Mitie Group plc

Okay, well, good morning, everyone, and welcome to MITEI's interim results presentation for the six months ended 30th of September, 2025, H1 FY26, as we call it. Which, as usual, we are broadcasting live here from the Shard. We're also joined today by Chris Rogers, MITEI's new chairman. Welcome, Chris. and also welcome Sam White. Sam White is our long awaited and much welcome Managing Director of Technical Services Division who joins us from Costain on the 1st of December. Thank you, Sam, for slipping off quietly here. Now, it's just over two years ago since our capital markets event that we held here, where we launched the Mightyverse, if you remember, and our facilities transformation vision. And we've now reached the halfway mark in delivering our FY25 to FY27 vision. three-year plan. As a reminder, our business model set out to leverage our scale, our technology, and our capabilities to unlock the value of our customers' estates through facilities management, facilities transformation, and with the recent acquisition of Marlowe, facilities compliance. and, as we say, to become the future of high-performing buildings and places. At this stage, I'm pleased to say that the business is on track and momentum is growing. Encouragingly, we have maintained double-digit revenue growth for the fifth successive six-month period, significantly outpacing the market, and we've shown good margin resilience despite the headwinds from national insurance and wage inflation. We've delivered record contract wins again and renewals and have continued to grow the order book and pipeline again. Free cash flow generation was good and our leverage at one times EBITDA is modest, hence why we launched in October a new 100 million pound buyback program over the next 12 months. We're confirming our FY26 EBIT guidance of 260 million with the integration of Marlowe going well. AI, as I'll show, is having a wide impact in the business. We're on track not only to deliver our ambitious FY27 targets, but also to take us beyond 27 with our growing momentum. I'll discuss all these points shortly after Simon takes you through the H1 26 numbers.

Thanks, Phil. Good morning, everybody. So as Phil said, we're now halfway through our three-year plan. So before getting into the detail of the half one results, I'll give a little bit more color to the financial progress that we've made so far and the financial model that underpins our strategy. Our model's based on profitable growth and free cash flow generation, enabling us to compound earnings, drive value accretion, and increase shareholder returns. At the capital markets event in 2023, when we launched the Mightyverse, we said revenue would grow in high single digits. At the halfway point of our plan, it's exceeded that target, growing at 12% a year, supported by the increasing pipeline and much larger order book that Phil just referenced. Operating profits growing a little faster than revenue, at 13% a year, and it's worth reminding ourselves that back in 2023, consensus profit for FY26 was £207 million. Today, we're forecasting £260 million, having made six upgrades since then. Margins have been resilient despite the material external headwinds, and this good growth and increasing profitability has led to significant free cash flow generation. enabling us to return cash to shareholders and to pursue value accretive M&A. As a result of these actions, our TSR since the capital market event is 68%, well above the FTSE 250 average of 30%, and we're compounding earnings with EPS growing faster than revenue at 18% a year. So with that as the backdrop, I'll move on to cover the half one results, starting with the headlines. Revenue is up 10.4% in the half to £2.7 billion, driven by good organic growth of 6.4%. Operating profits grown by 7.6% to £108.8 million. And as Phil said, we've maintained margins at just over 4% despite significant profit headwinds. EPS is up 5.6% to 5.7p a share, with profit growth and share buybacks offset by higher net finance costs. We've declared an interim dividend of 1.4p a share up 7.7% on FY25. And finally, we've had a free cash inflow of 51.9 million pounds with average daily net debt of 332 million pounds. Moving on then to cover the performance in more detail and turning firstly to revenue. This slide shows the key drivers of the revenue growth in the first half of the year with the good momentum from FY25 continuing both organically and inorganically. The first block of the chart shows £70 million of growth in Core FM from wins and losses and incremental growth on existing contracts with wins significantly exceeding losses. Organic projects growth of £48 million was driven by good growth in both divisions and includes a £13 million reduction in revenue in Mighty Telecoms where we've exited unprofitable contracts. Pricing accounts for £77 million of additional revenue and we've shown separately on this bridge the £41 million headwind from completion of the high margin, one-off surge security work last year. When we combine these four blocks, total organic growth for the half is 6.4%. Finally, acquisitions contributed 4% of growth in the half. This block includes the infill acquisitions we've made in the last 18 months, including Argus Fire and ESM, as well as the Marlowe acquisition, which added £51 million of revenue. Sticking with the group numbers, next I'll cover operating profit. This slide shows the key financial themes for the half on a profit bridge, highlighting the resilience of our business model. Strategic profit growth of £31.3 million more than outweighed £23.6 million of profit headwinds. Our growth strategy is focused on core FM, projects and acquisitions, underpinned by margin enhancement initiatives. Core FM and projects grew by £6.4 million in the half, driven by new wins, combined with a good projects performance across most sectors. These upsides significantly outweighed lost contracts, as well as one specific contract provision which reduced profit by £5.4 million. I'll come back to this shortly when I cover technical services. Next, we added £4.7 million of incremental profit from acquisitions, including £3.1 million of profit from Marlowe. We've made good progress with margin enhancement initiatives, delivering £10 million of profit, and we've turned the telecoms business around, making a small profit in half one, which is a £10.2 million year-on-year improvement. In terms of headwinds, the completed surge response work was a £7.8 million profit headwind. We made £6.2 million of investments to drive growth, including an extra £2.8 million of contract mobilisations. And the headwind from national insurance and inflation was £9.6 million, which I'll cover in a bit more detail now. Once again, we were successful in managing inflationary pressures in the period. Our contractual protections and strong customer relationships enabled us to pass on 95% of cost inflation to our customers, resulting in only a £3.4 million reduction in profit. We expect cost inflation and pricing recovery in half two to be broadly consistent with half one, resulting in a net P&L impact for the year of around £8 million. We said in June that we expected our employer's NI bill to go up by around £50 million in FY26, and that we'd recover around £35 million of that through contractual protections and commercial negotiations. Recovery in the first half of the year has been slightly better than we expected, leaving a residual cost of only £6.2 million. As a result, we're forecasting a full year net impact of around £13 million, all of which will be offset by MEIs. Moving on then to cover the divisional performance. Over the past two years, we've been simplifying our divisional structure, consolidating four divisions into two. First of all, we broke up central government and defence, moving the more soft services-focused central government business into business services, and the more engineering-focused defence business into technical services. We've also broken up communities, with the majority of it being amalgamated into technical services, other than immigration and justice, which now sits comfortably in business services alongside the security business. Turning then to business services in more detail, revenue grew by 15.1% to 1.4 billion pounds, with particularly good performances in security, hygiene, and in Spain. The security business grew by 12.2% in the half, despite the £41 million headwind from completion of the surge work last year. Growth was driven by fire safety and security projects, both organically and inorganically, as well as new wins and pricing. Growth of 13.3% in hygiene was driven by some significant wins in FY25 and pricing, and the business in Spain has grown by almost a third as a result of the expansion into security and significant wins in the public sector. Underneath the total revenue line, we call out projects revenue, which has increased by 30.5% to £167 million, as a result of the growth in the fire safety and security projects that I just mentioned. Profitability in business services has been resilient, in line with the first half of last year at £85.3 million, but margins have reduced by 90 basis points to 6%. Revenue growth, MEIs and the contribution from Marlowe have been positive drivers of profit in the half, but they've been offset by the headwinds from cost inflation, national insurance and the completion of the high margin search work. Moving on to technical services, which has grown by 5.4% to £1.3 billion. Engineering, which includes our private sector maintenance contracts and larger engineering projects, grew by 4.8% in the half. New wins, project work and pricing more than offset the loss of one notable contract and the contracts that we've exited in the telecoms infrastructure business. The defence growth of 5.2% and the HLG&E growth of 7.1% were largely driven by increases in project work. In defence, this included projects for the DIO in Gibraltar and Cyprus, and in HLG&E, the project's growth was largely in the healthcare sector across a number of hospital contracts. These DIO and HLG&E projects, combined with good growth in data centres and power and grid, helped total TS projects to grow by 10.6% to £469 million. This project's growth combined with MEIs and the turnaround in the telecoms business drove a 22.9% increase in profit, boosting margins by 60 basis points. However, although margins have improved, they continue to be impacted by the headwinds from inflation and national insurance, as well as a provision for one loss-making contract. As I said earlier, this contract was a £5.4 million headwind technical services profit in the half, but it will complete in May 2026. It sits in a structurally low-margin sector, which we're exiting. Without this contract provision, TS profits would have increased by 36% and margin would have been 40 basis points higher. We expect TS margins to improve significantly in half two as projects revenue and margin enhancement initiatives ramp up. My final P&L slide shows the consolidation of the group numbers with the business services and technical services profits that I've just talked through, combining with £26.9 million of corporate costs to make up the £108.8 million of group profit and the 4.1% margin. Corporate costs are a little higher in the period as a result of inflation and the national insurance increase. My last two slides cover cash flow and the balance sheet, and we generated a free cash inflow of £51.9 million in the half, with the key driver being the operating profit of £108.8 million. Other items was a £25.6 million outflow of cash and was largely made up of acquisition-related costs, as well as the costs of delivering our margin enhancement initiatives. Next, we have a cash outflow from working capital of £24.4 million, driven by three key factors. Our seasonal cash outflow in the first half, where we pay suppliers for the high volume of project work that's completed at the end of the previous year, the growth in the project's business, which consumes more working capital than FM, and longer payment terms on a number of new wins, particularly in the retail sector. Offsetting these outflows, we've made further process improvements and rationalised our supplier base. CAPEX leases interest and tax was a £61.1 million cash outflow, £13.8 million higher than the first half of last year. The increase was driven by £8.7 million of CAPEX, largely for new contract mobilisations, and £3.7 million of additional interest as a result of our capital deployment actions. These capital deployment actions account for £305.1 million of cash outflow, including £41 million of dividends and £228 million of cash consideration for Marlowe. Finally, at the bottom of the page, we see the overall increase in net debt of £272.4 million. This increase results in a closing net debt of £471 million and an average daily net debt of £332 million, with the average leverage ratio of one times remaining at the lower end of our targeted range. Debtor days are consistent with FY25 and creditor days have improved as we rationalise our supply base and continue to improve our processes. Roic reduced to 16.3% as a result of the Marlowe acquisition, where we've added £380 million of invested capital, but only two months of operating profit. And finally, net assets increased to £544 million after adding the net profit for the year and the shares issued for Marlowe, offset by dividends, share buybacks and market purchases for employee share schemes. So, in summary, we've made a good start to FY26. Revenue growth has been better than our high single-digit guidance, and we've maintained our margins despite the investments we've made and the headwinds from inflation, national insurance, and the completion of the surge work. We made a positive step forward in EPS, despite higher interest costs. We generated good free cash flow, and ROIC's fallen below 20%, but only temporarily. As we look ahead to the second half of the year, we expect revenue growth to continue in double digits. Margins will be higher than in half one, and we remain confident of achieving our full year profit target of at least £260 million. Finance costs will be higher as our leverage increases due to the acquisitions and the share buybacks, and EPS will grow despite these higher finance costs and the shares issued to acquire Marlowe. Completing the FY26 guidance, we expect free cash flow to be more than £120 million this year, and Rowit will increase back towards our targeted 20%. And on that note, I'll hand back to Phil.

Thank you, Simon. They seem a decent set of results to me. But I think more importantly now is to talk about where we are on our strategic journey since we pivoted our business model from service-led facilities management to project-led facilities transformation and then now to regulation-led facilities compliance. Just as a reminder, our strategic plan was focused on growth. growth over three pillars and the foundation of our strategy, pillar one, was centered on growth from the core. Key account growth and scope increases delivering condition-based maintenance, risk-based security, demand-led hygiene for our customers. This is the heartland of facilities management. Pillar two of our growth strategy was centred on our projects capability and infill acquisitions, transforming the built environment, better workplaces, greater energy efficiency, higher security. This is the heartland of facilities transformation. And our third pillar of growth was M&A, bringing in new capabilities to meet our customers' evolving needs in sustainability, environmental compliance and fire and security. This was our move into facilities compliance with the acquisition of Marlowe. And taken together, our strategy set out to build an unrivaled set of integrated capabilities to deliver the future of high-performing places. Now, any successful strategy needs to be underpinned by attractive macro trends, and might it is, from decarbonisation, higher security, repurposing the grid, accelerating data centre investments, to increase public sector spending in defence, in justice, in healthcare and immigration. We're fishing where the fish are. And since we launched our new strategy, two further macro trends have emerged. Number nine here, building compliance regulations are raising compliance requirements. Number ten, investments in water infrastructure will top £100 billion over the next five years. These are themes that I will return to shortly. In terms of our performance, as Simon touched on, H1 revenue was good. New wins lapping a strong H1 FY25, plus renewals grew to a record 3.8 billion total contract value in the period. And more importantly, as a leading indicator of growing momentum, our order book grew 31% year on year to 16.5 billion TCV. Now, we've split the order book by time buckets this time. And on the lower left, you can see that the revenue expected to be produced from the order book over the next three years has grown by 32% to 8.6 billion of TCF since this time last year. And on the right, you'll see how our pipeline has not only grown in size from 17.6 billion TCV two years ago to 33 billion TCV today, but it's also grown in quality. Let me explain that. The pipeline funnels opportunities from prospecting at the very early stages, such as identifying future bids on public sector frameworks. through to a pre-qualification questionnaire, and becoming qualified to bid. And then on to a bid submission itself, with the final stage of BAFO, best and final offer, before a decision is finally made by the client. And as you can see, the quality of our of our pipeline has been growing. And at this time, at the moment, we've got over 2 billion of TCV sitting in Bafo. This is another leading indicator of our growing momentum, particularly given our improving bid win rates. And it's this growing momentum anchored in the four strategic imperatives shown here, which gives us confidence that our business model will not only deliver our FY25 to FY27 ambitions, but will also sustain growth beyond this current three-year plan. Sustaining growth firstly by capturing more of our clients facilities management share of wallet by upgrading, cross-training our strategic client directors, SCDs. We've identified over a billion pounds of additional client spend that we could deliver. Secondly, sustaining growth by turbocharging projects building a 2 billion plus division over the next few years. And sustaining growth, thirdly, in compliance and water. Following the Marlowe acquisition, we now have a 550 million fire and security environmental services compliance business. We aim to grow this to 1 billion in the coming years. And finally, as our AI strategy drives efficiencies and costs out, we see margins expanding beyond FY27. Now a little bit of detail on each of these imperatives, starting with SCDs, Strategic Client Directors and Client Share of Wallet. By deepening our relationships within our strategic accounts, we know we can deliver more value to our clients. Integrated Facilities Management, IFM, is only currently delivered to 40% of our top 50 contracts. Just 10 contracts where we've completed a share of wallet deep dive with Kevin, our sales director. We've identified a further 500 million pounds of work in security and hygiene, engineering and projects and in compliance currently delivered to our clients by third parties. Winning here requires more senior business builders with new propositions, a wider understanding of MITRE's capabilities and how AI and data can drive insights and upsells with stretch incentivization. And our best SCD of our largest strategic client is now leading this new team. And we know how to do it when done well. Take two examples here on the right. One is a retailer has gone from annual revenues of 16 million at the start to an estimated 55 million this year. We've added more facilities management services, increased projects. Roof mounted solar panels, for example, is a big push for this client. And that's before we talked to them about refrigeration services, where we announced an infill acquisition today, or about F gas compliance and water services from Marlow. The second is a transport customer with annual revenues of £25 million in FY14, and today that number is £119 million. And we've added more sites and more services. And turning to the blue triangle in the upper right there, we always expected growth from the core of facilities management to be the biggest contributor there. of our three year plan. Growth from the core for me is probably the most important thing that we think about day to day. And we've outperformed our own expectations here and have already delivered over 90 percent of our 600 million incremental growth target at the halfway stage of our strategy. Our Block 2 growth imperative is turbocharging projects in facilities transformation. And by any measure here, our performance has been outstanding with strong growth from the capabilities we've added in fire and security, power and grid, and building engineering. An order book of 2.9 billion today, up 53% year on year. A pipeline of 6.9 billion, up 130% year on year. And an average project size now at £270,000 per job, up 80% year on year. And turning again to the maroon triangle, this time on the upper right, again, we've outperformed our own expectations here and have just about delivered all of the 200 million incremental growth that we set for FY27 at the halfway stage in our strategy. Our final growth imperative is in the £7.6 billion facilities compliance market where the acquisition of Marlowe positions us as the market leader providing us with a platform to accelerate growth. Adding Marlowe's capabilities to MITE's existing fire and security business created a differentiated total fire offer. with a full suite of active fire and passive fire solutions, as well as creating the market-leading provider in security systems. But what really excites us about Marley's on the right-hand side is their capabilities to build a total managed water solution. And as some of you will have already heard me say, water is the new energy. We buy it. We meter it, we recycle it, and we report the usage of it. We've already signed up two existing Mighty clients to take these new water services literally in the last couple of months. But the really big prize for me is AMP8, Asset Management Period 8. the latest set of regulations from Ofwat that will see £104 billion invested in water efficiency, resilience and sustainability between 2025 and 2030. This is a material opportunity for Marlow Environmental to deliver end-to-end solutions across the water services value chain from sourcing and metering through to transport, wastewater management and compliance and delivered at national scale. Simply put, our aim is to be the provider of choice for our clients as they navigate increasingly complex regulatory requirements and sustainability goals built around water. So take the public sector, for example, previously Marlowe did not have pre-qual approval in public sector bids. But MITE is a cabinet office approved strategic supplier and we're already now pre-cleared to participate in some material upcoming public sector bids. And on the right upper triangle again, we set a target there of 400 million of revenue from M&A step-out. The step-out being facilities compliance. It's early days after less than two months of owning Marlowe business, but revenues will now grow rapidly as Marlowe scales up to approach the 400 million target. Now whilst we are on the subject of Marlowe, it would be remiss of me not to take a moment to update you on our progress with the acquisition and the integration. The business is trading in line with our expectations and the Synergy work streams are moving ahead. We're on track to deliver at least 15 million of cost synergies in FY27 and we'll exit FY27 having fully integrated Marlowe and having captured the full 30 million of synergies to be delivered in FY28. We're removing duplicate corporate, administrative and other support functions through automation. We've reviewed procurement opportunities and moving the Marlowe supply chain to MITEI's preferred supply lists. And three sites in Marlowe's property portfolio have already been closed. We're exploring major efficiencies from automating field force scheduling, and delivering root density savings. We've already migrated 1,500 of Marlowe's environmental services colleagues onto MITEI's HR platforms, putting in controls around pay rises and bonuses with remaining fire and security colleagues to follow before the fiscal year end. And we're migrating Marlowe's IT applications onto MITEI's Azure platform to raise cyber resiliency. So in short, we're making good progress. And of course, in FY27 and beyond, Marlowe will be a positive to the group's total overall margin. A final contributor to our 5% margin target and the last of our four imperatives is the execution of our AI strategy, reimagining and automating workforce and workflow management to drive better service efficiencies, reduce back office costs across the business and drive margin accretion. And I've tried to capture our thinking in the next two slides, going back to the Mightyverse at the center there and the mighty command center, which we introduced at our capital markets event in October 23. We haven't forgotten about it. Creating the single pane of glass of the built environment. And our AI strategy has four components. All our core systems, which are already cloud-based, have been AI-enabled, or in the case of Workplace plus an SAP, will shortly be AI-enabled. Lower left, all of our major customer apps, Merlin, for risk and for cleaning, ARIA, ESME, and Net Zero, are all interconnected via our Hark-connected Workplace to the IoT platform, and they're producing real-time data. And the upper right, the output from our core systems and apps, feeds our leading enterprise insight platform, Mosaic 360, developed on Microsoft Fabric and integrating all the operational data across all our intelligent solutions. Mosaic 360 provides comprehensive operational and strategic insights into the daily operations of the built environment of our clients. And finally, bottom right, as it were, our task mining from scan AI has led to a growing number of AI bots or agents enabling smarter, faster, more consistent ways of delivering tasks. But the real game changer since we launched our three-year plan is the power of agentic AI and agentic mesh using the Microsoft Co-Pilot Studio platform to connect and orchestrate our AI agents to deliver a single pane of glass in the Mightyverse command center. In technical services, we're orchestrating those AI agents which deal with our clients, those that execute work orders, those that interact with the supply chain, develop lifecycle upgrades, close out jobs in the cafe. When completed, this agentic mesh will provide that single pane of glass for workflow management. And in the Mightyverse Command Center in Business Services, a single pane of glass for workforce management will mesh all our recruiting, vetting, onboarding, training, deploying, payroll AI agents. With outputs from the supervisor layer highlighting productivity anomalies, best-in-class performance. And the final output from the Mightyverse Command Center will be a large language model answering questions such as, how does my building running costs compare to others? Or what's the optimum way of reducing costs by 10%? These are the questions that today, although with much of the data, we simply didn't have the processing power to answer. But with the Mightyverse digital twin of the built environment, we'll be able to provide better service, greater insights to our clients, and also at a lower cost. So my expectation is that we'll have completed our agentic mesh by summer 26. So if you need a bit of a lie down after that, let me wrap up. We've had a strong first half in FY26 with double digit revenue growth and good profit growth. Contract wins and renewals at record levels as is our order book bidding pipeline. Cash generation is good and it shows we can undertake value creating acquisitions and deliver shareholder value from buybacks. It's not either or at Mighty. FY26, profit will be at least 260 million, and the Marlowe acquisition is progressing well. AI efficiencies will underpin our 5% margin aspiration. With 18 months to go, we're on track to not only deliver our stretching FY27 targets, but with our growing momentum, we're confident our strategy will carry us into FY28. So with that, let me now turn over to Q&A. Thank you. We need some mics. We've got Damola. We've got Miri.