Preliminary Results

21st May 2007 07:02

MITIE Group PLC21 May 2007 MITIE GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007 FINANCIAL HIGHLIGHTS 2007 2006 Increase Revenue £1,228.8m £935.6m 31.3%Operating profit before amortisation andintegration costs (1) £62.2m £48.3m 28.8%Operating profit before amortisation £59.9m £48.3m 24.0%Profit before tax £56.6m £50.5m 12.1%Basic earnings per share before amortisation 12.3p 9.9p(2) 24.2%Basic earnings per share 11.9p 9.8p 21.4%Dividend per share 5.1p 4.3p 18.6% (1) Integration costs of £2.3m (2) After discontinued operations in 2006 • 20th successive year of strong growth in revenue and profits• Organic growth in revenue of 17.4%• Operating profit before amortisation and integration costs up 28.8% to £62.2m• Operating profit margin before integration costs maintained at 5.1%• Profit before tax up 12.1% to £56.6m• Full year dividend up 18.6% to 5.1p• Successful integration of acquisitions and delivery of £3m of annualised synergy savings• Acquisition of Robert Prettie & Co Limited in April 2007• Forward order book of £4.1bn and 75% of 2007/08 revenue secured "MITIE has delivered another year of strong growth in revenue, profits anddividends. We continue to focus on our growth strategy by increasing marketshare whilst maintaining margins. We believe in getting the basics right -delivering excellent service to our customers and maintaining our reputation forquality. We have a great business, a motivated, entrepreneurial team andexcellent prospects for further sustainable growth." Ruby McGregor-Smith, Chief Executive FOR FURTHER INFORMATION: MITIE Group PLCJohn Telling, Head of Corporate Affairs and Developing Businesses Mobile: 07979 701006 David Revis, Investor Relations and PR Manager Mobile: 07979 702465 Brunswick Group LLP Jonathan Glass/ Deborah Done 0207 404 5959 Chairman's Statement This has been a year of strong performance at MITIE and the Group is in greatshape to sustain its excellent track record. The Group celebrates its 20thanniversary in May 2007, and over the past 12 months we have successfullymanaged the transition to a new senior management team under Chief Executive,Ruby McGregor-Smith. Her appointment marks a new era for the Group. She hasclearly demonstrated her commitment to MITIE as well as the ability to take onthis new role in her four years with the Company, firstly as Group FinanceDirector and latterly as Chief Operating Officer. Her new role as ChiefExecutive is providing important continuity and strong leadership for the Group. MITIE has a reputation for consistent sustainable growth. Our revenue and profithave grown in every one of our 20 years, delivering annual compound growth ratein revenue, both from acquisitions and organic growth, of 41.4% per annum. I ampleased that our record of growth continues. Results Revenue in the year to 31 March 2007 rose to £1,228.8m (2006: £935.6m), anincrease of 31.3% on continuing operations, while profit before tax andintangible amortisation from continuing operations rose by 14.8% to £58.2m(2006: £50.7m). Profit before tax rose by 12.1% to £56.6m (2006: £50.5m). Basicearnings per share (EPS) increased by 21.4% to 11.9p (2006: 9.8p), while EPSpre-amortisation and discontinued activities rose by 16.0% to 12.3p (2006:10.6p). Dividend The Board is recommending a final dividend of 2.7p per share, which gives atotal of 5.1p (2006: 4.3p) for the year. This represents an increase of 18.6%.We have adopted a dividend cover metric based on post tax earnings beforeamortisation and integration costs per share to ensure that dividend payments toShareholders track the underlying profitability of our business. Our dividendcover is set at 2.5 times on this adjusted measure of EPS. Our dividend paymenttimetable has been brought forward and the final dividend will be paid on 3August 2007 to Shareholders on the Register at the close of business on 6 July2007. Over the last five years, our annual compound dividend growth has been28.0%. Share buyback programme Although we have not bought any shares this year under this programme, we willbe seeking to renew the authority granted by our Shareholders to purchase up to10% of the Company's issued share capital at the Annual General Meeting on 26July 2007. Acquisitions The year to 31 March 2007 has not been a year of external acquisitions but onethat has largely been spent integrating the businesses we bought in the previousyear. I am pleased to be able to report that the integration has gone very well,and that the enlarged Security business is winning new contracts andexperiencing good levels of organic growth. It has performed well and we haveachieved the synergy savings that we anticipated. The Group continues to seek acquisitions that contribute to the development ofits capabilities. In April 2007, MITIE completed the acquisition of thespecialist plumbing, heating and mechanical services business, Robert Prettie &Co Limited (Robert Prettie). This business focuses on the housing market in theMidlands and Yorkshire and adds to the capabilities of our growing PropertyServices organisation. In line with our business model, we purchased the minority interests in eightMITIE businesses for a total maximum purchase consideration of £4.1m. Inaddition, we successfully implemented Second Generation Equity Plans in PropertyServices and Landscaping. The Property Services scheme required Shareholderapproval which was granted in July 2006. People Ian Stewart was one of the founding members of MITIE and has successfully ledthe Group as Chief Executive over the past six years, guiding it through aperiod of significant change and development. I would like to thank him onbehalf of the Board for his exceptional contribution and am pleased that theBoard will continue to benefit from his sound advice as Non-Executive DeputyChairman. Sir John Jennings was Non-Executive Deputy Chairman and Senior IndependentNon-Executive Director until his retirement after nine years on 31 March 2007,and I would like to thank him for his substantial and long-standing contributionto MITIE's success. Cullum McAlpine, who has served as one of our Non-Executive Directors for overthree years, has been appointed to the role of Senior Independent Non-ExecutiveDirector. In addition, David Jenkins, who has been a Non-Executive Directorsince early 2006 has taken over Sir John's role as Chairman of the NominationsCommittee. Colin Acheson who is the Director responsible for Engineering Services will beretiring from MITIE in March 2008; he remains as Chairman of the Engineeringdivision until this date. An internal successor, Mike Tivey, will lead ourEngineering Services business going forward. Colin has worked in our Engineeringbusiness since 1989 and has made a major contribution to its growth. I wouldlike to thank him for all of his efforts. I would like to welcome to the Board three new Directors who have been appointedduring the year. Suzanne Baxter was appointed as Group Finance Director in April2006. Graeme Potts and Roger Matthews were appointed as Non-Executive Directorson 27 July 2006 and 4 December 2006 respectively. They all bring considerablerelevant experience to the MITIE Board. We now have over 44,000 employees and I would like to thank them all for theirefforts during this financial year and throughout our 20 year history. While itis important that the Group has a quality leadership team, it is the everydayapplication of our motivated employees who deliver our services that enablesMITIE to satisfy its customers and to succeed as a business. Corporate Governance Good corporate governance is essential for ensuring the future growth andsuccess of MITIE. The Board recognises its responsibilities and conducts itselfappropriately in order to protect the interests of all MITIE stakeholders. Corporate Responsibility Corporate Responsibility is embedded within our strategy. For the second year insuccession therefore, MITIE is publishing a separate report that will also beavailable on our corporate website, and which expands on areas already coveredin this Annual Report. It focuses on MITIE's efforts in developing skills and protecting theenvironment and is structured to describe our successes with our own people inthe workplace, our work with customers to deliver their Corporate Responsibilitystrategies in their marketplace, our efforts with local communities and, mostimportantly, our progress in the area of health and safety. Outlook MITIE is a Group that has a passion for providing quality services to itscustomers. It is the energy, drive and enthusiasm of our people that makes MITIEdifferent. There are considerable opportunities available to MITIE. We havegreat plans for the future and I am looking forward to our development in theyears ahead. We have a very able and experienced management team that will takethe business forward and I know that they will do so with the same energy anddetermination that has made the Group what it is today. We have a very clear strategy. We are financially strong and we are in aposition to continue our excellent progress. David C. OrdChairman Chief Executive's Statement The last year has been an important one for MITIE. It has been a year of greatachievement with the highlights being the successful integration of our enlargedSecurity and Landscaping businesses, the development of our Board and thecontinued organic growth of our three divisions Facilities Services (formerlySupport Services), Property Services and Engineering Services. We have changedthe name of Support Services to Facilities Services because this more accuratelyreflects the range of services that we provide to our clients. From a personal perspective, I am pleased to present the results of ouractivities to you in my new role as Chief Executive of MITIE. I believe thatMITIE has the ability to take full advantage of the opportunities that itsmarkets offer and I feel privileged to be leading the business at this excitingtime in its development. In 2007, we achieved growth in revenue of 31.3%, 17.4% of which was organic.Organic growth is an important measure for us as it reflects the success of bothnew and traditional services in our expanding client base. We are pleased toreport the achievement of double digit organic revenue growth across all threeof our divisions in 2007 - a reflection of the strength of our businessoffering. Our ability to introduce growth through acquisition is of increasing importance.We are pleased to have successfully managed the integration of the landscapingand security acquisitions made last year and the delivery of the planned synergybenefits. These activities have produced a Landscaping business with a nationalcapability and a Security business that is the second largest manned guardingbusiness in the UK. We continue to seek acquisitions that augment our servicedelivery capabilities and were pleased to announce the acquisition of RobertPrettie in April 2007 to enhance our Property Services business. Order book The success of our bidding activity and the strength of our business isreflected in our order book, which now stands at £4.1bn, and we start the yearto March 2008 with some 75% (2006: 72%) of our budgeted revenue already secured.Our order book reflects some impressive contract wins including those at HBOS,Marks & Spencer and Birmingham City Council. Our people I recognise that the success of MITIE is a reflection of the success of ourpeople and I would like to thank all of our employees for their contribution tothis year's impressive results and for providing continued flexible support toour clients. At MITIE our people have a broad range of talents and backgroundsand we are committed to supporting a culture that continues to give opportunityto our people and that encourages inclusion and diversity in our business. Looking forward MITIE's equity based business model has delivered a consistent track record ofrevenue and earnings growth over the 20 years since the Group's formation. MITIEemployed 44,866 people at 31 March 2007 and is now responsive to a broadstakeholder base. Our future success will be built upon the delivery of a clear strategy andvision. It will be underpinned by the continuation and development of our uniqueequity ethos, which will be measured by a challenging set of key performanceindicators. I am excited about the future for MITIE. It is an immense pleasure to work withsuch a dedicated and aspirational team. No day at MITIE is the same and ourcommon goals of growth, providing responsive services to our clients anddeveloping our people drive us all. MITIE has delivered another year of strong growth in revenue, profits anddividends. We continue to focus on our growth strategy by increasing marketshare whilst maintaining margins. We believe in getting the basics right -delivering excellent service to our customers and maintaining our reputation forquality. We have a great business, a motivated, entrepreneurial team andexcellent prospects for further sustainable growth. Ruby McGregor-SmithChief Executive Business Review MITIE's business is structured into three divisions: Facilities Services whichdelivers services either singly, bundled or as a complete facilities managementservice, Property Services and Engineering Services. Facilities Services Facilities Services has had a strong year with good levels of growth across thebusiness. The second half of the year was particularly pleasing with a number ofsubstantial single service contract wins. 2007 2006 £m £m Growth Revenue 732.1 516.0 41.9%Operating profit 41.5 33.0 25.8%Operating profit margin 5.7% 6.4%Integration costs 2.3 -Operating profit before integration costs 43.8 33.0 32.7%Operating profit margin 6.0% 6.4% Single ServicesSecurity is the largest facilities service business and grew by 177.3% lastyear. This growth was principally attributable to the acquisitions made in theprior year, but also reflected organic growth of 40% for the enlarged business.The integration of the manned guarding businesses has gone well, and hasgenerated annualised synergy savings of £3m, of which £2.5m have been realisedthis year, These activities have resulted in the establishment of a nationallyfocused business which is now the UK's second largest provider of mannedguarding security services. Security has delivered an excellent sales performance, with client retention inline with expectations. We are finding that our market position is creatingopportunities of a scale previously not available to us. In January, Security extended its long-established relationship with HerMajesty's Courts Service (HMCS) by securing all seven of the regional contractstendered. The contracts are for an initial term of four years with the option ofa two-year extension. Security's work with HMCS has grown from a regionalcontract with a value of £8m per annum to a portfolio of contracts which is nowworth in excess of £22m per annum. We have also focused on the retail sector, which has significantly differentrequirements to other business areas, and the successful completion of ashort-term contract with Marks & Spencer led to the award of a three-yearcontract to cover all stores nationwide. The market remains competitive although shows signs of consolidation with somesmaller suppliers exiting the market. We have a strong revenue pipeline, andduring 2007 we will be launching a dedicated transportation team to build on ourexperience in aviation to other parts of the broader transportation sector. The forthcoming requirement for security guards in Scotland to be licensed andtrained will allow us to use our experience in England and Wales to secureadditional market share north of the border. With over 22,000 employees, MITIE Cleaning is our largest employer and was thefirst to operate under the Second Generation Equity Plan. Its strengthened andrestructured sales team is winning increasingly large contracts. Major wins during 2006/07 include HBOS, to clean more than 1,000 of its bankbranches around the country. This is one of our largest single contracts and,with work that we already do with Barclays and other major banks, consolidatesour position as the leading provider of specialist retail bank cleaning inBritain. Among our specialist cleaning business, Health & Hygiene, our specialist foodmanufacturing and healthcare cleaning team, won the high profile Great OrmondStreet Hospital account. Retail won a major contract to clean over 500Somerfield stores nationwide, while Transport has recently been awarded acontract to provide cleaning services at Heathrow's Terminal 5 (T5). Over the next year Cleaning will be maintaining its concentration on improvingclient retention. It will also be putting particular emphasis on working withother MITIE teams to expand the level of bundled services opportunities from ourexisting client base. Schools, museums and leisure facilities are included in the large andspecifically non-housing contract that Engineering Maintenance won fromBirmingham City Council. Also in Birmingham, the contract for BULLRING Shoppingcentre was re-secured. New Engineering Maintenance sections specialising in FireAlarm Maintenance and Water Treatment have started and the business has alsoinvested in a web enabled system to provide customers with better assetmaintenance reporting. As well as these three substantial businesses, we also have four developingbusinesses within Facilities Services, namely Pest Control, Landscaping,Business Services and Catering. Our strategy is to grow these businesses to atop five position in their respective markets. Pest Control made a small acquisition of trade and assets during the year,started a new business in London and continued to make progress towardsdeveloping a national pest control offer. It also won a five-year contract withBAA, which includes Heathrow, Gatwick, Stansted and Southampton airports. Following the acquisition of Lyndhurst Services Limited in February 2006, weintegrated it with our existing Landscape businesses in December 2006 to createMITIE Lyndhurst Services Limited, under a Second Generation Equity Plan. The implementation of Business Services' largest contract, withPricewaterhouseCoopers, has continued to go well and has included the provisionof work placements as part of our multiple award winning 'Real Apprentice'scheme. Business Services has developed a suite of innovative software solutions forprint management, package tracking, desktop courier booking and e-procurementthat will be rolled out to its clients over the next 12 months. Our DocumentSolutions business has added a design and desktop publishing capability to itsprinting and fulfillment services. The strategy for the next 12 months is toconcentrate growth in the financial services sector in which they already holdkey contracts and in the legal and professional sector in which they currentlyprovide services to 7 out of the top 20 global law firms. Catering has continued to make progress during the year. In particular the newstart-up businesses in London and the North of England have achieved contractgains including the Brewery in Chiswell St, London, which is a hospitality venuefor over 1,000 people, Beechcroft LLP in Bristol and London and the Matalandistribution centre in Manchester. In our Catering business we concentrate onproviding fresh food that is cooked well. We use only the best ingredients interms of both food and people to ensure that our customers receive exactly whatthey need. Our nutritionists work closely with our clients to help producehealthy menus that help combat the effects of city living. In each of the services we provide our aim is to be the best. We recognise thatour customers want the best possible services from specialists in each area.That is what we provide. Bundled ServicesOver the past few years MITIE companies have experienced a rise in the number ofclients who are looking to procure bundles of services; that is more than oneservice provided by a single service provider. With bundles, the client is happyto outsource the service delivery, but retains management control of theprocess. Bundling can arise in a number of ways: 1. MITIE provides a single service which is well received by the client, who then, over a period of time adds services as the relationship matures. We call this natural bundling. Natural bundling can involve a single contract with the original service provider; a series of individual contracts with the individual MITIE companies; or a master or framework contract that is amended as services are added. 2. The client wishes to reduce its supplier base and negotiates with a number of providers that can deliver the services. We call this a negotiated bundle. With this type of bundle the client typically places as great an emphasis on culture, relationships and the ability to bring innovation to the services, as to pure price. 3. Some clients use bundling simply to reduce costs. The philosophy being that the more work in the bundle, the more efficiencies will result and service providers will accept a lower margin in return for the scale and length of the contract term. We call this price bundling. MITIE is involved in all three. The largest bundled contract that we have is with Rolls-Royce. This began 11years ago as a single cleaning contract on one site. That developed into anational Cleaning contract, to which was later added a mechanical and electricalEngineering Maintenance element. In recent years Catering, Security,Landscaping, Business Services and Pest Control have been added too. Thiscontract now covers over 900 people working on nine sites across the Rolls-Royceestate from Inchinnan in Scotland to Bristol. The British Nuclear Group's reprocessing plant at Sellafield has now becomeestablished as our second largest bundle. During 2006/07 MITIE won a servicecontract at Sellafield which bundles Cleaning with Engineering Maintenance work,Security and Business Services. This contract involves over 200 people. Bundles can originate with any of our businesses, and it is the ability of ourmanagers to make the connections between one service and another, that isdriving our success in this area of the outsourcing market. In 2006/07, for example: • A Business Services contract with the London Stock Exchange was extended to include cleaning. • Goodrich Corporation, a global supplier of systems and services to the aerospace, defence and homeland security markets, expanded its contract with Cleaning to include Waste & Environmental on three Birmingham sites. The services include hazardous waste disposal, confidential waste destruction and industrial recycling solutions. • Bookham Technology has added Engineering Maintenance to a bundle that began with Catering and Cleaning. Facilities ManagementWe principally provide integrated Facilities Management services through ourManaged Services and PFI businesses. We have had a good year in Facilities Management. We secured a managing agentcontract with Cable & Wireless to oversee the facilities management serviceprovision across its UK estate. We were also pleased to be selected to provideservices to the UK Government through the Office of Government Commerce (OGC)Property and Facilities Management Framework Agreement as well as additionalservices for the Big Lottery Fund and Littlewoods Shop Direct. We were alsoawarded a three-year contract with leading biotechnology company Amgen that alsoincludes Engineering Maintenance, Catering, Security and Pest Control. It is this ability to draw together a range of MITIE's service offerings that isone of our main strengths in the Facilities Management market. We will alwayschoose the service delivery method that is best for the client. That flexibilitymakes sure that we are always able to produce a solution that meets the needs ofour customers. In the PFI market, we signed five PFI school contracts during the year bringingthe number of schools that we manage to 85. This makes MITIE the UK's leadingprovider of Facilities Management services to PFI schools. We are also currentlypart of three consortia tendering for Building Schools for the Future contracts. An increasingly important part of our Facilities Management service delivery isour approach to energy efficiency and the environment. We have been nominatedfor a number of awards for our approach to the environment and one of ourmanagers was recognised as Nemex Energy Manager of the Year. Furthermore, anenergy awareness and energy efficiency campaign that we undertook with theNational Offender Management Service was a finalist in the PFM Partners inSustainability Award. The current order book for this division is £3.4bn. Property Services MITIE Property Services provides repair and maintenance, painting, roofing andfire protection, refurbishment, interior fit-out services and the supply andinstallation of office furniture across several market sectors. 2007 2006 £m £m Growth Revenue 215.1 163.5 31.6%Operating profit 10.6 8.9 19.1%Operating profit margin 4.9% 5.4% As the social housing market becomes increasingly important to us we havecontinued our strategy of reducing our exposure to one-off refurbishmentcontracts, striving instead for long-term relationships through framework orpartnership arrangements with owners, occupiers, managers or propertyportfolios. We are also focusing on our painting business where we believe we have thenecessary skills and experience to benefit from the higher margins and improvedcash flows. Two large social housing contracts that started on 1 April 2006 are bothperforming well. To date we have carried out over 112,000 repairs for BirminghamCity Council on their southern estate of 27,000 homes and reinstated 2,500 emptyproperties. On our Milton Keynes contract we have completed 37,000 routinerepairs on their portfolio of 12,600 homes and reinstated 1,100 emptyproperties. Additional packages of work have been secured as a result of our developingrelationship with Milton Keynes Council including disabled adaptations andsecurity screening work. We have had further success in securing a sizeablecontract from Stevenage Borough Council for the delivery of kitchens andbathrooms, and Decent Homes Standard work for a number of other housingassociations. Since the end of the financial year we acquired Robert Prettie, a specialistplumbing, heating and mechanical services business concentrating on the housingmarket in the Midlands and Yorkshire. Robert Prettie employs over 250 staff.This acquisition adds significantly to MITIE Property Services' range ofservices in the housing sector and complements its existing regional operations.Robert Prettie works in partnership with Local Authorities, Councils, Developersand Registered Social Landlords on kitchen and bathroom installation, heatingreplacement, gas servicing, maintenance and call out services. There has also been strong organic growth across all other areas of thebusiness. Large painting contracts have been secured for Angus Council andDudley Metropolitan Borough Council. Refurbishment wins include additional workfrom BT, Royal Mail and LandSecurities Trillium. Our Interiors business won three large contracts for a city institution on theirLondon office campus, a large fit-out contract for Scottish Widows and a furthercontract from Standard Life. The majority of these new fit-out contracts will bedelivered in the year ending 31 March 2008 thus giving a strong secured orderbook for this business stream. Our Fire Protection business has had a verysuccessful year helped by its involvement in the T5 project at Heathrow Airport. The current order book for this division is £450.3m. Engineering Services Engineering Services covers the design and installation of mechanical andelectrical systems, information and communication technology, air conditioning,utilities infrastructure and retail engineering, serving a wide range of clientsfrom many different sectors. 2007 2006 £m £m Growth Revenue 281.6 256.1 10.0%Operating profit 7.8 6.4 21.9%Operating profit margin 2.8% 2.5% The progress of Engineering Services this year has been achieved as a directresult of a repositioning strategy. This began with specific margin improvementsresulting from the restructuring of aspects of the business, and derived furtherbenefit from a more balanced work mix. We have placed particular emphasis ondeveloping sectors in which we have specific skills that are fundamental to theeffective delivery of our customers' capital projects. We have a strong order book for 2007 and beyond and our scale and nationalpresence make us an attractive partner. We have framework agreements withorganisations such as Plymouth University, NHS Wales and the National PhysicalLaboratory. In addition, repeat opportunities are being serviced by the regionalcontracting businesses for customers such as Urban Splash in Birmingham andCardonald College in Glasgow. The demand for increased resilience of organisations' data infrastructure isproviding substantial opportunities for our Technology division, with businesscritical projects having been undertaken in 2006 for customers such as IBM,Centrica and Logica - and we have an extensive pipeline for 2007 and 2008. Activity in the retail and social housing sectors has been a significantcontributor within the period and is expected to maintain its contribution in2007. We continue to build on contracts with Primark, Marks & Spencer and Bhsand work closely with a number of housing associations. We have been actively involved for some time in the design and application ofmore efficient forms of energy generation and distribution. More customers areseeking to reduce their energy footprint and we have invested in the requiredtechnical, design and application skills that will be needed in the future.Engineering Services now has the accredited technical competence, deliverycapability, commercial model and track record that has resulted in a compellinglow carbon offer for the construction and improvement of heating, cooling,lighting resilience and motive power within the built environment. For example,Kingsmead School in Cheshire is currently the most energy efficient school inthe UK with innovative features from MITIE such as a biomass boiler burningreclaimed wood pellets to provide heating; a rainwater recycling system thatprovides water to flush lavatories; solar panels and photovoltaic cellsgenerating energy. Two combined heat and power schemes (CHP) have also recentlybeen installed by MITIE Engineering at Sussex University and Bristol Universitywhich will generate around 20% of their electrical requirement and reduceoverall CO2 omissions. Future prospects for Engineering Services look encouraging in the light of therationalisation of the industry's way of procurement and both new and impendinglegislation on the energy performance of buildings. Customers are looking tocombine contracts and enter three to five year commitments to secure supply in amarket where demand is picking up. Engineering has the ability and scale todeliver multiple projects consistently on a national basis and will be able totake advantage of this trend. The current order book for this division is £254.2m. Group Finance Director's Statement Our financial results for the year reflect strong organic growth levels acrossour businesses and we are starting to see the synergistic benefits from ouracquisitions in our underlying profitability. ----------------------------- ---------- ----------- -------- 2007 2006 Increase £m £m %----------------------------- ---------- ----------- --------Revenue 1,228.8 935.6 31.3%----------------------------- ---------- ----------- ------------------------------------- ---------- ----------- --------Operating profit before amortisation ofintangibles, discontinued operations and integration costs 62.2 48.3 28.8%----------------------------- ---------- ----------- -------- Integration costs (2.3) ------------------------------ ---------- ----------- -------- 59.9 48.3 24.0%----------------------------- ---------- ----------- -------- Amortisation of intangibles (1.6) (0.2)----------------------------- ---------- ----------- -------- 58.3 48.1 21.2%----------------------------- ---------- ----------- -------- Net investment revenue and finance cost (1.7) 2.4----------------------------- ---------- ----------- --------Profit before tax 56.6 50.5 12.1%----------------------------- ---------- ----------- -------- Tax (17.4) (15.5)----------------------------- ---------- ----------- -------- 39.2 35.0 12.0%----------------------------- ---------- ----------- -------- Discontinued operations - (2.4)----------------------------- ---------- ----------- -------- 39.2 32.6 20.2%----------------------------- ---------- ----------- -------- Effective tax rate on continuing operations 30.7% 30.7% Basic EPS before amortisation anddiscontinued operations 12.3p 10.6p 16.0%Basic EPS before amortisation 12.3p 9.9p 24.2%Basic EPS 11.9p 9.8p 21.4%Dividend per share 5.1p 4.3p 18.6% Key Performance Indicators Our financial KPI's of profit margins before the amortisation of intangibles,interest and tax (EBITA) and profit to cash conversion levels are importantindicators of the trading performance of the Group. We are satisfied that thelevels of performance in these measures across our three business sectors ofFacilities Services, Property Services and Engineering Services, and for theGroup overall are consistent with our medium term targets. Furthermore, ourstrategy of operating low capital intensive businesses continues and capitalexpenditure levels continue to be managed within the target range of less than2% of revenue. Finally, our results support the continued growth in dividends. We are adoptinga dividend cover metric based on post tax earnings attributable to ordinaryShareholders before amortisation of intangibles and integration costs per shareto ensure that dividend payments to Shareholders track the underlying operatingprofits of our business. This has resulted in a dividend for the full year of5.1 pence per share (2006: 4.3 pence), an increase of 18.6% for the year. Thisreflects a dividend cover of 2.5 times based on our adjusted EPS measure and 2.3times based on basic EPS. In addition, for future dividends we have broughtforward our traditional dividend payment cycle to reduce the period between thedeclaration date and the payment date. Our final dividend for the year ended 31March 2007 will be paid on 3 August 2007. Historically that dividend would havebeen paid on 28 September 2007. Growth in revenue Revenue from continuing operations for the Group increased by 31.3 % to£1,228.8m (2006: £935.6m) in the year. This result has been driven by an organicrevenue growth rate for the Group as a whole of 17.4% and from the impact ofacquisitions made in the previous year. At the divisional level, double digit organic growth rates continue to beachieved in all three divisions. Our Facilities Services business achievedrevenues of £732.1m (2006: £516.0m) of which £159.0m (2006: £24.2m) wasgenerated by the acquisitions made in the prior year. Underlying organic growthlevels in Facilities Services were some 16.5% (2006: 11.7%) and reflect successin our traditional single services activities as well as our integrated andbundled offerings. Revenues in Property Services have increased organically by31.6% (2006: 16.6%) in the period to £215.1m (2006: £163.5m), largely reflectingthe impact of new social housing contracts that commenced in April 2006, whilstEngineering Services revenues of £281.6m (2006: £256.1m) reflect controlledorganic growth of 10.0% as the business continues its focus on sustainablegrowth. Profitability Operating profit before amortisation of intangibles (EBITA) of £59.9m (2006:£48.3m) is stated after the impact of non-recurring gross acquisitionintegration costs of £2.3m (2006: £nil) in respect of the consolidation of ourenlarged Security business. It also includes a charge for share-based paymentsof £1.1m (2006: £0.7m) which reflects the accounting charges in respect of ourSave As You Earn and Executive Share Option schemes. EBITA profit before integration costs increased by 28.8% to £62.2m (2006:£48.3m) reflecting a margin of 5.1% (2006: 5.1%). The maintenance of margins ata Group level has been achieved through an improvement of operating profitmargins in our traditional Facilities Services business (before acquisitions)and through the improvement in operating profits in Engineering Services to£7.8m or 2.8% of revenue (2006: £6.4m; 2.5% of revenue). These areas ofoperating profit margin improvement have been offset by the dilution inoperating profit margins in Property Services to 4.9% (2006: 5.4%) as expected,following the increase in the proportion of social housing contracts undertakenby that business. The charge in respect of the amortisation of intangible assets arising onacquisitions was £1.6m (2006: £0.2m). This related primarily to the acquisitionsin Security in the prior year. Operating profit after the amortisation ofintangibles was £58.3m (2006: £48.1m). Investment and finance costs for the period moved to a cost of £1.7m (2006:income £2.4m) reflecting the movement of the Group to a net debt position forthe majority of the current year (2006: net cash) following the funding ofacquisitions made in the prior year. The tax charge for the period was £17.4m (2006: £15.5m), representing aneffective rate of tax on our profit on continuing operations of 30.7% (2006:30.7%). These results generated a profit for the period of £39.2m (2006: £32.6m) anincrease of 20.2% on the prior year. Of this, £37.0m or 94.4% (2006: £30.2m,92.6%) is attributable to the Shareholders of MITIE Group PLC. Growth in earnings per share (EPS) Basic EPS before the amortisation of intangible assets and discontinuedoperations increased by 16.0% to 12.3 pence per share (2006: 10.6 pence pershare). Diluted EPS before intangible amortisation and discontinued operationsincreased by 15.2% to 12.1 pence per share (2006: 10.5 pence per share). After intangible amortisation and discontinued operations, basic EPS was 11.9pence (2006: 9.8 pence). On the same basis, diluted EPS was 11.8 pence (2006:9.7 pence). Pensions The Group contributes to a range of defined benefit and defined contributionpension schemes. It operates two MITIE Group PLC defined benefit schemes and thenet surplus before tax included in the Group's balance sheet arising from thosetwo pension schemes was £0.5m (2006: £1.8m). In addition, MITIE makes contributions to its customers' defined benefit pensionschemes under Admitted Body Local Government and other arrangements in respectof certain employees who have transferred to the Group under TUPE. The values ofthe assets and liabilities attributable to the Group in respect of those schemesare equal and therefore no surplus or deficit is included in the Group balancesheet at the end of the year. Acquisitions The Group acquired some or all of the minority interests in the equity sharecapital of eight of its subsidiaries in accordance with the MITIE Model. Thetotal maximum consideration payable in respect of those acquisitions is£4.1m. The consideration will be largely settled in the shares of MITIE GroupPLC. In August 2006, the Group also settled deferred consideration of £0.8m inrespect of the acquisition of shares in MITIE Business Services Limited, MITIEEngineering Services (Swansea) Limited and MITIE Security (North) Limited inAugust 2005. The total of MITIE Group PLC shares issued in respect of these transactions was1,727,180. Other acquisition related transactions include the settlement of deferredconsideration of £10.8m in respect of the acquisition of MITIE Security (London)Limited (formerly MITIE Trident Security Limited). This transaction was settledthrough the issue of £8.9m of loan notes and cash of £1.9m. Further deferredconsideration of £1.2m was settled in loan notes in respect of the acquisitionof MITIE Pest Control Limited (formerly Eagle Pest Control Services UK Limited).£2.0m of deferred consideration was converted into loan notes in respect of TheWatch Security Limited and subsequently £1.0m was redeemed during the year. Cash flow The underlying cash flow performance of the Group remains strong with theconversion of EBITDA to cash of 114% (2006: 95%). This was a particularly strongperformance and we continue to target more sustainable levels of 90%-100% goingforward. At 31 March 2007, the net funds position of the Group was £5.6m (2006: net debt£23.4m) with loans of £20.0m being drawn at that time (2006: £31.0m). Depositsheld by the Group's reinsurance subsidiary, which are not readily available tothe Group, totalled £10.3m at 31 March 2007 (2006: £9.6m). In March 2006, the Group moved into a net debt position following theacquisition of Initial Security Limited, having historically held net cash. Theunderlying operating cash flows of the Group have been strong during the yearreturning the Group to net cash at the year end. However, the Group maintained anet debt position for the majority of the year, and this is reflected in thefinancing costs within the income statement. Group Treasury has responsibility for managing and reducing financial risks andensuring sufficient liquidity is available to meet foreseeable needs. Itoperates within policies and procedures approved by the Board which have notchanged during the year. Borrowings are arranged centrally by Group Treasury andmade available to operating subsidiaries on commercial terms. The Boards'ongoing policy is to finance the Group through retained earnings and borrowings. During the year the Group reviewed its banking facilities and established acommitted five-year £150m revolving credit facility. The principal covenants inrespect of this facility put a cap on the maximum level of debt within the Groupat 3.5 times EBITDA, and require a minimum ratio of profit to interest payableof 3:1. The Group has operated within these covenants throughout the year. Events after the balance sheet date On 2 April 2007, MITIE announced the acquisition of Robert Prettie, a specialistplumbing, heating and mechanical services business concentrating on the housingmarket in the Midlands and Yorkshire. The initial consideration was £8.6m, ofwhich £7.0m was in cash, £1.6m in loan notes and £0.8m of cash retained againstpotential warranty claims. Debt of £3.7m was assumed by MITIE on theacquisition. Deferred consideration on the acquisition up to a maximum £23.3m ispayable in a combination of loan notes and cash based on performance over athree-year period. The deferred consideration can be triggered between 2010 and2012. Suzanne BaxterGroup Finance Director Consolidated Income Statement For the year ended 31 March 2007 2007 2006----------- ------ ------------------------------------- ------------------------------------ Notes Before Amortisation of Total Before Amortisation of Total amortisation intangible amortisation intangible and assets and and assets and discontinued discontinued discontinued discontinued operations operations operations operations £m £m £m £m £m £m----------- ------ -------- -------- -------- -------- -------- --------ContinuingoperationsRevenue 3,4 1,228.8 - 1,228.8 935.6 - 935.6Cost of sales (999.8) - (999.8) (757.0) - (757.0)----------- ------ -------- -------- -------- -------- -------- --------Gross profit 229.0 - 229.0 178.6 - 178.6----------- ------ -------- -------- -------- -------- -------- ------------------- ------ -------- -------- -------- -------- -------- --------Otheradministrativeexpenses (169.1) - (169.1) (130.3) - (130.3)Amortisationof intangibleassets - (1.6) (1.6) - (0.2) (0.2)----------- ------ -------- -------- -------- -------- -------- ------------------- ------ -------- -------- -------- -------- -------- --------Totaladministrativeexpenses (169.1) (1.6) (170.7) (130.3) (0.2) (130.5)----------- ------ -------- -------- -------- -------- -------- --------Operatingprofit 3, 5 59.9 (1.6) 58.3 48.3 (0.2) 48.1 Investmentrevenue 7 0.8 - 0.8 2.6 - 2.6Finance costs 8 (2.5) - (2.5) (0.2) - (0.2)----------- ------ -------- -------- -------- -------- -------- --------Profit beforetax 58.2 (1.6) 56.6 50.7 (0.2) 50.5----------- ------ -------- -------- -------- -------- -------- --------Tax 9 (17.9) 0.5 (17.4) (15.5) - (15.5)----------- ------ -------- -------- -------- -------- -------- --------Profit for theyear fromcontinuingoperations 40.3 (1.1) 39.2 35.2 (0.2) 35.0----------- ------ -------- -------- -------- -------- -------- -------- DiscontinuedoperationsLoss for theyear fromdiscontinuedoperations - - - - (2.4) (2.4)----------- ------ -------- -------- -------- -------- -------- --------Profit for theyear 40.3 (1.1) 39.2 35.2 (2.6) 32.6----------- ------ -------- -------- -------- -------- -------- -------- Attributableto:Equity holdersof the parent 38.1 (1.1) 37.0 32.8 (2.6) 30.2Minorityinterests 2.2 - 2.2 2.4 - 2.4----------- ------ -------- -------- -------- -------- -------- -------- 40.3 (1.1) 39.2 35.2 (2.6) 32.6----------- ------ -------- -------- -------- -------- -------- --------Earnings pershare (EPS)- basic 11 12.3 p (0.4) p 11.9 p 10.6 p (0.8) p 9.8 p- diluted 11 12.1 p (0.3) p 11.8 p 10.5 p (0.8) p 9.7 p----------- ------ -------- -------- -------- -------- -------- -------- Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 March 2007 2007 2006 Notes £m £m-------------------------------- ------- --------- --------Actuarial (losses)/gains on defined benefit 30 (4.7) 1.1pension schemesTax credit/(charge) on items taken directly to 24 1.5 (2.6)equity ------- --------- ----------------------------------------Net expense recognised directly in equity (3.2) (1.5) Profit for the year 39.2 32.6-------------------------------- ------- --------- --------Total recognised income and expense for the 36.0 31.1financial year ------- --------- ---------------------------------------- Attributable to:Equity holders of the parent 33.8 28.7Minority interests 2.2 2.4-------------------------------- ------- --------- -------- Consolidated Balance SheetAs at 31 March 2007 2007 2006 Notes £m £m-------------------------------- ------- -------- ---------Non-current assetsGoodwill 12 148.4 143.8Other intangible assets 13 9.9 11.5Property, plant and equipment 14 41.5 34.5Deferred tax assets 18 7.7 4.9Retirement benefit surplus 30 0.5 1.8-------------------------------- ------- -------- ---------Total non-current assets 208.0 196.5-------------------------------- ------- -------- --------- Current assetsInventories 15 7.9 8.8Trade and other receivables 16 272.8 244.3Cash and cash equivalents 17 25.6 9.6-------------------------------- ------- -------- ---------Total current assets 306.3 262.7-------------------------------- ------- -------- ----------------------------------------- ------- -------- ---------Total assets 514.3 459.2-------------------------------- ------- -------- --------- Current liabilitiesTrade and other payables 19 (255.7) (214.5)Financial liabilities 20 (30.9) (33.8)Provisions 22 (0.3) (11.7)Current tax liabilities (8.2) (7.6)-------------------------------- ------- -------- ---------Total current liabilities (295.1) (267.6)-------------------------------- ------- -------- ----------------------------------------- ------- -------- ---------Net current assets 11.2 (4.9)-------------------------------- ------- -------- --------- Non-current liabilitiesFinancial liabilities 20 (2.8) (1.0)Provisions 22 (8.6) (10.2)Deferred tax liabilities 18 (3.9) (4.7)-------------------------------- ------- -------- ---------Total non-current liabilities (15.3) (15.9)-------------------------------- ------- -------- ----------------------------------------- ------- -------- ---------Total liabilities (310.4) (283.5)-------------------------------- ------- -------- ----------------------------------------- ------- -------- ---------Net assets 203.9 175.7-------------------------------- ------- -------- --------- EquityShare capital 23 7.8 7.7Share premium account 24 16.6 13.7Merger reserve 24 54.9 52.0Revaluation reserve 24 (0.2) (0.2)Capital redemption reserve 24 0.3 0.3Other reserve 24 0.2 0.3Share-based payments reserve 24 1.9 1.4Retained earnings 24 110.2 90.1-------------------------------- ------- -------- ---------Equity attributable to equity holders of the 191.7 165.3parent ------- -------- ----------------------------------------- Minority interests 12.2 10.4-------------------------------- ------- -------- ---------Total equity 203.9 175.7-------------------------------- ------- -------- --------- The financial statements were approved by the Board of Directors and authorisedfor issue on 18 May 2007. They were signed on its behalf by: Ruby McGregor-Smith Suzanne BaxterChief Executive Group Finance Director Consolidated Cash Flow StatementFor the year ended 31 March 2007 2007 2006 Notes £m £m-------------------------------- ------- -------- --------Net cash from operating activities 26 63.9 32.1 Investing activitiesInterest received 0.7 2.5Purchase of property, plant and equipment (20.8) (13.8)Purchase of subsidiary undertakings (3.9) (85.5)Disposals of property, plant and equipment 3.6 2.6-------------------------------- ------- -------- --------Net cash outflow from investing activities (20.4) (94.2)-------------------------------- ------- -------- -------- Financing activitiesRepayments of obligations under finance leases (0.9) (0.2)Proceeds on issue of share capital 2.5 2.1Repayments of loans on purchase of subsidiary (1.0) (11.6)undertakingsBank loans (repaid)/raised (11.0) 31.0Share buybacks - (1.6)Equity dividends paid (14.9) (11.3)Minority dividends paid (0.2) (0.2)-------------------------------- ------- -------- --------Net cash (outflow)/inflow from financing (25.5) 8.2-------------------------------- ------- -------- ---------------------------------------- ------- -------- --------Net increase/(decrease) in cash and cash 18.0 (53.9)equivalents ------- -------- ---------------------------------------- Net cash and cash equivalents at beginning of the 7.6 61.5year-------------------------------- ------- -------- --------Net cash and cash equivalents at end of the year 25.6 7.6-------------------------------- ------- -------- -------- Net cash and cash equivalents comprises:Cash at bank 25.6 9.6Overdraft - (2.0)-------------------------------- ------- -------- -------- 25.6 7.6-------------------------------- ------- -------- -------- Notes to the consolidated financial statements 1. Basis of preparation and significant accounting policies Basis of preparation The basis of preparation of this preliminary announcement is set out below. The financial information in this announcement, which was approved by the Boardof Directors on 18 May 2007, does not constitute the Company's statutoryaccounts for the years ended 31 March 2007 or 2006, but is derived from theseaccounts. Statutory accounts for 2006 have been delivered to the Register ofCompanies and those for 2007 will be delivered following the Company's annualgeneral meeting. The auditors have reported on these accounts; their reportswere unqualified and did not contain statements under S237 (2) or (3) of theCompanies Act 1986. The preliminary announcement has been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) adopted for used in the European Union. The financial statements have been prepared on the historical cost basis andthere has been no change in accounting policies. Significant accounting policies under IFRS The significant accounting polices adopted in the preparation of the Group'sIFRS financial information are set out below. Basis of consolidation The consolidated financial statements comprise the financial statements of MITIEGroup PLC and all its subsidiaries. The financial statements of the parentCompany and subsidiaries are prepared in accordance with UK Generally AcceptedAccounting Principles (UK GAAP). Adjustments are made in the consolidatedaccounts to bring into line any dissimilar accounting policies that may existbetween UK GAAP and IFRS. All inter-company balances and transactions, including unrealised profitsarising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred tothe Group and cease to be consolidated from the date on which control istransferred out of the Group. Interests of minority shareholders is measured at the minority's proportion ofthe net fair value of the assets, liabilities and contingent liabilitiesrecognised. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition are recognised at their fair value at the acquisitiondate, except for non-current assets (or disposal groups) that are classified asheld for resale in accordance with IFRS 5 'Non Current Assets Held for Sale andDiscontinued Operations', which are recognised and measured at fair value lesscosts to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in profit or loss. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Cost of acquisition includes all deferred amountsthat become payable in the future. Goodwill is initially recognised as an asset at cost and is subsequentlymeasured at cost less accumulated impairment losses. It is reviewed forimpairment at least annually. Any impairment is recognised immediately in profitor loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amounts of the cash-generatingunits is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in the subsequent period. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 1998 hasnot been reinstated and is not included in determining any subsequent profit orloss on disposal. Intangible assets Intangible assets acquired separately are capitalised at cost. Intangible assetsidentified in a business acquisition are capitalised at fair value as at thedate of acquisition. Following initial recognition, the carrying amount of an intangible asset is itscost less any accumulated amortisation and any accumulated impairment losses.Amortisation expense is charged to administrative expenses in the incomestatement on a straight-line basis over its useful life. Revenue Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured. Otherthan in respect of long-term contracts, described below, revenue represents feeincome recognised in respect of services provided during the period (stated netof value added tax). Revenue is earned solely within the United Kingdom. Revenue from long-term contracts represents the sales value of work done in theyear, including fees invoiced and estimates in respect of amounts to be invoicedafter the year end. Profits are recognised on long-term contracts where thefinal outcome can be assessed with reasonable certainty. In calculating this,the percentage of completion method is used based on the proportion of costsincurred to the total estimated cost. Cost includes direct staff costs andoutlays. Full provision is made for all known or anticipated losses on eachcontract immediately such losses are forecast. Gross amounts due from customers are stated at the proportion of the anticipatednet sales value earned to date less amounts billed on account. To the extentthat fees paid on account exceed the value of work performed, they are includedin creditors as gross amounts due to customers. Variations in contract work and claims are included to the extent that they havebeen agreed with the customer. Revenue from bundled contracts consists of various components which operateindependently of each other and for which reliable fair values can beestablished. Accordingly, each component is accounted for separately as if itwere an individual contractual arrangement. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Dividend income from investments is recognised when the shareholders' rights toreceive payment have been established. Operating profit Operating profit is Profit from operations stated before investment revenue andfinance costs. Leasing Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalised at theinception of the lease at the fair value of the leased item or, if lower, at thepresent value of the minimum lease payments. Lease payments are apportionedbetween the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated lifeof the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Operating leasepayments are recognised as an expense in the income statement on a straight-linebasis over the lease-term. Any lease incentives are amortised over the lesser ofthe life of the operating lease or to the first opportunity for termination. Foreign currencyTransactions in foreign currencies are recorded at the rate of exchange at thedate of transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are reported at the rates of exchangeprevailing at that date.Non-monetary items carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. Retirement benefit costs The Group operates two defined benefit pension schemes and participates in anumber of other defined benefit schemes. In respect of the other schemes inwhich the Group participates, the Group accounts for its legal and constructiveobligations over the period of its participation which is for a fixed periodonly. In addition, the Group operates a number of defined contribution retirementbenefit schemes for all qualifying employees. Payments to the defined contribution and stakeholder pension schemes are chargedas an expense as they fall due. For the defined benefit pension schemes, the cost of providing benefits isdetermined using the Projected Unit Credit Method, with actuarial valuationsbeing carried out at each balance sheet date. Actuarial gains and losses arerecognised in full in the period in which they occur. They are recognisedoutside the profit and loss and presented in the statement of recognised incomeand expense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service cost, plus thepresent value of available refunds and reductions in future contributions to theplan. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Depreciation is charged so as to write off the costof the assets over their estimated useful lives and is calculated on astraight-line basis as follows: Freehold buildings and long leasehold property - over 50 yearsLeasehold improvements - period of the leasePlant and equipment - 3-10 years Annually the Group reviews the carrying amounts of its tangible and intangibleassets to determine whether there is any indication that those assets havesuffered an impairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine the extent of theimpairment loss (if any). Where the asset does not generate cash flows that areindependent from other assets, the Group estimates the recoverable amount of thecash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Costs represent materials, direct labour and overheads incurred in bringing theinventories to their present condition and location. Net realisable value isbased on estimated selling price, less further costs expected to be incurred tocompletion and estimated selling costs. Provision is made for obsolete, slowmoving or defective items where appropriate. Investments All investments are initially recorded at cost, being the fair value of theconsideration given and including acquisition charges associated with theinvestment. Subsequently they are reviewed for impairment if events or changesin circumstances indicate the carrying value may not be recoverable. Financial instruments Trade receivables are measured at initial recognition at fair value. Appropriateallowances for estimated irrecoverable amounts are recognised in the incomestatement where there is objective evidence that the asset is impaired. Cash and cash equivalents comprise cash in hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Interest bearing bank loans and overdrafts are stated at the amount of the netproceeds after deduction of issue costs. Finance charges, including premiumspayable on settlement or redemption and direct issue costs, are accounted for onan accruals basis in the income statement and are added to the carrying amountof the instrument to the extent that they are not settled in the period in whichthey arise. Trade payables are measured at fair value. Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event and it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. Where theGroup expects some or all of a provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognised as a separate asset but onlywhen the reimbursement is virtually certain. The expense relating to anyprovision is presented in the income statement net of any reimbursement. If theeffect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate,the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognised as a borrowing cost. Pre-contract costs All bid costs are expensed through the income statement up to the point wherecontract award (or full recovery of costs) is virtually certain. Bid costsincurred after this point are then capitalised within trade and otherreceivables. On the contract award these bid costs are amortised through theincome statement over the contract period by reference to the stage ofcompletion of the contract activity at the balance sheet date. Share-based payments The Group operates a number of executive and employee share option schemes. Forall grants of share options and awards, the fair value as at the date of grantis calculated using the Black-Scholes model and the corresponding expense isrecognised on a straight-line basis over the vesting period based on the Group'sestimate of shares that will eventually vest. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested before 1 April 2005. 2. Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the Group's accounting policiesIn the process of applying the Group's accounting policies, which are describedin note 1 above, management has made the following judgements that have the mostsignificant effect on the amounts recognised in the financial statements. Revenue recognition Revenue is recognised for certain project based contracts based on the stage ofcompletion of the contract activity. This is measured by comparing theproportion of costs incurred against the estimated whole-life contract costsexcept where this would not be representative of the stage of completion. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year, are discussed below. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value inuse of the cash-generating units to which goodwill has been allocated. The valuein use calculation involves an estimation of the future cash flows ofcash-generating units and also the selection of the appropriate discount rates,which involves judgement, to use in order to calculate present values. Thecarrying value of goodwill is £148.4m (2006: £143.8m) at the balance sheet date;see note 12. Retirement benefit obligations The calculation of retirement benefit obligations is dependent on material keyassumptions including discount rates, future returns on assets and futurecontribution rates. The present value of retirement benefit obligations at thebalance sheet is £143.3m (2006: £72.2m); see note 30. 3. Business and geographical segments The Group manages its business on a service division basis. These divisions arethe basis on which the Group reports its primary segment information. Business segments For management purposes, the Group is currently organised into three operatingdivisions - Facilities Services (formerly Support Services), Property Servicesand Engineering Services. Principal activities are as follows: Facilities Services offers a flexible range of services supporting the occupiersof buildings. This ranges from Engineering Maintenance and Facilities Managementto Security. Property Services act as a main contractor improving buildings either by fittingthem out, refurbishing or maintaining them. Engineering Services is predominantly a mechanical and electrical servicesspecialist installing heating, lighting, air conditioning and data cabling. The Group was also previously involved in scaffolding operations. That operationand segment was discontinued with effect from 30 September 2004. Segment information about these businesses is presented below. 2007 2006------------ ------------------------------------------- -------------------------------------------- Revenue Profit before Margin Profit before Revenue Profit before Margin Profit before interest tax tax interest tax tax and and amortisation amortisation £m £m % £m £m £m % £m ------------ ------- -------- ------ ------ --- ------- -------- ------ -------FacilitiesServices 732.1 41.5 5.7 37.4 516.0 33.0 6.4 34.3PropertyServices 215.1 10.6 4.9 10.9 163.5 8.9 5.4 9.0EngineeringServices 281.6 7.8 2.8 8.3 256.1 6.4 2.5 7.2------------ ------- -------- ------ ------ --- ------- -------- ------ -------Continuingoperations 1,228.8 59.9 4.9 56.6 935.6 48.3 5.1 50.5------------ ------- -------- ------ ------ --- ------- -------- ------ ------- Discontinuedoperations - - - - - (2.4) - (2.4)------------ ------- -------- ------ ------ --- ------- -------- ------ ------- Total 1,228.8 59.9 4.9 56.6 935.6 45.9 4.9 48.1 ------------ ------- -------- ------ ------ --- ------- -------- ------ ------- The revenue analysis above is net of inter segment sales which are notconsidered significant. The results set out above are stated after integration costs of £2.3m (2006:£nil) relating to acquisitions made in the prior year. The results of the Groupbefore the effect of integration costs are as follows: 2007-------------------------------- ------------------------------------------- Revenue Profit before Margin Profit before interest tax tax and amortisation £m £m % £m-------------------------------- -------- -------- ------ ------Facilities Services 732.1 41.5 5.7 37.4Add: Integration costs - 2.3 - 2.3-------------------------------- -------- -------- ------ ------ Total 732.1 43.8 6.0 39.7-------------------------------- -------- -------- ------ ------Property Services 215.1 10.6 4.9 10.9Engineering Services 281.6 7.8 2.8 8.3-------------------------------- -------- -------- ------ ------Total continuing operations 1,228.8 62.2 5.1 58.9-------------------------------- -------- -------- ------ ------ Other segmental analysis: ------------------------------- -------- ------- -------- ------Other segment information Facilities Property Engineering Total Services Services Services 2007 2007 2007 2007 £m £m £m £m ------------------------------- -------- ------- -------- ------Assets by segmentIntangible assets 140.6 5.6 12.1 158.3Divisional assets 226.5 75.5 100.6 402.6------------------------------- -------- ------- -------- ------ 367.1 81.1 112.7 560.9Unallocated assets (46.6)(i)------------------------------- -------- ------- -------- ------Total assets 514.3------------------------------- -------- ------- -------- ------ Liabilities by segmentDivisional liabilities (159.7) (55.0) (81.2) (295.9)Unallocated liabilities (14.5)(i)------------------------------- -------- ------- -------- ------Total liabilities (310.4)------------------------------- -------- ------- -------- ------ ------------------------------- -------- ------- -------- ------Total net assets 203.9------------------------------- -------- ------- -------- ------ Capital expenditureTangible assets 12.7 7.0 2.8 22.5Depreciation charge 9.0 2.4 1.6 13.0Intangible assets 3.9 0.2 0.5 4.6Intangible amortisation 1.6 - - 1.6------------------------------- -------- ------- -------- ------ ------------------------------- -------- ------- -------- ------Other segment information Facilities Property Engineering Total Services Services Services 2006 2006 2006 2006 £m £m £m £m------------------------------- -------- ------- -------- ------Assets by segmentIntangible assets 138.3 5.4 11.6 155.3Divisional assets 197.1 55.0 87.8 339.9------------------------------- -------- ------- -------- ------ 335.4 60.4 99.4 495.2Unallocated assets (36.0)(i)------------------------------- -------- ------- -------- ------Total assets 459.2------------------------------- -------- ------- -------- ------ Liabilities by segmentDivisional liabilities (142.0) (34.7) (67.2) (243.9)Unallocated liabilities (39.6)(i)------------------------------- -------- ------- -------- ------Total liabilities (283.5)------------------------------- -------- ------- -------- ------------------------------------- -------- ------- -------- ------Total net assets 175.7------------------------------- -------- ------- -------- ------ Capital expenditureTangible assets 10.0 2.1 1.7 13.8Depreciation charge 6.8 1.5 1.5 9.8Intangible assets 101.5 - 1.3 102.8Intangible amortisation 0.2 - - 0.2------------------------------- -------- ------- -------- ------ (i)Relates to interdivisional funding The 2006 comparatives have been revised to separately identify assets andliabilities that are not directly attributable to a business segment. Geographical segments All Group operations are located in the United Kingdom and the Channel Islands.The Group considers all operations form part of that single geographicalsegment. 4. Revenue The following analysis is provided for additional information: 2007 2006 £m £m---------------------------------- -------- ---------Facilities ServicesCleaning 220.9 204.7Security 241.8 87.2Engineering Maintenance 109.7 102.3Managed Services 84.9 71.6Business Services 24.1 16.8PFI 15.0 10.7Catering 19.7 13.6Landscape 10.3 4.4Pest Control 5.7 4.7---------------------------------- -------- ---------Total Facilities Services 732.1 516.0---------------------------------- -------- --------- Property Services 215.1 163.5Engineering Services 281.6 256.1---------------------------------- -------- ---------Total 1,228.8 935.6---------------------------------- -------- --------- 5. Operating profit Operating profit has been arrived at after charging/(crediting): --------------------------------- -------- --------- 2007 2006 £m £m--------------------------------- -------- ---------Depreciation of property, plant and equipment 13.0 9.8Amortisation of intangible assets 1.6 0.2Gain on disposal of property, plant and equipment (1.1) (0.6)Staff costs (see note 6) 455.9 391.9Auditors' remuneration for audit services (see below) 0.5 0.4--------------------------------- -------- --------- A more detailed analysis of auditors' remuneration is provided below. ------------------------------------- -------- ------ 2007 2006 £'000 £'000------------------------------------- -------- ------Fees payable to the Company's auditors for the audit of theCompany's annual accounts 35 30Fees payable to the Company's auditors and their associatesfor other services to the Group:- the audit of the Company's subsidiaries pursuant to legislation 350 309 -------- ------Total audit fees 385 339 Tax services 40 56Other services 56 67 -------- ------Total non-audit fees 96 123------------------------------------- -------- ------Total 481 462------------------------------------- -------- ------ £26,000 (2006: £39,000) of fees were incurred in relation to acquisitions andhave been included in the acquisition costs. In addition to the amounts shownabove, the auditors received fees of £11,750 (2006: £10,300) for the audit ofthe Group pension schemes. 6. Staff costs 2007 2006 No. No.---------------------------------- -------- --------The average number of people employed during the financialyear was:Facilities Services 38,429 29,298Property Services 2,697 1,826Engineering Services 1,241 1,297---------------------------------- -------- --------Total Group 42,367 32,421---------------------------------- -------- -------- The number of people employed at 31 March was:---------------------------------- -------- --------Total Group 44,866 41,762---------------------------------- -------- -------- -------- -------- 2007 2006 £m £m---------------------------------- -------- --------Their aggregate remuneration comprised:Wages and salaries 417.3 356.0Social security costs 30.6 31.5Other pension costs 6.9 3.7Share-based payments (note 29) 1.1 0.7---------------------------------- -------- -------- 455.9 391.9---------------------------------- -------- -------- 7. Investment revenue --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Interest on bank deposits 0.1 1.6Other interest receivable 0.7 1.0--------------------------------- -------- -------- 0.8 2.6--------------------------------- -------- -------- 8. Finance costs --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Interest on bank overdrafts and loans 2.3 0.2Interest on obligations under finance leases 0.2 ---------------------------------- -------- -------- 2.5 0.2--------------------------------- -------- -------- 9. Tax --------------------------------- -------- --------- 2007 2006 £m £m--------------------------------- -------- ---------Current tax 17.9 15.4Deferred tax (note 18) (0.5) 0.1--------------------------------- -------- --------- 17.4 15.5--------------------------------- -------- --------- Corporation tax is calculated at 30.0% (2006: 30.0%) of the estimated assessableprofit for the year. The charge for the year can be reconciled to the profit per the income statementas follows:--------------------------------- -------- --------- 2007 2006 £m £m--------------------------------- -------- ---------Profit before tax:Continuing operations 56.6 50.5Discontinued operations - (2.4)Tax at the UK corporation tax rate of 30.0% 17.0 14.4Expenses not deductible for tax purposes 0.6 1.1Tax losses not recognised 0.3 0.7Profit on disposal of property (0.1) -Prior year adjustments (0.4) (0.7)--------------------------------- -------- ---------Tax charge for the year 17.4 15.5--------------------------------- -------- --------- In addition to the amount charged to the income statement, deferred tax relatingto retirement benefit costs, share-based payments and short-term timingdifferences amounting to £1.8m (2006: £0.5m charged) has been credited directlyto equity (see note 18). The benefit of tax savings relating to retirementbenefit costs and share-based payments amounting to £0.5m (2006: £1.0m) has beencredited directly to equity. 10. Dividends --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- -------- Amounts recognised as distributions to equity holders in theperiod:Final dividend for the year ended 31 March 2006 of 2.4p(2005:1.8p) per share 7.6 5.6Interim dividend for the year ended 31 March 2007 of 2.4p(2006:1.9p) per share 7.5 5.9--------------------------------- -------- -------- 15.1 11.5--------------------------------- -------- -------- Proposed final dividend for the year ended 31 March 2007 of2.7p (2006: 2.4p) per share 8.4 7.3--------------------------------- -------- -------- The proposed final dividend is subject to approval by Shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. 11. Earnings per share Basic and diluted earnings per share have been calculated in accordance with IAS33 'Earnings Per Share'. The calculation of the basic and diluted EPS is based on the following data: ---------------------------------- --------- --------Number of shares 2007 2006 million million---------------------------------- --------- --------Weighted average number of Ordinary Shares for the purposeof basic EPS 310.6 305.9Effect of dilutive potential Ordinary Shares: shareoptions 4.4 3.2Weighted average number of Ordinary Shares for the purposeof diluted EPS 315.0 309.1---------------------------------- --------- -------- Basic EPS on continuing operations is 11.9p (2006: 10.6p). Basic and diluted EPSon discontinued operations in 2006 was (0.8)p. 12. Goodwill £m---------------------------------------- --------CostAt 1 April 2005 52.7Acquisition of subsidiaries 74.6Increased consideration for subsidiaries acquired in prior years 9.0Acquisition of minorities 7.5---------------------------------------- --------At 1 April 2006 143.8---------------------------------------- --------Acquisition of subsidiaries/ assets 0.3Decreased consideration for subsidiaries acquired in prior years (0.1)Acquisition of minorities 2.5Changes in fair values of subsidiaries acquired in prior year 1.9---------------------------------------- --------At 31 March 2007 148.4---------------------------------------- -------- Accumulated impairment lossesAt 1 April 2005 -At 1 April 2006 ----------------------------------------- --------At 31 March 2007 ----------------------------------------- -------- Carrying amount---------------------------------------- --------At 31 March 2007 148.4---------------------------------------- --------At 31 March 2006 143.8---------------------------------------- -------- Changes in fair values of subsidiaries acquired in the prior year relate torevisions in estimates of bad debts and property related provisions. As theseare not material prior year goodwill has not been restated. Goodwill acquired in a business combination is allocated, at acquisition, to thecash-generating units (CGU's) that are expected to benefit from that businesscombination. Goodwill has been allocated to CGU's in the following businesssegments, which is how goodwill is monitored by the Group internally. --------------------------------- -------- --------Cost 2007 2006 £m £m--------------------------------- -------- --------Facilities Services 130.7 126.8Property Services 5.6 5.4Engineering Services 12.1 11.6--------------------------------- -------- -------- 148.4 143.8--------------------------------- -------- -------- The Group tests goodwill at least annually for impairment. The recoverable amounts of the CGU's are determined from value in usecalculations. The key assumptions for the value in use calculations are thoseregarding the discount rates, growth rates and expected changes to sellingprices and direct costs during the period. Management estimates discount ratesusing pre-tax rates that reflect current market assessments of the time value ofmoney and the risks specific to the CGU's. The growth rates are based onindustry growth forecasts. Changes in selling prices and direct costs are basedon past practices and expectations of future changes in the market. The Group prepares cash flow forecasts derived from the most recent financialbudgets approved by management for the next five years and extrapolates cashflows for the following five years based on an estimated growth rate of 2% perannum. This rate does not exceed the average long-term growth rate for therelevant markets. The rates used to discount the forecast cash flows from CGU's are as follows: --------------------------------- -------- -------- 2007 2006 % %--------------------------------- -------- -------- Facilities Services 9.2 8.0Property Services 9.2 8.0Engineering Services 9.2 8.0--------------------------------- -------- -------- 13. Other intangible assets ---------------------------------------- -------- Customer relationships £m---------------------------------------- --------CostAt 1 April 2005 -Acquired on acquisition of subsidiaries 11.7---------------------------------------- --------At 1 April 2006 11.7---------------------------------------- --------Additions ----------------------------------------- --------At 31 March 2007 11.7---------------------------------------- -------- AmortisationAt 1 April 2005 -Charge for the year 0.2---------------------------------------- --------At 1 April 2006 0.2---------------------------------------- --------Charge for the year 1.6---------------------------------------- --------At 31 March 2007 1.8---------------------------------------- -------- Carrying amount---------------------------------------- --------At 31 March 2007 9.9---------------------------------------- --------At 31 March 2006 11.5---------------------------------------- -------- Customer relationships are amortised over the remaining period of the contract,which ranges on average between six and eight years. 14. Property, plant and equipment ---------------------- -------- -------- -------- ------- Long Freehold leasehold Plant and Total properties properties vehicles £m £m £m £m---------------------- -------- -------- -------- -------CostAt 1 April 2005 4.7 3.2 44.3 52.2Additions 0.8 1.5 11.5 13.8Acquisition of subsidiaries 1.4 0.4 3.5 5.3Disposals (0.9) - (7.1) (8.0)---------------------- -------- -------- -------- -------At 1 April 2006 6.0 5.1 52.2 63.3---------------------- -------- -------- -------- -------Additions 0.5 1.2 20.8 22.5Disposals (0.3) (0.2) (10.6) (11.1)---------------------- -------- -------- -------- -------At 31 March 2007 6.2 6.1 62.4 74.7---------------------- -------- -------- -------- ------- Accumulated depreciation andimpairmentAt 1 April 2005 0.5 0.4 24.1 25.0Charge for the year 0.1 0.4 9.3 9.8Disposals - - (6.0) (6.0)---------------------- -------- -------- -------- --------At 1 April 2006 0.6 0.8 27.4 28.8---------------------- -------- -------- -------- --------Charge for the year 0.1 0.4 12.5 13.0Disposals - (0.1) (8.5) (8.6)---------------------- -------- -------- -------- --------At 31 March 2007 0.7 1.1 31.4 33.2---------------------- -------- -------- -------- --------- Carrying amount---------------------- -------- -------- -------- ---------At 31 March 2007 5.5 5.0 31.0 41.5---------------------- -------- -------- -------- ---------At 31 March 2006 5.4 4.3 24.8 34.5---------------------- -------- -------- -------- --------- The net book value of plant and vehicles held under finance leases includedabove was £2.4m (2006: £1.8m). 15. Inventories --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Work-in-progress 6.9 8.0Finished goods 1.0 0.8--------------------------------- -------- -------- 7.9 8.8--------------------------------- -------- -------- 16. Trade and other receivables --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Amounts receivable for the sale of services 218.9 211.3Amounts recoverable on contracts 23.4 17.9Other debtors 7.2 2.2Prepayments and accrued income 23.3 12.9--------------------------------- -------- -------- 272.8 244.3--------------------------------- -------- -------- The average credit period taken on sales of services was 65 days (2006: 76days). Interest is charged on overdue debts when appropriate. An allowance hasbeen made for estimated irrecoverable amounts from the sale of services of £3.5m(2006: £3.9m). This allowance has been determined by considering therecoverability of each debt. The Directors consider that the carrying amount of trade and other receivablesapproximates their fair value. Credit risk The Group's principal financial assets are bank balances and cash and trade andother receivables. The Group's credit risk is primarily attributable to its trade receivables. Theamounts presented in the balance sheet are net of allowances for doubtfulreceivables. An allowance for impairment is made where there is an identifiedloss event which, based on previous experience, is evidence of a reduction inthe recoverability of the cash flows. The Group has no significant concentration of credit risk, with exposure spreadover a large number of counterparties and customers. 17. Cash and cash equivalents 2007 2006 £m £mCash and cash equivalents 25.6 9.6--------------------------------- -------- -------- 25.6 9.6--------------------------------- -------- -------- Cash and cash equivalents comprise cash held by the Group and short-term bankdeposits with an original maturity of three months or less. The carrying amountof the assets approximates their fair value. All balances are held in sterling. Included in cash and cash equivalents are deposits totalling £10.3m (2006:£9.6m) held by the Group's insurance subsidiary, which are not readily availablefor the general purposes of the Group. The credit risk on liquid funds and financial instruments is limited because thecounterparties are banks with high credit-ratings assigned by internationalcredit-rating agencies. 18. Deferred tax The following are the major deferred tax liabilities and assets recognised bythe Group and movements thereon during the current and prior reporting period: ------------- -------- -------- -------- -------- -------- ------ ------ Accelerated Retirement Business Share-based Short-term Tax Total tax benefit combinations payments timing losses £m depreciation obligations differences £m £m £m £m £m £m ------------- -------- -------- -------- -------- -------- ------ ------At 1 April 1.0 2.3 - 0.7 0.4 - 4.42005(Charge)/credit to income (0.2) (0.2) - 0.2 (0.1) 0.2 (0.1)(Charge)/credit to equity - (2.6) - 0.4 1.7 - (0.5)(Charge) togoodwill - - (3.6) - - - (3.6)------------- -------- -------- -------- -------- -------- ------ ------At 1 April 0.8 (0.5) (3.6) 1.3 2.0 0.2 0.22006 ------------- -------- -------- -------- -------- -------- ------ ------Credit/(charge) toincome 0.1 (1.1) 0.5 0.4 0.6 - 0.5Credit toequity - 1.5 - 0.3 - - 1.8(Charge)/credit to goodwill - - (0.2) - 1.5 - 1.3------------- -------- -------- -------- -------- -------- ------ ------At 31 March2007 0.9 (0.1) (3.3) 2.0 4.1 0.2 3.8------------- -------- -------- -------- -------- -------- ------ ------ Certain deferred tax assets and liabilities have been offset. The following isthe analysis of the deferred tax balances (after offset) for financial reportingpurposes: ----------------------------------- -------- -------- 2007 2006 £m £m----------------------------------- -------- --------Deferred tax assets 7.7 4.9Deferred tax liabilities (3.9) (4.7)----------------------------------- -------- --------Net deferred tax asset 3.8 0.2----------------------------------- -------- -------- The Group has unutilised income tax losses of £3.7m (2006: £3.1m) that areavailable for offset against future profits. In addition the Group has £0.8m(2006: £1.2m) of capital losses. Deferred tax assets have not been recognised inrespect of £3.8m (2006: £3.6m) of these losses as their recoverability isuncertain. Deferred tax has been calculated at the current corporation tax rate of 30%, asthe expected reduction in the corporation tax rate to 28% has not yet beensubstantively enacted. 19. Trade and other payables ----------------------------------- -------- -------- 2007 2006 £m £m----------------------------------- -------- --------Payments received on account 1.0 -Trade creditors 155.3 133.4Other taxes and social security 45.5 40.7Other creditors 2.6 1.1Accruals and deferred income 51.3 39.3----------------------------------- -------- -------- 255.7 214.5----------------------------------- -------- -------- Trade creditors and accruals principally comprise amounts outstanding for tradepurchases and ongoing costs. The average credit period taken for trade purchasesis 48 days (2006: 55 days). The Directors consider that the carrying amount of trade and other payablesapproximates their fair value. 20. Financial liabilities --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Overdraft - 2.0Bank loans 20.0 31.0Secured loan notes 9.9 -Unsecured loan notes 1.2 -Obligations under finance leases (note 21) 2.6 1.8--------------------------------- -------- -------- 33.7 34.8--------------------------------- -------- -------- Included in current liabilities 30.9 33.8Included in non-current liabilities 2.8 1.0--------------------------------- -------- -------- 33.7 34.8--------------------------------- -------- -------- Included in non-current liabilities are £1.6m (2006: £1.0m) of obligation underfinance leases (see note 21) and £1.2m (2006: £nil) of unsecured loan noteswhich are repayable between 2008 and 2013. All borrowings are in sterling. The Directors estimate that the carrying amountof the Group's borrowings approximates their fair value. The bank loans arerepayable within one year and the overdrafts are repayable on demand. --------------------------------- -------- -------- 2007 2006 % %--------------------------------- -------- --------The weighted average interest rates paid during the periodon the overdrafts and loans outstanding were as follows:Overdrafts 5.6 5.4Bank loans 5.8 5.1Loan notes 4.3 ---------------------------------- -------- -------- At 31 March 2007, the Group had available £117m (2006: £34m) of undrawncommitted borrowing facilities in respect of which all conditions precedent hadbeen met. The facilities have an expiry date of January 2012. The loans carryinterest rates which are currently fixed at 5.8% and are currently determined at0.4% over LIBOR. The overdraft carries interest at 0.9% over base rate. Thesecured loan notes are backed by a bank guarantee. Full details of the Group'scontingent liabilities are provided in note 27. Foreign currency risk The Group has very limited trading transactions in foreign currency andcurrently there is no hedging of these exposures. Any material transactionswould be appropriately hedged. Liquidity risk The Group monitors its risk to a shortage of funds using a cash flow projectionmodel which considers the maturity of the Group's assets and liabilities and theprojected cash flow from operations. Bank facilities which allow for appropriateheadroom in the Group's daily cash movements are then arranged. Interest rate risk All Group debt is currently due to short-term working capital fluctuations andhence is not hedged as at 31 March 2007. 21. Obligations under finance leases Minimum lease payments Present value of lease payments ----------------------- -------- -------- -------- --------- 2007 2006 2007 2006 £m £m £m £m----------------------- -------- -------- -------- ---------Amounts payable under finance leases:Within one year 1.0 0.8 1.0 0.7In the second to fifth yearsinclusive 1.9 1.3 1.6 1.2----------------------- -------- -------- -------- --------- 2.9 2.1 2.6 1.9----------------------- -------- -------- -------- --------- Less: future finance charges (0.3) (0.3) - ------------------------ -------- -------- -------- ---------Present value oflease obligations 2.6 1.8 2.6 1.9----------------------- -------- -------- -------- --------- Less: Amount due for settlementwithin 12 months (1.0) (0.8) (1.0) (0.7)----------------------- -------- -------- -------- ---------Amount due for settlement after 12 months 1.6 1.0 1.6 1.2----------------------- -------- -------- -------- --------- The average remaining lease term is 28 months (2006: 22 months). For the yearended 31 March 2007, the average effective borrowing rate was 5.3% (2006: 5.1%).Interest rates are fixed at the contract date. All leases are on a fixedrepayment basis and no arrangements have been entered into for contingent rentalpayments. All lease obligations are denominated in sterling. The fair value of the Group's lease obligations approximates their carryingamount. The Group's obligations under finance leases are secured by the lessors' rightsover the leased assets. 22. Provisions Contingent Insurance Total deferred reserve consideration £m £m £m --------------------------- -------- -------- --------At 1 April 2006 15.4 6.5 21.9Additional provision in the year 0.3 3.8 4.1Converted to loan notesduring the year (12.1) - (12.1)Utilised during the year (3.3) (1.7) (5.0)--------------------------- -------- -------- --------At 31 March 2007 0.3 8.6 8.9--------------------------- -------- -------- -------- Included in currentliabilities 0.3Included in non-currentliabilities 8.6--------------------------- -------- -------- -------- 8.9--------------------------- -------- -------- -------- Contingent Insurance Total deferred reserve consideration £m £m £m--------------------------- -------- -------- --------At 1 April 2005 3.2 6.0 9.2Additional provision in the year 12.2 1.8 14.0Utilised during the year - (1.3) (1.3)--------------------------- -------- -------- --------At 31 March 2006 15.4 6.5 21.9--------------------------- -------- -------- -------- Included in currentliabilities 11.7Included in non-currentliabilities 10.2--------------------------- -------- -------- -------- 21.9--------------------------- -------- -------- -------- During the period £1.9 million of deferred consideration was paid in respect ofMITIE Security (London) Limited (formerly MITIE Trident Security Limited). Inaddition, £8.9m of loan notes were issued to the original shareholders of MITIESecurity (London) Limited (formerly MITIE Trident Security Limited) in respectof the settlement of deferred consideration. £1.2m of loan notes were also issued to the vendors of MITIE Pest ControlLimited (formerly Eagle Pest Control Services UK Limited). £0.8m of deferred consideration in respect of the purchase last year of theminority shareholdings in MITIE Business Services Limited, MITIE EngineeringServices (Swansea) Limited and MITIE Security (North) Limited was settled by theissue of new MITIE shares. £0.5m was paid to the vendors of MITIE Lyndhurst Services Limited (formerlyLyndhurst Services Limited). £2.0m was converted into loan notes in respect of The Watch Security Limited andsubsequently £1.0m was redeemed during the year. Provision is made for contingent deferred consideration, which may becomepayable in August 2007 subject to certain profit targets being attained, at thebest estimate of the Directors. A total of £0.3m was provided for deferredconsideration to the minority shareholders of MITIE Air Conditioning (London)Limited and MITIE Engineering Maintenance (South West) Limited. The provision for insurance claims represents amounts payable by MITIEReinsurance Company Limited in respect of outstanding claims incurred at thebalance sheet dates. These amounts will become payable as each year's claims aresettled. 23. Share capital --------------------------------- -------- -------- Ordinary Shares Ordinary Shares of 2.5p of 2.5p No. £m--------------------------------- -------- --------Authorised at 1 April 2006 and 31 March2007 340,000,000 8.5--------------------------------- -------- -------- 2007Allotted and fully paidAt beginning of year 308,762,569 7.7Issued as Directors' remuneration 46,219 -Issued for acquisitions 1,727,180 -Issued under share option schemes 1,913,227 0.1--------------------------------- -------- --------At end of year 312,449,195 7.8--------------------------------- -------- -------- 2006Allotted and fully paidAt beginning of year 303,173,780 7.6Issued as Directors' remuneration 66,773 -Issued for acquisitions 4,832,770 0.1Issued under share option schemes 1,681,551 -Own shares acquired (992,305) ---------------------------------- -------- --------At end of year 308,762,569 7.7--------------------------------- -------- -------- During the year 46,219 (2006: 66,773) Ordinary Shares of 2.5p were allotted asremuneration in respect of services provided by Directors at a market price of239.0p (2006: 199.5p) giving rise to share premium of £0.1m (2006: £0.1m). During the year 1,727,180 (2006: 4,832,770) Ordinary Shares of 2.5p wereallotted in respect of acquiring minority interests at a mid-market price of191.2p (2006: 166.0p) giving rise to share premium of £0.4m (2006: £nil) and amerger reserve of £2.9m (2006: £7.9m). During the year 1,913,227 (2006: 1,681,551) Ordinary Shares of 2.5p wereallotted in respect of share option schemes at a price between 165p and 191p(2006: 138p and 162p) giving rise to share premium of £2.4m (2006: £2.2m). During the year nil Ordinary Shares of 2.5p were purchased (2006: 992,305 atmarket prices between 158.5p and 164.0p). These were then cancelled. 24. Reserves Called Share Merger Revaluation Capital Other Share- Retained Total -up premium reserve reserve redemption reserve based earnings share account reserve (i) payment capital reserve £m £m £m £m £m £m £m £m £m ------ ------- ------ -------- ------- ------ ------- ------- ------Balance at 1April 2006 7.7 13.7 52.0 (0.2) 0.3 0.3 1.4 90.1 165.3 Shares issuedand netpremiumarising inrespect ofacquisitions - 0.4 2.9 - - - - - 3.3Shares issuedand netpremium inconnectionwith exerciseof shareoptions 0.1 2.5 - - - (0.1) - - 2.5Profit for theperiodattributableto equityholders of theparent - - - - - - - 37.0 37.0Dividends paid - - - - - - - (15.1) (15.1)Expense inrelation toshare-basedpayments - - - - - - 1.1 - 1.1Transfer inrelation toshare-basedpayments - - - - - - (0.6) 0.6 -Tax charge onitems takendirectly toequity - - - - - - - 0.8 0.8------------- ------ ------- ------ -------- -------- ------ ------- ------- ------Net actuarialloss ondefinedbenefitpensionschemes - - - - - - - (4.7) (4.7)Tax credit onactuarial losstaken directlyto equity - - - - - - - 1.5 1.5------------- ------ ------- ------ -------- -------- ------ ------- ------- ------Net expense ondefinedbenefitpensionschemesrecogniseddirectly inequity in theyear - - - - - - - (3.2) (3.2)------------- ------ ------- ------ -------- -------- ------ ------ ------- ------Balance at 31March 2007 7.8 16.6 54.9 (0.2) 0.3 0.2 1.9 110.2 191.7------------- ------ ------- ------ -------- -------- ------ ------- ------- ------ Called Share Merger Revaluation Capital Other Share- Retained Total -up premium reserve reserve redemption reserve based earnings share account reserve (i) payment capital reserve £m £m £m £m £m £m £m £m £m ------ ------- ------ -------- ------- ------ ------- ------- ------ Balance at 1April 2005 7.6 11.5 44.1 (0.2) 0.3 0.6 0.7 71.4 136.0 Shares issuedand netpremiumarising inrespect ofacquisitions 0.1 - 7.9 - - - - - 8.0Shares issuedand netpremium inconnectionwith exerciseof shareoptions - 2.2 - - - (0.3) - - 1.9Own sharesacquired - - - - - - - (1.6) (1.6)Profit for theperiodattributableto equityholders of theparent - - - - - - - 30.2 30.2Dividends paid - - - - - - - (11.5) (11.5)Expense inrelation toshare-basedpayments - - - - - - 0.7 - 0.7Tax charge onitems takendirectly toequity - - - - - - - 3.1 3.1------------- ------ ------- ------ -------- -------- ------ ------- ------- ------Net actuarialgain ondefinedbenefitpensionschemes - - - - - - - 1.1 1.1Tax charge onactuarial gaintaken directlyto equity - - - - - - - (2.6) (2.6)------------- ------ ------- ------ -------- -------- ------ ------- ------- ------Net expense ondefinedbenefitpensionschemesrecogniseddirectly inequity in theyear - - - - - - - (1.5) (1.5)------------- ------ ------- ------ -------- -------- ------ ------- ------- ------Balance at 31March 2006 7.7 13.7 52.0 (0.2) 0.3 0.3 1.4 90.1 165.3------------ ------ ------- ------ -------- -------- ------ ------- ------- ------ (i) This is a non-distributable reserve. 25. Acquisition of subsidiaries Purchase of minority interests MITIE Landscape (Northern) Ltd & MITIE MITIE Air MITIE Air MITIE MITIE MITIE Engineering Conditioning Conditioning Engineering Environmental Landscape Maintenance (London) Ltd (Wales) Ltd Services Ltd (Southern) (South West)Ltd (Retail) Ltd Ltd Total £m £m £m £m £m £m £m ------------- -------- -------- -------- -------- -------- ------- -------Minorityinterests 0.6 0.2 - 0.1 0.5 0.2 1.6------------- -------- -------- -------- -------- -------- ------- ------- Goodwill 1.6 0.3 0.1 0.1 - 0.4 2.5------------- -------- -------- -------- -------- -------- ------- -------Total purchaseconsideration 2.2 0.5 0.1 0.2 0.5 0.6 4.1Shares issued- MITIE GroupPLC 1.8 0.4 0.1 0.2 - - 2.5Deferredcontingentconsideration 0.2 0.1 - - - - 0.3------------- -------- -------- -------- -------- -------- ------- -------Cashconsiderationbeing cashoutflow in theperiod 0.2 - - - 0.5 0.6 1.3------------- -------- -------- -------- -------- -------- ------- ------- In addition, MITIE acquired the minority interest in MITIE Industrial Cleaning(North) Limited for £61,000. Purchase of subsidiary post balance sheet date On 2 April 2007 MITIE acquired 100% of Robert Prettie for total consideration of£23.0m. The transaction will be accounted for by the purchase method ofaccounting. Below we provide provisional information on fair values acquired. Book value Fair value Fair value adjustments £m £m £m------------------------------------ ------- -------- ------Net assets acquired:Intangible assets 8.6 (6.7) 1.9Deferred tax liability - (0.6) (0.6)Property, plant andequipment 0.2 - 0.2Inventories 4.9 (0.2) 4.7Trade and other receivables 1.2 - 1.2Cash and cash equivalents 0.2 - 0.2Trade and other payables (6.3) (0.2) (6.5)Current tax liabilities (0.7) - (0.7)Loans (3.7) - (3.7)Pension liabilities (0.4) - (0.4)------------------------------------ ------- -------- ------Net assets acquired 4.0 (7.7) (3.7) Goodwill 26.7------------------------------------ ------- -------- ------Total consideration 23.0------------------------------------ ------- -------- ------ Satisfied by:Cash 7.0Loan notes 1.6Deferred contingentconsideration 14.0Directly attributable costs 0.4------------------------------------ ------- -------- ------Total consideration 23.0------------------------------------ ------- -------- ------ Net cash outflow arising on acquisition:Cash consideration 7.0Cash and cash equivalentsacquired (0.2)Loans repaid 3.7------------------------------------ ------- -------- ------Net cash outflow 10.5------------------------------------ ------- -------- ------ The goodwill arising on the acquisition of Robert Prettie is attributable to theunderlying profitability of the company, expected profitability arising from newbusiness and the anticipated future operating synergies arising fromassimilation into the Group. 26. Notes to the cashflow statement --------------------------------- -------- --------Reconciliation of operating profit to net cash fromoperating 2007 2006activities £m £m--------------------------------- -------- --------Operating profit from continuing operations 58.3 48.1Operating loss from discontinued operations - (2.4)Adjustments for:Share-based payment expense 1.1 0.7Pension charge 1.8 2.6Pension contributions (5.2) (3.2)Depreciation of property, plant and equipment 13.0 9.8Amortisation of intangible assets 1.6 0.2Gain on disposal of property, plant and equipment (1.1) (0.6)--------------------------------- -------- --------Operating cash flows before movements in working capital 69.5 55.2--------------------------------- -------- -------- Decrease/(increase) in inventories 0.9 (2.2)Increase in receivables (28.5) (29.5)Increase in payables 39.4 31.2Increase in provisions 2.1 0.5--------------------------------- -------- --------Cash generated by operations 83.4 55.2--------------------------------- -------- -------- Additional pension contributions - (7.8)Income taxes paid (17.0) (15.1)Interest paid (2.5) (0.2)--------------------------------- -------- --------Net cash from operating activities 63.9 32.1--------------------------------- -------- -------- Additions to fixtures and equipment during the year amounting to £1.7m (2006:£0.1m) were financed by new finance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 27. Contingent liabilities The Company is party with other Group companies to cross guarantees of eachother's bank loans, commitments and overdrafts of £190m (2006: £105m). The Company and various of its subsidiaries are, from time to time, party tolegal proceedings and claims that are in the ordinary course of business. TheDirectors do not anticipate that the outcome of these proceedings and claims,either individually or in aggregate, will have a material adverse effect on theGroup's financial position. In addition, the Group and its subsidiaries have provided guarantees andindemnities in respect of performance, issued by financial institutions on itsbehalf, amounting to £19.0m (2006: £6.1m) in the ordinary course of business.These are not expected to result in any material financial loss. 28. Operating lease arrangements The Group as Lessee --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Minimum lease payments under operating leases 4.4 4.5recognised in income for the year--------------------------------- -------- -------- At the balance sheet date, the Group had total outstanding commitments forfuture minimum lease payments under non-cancellable operating leases, which falldue as follows: --------------------------------- -------- -------- 2007 2006 £m £m--------------------------------- -------- --------Within one year 1.8 1.0In the second to fifth years inclusive 2.7 2.9After five years 1.8 1.3--------------------------------- -------- -------- 6.3 5.2--------------------------------- -------- -------- 29. Share-based payments Equity-settled share option schemes The Company has four share option schemes: The MITIE Group PLC 1991 Executive share option scheme The Executive share option scheme is open to all employees. The exercise priceis equal to the market value of the shares on the date of grant. The vestingperiod is three years. If the options remain unexercised after a period of tenyears from the date of grant, the options expire. Options may be forfeited ifthe employee leaves the Group. No options have been granted under this schemesince August 2001. The MITIE Group PLC 2001 Executive share option scheme The Executive share option scheme is open to all employees. The exercise priceis equal to the market value of the shares on the date of grant. The vestingperiod is three years. If the options remain unexercised after a period of tenyears from the date of grant the options expire. Options may be forfeited if theemployee leaves the Group. Before options can be exercised, the performancecondition that must be satisfied is that the percentage growth in the earningsper share over a three year period must be equal or greater than 10.0% per annumcompound. The MITIE Group PLC 1991 and 2001 Savings Related share option scheme The Savings Related share option scheme is open to all employees. The exerciseprice is not less than 80.0% of the market value of the shares on the daypreceding the date on which invitations to participate in the Scheme are issued.The vesting period is five years. If the options remain unexercised after aperiod of five years and nine months from the date of grant, the options expire.Options may be forfeited if the employee leaves the Group. No options have beengranted under the 1991 scheme since August 2001. Details of the share options outstanding during the year are as follows: 2007 2006 -------------------------- --------------- --------------- Number of share Weighted Number of share Weighted options average options average exercise price exercise price (in p) (in p) -------------------------- -------- -------- -------- ---------Outstanding at beginning of period (1) 12,279,752 130 12,089,064 124Granted duringthe period 3,870,461 177 3,278,927 149Forfeited during theperiod (1,377,747) 141 (1,406,688) 150Exercised during theperiod ( 1,913,227) 125 (1,681,551) 138 -------------------------- -------- -------- -------- ---------Outstanding at the end of the period 12,859,239 143 12,279,752 130-------------------------- -------- -------- -------- --------- Exercisable at the end of the period 1,739,348 126 2,098,698 124 The Group recognised the following expenses related to share-based payments: 2007 2006 £m £m-------------------------------- -------- ---------2001 Executive share options 0.6 0.42001 Savings Related share options 0.5 0.3-------------------------------- -------- --------- 1.1 0.7-------------------------------- -------- --------- (1) Included within this balance are 2,263,571 (2006: 3,719,291) options thathave not been recognised in accordance with IFRS 2 as the options were grantedon or before 7 November 2002. These options have not been subsequently modifiedand therefore do not need to be accounted for in accordance with IFRS 2. The weighted average share price at the date of exercise for share optionsexercised during the period was 216p (2006: 181p). The options outstanding at 31March 2007 had exercise prices ranging from 58p - 191p (2006: 58p - 174p) and aweighted average remaining contractual life of 5.12 years (2006: 5.18 years). Inthe year ended 31 March 2007, options were granted on 22 June 2006 and 24 July2006 in respect of the Executive and Savings Related share option schemesrespectively. The aggregate of the estimated fair values of the options grantedon those dates is £1.5m. In the year ended 31 March 2006, options were grantedon 23 June 2005 and 20 July 2005 in respect of the Executive and Savings Relatedshare option schemes respectively. The aggregate of the estimated fair values ofthe options granted on those dates is £1.1m. The fair value of options is measured by use of the Black-Scholes model. Theinputs into the Black-Scholes model are as follows: 2007 2006-------------------------------- --------- ---------Share price (p) 130-193 98-161Exercise price (p) 120-191 99-162Expected volatility (%) 28-30 28-30Expected life (years) 4-6 5-6Risk-free rate (%) 4.17-5.12 4.17-5.12Expected dividends (%) 1.43-2.29 1.43-2.12-------------------------------- --------- --------- Expected volatility was based upon the historical volatility over the expectedlife of the schemes. The expected life is based upon historical data and hasbeen adjusted based on management's best estimates for the effects ofnon-transferability, exercise restrictions and behavioural considerations. 30. Retirement benefit schemes Defined contribution schemesThe Group operates a number of defined contribution retirement benefit schemesfor qualifying employees. The assets of the schemes are held separately fromthose of the Group in funds controlled by the scheme providers. The total cost charged to income of £1.7m (2006: £1.1m) represents contributionspayable to these schemes by the Group at rates specified in the rules of theschemes. As at 31 March 2007, contributions of £0.5m (2006: £0.1m) due inrespect of the current reporting period had not been paid over to the schemes. Defined benefit schemes Group defined benefit schemesThe Group operates two defined benefit pension schemes called the MITIE GroupPLC Pension Scheme and the MITIE Group PLC Passport Pension Scheme. The assets of the schemes are held separately from the Group. Contributions tothe schemes are charged to the Income Statement so as to spread the cost ofpensions over the employees' working lives with the Group. Under the schemes, the employees are entitled to retirement benefits varyingbetween 0 and 66 per cent of final salary on attainment of a retirement age of65. No other post-retirement benefits are provided. The schemes are fundedschemes. The most recent actuarial valuations of the Group schemes' assets and thepresent value of their defined benefit obligations were carried out at 1 April2005 by Mr David Higgs, Fellow of the Institute of Actuaries. Other defined benefit schemesGrouped together under 'Other schemes' are schemes where the Group has allocatedsections of two multi-employer schemes in which the Group is a participatingemployer and several schemes to which the Group makes contributions underAdmitted Body status to our customers' defined benefit schemes in respect ofcertain TUPE employees. These valuations are updated by the actuaries at eachbalance sheet date. The present values of the defined benefit obligations, therelated current service cost, and past service cost were measured using theprojected unit credit method. For the Admitted Body Schemes (principally the West Midlands Pension Fund),which are all part of the Local Government Pension Scheme, the Group will onlyparticipate for a finite period up to the end of the contracts. The Group isrequired to pay regular contributions as decided by the relevant SchemeActuaries and detailed in the schemes' Schedule of Contributions. In a number ofcases contributions payable by the employer are capped and any excess recoveredfrom the body that the employees transferred from. In addition, in certaincases, at the end of the contract the Group will be required to pay any deficit(as determined by the Scheme Actuary) that is remaining for its notional sectionof the scheme. Group schemes Other schemes ------------------- ----------- -------- ------- ------- 2007 2006 2007 2006 % % % %------------------------- ----------- -------- ------- -------Key assumptions used for IAS 19valuation:Discount rate 5.30 5.10 5.30 -Expected return on scheme assets:Equity instruments 8.00 8.00 8.00 -Debt instruments 5.00 5.00 5.00 -Property 7.50 7.50 7.50 -Other assets 5.25 5.00 5.25 -Expected rate of salary increases 4.00 3.75 3.75 -Future pension increases 3.00 3.00 3.00 -------------------------- ----------- -------- ------- ------- The overall expected return on assets is calculated as the weighted average ofthe expected return of each asset class. The expected return on equities is thesum of dividend growth and capital growth net of investment expenses. The returnon gilts and bonds is the current market yield on long-term bonds. The expectedreturn on property has been set equal to that expected on equities less amargin. The expected return on other assets is the rate earned by the scheme oncash. Amounts recognised in administrative expenses in respect of these definedbenefit schemes are as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------Current service cost (3.2) (1.5) (4.7) (3.0) - (3.0)Interest cost (3.7) (2.7) (6.4) (3.2) - (3.2)Expected return onscheme assets 5.3 4.0 9.3 3.6 - 3.6----------------- ------- ------- ------- ------- ------- -------- (1.6) (0.2) (1.8) (2.6) - (2.6)----------------- ------- ------- ------- ------- ------- -------- Amounts recognised in the consolidated statement of recognised income andexpense are as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------Actual returnon scheme assets 4.8 4.0 8.8 12.9 - 12.9Expected return onscheme assets (5.3) (4.0) (9.3) (3.6) - (3.6)Experienceadjustmentsarising on planliabilities (3.2) (1.0) (4.2) (8.2) - (8.2)----------------- ------- ------- ------- ------- ------- -------- (3.7) (1.0) (4.7) 1.1 - 1.1----------------- ------- ------- ------- ------- ------- -------- The cumulative amount of actuarial loss recognised since 1 April 2004 in theconsolidated statement of recognised income and expense is £5.3m (2006: £0.4m). The amounts included in the balance sheet arising from the Group's obligationsin respect of its defined benefit retirement benefit schemes are as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------Fair value ofscheme assets 83.2 61.4 144.6 74.0 - 74.0Present valueof definedbenefitobligations (82.7) (60.6) (143.3) (72.2) - (72.2)----------------- ------- ------- ------- ------- ------- --------Surplus/(deficit) in scheme 0.5 0.8 1.3 1.8 - 1.8Contractadjustment - (0.8) (0.8) - - ------------------ ------- ------- ------- ------- ------- --------Net pensionasset 0.5 - 0.5 1.8 - 1.8----------------- ------- ------- ------- ------- ------- -------- Movements in the present value of defined benefit obligations were as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------At 1 April 72.2 - 72.2 56.6 - 56.6Service cost 3.2 1.5 4.7 3.0 - 3.0Interest cost 3.7 2.7 6.4 3.2 - 3.2Reclassification (0.4) 0.4 - - - -Contributionsfrom scheme members 2.1 0.5 2.6 2.2 - 2.2Actuarial gains andlosses 3.2 0.3 3.5 8.2 - 8.2Benefits paid (1.3) (0.1) (1.4) (1.0) - (1.0)Contracttransfers - 55.3 55.3 - - ------------------ ------- ------- ------- ------- ------- --------At 31 March 82.7 60.6 143.3 72.2 - 72.2----------------- ------- ------- ------- ------- ------- -------- Movements in the fair value of scheme assets were as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------At 1 April 74.0 - 74.0 49.1 - 49.1Expectedreturn onscheme assets 5.3 4.0 9.3 3.6 - 3.6Actuarialgains andlosses (0.5) - (0.5) 9.3 - 9.3Contributionsfrom thesponsoringcompanies 3.9 1.3 5.2 11.0 - 11.0Contributionsfrom schememembers 2.2 0.5 2.7 2.1 - 2.1Reclassification (0.4) 0.4 - - - -Benefits paid (1.3) (0.1) (1.4) (1.1) - (1.1)Contracttransfers - 55.3 55.3 - - ------------------ ------- ------- ------- ------- ------- --------At 31 March 83.2 61.4 144.6 74.0 - 74.0----------------- ------- ------- ------- ------- ------- -------- The analysis of the scheme assets at the balance sheet date was as follows: 2007 2006----------------- ------- ------- ------- ------- ------- -------- Group schemes Other schemes Total Group schemes Other schemes Total £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------Equity instruments 47.8 46.6 94.4 46.6 - 46.6Debt instruments 3.0 7.6 10.6 2.8 - 2.8Property 15.3 5.1 20.4 3.4 - 3.4Other assets 17.1 2.1 19.2 21.2 - 21.2----------------- ------- ------- ------- ------- ------- --------At 31 March 83.2 61.4 144.6 74.0 - 74.0----------------- ------- ------- ------- ------- ------- -------- The pension schemes have invested in property occupied by the Group with a fairvalue of £3.2m (2006: £nil) generating rental of £0.3m (2006: £nil). The pensionschemes have not invested in any of the Group's own financial instruments orother assets used by the Group. Transactions between the Group and the pensionschemes are conducted at arm's length. The mortality for the Group schemes is based upon up to date tables whichproject mortality improvements in the future. For a male aged 65.0 years theexpected life is 85.1 years (2006: 85.1 years) and for a female aged 65.0 yearsthe expected life is 88.0 years (2006: 88.0 years). Mortality for the otherschemes is that used by the relevant scheme actuary. The history of experience adjustments is as follows: Group schemes Other schemes----------------- ------------------ ------------------- 2007 2006 2005 2007 2006 2005 £m £m £m £m £m £m----------------- ------- ------- ------- ------- ------- --------Fair value of scheme assets 83.2 74.0 49.0 61.4 - -Present value of definedbenefit obligations (82.7) (72.2) (56.6) (61.4) - ------------------ ------- ------- ------- ------- ------- --------Surplus / (deficit) in the scheme 0.5 1.8 (7.6) - - - Experience adjustments onscheme liabilities (3.2) (8.2) (3.7) (1.0) - -Percentage of scheme liabilities 3.9% 11.4% 7.0% 1.6% - - Experience adjustments onscheme assets (0.5) 9.3 2.3 - - -Percentage of scheme assets 1.0% 12.6% 5.0% - - ------------------- ------ ------- ------- ------- ------- -------- The estimated contributions expected to be paid to the Group schemes during thecurrent financial year are £3.4m (2006: £3.2m) and to other schemes £1.2m (2006:£nil). END OF ANNOUNCEMENT This information is provided by RNS The company news service from the London Stock Exchange

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