MITIE Group PLC · LSE:MTO
MITIE — H1 2017 Earnings Presentation
46 slides from MITIE's earnings presentation, Nov 21, 2016
Slide 1: Presentation of half-yearly results for the six months to 30 September 2016
Presentation of half-yearly results for the six months to 30 September 2016 21 November 2016
Slide 2: Agenda
Agenda • Mitie trends & response • Healthcare • Finance update • Mitie today • Outlook 2
Slide 3: Mitie trends
Mitie trends FY17 1. National Living Wage pricing increases – accepted by clients this year but impact on discretionary spend in FM 2. FM projects delays due to ongoing uncertainty 3. No major IFM contract awards 4. Social housing rent reductions causing project delays 5. Domiciliary healthcare pric
Slide 4: Mitie response
Mitie response Strategic • Withdrawal from social care market • Focus on our market-leading FM business Cost efficiency programme • IFM/ Technical FM combination • Back office integration across support functions • Restructure of front line and support functions in FM & restructure of mobile mainten
Slide 5: Healthcare
Healthcare • Chronic underfunding in market with limited sign of improvement • Challenges in attracting care workers with unsustainable charge rates • Mitie is withdrawing from the domiciliary healthcare market and business placed under strategic review • Healthcare businesses will continue to fulfi
Slide 6: Suzanne Baxter, Group Finance Director
Suzanne Baxter Group Finance Director 6
Slide 7: Financial performance
Financial performance Revenue Net debt £1,093.6m £231.7m (H1 16: £1,123.1m) 𐰸2.6% 1.9x EBITDA (H1 16: £221.8m) Operating profit before other items Cash conversion £35.4m 107.9% (H1 16: £58.1m) 𐰸39.1% (H1 16: 91.4%) Operating profit margin 2017 budgeted revenue secured 3.2% 94% (H1 16: 5.2%)…
Slide 8: Income statement
Income statement £m 2017 H1 2016 H1 Change Revenue 1,093.6 1,123.1 (2.6)% Operating profit before other items 35.4 58.1 (39.1)% Margin 3.2% 5.2% (2.0)ppt Other items (128.1) (5.0) - Operating profit (92.7) 53.1 - Net finance costs (7.7) (8.0) (3.8)% Profit before tax (100.4) 45.1 - Earnings per shar
Slide 9: Divisional performance
Divisional performance £m 2017 H1 2016 H1 Change Revenue Facilities Management 922.6 928.1 (0.6)% Property Management 130.3 156.0 (16.5)% Healthcare 40.7 39.0 4.3% Mitie 1093.6 1,123.1 (2.6)% Operating profit before other items Facilities Management 35.0 51.7 (32.3)% Property Management 4.5 8.5 (47.
Slide 10: Revenue evolution
Revenue evolution (5.5) 5.5 (10.5) 8.0 (1.1) (7.4) (25.7) 6.0 (4.3) 1,123.1 1,093.6 H1 2016 Cleaning and Security Catering and Technical Integrated Volume Tascor Domiciliary H1 2017 environmental front of house Facilities Facilities acquisition Care services Management Management Facilities Manageme
Slide 11: Operating profit evolution
Operating profit evolution (0.6) (13.4) (2.7) (5.6) (1.9) 3.5 0.3 (0.6) (1.3) (0.4) 58.1 Reduced higher margin project work in Technical FM Loss of margin reflects Non recurring cost of sales £26m revenue reduction £7m 35.4 Non recurring overheads £4m H1 2016 Revenue Gross profit Overheads Revenue G
Slide 12: Other items
Other items £m 2017 H1 2016 H1 Operating profit before other items 35.4 58.1 Impairment of goodwill and write off of (117.2) - acquisition related intangibles Restructuring costs (6.0) - Acquisition related items (4.9) (5.0) Total other items (128.1) (5.0) Statutory operating (loss)/profit (92.7) 53
Slide 13: Dividend per share
Dividend per share £m 2017 H1 2016 H1 Change Earnings per share before other items 6.2p 11.1p (44.1)% Dividend per share 4.0p 5.4p (25.9)% Dividend cover 1.6x 2.1x (0.5)x • Mitie has a strong 27 year track record of annual dividend growth and the Board remains committed to the payment of dividends •
Slide 14: Balance sheet
Balance sheet £m 2017 H1 2016 FY 2016 H1 Goodwill and intangibles 421.4 532.4 533.1 Property, plant and equipment 40.4 49.3 54.2 Non-current trade and other receivables 83.9 86.0 68.3 Current trade and other receivables 473.6 446.7 460.1 Other* 27.9 20.5 24.1 Total assets* 1,047.2 1,134.9 1,139.8 Cu
Slide 15: Retirement benefit obligation
Retirement benefit obligation (35.5) 1.4 (85.0) (2.9) 15.2 (55.7) (7.5) At 31 March 2016 P&L charge Employer Change in Change in other Asset return exc. At 30 September contribution discount rate assumptions Interest 2016 assumptions • The reduction in market yields on high quality corporate bonds h
Slide 16: Trade and other receivables
Trade and other receivables £m 2017 H1 2016 FY 2016 H1 Trade receivables 190.4 209.7 176.0 AROCC 0.3 2.6 5.1 Mobilisation costs 30.1 28.6 29.9 Accrued income 282.4 236.2 254.6 Prepayments 38.4 36.4 41.8 Other debtors 15.9 19.2 21.0 Total 557.5 532.7 528.4 Included in current assets 473.6 446.7 460.1
Slide 17: Non-current receivables
Non-current receivables £m 2017 H1 2016 FY 2016 H1 Mobilisation costs 17.9 17.3 17.5 Accrued income 66.0 68.7 50.8 Total 83.9 86.0 68.3 • Long term accrued income derives from 18 long term complex Integrated Facilities Management contracts with an annual revenue of £0.5bn where the Percentage of Com
Slide 18: Trade receivables profile
Trade receivables profile 800 30% 27% 25% 25% 24% 25% 24% 25% 700 23% 21% 20% 600 21 30 51 10% 21 41 84 500 68 86 59 400 0% 300 536 507 510 -10% 492 496 460 474 200 421 447 -20% 100 - -30% 2013 H1 2013 FY 2014 H1 2014 FY 2015 H1 2015 FY 2016 H1 2016 FY 2017 H1 Current debtors Non current debtors Deb
Slide 19: Cash flow and net debt
Cash flow and net debt £m 2017 H1 2016 H1 Change Opening net debt (178.3) (177.8) (0.5) EBITDA (before other items) 40.2 70.2 (30.0) Movement in working capital (16.5) (63.5) 47.0 Tax & interest (17.5) (10.2) (7.3) Capex (14.2) (9.0) (5.2) Other 3.9 3.5 0.4 Free cash flow (4.1) (9.0) 4.9 Dividend (2
Slide 20: Banking facilities and covenants
Banking facilities and covenants 2017 H1 Facility Cash and cash equivalents £(62.5)m n/a Revolving Credit Facility (RCF) £35.4m £275m US Private Placement notes (Net of hedging)* £255.7m £252m Obligations under finance leases £3.1m n/a Uncommitted overdrafts - £41m Total Net Debt £231.7m £568m Net D
Slide 21: Ruby McGregor-Smith, Chief Executive Officer
Ruby McGregor-Smith Chief Executive Officer 21
Slide 22: Mitie today – 2017 H1
Mitie today – 2017 H1 Healthcare £40.7m Property Management Facilities Management £130.3m £922.6m Integrated FM £353.9m Technical FM £192.8m Cleaning & environmental services £183.6m Revenue Security £128.3m Catering & front of house £64.0m £1.1bn Facilities Management Property Management Healthcare
Slide 23: High quality client base
High quality client base e NetworkRail 7, Sainsburys LLOYDS BANKING GROUP ni X MAG “ —— / | S) . ® Jones LANG S Ky Heathroy AV vodtrons | n e | LASALLE’ Making every journey better a | ye Linked ffi) > 4 . >»*RBS Pee gy = AB InBev The Royal Bank of Scotland | Ladbrokes | @ CAPITA The Scottish @® San
Slide 24: Mitie strategy
Mitie strategy Sustainable profitable growth, through a focus on six pillars: 1. Maintain our position as the leading provider of FM services in the UK 2. Increase the range and scale of services we provide to our top 200 clients, in the UK and internationally 3. Attract, retain and develop the best
Slide 25: The UK's leading FM brand
The UK’s leading FM brand Mitie voted #1 overall service provider in UK FM for 4 years running We were voted most innovative We are now top 3 in every service category Rankings 2014 2015 2016 Overall FM provider #1 #1 #1 Integrated FM #1 #1 #1 Hard FM #1 #1 #1 Cleaning #2 #2 #2 Security #2 #2 #1= Ca
Slide 26: Quality business with long-term contracts
Quality business with long-term contracts • Integrated FM accounts for one-third of revenues and with no major rebids until 2019, these long-term contracts underpin future progress • New contract awards: 1. Sainsbury’s: additional £115m security services over 3 years 2. Manchester Airport Group: 5 y
Slide 27: Sainsbury's
Sainsbury’s • Substantial addition to a total security management contract • Contract will integrate risk management, technology and manned guarding. Provides a risk-based solution incorporating data and trend mapping via Mitec to determine security strategy and provide flexibility and real time inc
Slide 28: Manchester Airport Group
Manchester Airport Group • Provided a range of FM services for Manchester Airport since 2008 • The new contract includes pest control and landscaping services at Manchester and soft services at Stansted and East Midlands • We will also provide hard services - including M&E maintenance, fixed wire te
Slide 29: Technology
Technology • Technology is enabling greater efficiency and smarter working as NLW labour costs increase • Innovative technology enhances data, analytics and insight to improve decision making and performance, including: • MiWorld for management information • Wearable technology for cleaning • Audit
Slide 30: Diversified revenue base
Diversified revenue base 2016 H1 Revenue by sector Private sector 63% Public sector 37% Finance and 19% 9% Social housing professional services 5% Local government Retail 7% Manufacturing 9% 8% Central and other government Transport and 8% logistics 10% Health Technology and 8% 5% Education communic
Slide 31: £9.3bn sales pipeline
£9.3bn sales pipeline Central Government 2% 6% Local Government 5% Education 4% Health 1% 3% 35% Social Housing 1% Finance & professional Tech & comms Leisure 12% Manufacturing Property management Retail Transport 12% 11% Utilities 5% 3%
Slide 32: Contract mix
Contract mix 13% 26% 31% 32% 33% 35% 46% 33% 29% 30% 28% 27% 41% 41% 40% 38% 39% 38% 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 H1 Single Bundled Integrated • 57% of revenues derived from top 100 clients (2015: 50%) • Single service contracts continue to feed strong pipeline of bundled and integra
Slide 33: Business update
Business update • Security making good progress with risk-based technology approach • Cleaning market tough with pricing pressure but environmental services growing • Catering growing but lower discretionary spend hitting margins • Technical FM impacted by lower H1 project work • IFM flat with low l
Slide 34: Outlook for H2
Outlook for H2 • Major steps taken to improve financial performance • New contract awards in H1 will commence operation in H2 • Incremental seasonal and project revenues in FM and Property Management expected in line with historic experience • H1 non recurring cost of sales costs £7m • Incremental b
Slide 35: Outlook
Outlook • Macroeconomic environment presents both challenges and opportunities • Major steps taken to improve financial performance • Project flows improving but uncertainty remains • Focus on growth in FM • Significant opportunity to transform outsourcing models with technology • Sales pipeline hig
Slide 36: Appendices
Appendices 36
Slide 37: Segment prior year restatement
Segment prior year restatement Roofing moved from Hard FM to Property Management from 1 April 2016 6 months to 30 September 2016 6 months to 30 September 2015 Operating Operating profit Operating Profit profit Operating before Profit before before Profit Profit before Revenue other items Margin tax
Slide 38: EPS and dividend per share
EPS and dividend per share £m 2017 H1 2016 H1 Change Earnings per share before other items 6.2p 11.1p (44.1)% Interim dividend per share 4.0p 5.4p (25.9)% Dividend cover 1.6x 2.1x (0.5)x EPS calculated from: PAT before other items 22.0 40.0 (45.0)% Less non-controlling interests (0.5) (0.7) (28.6)%
Slide 39: Healthcare Goodwill
Healthcare Goodwill Acquired Intangible £m Goodwill Assets Carrying value at 31 March 2016 107.2 11.3 Amortisation of acquired intangibles - (1.2) Review of acquisition accounting as per IFRS 3 (0.1) - Impairment charge to Other Items (107.1) (10.1) Carrying value at 30 September 2016 nil nil • Foll
Slide 40: Mobilisation costs
Mobilisation costs £m 2017 H1 2016 FY 2016 H1 Opening balance 28.6 30.6 30.6 Costs capitalised 7.3 12.0 6.9 Costs amortised (5.8) (14.0) (7.6) Closing balance 30.1 28.6 29.9 Included in current assets 12.2 11.3 12.4 Included in non-current assets 17.9 17.3 17.5 Total 30.1 28.6 29.9 40
Slide 41: Cash conversion 12 month rolling
Cash conversion 12 month rolling £m 2017 H1 2016 H1 Change Operating profit before other items 106.2 122.5 (16.3) Other items (139.5) (19.3) (120.2) Operating profit (33.3) 103.2 (136.5) Depreciation 14.1 19.0 (4.9) Amortisation 18.1 15.0 3.1 Intangible asset write off 16.3 - 16.3 Goodwill write off
Slide 42: Reported cash conversion trend
Reported cash conversion trend 127.8% 128.6% 126.5% 116.3% 107.9% 107.3% 91.4% 84.6% 75.2% 2013 2014 2015 2016 2017 H1 Rolling FY Rolling Target 80% 42
Slide 43: Banking facility maturity profile
Banking facility maturity profile 568 41 467 467 427 427 427 275 275 275 275 275 275 252 192 192 152 152 152 2017 2018 2019 2020 2021 2022 US Private placements Revolving credit facility Uncommitted overdrafts RCF Extended in September to July 2021 43
Slide 44: Return on capital employed
Return on capital employed ROCE 18.6% 16.3% 16.7% 16.0% 15.6% • ROCE over 2x WACC • Continued strong performance driven by low capital requirements and strong operating profit • ROCE is taken into consideration when we invest to maximise the profitability of the Group 2013 H1 2014 H1 2015 H1 2016 H1
Slide 45: Increasing NLW & associated costs
Increasing NLW & associated costs Automatic enrolment in National Living Wage workplace pension schemes £9.50 £9.00 9.0% £9.00 c6% annual Government tax relief 8.0% £8.50 growth Individual pays 7.0% £8.00 Employer pays 6.0% £7.50 5.0% 4.0% £7.00 £6.70 4.0% £6.50 3.0% 2.4% £6.00 2.0% £5.50 0.8% 3.0%
Slide 46: Legal disclaimer
Legal disclaimer This announcement contains forward-looking statements. Such statements do not relate strictly to historical facts and can be identified by the use of words such as ‘anticipate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, and ‘believe’ and other words of similar meaning in connec