Interim Results

MITIE Group PLC 09 December 2002 MITIE Group PLC (MITIE) STRONG RESULTS AND GOOD PROSPECTS Financial Highlights MITIE is heading for a sixteenth consecutive year of strong organic growth. 6 months 6 months to 30.9.02 to 30.9.01 Turnover Â£277.1m Â£241.6m up 15% Profit before tax - pre goodwill Â£ 16.0m Â£ 14.3m up 11% Profit before tax - pre goodwill continuing business Â£ 15.8m Â£ 13.9m up 13% Earnings per share - pre goodwill 3.5p 3.0p up 16% Dividend per share 0.8p 0.7p up 14% Operating Highlights â€¢ Higher visibility of forward revenues due to robust order book and lengthening contract terms. 94% visibility on current year's turnover. â€¢ Strong operating cash flow. Cash balance at 30 September 2002 of Â£48m. â€¢ Positive development in Catering, Security and Landscaping. â€¢ Bundled services demand increases. â€¢ Investment in training and development to underpin future prospects. â€¢ Conservative accounting policies with respect to revenue recognition and bid costs. David Telling, Chairman, states: 'I am pleased that the MITIE model has continued to produce satisfactory results in an uncertain financial climate. These results are achieved because of the determination and passion of our employees. The Board is confident that the Company will have a successful year.' Chairman's Statement MITIE is heading for its sixteenth year of strong organic growth. We have achieved another period of growth in spite of uncertain trading conditions and I am encouraged by our performance. Our forward order book continues to grow and our future earnings are becoming increasingly visible, as the average contract length increases and our retention rate remains high. Financial results The Group has performed well over the six months to 30 September 2002. Once again we have produced good results. Group turnover increased by 15% to Â£277.1m (half year to 30 September 2001: Â£241.6m). Net profits before tax and goodwill amortisation increased by 11% to Â£16.0m (2001: Â£14.3m). Earnings per share before goodwill amortisation grew by 16% to 3.5p (2001: 3.0p). Cash flow has been very strong with Â£21.8m generated by our operations in the period and a Â£23m increase in cash balances was achieved. Capital expenditure has been lower than in previous periods following the disposal of two of our capital intensive Access businesses. Dividend The Board has declared an interim dividend of 0.8p per share (2001: 0.7p), an increase of 14%. This dividend will be paid on 31 March 2003 to those shareholders on the Register at the close of business on 7 March 2003. The dividend is covered 4.3 times by earnings per share before amortising goodwill. Accounting policies The Board recognises that there has been concern in recent months regarding accounting policies in the Support Services sector. MITIE has always applied conservative accounting policies that have complied with relevant accounting standards. In particular MITIE has always accounted for bid costs in compliance with UITF34. The Board is committed to maintaining this prudent approach. PFI/PPP MITIE has conducted an in depth review of this market. Our conclusion is that the cash flow implications, bid costs and political uncertainty within the market make it unattractive for a pure service provider like MITIE to be involved in PFI projects as an equity investor. We will, however, continue to offer services in this market on a contract basis, when our normal selection criteria are met. Visibility of future revenue 2003-2005 Forward revenue visibility in our Building Services companies has been increasing consistently over the past 12 months. Traditionally Support Services companies have contracts with longer average duration and Building Services now has an increasing number of framework and partnering contracts. This has resulted in a forward order book at 94% of target for 2002/3 and 54% of target for 2003/4 (Interim 2002, 2002-86%, 2003-45%). Market share MITIE has significant opportunities to grow within our current service range. Our conservative estimates of the size of the UK market in our specific sectors show that as at 31 March 2002 we had less than 2% of our potential market. The market share of each service ranged from 4.3% to less than 1%. Our aim is to increase our market share in all our markets. Operational Performance Support Services Cleaning The Cleaning discipline has continued to expand its core service and has seen growth in Security and Catering. We started MITIE Landscape (Southern) Ltd in July 2002 to further the range of Support Services available to customers. The discipline is seeing increased demand from customers for the supply of multi-service contracts. We are able to meet those requirements while maintaining the excellence of our single service delivery. During the first half of this year, we have been awarded a national Cleaning contract with Unilever covering 23 locations and other Cleaning contracts with Worcester County Council, Birmingham Midshires, Oxford Instruments and Medisense in Abingdon and Swindon. We have been appointed by Prudential as the multi-service provider at West Orchards Shopping Centre in Coventry providing Cleaning, Security and Maintenance. New Security contracts include Siemens, Coca-Cola and Clariant UK. Managed Services The business continues to progress nationally. In the South East, we have been awarded contracts at TotalFinaElf's headquarters in Watford and with IMS Healthcare. Our relationship with Land Securities Trillium continues to develop and we have been selected as facilities management supplier for their Landflex project. We are currently mobilising for the first two buildings: one in Soho and a 450,000sq.ft. office building in Earls Court for 3,000 staff that will open in July 2003. In the North of England, we have been awarded a major, five-year facilities management contract with the Probation Service and are now managing Innogy's npower estate. A new start-up business covering the South West and Wales will commence trading in early 2003. MITIE Business Services Ltd has expanded in the legal sector, adding clients such as Sullivan & Cromwell and Olswang. We have benefited from the trend to outsourcing by providing additional services such as reception and telephonists to our existing customer base. Engineering Maintenance The discipline has continued its profitable growth. During the trading period under review, the contract renewals' rate has been consistently high, including the Forensic Science Service contract in London. We have been awarded a large, multi-centre contract for HQ Global and a large maintenance contract for Broadgate Management in Regents Place, London. We have completed our plan to develop a national business with the establishment of two start-up companies, one in Scotland and the other in the North of England. These will commence trading in the second half of the financial year. This enhanced geographical coverage will enable the business to continue to meet local customers' requirements, while providing national or regional coverage if needed. Building Services Property Services The public sector has proved to be a robust market for Property Services with several major contract renewals and contract wins. The first half of the year has seen a more difficult market with some private clients exhibiting a cautious approach to spending, particularly in the South East. Long term contracts secured include Birmingham City Council, Land Securities Trillium, London Borough of Brent, Bournemouth City Council, Portsmouth City Council, Royal Mail, Employment Services and Suffolk County Council. The discipline continues to expand its range of services with the addition of flooring services in the South of England. Engineering Services The increase in opportunities in public works, particularly Health and Education, has offset the downturn in the South East commercial sector. Despite a slow start, the order book is full and nearly half of next year's workload is secured. There has been a successful move to continue our differentiation in the market place. This is being done by recognising our clients' objectives and aligning ourselves with those objectives. This is demonstrated by our public promise to our clients that 'Our work is not done until your promise is met'. We have added a further regional contracting company in Liverpool which has made a successful start, as has MITIE Technology Ltd which undertakes fixed line and wireless telecommunications projects. Notable projects secured in the period include Asprey, St Georges Hall, Hutchison, Hautlieu School Jersey, Cornwall Colleges, Warners & Cine UK, Boots and Safeway, the final six being through partnering agreements. Access Systems The sale of our Access Contracting business was completed in June 2002. This discipline is now a single business unit. MITIE Generation Ltd has established itself as the largest independent scaffolding hire and sale operation in the country. The business has focussed on providing direct hire and sales customers a high level of service. This has been combined with a commitment to introducing new products such as soft landing safety systems, low-level work platforms and site security products. Our equipment has been used on a wide variety of sites including the set of BBC's ' Casualty', oil-rigs and the Forth Rail Bridge. The business has increased its market share during the period and looks set to make continued progress. People MITIE is skilled at managing a diverse, directly employed, workforce that now exceeds 25,000 people. We recognise that in a business that is not capital intensive, the quality of our people and their motivation are the factors that make the difference. We place considerable emphasis on the recruitment, training, motivation and retention of our employees. For the business to grow we need to retain our competitive advantage. This advantage is that we are a pure service provider employing the people doing the work. The MITIE difference is the commitment of our people. This passion drives quality service delivery to our customers. Attracting and retaining people is a challenge that we are meeting in many ways. Trainees and apprentices represent 15% of our skilled workforce. We are working closely with schools and colleges to develop apprenticeship schemes and to provide work experience opportunities. We run our own management training courses covering all aspects of our service provision from Health & Safety and Environmental issues to Equal Opportunity and technical issues. Last year 76 MITIE staff took the NEBSM Certificate in Management and 49 the CMI Diploma in Management. Many of these will go on to a DMS (Diploma in Management Studies) that can lead to an MBA. We are investing in training and development so that we can produce the motivated and inspirational leadership at all levels that will provide the foundation for future success. Outlook The market for outsourced services contracts is growing and MITIE is well placed to benefit from this trend. All of our businesses have less than a 5% share of their individual markets. This dynamic creates the opportunity for MITIE to maintain its progress. Our unique structure means that we are small enough to be local, large enough to be regional and integrated enough to be national. We will manage the business in a way that will enable MITIE to achieve long-term, profitable and sustainable growth, rather than being driven by cyclical, external pressures. We continue to convert our profit into cash and this provides flexibility for MITIE to fund its growth strategies either through start-up businesses or small strategic acquisitions. I am pleased that the MITIE model has continued to produce satisfactory results in an uncertain financial climate. These results are achieved because of the determination and passion of our employees. The Board is confident that the Company will have a successful year. David M. Telling Chairman 9 December 2002 Group Profit & Loss Account Six months to 30 September Year to 31 March 2002 2001 2002 (unaudited) (unaudited) (audited) Â£000's Â£000's Â£000's Turnover - Continuing operations 273,502 228,569 493,829 - Discontinued operations 3,553 12,995 25,023 277,055 241,564 518,852 Operating profit (before goodwill amortisation) 15,289 14,144 30,607 Goodwill amortisation (577) (255) (640) Operating Profit - Continuing operations 14,434 13,431 29,040 - Discontinued operations 278 458 927 14,712 13,889 29,967 Interest receivable 668 185 390 Profit before tax 15,380 14,074 30,357 Tax (4,731) (4,416) (9,027) Profit after tax 10,649 9,658 21,330 Minority interest (933) (1,495) (2,712) Profit for the period 9,716 8,163 18,618 Dividend (2,392) (2,008) (4,623) Retained profit 7,324 6,155 13,995 Earnings per share - Basic 3.3p 2.9p 6.5p - Diluted 3.3p 2.8p 6.4p - Basic before goodwill amortisation 3.5p 3.0p 6.8p Summary Group Balance Sheet At At At 30 30 31 September September March 2002 2001 2002 (unaudited) (unaudited) (audited) Â£000's Â£000's Â£000's Fixed assets Intangible assets 23,092 13,602 14,724 Tangible assets 37,921 50,267 45,082 61,013 63,869 59,806 Cash at bank and in hand 48,098 11,936 25,106 Other current assets 103,741 101,482 110,843 Creditors - due within one year (107,978) (100,982) (110,987) Net current assets 43,861 12,436 24,962 Total assets less current liabilities 104,874 76,305 84,768 Creditors - due after more than one year 0 (715) (27) Provision for liabilities and charges (1,145) (2,383) (1,496) 103,729 73,207 83,245 Capital and Reserves Called up share capital 7,474 7,139 7,220 Share premium account 39,221 21,616 25,483 Other reserves (497) (509) (503) Profit & loss account 51,476 36,106 42,291 Equity shareholders' funds 97,674 64,352 74,491 Minority Interest 6,055 8,855 8,754 103,729 73,207 83,245 Summary Group Cash Flow Six months to 30 September Year to 31 March 2002 2001 2002 (unaudited) (unaudited) (audited) Â£'000's Â£'000's Â£'000's Net cash inflow from operating activities 21,800 15,397 37,295 Returns on investments and servicing of finance 668 185 463 Tax paid (4,823) (2,464) (8,783) Capital expenditure (5,836) (7,309) (11,651) Acquisitions (961) (522) (1,457) Disposals 12,919 - 2,367 Equity Dividends paid (2,154) - (2,090) Net cash inflow before financing 21,613 5,287 16,144 Financing Issue of share capital 2,170 590 2,838 Cash outflow from decrease in debt (791) (76) (11) Increase in cash in the period 22,992 5,801 18,971 Reconciliaton of net cash flow to movements in net funds: Increase in cash in the period 22,992 5,801 18,971 Funds inflow from decrease in debt 791 76 11 Movement in net funds in the period 23,783 5,877 18,982 Opening net funds 24,300 5,318 5,318 Closing net funds 48,083 11,195 24,300 Reconciliation of operating profit to operating cash flows : Operating profit 14,712 13,889 29,967 Depreciation 5,301 5,499 11,809 Amortisation of goodwill 577 255 640 Profit on sale of tangible fixed assets (283) (334) (678) Increase in work in progress and debtors (382) (6,873) (16,192) Increase in creditors 1,875 2,961 11,749 Net cash inflow from operating activities 21,800 15,397 37,295 Basis of preparation The Interim Financial Statements (which are neither reviewed nor audited) have been prepared on the basis of accounting policies consistent with those set out in the Group's Annual Report & Accounts for the year ended 31 March 2002. Segmental analysis Profit before Goodwill Amortisation and Profit before Tax Tax Turnover Margin Â£'000s Â£'000s Â£'000s (%) Six months to 30 September 2002 Building Services 150,832 7,882 5.2 7,502 Support Services 126,223 8,075 6.4 7,878 Total 277,055 15,957 5.8 15,380 Six months to 30 September 2001 Building Services 143,545 7,587 5.3 7,337 Support Services 98,019 6,742 6.9 6,737 Total 241,564 14,329 5.9 14,074 Dividend The interim dividend of 0.8p per share will be paid on 31 March 2003 to shareholders on the Register on 7 March 2003. Earnings per share The calculation of earnings per share is based upon the profit for the period attributable to holders of Ordinary Shares. The weighted average number of Ordinary Shares in issue for the period was 295,922,364 (2001 - 281,067,736; year to 31 March 2002 - 284,250,155). The calculation of diluted earnings per share using the principles of FRS14 is based on a weighted average number of shares, allowing for the exercise of outstanding share options of 297,572,232 (2001 - 286,439,696; year to 31 March 2002 - 289,063,318). The calculation of earnings per share before goodwill amortisation follows the guidelines set down by the Institute of Investment Management and Research (IIMR) and is based on the profit after deduction of tax and minority interest but before goodwill amortisation of Â£577,000 (2001 - Â£255,000; year to 31 March 2002 - Â£640,000). The figures for the year ended 31 March 2002 have been extracted from the Annual Report & Accounts which received an unqualified auditor's report and have been delivered to the Registrar of Companies. Copies of this statement will be posted to all shareholders and will be available to the public from the Company's Head Office at The Stable Block, Barley Wood, Wrington, Bristol BS40 5SA. This information is provided by RNS The company news service from the London Stock Exchange

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