Good morning, everyone, and welcome to Mitie's FY25 results presentation for the year ended 31 March 2025, which we are broadcasting, as usual, live from Mitie's headquarters here in The Shard. We have a lot of ground to cover with our financial results and our 2.7 announcement for Marlowe PLC this morning, so let me get cracking. As you know, FY25 was the foundation year of our new Facilities Management Three-Year Plan. As we say here on the slide, we've made a good start. In case you're wondering what the weave effect is on the side of the slide, it's our new corporate visual identity, which represents the threads that connect people to the places they depend on, and how Mitie, with our national footprint and 76,000 employee colleagues, is woven into the fabric of society, as it were, through our strapline of the future of high-performing places.
Enough of our sales and marketing pitch. I know you're all far more interested in our numbers. Looking at the highlights of our first year, we delivered double-digit revenue growth, significantly outpacing the wider market. We delivered double-digit operating profit growth, record contract wins and renewals, and have built an order book and pipeline both at record levels. We bought three infill businesses in power and grid connections, fire and security, and a security business in Spain. Cash flow generation was strong, which funded record shareholder capital returns. We remain on track to deliver our ambitious three-year plan, pivoting Mitie from being the U.K. leader in facilities management to the U.K. leader in facilities transformation. We have taken a further step today in that journey in our 2.7 announcement to become the leader, a leader in facilities compliance, as I'll get into shortly.
Now, this slide simply shows that over a four-year period and over a wide number of measures, we've been building momentum at Mitie. We've been building momentum in financial momentum, in growth momentum, and shareholder returns momentum. The Marlowe deal, which has been unanimously agreed by both boards, will continue this momentum. Marlowe shareholders will receive GBP 290 in cash and 1.1 new Mitie shares for each Marlowe share, equating to GBP 466 per share, a 26.5% premium to the undisturbed closing share price on Tuesday, the 3rd of June. Marlowe shareholders can opt to vary their mix of cash and shares, but only within the parameters of the overall offer.
The total consideration of GBP 366 million will be funded through the issue of 86.6 million new Mitie shares, equating to 6.4% of our issued share capital, and through GBP 228 million of debt backed by a new bridge facility from our core relationship banks. In return, we acquire a leader in facilities compliance and in a higher margin category. By FY28, we expect to generate high single-digit EPS accretion through GBP 30 million of cost synergies and a return on invested capital at 50% higher than our existing cost of capital, with leverage remaining within our prescribed targets. As I'll show, importantly, these numbers are based on quantified financial benefit statement in the 2.7 and do not include any revenue or growth synergies. Under a court-approved scheme of arrangement led by the Marlowe board, we expect the transaction to close over this summer.
Let me hand over to Simon at this point to take us through our FY25 results, and then I'll get back to Mitie's strategy and show how Marlowe fits into this thinking.
Thanks, Phil. Good morning, everybody. Let's start with the headline numbers. As Phil said, we've reported a good set of results for FY25. Revenues up 12.9% to GBP 5.1 billion, driven by strong organic growth of 8.5%. Operating profits grown by 11.4% to GBP 234.1 million, and we've maintained margins broadly flat at 4.6% despite significant investments in the first year of our three-year plan. EPS is up 3.3% to 12.7p a share, with profit growth and share buybacks offset by a higher effective tax rate and interest costs. As Phil said, the board's proposed a final dividend of 3p a share, taking the total dividend to 4.3p, up 7.5% on FY24. Finally, we've had a free cash inflow of GBP 143 million, with average daily net debt of GBP 264 million. Moving on then to cover the performance in more detail and turning firstly to revenue.
All divisions contributed positively to the 12.9% growth in the year. Business services grew by 13.5% to GBP 2.2 billion through new wins, surge response, security work, acquisitions, and pricing. These upsides more than offset the headwind from completion of the Afghan relocations and DEFRA contracts in FY2024. Technical services revenue grew by 8.8% to GBP 2 billion, underpinned by new wins, scope increases, and acquisitions. Finally, communities grew by 21.3% to GBP 870 million as a result of increased immigration work, new wins, and project growth. My next slide shows the key drivers of the revenue growth for FY2025, with the good momentum from FY2024 continuing both organically and inorganically. The first block of the chart shows GBP 251 million of growth in core FM from wins and losses and incremental growth on existing contracts. Wins exceeded losses in this block despite a headwind from the contracts lost in FY2024.
Organic projects growth of GBP 11 million was driven by good growth in business services and communities, offset by a slowdown in defense projects driven by the changing government, as well as the closure of the roofing business and contract exits in telecoms, two decisions that will enhance future profitability. Pricing accounts for GBP 121 million of additional revenue, and when we combine these three blocks of core FM, projects, and pricing, total organic growth for the year is 8.5%. Finally, acquisitions contributed 4.4% of growth in FY25. This block includes the acquisitions we've made in the last 18 months, including Argus Fire, GBE, and JCA, as well as the landmark Step acquisition, which added GBP 53 million of revenue in FY25. Moving on to operating profit, which has increased by 11.4% to GBP 234.1 million, with all divisions making a good contribution.
Business services profit grew by 8.8% to GBP 163 million, with the surge response security work, new wins, and margin enhancement initiatives more than offsetting the headwind from completion of the two public sector contracts last year. In technical services, profit increased by 5.5% to GBP 79 million, with profit from wins, margin enhancement initiatives, and acquisitions outweighing one large private sector contract loss. Technical services includes a GBP 11 million loss in the telecoms business, which is now back to a break-even run rate. Communities profit grew significantly in FY 2025, up 31.6% to GBP 47.5 million, with the improvement driven by new wins, increased immigration work, and project growth. Finally, corporate costs increased in line with the growth in the business, with ongoing functional savings and the offshoring of back-office activity offsetting investments in sales, technology, and marketing. Next, we pick up the key financial themes for the year on a bridge.
This bridge highlights the resilience of our business model, with our strategic profit growth of GBP 50.1 million more than outweighing GBP 26.2 million of investments and inflation. As we set out at the capital markets event in 2023, our growth strategy is focused on core FM, projects, and acquisitions, underpinned by margin enhancement initiatives. Core FM and projects profit growth was GBP 12.2 million in the year, with the margins on the surge response security work and new wins more than outweighing losses and the completion of the higher margin public sector contracts last year. This block includes the benefit of a one-off legal settlement, as well as the loss in the telecoms infrastructure business. Next, we added GBP 12.7 million of incremental profit from acquisitions, including GBP 6.4 million of profit from the landmark Step acquisition.
As we show in the final strategic block, and we show in the final strategic block that we've made good progress with margin enhancement initiatives, delivering GBP 25.2 million of incremental profit. This profit has come from further offshoring, streamlining of help desks and admin functions, simplification and standardization of account structures, and continued consolidation of third-party spend. Moving across to the investments and inflation, FY 2025 is the first year of our three-year plan, and we've been investing in sales to drive growth, in IT to underpin our technology leadership, and in our projects capabilities. These investments, combined with the impact of the millsite mobilisation, gave us a GBP 17.3 million headwind in FY 2025. The final headwind that we show on the bridge is from inflation and National Insurance, which I'll cover now. Once again, we were successful in managing inflationary pressures in FY 2025.
Our contractual protections and strong customer relationships enabled us to pass on 95% of the cost increase to our customers, resulting in only a GBP 6.8 million reduction in profit. Looking ahead to FY26, the national living wage will increase by 6.7%. We're confident that our contractual protections and strong relationships will enable us to price the vast majority of this increase through to customers, as we've done in previous years. The increase to employers' National Insurance, however, is a new challenge and has had a small impact on FY25, as well as the expected impact on FY26. Dealing first with FY25, we've incurred GBP 2 million of incremental National Insurance costs in the year as a result of the changes made in the autumn budget. Payrolls are taxed at the point of payment, meaning we've been taxed on the March payrolls that were paid in arrears in April.
Looking ahead to FY26, we expect our employers' National Insurance bill to go up by around GBP 50 million to GBP 225 million, which is a 30% increase. We have a slightly lower level of contractual protection for NI costs than we have for National Living Wage increases, but discussions with customers have progressed well, and our current estimate is that we'll be able to recover at least GBP 35 million through pricing. We're confident of mitigating the residual GBP 15 million through margin enhancement initiatives and other management actions. Turning now to cash, we generated a free cash inflow of GBP 142.8 million in FY25, with the key driver being the operating profit of GBP 234.1 million. Other items were a GBP 34.3 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 GBP 37 million, driven by the growth in the projects business, which consumes more working capital than FM, and the longer payment terms now being demanded by some of our private sector retail customers. Offsetting these outflows, we've made some incremental process improvements and renegotiated some customer payment terms. As the balance of project work in our portfolio increases, retail growth continues, and the new procurement act takes effect, we expect to see an ongoing working capital outflow. CapEx, leases, interest, and tax was GBP 105.8 million cash outflow, GBP 33.3 million higher than in FY24. The increase was driven by higher tax payments, growth in lease payments, and a year-on-year reduction in dividends from joint ventures now that Landmark is a subsidiary.
Our capital deployment actions account for GBP 236.5 million of cash outflow, which Phil will come back to shortly, and lease liabilities increased by GBP 24.5 million as we continue to transition to EVs and grew the fleet through acquisitions. Finally, at the bottom of the page, we see the overall increase in net debt of GBP 118.2 million. This increase results in a closing net debt of GBP 199 million and an average daily net debt of GBP 264 million, with the average leverage ratio of 0.8 times remaining at the bottom end of our targeted range. Debtor days and creditor days were consistent with FY2024. ROIC was 24.5%, and net assets decreased to GBP 428 million after distributing GBP 179 million of dividends, share buybacks, and market purchases for employee share schemes. In summary, we've made a good start to our three-year plan.
Revenue growth has been higher than we expected, and margins have been stable despite the investments we've made and the headwinds from telecoms and inflation. We made another step forward in EPS despite the significant increase in the effective tax rate and the higher interest costs. Free cash flow has exceeded our expectations, and ROIC has remained well above 20%. As we look ahead at the performance of our existing business, excluding the potential new acquisition, we expect our good growth momentum to continue into FY26. Margins will benefit from margin enhancement initiatives and projects growth, but will face headwinds from National Insurance and cost inflation, as well as the higher margin contracts lost in FY25 and the competitive pricing environment.
We're continuing to invest in the business, in technology and AI to maintain our competitive advantage, in our projects center of excellence as projects grows towards GBP 1.5 billion of revenue, and into our ESG capabilities. Completing the FY26 outlook, our effective tax rate will remain at around 25%, but EPS will be affected by higher finance costs as our leverage increases. We'll face working capital headwinds, but we still expect to generate free cash flow of more than GBP 120 million, and ROIC will remain well above our 20% target. On that note, I'll hand back to Phil.
Okay, very good. Thank you, Simon. I think as Simon said, I think we've made a strong start in our foundation year of the three-year plan, but one year of financials doesn't really make a three-year strategy.
I want to take you back to our capital markets event here in The Shard that we held in October 2023, when our new strategy was launched as a reminder, and where we introduced you to the Mightyverse. The Mightyverse was a mighty digital platform underpinned by technology and AI, with our leading capabilities in engineering, security, hygiene, and projects. The built environment does not stand still. New legislation and new regulations are raising the bar in compliance. New fire safety regulations in the wake of Grenfell, new security legislation in the aftermath of the Manchester Arena bombing, new environmental requirements, greater energy efficiency, and energy disclosures, regulations relating to water and waste and to gas emissions, all under the umbrella of improving sustainability. These compliance regulations affect every sector in which we operate at Mitie.
Retailers, for example, one of our biggest sectors, must comply with fluorinated gas regulations for their refrigeration. Food manufacturers are required to manage their wastewater effluence and reduce overall water consumption. Schools must ensure their buildings are compliant with the latest fire regs and be free from hazardous asbestos fibers. Hospitals must maintain sanitization and air and water quality. As for compliance across central government buildings, this FT headline at the bottom of a recently published national audit report somewhat says it all. From the Mitieverse and our three-year plan, we set out to become not only the leader in facilities management, but also the leader in facilities transformation and add over GBP 1.2 billion of growth from our FY24 position. Mitie is a strategy centered on growth, growth over three key pillars.
At the foundation of our strategy, Pillar One covers key account growth and scope increases through condition-based maintenance, risk-based security, demand-led hygiene. This is a heartland of facilities management in Mitie, underpinned by our unique technology. Our growth strategy does not stop there. Through our projects capabilities and our infill acquisitions, we set out to transform the built environment, better working places, higher security, greater energy efficiency. This is the heartland of facilities transformation in Mitie. The third pillar of growth was M&A, responding again to our evolving customers' needs in sustainability, fire and security, and environmental compliance. This is where Marlowe fits in, creating a leader in facilities compliance. Turning first to Pillar One, let me recap on the progress we have made in FY2025 over key account growth and scope increases in facilities management.
As the charts show, the growth foundations of Pillar One in Mitie are very strong. In FY25, we added GBP 370 million of incremental revenues, almost two-thirds of our GBP 600 million three-year target for Pillar One key account growth. New wins were up 14% year on year to GBP 5 billion total contract value TCV, with significant wins in retail and in the public sector. This included the award of a GBP 1 billion TCV security contract with the Department for Work and Pensions, our biggest ever contract win. We had a strong year for renewals, growing 39% year on year, adding GBP 2.5 billion TCV. That was despite not retaining two large public sector contracts. Our order book increased by 35% to GBP 15.4 billion, with our bidding pipeline of opportunities up 27% to a record GBP 23.7 billion, of which over GBP 17 billion will be contracted in the next 18 months.
As I said, our Pillar One performance gives me huge confidence that we will exceed our GBP 600 million core facilities management growth target over our three-year plan. Projects upsell through facilities transformation is our second growth pillar. In-year revenue for projects in FY 2025 was GBP 1.2 billion, up 14%, and we added GBP 139 million of organic and infill acquisition-led projects growth against our GBP 200 million three-year target for Pillar Two. This included the design and installation of a 140 kilowatt roof-mounted solar PV system at the Eden Project, being the principal design contractor at a state-of-the-art data center, deploying the latest technology in power efficiency, liquid cooling, and water recycling systems. We installed the majority of the fire suppression systems at Battersea Power Station. At DWP, we're starting to upgrade critical security infrastructure across their national estate.
These are all examples of complex engineering projects, often delivered at iconic buildings and across critical national infrastructure, the heartland of Mitie's client base. What's been encouraging for me in FY25, facilities transformation project upsell, is that the average job size of each project was up 65%, now to GBP 250,000 average transaction value. Our order book in projects grew by 40% year on year to GBP 2.8 billion, and our projects bidding pipeline grew 45% to GBP 4.8 billion. As we laid out in our facilities transformation three-year plan, our ambition was to grow Mitie Projects into a GBP 1.5 billion plus business. I'm confident that we're well on our way to beating this. The third strategic growth pillar was value creating M&A, and hence our announcement about the acquisition of Marlowe this morning. Let me first put this transaction into context.
Across the U.K., there are over 1.5 million commercial and public buildings with compliance obligations. Therefore, there are significant growth opportunities in the GBP 7.6 billion testing, inspection, and certification, the TIC market, collectively what we call facilities compliance, that requires an expertise outsourced to specialists such as Marlowe. For the legislative and regulatory reasons I've already outlined, alongside growing insurance demands, growth rates in facilities compliance are strong. These mandatory requirements requiring regular certification, driving high recurring revenues and higher margins for such specialist providers.
Which brings me to Marlowe, notwithstanding what was released yesterday by the leak area, but through it, no one knows why they did that, but GBP 300 million of revenue from TIC and compliance services, with blue chip customers such as Boots and Tesco in retail, King's College and Cambridge University, we won't hold that against them, in education, Walker's Crisps in food manufacturing, and many more, all sectors where Mitie is already present. Now, Mitie already has a GBP 250 million compliance business, primarily in fire and security, but with limited water, air, and asbestos capabilities. Our revenue today is primarily derived from one-off project work, part of our facilities transformation offering through the infill acquisitions of R H Irving, GBE, and Argus Fire. Hitherto we have not sought to provide recurring compliance services, instead outsourcing the specialist work to specialist companies such as Marlowe when our clients request them.
In fact, today we only deliver TIC services to around 20% of our accounts. Lloyds Bank and Sains has been two of the largest, and most of that is outsourced to the supply chain. That is set to change with the acquisition of Marlowe. Putting our two businesses together creates a compelling opportunity to cross-sell these regulatory-driven services nationally across our combined customer base and capturing additional margin from self-delivery.
The acquisition positions Mitie as a leader in facilities compliance with an ambition to grow to GBP 1 billion per annum in the medium term, offering a differentiated total fire solution with a suite of active fire, that's detection and alarms, as well as passive fire, that's suppression and fire stopping solutions in a fast-growing GBP 3.9 billion market, as well as creating a leader in the GBP 1.1 billion security systems market, servicing clients in Mitie's stronghold sectors such as retail, healthcare, and critical national infrastructure. As you saw from the earlier list of new legislation and regulations, environmental compliance is a growing opportunity, with a market size now approaching GBP 3 billion. Across this broader sustainability category, today at Mitie, we do have a presence with a really strong energy business, buying, metering, saving, and reporting energy for our clients.
We have a smaller but growing waste and recycling business, and an even smaller water business, but we are already today one of only 20 licensed water retailers for our clients. We operate complex effluent treatment services for our pharmaceutical and our food manufacturing clients, something that not everyone's aware of. The Marlowe acquisition brings much greater scale and much wider specialist services. Together, we will create a leading total managed water offering from water supply treatment, water consumption reduction, through to effluent management, what we actually refer to as from rain to drain. Marlowe does not just test for Legionella and other hygiene factors, but provides real-time monitoring and predictive maintenance, playing to Mitie's existing remote monitoring strengths.
Now, in any deal like this, cost synergies are, of course, vitally important, and we have a good track record at Mitie in this space, starting with VSG and then Interserve. As you're probably aware, in 2.7 announcements, cost synergies need to be independently verified by a professional accounting firm in a QFBS, Quantified Financial Benefit Statement. The QFBS in our 2.7 announcement indicates GBP 30 million of third-party validated cost synergies. Over half of these synergies are in support functions, removing duplicate corporate, administrative, and other central management support. 20% of the savings come from procurement, leveraging our leading digital supply chain functionality in Mitie and delivering higher supplier volume-based discounts. A further 15% of savings will come from route density efficiencies and increased self-delivery. Finally, property rationalization through quite a number of adjacent locations to Mitie locations will generate 10% of savings.
We expect to exit FY27, 18 months post-completion, at at least 100% of the cost synergy run rate identified in the QFBS, with an estimated cost to achieve of GBP 27 million. Again, remember, we cannot include any revenue synergies in the QFBS, even though it is top-line growth that drove the logic of this transaction. Now, before I get on to the impact of the Marlowe acquisition on our overall Mitie Group targets, let me just address any concerns about the size of this deal, which at GBP 360 million is the largest one we have negotiated at Mitie, but not the largest one that I have been involved in by a long way. At the capital markets event in October 2023, we said we would look to spend around GBP 75 million per annum on infill acquisitions. Including FY24, that took us to a hypothetical overall spend of GBP 300 million.
Since the capital markets event, we've only bought five businesses for a total of GBP 74 million, bringing in GBP 120 million of revenue in FY25, but at an average transaction size of GBP 15 million. All these acquisitions were private companies with owner-founders and a degree of earnout. The Marlowe transaction is totally different to these infill deals. Firstly, it's a public-to-public deal. Secondly, it's a far more material deal, bringing an immediate top five market leadership position from the get-go, competing with market leaders such as Chubb and PTSG, US-listed, USP-owned, respectively. Thirdly, Marlowe has a much wider set of specialist capabilities built up through over 50 acquisitions in specialist fire and security and specialist environmental services. Whereas all our previous infill acquisitions brought facilities transformation capabilities through projects, with Marlowe, over 75% of revenue is built on recurring testing, inspection, and maintenance under long-term contracts.
Thus, Marlowe brings intrinsically higher margins, which, combined with Mitie's fire and security and environmental project services, creates a leading facilities compliance provider and opening up Mitie's existing clients to this capability. Just on Monday this week, for example, we mobilized a new high-profile FTSE 100, I won't say who it was, IFM account. As part of our standard asset condition survey, we found that over 50% of our new client's estate needed investment to bring current building regs up to compliance. That's the opportunity in facilities compliance. This is why we're excited about acquiring this unique asset and welcoming the leading-edge talent that it brings. Together, the transaction accelerates our progress towards our FY2027 three-year plan targets, adding GBP 300 million of revenue immediately, increasing margin to over 5%, contributing free cash flow.
Whilst Marlowe's ROIC after synergies is not as high as the rest of Mitie, the enlarged group will still be above our 20% target. With the additional EBITDA of Marlowe and capturing the validated cost synergies from this deal, we expect our leverage to be below our 1.5 times upper range at the end of this year. We will quickly delever afterwards, allowing us to continue with our progressive dividend policy and returning to repaying surplus cash by resumption of our suspended buyback program in FY2027. I know I sound like a bit of a broken record, but remember, all these financial estimates do not include any revenue synergies.
In summary, in the foundation year of our three-year plan, we've delivered good strategic progress and strong financial performance with good revenue and profit growth, record wins and renewals, expanded facilities transformation project capabilities through three infill acquisitions. Our strong cash generation and strong balance sheet has provided the capacity to fund the acquisition of Marlowe. This is the next step on our journey. From leading in facilities management to leading in facilities transformation, we now look to be a leader in facilities compliance. In short, with two more years to go, we're confident in reaching our ambitious three-year plan targets. Thank you for your patience. I'm sorry this is a longer presentation than usual, but let's now turn it over to Q&A. Thank you. We must have some mics. We must have some people. We must have some questions. James.
Thanks. Morning.
It's James Byrd from Deutsche Numis. I have three questions on the deal, please. Firstly, you mentioned that Marlowe has a sort of a good solid contract base. Can you give us an idea of sort of typical contract duration within their base? Secondly, obviously, they've got a lot of predominantly smaller customers. What is the risk that we see some revenue disynergies on that side of the post-combination? And then thirdly, can you give us a little bit more sort of color around their IT systems? I'm guessing that because they've obviously been built quite heavily through acquisitions, there's probably quite a disparate sort of IT landscape on that side of things. Just any color on that and how you sort of plan to manage that through the integration process, please
Yeah, good questions there.
On their contract base, a fair proportion are five-year contracts, but quite a number are just rolling renewals. You'd be surprised how long they've had rolling renewals without a five-year contract. They might have had a rolling renewal for over 10 years. I do not see any major shift in that way of contracting. I think we're more likely to get tied into an IFM contract when we get going, a time level that synchronizes with an IFM contract, and Mark's adding at the back because we've got quite a big one we're bidding on at the moment, and we'll be telling them about our new capability there. It is not usually included in an IFM contract. Very few are included in an IFM contract. We're asked to provide it, but we do not provide it ourselves. We then go and get it.
Over, I think, GBP 75 million spend with the third-party supply chain in Mitie for TIC services. Do you want to add to that before you?
Yeah. The actual contracts themselves, James, will typically specify an average of something like three years. To Phil's point, there is a high proportion of the contracts across the group where they have had a customer relationship for more than 10 years.
That evergreen rollover is actually a point about the smaller customers as well. I sort of euphemistically refer to them as fire extinguishers in scout huts. If you can get to 15 fire extinguishers in 15 scout huts in a day, you can make money. That is actually, I think, one of the things we have got to rethink because it is all about route density and efficiency.
The one thing I think where Mitie can, well, there will be many things we can learn at Mitie from Marlowe, but one of them is that they think of their technicians as fee earners. They call them fee earners. We think of our technicians as maintenance providers. The difference in the mindset there is that a fee earner walks into a building and looks for other opportunities. A maintenance engineer looks at his PDA, completes the job, and walks out. That is, I think, one of the big cultural opportunities that we have. I am less worried about smaller customers, but it is something I know you have, through due diligence, Simon has spent quite a lot of time on. As we did on IT, I have not got CJ here, maybe jump in. It is a really good question.
The answer is there's quite a bit of work to do. Let's call it that. That is why we've included in our cost to achieve some investment in IT. I'll ask C.J to speak about it. The one thing, they have a system called Cash, which we have used. It's not a cash system. It's a system for deployment of fire and security technicians. It's a system we have been using, but we're moving everything to what we call MAS 9.1 and MAS 9.0, which is an IBM Maximo system. The advantage of that is that we'll have all of the workflow in one system. All of that MAS 9 is AI-enabled. We've already started to roll out MAS with cleaning, security, and engineering. No other company has done this in MAS 9.
The ultimate target will be quickly to move on to MAS 9. CJ, do you want to comment on that?
Thanks, Phil. Just to build upon what Phil said, we did an initial mapping of the Marlowe systems and Mitie IT systems. We have a good view of the approach, what we are going to take. It comes down to three approaches. One, we move their infrastructure into Mitie infrastructure. That gives us the necessary cyber protection, which we are proud about. The second one, which Phil was alluding to, where we have an IBM Maximo, which is our computer-aided facilities management system, which is on version 9.0, and we are enabling it. We have already had a journey where we are doing it for our fire and security business, and we follow the same pattern.
Do not forget, throughout the acquisitions in the last four years, we collapsed roughly around 26 various CAFMs into our Maximo solution. We have a good pattern and a good methodology of how we do it. The third one is their finance systems. Again, we collapsed almost around 20-30 various finance systems into our SAP system. We have a very well-proven track record how we approach. This is the three approaches we are taking on this particular acquisition.
James, I'll just build on those two points with one final thing on the IT systems, which is to say there is a risk and an opportunity here. CJ's just outlined how we have dealt with all of this before and therefore why we should be able to deal well with the risk side of the equation in terms of integrating their systems into ours.
There is an opportunity side here for us as well in terms of their disparate systems and folding that into our more efficient systems and processes and therefore driving those GBP 30 million worth of synergies that we have spoken about before.
It is fair to say when the QFBS was done, a lot of that was not included, was it? Because it is harder to demonstrate the certainty around it to convince an audit firm. You will see those are some of the sort of lower end of the synergies in terms of the numbers that we are delivering from those areas. That is right.
Tom? Is it Tom? Yeah. Yeah. Tom.
Yeah. Thanks. Tom Callender, Investec. Just building on one of James's questions, actually sort of thinking about the go-to-market strategy once you have completed on the deal.
What is the plan there in terms of how long will it take you to transition away from the Marlowe brand? Will it be a day-one thing, or will it be more gradual? And do you see any, again, sort of revenue desynergies from losing potentially that Marlowe branding that's got quite strong customer resonance?
I'll ask James to talk on the go-to-market and just think about the operations more widely. We do not generally rebrand. We're not a rebrander, despite our nice fancy corporate branding. We've still got JCA brand, powerful in data centers, GBE, powerful in higher tech security, R H Irving, physical security. We have not rebranded anything. We are not going to. We have bought Marlowe, and I think some companies make mistakes about one size fits all. That is not where we operate. We just simply say it is a Mitie company. We have cleaning waste.
They pick up single-use plastics from hospitals and steam clean it and bale it and sell it to plastics companies and recycle it. It's all cleaning waste. If we call out Mitie, they'd mix it up with the cleaner down the road. These are specialist technicians, and we have no desire or plans to put Mitie anywhere near it. They will be a Mitie company. They'll be known to be a Mitie company. I think on what they have done on water, the reason I pushed the point about water, it's not well known that we do look after treatment plants for some of our clients. They have a lot more.
They've built it up through a number of acquisitions and have created a sort of mother brand, WSH or WSHS or something, one or the other, a bit of letters anyway, which is quite well respected in that space. Again, in fire and security, they've built up, but there are, you're right, Tom, quite a number of small acquisitions. That also goes to the go-to-market because some of them are regional. This is back to my scout huts analogy. Sometimes they need to be regional. They need to be operating in an area. What we can do, again, picking up CJ's point, is in Maximo, MAS 9, we'll have our scheduled optimiser, but with all the AI over it. When Simon's asked them, time on tools, time to drive in distances, they haven't got that data. It's not because they're not holding it back.
It's just they haven't got the systems to provide that readily. Jason, do you want to? The way within the organization we would fit the company, we already have an existing fire and security business, but the water business will again report directly to Jason, who runs all our business services. Security and cleaning, our waste business, our fire and security business, some of those acquisitions. It will fit under Jason. Why don't you just give us a view on that, Jason?
Yeah. Thanks, Phil.
I think you've already seen the fact this is the coming together of two great companies, and we've got a piece of work to do around how we consolidate some of those services. What it does do for us, though, it cements our capability in relation to total fire, which is a new proposition in the market. You won't see that today.
You'll see the three key elements around passive, mechanical, and active, whereas this is a total fire value proposition. You see the total water proposition that Phil alluded to from rain to drain or from retail through to water disposal. That is a new proposition that does not feature in the market today. You have the overall consolidation of test and inspection and compliance. Whilst we do offer some of those services today, it is relatively fragmented across our customer base. From a distribution point of view, there is huge opportunity there for us as well.
I say ultimately, where we want to get to is following research we've conducted with our customers, we want a van, a person to be visiting our customers, delivering all of these TIC services to our customers in a consolidated perspective rather than four or five vans at four different times of the week. We've got to work it through. In summary, we've got to consolidate those TIC services and really build a value proposition around total fire and total water, which are two really exciting elements for us to take to market.
Do you want to add something around go-to-market in terms of sales? Their sales approach is quite, again, localized, isn't it? I don't know if you wanted to touch on that.
Yeah. Phil also mentioned the theory.
We're bidding big FM contracts and big national contracts with almost a single service.
They have a big sales force, Simon, do not they? I mean, it is a lot of people there.
You are good. You go.
Yeah. I think sales through Marlowe is delivered across sales teams and key account managers. That really features into what Phil mentioned in relation to fee earners, which is a very, very different approach to how we sell. We will have to focus heavily on our routes to market, which will be different to today. We have to preserve the credibility of what Marlowe or the integrity of the routes to market that Marlowe have. We need to learn from that to install that into our business. Ultimately, from a sales perspective, we need to make sure that we are fit in relation to IFM because integrated facilities account management do not necessarily buy services in this way.
They buy them in a fragmented way, which is why we sort of pick up the contracts and we have traditionally outsourced them. This is a new proposition in relation to integrated FM. That is an opportunity for us today within Mitie. I think we have got some things to learn in terms of routes to market. We have already seen the number of buildings that need addressing in this space. If you look at us as an organization, we are nowhere near those numbers today. Big opportunities for us in terms of revenue synergies, which is where we need to focus through. Once we have got the integration plan underway, revenue synergies is key for us for the future.
There was one. Alex? Was it Alex? Alex. Yeah. Yeah.
Just on back to the projects business and the traditional kind of, the average project is up 65%. It seems like the pipeline and the order book is growing. That was also kind of a key element of growth. It actually looks like you're well ahead of expectations from the three-year plan. Kind of what's driving that quite a significant increase in the project work? Is that expected to continue going forward? The second one, just on the telecoms business, I think you mentioned in the results that handing back some unprofitable work still, expectations through 2026.
Thank you. Thanks for bringing us back to FY25 because someone said to me, "Marlowe is 3,500 employees." A year ago, we had 62,000 employees, and now we've got 76,000. We have mobilized 14,000 employees in the last 12 months.
That does not include the three and a bit thousand employees we are mobilizing at the moment with DWP. I only say that because that is the same number of employees in the whole of Marlowe. I am glad you have got a question about the mothership because I think the whole market, they are focusing on the deal, but do not forget the mothership is a big part of our story. This is not, this is pillar three of a three-pillar plan. Mark, do you want to pick up projects? Let me deal with Telco, and then maybe you just talk a little bit about general projects and ATVs going up. You are right, we handed back quite a lot of work to Telco. We bought a business.
You've heard me say this before from PE, where they'd signed up on frameworks, and it looked like they had a good order book, but we weren't able to deliver them when we took over the business profitably. B operators had, funnily enough, handed back work, which we then took on. That might have given us a bit of a clue there. We've sort of had to baseline the business, and that has meant variabilizing more of our cost base, not having fixed resources all the time, but variabilizing it with an outsourced supply chain to meet demand.
We are on some quite, you can add on to this, but we're just getting close now, and I'm not going to give away the names, but there's a couple of big clients we're now back talking to where it was fair to say two years ago, if we'd knocked on their door and asked for more work, they would have told us where to get off. Today, I think we're seen to be doing a good job, albeit on a smaller footprint. You've only got to look at the big transaction between a large red company and another one to know that there's going to be a lot of work going on there because it's not just putting in the 5G, but there's a lot of redundant sites that can be removed.
If you read the CMA report, there's an GBP 8 billion network upgrade commitment as part of their CMA release, as it were. I can assure you there's plenty if we go on Act Together, there's plenty of work out there. Do you want to just talk bigger picture on projects to start with, Mark? Maybe talk about which clients have been spending money year on, think about the year-on-year growth. The other thing around the order book and the pipeline, some of our pipeline, our order book is five-year money, ten-year money. Most projects are unique and individual. To have a GBP 4 billion pipeline, that's all here and now. No one's asking us to quote for a project in four years' time. It's all here and now.
Yeah. Thank you, Phil. We're seeing, I mean, the major trends we continue to see.
I mean, one is building on the fire and security and all the information you heard with Phil around if we think about facilities compliance. You have the consistent trends around net zero, energy, compliance, and all of our clients are really focusing on that sustainability drive. You have workplaces. You have the return to work that we are seeing a lot more around our client base. Also, you have the constant modernization of buildings and assets. Now, if you go back to capital markets day, we talked about our projects upsell strategy was deploying project teams across all of our key accounts. That is really what is driving a lot of the, I guess, connection now between our projects business and our client businesses. What we are seeing is they are investing in their assets more.
We're seeing the natural increase, one in terms of pipeline size, but also two in terms of project value itself. At GBP 250,000, I mean, these are still fairly modest projects. I mean, there's a high volume. They're quick projects that we're delivering in the buildings. As we've deployed the teams, as we've scaled up our capabilities, we're able to connect that facilities transformation better to our facilities management story. The big trends are really around power, grid, energy, net zero, workplace, and the facilities upgrade. Through our acquisitions as well, because you think about JCA, and one of the slides Phil had was around data centers. The investments that's going into the data center market is pretty exciting. Our pipeline today is more than GBP 1 billion of longer-term data center opportunities.
Similarly, as we've scaled up our renewables capability and also connections with power and grid, again, the pipeline sizes there are growing as well. It is quite an exciting time. Pipelines are growing, as Phil and Simon have alluded to. Really, it is that connection point between our project teams and our facilities teams that is really driving that upsell capability.
I think the other thing, I mean, you mentioned, Mark, power and grid, because we are now on much bigger frameworks as well. We have just got on the National Grid framework, which we were not on before. We are on Lloyds Bank's major projects framework that we were not on before. We are adding, and there are a lot of public sector project frameworks that we are on now. Did you want to just talk about that?
Yeah. Just, Alex, just building on Mark's points, you asked sort of retrospectively about FY25.
Actually, to the conversation we're having here around Marlowe, fire and security is a key driver of the revenue growth in projects in FY25. That illustrates the trend that Mark's talking about looking forward. I just wanted to briefly pick up on your point around the sort of 250,000 size of the projects as well, because whilst it's gone up a little, to Mark's point, it's still fairly small. It's still a high number of relatively low-value transactions, if you like, in the project space. Therefore, from a risks perspective, which is the hat I'm sort of wearing thinking about this, it's relatively well dispersed.
When we look at the top end of our projects work and the larger projects that we're doing, we're typically doing those projects for customers that we've got a long-standing relationship with, and we're working in buildings that we've been in and involved with for a long period of time. Therefore, we understand those buildings. As a result of those customer relationships, we've got good contractual terms with those customers. Therefore, we're not taking undue risk onto our side. It's a sensible contracting relationship, which enables us to make good money from those larger projects as well.
There's one behind, I think. I'm sorry.
Good morning. Ryan Flack from Jefferies here. Just three for me, if I may, the first one on Marlowe. Facilities compliance, you say here kind of 80% at the moment you're subcontracting.
I wondered if you could give us some color on how much of that is to Marlowe, and specifically kind of a broader comment on revenue synergies that you think you can deliver outside of that. The second, going back to Mitie's FY25, you've got cost inflation and National Insurance headwinds going into FY26. I wondered if you can give us some color on where you think you can't pass through those additional costs. The third one, on the working capital outflow, I wondered if you could give us some guidance and color going forward as well on projects and the trend in retail payments, please.
Those latter two questions are broader questions than Marlowe, aren't they? Yeah, just checking. Let me take the first one.
Simon, you deal with the NI for Mitie and whatever that third question, which I've forgotten now, working capital. Look, I'm not going to go into the numbers in detail because that's part of our upside story. What I will say to you is that we do, I mean, I've got a list of all the companies we pay away to. PTSG, we pay a lot to, Hall and Kay, we pay a lot to, Securitas, Chubb. We're paying a lot away. You can't see it, fortunately. Where the yellows are is where we are and where Marlowe are. The rest is the rest of the market. That's stuff we're paying away. I think the opportunity to, and that's what we do today, because my point here is that we're scratching the surface of facilities compliance today.
Just as if you look back in Mitie five years ago, our projects business was probably no more than GBP 200 million. We were scratching the surface of projects because we did not have a projects capability. We are scratching the surface of compliance today. It is a GBP 7.6 billion market. I mean, I am not going to show you all our, this is all the market research we have done on this market. We know every competitor, every, this is what we pay for before we buy a business. We have done a lot of work on this opportunity. It is something that we have been looking at for well over a year.
I will pick up the other two questions. Ryan, on your question on inflation and National Insurance, we have got a good track record of passing inflation through, typically well over 90% of passing inflation through to our customers.
To your specific question on where does that sort of inefficiency come from, and we're talking about sort of GBP 140 million of cost inflation next year versus GBP 130 million that we're saying will pass through, around half of that, in fact, just over half of that comes from corporate because we've obviously got no customer relationship within our overheads, if you like, to be able to pass that cost through. There are bits and pieces elsewhere in pockets and geographies and contracts where we're not able to. The vast majority of it goes through to our customers. On the National Insurance, it's a little bit more disparate. That GBP 15 million of NI that we're saying we're not going to be able to pass through, that's public and private. It's large and small customers.
There isn't really a trend to pull out there to say it's exactly here or here. It's on the contracts effectively where we don't have the contractual protection, which, as I've said, is a little bit less than we've got from an inflationary perspective and where we're having the conversations with the customers, and they're more difficult than some of the others.
I mean, Jason, I thought you might jump in because you're our king negotiator on this. Obviously, if it's overhead, like my salary, my NIC, we can't pass that on to anybody. If it's a security guard in a retailer, we want to have a conversation irrespective of what's in a contract. Jason, you've had, if you remember, the numbers we gave you to begin with, we thought it was going to be GBP 60 million. Then we thought it was going to be less.
Of the recovery, we thought we'd get more. He's the reason why we're getting more because he's sitting down with clients in a fair dialogue and saying, "Look, if you find somebody else, they're going to be charging you for it."
Yeah, I think it sort of comes back a little bit to the acquisition we're talking about in terms of really valuing the services that we deliver to customers. We all know what landscape we're facing out there today with, if you just take business crimes as an example, if we don't take these services seriously and we negotiate with our customers to really preserve the integrity of the services we deliver to keep their people safe, it's not just about paying our people more money. It's about creating the value in the conversation.
We have been really successful at that, not only in the private sector. We have also been successful in the public sector. Whilst contracts will state, "There is probably no change in law clauses," the public sector are starting to take it a little bit more seriously now, particularly, as we say, we talk about building compliance. We talk about the risks associated to our customers and our businesses. Actually, regretted attrition these days is really low for us. That is about really keeping people with us to deliver a great service to our customers. I think on the basis of great people, great service, I think we are on a really good foundation to have those conversations. We should not be, and we are not, actually. We are not reticent to have those conversations with customers anymore.
We can stick our elbows out a little bit and say, "No, this is about value. This is not about just a number and just money. It's about preserving the value and the safety of our people and our customers' people." That has driven some change in the trend, I guess, in relation to previous years.
Actually, just one final point, building on what Jason is saying, it's not just about the regretted attrition going out of the door, but coming back in the other way. We're seeing increasing numbers of applications per vacancy that we're advertising externally. If you sort of cast your mind back, maybe three years or so, we were getting low single-digit numbers of applications per vacancy that we're advertising. Now we're well into double digits, which is helping to Jason's point.
Sam?
Shall I just come back to the final point on working capital? Sorry, yeah. So Ryan, I'd see FY2025 as a relatively typical year going forward from a working capital perspective. So I'm expecting something in the region of GBP 30 million-GBP 40 million worth of working capital outflow going forward. That's driven by, to your point, the business growth and a decent portion of that growth coming from projects and from, as I said, the retail sector in my presentation, which compound the issue slightly. Thank you. Okay.
Sam? Morning. Simon from CFO. Two questions from me, please. Firstly, on the mothership, as you say, I think you highlighted more investment in sales and marketing, which is clearly working with the record wins. Can you just give some color on what you're doing there? Should we expect that sort of investment, incremental investment, to be ongoing?
Then secondly, given the deal, should we expect a pause in bolt-on M&A on the project side, or is that still something you'd look to do?
Yeah. Why don't I do the bolt-on? I thought, Catherine, you might have a go on the sales and marketing. You were at the sales conference that we set up. We launched a couple of weeks ago. Maybe talk a little bit about the sales training, the Ignite Academy, and all the things we're doing. I mean, funnily enough, I just bumped into somebody yesterday, and he's the ISS's top salesperson. He's just joined us. So we're not short of bringing good people into Mitie. I thought maybe, Catherine, you might say a few words about the sales and marketing academies that we're doing.
On the bolt-on, we're not going to say I think what I would say is the bolt-ons, it's not like we won't do any, but I think we'll be doing less now, inevitably. This has been this is our big move. We've spent more than we would have indicated to the market, GBP 300 million, plus what we've already spent. We've spent GBP 400 million. I mean, again, the deal looks more expensive because our share price has been going up. I mean, I'm not telling you when the deal was struck, but if it was struck when the shares were a pound, you could understand why the deal would have looked a lot cheaper. Our shares because we're paying 1.1 shares per Marlowe share.
Do not get fooled by the headline number because six months ago, it would have been the same deal with the same dilution, but it would just have had a different headline number. All these calculations about PE and EBITDA multiples are really meaningless. You have got to look at the way we have structured that deal. That is me being defensive. We do have a couple of bolt-ons. We are looking at something in a small deal in Spain at the moment, Peter is looking at in hard services. We have got bits, but they are single-digit stuff, single-digit stuff. We are not doing anything big again, not until you heard me say that now, so I better be held accountable. We are not going to do anything big now until we get the leverage back to where we want it to be.
You'd be surprised how quickly it delevers because you've got their EBITDA added in, their cash flow and our cash flow, and it comes down quite quickly. Do we give a target FY2027, Kate?
Yeah.
Are we allowed to say that? FY2027 will be back at 0.9 or something, 0.1?
We should be within our leverage range, give or take, at the end of FY2026, and that will then rapidly delever into FY2027 onwards as the EBIT comes through from the acquisition plus the synergies. That is why we see it. I think without any buybacks, Kate, the leverage is about 0.9. That is why I think we're confident to restart that.
Catherine, do you want to?
A little bit higher than that, but within the range.
Do you want to say hello?
Yes.
Catherine is our new come to the front, Catherine.
Catherine is our new HR CPO, Chief People Officer. Catherine was the CPO of Bureau Veritas. Bureau Veritas is an 80,000 engineering TIC business based in France with a global footprint. You're very happy you're not on the plane five days a week now, aren't you? Because she's got to come down from Birmingham. Talk to us a little bit about sales and marketing and everything there.
Yeah. If I could just comment on Marlowe, if I may. I've spent the last seven years in the TIC industry. For me, we were seeing absolutely, as part of Bureau Veritas, major consolidation in the market. The margin profiles, obviously, are different to Mitie. I think from a cultural point of view, from an adjacency point of view, it's a massive opportunity for us and certainly feel positive about that integration and the acquisition.
Just on sales and marketing, we are absolutely driven to create an industry-leading sales and marketing capability within the organization. In May, we launched a significant investment in all different employees involved in the customer lifecycle. The infill acquisitions, our sales team, bids, strategic account managers, so that we can really create a highly powered growth engine and synergies around cross-selling, working collaboratively on bids, understanding the different sides of the account management, but also sales. We had 250 people together in May. It is the first time that we have done it as an organization.
The feedback is that this will really unlock the collaboration across the organization to power that growth. The sales academy, that is a whole range of training modules, is not it? Under the Ignite and growth.
Yes. We have been partnering externally and internally where we have best practice.
The idea is that it will be really concrete where we're taking live opportunities, live bids, and working across the entire customer-facing teams to make sure that we are absolutely pulling all the strengths that Mitie has across the organization.
I used to say every bid started with a blank page of paper in Mitie, but it doesn't anymore. There's a lot more content that we're bringing through in a consistent way, in a consistent way of bidding now.
It's about professionalizing the function and just absolutely making sure that we're getting the return on that investment.
Yeah. Thanks, Catherine. Thanks,
Chris. Good morning. Chris Banbury, Peel Hunt. A couple of questions, please. Could you give us an idea of the breakdown of the GBP 24 million opportunity pipeline by end market as opposed to activity? Just maybe some of the major opportunity.
There's a slide actually at the back, Chris. I can answer that quickly. Page 27, we put it in in the appendix. We do not need to worry about that. The one thing I would like to know, not to watch out for, to know is the idea that two-thirds of the pipeline is going to be awarded in the next two years. That is the key for me.
Thank you. Second question. Looking at the competitive landscape across your three main service lines, have you seen any significant changes over the last 12 months in terms of competitive intensity or the way your competitors are approaching the markets? Thank you.
I never sort of publicly comment on competitors. I mean, what they do is up to them, is it not? I mean, who am I to comment on them? We have got, I am not going to name them.
There's a bottom fisher out there that's always, there's always a bottom fisher. You've got PE in some spaces that have gone a bit to sleep, in our view, so that's good. No. I mean, I wouldn't make a big thing about it. I think the one thing I would say, and it's partly made to the board this week, if there's a bid today in facilities management, facilities transformation, and tomorrow, facilities compliance, I'll bet you Mitie's on the list. Whereas in the old days, we might have been on one in every bid list. There isn't a bid list we're not on today.
Just to build on Phil's point, thinking about it the other way around, we've got a good internal process, Chris, around bids that feeds up all the way from the bottom of the organization up to us, who sit on what we call a Bidco meeting every week where we sign off on every bid, every significant bid that comes through, including the key terms that are sitting on that particular bid. We might make a strategic decision in some instances to bid a little bit higher or bid a little bit lower, depending on whether it's a market that we particularly want to get into. It gives us good visibility of what's coming through.
You might say that the proof is in the pudding in that he says, "Touch wood, we have very, very few loss-making contracts across the organization as a result of the strength of that governance process that we have got in place."
If anything else, I am conscious we have held you here for an hour and a bit. Thank you for your time. If there are not any more follow-ups, obviously, Kate, it is around we are talking to one or two shareholders this afternoon, Kate, are we not? We will be out on the road. Thank you for your support, and thank you for coming. Thank you. Thanks, everyone.