Mitie faces £50m accounting policy writedown
FTSE 250 facilities management specialist Mitie Group has announced a potential £50m writedown following an accounting policies and balance sheet review undertaken by the company and KPMG, in its update for the financial year ended 31 March 2017
3 May 2017
The company originally announced in January that it had reviewed all major balance sheet items ‘to provide confidence that all relevant accounting standards are appropriately reflected in its financial reporting’. It issued several profits warnings last year.
In its latest update Mitie says KPMG's review covered certain aspects of the material balances of accrued income, mobilisation costs, percentage of completion accounting and the recoverability of trade receivables, as well as the carrying value of certain other assets.
KPMG has now confirmed that customer contract related methodologies and policies used by Mitie comply with all relevant accounting standards.
However, Mitie’s statement to the stock exchange said: ‘KPMG commented that our application of percentage of completion accounting and costs of contract mobilisation is less conservative, albeit still justifiable, than others in the market.’
In response to these findings, and in addition to the £14m of one-off charges identified in the January trading update, Mitie now says it expects to write down its balance sheet by between £40m and £50m.
Of this total, only £6m relates to provisions which are expected to result in cash outflows in 2018, with the majority being non-cash write-downs of trading assets.
In addition, Mitie says the review has identified a number of material errors which may necessitate restating its 2016 accounts. This would likely result in an increase in 2017 reported results of between £10m and £20m.
The company has cut 160 jobs since January, and says as a result the costs of change have increased by £5m to £15m.
Mitie says its year-end net debt position at 31 March 2017 was £146m (2016: £178m), and it expects to comply with the conditions of its debt covenants as measured at that point.
However, with what it calls ‘only limited headroom under its covenants’, Mitie says it intends to negotiate an amendment so as to permit further one-off charges and thereby remove the risk of a possible technical breach.
The Mitie statement said: ‘These changes would also enable the company to review its accounting policies in respect of percentage of completion contracts and mobilisation and take a more cautious approach in advance of adopting IFRS15 Revenue from Contracts with Customers.’
Phil Bentley, Mitie CEO said: ‘FY'17 has undoubtedly been a challenging year but Mitie remains a strong and successful business, and is continuing to deliver for our customers.
‘Whilst these accounting adjustments in FY'17 affect our reported profits, they do not affect the underlying strength of our business.’
Mitie’s full year results for the twelve months ending 31 March 2017 will be announced on 12th June 2017. The company said this is later than originally planned ‘to allow sufficient time for the complex changes outlined above to be processed and for our auditors to conclude their work’.
By Pat Sweet