Morningstar DBRS Confirms Mitie Treasury Management Ltd.'s Issuer Rating at BBB, Stable Trend
ServicesDBRS Ratings Limited (Morningstar DBRS) confirmed its Issuer Rating on Mitie Treasury Management Ltd. (MTM) at BBB with a Stable trend. MTM is a direct wholly owned subsidiary of Mitie Group plc (Mitie or the Company) and the financing vehicle for the Company. MTM's financial obligations are guaranteed by Mitie and its material subsidiaries.
KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmation reflects Mitie's solid market position as the UK's leading facilities management and transformation service provider, as well as the Company's stable revenue generation supported by contractual arrangements and long-term client relationships, its large and varied customer base, and its diversified service offerings complemented by specialised technological capabilities. The credit rating is constrained by the Company's geographic concentration within the UK, where it earned about 94% of its operating profit in the year ended 31 March 2025 (F2025), as well as the fragmented nature of the UK facilities management sector. The market is characterised by intense competition, relatively thin profitability margins, and ongoing consolidation. Mitie continued to report strong financial results for F2025 in line with Morningstar DBRS' expectations. The Company's group revenue (excluding the share of revenue of joint ventures and associates) grew to GBP 5.1 billion from GBP 4.4 billion in F2024, while its F2025 Morningstar DBRS-adjusted EBITDA rose to GBP 305 million from GBP 260 million in F2024. Mitie's Morningstar DBRS-adjusted financial metrics remained strong for the credit rating category, including a debt-to-EBITDA ratio of 1.2 times (x) and cash flow-to-debt ratio of 69% as of F2025.
On 5 June 2025, Mitie announced that it had reached an agreement on the terms of a recommended cash and share offer to acquire Marlowe PLC (Marlowe) as discussed in the 20 June 2025 press release "Morningstar DBRS Comments on Mitie Group plc's Pending Acquisition of Marlowe PLC" at https://dbrs.morningstar.com/research/456613. The agreed consideration consists of GBP 228 million in cash and 86.6 million new Mitie shares. Mitie has arranged a GBP 240 million bridge facility to finance the cash portion of the transaction. Marlowe's shareholders voted in favour of the transaction on 16 July 2025 and regulatory conditions were satisfied as of 17 July 2025. Subject to the remaining transaction conditions, the acquisition is expected to complete in August 2025. Marlowe is a leading testing, inspection, and certification service provider in the UK. For F2025, Marlowe reported revenue from continuing operations of GBP 305 million and adjusted EBITDA from continuing operations of GBP 33 million, equating to an adjusted EBITDA margin of 10.8%, compared with Mitie's F2025 Morningstar DBRS-adjusted EBITDA margin of 6%. This represents an accretive benefit to Mitie's profitability metrics. Marlowe's business lines are complementary to Mitie's existing operations, and Morningstar DBRS views the integration risk as manageable for Mitie as an experienced integrator of acquisitions.
CREDIT RATING DRIVERS
Morningstar DBRS could take a positive credit rating action if there is a material sustained improvement in Mitie's business risk profile, such as a notable increase in scale, improved operating efficiency, and expanded geographic reach. This would need to be accompanied by operating margins trending sustainably above Morningstar DBRS' expectations and the maintenance of a Morningstar DBRS-adjusted debt-to-EBITDA ratio comfortably below 2.0x. Morningstar DBRS could take a negative credit rating action if there are adverse changes to Mitie's business risk profile, such as competitive, inflationary, or integration pressures that may result in operating margins dropping below forecast expectations. Morningstar DBRS could also take a negative credit rating action if the Company materially deviates from its current financial policies such that its financial metrics weaken to a level not supportive of the credit rating, such as the Morningstar DBRS-adjusted debt-to-EBITDA ratio trending above 2.5x.
EARNINGS OUTLOOK
Morningstar DBRS believes the Marlowe acquisition is likely to complete as agreed, and thus the base-case forecast assumes the acquisition will close in August 2025. Morningstar DBRS expects Mitie's consolidated revenue to grow by a mid-to-high single-digit percentage annually (including inorganic growth) in the period to F2027, with its group revenue trending above GBP 5.8 billion by F2027. Morningstar DBRS anticipates that cost headwinds from inflation and increased national insurance premiums, as well as integration costs, will pressure Mitie's margins, which are expected to be slightly lower in F2026. Morningstar DBRS expects this to be followed by modest annual margin progression as Mitie's margin enhancement initiatives and targeted synergies from the Marlowe acquisition are implemented.
FINANCIAL OUTLOOK
Morningstar DBRS' forecast assumes that increased cash tax payments and higher interest costs from the acquisition financing will weaken Mitie's cash conversion compared with prior periods. Nevertheless, Mitie's cash flow from operations is expected to remain healthy and provide ample coverage for annual capital expenditure of about GBP 30 million, dividends commensurate with the Company's financial policy, and working capital investments, resulting in ongoing positive free cash flow. At the time of the announcement of the pending Marlowe acquisition, Mitie also suspended its GBP 125 million F2026 share buyback programme. The Company looks to balance its capital allocation within its net leverage policy of average net debt-to-EBITDA ratio target range of 0.75x to 1.5x (as defined by the Company), which was reported as 0.8x as of F2025 on a standalone basis. Consistent with Mitie's financial policy, Morningstar DBRS assumes that infill acquisitions and share buybacks will be curtailed for the remainder of F2026, and that capital allocation activities thereafter will be managed within Mitie's targeted leverage range. Based on these assumptions and with consideration for the acquisition financing, Morningstar DBRS expects Mitie's credit metrics to weaken from current levels but to remain supportive of the credit rating and the Stable trend.
Marlowe, as a stand-alone company, reported lease liabilities of GBP 23 million as of F2025, while its GBP 50 million revolving credit facility (RCF) was undrawn, resulting in limited debt to be acquired by Mitie as part of the transaction aside from transaction-specific financing. Morningstar DBRS assumes that Mitie's arranged GBP 240 million acquisition bridge facility could be refinanced within Mitie's undrawn capacity under its uncommitted U.S. private placement shelf facility of circa GBP 270 million. Morningstar DBRS also notes that Mitie has access to other liquidity sources, including an undrawn GBP 250 million committed RCF and cash and equivalents (net of cash subject to constraints) of GBP 176 million as of F2025. Given the Company's ongoing free cash flow generation and its access to liquidity and financing sources, the bridge facility's refinancing risk is deemed low.
CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBBL/BBH
Mitie's CBRA reflects the Company's market position as the largest integrated facilities management service provider in the UK, and its leading market positions in its engineering maintenance, security, and hygiene service lines. Additionally, the Company's pending acquisition of Marlowe would position the combined group strongly in the UK facilities compliance sector. As of F2025, Mitie reported an overall market share of 14% in the UK, which, while twice that of its closest peer, remains limited by the fragmented nature of the industry in the UK. Mitie has maintained long-term client relationships balanced across both the public and private sectors, with no single customer accounting for more than 5% of revenue. The Company continues to show success in renewing its key accounts and winning new mandates and extensions, with a record of GBP 2.5 million of renewed total contract value and GBP 5.0 billion of new contract wins in F2025, supporting a 35% increase in its order book to GBP 15.4 billion as of F2025 (F2024: GBP 11.4 billion). Given its labour-intensive operations in a fragmented and competitive industry, Mitie reports relatively thin operating margins. The Company has been successful in passing inflationary cost increases to customers via contractual mechanisms and commercial negotiations. However, the maintenance and expansion of its margins also requires ongoing cost-saving initiatives as well as the reliance on higher-margin infill acquisitions, which may present execution risks. Morningstar DBRS notes that the Company has demonstrated a strong track record in integrating inorganic investments.
The CBRA includes a -0.5-notch negative adjustment to reflect the fragmented and competitive nature of the UK facilities management sector, which places pressure on Mitie's operating margins and constrains the Company's organic growth opportunities.
Comprehensive Financial Risk Assessment (CFRA): AL
Mitie's CFRA reflects Morningstar DBRS' forecast through to F2027 (inclusive of the impact of the Marlowe acquisition), which assumes that Mitie's credit metrics will weaken from current levels, though they should remain supportive of the credit rating, including the cash flow-to-debt ratio around 35%, debt-to-EBITDA ratio below 2.25x, and EBITDA-to-interest ratio above 7.5x.
Intrinsic Assessment: BBB
The Intrinsic Assessment (IA) is based on the aforementioned CFRA and CBRA. Considering peer comparisons, among other factors, Morningstar DBRS places the IA in the middle of the Intrinsic Assessment Range.
Additional Considerations: None
The Issuer Rating includes no further negative or positive adjustments due to additional considerations.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) at https://dbrs.morningstar.com/research/454196.
Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/459110.
Notes:
All figures are in British pound sterling unless otherwise noted.
Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (3 February 2025), https://dbrs.morningstar.com/research/447184.
Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (3 February 2025, https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.
The following methodology has also been applied:
-- Morningstar DBRS Global Corporate Criteria (3 February 2025), https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.
The primary sources of information used for this credit rating include Mitie's F2025 Annual Report and Accounts, the Company's full year F2025 results and presentation, Mitie's Rule 2.7 Firm Offer Announcement regarding the pending Marlowe acquisition, publicly available information for Marlowe, information and news updates available on Mitie's website, and information provided by the Company to Morningstar DBRS, including a meeting between Morningstar DBRS and Mitie on 10 July 2025. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.
Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.
For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/459111.
This credit rating is endorsed by DBRS Ratings GmbH for use in the European Union.
Lead Analyst: Chloe Blais, Vice President
Rating Committee Chair: Robert Streda, Senior Vice President
Initial Rating Date: 10 June 2021
Last Rating Date: 25 July 2024
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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