Trading update

RNS Number : 9756D

MITIE Group PLC

03 May 2017

 

3rd May 2017

Mitie Group plc

Fiscal Year 2017 Update following Accounting Review

Mitie Group plc ("Mitie"), the facilities management, connected workspace and professional services business, today issues the following update for the financial year ended on 31^st March 2017 (FY'17), following the policies and balance sheet review (the "Accounting Review") undertaken by the Company and KPMG.

The outcome of the Accounting Review was presented to the Audit Committee and Board on 2^nd May.  All numbers in this statement remain subject to audit.

Trading performance, before the impact of the Accounting Review, is largely in line with previous expectations and referenced in our January trading update. Revenues remained flat in FY'17 compared to FY'16, reflecting what has been a challenging environment.

Accounting Review

As announced in January, the Company has reviewed all major balance sheet items to provide confidence that all relevant accounting standards are appropriately reflected in its financial reporting.  This work was complemented by KPMG's review, which covered certain aspects of the material balances of accrued income, mobilisation costs, percentage of completion accounting and the recoverability of trade receivables, as well as the carrying value of certain other assets.

KPMG confirmed that customer contract related methodologies and policies used by Mitie comply with all relevant accounting standards. However KPMG commented that our application of percentage of completion accounting and costs of contract mobilisation is less conservative, albeit still justifiable, than others in the market.

In response to these findings, and in addition to the £14m of one-off charges identified in the January trading update, the Board currently expects to write down its balance sheet by between £40m and £50m.

Of this total, only £6m relates to provisions which are expected to result in cash outflows in FY'18, with the majority being non-cash write-downs of trading assets, and having no impact on the future profitability of the business.

In addition, the review has identified a number of material errors which may necessitate restating our FY'16 accounts.  This would likely result in an increase in FY'17 reported results of between £10m and £20m.

The costs of change have increased by £5m to £15m since January as some further 160 roles have been removed in the first wave of a new cost reduction programme, full details of which will be shared at the time of our Preliminary Results.

Cash and covenants

Our year-end net debt position at 31^st March 2017 was £146m (2016: £178m), and we currently expect to comply with the conditions of our debt covenants as measured at that point. However, as the Company expects to have only limited headroom under its covenants as at 31^st March 2017, the Company intends to engage with its lenders with a view to negotiating an amendment to our banking covenants so as to permit further one-off charges and thereby remove the risk of a possible technical breach.  These changes would also enable the Company to review its accounting policies in respect of percentage of completion contracts and mobilisation and take a more cautious approach in advance of adopting IFRS15 Revenue from Contracts with Customers.

Extraordinary General Meeting ("EGM")

As a result of the one-off asset write downs and adjustments to reserves in FY'17, the Board is proposing a technical adjustment to the Company's articles of association, raising borrowing limits from 2x reserves to a fixed amount of £1.5bn.  This will be put to an EGM on 12^th June 2017. Formal notice of the EGM will be issued shortly.

Outlook

The Board approved Mitie's FY'18 Annual Operating Plan on 14^th March 2017. This plan is in line with previous expectations.

Phil Bentley, CEO said:

"FY'17 has undoubtedly been a challenging year but Mitie remains a strong and successful business, and is continuing to deliver for our customers. 

Whilst these accounting adjustments in FY'17 affect our reported profits, they do not affect the underlying strength of our business.

Since my appointment as CEO in December, we have worked hard to build a new "Connected Workspace" strategy, with clear deliverables and measurements for Customers, Costs, People and Technology.  Mitie has a well-diversified portfolio of high quality customers and an outstanding range of capabilities.  We have appointed a new Executive Leadership Team - with a new way of working - and we are confident the business will generate significant shareholder returns over the forthcoming years." 

Full year results for the twelve months ending 31^st March 2017 and an update on our strategy will be announced on 12^th June 2017. This is later than originally planned to allow sufficient time for the complex changes outlined above to be processed and for our auditors to conclude their work.

-Ends-

This announcement includes inside information.

For further information, contact:

John Telling

Group Corporate Affairs Director, Mitie Group plc

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

   Anna Chen

Investor Relations Manager, Mitie Group plc

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

About Mitie Group

Mitie is a FTSE 250 business providing a wide range of facilities management and professional services, from real estate consultancy, project management, energy consultancy, compliance, risk assessment and security systems to cleaning, catering, engineering, technical and environmental services and a range of specialist services.

We work in partnership with organisations to deliver long-term savings, managing and maintaining some of the nation's most recognised landmarks for a range of blue-chip public and private sector customers. 

We are the UK's largest Facilities Management Company employing some 60,000 people across the country.

Find out more at www.mitie.com

 

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