Mitie Group plc

Welcome to everyone to MITEI's headquarters here in the Shard. Thanks for joining us this morning in person or online for our preliminary results presentation for the year ended March 2024, FY24 as we refer to it. I was just thinking back, it's my eighth annual results presentation now for MITEI. As this cover says, FY24 has been another strong year of delivery for MITEI, and we're starting our new facilities transformation three-year plan with some good momentum. So just to summarize some of the key facts to start with, FY24 has been our third successive year of record performance and completes the final year of our last three-year plan. Our financial performance has been strong, 11% year-on-year revenue growth, 30% year-on-year operating profit growth, and 29% year-on-year earnings per share growth. Our leading indicators are also encouraging a 44% increase in wins and renewals in the year to 6.2 billion total contract value. Our order book was up 18% to 11.4 billion total contract value. And our pipeline of those in-flight tenders grew 27% to 18.6 billion total contract value. Engagement indicators are also at record levels. Customer net promoter score was plus 60, up 18 points. And that's a world-class level in B2B scores. It's the biggest year-on-year increase we've ever seen, reflective of our service delivery. Employee engagement also reached a new high, up six percentage points to 63% of our colleagues describing themselves as fully engaged, with 40,000 colleagues now taking part. And colleague attrition fell by a third to a low of 13%. It's this balanced scorecard that underpins our capital allocation strategy, gives us the confidence to continue to invest in our business model and to increase returns to shareholders. M&A spend was 66 million. That's three times more than we spent in the previous year. And we completed seven acquisitions. And subject, we returned 114 million pounds to shareholders. And subject to shareholder approval at the next month's AGM, the board is proposing a final dividend of 3 pence per share, taking the full-year dividend to 4 pence per share, and that's a 38% increase year-on-year and an increase in the payout ratio to 33%. So that's the big picture. Now over to Simon for more detail behind the results, and then I'll talk about the progress of our new strategy.

Thanks, Phil. Good morning, everybody. Let's start with the headline numbers. As Phil said, we've reported a strong set of results for FY24. Revenues up 11.2% to £4.5 billion, driven by organic growth of 7.1%. Operating profits improved by 29.7% to £210.2 million, underpinned by another positive performance from our margin enhancement initiatives. Margins increased by 70 basis points to 4.7% and EPS is up 29.5% to 12.3p a share, boosted by the revenue growth, higher margins and share buybacks. As Phil said, the board's proposed the final dividend of 3p a share, taking the total dividend to 4p, which is up 37.9% on FY23. And finally, we've had a free cash inflow of £158 million, with average daily net debt of £161 million. So moving on to cover the performance in more detail, and turning firstly to revenue, all divisions have contributed positively to the 11.2% growth in the year. Business services grew by 5.4% to £1.5 billion as a result of strong growth in retail crime protection work, as well as pricing and acquisitions. These upsides more than offset the headwind from completion of the high-margin, short-term COVID and Afghan relocations contracts. Technical services revenue grew by 14.9% to £1.3 billion, underpinned by projects growth, revenue from new accounts and acquisitions. CG&D improved by 13.3% to £938 million, reflecting the continued growth in projects work, the landmark consolidation and pricing. And finally, communities grew by 14.9% to £757 million from increased work in care and custody and again, pricing. My next slide shows the key drivers of the revenue growth in the year, with the first block being the reduction in revenue of £81 million for the completion of the COVID and Afghan relocations contracts. Next, we show £194 million of growth from wins and losses, projects growth and incremental growth on existing contracts. Revenue from wins and losses is broadly neutral, and the driver of the increase in this block is therefore £189 million of incremental organic projects revenue. Pricing accounts for £177 million of additional revenue, and when we combine these three blocks, total organic growth for the year is 7.1%. Finally, acquisitions contributed 4.1 percentage points of growth in FY24. This block includes the acquisitions we've made in the last 18 months, including RHI, GBE and JCA, as well as the landmark STEP acquisition, which added £42.6 million worth of revenue for the year. Moving on to operating profit, which has increased by 29.7% to £210.2 million, with all divisions making a positive contribution. Business services grew by 5.1% to £97 million, with increased retail crime work and margin enhancement initiatives more than offsetting the headwind from the completion of the higher margin public sector contracts, which I'll touch on shortly. In technical services, profit increased by 29.9% to £44.3 million, with margin enhancement initiatives, projects growth and acquisitions more than offsetting the headwinds from cost inflation. Like technical services, CG&D profit grew significantly in FY24, up 34.4% to £80.4 million. This increase was driven by the project's growth, as well as margin enhancement initiatives, and CG&D also benefited from higher profits at Landmark due to the improved margins and consolidation. Communities' profit improved by 24.5% to £39.1 million as a result of the higher revenue in care and custody, improvement on a loss-making PFI contract, and margin enhancement initiatives. And finally, the reduction in corporate costs contributed £4.9 million to the improved profit, with savings coming from a range of initiatives across all of the head office functions. Next, we show the drivers of the profit improvement on a bridge, with the first block being the £15.6 million reduction in contribution from the Afghan relocation and COVID contracts. Margins on these contracts were particularly high, compensating for the risks involved in standing them up and potentially winding them down at short notice. Next is a £19.9 million improvement from projects, net wins and other trading where projects growth and higher profits from existing contracts more than offset the cost of our ongoing technology investments. This block includes £13.5 million of incremental projects profit at a higher than average margin. We delivered £40.3 million of incremental profit from margin enhancement initiatives this year, with the largest component being the TOM programme, which generated £27.9 million worth of savings. As a reminder, the TOM programme includes the outsourcing of finance, HR and IT, as well as the consolidation of properties and help desks. The balance of the savings came from inter-serve synergies, the Cooper rollout and the operational excellence programmes. Next, we show the net hit of £6.2 million to the bottom line from inflation, which I'll come back to shortly. And finally, the £9.7 million of inorganic profit from acquisitions. This final block includes £5 million of profit from the landmark consolidation, offset by £3 million of costs from G2 Energy, which we acquired from the liquidator without any order book or revenue. The £48 million increase in profit to £210 million was a key driver of the 29.5% improvement in EPS in FY24. EPS also benefited from lower finance costs, where we're seeing the benefit of the 10-year debt that we locked in at 2.9%, as well as the closure of the invoice discounting facility and higher returns on cash deposits. Corporation tax of £37.9 million reflects an effective tax rate of 18.9%, with the increase in the headline rate of corporation tax offset by the recognition of tax losses that we acquired with InterServe. The share buyback programme resulted in a £66 million reduction in the weighted average number of shares, contributing 6 percentage points to the overall 29.5% increase in EPS. turning now to inflation and starting with the impact in the year. CPI has been falling in FY24 and labour markets remain competitive, but we continue to attract a good supply of resources and our attrition rates have significantly improved. These factors have helped us to limit the impact of inflation on our cost base to £183 million, reflecting a 7% increase in both wages and materials compared to FY23. In terms of pricing, our contractual protections and customer relationships again enable us to pass on the majority of the cost increase to our customers, resulting in only a £6 million reduction in profit, significantly better than we forecast at the start of the year. Looking ahead to FY25, based on the OBR forecasts, we expect CPI to fall towards 2%, but we expect wage inflation to remain at around 5%. CPI is one of our contractual protections against inflation, so if it does remain below wage inflation, then we'll see the bottom line hit to the P&L increase to around 10 to 15 million pounds in FY25. Turning now to cash, we generated a free cash inflow of 157.6 million pounds in the year, with the key driver being the operating profit of 210.2 million pounds. Other items was the £37.6 million outflow of cash and was largely made up of the costs of delivering our margin enhancement initiatives as well as acquisition related costs. The acquisition costs included a non-cash accrual of £9.5 million relating to potential future earn-out payments for acquired businesses. Next, we have a cash outflow from working capital of 4.3 million pounds, which is the net effect of continued growth in projects offset by process improvements. These improvements included the rollout of the Cooper system, rationalization of the supply base, and alignment of our VAT groups, which collectively resulted in a one-off improvement of around 25 million pounds. CAPEX leases interest and tax was £72.5 million and £9.8 million lower cash outflow than in FY23. And together these movements resulted in the free cash inflow of £157.6 million. Our capital allocation actions account for £148.7 million of cash outflow, which I'll come back to shortly, and lease liabilities increased by circa £45 million as we expanded our EV fleet and extended the average duration of our leases. Finally, at the bottom of the page, we see the overall increase in net debt of £36.7 million. This increase results in a closing net debt of 81 million pounds and an average daily net debt of 161 million pounds with the average leverage ratio of 0.6 times remaining below our targeted range. Debtor days are consistent with FY23 and creditor days have increased as we rationalize our supply base through Coupa and move them onto standard payment terms. ROIC was 26.4% in FY24 and net assets increased to £474 million after distributing £114 million of dividends, share buybacks and market purchases for employee share schemes. Our strong balance sheet and ongoing free cash flow generation underpin our capital allocation decisions. In FY24, we've increased our dividend payout ratio to 33%, proposing a total dividend of 4p a share. We've spent £20 million purchasing shares in the market for incentive schemes and completed £66 million of acquisitions in high-growth sectors. And finally, we've acquired 58 million shares for £50 million through our ongoing share buyback programme. Since we started the programme in FY23, we've acquired 134 million shares at an average price of 81p. Looking ahead to the next three years, the dividend will stay within our targeted 30% to 40% payout range. We'll continue to purchase shares for all employee share schemes, and the acquisition spend will flex to the opportunities identified in any given year. Finally, we'll continue to return excess cash to shareholders through buybacks, with an expectation that our leverage will increase to between 0.75 times and 1.5 times EBITDA. Our capital allocation policy was a key element of the guidance we gave at the capital markets event in October, as were the financial targets that we show on the left-hand side of this slide, where we said we'd reach £5.6 billion of revenue by FY27 at a margin of at least 5%. As a result of this higher margin, we said EPS growth would outpace revenue growth over the period, and by FY27 we're forecasting £150 million a year of free cash inflow. We've taken a positive step forward in FY24 with revenue growth of 11.2% and margin growth of 70 basis points, accelerating our progress towards the FY27 targets. We expect to continue to make good progress in FY25, although our journey to FY27 won't be linear. Revenue growth will be in the high single digits, boosted by some large contracts already won in Q1, as well as good momentum in the projects business and growth from acquisitions. Margins will benefit from our margin enhancement initiatives and projects growth, but we'll face headwinds from cost inflation, higher margin contracts lost in FY24 and mobilization costs. And as Phil will explain shortly, we're continuing to make a significant investment in both our tech platform and our sales capability. As a result, we expect margins in FY25 to remain consistent with FY24. EPS in FY25 will be impacted by an increase in our effective tax rate to 25% as the inter-serve tax losses are now fully utilised, as well as higher finance costs as our leverage increases. In completing the FY25 guidance, we expect free cash flow to be lower than FY24 as the project's business grows, consuming working capital, both tax and lease payments increase, and we incur mobilisation costs for some large contracts. However, we still expect to generate free cash flow of more than £100 million, and ROIC will remain well above our 20% target. And on that note, I'll hand you back to Phil.

Okay, thanks Simon. So I think in summary, as Simon said, we've made good progress in FY24 and we're on track for FY25. So now I want to turn to our facilities transformation strategy, which we unveiled at our capital markets event Last October it was now. So you'll recall our summary slide where we said the world of facilities management is changing with new needs emerging. Taking our industry from facilities management to technology-led, data-rich facilities transformation. Transforming the built environment, transforming the lived experience, and transforming insights and decision-making for our clients. Meeting these new needs is at the heart of our new strategy to deliver growth in key accounts, growth in projects upsell, growth and growth through infill M&A. And it's a strategy with clear financial targets and our customary capital allocation disciplines, as Simon outlined. So what's been going on since we launched our facilities transformation vision last October? Well, firstly, and encouragingly, we're seeing demand for facilities transformation accelerating across each of our service lines. Due firstly to regulatory changes, over 80% of the commercial real estate in the UK does not meet minimum energy efficiency standards. Our clients' ambitions for renewable energy is growing, as is a greater burden of reporting. Martin's Law, the Protect Duty Bill, shifting responsibility to our clients to ensure public safety, will be one of the biggest pieces of legislation to impact the security sector for decades. Fire and security and regs for the use of chemicals are also tightening. The biggest behavioural changes in decades are driving facilities transformation. Hybrid working is now the norm. Employees expect a modern, collaborative, safe and healthy working environment. Facilities transformation is also accelerating because our customers need to improve productivity, extending asset life cycles, upgrading only when cost efficient to do so. And the need to manage retail crime, costing the UK retailers over £3 billion a year these days, is also accelerating facilities transformation, as is the need to flex and automate cleaning. And certain sectors, and finally certain sectors, have their own unique facilities transformation agendas already announced in defence, in power, in retail and data centers, and in the NHS. So in summary, these are the long-term structural growth drivers for MITEI, and they won't, in our view, be affected by any change in government. So eight months on from launching our vision, we're now beginning to execute our detailed plans. And we carry good momentum into FY25. Key accounts have performed well, more Amazon fulfillment centers, a new contract for the British Army. in Germany, which went live on the 1st of June. Increased scope at Landmark and extensions at GSK, DWP, and JLL. New marquee wins, where FM and project spend could be over £30 million per annum, included Financial Services Group Phoenix, IENA, Spain's national airport operator. And since the year end, we've won some further really good marquee names, including EY, Halfords, Aldi, and Lidl. Of course, projects is also a key contributor to our facilities transformation strategy, and our revenue here grew 37% last year. Data center fit-outs for KO solar PV installations at NATS across the David Lloyd estate, power upgrades and battery connections to the national grid, and increased branch security for Lloyds Bank and for many retailers. These are just to name a few of the projects we did last year. And we're particularly pleased with our infill M&A and the high-end engineering capabilities of JCA and sophisticated security capabilities of RHI and GBE, which we're now offering to our wider clients. So we're now poised to accelerate growth. Our ambition over the next three years is simple, to grow faster than the wider FM market and to extend our market share leadership through firstly key accounts growth, We've invested in a new sales team structure with new incentives and new leadership with more consistent bidding processes, working more closely with marketing to develop bespoke sector and customer-driven sales strategies. We're extending our account-based marketing approach to target new individual clients. Adding just two new marquee IFM accounts per year over the next three years could add some 200 to 300 million pounds of revenue. We're also investing heavily in our CRM functionality and growing out our business development capabilities. Mighty has a strong bidding capability and we now strive to be a more sophisticated business relationship developer. We're targeting growing our pipeline by 30% over the next three years. We're putting more resources into renewals. I mentioned we had a record year of wins and renewals in FY24, but we still lost the DEFRA contract on price and Rolls-Royce to a global bid. These were long-standing relationships, so this was a fairly painful experience for us, which, as Simon said, hits our FY25 target. earnings number. So we've taken on some key learnings. SAMs, our strategic account managers, are a key growth driver for MITEI. Last year, we grew our top accounts by 11%. But we have to invest more in talent, training, and incentives so that the in-contract teams take more ownership of both innovation during the contract life and retention at the end of the contract. Secondly, we'll accelerate growth through projects at CEL, building out firstly our consultant design capabilities. For example, helping our customers develop their carbon reduction strategies or redesigning their working environments. This is higher margin work and will help push our overall projects margin above 9%. We're launching a project center of excellence in Birmingham. supporting our 2,500 projects professionals, applying consistent construction design and management standards with common BIM and PMO tools. We expect our projects business to be over 1.5 billion pounds per annum by FY27, converting more of our current 3.3 billion projects pipeline and capturing greater margin by delivering more of the work ourselves. I see Mark Caskey nodding there, so obviously he's clear on what his targets are going to be. On M&A, we'll accelerate growth through infill M&A with a focus on deepening our engineering, our decarbonisation and our fire and security capabilities. We have a healthy pipeline of opportunities for M&A with a couple of transactions now nearing completion. And whilst 90% of our business is in the UK, we do aim to grow our Spanish business. It's a £12.6 billion FM market in a growing economy with consolidation opportunities. Having doubled revenue in the last three-year plan, we believe we can double it again over the next three-year plan. Taken together, these are the specific investments and interventions which underpin our high single-digit growth ambitions. Excuse me. Our second priority is to leverage our scale to secure a cost-to-serve advantage and to drive margins above 5%. As we said at the Capital Markets event, with over 60,000 colleagues in the UK, we are the clear market leader, and it is the largest and most dynamic FM market in Europe. We are number one in each of our chosen core service lines. And although we've delivered significant margin enhancement initiatives already, as Simon showed, new technologies such as AI, new IT systems to deliver more straight-through processing, and new productivity analytics all offer new savings opportunities. Looking at our in-contract cost structures, we still find different parts of the business doing similar things in different ways. And I expect to see more consistency in self-delivery of work, sharing resources across our accounts, and greater productivity improvements. We've more to do on root density planning across our mobile workforces. We have separate public and private sector mobile engineers because of different vetting requirements. We have a separate mobile fire and security team and a separate mobile water team. So standardizing our workflow deployment systems and investing in cross-training, we expect to see time to travel to the job and time on site to fall and time on site to increase. And that'll drive major savings. We'll complete the rollout of our digital supplier platform, Coupa, which has been incredibly successful for us already, to drive procurement efficiencies in tech services. That's the division with our biggest demand on the supply chain, and they're not using Coupa right now, as also we'll be rolling out Coupa in our new acquisitions. Repetitive admin work and even some engineering design work is now being offshored, and that will continue. And although colleague attrition has fallen to record low levels, we still have to recruit and train some 9,000 colleagues annually. That's a significant cost burden on our business model, as is absenteeism. So taking together, and this is before the headwinds of investment and investments that Simon mentioned, I see gross margins in our major contracts increase in the gross margins whilst overhead as a percent of revenue falls through operational leverage. And that's exactly what happened in last year's numbers. This virtuous widening of the jaws, as it were, gives us a clear path to a margin that should exceed our 5% target. So let me turn now to our favorite drawing, the Mightyverse. Our next strategic imperative is data-driven intelligence. In the parlance of PropTech world, Mighty is becoming an aggregator of workflow and workflow data in the built environment. But what does this really mean? And what does it really look like? The technology foundation layer is where all our core technology platforms come together, where our core workforce and workflow data is held. Our data layer is our data lake, overlaid with functionality of GenAI, cloud-based systems, and now Microsoft Fabric. Our data is a unique asset for MITEI. Millions of data points from our customers providing insight on how their built environment is performing. These insights then drive our facilities transformation product layer, enriching our service line capabilities across intelligent engineering maintenance, intelligent projects, intelligent security, and intelligent cleaning and hygiene. So let me just give you a quick whistle stop tour of the product layers we've built since the capital markets event. Starting with intelligent engineering maintenance, we hold extensive histories on individual assets and asset classes across many customer estates. By developing a diagnostic dashboard, applying AI and machine learning to our data, we can now predict and prevent asset failures, carry out remote fixes, reducing the numbers of those engineer visits, driving down costs, improving productivity. And as we benchmark asset and estate performance for individual customers across their peer groups, We believe that we can help them make more informed decisions about their own capital spend. Intelligent projects captures MITE's deep skills in renewable energy and backed by data, develops pathways to net zero for our customers, reporting scopes one, two, and three data in real time. And that's something MITE already has today. Benchmarking emissions, pinpointing the project upgrades for our clients, that MITE's team can then deliver. Intelligent projects also lifts the growing burden of carbon reporting and disclosures for our customers. Intelligent security pioneers the development of security resources in response to risk and threat intelligence, pooling vast incidents and shrink data using AI analytics, We can identify patterns and trends that predict threats for our customers, responding by deploying resources where and when they're needed, stopping incidents from happening, minimizing the cost of theft, and improving employee and public safety. and providing the police with data-rich case files to secure convictions. Finally, intelligent cleaning and hygiene, flexing service to meet demand, taking footfall analysis, square footage data, near-field communication tags, shift patterns. AI ensures resources are targeted on the specific areas within a building that needs the most attention, responding to spillage incidents that pose an HSE risk. optimizing replenishment of consumables, again, reducing costs. So this is the Mightyverse in action now. And if you do have time at the end of the presentation to grab a coffee and head into the tech hub around the corner there, see the intelligent technology team at work. We've got Ninja. We've got Dan there and Caroline, who can show you a little bit more about what we're doing with live data with our clients today. So if data-driven intelligence, if you like, are the brains behind our facilities transformation strategy, our heart is being recognized as the industry leader in facilities transformation. Maintaining the best-in-class ESG ratings, the largest EV fleet, the first company in our sector to deliver net zero. leading in social value with the largest apprenticeship scheme in our industry, launching a new engineering graduate scheme, a first for MITEI, putting people on the first rung of the ladder of work. That's what makes a difference across the country. Improving our line management skills with a new academy, supporting and caring for our frontline colleagues, and making sure that everyone has an opportunity to be rewarded more for doing a job well done. You don't get great employee engagement scores and win UK top employers six years in a row by luck. You get it by supporting our frontline colleagues day in, day out. And you don't achieve an MPS of plus 60 or beat BP or Diageo to be B2B marketeer of the year. By chance, you get it by attracting some of the best people in the industry. And you gain governance leadership by putting in new SoxLight risks and control frameworks a year ahead of UK regulations. How we run the business, being proud of the impact we have on society, this is our greater purpose and what makes us really tick at MITEI. And that's why getting external recognition for what we're doing is an absolute key part of our strategy. Finally, we've put in place bespoke development plans and new incentive scheme for each exec team member to deliver this new three-year plan. Building a better run business does require investment, but these are the investments which will make Mighty an even more successful company and a company to be proud of. So in summary, our new facilities transformation plan for FY25 to FY27 is now fully underway. We're moving from strategy to execution, and we're making investments, investments in sales and marketing, in acquiring new skills through M&A, investing in cost efficiencies, in data and intelligent products, and in management capabilities. And it's these investments that will deliver our new three-year plan targets. Number one, by accelerating growth through key accounts, growth projects, and infill M&A to drive high single-digit revenue. Number two, by building a cost-to-serve advantage, delivering a group margin beyond our 5% target, supported by the continued delivery of cost savings and increasing margins from our projects division. Number three, by investing in data-driven intelligence. Number four, through investing in management leadership. Taken together for our shareholders, this three-year plan means a free cash flow of 150 million pounds by FY27, returns of invested capital in excess of 20% despite the uptick in M&A and despite the higher corporation taxes that we now face. a progressive dividend, and the proactive return of surplus capital to shareholders via buybacks, ensuring we keep leverage within and not below, which is where we've currently been, within our desired range of 0.75 to 1.5 times EBITDA. As I said at the start, our facilities management strategy has begun. It's stretching and, I hope, exciting in equal measure. But it's one that we believe will once again deliver for our shareholders. With that, I look forward to updating you on our progress during FY25. And let's turn it over now to Q&A. We need some mics and some names. Sam to start with.