U.S. Markets closed

Edited Transcript of MTO.L earnings conference call or presentation 21-Nov-19 9:30am GMT

Half Year 2020 Mitie Group PLC Earnings Presentation

Bristol Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Mitie Group PLC earnings conference call or presentation Thursday, November 21, 2019 at 9:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlo Alloni

Mitie Group plc - MD of Engineering Services

* David Cooper

Mitie Group plc - Chief Information Officer

* Jason Towse

Mitie Group plc - MD of Soft Services

* Paul Woolf

Mitie Group plc - Group CFO & Director

* Phil Bentley

Mitie Group plc - Group CEO & Executive Director

* Simon Venn

Mitie Group plc - Chief Government & Strategy Officer

================================================================================

Conference Call Participants

================================================================================

* Bilal Aziz

UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst

* Gert Zonneveld

Canaccord Genuity Corp., Research Division - Analyst

* James Peter Winckler

Jefferies LLC, Research Division - Equity Analyst

* Joe Brent

Liberum Capital Limited, Research Division - Head of Research and Equity Analyst

* Kean Marden

Jefferies LLC, Research Division - Head of Business Services Equity Research

* Samuel Frost Dindol

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [1]

--------------------------------------------------------------------------------

Firstly, thank you so much, everybody, and welcome to the Mitie Fiscal Year '19/'20 Interims Presentation, which, for the first time, is being broadcast live from our headquarters here in The Shard. We thought that was a good idea until we found there's about 10 other conferences on this morning. So apologies that we started a little bit late, but everyone was trying to get through the security downstairs.

As always, I'm joined by Paul, as usual, our CFO, and the exec team who are perched on the [northeast] step at the back there, but have all the best views. And of course, our Chairman, [Doug Mapp], is here to keep a watchful and wise eye on all our proceedings.

So we'll start with numbers with Paul, and then I'll talk a little bit about our strategic progress, and we'll move it into Q&A. Thank you.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [2]

--------------------------------------------------------------------------------

So good morning, everybody. Apologies being a bit late. It's a bit like the English Rugby team bus breaking down, but I forgot my glasses, which were around the other side. Anyway, so I'll kick off with the financials.

So before I start, I'd just like to remind everybody that we converted to IFRS 16 lease accounting this period. So I'll call out anywhere where that has a material impact on our results.

So we made positive progress against our financial objectives in H1. So we're growing revenues, up 11% in total. We're up 2% on an organic basis if you exclude VSG, which we acquired in October 2018, and our operating profits grew 5%. Commercially, our secured order book at the 30th of September is up 1% versus the start of the year. And during the period, we secured our largest IFM win in recent years, and we renewed our largest customer through to 2024.

We've also continued to strengthen our balance sheet. So pre-IFRS 16, average daily net debt, which is our primary internal net debt measure, improved by GBP 54 million against the same period last year and by GBP 24 million against H2 last year. Period-end net debt was up slightly, GBP 7 million against the year end, but it did reduce by GBP 39 million compared to H1 last year. We've also maintained our focus on reducing off-balance sheet finance by reducing invoice discounting by GBP 11 million since the year end. And in line with our policy of paying 1/3 of last year's total dividend, we're declaring an interim dividend of 1.33p in line with last year.

So turning to the financial summary, you can see that our revenue was up 11% to GBP 1.1 billion, and operating profit was up 5.4% to GBP 33 million. Operating profit margin was down 10 basis points to 3.1%. Whilst it is disappointing, it can be explained by the dilutive impact of the VSG acquisition, which we acquired at breakeven, and the effect of central costs remaining with the business after we -- our successful corporate disposals. These central costs will be removed, but they take time to dig out.

Profit before tax and other items grew 4.6% to GBP 24.9 million, and we're reporting an EPS before other items of 5.5p, up 5.8%.

I've already mentioned that our pre-IFRS 16 period-end net debt, which was slightly up since the end of March, and our average daily net debt, which is GBP 54 million lower than the same period last year and GBP 38 million lower than the full year last year. Please note that on a reported basis, period-end net debt on a post-IFRS 16 basis is GBP 236 million, which I'll come back to later.

Turning to revenue. And looking at the bottom of this chart, you can see that our overall growth was 11%, and organic growth was 2% if you exclude VSG. If you also exclude the managed exit from loss-making international contracts, then organic growth rises to 3%. We will continue to reduce our exposure to international markets in H2.

Looking top right, underlying growth in our top 50 strategic accounts, excluding VSG and these managed exits in international, was faster still at 4%. As we reshape our portfolio through M&A to align ourselves better for future growth, we've reorganized our management structures into 3 focused divisions. So Technical Services is the -- mainly the old Engineering business, together with a number of Professional Services businesses. This is now broken down into Maintenance, Engineering Projects and International. The newly created Business Services division includes Security, Cleaning and Office Services such as Document Management. And our Specialist Services division includes Care & Custody, Waste and Landscapes, all the comparatives have been restated. The core Maintenance business within Technical Services grew 3%, and our Engineering Projects business grew 7% against an uncertain economic backdrop. Projects revenue is more variable by nature, and we see this as a risk going into H2. Revenues in International were down by 46% as we proactively exited 2 large, low-margin contracts.

Within Business Services, the Security Business was up 50%. Stripping out the VSG acquisition, organic growth in Security was 3%, above the underlying market growth of 2%. Cleaning declined by 5% due to a major scope reduction in 1 contract and contract losses last year. Within Specialist Services, Care & Custody grew 6%, with full 6 months impact of Detention & Escorting Services contract. Waste was up 45% due to the NHS clinical waste win. And Landscapes was in line with last year.

Looking into H2, we've recently mobilized a number of large [combats] within Technical Services and Business Services, which will provide an improved run rate trajectory into H2. The variability will come from projects. Our overall operating profit growth was 5.4%. Whilst we made good progress growing profitability across the majority of our strategic accounts, profit growth within both Technical Services and Business Services was held back by lower renewal margins on some of our largest contracts. We mentioned this margin drag at the full year results presentation in June.

Specialist Services grew operating profit by GBP 4.9 million, up 84% due to a full period benefit from the Detention & Escorting Services contract, the fact that last year, we expensed GBP 3.3 million of mobilization charges in connection with that contract and the margin contribution from the NHS clinical waste win.

Operating margin contracted slightly in the period due to this lower-margin VSG acquisition and the retained costs following corporate disposals. We see our operating profit phasing this year has been similar to last year, which gives us confidence in our year-end outturn.

The operating profit bridge explains the main movements from H1 last year to H1 this year,. Our contract performance showed an overall small increase, with good progress across the majority of the strategic accounts delivering an incremental GBP 8 million, offset by margin declines of GBP 7 million following the renewal of some of our largest contracts. As explained at the full year results, this level of contract renewals, as measured by the proportion of group profitability that is renewing in any 1 year, is unusually high and unlikely to repeat. VSG contributed an extra GBP 2 million, and the comparative period included GBP 3 million higher mobilization costs within Care & Custody related to Detention & Escorting Services. We continue to make net investments into the business, an additional GBP 3 million in technology, procurement and strategic account management. The technology investments include additional license fees and data usage as we ingest more data for analysis to improve the performance of our customers' estates.

Internally, we've rolled out systems to manage permanent and temporary recruitment. We continue to enhance the resilience of our sites and operating systems. And we also continue to invest behind our strategic account management program, establishing a new government defense team. Staff incentives relating to share schemes were GBP 1 million higher than the corresponding period last year. Operating cash flow is up GBP 49 million against GBP 21 million last year due to higher underlying operating profit, an improved contribution from discontinueds GBP 15 million, and GBP 12 million of IFRS 16, excuse me, reclassification.

We've split working capital into 2 components: the trading element and the nontrading or strategic elements. Top right of this chart, you'll see that the trading working capital showed its normal seasonal trend with an outflow of GBP 31 million. This compares to a trading outflow of GBP 52 million in the same period last year. Whilst we would like to have made more progress with our program to reduce receivables, we are now seeing our order-to-cash improving. This will show through in H2. The work has been done account-by-account, and we remain confident that more cash will be released over the balance of the year and into next year, in addition to the seasonal unwinds.

The strategic working capital outflow of GBP 51 million includes GBP 32 million related to M&A activity. At the last year-end, we said that a number of M&A-related working capital balances would soon reverse. In particular, we called out that the final month of the VSG payroll for FY '18/'19 would only be paid by Mitie in FY '19/'20. And we've also paid out working capital in connection with the sale of social housing and the sale of Catering. As well as the M&A strategic outflows, we reduced customer invoice discounting by GBP 11 million as part of our actions to reduce off-balance sheet finance. And finally, as we look to reduce short-term cash flow timing differences, which the business has traditionally utilized, we reduce the amount of early payments we receive from customers.

Capital expenditure increased as we continue to develop our technology offering. This included investments into our data analytics tools, our national operating centers. Interest and tax were higher due to the tax credits we received last year and GBP 1.5 million of IFRS 16 adjustments. And net proceeds from M&A activity was substantially higher following the successful disposal of our Catering business.

We've consistently said that from a balance sheet perspective, our primary focus is on reducing average daily net debt. You can see here that on a pre-IFRS 16 basis, we've reduced it from GBP 317 million in H1 last year to GBP 263 million in this most recent half year period, an overall reduction of GBP 54 million. M&A has been a material factor behind this daily average reduction, a net GBP 30 million. But at the same time, we've, on average, paid our suppliers quicker by GBP 20 million and reduced invoice discounting by GBP 4 million. Other factors driving the reduction include reducing overdue receivables, speeding up our processing, both receivables and payables, versus the early days of the financing outsourcing. Each day of processing speed reduction is worth about GBP 4 million of cash.

Encouragingly, we're also seeing some of the larger U.K. businesses reduce their contractual settlement terms with us. We've had success at both reducing payment terms and quicker billing with some of our largest customers, which is generating a permanent benefit to the cash position. At bid stage, we're also now far more rigorous about the requirement to trade on commercial -- on fair commercial terms.

We're also working hard to reduce our TFO, our total financial obligations. This is our measure of net debt, which includes off-balance sheet finance plus operating leases and pension deficit. This is reduced by GBP 138 million over the last 3 years. We are looking to continue to reduce our TFO down to 2x EBITDA over the medium term versus the 3.1x today.

Our core leverage ratio at the half year was 1.5x EBITDA, and interest cover was 8.7x against covenants of 3x and 4x, respectively. Our period-end trade receivables reduced to 27 days following improved overdue collections performance, and trade payable days stayed flat at 50. Whilst our average daily trade payables improved over the periods, the period-end was in line with last year.

We spent GBP 10 million on other items, which is below the GBP 12 million last year. Project Forte is our Technical Services transformation program and will continue to grow over the next couple of periods as the project reaches full run rate. Helix costs will wind down before the end of the year as we finish off a number of the early transformation plans. And other exceptional costs include a lease provision in connection with a property that we've now vacated.

We have implemented IFRS 16 for the first time. We use the modified retrospective approach, which means we don't change the prior year comparatives. The IFRS 16 impact on our income statement is that operating profit is GBP 0.4 million higher, which is the elimination of the operating lease rentals, largely offset by depreciation. And profit before tax is GBP 1.1 million lower. The lower PBT is a timing difference because we need to recognize higher finance costs in the early part of the lease, which will reverse as the lease matures. The bigger impact is on the balance sheet due to the capitalization of the leased assets and the associated finance liability, which has increased our reported net debt by GBP 88 million from GBP 148 million to GBP 236 million. Our covenants will remain on a pre-IFRS 16 frozen GAAP basis.

So as most of you know, this will be my last results presentation for Mitie. I genuinely feel I'm leaving the business in far, far better shape than the one that Phil and I inherited despite a very tough sets of backdrop throughouts. It hasn't been easy. It's been enormously satisfying, though, to be part of a team, and most of them are here today, putting Mitie back on the path to long-term sustainable growth, which is what it's all about. On that note, I'd like to thank you all for your support and hand over to Phil.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [3]

--------------------------------------------------------------------------------

Okay. Well, thank you for that, Paul. I can't understand why you'd want to leave when we've got such a great industry and join a fast-growing technical company with 80% margins, but there you go.

Okay. Well, thanks, Paul. I guess, I'd characterize the first half as solid, but not spectacular. As Paul shows, it's hard yards. Headwinds from key client renewals have hurt us, meeting their dual demands of more added value as well as more cost efficiencies; working hard to eke out savings from our own cost base, whilst continuing to make the investments necessary to ensure we become a well-run company. It takes time to make a difference, frequency of purchase decisions by clients for every 3 years to 4 years on average, so moving the dial takes time. But undoubtedly, we are making progress.

So when I say we are halfway through the transformation of Mitie, 5 years from start to finish, that is the reality. There is no quick fixes in this industry nor indeed in Mitie. Having said that, I believe we have now built the foundations for sustainable, profitable growth. Phase 1 of our transformation was centered around our 4 strategic imperatives of customer, technology, costs and people. We successfully reversed the revenue declines we'd seen between FY '15 and '17; we eliminated GBP 45 million from our cost base by reducing inefficiency duplication and management layers; savings, which were invested in growth initiatives; rebuilding customer confidence; upgrading our commercial capabilities; and laying the foundations for a distinctive technology-led offering. We addressed our complex business portfolio by focusing on what we're good at and selling non-core activities that are better carried out by partners. We have a new corporate vision with a new set of values designed to engage all our 50,000 colleagues.

And finally, as Paul showed, we have been strengthening our balance sheet quite considerably. So in short, over the past 2.5 years, no part of Mitie has been untouched by our efforts to transform this company.

So I can say to you today that our foundations have indeed been built. They are deep, they might need a bit of topping out as it were in the Project Forte, but they're strong enough now to support our move to Phase 2 of our transformation, that of accelerated value creation. Our investors have been supportive of that strategy, patient in a challenging sector in the face of numerous headwinds, but they're now looking forward to improved returns from all of those endeavors.

So Phase 2 is committed to accelerated value-creating: by building market leadership in our core businesses; by developing deeper relationships with our top 50 strategic accounts, which make up the majority of our revenues; by embedding our distinctive technology into our customer estates; by taking further costs out of the business to meet our medium-term margin ambitions; and by cementing our cultural transformation. And of course, finally, by continuing deleveraging.

My experience across a variety of industries, market leaders generally reap the benefits of scale through above-sector returns. And that's why our first focus in Phase 2 is on achieving market leadership in our 2 major divisions. In Technical Services, our Engineering division now complemented with Energy, Water, the Connected Workspace and Corporate Real Estate Services, we have a top 3 market position already in a GBP 12 billion addressable market, where finally some market concentration is becoming more evident. Today, the top 8 players have some 40% market share.

Our strategy for Technical Services is grounded in building market-leading technology capabilities, driving operational efficiencies through Project Forte and better bounce in static and mobile resources; increasing our share of customer wallet by growing our CapEx projects and variable works; and by staying focused on sectors where uptime for critical assets for our customers is absolutely vital.

In Business Services, our old Cleaning and Security divisions, we lead the market today. Again, we are seeing more consolidation with, again, the top 8 players having a similar 40% market share. And as with Technical Services, our strategy for Business Services is again focused on core technology, a core technology underpin. We see further technology efficiencies from combining these people-intensive businesses, particularly in labor productivity. We will grow our Fire & Security project work. We are crystallizing the benefits of the VSG acquisition and exiting low wage contracts will help drive up margins even if some revenue is lost in the short term.

The third leg of the stool is where is our Specialist Service division, our old Care & Custody, Landscape and Waste businesses. This division is characterized by good growth prospects, niche capabilities and higher margins, albeit with much lower revenues. We were extremely disappointed not to have won the recent prisoner escorting and tagging bids. These would have delivered an additional 4% top line growth overnight. But other bids are in the pipeline and these businesses are still very much part of today's future.

Our new strategic account management focus is at the heart of how we service our customers in Technical Services and Business Services. Growth in our strategic accounts at 9% compound annual growth over the last 3 years has consistently outstripped our customer-wide growth, achieved by ensuring our strategic account managers, or SAMs, have the end-to-end levers to manage these complex accounts, that our technology capabilities are focused on these key accounts and that our SAMs have the right incentives in place. And with dedicated sales teams focused on a number of public sector, Crown Commercial Services frameworks in Defense, in FM and Security, we've added some GBP 3.5 billion of opportunities over the last 18 months. Wins again here would represent a material uplift to our revenue guidance.

The SAM focus is definitely working on NPS, and our SAM accounts is the highest across the company and has led to some important wins and retender successes. The new Lloyds Bank contract, for example, is particularly pleasing with breakthrough real-time MI available to the client on a day-to-day basis to evidence delivery of our services across the country. And we'll show you a lot more of that at our upcoming Capital Markets Day.

I've always said that technology leadership is vital in our industry, and we are gaining momentum. Starting with Technical Services, we maintain over 5 million assets for our customers. The ability to remotely visualize these assets in their locations with all their maintenance history and live performance data is a powerful tool for our engineers, as is remote asset monitoring through our service operations center. And of course, the real-time MI we provide to our clients through our data lake investments and the analytics and insights we extract is increasingly valued.

And technology is also playing an increasingly important role in security as well. Our GSOC, our Global Security Operations Center, receives real-time risk data feeds from multiple technology sources. These are analyzers, sophisticated databases and algorithms. A security resourcing plan is developed, overlaid with local crime intelligence and incident data, allowing our field staff to be managed more dynamically.

The benefits, in particular to our growing retail clients, a material reduction in shrink, in crime and backdoor theft and violent incidents. This is what our customers get from Mitie. That's real, real value.

But not all of our technology investments are customer-facing. They also drive efficiencies by simplifying our internal processes. This is all part of the digital transformation that you've heard me talk about before. New RPA, robotic process automation solutions are now significantly reducing exception processing in our back office in India. New HR processes are helping reduce our recruitment spend, payroll queries and an Oracle to SAP finance upgrades underway, which will improve billing speeds further and working capital as a consequence. API gateways have been built to allow over 38 clients now readily to plug into our data lake analytics. In the past, bespoken to [faces] could take some months to build where required.

In Business Services, where -- which way we now employ 40,000 mainly hourly paid colleagues on the same Workplace+ platform, we've been able to reduce manual checking of time sheets and build automated uplinks to both payroll and contract billing. Driving efficiencies in work hours and pay and billing in our Business Services division is the biggest lever we can pull.

And, of course, the other big lever we have is in our Technical Services division with Project Forte. Recall, this is about automated monitoring and maintenance schedules for those 5 million assets; automated scheduling and dispatch of our engineers, optimize to match the appropriate technical skills of those engineers. Automated controls over subcontractors, automated links to our contract terms and our pricing rules, and thereby automated billing to clients. Quite a task as you can imagine. I think it's 700 million data sales, Carlo. But the good news so far is that we're on track for go live in 13 months' time. Processes are being mapped and are being coded. Cloud interfaces are being built. The air traffic control in middleware is in test. Over 50% of data has been cleansed and the benefits case thoroughly validated. As we said, in June, our digital transformation initiatives will cost GBP 30 million to implement, but will yield gross benefits of GBP 30 million per annum, split between Technical Services of GBP 25 million and group-wide automation services of a further GBP 5 million. We've validated the savings and the comfort we take is that as a percentage of current costs, we don't believe these are overly ambitious targets. Net after continued investment in our customers, we're still forecasting some GBP 10 million to GBP 15 million savings to the bottom line.

We're cementing our cultural transformation under a clear set of standard operating procedures or playbooks, known as the Mitie way. The Mitie way of driving sales, the Mitie way of managing strategic accounts, the Mitie way of mobilizing contracts and the Mitie way of managing change. And finally, the Mitie way of managing talent with chapters on learning and development, reward and recognition, social value, commitments to living wage, diversity and inclusion. Yes, cultural transformation costs money, but I'm absolutely confident we are being rewarded with a more energized, more creative, more productive workforce.

So wrapping up, where do we go from here? Well Phase 2, as I said, is all about sharpening our focus on our largest divisions and biggest customers, delivering the cost benefits from our sizable technology investments, and moving to improved free cash flow generation. But with the backdrop of today's economic and political uncertainty, I always say revenue is hopeful, costs are certain. So we've been building cost hedges to maintain our profit expectations even in the headwinds of slightly slower top line growth. Thus, we expect our second half organic revenue growth to be similar to the first half at 2%, but our cost hedges mean that our guidance of single-digit profit growth still holds.

The next year will be similar. Revenue growth at similar levels to this year, with profit growth at mid-single digits again, thanks to our cost hedges. And beyond the next fiscal year as we get a full year benefit of those cost initiatives coming through, we are maintaining our medium-term guidance of 3% to 4% organic growth, 450 to 550 basis points of operating profit margin, and a 1 turn deleveraging of our total financial obligations, about GBP 150 million reduction. That's what Phase 2 of our transformation is all about, accelerated value creation.

Finally, I should just take this opportunity to thank Paul for his great impact on the business over the last couple of years and his complete support to me personally. It hasn't always been an easy ride, as we know. But Paul, you've been instrumental in building the new Mitie. I will certainly miss you. You leave with our thanks and appreciation. But most importantly, you leave us in better shape than you found us.

Lastly, just a reminder of our upcoming Capital Markets Day on Tuesday, the 10th of December, again, here in The Shard. We'll make sure we have the security arrangements work a bit more slickly. Apologies for that. And we'll provide a far deeper insight into the topics covered today, particularly the Business Division strategies. You'll get a chance to meet the key Mitie business leaders who will make our accelerated value creation ambition of Phase 2 a reality. So no pressure there, I think, guys.

Okay. Thank you for that, and let's turn it over to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [1]

--------------------------------------------------------------------------------

Joe, do you want to kick off? Are you sharing? Okay.

--------------------------------------------------------------------------------

Joe Brent, Liberum Capital Limited, Research Division - Head of Research and Equity Analyst [2]

--------------------------------------------------------------------------------

It's Joe Brent from Liberum. I'll just ask one question, although it is an important one. Reported debt has gone up since the year-end, but the average daily debt has gone down. To me, that's a bit surprising because you've had a load of cash in at the end of the period from disposals. And you had cash out at the beginning of the period on the VSG payroll. And I think I'm right in saying that the average trade creditors are down. All of that would maybe point to higher average debt. So I'm pleased it's down. That's great news. Can you help explain it to us, please?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [3]

--------------------------------------------------------------------------------

[I'll hand it on...]

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [4]

--------------------------------------------------------------------------------

So the -- yes, it's...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [5]

--------------------------------------------------------------------------------

20 -- Page 10, 11..

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [6]

--------------------------------------------------------------------------------

Page 11. The -- I mean, the average is coming -- so our key focus is on getting the average down. And I think what we've been saying for some time now is average daily net debt is the true sign of the health of this company. And that's -- and we're trying to reduce that. At the same time, we've said that the business has historically sort of managed its period-end net debt, and I'm going back sort of quite some time now. And it's -- over a period of time, we'll be reducing that level of short-term timing difference management. So part of it -- part of the reason is due to that. The -- I think the -- a lot of the benefit of the average reduction would have been achieved in H2 last year because the averages we're comparing between -- so if you look at the average daily net debt, it moved from -- there was a GBP 30 million reduction between H2 last year and H1 last year and then a further GBP 20 million reduction between H1 and H2 last year. So the -- so really, Joe, so I think the key question you're asking is, "Why has the period-end net debt gone up when our average has gone down versus the H2 last year by GBP 20 million?" And I say part of it is just we're reducing the level of short-term balance sheet management and part of it is seasonal, which is I suppose, the other big part, and I called out, I said GBP 30 million. So we have a GBP 30 million seasonal swing, which comes in towards the back end of the first half. It wasn't there at the first -- in the back end of last year.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [7]

--------------------------------------------------------------------------------

I'd make that point as well, Paul. The -- if you looked at the 1Q trading statement where we're GBP 55 million lower on average but have turned out to the full half at GBP 39 million, so meant that the second half was lower than the -- the second quarter was lower than the first quarter, but then it lapped a stronger second quarter the previous year. So I think, as Paul says, we're expecting second half of the year, around the second quarter, quite a significant improvement in that position as we work through that seasonal invoice receipts, as we were, and we won't be having some of those one-off things like reducing [invoice] discounting, paying payers, suppliers even quicker because we're now at that point where we're comfortable with the prompt payment code, and we had our government rep just walk in very quietly at the back there. But that's very important to winning business with the Crown Commercial Services. So I don't think you'll see that continuation of fixing the balance sheet. And then as Paul said, there was -- we try to sort of stamp it out, this sort of money-swapping at period ends, but it's still gone on in the business, and we're trying to reduce that as well because it's not helpful to anybody, where my customer pays me early and then their period end, we bill them late. So we're just trying to normalize working capital so that rather than have these huge spikes, we have a sort of standard smoothing. Because whilst there is some seasonality, [gritting] and projects or whatever the Q1 of next year -- next calendar year, it shouldn't be as pronounced as it is, and that's because it's still some element of balance sheet management has been -- is going on out there, and we're trying to stop it. That was a long answer...

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [8]

--------------------------------------------------------------------------------

Yes, it's not -- I don't think either of us was done immaculately on that. I mean, the big story is that what we're consistently promising is that our average net debt is going to keep coming down, average daily net debt, that's what we're absolutely focused on. Period-end will move more slowly down because it is a function of -- we're going to continue to eliminate these short-term timing differences. But it will come down between now and the full year because it's seasonal. But I don't think we've immaculately answered it. Sam

(inaudible)

--------------------------------------------------------------------------------

Bilal Aziz, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [9]

--------------------------------------------------------------------------------

Bilal Aziz from UBS. Just 2 from my side, please. Firstly, like some of your peers, you flagged a more uncertain environment in some of the project-related work. Can you perhaps remind us on some of the incremental margins on those businesses? And I know, Phil, you mentioned some of the cost actions, a bit more detail around what sort of contingency you got there in the second half of the year. Secondly, I appreciate you've merged your Cleaning business with your Security business. Now that more strategically, are you looking to bid for more larger IFM contracts? Or is that just more cost synergies that you're looking to drive?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [10]

--------------------------------------------------------------------------------

Okay. So I mean, a project was actually our first half versus last year was up, Carlo, on projects. But we -- some of the things like roofing, where you're seeing clients, say, I'll just patch it up rather than pay for a new one is softer. Margins are under a little bit of pressure there as well, Carlo, I think, too. We're seeing traditionally probably closer to 10% rather than 15%. I don't know if you -- if there's anything you wanted to add on the project point, Carlo?

--------------------------------------------------------------------------------

Carlo Alloni, Mitie Group plc - MD of Engineering Services [11]

--------------------------------------------------------------------------------

Yes. Thank you, Phil. Good morning. Carlo, the Managing Director for Technical Services. And yes, we do -- I mean, we're delivering strongly on variable works and projects. The ingestion cycle, though, usually is around 3 months, 6 months. So we see when decisions are getting held. And moving to the right, we might see suffering a little bit around softer top line in the second half. There is, therefore, a more competitive market out there, and that is pressuring the margins. I would say that, to Phil's point, I mean, around 10% is what we're seeing.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [12]

--------------------------------------------------------------------------------

Okay. And then the other side of the equation, of course, is you're thinking then, well, if you're losing the revenue, why aren't you losing the EBIT impact, and that goes to the point about the cost hedges that we've touched on. We have a project called Project [Ferry], which is an HQ cost savings program, which we're making progress on. We have savings coming out of the soft services or Business Services, we now call it, bring together Security & Cleaning. Out of the management team, we've essentially taken a whole management team out of that. So we're still comfortable with the guidance that we've given. And then, Jason, on the actual sort of bidding, we are seeing more soft -- what clients would call soft bundles out there, and we have 1 we've won that we can't announce yet. But why don't you talk a little bit about that, but not the one we can't announce now.

--------------------------------------------------------------------------------

Jason Towse, Mitie Group plc - MD of Soft Services [13]

--------------------------------------------------------------------------------

It's important to remember that as a security specialist, there's still a huge call for the specialization but we are seeing more traction in asking us to optimize our workforce in large contracts, where we have large dedicated teams, where you can optimize those teams to work across all services. And you're quite right that we're hoping to announce a large Business Services win in the next few weeks, and we have...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [14]

--------------------------------------------------------------------------------

How much is that, Jason, without naming the name. But what's -- it's quite a big contract.

--------------------------------------------------------------------------------

Jason Towse, Mitie Group plc - MD of Soft Services [15]

--------------------------------------------------------------------------------

It's around about GBP 6 million annualized secured revenue. And I think out of that, as you've alluded to, Phil, is the obvious expected efficiencies to come out of that as well as we face into some headwind we mentioned earlier. So yes, it's definitely the way our market is going.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [16]

--------------------------------------------------------------------------------

You've got a security guy sitting, watching the screen when he could be set on a -- when the office is closed or a building's closed, sat on a scrubber and a bit of multitasking there, which when we were 2 separate divisions, it was just impossible for us to get the teams to agree and -- however hard we tried. Did we cover all your questions there?

--------------------------------------------------------------------------------

Bilal Aziz, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [17]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [18]

--------------------------------------------------------------------------------

There was one -- yes, Kean. Sorry, I'll [take the] mic. It's going to be a difficult one from Kean, so I'll leave this one with you.

--------------------------------------------------------------------------------

Kean Marden, Jefferies LLC, Research Division - Head of Business Services Equity Research [19]

--------------------------------------------------------------------------------

Well, it's 3 difficult ones. Sorry, maybe not. Could you possibly -- so it's Kean Marden from Jefferies. Would you mind just providing a bit more background on the social housing, working capital adjustment that you mentioned earlier on? I'm just in particular, interested in background and to make sure that I don't double count and that it's not related to the rectification liability, first of all. Then secondly, back to Slide 22, [talent is] really helpful. What's the point of maximum risk for the Oracle to SAP upgrade just so we can try and assess that, please? And then thirdly, what characteristics are the Board seeking in a new CFO, please?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [20]

--------------------------------------------------------------------------------

So let me -- I'll do the easy one first. CFO, we have somebody in mind. We did say we would appoint [you] on an interim basis. We can get him in quicker. We have somebody that the Board has approved, and that should be happening quite soon. We want somebody who's as smart as Paul -- as [new] as Paul, which is a pretty tough challenge, it has to be said. Someone with experience and have been around the block a bit. We did look at people within the sector. But actually, we felt that the candidate, our preferred candidate, has got a wider perspective. And I think that'll be good for coaching the team. We've got a refinancing coming up, as you know. And we've got to drive hard on the rest of it, making sure we deliver the cost targets, and hopefully, a little bit more. And that's why we've chosen the person that we want to hire.

On the first question on social housing, it is related to the rectification, it absolutely is, so it's the same. And Pete, if you're there, you're hiding behind the camera. But we've -- just as Peter has been dealing with all these tail litigation issues that you know were there from the Day 1. We had a settlement with one council. We've got some insurance claims, and it's still in the mix, as is the pension that we flagged last time, which doesn't necessarily mean that it's converting to a major cash outflow because Pete has been negotiating that one as well.

--------------------------------------------------------------------------------

Unidentified Company Representative, [21]

--------------------------------------------------------------------------------

Sure. Just to sticking to General Counsel. So in relation to social housing remediation work. As you may be aware, there is an industry-wide issue in respect of fire doors in a post-Grenfell environment and 2 of the councils which we work with have put us on notice of potential obligations to remediate the fire doors installed within their estates. There is a lack of clarity from government at the moment as regards whether or not those fire doors need to be remediated. We're expecting an update from government within the next month or so, delayed by the election. It is all fully provided, but there clearly is work we're doing to remediate that, and that's reflected within these numbers.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [22]

--------------------------------------------------------------------------------

Yes. And to be crystal clear, so the money, which is about GBP 5 million or GBP 6 million of working capital outflow in connection with social housing in the period, was keen to sort of double cap with the things you mentioned last time. There's nothing new at that. SAP, Oracle to SFP is a question. This is the -- as we move our -- and migrate our Engineering Service business onto an SAP platform, it's the last piece of the Mitie jigsaw to get onto SAP. The -- when is the point of maximum risk, it's really between September and November next year. So...

--------------------------------------------------------------------------------

Kean Marden, Jefferies LLC, Research Division - Head of Business Services Equity Research [23]

--------------------------------------------------------------------------------

Why is that? Is it because (inaudible)

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [24]

--------------------------------------------------------------------------------

Yes. So -- well, that's when the thing gets. That's when we -- it is actually when the billing piece gets turned on. So it's the -- so we've got a -- the timetable is that the next 10 months is planning and building, and then there's a period -- the data transfer and the switch on pieces that is roughly between September and November next year.

--------------------------------------------------------------------------------

Kean Marden, Jefferies LLC, Research Division - Head of Business Services Equity Research [25]

--------------------------------------------------------------------------------

Any in-house expertise of people who've gone through that process before? Or is this something new?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [26]

--------------------------------------------------------------------------------

I mean, David Cooper, our CTO, at the back there has worked on numerous SAP installations, and, obviously, there's the extra complexity [keen] with the accounting. The billing currently is done in Oracle. I mean we moved the billing off into Maximo, and then it's got to go back into SAP for the accounting. So there's a lot of interfaces to be built there as well, David. But how do you see it and the scale of 0 to 10 of difficulties of things you've done before. David?

--------------------------------------------------------------------------------

David Cooper, Mitie Group plc - Chief Information Officer [27]

--------------------------------------------------------------------------------

It's David Cooper, CTO. This one is sort of migrated in a number of billing systems and CRM systems in the past. This one is on the easier scale. The more difficult elements that sit here are to move the resource-related billing. It goes up into Maximo, and it uses standard Maximo functionality. We are here trying to use standard Maximo functionality, standard SAP functionality. And we will minimize the risk by doing that. We will change the processes. So it should be fairly easy by comparison. The biggest issue will be the data migration across. Having done that for British Gas, TalkTalk, a number of companies, we've got people who've done this before. So I don't see it as a big issue. I think the biggest time will be the testing because there are always nuances that have been embedded in the systems in the past. And so we'll have extensive user acceptance testing associated through this.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [28]

--------------------------------------------------------------------------------

I think the other thing is this Oracle instance is 15 years old, 16 years old and is out of support. So we have to get this with the last -- as Paul said, it's the last piece. And it's also -- it sits on old tier in some data center, it's all going to go up into the cloud with AWS. So that gives additional resiliency and better speeds.

Okay. There was a question over -- Gert?

--------------------------------------------------------------------------------

Gert Zonneveld, Canaccord Genuity Corp., Research Division - Analyst [29]

--------------------------------------------------------------------------------

Gert Zonneveld, Canaccord Genuity. Just a couple of questions on revenues, if I may. Can you tell us how your strategic accounts performed in the interim period in terms of growth and...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [30]

--------------------------------------------------------------------------------

I didn't hear that, Gert. I don't know -- in the back, you can turn the sound up just so we can all hear it. Accounting for what?

--------------------------------------------------------------------------------

Gert Zonneveld, Canaccord Genuity Corp., Research Division - Analyst [31]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Unidentified Company Representative, [32]

--------------------------------------------------------------------------------

Strategic accounts.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [33]

--------------------------------------------------------------------------------

Yes. Try again, right.

--------------------------------------------------------------------------------

Gert Zonneveld, Canaccord Genuity Corp., Research Division - Analyst [34]

--------------------------------------------------------------------------------

Take 2, so on the strategic accounts, can you tell us how revenues performed in the first half of the year. And if there was a deceleration of that growth compared with either the growth you achieved last financial year. And secondly, the level of organic revenue growth has seemed to have decelerated in the second quarter of the interim period. Could you maybe comment on why that was? If there's any specific issues over and above general market conditions which caused that?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [35]

--------------------------------------------------------------------------------

Yes. The second one is a question we've been asking ourselves, and we've dug into it. But in terms of some sort of...

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [36]

--------------------------------------------------------------------------------

Yes. I mean, so let me answer the second one first. So organic revenue growth for the period was 2%. I mean, the big -- if you compared to sort of the back end of last year and the early part of this year, the 2 big things that have changed is, one, is there were no longer -- we now are lapping the full year of the Detention & Escorting Services contract, which is worth -- in total growth terms, that was worth 2.5% or 2 and 1 bps sort of annualized growth for us, so we're lapping that now so we no longer have that benefit. The second piece is that we are -- as we mentioned, we're actively exiting some of these international contracts. So that's in the period. In the half year, that cost us 1% of growth. I mentioned that our organic growth was 2%, but if you sort of exclude the fact that we got out of a load of international contracts, it would have been 3%. And at the same time, I mentioned that our growth in strategic accounts was 4%. Now the 4% was slower than we reported last year, but it's still sort of faster than the average and substantially faster than the market. And within that -- within our 50 top strategic accounts, there are some that are growing and some that are declining. But the big factors are -- I said it's without Detention & Escorting benefit now and it's without -- and it's sort of having exited a couple of big internationals, which were in the portfolio before. So those are the big 2 differences.

--------------------------------------------------------------------------------

Gert Zonneveld, Canaccord Genuity Corp., Research Division - Analyst [37]

--------------------------------------------------------------------------------

And one follow-up, if that's okay. So in terms of your outlook for the next 18 months or so, the low single-digit organic growth in revenues you're expecting, to what extent does that include assumed wins from the CCS framework?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [38]

--------------------------------------------------------------------------------

Yes, it doesn't. It doesn't. In the main. I mean, these are binary. And Simon Venn's working on MOD and there's huge contract opportunities there. But they're not going to get awarded, Simon, until back end of next year. Is that right?

--------------------------------------------------------------------------------

Simon Venn, Mitie Group plc - Chief Government & Strategy Officer [39]

--------------------------------------------------------------------------------

That's correct. So Simon Venn, Chief Government Officer at Mitie. So they won't be awarded until the next financial year. So the tender processes are being conducted at the moment. They represent, in total, around a GBP 2 billion opportunity, and there's obviously a lot of work to still win those bits of business. But the advantage that we have on usually is that we haven't been an incumbent supplier in the past. And the customer -- the end customer is not happy with the services that they've been provided over the last sort of 10 years, and the estate is pretty dilapidated. So it is a genuine opportunity, and they're looking for new entrants, of which we are one of very few.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [40]

--------------------------------------------------------------------------------

I think the other point, Gert, is that we have -- we did think we would win one of these big -- in the Detention & Escorting -- the Prison Escorting or we have another live bid that we didn't win. And we've got a sort of take the learnings from that, and we can be on our -- sort of our high moral ground about paying everything. But if everyone else is bidding lower, we lose. And so I have to be careful what I say because I know we've got 2 Crown Commercial services reps here now. But we're trying to bid in the spirit of the outsourcing playbook, and we're up against sometimes contracting departments that don't quite see it the same way. And we've got to take those learnings and be a bit cuter on how we bid going forward.

We've got James on the left here.

--------------------------------------------------------------------------------

James Peter Winckler, Jefferies LLC, Research Division - Equity Analyst [41]

--------------------------------------------------------------------------------

What sort of -- what is the competitive environment like from a bidding and margin perspective? And I guess, as a sort of corollary to that, how do you envisage getting to this 4.5% margin target, given that it seems as though there is pretty persistent margin pressure from the competition?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [42]

--------------------------------------------------------------------------------

Look, I mean, the market is tough. We know that. And just as we will be -- are prepared to lower margins at an outturn of a new extension, you're seeing the same behavior with incumbents. And we've lost some business to incumbents sometimes. So I think we've got -- we've taken you through in certainly Capital Markets Day in a bit more detail. But obviously, the cost side of things is an important part of how we get the extra 100-plus basis points of improvement. That's a key element. As is then selling on through more cross-sell through the SAMs and more project work, notwithstanding some of the economic headwinds that we have. So there is no sort of silver bullet to that in the bridge, and we've got VSG. We think we'll get from where we were at 0. We're at 2 in a bit and we're working that margin up as we add more value to our clients. So it's just -- we've a list of them here, but do you want to sum them up?

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [43]

--------------------------------------------------------------------------------

Yes. I think the -- I mean we -- what we've seen over the last couple of years is that our core contract margins are sort of edging -- they sort of bounce around but for this last period. Notwithstanding the fact we suffered quite a lot of erosion on some renewals, we made some forward progress. So the work that we're doing to get from where we are today with that, as Phil said, that was up 100 basis points, is largely self-help stuff that is outside of that. Project Forte, we said it's -- Phil described, GBP 30 million of gross benefits, GBP 10 million to GBP 15 million of net. That is 60 to 70 basis points. So that's the single biggest lever. VSG, Phil mentioned, it's somewhere between sort of 10 and 20 basis points of margin as we move those margins up to [the north].

Jason, who just met -- runs the Business Services division, integrating our Cleaning and our Security business, there's an opportunity there. Again, so taking -- there's the opportunity to run that -- the new Cleaning business in a more -- in a way, more aligned to the way we run Security, which is a more rigorous running. So we see margin actually enhanced, within the core Cleaning business. So you've got 60 to 70 basis points in Forte. And then the other 30, 40-odd are coming from a whole host of things and Phil's cost measures, which he's just described. So we feel that if we can hold the contract margins, which history says we can, these other elements are things that we can take to our bottom line, which is how -- I will take -- we got -- we'll have a slide on that at Capital Markets Day, which literally sort of walks through it in all its detail.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [44]

--------------------------------------------------------------------------------

And it's Andrew? I can't see if it's Andrew.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [45]

--------------------------------------------------------------------------------

That's Sam.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [46]

--------------------------------------------------------------------------------

Sorry, Sam. I couldn't quite see you there.

--------------------------------------------------------------------------------

Samuel Frost Dindol, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [47]

--------------------------------------------------------------------------------

Sam Dindol from Stifel. Just a couple from me. Firstly, could you just remind us what incentives are for the sales team and the strategic accounts team, that would be helpful. And then secondly, given how you talk about the business today in terms of 3 buckets, is it sensible to assume no further sort of portfolio rationalization from here?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [48]

--------------------------------------------------------------------------------

So Simon, I'll let you pick up the incentives. But then on the portfolio rationalization, I mean we'd never say never. So we'll -- if we felt that a division might prosper more quickly, not -- part of it -- a piece of business might prosper more readily in someone else's ownership, and they're prepared to pay it, then we might look at it. But we're not going to rule in and rule out. We've been there before with social housing and have the scars on the back for as a consequence. But the SAM bonus scheme, Simon, I mean, it's sort of up and running now, isn't it?

--------------------------------------------------------------------------------

Simon Venn, Mitie Group plc - Chief Government & Strategy Officer [49]

--------------------------------------------------------------------------------

So it's fairly straightforward. So it's 25-25-25-25 NPS, revenue, EBIT and...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [50]

--------------------------------------------------------------------------------

Cash.

--------------------------------------------------------------------------------

Simon Venn, Mitie Group plc - Chief Government & Strategy Officer [51]

--------------------------------------------------------------------------------

Cash. And vitally, it is now -- and this is for the -- this year, for the first time ever, remarkably, a SAM, a strategic account manager, is remunerated purely on the total performance of his account because we've moved to this sort of holistic running of the account by SAM. In previous forever more, before then, he was awarded on his service line within that account only. So it couldn't tell us about everything else going on. So it's a complete account view now, which is -- and that's been extraordinarily helpful in -- so far, actually, on the cash side of things, but will become more helpful, we believe, on the revenue through the cross-sell.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [52]

--------------------------------------------------------------------------------

That is -- it is enabling us to take out costs out of the structure because you have heads of each service line reporting up through the client. And now you've got 1 boss, head of Lloyd's Bank, is driving the performance of cleaning and the security guards and engineering, whereas in the past, they were just tied in with engineering, grossed up load scheme, not even Lloyd's Bank more so. So it's a huge change. And as Paul said, they're now really looking at their billing, they're looking at their debtors and really getting on top of there, aren't they?

Last one, maybe? Or have we...

--------------------------------------------------------------------------------

Unidentified Company Representative, [53]

--------------------------------------------------------------------------------

(inaudible) Ben, Ben.

--------------------------------------------------------------------------------

Unidentified Analyst, [54]

--------------------------------------------------------------------------------

A couple of questions. The first one, with regards to the capital structure, acknowledging the dividend payment due to come in about GBP 300 million of debt maturities coming over the next 6 months, 9 months due to be refinanced. So just trying to understand a bit more about that. And the second point, we've discussed about it quite a bit, and perhaps that's for Capital Markets Day. But trying to understand the bidding process when tendering for specific contracts. I'm mindful there is the top line, clearly doing great, margins under pressure. And trying to see how the 2 can be perhaps tied together.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [55]

--------------------------------------------------------------------------------

Okay. So...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [56]

--------------------------------------------------------------------------------

So do you want to do the capital structure, Paul? You've obviously got bond USPP.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [57]

--------------------------------------------------------------------------------

Yes. I mean, from a coming capital structure wise, so we've got -- there's a GBP 40 million USPP repayment due in December this year, so next month, which we'll use from the rest of our facilities, that's entirely. So we use it at a cash/revolver. The next material debt point is in -- is July 2021, so it's 19 months from today, which is the RCF, so it's a GBP 275 million RCF facility. And actually, we've -- there are some people here today who we are starting to talk to, both current and new lenders, around appetite to still be part of that renewal process. So we're just starting that process. And I think we'll sort of -- we'll get into it with a bit more purposefully in the early part of next year, sort of calendar year. And the -- and in terms of the dividend, I mean we -- so our position has consistently been, for the last 3 years, when -- so originally, we took the dividend down by 2/3, so back when Phil first arrived, and we've been consistently sort of -- we feel comfortable at that level at the moment. So we're not looking to put it up, we're not looking to put it down. So at the moment, it's sort of same as last year, and we're paying it out now. And in terms of total -- I mean, the total cash terms, that's just under GBP 15 million a year of dividend that we pay out. But it's -- we have -- our projections accommodate all of that.

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [58]

--------------------------------------------------------------------------------

I mean, it probably comes back to the accelerated value creation is clearly a lever that's available, but it doesn't -- it needs to be a consequence of what we've delivered in the performance of the business, not an instrument to -- in its own right. And that's the way I look at dividend. We've got to earn it to pay it. And so yes, that's where we'll be. So we'll be waiting to see that accelerated performance come through before we contemplate -- it's obviously a Board decision -- contemplate any change to our current policy.

--------------------------------------------------------------------------------

Unidentified Company Representative, [59]

--------------------------------------------------------------------------------

The bidding process?

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [60]

--------------------------------------------------------------------------------

Oh bidding. I mean it varies, and we can go into a bit more detail to get through the guys. I mean the truth is, and I'm slightly, again, nervous saying this in front of our Crown Commercial Services friends. But you get some bids where everything goes through a portal, you never get -- you don't actually speak to people on the other side of the PC as it were. And that's quite hard to get the chemistry working and the -- and understand the nuances of how we can add value. And then on the other side, you end up building great partnerships and relationships where information is traded, it allows you to really optimize the bid for the client and for us. And you don't have to be a sort of genius to work out which we'd prefer. And probably our success rate in the latter where we are building relationships is probably higher than it is in the former. And we've got to learn from that.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [61]

--------------------------------------------------------------------------------

We've got a very strict sort of big criteria in terms of the margin, in terms of the terms, particularly the payment terms, which we -- we've got a set of rules. At the same time, we're looking at what is the opportunity within the account. So -- I mean there's an account that Jason won 18 months ago, 2 years ago, which was a GBP 15 million piece of business. So we're now doing GBP 80 million, GBP 90 million out of that at a sensible margin. So with that type -- so in that type of arrangement, we'd probably be a little bit more -- be [packed] about -- to get in at a slightly different sort of level to one which is where the margin is, what the margin is and it's never going to move. It's just a fixed piece of business. But we are -- but we're in -- the big committee in terms of its review process is very strict. And as part of that, payment terms or paying and billing terms are also a massive part of it, which we will not bid on certain terms, so...

--------------------------------------------------------------------------------

Phil Bentley, Mitie Group plc - Group CEO & Executive Director [62]

--------------------------------------------------------------------------------

And we've lost business. We've lost business where we were the preferred supplier, down selected, and then we wouldn't budge on credit terms. And as I say, we sort of hold the moral high ground, but we've got to be commercially acute as well. I think what will be useful is perhaps to show the amount of contract win or cross-selling those key accounts as well because that's really where we make the incremental margin. And I know, Jason, you've got a big security win, hopefully, shortly from one of our big clients, which has started life as a cleaning contract. So that's where we need to go.

Okay. Well, thank you for your time. And hopefully, the recording works, and we'll do this again in early December. Thank you.

--------------------------------------------------------------------------------

Paul Woolf, Mitie Group plc - Group CFO & Director [63]

--------------------------------------------------------------------------------

Thank you.