timing differences - origination and reversal (240) 11
Adjustments in respect of prior years - deferred tax (53) (435)
-------------------------------------------------------------- --------- --------
Tax on profit on ordinary activities 10,188 9,027
-------------------------------------------------------------- --------- --------
b) Factors affecting tax charge in the year
The tax assessed for the year is greater (2002: greater) than that resulting
from applying the standard rate of corporation tax in the UK of 30% (2002: 30%).
The differences are set out below.
2003 2002
£'000 £'000
-------------------------------------------------------------- --------- --------
Profit on ordinary activities before tax 31,789 30,357
-------------------------------------------------------------- --------- --------
Tax at 30% thereon 9,537 9,107
Expenses not deductible for tax purposes 303 291
Capital allowances in excess of depreciation 383 140
Movement in short term timing differences 14 -
Profit on disposal of tangible fixed assets (158) (210)
Goodwill 697 192
Prior periods 22 (75)
Other (317) 6
-------------------------------------------------------------- --------- --------
Current tax charge for the year (Note 7a) 10,481 9,451
-------------------------------------------------------------- --------- --------
c) Factors affecting future tax charges
The Group is not aware of any factors that may materially affect the future tax
charge.
8 Dividends
2003 2002
£'000 £'000
-------------------------------------------------------------- --------- --------
Interim dividend 0.8p per 2 1/2 p share
(2002 0.7p per 2 1/2 p share) 2,417 2,021
Proposed final dividend 1.1p per 2 1/2 p share
(2002 0.9p per 2 1/2 p share) 3,319 2,602
-------------------------------------------------------------- --------- --------
5,736 4,623
-------------------------------------------------------------- --------- --------
Total dividend per 2 1/2 p share for the year 1.9p 1.6p
-------------------------------------------------------------- --------- --------
Subject to approval at the Annual General Meeting, the final dividend will be
paid on 30 September 2003 to members on the register on 5 September 2003.
9 Earnings per ordinary share
The calculation of earnings per 2 1/2p share for 2003 and 2002 is based upon the
profit after tax and minority interest.
The weighted average number of shares for this purpose is 297,979,470 (2002:
284,250,155). The diluted earnings per share has been calculated on the basic
earnings and the weighted average number of shares less 211,000 (2002:
additional shares 4,813,163) shares representing the fair value of 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:
2003 2002
-------------------------------------------------------------- --------- --------
Basic earnings per Ordinary Share 6.5p 6.5p
Adjustments
Amortisation and impairment of goodwill 0.8p 0.3p
-------------------------------------------------------------- --------- --------
Headline earnings per Ordinary Share 7.3p 6.8p
-------------------------------------------------------------- --------- --------
10 Fixed assets - Intangible
GOODWILL GOODWILL IMPAIRMENT TOTAL
ATTACHED
TO SALE OF
ASSETS
£'000 £'000 £'000 £'000
------------------------- --------- -------------- ---------------- ------------
Cost
At beginning of year 13,910 700 1,380 15,990
Additions 12,469 - - 12,469
Disposals - (700) - (700)
------------------------- --------- -------------- ---------------- ------------
At end of year 26,379 - 1,380 27,759
------------------------- --------- -------------- ---------------- ------------
Amortisation
At beginning of year 944 116 206 1,266
Amortised in year 1,144 6 69 1,219
Impairment charge - - 1,105 1,105
Disposals - (122) - (122)
------------------------- --------- -------------- ---------------- ------------
2,088 - 1,380 3,468
------------------------- --------- -------------- ---------------- ------------
Net book value
At end of year 24,291 - - 24,291
------------------------- --------- -------------- ---------------- ------------
At beginning of 12,966 584 1,174 14,724
year
------------------------- --------- -------------- ---------------- ------------
11 Fixed assets - Tangible
Group
FREEHOLD LONG LEASEHOLD PLANT AND TOTAL
PROPERTIES PROPERTIES VEHICLES
£'000 £'000 £'000 £'000
------------------------- --------- -------------- ---------------- ------------
Cost or valuation
At beginning of year 6,129 1,909 74,117 82,155
Additions at cost 42 853 15,121 16,016
Disposals - (23) (18,415) (18,438)
Subsidiaries disposed - (181) (9,988) (10,169)
------------------------- --------- -------------- ---------------- ------------
At end of year 6,171 2,558 60,835 69,564
------------------------- --------- -------------- ---------------- ------------
Cost 2,881 1,773 60,835 65,489
Valuation 1995 3,290 785 - 4,075
------------------------- --------- -------------- ---------------- ------------
Depreciation
At beginning of year 479 234 36,360 37,073
Charge for year 88 55 10,702 10,845
Disposals - (23) (11,327) (11,350)
Subsidiaries disposed - (53) (4,228) (4,281)
------------------------- --------- -------------- ---------------- ------------
End of year 567 213 31,507 32,287
------------------------- --------- -------------- ---------------- ------------
Net book value
At end of year 5,604 2,345 29,328 37,277
------------------------- --------- -------------- ---------------- ------------
At beginning of year 5,650 1,675 37,757 45,082
------------------------- --------- -------------- ---------------- ------------
Historic cost net book value
2003 6,132 2,325 29,328 37,785
------------------------- --------- -------------- ---------------- ------------
2002 6,120 1,655 37,757 45,532
------------------------- --------- -------------- ---------------- ------------
No depreciation was charged against freehold or long leasehold buildings up to
1995. For the year ended 31 March 2003, the Profit and Loss Account has been
charged with £166,000 (2002: £148,000) depreciation.
The historic cost of revalued properties was £5,078,000 (2002: £4,173,000). The
net book value of plant and vehicles held under finance leases included above
was £nil (2002: £nil).
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 in this year's Preliminary Announcement.
11 Fixed assets - Tangible
Company
PLANT AND
VEHICLES
£'000
----------------------------------------------------------------- -----------
Cost
At beginning of year 2,224
Additions 358
Disposals (437)
----------------------------------------------------------------- -----------
At end of year 2,145
----------------------------------------------------------------- -----------
Depreciation
At beginning of year 1,352
Charge for the year 387
Disposals (302)
----------------------------------------------------------------- -----------
At end of year 1,437
----------------------------------------------------------------- -----------
Net book value
At end of year 708
----------------------------------------------------------------- -----------
At beginning of year 872
----------------------------------------------------------------- -----------
12 Work in progress and stocks
GROUP COMPANY
2003 2002 2003 2002
£'000 £'000 £'000 £'000
------------------------------- ------- ---------- ---------- ---------
Work in progress 39,939 43,346 - -
Payments received on account (17,787) (21,324) - -
Goods for resale 3,120 1,684 - -
------------------------------- ------- ---------- ---------- ---------
25,272 23,706 - -
------------------------------- ------- ---------- ---------- ---------
13 Debtors
GROUP 2002 COMPANY 2002
2003 £'000 2003 £'000
£'000 £'000
---------------------------------- ------- -------- -------- --------
Trade debtors 86,542 82,013 7 -
Owed by subsidiary undertakings - - 28,215 17,115
Other debtors 2,650 2,065 1,173 1,677
Prepayments and accrued income 3,124 3,045 409 541
ACT recoverable - 14 - -
---------------------------------- ------- -------- -------- --------
92,316 87,137 29,804 19,333
---------------------------------- ------- -------- -------- --------
Included in other debtors is the sum of £209,000 (2002: £314,000) falling due
after one year.
14 Investments
GROUP 2002 COMPANY 2002
2003 £'000 2003 £'000
£'000 £'000
---------------------------------- ------- -------- -------- --------
Unlisted investments 3,880 - - -
---------------------------------- ------- -------- -------- --------
Included in unlisted investments are deposits totalling £3,880,000 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 COMPANY
2003 2002 2003 2002
£'000 £'000 £'000 £'000
------------------------------------- ------- -------- -------- --------
Bank loans unsecured and overdraft - - - 32
Obligations under finance leases 12 28 - -
Payments received on account 1,706 2,876 - -
Trade creditors 78,163 71,673 895 416
Owed to subsidiary undertakings - - 9,810 7,362
Corporation tax 5,807 5,269 - -
Other taxes and social security 18,188 16,003 479 335
Other creditors 4,762 1,309 - 262
Accruals and deferred income 10,270 9,057 3,137 3,539
Proposed dividends 3,473 4,772 3,324 4,623
------------------------------------- ------- -------- -------- --------
122,381 110,987 17,645 16,569
------------------------------------- ------- -------- -------- --------
16 Creditors - due after one year
GROUP 2002 COMPANY 2002
2003 £'000 2003 £'000
£'000 £'000
----------------------------------- ------- -------- -------- --------
Obligations under finance leases 29 27 - -
----------------------------------- ------- -------- -------- --------
Finance leases are repayable between one and two years and are secured by
related leased assets.
17 Financial assets and liabilities
2003 2002
£'000 £'000
---------------------------------------------------------------------------- ------- -------
Maturity of Borrowings
The maturity profile of the Group's financial liabilities was as follows:
In one year or less, or on demand 12 28
In more than one year but not more than two years 29 27
---------------------------------------------------------------------------- ------- -------
41 55
---------------------------------------------------------------------------- ------- -------
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 facilities amounted to
£60,000,000 (2002: £35,000,000) which are all renewable within one year.
Interest rates
At 31 March 2003, the Group had financial liabilities of £41,000 (2002:
£55,000). These liabilities are under a fixed rate of interest at normal
commercial rates. Included within liabilities are immaterial amounts in respect
of finance leases.
Hedging
The Group's policy is to use derivative instruments to hedge against exposure to
movements in exchange rates. 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 2003.
Currency exposure
As at 31 March 2003, the Group had no currency exposure.
Fair values
The Directors consider that the fair value of financial assets and liabilities
is not materially different to their book value.
18 Provision for liabilities and charges
DEFERRED TAX INSURANCE RESERVE
£'000 £'000 2003
£'000
--------------------------------- ------------ ----------------- --------
Provisions
At beginning of year 1,496 - 1,496
Disposal during the year (366) - (366)
Arising during the year (302) 2,194 1,892
--------------------------------- ------------ ----------------- --------
At end of year 828 2,194 3,022
--------------------------------- ------------ ----------------- --------
Deferred tax in respect of the Group's defined benefit schemes is disclosed in
Note 28. The balance relates to the excess of net capital allowances over
depreciation.
The provision for insurance claims represents amounts payable by MITIE
Reinsurance Company Ltd in respect of outstanding claims incurred at the balance
sheet dates. This is expected to be utilised over the next year. The subsidiary
established during the year is the Group's self insurance company.
19 Called up share capital
ORDINARY
SHARES OF 2 1/2p
NUMBER £'000
--------------------------------------------------- ---------------- -------
Authorised 340,000,000 8,500
--------------------------------------------------- ---------------- -------
2003
Allotted and fully paid
At beginning of year 288,783,767 7,220
--------------------------------------------------- ---------------- -------
Issued as Directors' remuneration 70,808 2
Issued for acquisitions 10,586,208 265
Issued under share option schemes 2,745,831 69
--------------------------------------------------- ---------------- -------
At end of year 302,186,614 7,556
--------------------------------------------------- ---------------- -------
2002
Allotted and fully paid
At beginning of year 279,638,628 6,991
Issued as Directors' remuneration 60,000 2
Issued for acquisitions 6,737,040 168
Issued under share option schemes 2,348,099 59
--------------------------------------------------- ---------------- -------
At end of year 288,783,767 7,220
--------------------------------------------------- ---------------- -------
Options outstanding under the Savings Related Share Option Schemes at 31 March
2003 were as follows:
OPTION PRICE DATE ORDINARY SHARES OF 2 1/2 P EACH
EXERCISABLE 2003 2002
------------ ----------- ------------- -------------
31 1/2 p 2001 - 95,276
37 1/2 p 2002 10,488 917,056
85 p 2004 1,038,124 1,250,988
150 p 2005 1,049,922 1,334,768
125 p 2006 944,244 1,153,332
110 p 2007 2,109,354 -
------------- -------------
5,152,132 4,751,420
------------- -------------
Options outstanding under the Executive Share Option Schemes at 31 March 2003
were as follows:
OPTION PRICE DATE ORDINARY SHARES OF 2 1/2 P EACH
EXERCISABLE 2003 2002
------------ ----------- ------------- -------------
21 p 1998 - 2005 - 50,000
31 1/2 p 1999 - 2006 - 40,000
50 p 2001 - 2006 - 1,500,000
57 3/4 p 2001 - 2008 1,036,400 1,256,400
95 p 2002 - 2009 931,000 1,016,000
173 3/4 p 2003 - 2010 698,000 813,600
145 p 2004 - 2011 809,600 892,600
117 p 2005 - 2012 1,121,050 -
99 p 2006 - 2013 200,000 -
------------ ----------- ------------- -------------
4,796,050 5,568,600
------------ ----------- ------------- -------------
20 Share capital and reserves
CALLED UP SHARE REVALUATION OTHER
SHARE PREMIUM RESERVE RESERVE PROFIT
CAPITAL ACCOUNT (i) ACCOUNT AND LOSS TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
---------------- -------- ---------- ------------ ---------- ---------- --------
Group
At beginning of 7,220 25,483 (503) - 42,291 74,491
year
Shares issued 336 - - - - 336
Net premium - 16,012 - - - 16,012
arising on shares
issued
Retained profit - - - - 13,740 13,740
for the financial
year
Additional - - (5) - 5 -
depreciation on
revalued assets
Issue of shares in - 553 - - (553) -
connection with
the exercise of
share options
Goodwill - - - - 321 321
transferred to
Profit and Loss
Account on
disposal of
subsidiaries
Transfer to other - - - 994 (994) -
reserve
---------------- -------- ---------- ------------ ---------- ---------- --------
Balance at end of 7,556 42,048 (508) 994 54,810 104,900
year
---------------- -------- ---------- ------------ ---------- ---------- --------
Company
At beginning of 7,220 25,483 - - 36,411 69,114
year
Shares issued 336 - - - - 336
Net premium - 16,012 - - - 16,012
arising on shares
issued
Retained profit - - - - 10,226 10,226
for the year
Issue of shares in - 553 - - (553) -
connection with
the exercise of
share options
---------------- -------- ---------- ------------ ---------- ---------- --------
Balance at end of 7,556 42,048 - - 46,084 95,688
year
---------------- -------- ---------- ------------ ---------- ---------- --------
(i) Other reserve is non-distributable
The profit attributable to Shareholders in the Accounts of the Company was
£15,962,000 (2002: £8,504,000).
Prior to the adoption of FRS 10 on 1 April 1998, goodwill eliminated against
reserves amounted to £26,673,000 (2002: 26,994,000).
During the year, 949,831 (2002: 1,576,593) Ordinary Shares of 2 1/2p each were
issued to the MITIE Group PLC Qualifying Employee Share Ownership Trust (QUEST).
The difference between the market value and the option price receivable has been
eliminated against the Profit and Loss Account.
Included in both the Company and the Group share premium accounts are amounts
relating to premiums arising on shares issued subject to the provisions of
Section 131 of the Companies Act 1985.
21 Net cash inflow from operating activities
2003 2002
£'000 £'000
---------------------------------------------------------- ------- -------
Operating profit 30,324 29,967
Depreciation 10,845 11,809
Amortisation and impairment of goodwill 2,324 640
Profit on sale of tangible fixed assets (525) (678)
(Increase)/ Decrease in work in progress and stocks (1,566) 514
(Increase) in debtors (5,193) (16,706)
Increase in creditors 12,265 11,749
---------------------------------------------------------- ------- -------
48,474 37,295
---------------------------------------------------------- ------- -------
22a Purchase of subsidiary undertakings
ALIGNMENT FAIR VALUE
BOOK VALUE OF
ACCOUNTING
POLICIES
£'000 £'000 £'000
------------------------------------------------- ----------- -----------
Fixed assets 122 (55) 67
Work in progress and 228 - 228
stocks
Debtors 1,227 - 1,227
Bank and cash 211 - 211
Creditors (825) - (825)
Tax (191) - (191)
Minority interest 5,823 - 5,823
------------------------------------------------- ----------- -----------
6,595 (55) 6,540
Goodwill 12,469
------------------------------------------------- ----------- -----------
Total purchase 19,009
consideration
Shares issued - MITIE Group ( 14,032)
PLC
------------------------------------------------- ----------- -----------
------------------------------------------------- ----------- -----------
Cash consideration 4,977
Bank and cash acquired (211)
------------------------------------------------- ----------- -----------
4,766
------------------------------------------------- ----------- -----------
The effect of the acquisitions on the results for the Group for the year are not
material and therefore are not shown separately on the Profit and Loss Account.
The businesses' contributions to Group net operating cash flow, interest paid,
tax paid and capital expenditure were not material.
The above items relate principally to the acquisition of minority interests in
MITIE Managed Services (North and Scotland) Ltd (formerly MITIE Managed Services
Ltd) in May 2002 and MITIE Deeds Ltd in December 2002 and were accounted for by
the acquisition method of accounting.
Scotgate Engineering Services Ltd which was acquired in December 2002 earned a
profit after taxation of £58,000 in the six month period ended 31 March 2003
(year ended 30 September 2002: £366,000), of which a loss of £25,000 arose in
the period from 1 October 2002 to 19 December 2002.
22b Disposal of subsidiary undertakings
2003
£'000
---------------------------------------------------------------------- ------
Tangible fixed assets 5,888
Net working capital 4,393
Overdraft (6,396)
Finance lease (55)
---------------------------------------------------------------------- ------
Net assets 3,830
Minorities (202)
Related goodwill - Post FRS 10 578
- Pre FRS 10 321
---------------------------------------------------------------------- ------
4,527
Profit on disposal 457
---------------------------------------------------------------------- ------
Total consideration 4,984
- cash 4,984
Overdraft disposed 6,396
---------------------------------------------------------------------- ------
Total cash effect 11,380
---------------------------------------------------------------------- ------
The above items relate principally to the disposal of MITIE Access Ltd, MITIE
Access (Northern) Ltd, MITIE Access (North East) Ltd, MITIE Access (Scotland)
Ltd and MITIE Access (Southern) Ltd in June 2002.
The profit after taxation up to the date of disposal of these companies was
£140,000 and for the last financial year was £315,000. The businesses
contributions to Group net operating cash flow, interest paid, tax paid and
capital expenditure were not material.
23 Analysis of changes in net funds
AT 31 CASHFLOWS NON ACQUISITIONS DISPOSALS AT 31
MARCH CASH MARCH
2002 FLOWS 2003
£'000 £'000 £'000 £'000 £'000 £'000
------------ -------- ---------- ------- ---------- --------- ------
Cash at bank 25,106 23,240 - (4,766) 11,380 54,960
and in hand
------------ -------- ---------- ------- ---------- --------- ------
Net cash 25,106 23,240 - (4,766) 11,380 54,960
Debt due (751) - 751 - - -
within one
year
Finance (55) (41) - - 55 (41)
leases
------------ -------- ---------- ------- ---------- --------- ------
Debt (806) (41) 751 - 55 (41)
financing
------------ -------- ---------- ------- ---------- --------- ------
Current asset - 3,880 - - - 3,880
investments
------------ -------- ---------- ------- ---------- --------- ------
Net funds 24,300 27,079 751 (4,766) 11,435 58,799
------------ -------- ---------- ------- ---------- --------- ------
24 Reconciliation of net cash flow to movement in net funds
2003 2002
£'000 £'000
-------------------------------------------------------- ------- -------
Increase in cash during year 29,854 18,971
Cash inflow from movement in debt and lease financing 765 11
Cash inflow from movement in liquid resources 3,880 -
-------------------------------------------------------- ------- -------
Movement in net funds in the year 34,499 18,982
Net funds at beginning of year 24,300 5,318
-------------------------------------------------------- ------- -------
Net funds at end of year 58,799 24,300
-------------------------------------------------------- ------- -------
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 which 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 upon
the Group's financial position.
Contingent consideration, to be satisfied in shares, for the acquisition of
subsidiary undertakings is dependent upon future profits of those subsidiaries
and at the discretion of MITIE. It is not possible to quantify accurately, in
advance, the final amounts which 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
£2,723,000. These commitments reduce to £1,049,000 and £nil at the end of the
next two years respectively. Against these guarantees, the Group has received
indemnities from the Group's bankers of £464,000 and from the suppliers of the
leased equipment of £602,000, giving a net contingent liability of £1,656,000.
26 Commitments
2003 2002
£'000 £'000
------------------------------------------------------------ ------- -------
Capital commitments as follows:
Contracted for but not provided for in the Accounts 161 -
------------------------------------------------------------ ------- -------
2003 2002
PROPERTY OTHER PROPERTY OTHER
£'000 £'000 £'000 £'000
------------------------------------------- -------------- -------- -------
Annual commitments under operating leases
which expire:
Within one year 345 144 313 49
In second to fifth years inclusive 658 251 792 802
Over five years 1,179 5 882 5
------------------------------------------- -------------- -------- -------
2,182 400 1,987 856
------------------------------------------- -------------- -------- -------
27 Investment in subsidiary undertakings
SHARES AT PROVISION FOR NET BOOK
COST IMPARIMENT VALUE
£'000 £'000 £'000
---------------------------------- ---------- -------------- ------------
At beginning of year 56,696 (2,766) 53,930
Additions 18,602 - 18,602
Disposals (2,410) - (2,410)
Provisions in the year (net) - (4,035) (4,035)
---------------------------------- ---------- -------------- ------------
At end of year 72,888 (6,801) 66,087
---------------------------------- ---------- -------------- ------------
The principal operating subsidiary undertakings are detailed in Note 31.
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 probability of implementation is
uncertain and partly dependent upon proposals from the International Accounting
Standards Board (IASB). The Group will take advice to ensure that it continues
to adopt the best practice in respect of accounting for retirement benefits. The
Group is in the second year of the transitional arrangements under FRS 17 and
the required disclosures to the extent not given in (a) are set out in (b).
(a) SSAP 24
The Group operates two defined benefit pension schemes called the MITIE Group
PLC Pension Scheme and the MITIE Group PLC Passport Pension Scheme.
The assets of both Schemes are held separately from the Group, being invested in
UK 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 on triennial valuations using the projected
unit credit method.
The pension charge for the year was £3,251,000 (2002: £3,034,000).
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 is due on 6 April 2005. The 2002 actuarial
valuation showed that the market value of the assets was £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% (2002 10%) and 7.5% (2002 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 is due on 6 April 2005. The 2002 actuarial
valuation showed that the market value of the assets was £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% (2002 23.5%) with employees
contributing between 1.5% and 6%.
(b) FRS 17 (Retirement Benefits)
As stated above, the Group operates two defined benefit pension schemes. 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 2003 by a qualified
actuary.
As required by SSAP 24, the figures included in the Preliminary Announcement in
respect of the Group pension schemes are based on actuarial valuations carried
out at 6 April 2002. This does not take into account any impact of the fall 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 FRS17 is 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 AT 31 MARCH
2003 2002
------------------------------------------------------------- ------------ ------------
Discount rate 5.50% 6.25%
Rate of increase in salaries 3.50% 3.50%
Rate of increase of pensions in payment (pre April 2002) 3.00% 3.00%
Rate of increase of pensions in payment (post April 2002) 2.50% 3.00%
Rate of increase of deferred pensions 2.50% 2.75%
Inflation assumption 2.50% 2.75%
------------------------------------------------------------- ------------ ------------
The assets of the Schemes and expected rates of return were:
LONG TERM RATE OF VALUE AT LONG TERM RATE OF VALUE AT
RETURN EXPECTED AT 31 MARCH EXPECTED RETURN AT 31 MARCH
31 MARCH 2003 2003 31 MARCH 2002
£'000 2002 £'000
------------------------------------- ---------- ------------------ -----------
Equities 7.25% 19,284 7.25% 18,947
Bonds 5.50% 3,343 5.75% 3,022
Others 4.00% 3,316 5.00% 2,825
------------------------------------- ---------- ------------------ -----------
Total market 25,943 24,794
value of
assets
Present value of (37,051) (25,850)
Schemes'
liabilities
------------------------------------- ---------- ------------------ -----------
Deficit in the (11,108) (1,056)
schemes
Related deferred 3,333 317
tax asset
------------------------------------- ---------- ------------------ -----------
Net pension (7,775) (739)
liability
------------------------------------- ---------- ------------------ -----------
Analysis of amount that would have been charged to operating profit under FRS
17
AT 31 MARCH
2003
£'000
---------------------------------------------------------------- -----------
Current service cost 2,285
---------------------------------------------------------------- -----------
Total operating charge 2,285
---------------------------------------------------------------- -----------
Analysis of amount that would have been charged to interest under
FRS 17
AT 31 MARCH
2003
£'000
---------------------------------------------------------------- -----------
Expected return on pension Schemes' assets 1,836
Interest cost (1,723)
---------------------------------------------------------------- -----------
Net return 113
---------------------------------------------------------------- -----------
The amount recognised in the statement of total recognised gains and losses had
FRS 17 been operative would have been as follows:
% OF SCHEME AT 31 MARCH
ASSETS 2003
£'000
-------------------------------------------------- ------------ -----------
Actual return less expected return on pension 20% (5,061)
Schemes' assets
Changes in financial assumptions underlying the 23% (6,035)
Schemes' liabilities
-------------------------------------------------- ------------ -----------
Actuarial loss recognised in the statement of total (11,096)
recognised gains and losses
-------------------------------------------------- ------------ -----------
Movements in deficit during the year AT 31 MARCH
2003
£'000
-------------------------------------------------- ------------ -----------
Deficit in Schemes at beginning of year (1,056)
Movement in year
Current service cost (2,285)
Contributions 3,216
Past service costs -
Other finance income 113
Actuarial loss (11,096)
-------------------------------------------------- ------------ -----------
Deficit in Schemes at the end of the year (11,108)
-------------------------------------------------- ------------ -----------
The impact to the Balance Sheet and Reserves at 31 March 2003 of adopting FRS 17
would be as follows:
AT 31 MARCH AT 31 MARCH
2003 2002
£'000 £'000
-------------------------------------------------- ------------ -----------
Net assets excluding pension liability 112,564 83,245
Net pension liability (7,775) (739)
-------------------------------------------------- ------------ -----------
Net assets including pension liability 104,789 82,506
-------------------------------------------------- ------------ -----------
Profit and loss reserve excluding pension 54,810 42,291
liability
Net pension liability (7,775) (739)
-------------------------------------------------- ------------ -----------
Profit and loss reserve including pension 47,035 41,552
liability
-------------------------------------------------- ------------ -----------
29 Other interests in shares
The Company has been notified of the following interests in 3% or more of the
issued share capital of the Company as at 3 July 2003.
NUMBER OF ORDINARY SHARES OF % OF SHARE
2 1/2 P EACH CAPITAL
--------------------------------- --------------------------- -----------
Fidelity Corp. and Fidelity 24,529,883 8.12
International Ltd
Prudential plc 12,273,605 4.06
--------------------------------- --------------------------- -----------
30 Subsequent events
On 2 July 2003, the Group acquired the entire share capital of Trident
Safeguards Ltd ('Trident'). The consideration comprises an initial amount of
£8,200,000 payable in cash on completion with additional consideration according
to future profitability payable in cash and loan notes. The additional
consideration is split as follows:
• £1,000,000 payable on the first anniversary of the acquisition if an
agreed profit threshold for the year ended 31 March 2004 is met;
• £2,000,000 payable at any time between 2006 and 2010 if an agreed
profit threshold is met; and
• if this threshold is exceeded then an additional amount will become
payable, with the total consideration for Trident capped at £20,000,000.
In the year to 31 March 2003, Trident's turnover was £23,400,000, pre-tax
profits of £812,000 and the company had net assets of £933,000.
On 3 July 2003, the Group acquired the entire share capital of Eagle Pest
Control Services UK Ltd ('Eagle'). The consideration comprises initial
consideration of £2,800,000 payable in cash with additional consideration based
on future profitability, also payable in cash. The additional consideration is
split as follows:
• £1,200,000 payable at any time between 2008 and 2013 if an agreed
profit threshold is met; and
• if this profit threshold is exceeded then an additional amount will
become payable, with the total consideration for Eagle capped at
£6,000,000.
In the year to 31 March 2003, Eagle's turnover was £4,139,000, pre-tax profits
of £447,000 and the company had net assets of £1,124,000.
31 Principal Operating Subsidiary and Associated Companies
The companies set out below are those which were part of the Group at 31 March
2003 and in the opinion of the Directors significantly affected the Group's
results and net assets during the year.
AT 31 MARCH 2003
% ORDINARY SHARES OWNED
------------------------------------------------------------------------------
Scotland B MITIE Engineering Services (Scotland) 100
Ltd
B MITIE Engineering Maintenance (Caledonia) 62
Ltd
S MITIE Envirocare Ltd 100
B MITIE HydroCat Ltd 100
B MITIE Lindsay Ltd 96
S MITIE Olscot Ltd 100
S MITIE Security (Scotland) Ltd 61
B MITIE Property Services (Scotland) Ltd 100
B MITIE McCartney Fire Protection Ltd 72
------------------------------------------------------------------------------
North B MITIE Air Conditioning (North) Ltd 51
S MITIE Cleaning (North) Ltd 100
B MITIE Engineering Services (Leeds) Ltd 56
B MITIE Engineering Services (North) Ltd 100
B MITIE Engineering Maintenance (North) 69
Ltd
B MITIE Greencote Ltd 69
B MITIE Engineering Services (Liverpool) 70
Ltd
B MITIE Engineering Projects Ltd 62
B MITIE Property Services (North East) 100
Ltd
B MITIE Property Services (North West) 100
Ltd
S MITIE Security (North) Ltd 80
------------------------------------------------------------------------------
Midlands B MITIE Air Conditioning (Midlands) Ltd 61
S MITIE Cleaning (Midlands) Ltd 100
B MITIE Engineering Services (Midlands) 55
Ltd
B MITIE Property Services (Midlands) Ltd 56
B MITIE Roofing Services Ltd 60
------------------------------------------------------------------------------
South East B MITIE Air Conditioning (London) Ltd 65
S MITIE Business Services Ltd 51
S MITIE Cleaning (South East) Ltd 100
S MITIE Cleaning (Southern) Ltd 100
B MITIE Engineering Maintenance Ltd 68
B MITIE Engineering Services (Eastern) 100
Ltd
B MITIE Engineering Services (London) Ltd 100
B MITIE Engineering Services (South East) 100
Ltd
S MITIE Landscape (Southern) Ltd 64
B MITIE Flooring (Southern) Ltd 57
B MITIE Interiors Ltd 67
B MITIE Property Services (Eastern) Ltd 63
B MITIE Property Services (London) Ltd* 100
B MITIE Property Services (Southern) Ltd 100
B MITIE Roofing (South East) Ltd 100
S MITIE Security (Southern) Ltd 90
------------------------------------------------------------------------------
South West B Cole Motors Ltd 100
B MITIE Air Conditioning (South West) Ltd 100
B MITIE Air Conditioning (Wales) Ltd 54
S MITIE Air Conditioning (West) Ltd 51
S MITIE Cleaning (South Wales) Ltd 100
S MITIE Cleaning (South West) Ltd 100
S MITIE Engineering Maintenance (South 56
West) Ltd
B MITIE Engineering Services (Bristol) Ld 100
B MITIE Engineering Services (Cardiff) 100
Ltd
B MITIE Engineering Services (Peninsula) 52
Ltd
B MITIE Engineering Services (South West) 100
Ltd
B MITIE Engineering Services (Swansea) 56
Ltd
S MITIE Managed Services (South West and 73
Wales) Ltd
B MITIE Property Services (Western) Ltd 100
B MITIE Roofing (South West) Ltd 100
------------------------------------------------------------------------------
National S MITIE Catering Services Ltd 51
B MITIE Cleanrooms Ltd 65
B MITIE Engineering Services (Retail) Ltd 54
B MITIE Environmental Ltd 62
B MITIE Generation Ltd * 100
S MITIE Managed Services Ltd 100
S MITIE PFI Ltd 100
B MITIE Scotgate Ltd 62
B MITIE Scientific Projects Ltd 51
B MITIE Technology Ltd 66
S Service Management International Ltd 33
------------------------------------------------------------------------------
Administration B MITIE Access Systems Ltd 100
S MITIE Cleaning Ltd 100
B MITIE Engineering Services Ltd 100
MITIE Property Investments Ltd 100
B MITIE Property Services Ltd 100
MITIE QUEST Trustee Ltd 100
MITIE Reinsurance Company Ltd 100
* Shareholdings held by intermediate
subsidiary undertakings
B Building Services
S Support Services
------------------------------------------------------------------------------
All companies were incorporated in and operate within the United Kingdom, except
for MITIE Reinsurance Company Ltd which was registered and operates in Guernsey.
Certain companies operate on the basis of 13 four weekly periods and have drawn
up their accounts to 5 April 2003. Adjustments have been made on consolidation
to exclude the results of these companies for the period from 31 March 2003 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 in the Preliminary
Announcement.
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.
END OF PRELIMINARY ANNOUNCEMENT
This information is provided by RNS
The company news service from the London Stock Exchange