Good results and strong growth aspirations

Good results 

• Strong revenue growth of 10.0% to £1,891.4m
• Good progress in underlying organic revenue growth – second half 5.3%; full year 3.5% 2
• Operating profit before other items up 16.5% to £108.3m (includes £4.1m benefit arising from the change from RPI to CPI for the valuation of certain pension liabilities)
• Operating profit margin before other items improved to 5.7% (2010: 5.4%)
• Excellent conversion of EBITDA to cash of 86.7% against target of 80% (2010: 95.2%)
• Total dividend for the year up 15.4% to 9.0 pence (2010: 7.8 pence)
• Low leverage with net debt of £76.5m (2010: £86.6m)
• Strong balance sheet and long-term committed finance will support growth 

(1) Other items comprise the amortisation of acquisition related intangible assets of £8.9m (2010: £5.3m), restructuring and acquisition costs of £9.9m (2010: £6.6m) and acquisition related finance charges of £0.1m (2010: £0.1m) 
(2) Underlying organic revenue growth is stated after adjusting for the full year effect of acquisitions made in the prior year and excludes the activities in our discontinued engineering contracting business

Transformational contract awards

• Rolls-Royce: pan-European total facilities and energy management 
• Vodafone: total facilities and energy management for entire UK and Irish property portfolio 
• UK Home Office, Campsfield House Immigration Removal Centre: custody, detention, facilities and energy management 
• Major decentralised energy projects: Royal Free North Hampstead Hospital, Waitrose and a waste-to-energy plant 
• Solar energy: completed a pilot project of photovoltaic panels on 200 properties which provide free daytime electricity for social housing tenants, with potential for up to 15,000 further properties during calendar 2011

Strong relationships, energy services and international development to support aspirational growth targets

• Identified several major opportunities to repeat the growth achieved with Rolls-Royce and Vodafone with a number of existing major clients over the next two to three years
• Energy services generated 34% of revenues in 2011 – now ranked in the top two energy services companies in the UK 
• Self-delivery and supply-chain management in six European countries allows us to grow organically from this initial footprint 
• Acquired the integrated facilities management businesses of Dalkia in Ireland 

Excellent revenue visibility and market opportunity 

• 81% of 2011/12 budgeted revenue secured (2010: 75%) 
• Long-term order book increased to £6.8bn (2010: £6.4bn)
• £11.4bn pipeline of identifiable sales opportunities
• Private sector 63% of 2011 revenues

Ruby McGregor-Smith, Chief Executive of MITIE Group PLC, commented: 
“These are very good results and this year we have been awarded a number of transformational contracts. We have secured some significant work in the private sector where we have excellent relationships with our clients and are differentiated by our energy services capabilities and use of technology. We have been appointed to several large public sector frameworks and have a strong pipeline of opportunities in local government, social housing, justice and health. 

“The opportunities in outsourcing and energy services in the UK and abroad are significant. Our strong balance sheet and excellent cash conversion, as well as a record order book and sales pipeline, will enable us to achieve our growth aspirations. The business is well positioned for continued sustainable, profitable growth.”

Erica Lockhart, Head of Investor Relations and External Affairs
T: +44 (0) 20 3123 8675  M: +44 (0) 7979 784488 

John Telling, Group Corporate Affairs Director
T: +44 (0) 20 3123 8673  M: +44 (0) 7979 701006 

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MITIE will be presenting its preliminary results for the period ending 31 March 2011 at 09.30 on Monday 23 May 2011 at UBS Investment Bank, 7th Floor, 1 Finsbury Avenue, London, EC2M 2PP. A live webcast of the presentation will be available online at www.mitie.com/investors at 09.30. The recorded webcast of the presentation and a copy of the accompanying slides will also be available on our website later in the day. MITIE expects to publish its Annual Report and Accounts (containing financial statements that comply with IFRS) in June 2011 and copies will be available from MITIE’s registered office and on its website www.mitie.com. MITIE’s Annual General Meeting will take place at 14.30 on 13 July 2011 at UBS Investment Bank, 7th Floor, 1 Finsbury Avenue, London, EC2M 2PP. 

High resolution images are available for the media to download free of charge from www.flickr.com/mitie_group_plc

Overview 

We have had another year of strong progress at MITIE, with double-digit growth in revenue, earnings and dividends. This is an excellent performance against a UK economic backdrop that remains challenging and is a testament to the passion and hard work of our people. 

During the year, we have made excellent progress on our key strategic initiatives, continuing to invest in our people, technology, facilities management (FM) and energy propositions as well as our overseas capability. We were delighted to retain and expand contracts with Rolls-Royce and Vodafone which confirmed our strategy of providing integrated FM and energy services. We also acquired Dalkia FM in Ireland and made a significant investment in the fast developing decentralised energy market. We start the new financial year in a strong and confident position.

Results
During the year, revenues grew by 10.0% to £1,891.4m (2010: £1,720.1m). Operating profit before other items increased by 16.5% to £108.3m (2010: £93.0m), reflecting an improved margin of 5.7% (2010: 5.4%). Profit before tax and other items increased by 15.3% to £105.7m (2010: £91.7m). Earnings per share before other items grew by 15.9% to 22.6p per share (2010: 19.5p per share). 

We have retained our strong focus on cash, reporting cash inflows from operations of £102.5m (2010: £98.4m) for the year, which represents excellent conversion of EBITDA to cash of 86.7% (2010: 95.2%). The balance sheet is extremely strong with net debt at the year end at 0.65 times EBITDA at £76.5m (2010: £86.6m), after using debt funding of £7.3m for an acquisition. 

We have recently refinanced our bank facilities and now have committed bank facilities of £250m until September 2015, which will be available for draw down after the AGM. We also drew down £100m equivalent of US Private Placement debt in December 2010, in a mix of notes which mature between seven and nine years. Both of these facilities leave us in a strong position to take advantage of value-creating acquisition opportunities as they arise. 

We continue to see strong growth in our order book, which increased by 6.3% during the year and now stands at a record £6.8bn (2010: £6.4bn). 

Our sales pipeline currently stands at £11.4bn and our contracted revenue for the year ending 31 March 2012 is 81% of budgeted revenue (2010: 75%). 

Dividend
We continue to generate attractive dividends and dividend growth for our shareholders. The Board has recommended an increased final dividend of 4.9p per Ordinary share, providing a total dividend per share for the year of 9.0p, a 15.4% increase on 2010. This is consistent with our dividend policy to maintain dividends in line with underlying earnings per share growth at a cover ratio of 2.5 times adjusted earnings. Subject to shareholder approval at the Annual General Meeting, the dividend will be paid on 12 August 2011 to shareholders on the register at 24 June 2011. 

Board
After serving for 17 years at MITIE, of which nine have been on the Board, Roger Goodman stepped down as a PLC Director on 31 March 2011. We thank him for his valuable contribution to the Board.

People
We would like to thank all of our people for their exceptional efforts and support and to welcome the 5,327 people who joined us during the year. We are now a company of 61,906 individuals, which makes us one of the UK’s largest private sector employers. 

In particular, we would like to welcome those who joined us following our acquisition of Dalkia FM in Ireland. 

It is our talented, dedicated people who allow us to achieve consistently strong results and maintaining the motivation of our people is critical to our future success. We remain focused on recognising and rewarding exceptional team performance, nurturing talent and providing opportunities for our people to succeed in their careers.

Outlook
MITIE is in an excellent position. We continue to focus on organic growth, supplemented by selective acquisitions and the development of our integrated business model overseas. We have a diverse, high-quality client base across both the public and private sectors, which underpins our consistent track record. This has enabled us to continue investing in our people, technology and new markets, all of which supports our strong order book and growing sales pipeline. There are exciting opportunities in our markets, as clients across the board look to introduce further innovation and efficiencies into their businesses. We are financially robust and have a clear strategy for the development of our business. We are confident that MITIE will continue to build on its long track record of sustainable, profitable growth.

Business review 

MITIE’s strength is that we never forget that we’re a service company – we deliver the everyday outsourced services that clients need in order to build their own businesses. Our broad scope and capabilities mean that we are the people responsible for everything from managing property estates and reducing energy consumption to providing engineers, cleaners and security officers, controlling pests, gritting roads and much more besides. 

We can do these things very efficiently, which is how we can save our clients money. Our approach starts with getting the specification exactly right, and agreeing service levels with the client. Then, with contracts in place, we mobilise our teams very effectively. People transfer is complex and made even more so by legislation – but it is vital to get it absolutely spot on. Then we blend our experience and skills, innovative IT processes and industry-leading training and development to deliver exactly what we say we will deliver, exactly how we promised it. That’s why MITIE clients tend to stay MITIE clients, and why our business has grown for 23 consecutive years.

Market overview
As a strategic outsourcing and energy services company, we serve both private and public sector clients. Our marketplace continues to evolve, driven by the needs of all clients to improve efficiency while reducing costs. Clients are restructuring and rethinking to reduce costs and they are turning to us for assistance. At the same time, they are looking to improve the way they manage energy, and taking advantage of our energy services offering, which helps cut carbon while also reducing costs. This is ensuring that in the UK, our core market, attractive opportunities for growth remain. 

75% of our contract awards this year have come from the private sector and we are seeing a lot of activity at the moment. There is also a move towards more integrated facilities management – not only in the UK but also overseas. When clients tell us that they would like the MITIE services they enjoy in the UK to be available in other countries, we will do everything in our power to make it happen. Our relationship with Rolls-Royce is a case in point, where during 2010 we went from being a UK supplier to one who partners with them across Europe. 

The international opportunities for our business are growing fast and will continue to do so as we help more clients like Rolls-Royce be more efficient outside the UK. Around 40% of our top 100 clients are multinationals, so the opportunity is clear, and we are actively looking at how we can support them. 

The acquisition of Dalkia FM in Ireland, which was finalised in June, is an important step along this pathway. Dalkia provides outsourcing solutions to clients in several different sectors and their experience has given us proven FM capability in a new territory.

In the public sector, budgetary pressures remain, which will create further opportunities for MITIE in the coming months and years. We are well-placed to support our public sector clients and have close working relationships with the Cabinet Office and other bodies. Local government, justice and health are just three of the sectors where we can see great opportunities. Indeed, several of these have already come to fruition, including the contract to provide a full custody and detention service at the Campsfield House immigration centre. This is our first contract in the prisons sector – and I am confident that we can go on to win many more. 

The need for all organisations to use fewer natural resources is changing our marketplace, as our clients rethink the way they supply and consume energy. Energy management is, and should be, integral to facilities management and we have invested considerably in these capabilities – we are now one of the top two energy services companies in the UK. We believe energy services will, in time, be part of every contract we operate, and are well-positioned to take advantage of this opportunity.

Private sector
Organisations are seeking to drive down costs by focusing on integrated services, supplier rationalisation, retendering and innovation. As companies consolidate, they are examining their cost base and identifying opportunities for outsourcing. 

Our ability to deliver integrated services is again proving a key differentiator. As we have seen with the recent contract awards from Vodafone and Rolls-Royce, many clients are keen to access our strengths in a broader range of integrated services. Technology is another important driver, as more clients appreciate the value of instant information being displayed via a dashboard on their PC. We are also experiencing a number of clients choosing to take a ‘whole life’ view and linking the initial capital expenditure to the lifetime operating expenditure of their contracts. 

Critical infrastructure projects such as data centres will be a major challenge for all sectors in the coming years. A data centre is the hub of a modern organisation, with failure causing the loss of company-critical facilities including email and access to the internet. Many organisations are currently initiating plans to invest significant funds in data centre infrastructure and the low-carbon energy solutions to power them. 

Looking at outsourcing activity in the various sectors, the financial and professional services area remains particularly active. Many clients are changing their procurement models and this has led to high levels of private sector tenders, most especially in the retail, transport and utilities sectors.

Public sector
The UK Government, local authorities and other bodies are initiating cutbacks, many of them significant. They are looking at expenditure in fine detail – from headcount to energy cost and this is creating opportunities for outsourcing. We expect this trend to remain in place during the coming years. We believe that outsourcing has the potential to reduce costs while also improving services, and we are well-positioned to support the UK Government’s agenda of addressing the deficit, particularly in our focus areas of justice, health, social housing and education.

 Mutual ownership models have a part to play in reducing the costs of management and administration. These have worked well in the private sector and are likely to deliver similar benefits in the public sector. Partnerships between the public and private sector are expected to be important as the Government seeks to transform the way in which services are provided. 

Energy costs are a key issue for the public sector – but so too are carbon emissions. The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme came into effect in April 2010. 

The CRC is a huge part of the Government’s pledge to reduce greenhouse gas emissions by at least 80% from 1990 levels by 2050. The scheme will see organisations with total half-hourly metered electricity consumption greater than 6,000 mega watt hours a year (equivalent to approximately £460,000 electricity spend) forced to buy allowances for each tonne of carbon dioxide (CO2) they emit and be placed in a league table according to their energy performance. 

Through our CarbonCare service, we are helping all organisations, including those in the public sector, to manage their energy use and carbon footprint.

International
An increasing number of clients are taking a pan-European view on procurement. They want to leverage their spend in order to reduce costs and improve efficiency across national boundaries. For example, during the year Rolls-Royce appointed us for the facilities and energy management of its European properties. Many of our clients have an international presence. As they centralise their procurement operations, we expect that business through pan-European contracts will increase. 

As part of our international strategy, we acquired Dalkia FM in Ireland, and have developed a senior management team with global experience. 

This team works closely with our partners in Service Management International (SMI) to develop international opportunities for MITIE. 

According to research, the value of the EMEA (Europe, Middle East and Africa) market for outsourced FM services is in excess of £250 billion, of which around 10% is integrated services. As we look at value-creating opportunities across Europe for specific clients, we are increasingly well-placed to exploit this tremendous potential.

Emerging growth markets
We continue to identify opportunities in new markets, and recently we were awarded contracts in two sectors which are new to us. 

In February 2011 we signed our first agreement for the energy provision for a waste-to-energy plant. All energy to the plant will be sourced from local wood, with surplus energy being sold back into the national grid. Towards the end of 2010, we were awarded a five-year contract by the Home Office to deliver a full custody and detention service at Campsfield House immigration centre. This is our first contract in the prisons sector, an area where we anticipate significant future opportunity. 

Since 1988, we have consistently backed the idea of equity and opportunity with funds and support, and have helped over 80 successful start-ups in that time. During the year, we refreshed this idea by launching the ‘MITIE Entrepreneurial Programme’, a £10m fund to back teams with innovative ideas for starting mutually owned businesses. The ‘MITIE model’ gives management teams an equity stake in a business, which they then grow over a five to ten-year period and which is eventually acquired by us in full.

Operating review 

Since 1 April 2010, we have operated primarily in four divisions: Facilities, Technical Facilities, Property, and Asset Management. Each division brings together a selection of services that naturally fit together – from both an operational and a client perspective. As we grow, more of our contracts incorporate two, three or even all of our divisions. 

Facilities Management
Our Facilities Management business is responsible for delivering ‘soft’ FM services. Our offering ranges from fully integrated FM and consultancy, to any of our specialist single services which include security, cleaning, catering, business services, client services, waste management, environmental services, landscaping and pest control.

We made significant progress during the year, particularly in our ability to bid for and win large contracts that span many regions and draw on the services of all of our divisions. As our clients look to create value from all of their assets, we have responded with a flexible model that uses our broad range of expertise in asset, energy and property management alongside any or all of our FM capabilities. 

The savings that clients can achieve by transitioning to a full FM service continue to drive growth in our business. Energy management is also an important differentiator for us and the development of CarbonCare has given us a market-leading offering. 

We tailor all of our services to suit our clients’ needs and this has seen us increasingly develop niche offerings for specific sectors, such as retail, transport, healthcare and, more recently, justice and prisons. 

We have made several enhancements to our security business and now offer a total security management solution, which includes manned guarding, response services, key holding and remote monitoring via our newly-opened technology centre in Northern Ireland. 

Specialist services to the police and justice markets is a growing area for us. There are opportunities in prisons, a range of police support services, and we have already commenced work in our first immigration detention centre. 

We are also developing our catering offering, with a brand refresh and the appointment of a new managing director and a sales director. 

Our recent investments in customer relationship management and our integrated offering are bearing fruit: we achieved a 84.2% retention rate for rebid contracts during the year. We are also the third biggest player in both cleaning and security in the UK and one of the top ten providers for all of our other FM services. 

Looking ahead, our ability to save costs for both new and existing clients, along with our focus on retaining clients and expanding into new markets, will support continued growth in FM.

Technical Facilities Management
Our Technical Facilities Management (TFM) business focuses on ‘hard services’ facilities management that is led by technology, engineering and the need to reduce energy consumption. Services include integrated FM, mechanical and electrical engineering maintenance, mobile multi-site FM, specialist technical services, CarbonCare energy services, lighting design and maintenance, Building management systems and controls, and compliance.

Energy reduction is a key growth driver and an area where our CarbonCare offering has successfully helped differentiate TFM in the marketplace. In 2010, BSRIA placed MITIE in the top two energy services companies in the UK. A significant number of CarbonCare services are provided by TFM. It delivers a total energy solution that increases awareness of environmental issues, introduces innovative ideas and technologies, manages energy and carbon footprint data, ensures legislative carbon compliance and delivers guaranteed energy reductions. We also provide decentralised and cleaner renewable energy solutions, working in conjunction with our Asset and Property Management businesses. 

The shift towards integrated FM is also a major driver for TFM. Our technical FM expertise underpins our integrated FM offering, and is particularly important where clients’ businesses are focused on hard services, for example in our Vodafone and Rolls-Royce contracts, which are led by TFM, as is the Royal Opera House contract. 

We have recently launched National Mobile Services, which delivers fast and responsive mobile technical FM services (MobileTech) across the UK, most especially to organisations with widely spread property portfolios. Our multi-skilled technicians provide services to clients within a local geographic area, helping to build strong local relationships. We anticipate that MobileTech will be attractive to retail clients, where we are seeing an increasing number of contracts which require us to act as a ‘managing agent’ and take responsibility for their entire technical FM budgets. 

As the number of cross-selling opportunities increases, the maintenance of data intensive sites is a market where we will be leveraging our Asset Management installation capabilities. A well-maintained data environment is critical for many clients. Our role is to understand the drivers for individual clients and the factors that make their environment unique. We work hard to understand and monitor the plant and equipment in order to put effective risk management programmes in place. This enables us to identify potential points of failure in advance and make sure we have the appropriately trained engineers who can deliver an immediate response to any issues that arise. 

We focus on people and training at every level. A recent employee engagement survey achieved a 62% (class leading) response rate, and concluded that our people have an above average level of engagement. 

Current market trends, particularly in energy reduction and integrated FM, coupled with the investments we have made to supplement our capabilities in these areas, mean that we are well-positioned to support our clients in the fast-growing TFM arena.

Property Management
Our Property Management business provides a full suite of integrated services, from total fit-out and refurbishment to ongoing repairs. Services include property maintenance, building refurbishment, painting, roofing, interior fit-out, fire protection, plumbing, mechanical and electrical engineering installation, solar photovoltaic panels, and insurance claims management and repairs.

We have recently made a series of changes to our business, in order to offer our clients more integrated, end-to-end solutions, and to operate in a more efficient and flexible way. 

The integration of our engineering contracting business into Property Management is complete. As part of this process, we discontinued some of our engineering activities in certain parts of the country. 

Local and Central Government Departments, together with the Social Housing market, are an important focus for us. The EPS Ltd acquisition has been fully integrated and has strengthened us in the South East. We have launched a new partnering model, Localcare, which uses shared ownership between a local authority or housing association, a private sector partner and the employees who are delivering the services. It enables the creation of mutually owned local organisations which deliver costeffective services to their communities. 

We have combined our interiors and mechanical and engineering installation businesses into one integrated fit-out business. Increased confidence in the UK retail sector has generated new demand for store fit-out and refurbishment and we are confident of gaining further market share as capital spending returns. In addition, our Residential Solutions offering now combines our capabilities in plumbing, heating, installation, carpentry and decoration to provide a complete internal fit-out solution to the new build housing market. 

We completed a renewable energy pilot project to install photovoltaic (PV) roof mounted panels that use solar cells to convert energy from the sun into electricity. The installations took place on an initial pilot of 200 properties, which are owned by registered social landlords. The residents benefit from cheaper electricity costs while the homeowner receives an income from feed-in tariffs for any excess energy generated. We anticipate significant opportunities in this market, with potential for up to 15,000 further properties during 2011. 

We are also working overseas for the first time, in conjunction with TFM and FM, to deliver space planning and project work on the Rolls-Royce Property Estate throughout Europe. 

Our order book is significant and we are seeing signs of optimism in many of our markets. Property Management is now in a strong position to take advantage of the various growth opportunities in our chosen sectors as markets improve.

Asset Management
Our Asset Management business develops bespoke energy assets that offer a secure and sustainable energy supply. Carbon efficient technologies are used to create energy infrastructure which provides the electricity, heating or cooling required by our clients. Decentralised energy delivers the long-term benefits of guaranteed cost savings, reduced carbon emissions and supply certainty. Our services include decentralised energy centre development, low-carbon data centre development, renewable energy integration, energy services company (ESCo) management and community infrastructure.

We are seeing increased opportunities in the decentralised energy market. Both public and private sector clients recognise that this is an effective way to reduce energy costs and consumption, without an upfront capital investment in many cases. The ability to achieve sustainability targets whilst retaining funding for core services is a compelling argument in the current economic climate, particularly for our public sector clients. 

The good progress made during the year is a result of the significant investments we have made to develop our capabilities. We have been awarded several transformational contracts which, when completed, will provide us with world-class reference sites from which to roll-out similar models. 

At the Royal Free Hospital we successfully completed a gas turbine energy centre development and are now engaging with the client to look at cooling upgrades. We developed a sustainable biomass energy centre for a Waitrose store in East Cowes, the first of its kind for the John Lewis Partnership, and we have also entered into a joint venture to develop a biomass-fuelled energy centre for a large UK manufacturer. 

In addition, we have established a reputation as a leader in the data centre market, where our skills in understanding and mitigating risk profiles have brought us an impressive portfolio of projects and accounts. We completed several major data centre projects during the year, including one for a leading global telecommunications company. 

This series of flagship developments has given us validation and visibility in the marketplace and supported the growth of a healthy forward sales pipeline. We are now able to show how organisations with intensive energy needs can meet their own requirements, securely and efficiently, while supporting their communities through local networks. We are recognised as one of the few providers in the UK that has the track record, scale and expertise to deliver substantial decentralised energy centres that will guarantee availability over a sustained contract term. Our business will be driven forward by this momentum and by our continuing focus on key sectors where we have a strong competitive capability.

 

Financial review 

MITIE has delivered another set of strong financial results that are underpinned by our focus on both organic and acquisitive growth, cash conversion and the maintenance of a strong balance sheet. 

During the year we completed the integration of the prior year acquisitions of Dalkia FM and EPS Ltd and have enhanced our portfolio on an international basis through the acquisition of Dalkia FM in Ireland and the commencement of activities in continental Europe in support of Rolls-Royce. 

We have strengthened our long-term funding position by completing an issue of US private placement loan notes and through the renewal and extension of our existing banking facilities. These facilities provide long-term debt financing capacity for a range of periods up to December 2019. 

We enter the new financial year in a strong position with good prospects, low gearing and enhanced capacity for future growth. 

Revenue
Revenue has increased by 10.0% to £1,891.4m (2010: £1,720.1m) through a combination of organic and acquisitive growth, in line with our strategy. The increase in revenue is attributable to the full year impact of prior year acquisitions of £113.5m, £19.4m from the acquisition of Dalkia FM in Ireland during the year and organic growth of £38.4m. Proforma prior year revenue including the full year effect of acquisitions made in the year ended 31 March 2010 was £1,833.6m and organic growth was 2.1% on that basis. 

We have experienced growth in revenue during the year. The analysis by operating division is set out below:

After the exclusion of discontinued activities in our engineering contracting business, underlying organic revenue growth for the year was 3.5% (first half 1.6%; second half 5.3%). 

The strong growth experienced in our Facilities, Technical Facilities and Asset Management businesses reflects the continuation during the year of clients’ demand for efficiency enhancing energy and facilities management solutions. Challenging conditions continued in certain construction related markets, which negatively affected the overall growth profile achieved in our Property Management business. 

Operating profit before other items
Operating profit before other items increased by 16.5% to £108.3m (2010: £93.0m) and our margin improved to 5.7% (2010: 5.4%). 

The increase in operating profit before other items is attributable to the full year impact of prior year acquisitions of £2.4m, £1.3m from the acquisition of Dalkia FM in Ireland during the year and organic growth of £11.6m. Proforma prior year operating profit before other items including the full year effect of acquisitions made in the year ended 31 March 2010 was £95.4m and organic growth was 12.2% on that basis. Included in operating profit before other items is income of £4.1m from an amendment to the past service cost of certain defined benefit pension schemes as the result of the change from RPI to CPI for the valuation of liabilities, as explained below. 

Other items comprise restructuring and acquisition related items, as explained on the following page. 

We have experienced growth in operating profit before other items during the year. The analysis by operating division is set out below:

The trends in operating profit growth reflect the market conditions that drove our revenue, as well as the positive contribution from the synergies within Technical Facilities Management in respect of the acquisition of Dalkia FM in 2009.

Other items
Other items for the year were £18.8m (2010: £11.9m) and comprised the amortisation of acquisition related intangible assets of £8.9m (2010: £5.3m) and integration, acquisition and reorganisation costs of £9.9m (2010: £6.6m). 

The increase in the amortisation of intangible assets of £3.6m in the year reflects the full year effect of the amortisation of assets identified in respect of the prior year acquisitions of Dalkia FM and EPS Ltd (incremental charge £3.1m) along with a charge of £0.5m in respect of the amortisation of intangible assets identified during the year following the acquisition of Dalkia FM in Ireland. 

Integration and acquisition costs of £5.1m (2010: £6.6m) were incurred during the year in respect of the acquisitions of Dalkia FM, EPS Ltd and Dalkia FM in Ireland. These charges mainly comprised costs associated with the implementation of new management, internal control and back office systems and structures. Furthermore, costs of £4.8m have been incurred in respect of the restructuring of certain parts of the group’s Property Management business. These costs are not expected to recur. 

After the impact of other items, the operating profit for the year was £89.5m (2010: £81.1m).

Finance costs
Net finance costs for the year were £2.7m (2010: £1.4m). The increase in net costs during the year reflects the impact of funding costs associated with recent acquisitions and the increase in interest rates payable by the group attributable to £100m sterling equivalent borrowings drawn down under US private placement loan notes in December 2010 as part of our refinancing activities. 

Profit before tax
Profit before tax and before other items for the year increased by 15.3% to £105.7m (2010: £91.7m). 

Reported profit before tax for the year was £86.8m (2010: £79.7m), an increase of 8.9% on the prior year.

Taxation
The tax charge for the year was £21.4m (2010: £22.2m), an improvement in the effective rate of tax to 24.7% (2010: 27.9%). The improvement in the effective tax rate is attributable to the £0.5m positive impact of recalculating the group’s overall deferred tax liability at the lower corporation tax rate of 26% which is effective from 1 April 2011 along with a credit of £3.2m in respect of prior year items. 

Profit after tax
Reported profit after tax for the year was £65.4m (2010: £57.5m), an increase of 13.7% on the prior year. 

Earnings per share
Our track record of delivering stakeholder value through earnings growth continued this year. Basic EPS before other items increased by 15.9% to 22.6p per share (2010: 19.5p per share). 

Basic EPS was 18.6p per share (2010: 16.9p per share), an increase of 10.1%. This latter measure showed lower growth due to the impact of in-year integration and restructuring costs that are non-recurring.

Dividend
It is MITIE’s policy to grow its dividend in line with adjusted earnings per share. The final dividend proposed by the Board has increased by 19.5% to 4.9p per share (2010: 4.1p per share). This brings the full year dividend to 9.0p per share (2010: 7.8p per share), an increase of 15.4%. The full year dividend reflects a cover of 2.5 times adjusted earnings per share, in line with our dividend policy.

Cash flow, funding and liquidity
The conversion of group earnings before interest, tax, depreciation and amortisation (EBITDA) to cash for the year was achieved at a rate of 86.7% (2010: 95.2%). The cash performance of the group remains strong and in excess of our stated key performance indicator which targets the conversion of EBITDA to cash, at or above 80% on a rolling 12 month basis. 

Cash conversion measures the success of the group in converting operating profit (measured by EBITDA) to cash and demonstrates the quality of earnings and effective cash management. 

MITIE has consistently delivered cash conversion in excess of 90% over the last five years. We commented in last year’s annual report that we had consciously reduced the cash conversion target for the current year to 80% as we expected to invest in working capital to support the organic growth of the business. We recognised that larger scale FM contracts that were expected to enter our portfolio during the year would require the support of working capital during their early months of operation. We maintain our focus on cash, which has allowed us to deliver consistently strong performance in cash conversion over the last five years. 

The gearing of the group has remained modest and net debt at 31 March 2011 was £76.5m (2010: £86.6m), representing a net debt to EBITDA ratio of 0.65 (2010: 0.84). 

During the year we have focused on establishing a renewed and longer term funding platform for the group as part of our refinancing strategy. On 16 December 2010, MITIE successfully completed an issue of US private placement loan notes with institutional investors for a value of £100m. The issue consists of £40m of notes denominated in sterling and fixed at an interest rate of 4.38% maturing in December 2019 and £60m of notes denominated in US dollars ($96m) maturing in December 2017. The US dollar denominated private placement proceeds have been swapped into sterling debt, with half fixed at an interest rate of 3.88% and half with a floating sterling interest rate of LIBOR + 1.26%. The proceeds were used to repay shorter dated bank facilities which were due to expire in 2012.

In addition, on 29 March 2011, MITIE secured new committed banking facilities of £250m which will fall due for renewal in September 2015 and will be available for drawdown following the AGM in July 2011. The group also has further overdraft facilities of £40m.

Key performance indicators (KPIs)
MITIE uses a set of clear financial and non-financial KPIs to measure and communicate critical aspects of our performance. These KPIs are aligned with our strategic objective of achieving sustainable profitable growth and our financial KPIs are specifically focused on the level and quality of our earnings and cash flows, the control of capital expenditure and the sustainability of dividends. 

We have performed strongly against these measures again this year and have now demonstrated a five-year track record of strength in each. 

Pensions
Our financial strength remains unaffected by any significant deficit in respect of the defined benefit pension schemes to which the group contributes. The net funding position of all the defined benefit pension arrangements included on the balance sheet is a deficit of £3.0m (2010: £10.5m). This included a deficit of £3.0m on the principal group scheme (2010: £6.8m).

The group also contributes to a number of defined contribution pension schemes as well as making contributions to its customers’ defined benefit pension schemes under Admitted Body Local Government status as well as to other arrangements in respect of certain employees who have transferred to the group under TUPE. The group’s defined benefit pension obligations in respect of schemes in which it is committed to funding amounted to £0.0m (2010: £3.7m). 

Following the announcement in the June 2010 budget, the UK government has announced that it will use the CPI measure of inflation rather than RPI to determine the level of future statutory pension increases. As CPI is lower than RPI, the application of CPI to the valuation of future pension liabilities results in a reduction in the value of pension obligations on the balance sheet. The move to a CPI based valuation base affects certain of the group’s defined benefit pension liabilities. The financial implication of this has been treated as a change in defined pension benefits and recognised as a negative past service cost in the income statement. As a result of this change, a credit of £4.1m has been recognised in the income statement for the year ended 31 March 2011.

Acquisitions
On 25 June 2010, MITIE acquired the integrated facilities management business of Dalkia in Ireland. This business provides integrated FM solutions for a range of clients in the public and private sectors operating across a range of industries including technology and communications, transport and logistics, manufacturing, utilities and finance. 

The total consideration payable will be up to €12.5m (£10.6m), with up to €2m (£1.8m) only payable dependent upon the business achieving a minimum level of earnings before interest, tax, depreciation and amortisation for the year ended 31 December 2010 and other specific targets. Initial consideration of €9.5m (£7.9m) and €1.0m (£0.9m) of deferred consideration was paid in cash during the year. From the date of ownership, the business has contributed revenue of £19.4m and operating profit before other items of £1.3m which is in line with our acquisition business case. Acquisition and integration costs of £0.3m and £1.0m respectively were incurred during the year ended 31 March 2011. 

MITIE also increased its stake to 50% in Service Management International for £0.5m. SMI uses a network of FM service providers in 34 different territories to tender global contracts in which MITIE delivers the UK services. Further details of these acquisitions can be found within Note 8. 

MITIE’s entrepreneurial investment model
In August 2010, MITIE purchased certain minority shareholdings of six MITIE subsidiary companies under their respective articles of association and shareholder agreements in accordance with arrangements under our entrepreneurial investment programme known as the MITIE Model. The total consideration for all six purchases amounted to £6.8m being satisfied as to £0.4m in cash and as to the remaining £6.4m by the issue of 3.0m new Ordinary shares of 2.5p each in MITIE Group PLC valued at 209.2p per share, being the closing market price per share on 12 August 2010.