Mitie Group Plc · LSE:MTO
Mitie — FY2017 Earnings Presentation
62 slides from Mitie's earnings presentation, Jun 12, 2017
Slide 1: FY2017 Preliminary Results
FY2017 Preliminary Results 12 June 2017
Slide 2: Slide 2
Slide 3: Disclaimer
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 connection w
Slide 4: About Mitie
About Mitie • Mitie is a FTSE 250 business providing a wide range of facilities management and professional services, from real estate consultancy, project management, energy consultancy, compliance, risk assessment and security systems to cleaning, catering, engineering, technical and environmental
Slide 5: Agenda
• FY2017 Summary (Phil Bentley) Agenda Agenda • FY2017 Financial Review (Sandip Mahajan) • FY2018 Strategy Update & Outlook (Phil Bentley)
Slide 6: FY2017 was a challenging year, but revenue held up
FY2017 was a challenging year, but revenue held up LIKE-FOR-LIKE ORDER BOOK* PIPELINE** REVENUE £2.1B | +0.3% £6.5B | -1% £8.7B | +10% (FY2016 £2.1B) (FY2016 £6.6B) (FY2016 £7.9B) REPORTED LIKE-FOR-LIKE OP. PROFIT OP. PROFIT+ -£6.3M | n/a £82.0M | -14% (FY2016 £135M) (FY2016 £95M) +Before Balance Sh
Slide 7: Mitie competes in a large market across six main service lines
Mitie competes in a large market across six main service lines… Mitie addressable UK property FM Market: £45B Cleaning & Environmental Security Catering Engineering Services Services • Low single digit growth driven by increased outsourcing • Market typically resilient through the economic cycle • H
Slide 8: Distinguished by a strong, balanced position across all major service lines
…and is distinguished by having a strong, balanced position across all major service lines Mitie share of addressable market ~4% #2 #2 #6 #2 Cleaning Image Catering Image Cleaning & Environmental Security Catering Engineering Services Services #1 #1 #2 • National footprint and scale • Technical brea
Slide 9: We have maintained our high quality client base
We have maintained our high quality client base... 9
Slide 10: Since January, we have laid the foundations for Mitie's future growth
… and since January, we have laid the foundations for Mitie’s future growth… Reset our New “Beyond FM” Accounting Disposal of Organisation strategy & New strategic Healthcare Review & Leadership leadership direction completed team Reshape “Project Helix” “T200” Working Capital launched to our ~£10m
Slide 11: Led by a new team for a new Mitie
…led by a new team for a new Mitie… Divisional Leadership Functional Leadership RICHARD COUZENS • ~10 years with Mitie MD Cleaning & * Specialist Services • Serco SANDIP MAHAJAN • Balfour Beatty * CFO • EY JASON TOWSE • ~5 years with Mitie * MD Security • Securitas • British Gas • Chubb DAVID COOPER
Slide 12: New vision and strategic priorities: Beyond FM…to the Connected Workspace
…and have set a new vision and strategic priorities: ‘Beyond FM…to the Connected Workspace’… WHAT DO CUSTOMERS WANT TODAY? • Modern facilities and services to Wellbeing attract top talent Customer • Joined-up, real time management User experience of resources Secure Cost • Enhanced security and risk
Slide 13: Agenda
• FY2017 Summary (Phil Bentley) Agenda Agenda • FY2017 Financial Review (Sandip Mahajan) • FY2018 Strategy Update & Outlook (Phil Bentley)
Slide 14: FY2017 Financial review summary
FY2017 Financial review summary • Like-for-like revenue remained flat at £2.1bn • Like-for-like operating profit decreased by £13m – from £95m to £82m • Accounting Review completed, resulting in net £88m one-off adjustments in FY2017, and £61m PYA’s • Agreement reached with banks and USPP lenders to
Slide 15: Accounting Review identified 3 types of adjustments
Accounting Review identified 3 types of adjustments REVIEW CONCLUSIONS FINANCIAL IMPACT 1 • Material errors • £21m PYA - Expenses booked in FY17, relating to prior periods • FY2016 operating profit restated - Irrecoverable debtor balances from £135m to £114m reported at FY16 as recoverable • £26m He
Slide 16: Like-for-like operating profit decreased by £13m from £95m to £82m
Like-for-like operating profit decreased by £13m from £95m to £82m One-offs by review type £m One-offs by item type £m Jan. trading update 14 Debtor provision 11 Accounting Review 60 POC mobilisation 26 Additional adj. agreed 40 Asset impairment 36 Net PYA (21) Intangible asset impairment 11 Other (
Slide 17: Like-for-like revenue flat but operating profit declined
Like-for-like revenue has remained flat but operating profit declined FY2016 YoY change £m FY2017 restated £ % Underlying revenue 2,140.0 2,133.4 6.6 0.3 Cost of sales (1,862.4) (1,845.1) (17.3) 0.9 Underlying gross profit 277.6 288.3 (10.7) (3.7) Business overhead (172.3) (173.1) 0.8 (0.5) Corporat
Slide 18: Like-for-like revenue – divisional analysis
Like-for-like revenue – divisional analysis FY2016 YoY change £m FY2017 restated £ % Cleaning & Environmental Services 399.0 407.1 (8.1) (2.0) Security 404.2 364.4 39.8 10.9 Catering 132.7 126.6 6.1 4.8 Engineering Services 809.0 788.4 20.6 2.6 Professional Services & Connected Workspace 90.9 97.9 (
Slide 19: Like-for-like operating profit – divisional analysis
Like-for-like operating profit – divisional analysis FY2016 YoY change £m FY2017 restated £ % Cleaning & Environmental Services 20.3 23.6 (3.3) (14.0) Security 19.9 19.8 0.1 0.5 Catering 5.3 5.3 0.0 0.0 Engineering Services 37.9 42.0 (4.1) (9.8) Professional Services & Connected Workspace 6.7 5.6 1.
Slide 20: Cleaning & Environmental Services
Cleaning & Environmental Services FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Cleaning restated £ % - Landscape Underlying revenue - Pest 399.0 407.1 (8.1) (2.0) • ~26,500 total employees Underlying gross profit 57.1 55.4 1.7 3.1 • No. of clients: Gross profit
Slide 21: Security
Security FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Total Security Management (TSM) restated £ % - Fire and Security Systems Underlying revenue 404.2 364.4 10.9 - Front of House 39.8 - Document Management Underlying gross profit 44.3 42.6 1.7 4.0 - Employee sc
Slide 22: Catering
Catering FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Gather and Gather restated £ % - Creative Events Underlying revenue 132.7 126.6 6.1 4.8 • ~2,500 total employees Underlying gross profit 12.9 13.9 (1.0) (7.2) • No. of clients: ~90 • Client sites: ~300 Gross
Slide 23: Engineering Services
Engineering Services FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Building maintenance restated £ % - Heating/cooling Underlying revenue - Lighting 809.0 788.4 20.6 2.6 - Water treatment Underlying gross profit 83.7 92.0 (8.3) (9.0) - Building controls Gross pro
Slide 24: Professional Services & Connected Workspace
Professional Services & Connected Workspace FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Real estate consultancy (Source8) restated £ % - Energy (Utilyx) Underlying revenue - Waste management 90.9 97.9 (7.0) (7.2) • ~500 total employees Underlying gross profit 1
Slide 25: Property Management
Property Management FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Social housing restated £ % - Painting Underlying revenue - Roofing 257.7 313.5 (55.8) (17.8) • ~2,200 total employees Underlying gross profit 57.8 63.2 (5.4) (8.5) • No. of clients: ~1,000 Gross p
Slide 26: Care & Custody
Care & Custody FY2017 Financials Key facts • Key business segments: FY2016 YoY change £m FY2017 - Immigration detention restated £ % - Medical forensics Underlying revenue 46.5 35.5 11.0 31.0 • ~950 total employees Underlying gross profit 6.2 4.5 1.7 37.8 • No. of clients: ~20 • Client sites: ~60 Gr
Slide 27: Cash flow
Cash flow FY2016 YoY Change £m FY2017 restated £ % Opening net debt (178.3) (177.8) (0.5) (0.3) EBITDA (5.0) 139.7 (144.7) (104) Other 14.1 (3.0) 17.1 570 Operating cash flow before movements in working capital 9.1 136.7 (127.6) (93) Payables 37.9 5.0 32.9 658 Receivables (19.9) 14.3 (34.2) (239) Ot
Slide 28: Net debt and leverage
Net debt and leverage INVOICE DISCOUNTING NET DEBT PROGRAMME Avg. net debt FY16: £325m FY17: £336m Year end net debt FY16: £178m FY17: £147m • Net debt remained within RCF leverage covenant • Invoice discounting increased from £82m to ratio limits £111m, driven primarily by major new contract (on ex
Slide 29: Balance sheet
Balance sheet FY2017 FY2016 YoY change £m reported restated £ % Goodwill 343.9 439.5 (95.6) (22%) Acquisition related intangibles 6.6 23.2 (16.6) (72%) Software and development intangibles 46.6 41.4 5.2 13% Property, plant and equipment 32.3 49.3 (17.0) (34%) Non-current trade & other receivables 50
Slide 30: EPS and DPS
EPS and DPS FY2017 FY2016 YoY reported restated change Weighted avg. share count for 351.0m 355.4m (4.4)m basic EPS • No final dividend recommended for FY2017 EPS – from continuing (14.7)p 20.1p (34.8)p operations • Company’s distributable reserves are £137.3m EPS – from continuing and (£237.6m at 3
Slide 31: FY17 Financial Performance summary
FY17 Financial Performance summary Like-for-like revenue Net debt £2,140m £147m ↑ 0.3% (FY16: £2,133m) ↓ -17.4% (FY16: £178m) Like-for-like operating profit Order book £82.0m £6.5bn ↓ -14% (FY16: £95m) ↓ -1.0% (FY16: £6.6bn) Like-for-like operating profit margin Sales pipeline 3.8% £8.7bn ↓ 0.7 ppts
Slide 32: Agenda
• FY2017 Summary (Phil Bentley) Agenda Agenda • FY2017 Financial Review (Sandip Mahajan) • FY2018 Strategy Update & Outlook (Phil Bentley)
Slide 33: New strategy: Beyond FM…to the Connected Workspace
We have launched a new strategy: Beyond FM…to the Connected Workspace Customer Cost Cost People People Technology Uplift investment in Transform our cost Build a winning culture technology to Put customers at the base and restore and team, to retain & improve customer heart of our business balance s
Slide 34: Putting customers at the heart of our business
Putting customers at the heart of our business… Customer • Life time value analysis by customer/segment KPIs • Strategic Account Management for Bid win rate 1st tier accounts Revenue and cross-sell from Tier 1 accounts • New Group Sales Director and further Gross margin per sales capability addition
Slide 35: Focusing on customer lifetime value
…by focusing on customer lifetime value Customer We have identified customers/segments We are introducing with high LTV Strategic Account Management From: To: High current, prospective and strategic value to Mitie Individual business Strategic Account led sales Management Strategic Top 80 customers,
Slide 36: Strategic Account Management in action - Thales
Strategic Account Management in action - expanding Mitie’s partnership with Thales Customer What we did: • Strategic Account Manager as single point of contact across ~8 services • Centralised performance management and integrated MI achieved cost savings through reduced management layers • Targeted
Slide 37: Current cost base is £2.1B and growing
Our current cost base is £2.1B and growing, driven by internal complexity and inefficiencies Cost Total cost base of £2.1B (FY2017) COS OPEX £1,862m £196m (+£17m) (+£3m) Direct labour costs and Overhead costs purchased goods & services 37
Slide 38: We have launched three waves of cost initiatives
We have launched three waves of cost initiatives Cost Today FY2017 FY2018 FY2019 Wave 1: ‘T200’ “Project Helix”: Re-engineering Mitie’s “DNA” 160 FTEs • Removal of mgmt. layers • Increase in spans of control Wave 2: Quick wins Non-people cost “quick wins” • Travel & expense Review of all • Lease exp
Slide 39: HR transformation programme
Our HR transformation programme will standardise and simplify our HR processes across Mitie Cost Current State • 20,000 recruitments p.a.: Inconsistent resourcing standards; multiple Resource ~10 FTE external agencies Planning • Undesirable employee attrition Employee • ~3,000 p.a. employment grieva
Slide 40: Creating a world class HR team
We are creating a world class HR team that is focused on enabling our people to perform & prosper Cost We will better leverage our teams and We will right-size our HR function centralise our HR function HR cost as % of revenue From: To: 20-40% cost HR in individual BUs HR as a ‘business partner’ red
Slide 41: HR plans launched this year, benefits in FY2018
Most HR plans will be launched this year, with benefits following in FY2018 Cost £3m run-rate savings £2m capex £2m cost of change FY2018 FY2019 FY2020 PEOPLE SERVICES KPIs • Move to new operating model • Embed Case Management System Headcount reduction LEARNING & DEVELOPMENT Staff turnover • Roll o
Slide 42: Finance transformation
Our Finance transformation will standardise and simplify our finance processes across Mitie Cost Current State • No standardised policy & process to resolve aged overdue/unbilled Order to cash ~150 FTE • Lack of integrated workflow between billing & credit control Purchase to • Multiple, duplicative
Slide 43: Creating a world-class Finance team
We are creating a world-class Finance team, that is more efficient and robust Cost We will better leverage our teams and We are right-sizing our Finance function centralise our Finance function Finance cost as % of revenue From: To: 20-50% cost Finance as a Finance in individual BUs reduction ‘busin
Slide 44: In-year cost savings from Finance in FY18
We expect in-year cost savings from Finance in FY18, with strong exit run-rate performance Cost £10m run-rate savings £2m capex £10m cost of change FY2018 FY2019 FY2020 STRUCTURE & ORG FINANCE 2.0 KPIs • Introduce the “Mitie Way” • Refresh Finance role & ambition • Reduce complexity • Re-align servi
Slide 45: Workflow transformation
Our Workflow transformation will standardise and simplify Mitie’s operational processes Cost Current State: Engineering Services • Inconsistent storage of asset data Contract set-up • No standard contract set-up ~200 FTE • 10 support centres; standardisation of processes ongoing Job receipt • Incons
Slide 46: Standardising, automating and simplifying operational delivery
We are standardising, automating and simplifying our operational delivery to be more efficient Cost We will simplify and standardise We are right-sizing our operational cost base our operational delivery model Engineering Services operations costs as % of Engineering revenue From: Contract by To: St
Slide 47: Workflow Transformation benefits need more investment and lead time
Workflow Transformation benefits will require more investment and longer lead time to deliver Cost £20m run-rate savings; £10m capex, £7m cost of change FY2018 FY2019 FY2020 AUTOMATE PROCESSES KPIs • Improve handheld usage • Asset data register TACTICAL QUICK WINS • Remove manual timesheets First ti
Slide 48: Build a winning culture and develop our People
We will build a winning culture and develop our People People • Employee Engagement embedded in incentives • New Mitie vision, values and behaviours • ‘Mitie Way’ of Performance Management including incentives/consequence management • ‘Mitie Way’ of being a Team Leader • Consistent objective setting
Slide 49: Uplift technology investment to drive customer retention
We will uplift technology investment to drive customer retention… Technology • Organisation structure defined, teams recruited and big data expertise engaged KPIs Professional Services & Connected Workspace • Development of products and platforms revenue underway with partners NPS of technology solu
Slide 50: Consistent customer-facing technology
…through development of a consistent customer- facing technology… Technology Upgrade/integration of the existing product New development Machine learning MiDelivery Field workers MiFacility interface Delivery management agent IoT infrastructure and sensors On-site teams Remote control Sensors Data L
Slide 51: Fully integrated value propositions
…with fully integrated value propositions Technology Wellbeing Portfolio utilisation Infrastructure resilience Environmental monitoring, notification Sensors, integrated desk, room and Real time monitoring & predictive on employee nutritional info. to: equipment booking to: maintenance to: • Improve
Slide 52: Roadmap and clear vision for FY2020
We have a roadmap and a clear vision for FY2020 FY2018 FY2019 FY2020 COST INITIATIVES STRATEGIC VISION Project Helix Strategic relationships driving top line growth SALES GROWTH • Technology led, Strategic Account Step change in customer NPS Management, Sector propositions SECURITY ENGINEERING Total
Slide 53: Guidance for FY2018 and medium term
Guidance for FY2018 and medium term Initial progress with operational improvements under way; FY2018 performance to date in-line with expectations Expect flat revenue growth in FY2018, with low single digit Revenue growth growth over medium term Opex savings Expected in-year net savings of £10m in F
Slide 54: Q&A
Q&A
Slide 55: Appendix
Appendix 55 initie
Slide 56: List of abbreviations (1/2)
List of abbreviations (1/2) Abbreviation Term A/P Accounts Payable Adj. Adjustment BU Business Unit CID Confidential Invoice Discounting Comp. Compensation CRM Customer Relationship Management DPS Dividends Per Share EDI Electronic Data Interchange Eng. Engineering EPS Earnings Per Share FM Faciliti
Slide 57: List of abbreviations (2/2)
List of abbreviations (2/2) Abbreviation Term HSE Health and Safety Executive IFRS International Financial Reporting Standard IoT Internet of Things KPI Key Performance Indicator LTV Lifetime Value MI Management Information NLW National Living Wage NPS Net Promoter Score OH Overhead Op. profit Opera
Slide 58: Changes in business segments FY2016 vs FY2017
Changes in business segments FY2016 vs FY2017 FY2016 FY2017 Environmental Cleaning Cleaning & Cleaning Waste management Environmental Landscape Specialist Services Landscape Pest Services Pest Total Security Management (TSM) Soft FM Total Security Management (TSM) Fire and Security Systems Security
Slide 59: FY2016-2017 Order Book
FY2016-2017 Order Book YoY change £m FY2017 FY2016 £ % Cleaning & Environmental Services 811 894 (83) (9) Security Services 876 776 100 13 Catering Services 458 463 (5) (1) Engineering Services 3,259 3,325 (66) (2) Professional Services & Connected Workspace 221 190 31 16 Property Management 663 639
Slide 60: FY2016-2017 Sales pipeline
FY2016-2017 Sales pipeline YoY change £m FY2017 FY2016 £ % Cleaning & Environmental Services 607 538 69 13 Security Services 1,220 651 569 87 Catering Services 836 284 552 194 Engineering Services 1,432 3,035 (1,603) (53) Professional Services & Connected Workspace 115 137 (22) (16) Property Managem
Slide 61: Cost guidance summary table
Cost guidance summary table £m FY2018 FY2019 Run Opex Run Opex In year Cost of In year Cost of rate invest- Capex rate invest- Capex savings change savings change savings ment savings ment Project Helix HR Transformation 3 - 2 2 3 3 - - - Finance Transformation 3 10 - 2 10 10 10 - - - Workflow Trans
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