Mitie Group Plc · LSE:MTO
Mitie — FY2016 Earnings Presentation
60 slides from Mitie's earnings presentation, May 23, 2016
Slide 1: Delivering today, Inspiring tomorrow
Delivering today Inspiring tomorrow Presentation of preliminary results for the financial year ended 31 March 2016 23 May 2016
Slide 2: Ruby McGregor-Smith CBE, Chief Executive
Ruby McGregor-Smith CBE Chief Executive 2
Slide 3: Agenda
Agenda • Highlights • Finance update • Business update • Outlook 3
Slide 4: Highlights
Highlights • Good overall progress • Strong margins and profits underpinned by good cash conversion • Continued strong dividend growth of 3.4% – 27th consecutive year of growth • Maintained our leading UK market position in FM • Integrated FM portfolio: all major contracts now secured until at least
Slide 5: Suzanne Baxter, Group Finance Director
Suzanne Baxter Group Finance Director 5
Slide 6: Financial highlights
Financial highlights Revenue Net debt £2,231.9m £178.3m 𐰸1.8% (FY15: £2,273.8m) 1.2x EBITDA (FY15: £177.8m) Operating profit before other items Cash conversion £128.9m 75.2% 𐰹0.2% (FY15: £128.6m) (FY15: 126.5%) Operating profit margin 2016 budgeted revenue secured 5.8% 82% 𐰹0.1ppts (FY15: 5.7%)…
Slide 7: Income statement
Income statement £m 2016 FY 2015 FY Change Revenue 2,231.9 2,273.8 (1.8%) Operating profit before other items 128.9 128.6 0.2% Margin 5.8% 5.7% 0.1ppt Other items (16.4) (72.6) (77.4%) Operating profit 112.5 56.0 100.9% Net finance costs (15.7) (14.5) 8.3% Profit before tax 96.8 41.5 133.3% Earnings
Slide 8: Divisional performance
Divisional performance £m 2016 FY 2015 FY Change Revenue Soft FM 1,255.1 1,280.3 (2.0%) Hard FM 618.4 621.1 (0.4%) Total FM 1,873.5 1,901.4 (1.5%) Property Management 280.4 273.4 2.6% Healthcare 78.0 91.4 (14.7%) Other items - 7.6 Mitie 2,231.9 2,273.8 (1.8%) Operating profit before other items Soft
Slide 9: Facilities Management
Facilities Management £m 2016 FY 2015 FY Change Revenue Soft FM 1,255.1 1,280.3 (2.0%) Hard FM 618.4 621.1 (0.4%) Total FM 1,873.5 1,901.4 (1.5%) Operating profit before other items Soft FM 85.4 81.9 4.3% Hard FM 31.7 31.4 1.0% Total FM 117.1 113.3 3.4% Margin Soft FM 6.8% 6.4% 0.4ppt Hard FM 5.1% 5
Slide 10: Property Management
Property Management £m 2016 FY 2015 FY Change Revenue 280.4 273.4 2.6% Operating profit before other items 15.8 10.4 51.9% Margin 5.6% 3.8% 1.8ppt Share of Mitie revenue 12.6% 12.0% 0.6ppt Order book £bn 0.8 1.0 (0.2) 10
Slide 11: Healthcare
Healthcare £m 2016 FY 2015 FY Change Revenue 78.0 91.4 (14.7%) Operating profit before other items (4.0) 4.9 nm Margin (5.1%) 5.4% (10.5ppt) Share of Mitie revenue 3.5% 4.0% (0.5ppt) Order book £bn 0.5 0.4 0.1 11
Slide 12: Revenue phasing
Revenue phasing £m H1 2016 H2 2016 H1 Change H2 Change Soft FM 635.7 619.4 2.1% (5.8%) Hard FM 310.5 307.9 3.2% (3.9%) Total FM 946.2 927.3 2.5% (5.2%) Property Management 137.9 142.5 11.8% (5.1%) Healthcare 39.0 39.0 (19.1%) (9.7%) Mitie 1,123.1 1,108.8 2.2% (5.6%) 12
Slide 13: Profit phasing
Profit phasing £m H1 2016 H2 2016 H1 Change H2 Change Operating profit before other items Soft FM 42.4 43.0 5.2% 3.4% Hard FM 10.5 21.2 (24.5%) 21.1% Total FM 52.9 64.2 (2.4%) 8.6% Property Management 7.3 8.5 32.7% 73.5% Healthcare (2.1) (1.9) Nm nm Mitie 58.1 70.8 (9.5%) 9.9% Margin Soft FM 6.7% 6.
Slide 14: Earnings per share
Earnings per share EPS before other items Basic EPS 24.3p 24.8p 25.0p 21.3p 22.8p 23.1p 20.5p 13.4p 11.8p 9.7p 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY • YOY growth 0.8% • YOY growth 119.6% • 5 year compound growth 2.1% • 5 year compound growth 2.8% 14
Slide 15: 27 years of dividend growth
27 years of dividend growth 12.1p 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 • FY16 dividend per share growth of 3.4% • Current dividend cover 2.1x 15
Slide 16: Balance sheet
Balance sheet £m 2016 FY 2015 FY Change Goodwill and acquired intangibles 488.7 503.7 (15.0) Software and development intangibles 43.7 37.3 6.4 Property, plant and equipment 49.3 53.3 (4.0) Non-current trade and other receivables 86.0 58.5 27.5 Current trade and other receivables 446.7 421.4 25.3 Ot
Slide 17: Trade and other receivables
Trade and other receivables £m 2016 FY 2015 FY Change Trade receivables 209.7 193.9 15.8 AROCC 2.6 8.1 (5.5) Mobilisation costs 28.6 30.6 (2.0) Accrued income 236.2 192.6 43.6 Prepayments 36.4 38.2 (1.8) Other debtors 19.2 16.5 2.7 Total 532.7 479.9 52.8 Included in non-current assets 86.0 58.5 27.5
Slide 18: Mobilisation costs
Mobilisation costs £m 2016 FY 2015 FY Change Mobilisation costs Opening balance 30.6 30.3 0.3 Costs capitalised 12.0 19.6 (7.6) Costs amortised (14.0) (19.3) 5.3 Closing balance 28.6 30.6 (2.0) Included in current assets 11.3 12.4 (1.1) Included in non-current assets 17.3 18.2 (0.9) 18
Slide 19: Non-current trade and other receivables
Non-current trade and other receivables £m 2016 FY 2015 FY Change Mobilisation costs 17.3 18.2 (0.9) Accrued income 68.7 40.3 28.4 Total 86.0 58.5 27.5 • Investment in working capital supports £2.9bn of long-term contracts in our order book • Working capital investment achieves returns in excess of
Slide 20: Trade receivables
Trade receivables • Long-term trend of trade receivables as a percentage of revenue is stable 20
Slide 21: Cash flow and net debt
Cash flow and net debt £m 2016 FY 2015 FY Change Opening net debt (177.8) (186.6) 8.8 EBITDA 152.3 89.5 62.8 Movement in working capital (43.5) (2.6) (40.9) Tax & interest (29.1) (30.6) 1.5 Capex (22.4) (25.1) 2.7 Other 5.8 26.3 (20.5) Free cash flow 63.1 57.5 5.6 Dividend (42.3) (40.5) (1.8) Shares
Slide 22: Cash conversion
Cash conversion Average cash conversion of 100% over 5 years • Five-year average cash conversion of 100.3% • Profits backed by cash • FY16 conversion reflects the unwind of exceptional performance in FY15 22
Slide 23: Capital allocation
Capital allocation 2. Acquire to 5. Maintain an 1. Reinvest for 4. Return cash complement 3. Dividends efficient growth to shareholders organic growth balance sheet Invest in our Selected Grow dividends Buy back shares Modest gearing; business using acquisitions in at least in line to offset share n
Slide 24: Share buybacks
Share buybacks “The Board has approved a share buyback programme to further enhance returns to shareholders whilst maintaining a modest year end gearing level of 1.0x-1.5x EBITDA. This will initially be up to £20m in 2017 and will be reviewed annually going forward. Shares purchased will be cancelle
Slide 25: 2017 Guidance
2017 Guidance Revenue growth Modest growth of up to 3% Operating profit margin Target range of 5 – 6% before other items Cash conversion Target of 80% Capital expenditure Below 2% of revenue Tax rate Effective tax rate of 20% Grow dividends at least in line with underlying earnings Dividends Dividen
Slide 26: Ruby McGregor-Smith CBE, Chief Executive
Ruby McGregor-Smith CBE Chief Executive 26
Slide 27: Mitie today
Mitie today Facilities Management £1,874m Integrated FM £745m We deliver a combination of hard and soft FM services as one tailored proposition Soft FM Hard FM £1,255m £619m - Security - Technical and building services - Cleaning - Maintenance - Catering - Compliance - Landscaping Revenue - Pest con
Slide 28: High quality client base
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Slide 29: 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 30: Market trends
Market trends 30
Slide 31: Macro environment
Macro environment • Low growth and low inflation environment • General election in May 2015 • Continuation of UK Government austerity • EU referendum in June 2016 • Increasing labour costs • Globalisation • Disruptive technology 31
Slide 32: Labour costs
Labour costs Automatic enrolment in National Living Wage workplace pension schemes £9.50 £9.00 9.0% c6% annual Government tax relief £9.00 8.0% growth Individual pays £8.50 7.0% Employer pays £8.00 6.0% £7.50 5.0% 4.0% £7.00 £6.70 4.0% £6.50 3.0% 2.4% £6.00 2.0% 0.8% 3.0% £5.50 1.0% 2.0% 1.0% £5.00
Slide 33: Mitie revenue trends
Mitie revenue trends • FY16 • Four large single service contracts came out of the portfolio (c£60m) • Major new contracts started late in the year or in Q1 FY17 • Delays/cancellations of project works in Q4 • Less discretionary spend in H2 • FY17 • National Living Wage pricing increases – accepted b
Slide 34: Private sector
Private sector • Remains the growth driver in our markets • Price is still important, but focus remains on quality and innovation • Still seeing a trend to integrate services and supply chains • Emphasis on partnership model, particularly for integrated services – client satisfaction high • Flexible
Slide 35: Public sector
Public sector • Continued austerity policy • Procurement focused quality and innovation, but price still dominates • Rigid approach to contractual agreements restricts ability to be responsive to changing environments, or innovate • Not seeing a major shift to larger outsourcing in our chosen market
Slide 36: Technology
Technology • Technology solutions will drive greater efficiency and smarter working in all the core services we provide • Investing significantly in innovative technology enabling data, analytics and insight that enhances decision making and performance, including: • MiWorld • Wearable technology •
Slide 37: Bringing it all together
Bringing it all together • This backdrop presents both challenges and opportunities • Flexible business model • Huge opportunity to transform outsourcing models with technology • Consulting services provide added value and differentiate offering • Specialist businesses within Mitie are growing stron
Slide 38: Facilities Management
Facilities Management 19 November 2015 38 38
Slide 39: The UK's leading FM brand
The UK’s leading FM brand Mitie voted #1 overall service provider in UK FM for 3 years running We were voted most customer focused and innovative We are now top 3 in every service category Rankings 2013 2014 2015 Direction of Travel Overall FM provider #1 #1 #1 Maintain lead Integrated FM #1 #1 #1 M
Slide 40: Retained and extended key IFM contracts
Retained and extended key IFM contracts • Integrated FM accounts for one-third of revenues and with no major rebids until 2019, these long-term contracts underpin future growth • Blue chip client base and superb reference sites • Rolls-Royce: retained our contract to deliver pan-European IFM, our la
Slide 41: New contract awards
New contract awards • JLL • £100m over 3 + 2 years • Hard FM, security and environmental services • NHS Property Services • £100m over 3 + 1 + 1 years • Hard FM, security and environmental services • Cornerstone Telecommunications Infrastructure Ltd • £70m over 5 years • Hard FM • Large retailer • £
Slide 42: Property Management
Property Management 42 42
Slide 43: Growth in social housing
Growth in social housing • Social housing market continues to provide opportunities • Some impact in H2 as a result of the 1% statutory rent reductions coming in to place from April 2016 • Over a third of our revenues are from ongoing ten year strategic partnerships, including the London Borough of
Slide 44: Other market opportunities
Other market opportunities • Painting and repair services • We are the largest painting and decorating contractor in the UK • Cross-selling to an increasing range of clients in social housing and across the FM business • Private sector housing • Insurance services business provides repair services o
Slide 45: Healthcare
Healthcare 45 45
Slide 46: Homecare recovery
Homecare recovery Market backdrop 1. Pricing pressures led to unsustainable procurements 2. Increased regulation 3. Challenges around recruiting and retaining staff; increased agency spend Actions taken 1. Closed and consolidated branches, exited unprofitable contracts 2. Invested in additional qual
Slide 47: Summary
Summary 47
Slide 48: Mitie strengths
Mitie strengths A low-risk and resilient business model: • Pure services business with the number one market position in UK FM • Quality client base in diversified end markets • Long-term contracts and high retention rates give good revenue visibility • Innovative customer proposition and technology
Slide 49: Outlook
Outlook • Focused on organic growth • Strong order book and good revenue visibility • Continue to see a range of good outsourcing opportunities across our key markets • Share buyback programme, up to £20m in FY17 • We are in a good position to deliver sustainable, profitable growth 49
Slide 50: Appendix
Appendix 50
Slide 51: Diversified revenue base
Diversified revenue base 2016 Revenue by sector Private sector 62% Public sector 38% Finance and 17% 11% Social housing professional services 7% Local government Retail 12% Manufacturing 9% 7% Central and other government Transport and 7% logistics 8% Health Technology and 6% 5% Education communicat
Slide 52: Contract mix
Contract mix Headline group revenue £bn 2.5 2.0 32% 13% 31% 33% 26% 1.5 46% 29% 30% 28% 1.0 33% 0.5 41% 41% 40% 38% 39% 0.0 2012 2013 2014 2015 2016 Integrated Bundled Single • 57% of revenues derived from top 100 clients (2015: 50%) • Single service contracts continue to feed strong pipeline of bun
Slide 53: FM revenue breakdown
FM revenue breakdown Cleaning and environmental services £354m Integrated FM £745m FM* Security revenue £236m £1.9bn Catering and front of house £112m Hard FM £427m *FM business comprises two divisions: Soft FM (2016 revenue: £1,255m), which includes cleaning and environmental services, security, ca
Slide 54: Large order book and high revenue visibility
Large order book and high revenue visibility Secured Order book Revenue* £bn % 10 87 9 85 8 85% 85% 7 84% 83 83% 6 82% 81 5 79 4 3 77 8.6 9.2 8.7 9.0 8.5 2 75 2012 2013 2014 2015 2016 * Per cent of budgeted revenues secured for the following financial year as at 31 March 54
Slide 55: £9.1bn sales pipeline
£9.1bn sales pipeline Pipeline by sector As at 31 March 2016 Private sector 50% Public sector 50% Finance and 14% 27% Social housing professional services 8% Local government Retail 3% 9% Central and other Manufacturing 6% government Transport and 8% logistics 4% Health Technology and 2% 2% Educatio
Slide 56: Return on capital employed
Return on capital employed • ROCE over 2x WACC • Continued strong performance 18.6% 17.5% driven by low capital requirements 16.6% 16.5% 16.9% and strong operating profit • ROCE is taken into consideration when we invest to maximise the profitability of the Group 2012 FY 2013 FY 2014 FY 2015 FY 2016
Slide 57: Cash conversion
Cash conversion £m H1 2016 H2 2016 FY 2016 Operating profit before other items 58.1 70.8 128.9 Other items (5.0) (11.4) (16.4) Depreciation 8.3 6.8 15.1 Amortisation 8.8 15.9 24.7 EBITDA 70.2 82.1 152.3 Other non-cash movements 3.5 2.3 5.8 Working capital (63.5) 20.0 (43.5) Cash generated from opera
Slide 58: Pensions
Pensions £m Group Scheme Other Schemes Total Pension assets 156.9 9.5 166.4 Pension obligations (191.3) (10.6) (201.9) At 31 March 2016 (34.4) (1.1) (35.5) At 31 March 2015 (34.9) (0.9) (35.8) • Actuarial triennial valuation of the Mitie Group scheme completed in 2014. The scheme actuarial deficit w
Slide 59: Provisions
Provisions Deferred contingent £m Insurance Reserve Total consideration At 31 March 2015 11.4 0.9 12.3 Movements in the (11.0) (0.4) (11.4) year At 31 March 2016 0.4 0.5 0.9 59
Slide 60: 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