Final Results
Mears Group PLC
02 April 2003
Mears Group PLC
Chairman's Statement
I am again pleased to announce record profits for the year ended 31st December
2002.
Profits before tax and amortisation were up 43.1% at £3,764,507 (2001:
£2,631,153) on turnover up 15.0% at £78,833,997 (2001: £68,579,597).
Earnings per share before amortisation increased by 35.7% to 4.79p (2001: 3.53p
assuming a full tax charge). Net profit margins rose to 4.57% up from 3.66% in
the previous year and have increased in each of the last 3 years. The Board
recommends a final dividend of 0.75p per share making a total dividend for the
year of 1.0p per share, an increase of 25% from the previous year (2001: 0.8p
per share). The final dividend is payable on 1st July 2003 to shareholders on
the register on 6th June 2003.
Trading Review
The Group has enjoyed significant opportunities for growth at improved rates
where customers have bought a quality 'value for money' service. We continue
to develop long-term partnership strategies with our customers and have
strengthened further our relationships in all the core markets in which we
operate. Each of the divisions of the Group traded ahead of expectations, and
the non-cyclical nature of the core business is underpinned by long-term
contracts which provide highly visible and robust revenues and earnings. The
order book currently stands at £300 million which includes £165 million of
future revenues at fixed net margins.
The Group continues to enjoy buoyant trading conditions in most areas. In the
public sector from where the majority of turnover derives, the central
government initiatives to improve the condition of the social housing stock
continue to bring significant opportunities. During the year the Group was
awarded contracts by Wigan and Leigh Housing, Elmbridge Housing Trust,
Warwickshire County Council and Stonebridge Housing Action Trust demonstrating
our ability to win long-term partnership arrangements where the quality of the
service provided is paramount. It should be remembered that the Group provides
'essential support services' and is not subject in the core business to any
aspect of discretionary spending from its customers.
Cash continued to be managed well with the generation of £3.0 million of net
cash inflow in the period. The Group has no borrowings and had cash in the
bank of £5.6 million at the end of the year.
Operations
The Group operates principally in four sectors.
Public Sector Services
By far the largest part of the Group is the provision of a range of maintenance
services to the social housing and central government sectors. The sector
provides us with significant long-term contracts with local authorities,
registered social landlords, housing associations and government. The Group
provides a mixture of both rapid response and planned maintenance services on
long-term contracts, to deliver a total quality outsourced building maintenance
service. The contracts are let on a basis where the Group does not compete
with any other service provider and the customer simply utilises a growing
amount of services throughout the contract period. As the contracts near the
end of their duration the Group has demonstrated an excellent record of contract
retention and renewal. The Government has committed significant resources to
improve the country's social housing stock and the Group is in negotiations with
a number of local authorities regarding service provision.
Mechanical and Electrical Services
The business provides mechanical and electrical services in the housing,
education and healthcare sectors. The business operates as Haydon and Company
Limited and has been in existence for 120 years building on excellent
relationships with its customers. The expansion of the business into school
and hospital works has broadened the sector involvement away from the reliance
upon housing. Whilst the London based housing business has performed
excellently, we are confident that any downturn in the housing market would be
compensated by the ability of Haydon to expand into the other sectors in which
it operates.
Facility Management
The business provides a total building management service to its customers where
we manage a large range of services.
The company which was a start up in September 2001 has performed in line with
expectations in the year. The company was loss making but was successful in
building a solid customer base from where to develop a robust profitable
contribution to the Group. The company is expected to break-even in the
current year.
Vehicle Collection and Delivery
United Fleet Distribution provides a vehicle collection and delivery service for
commercial customers typically who own a large vehicle fleet. The customers
who comprise leasing companies, utility companies and fleet managers require
that their end of lease vehicles be collected and delivered to either auction
houses or motor retailers. UFD operates in excess of 500 trade plated drivers
who collect and deliver vehicles on a national basis. UFD holds some of the
largest contracts in the UK for these services and operates from eight locations
which provide storage and vehicle inspection services. The business is the
market leader for trade plated driver services in the UK and has enjoyed
significant growth in 2002.
Strategy and Expansion
In the year the Group invested in FITE IT Limited (FITE) an Information
Technology (IT) maintenance business buying 49% of FITE, a Central London based
company who provide IT response maintenance to small businesses. Nick Lawrence
and the team are to be congratulated for their excellent start to life as part
of the Mears Group. I look forward to bringing you news of the progress of
FITE in the future.
In December the Group acquired M&T Group Limited (M&T) and in turn welcomed back
into the business Mike Turl, one of the founders of Mears. Those who know the
history of the Group will be aware that Mike left the Group in 1998 to pursue
other interests.
In April 1999 M&T acquired FWA (Southern) Limited and later certain contracts
from Mears following our purchase of Haydon in September 1999. We have
acquired Mike's business on an earn-out basis, with the consideration linked to
future levels of profitability. In addition Mike is to help build a national
painting and decorating services business where the Group has identified
significant growth opportunities. I look forward to bringing you news in the
future of the regional acquisition strategy we have planned.
Throughout the Group we operate a reward based culture with bonus and incentive
arrangements in place at all levels. Every employee is encouraged to contribute
to a better and more cost effective way of working. In the year we increased
greatly our commitment to wider social responsibility, sponsoring in excess of
30 local sports clubs, teams and or individuals, living in those communities in
which we operate or intend operating in the future. It is our intention to
extend our community involvement and in conjunction with the organisation
Business in the Community we commenced a paired reading scheme where employees
of the Group visit a local school and are paired with a schoolchild spending up
to an hour a week with a child to improve that child's reading skills. This is
the first of a number of initiatives to extend our community based social
involvement. In a joint venture with a local based national charity we have
committed to send each year six of our junior managers on a sponsored walk of
the Great Wall of China to both raise much needed funding whilst at the same
time giving the managers a once in a lifetime experience. This initiative is
seen as a vital part of the Mears management development program.
Through the success of our Group wide accreditation for both Investors in People
and the ISO 9002 Quality Management system, there have been national training
and development initiatives for all employees. Again, the number of training
days recorded in the year exceeded previous years.
The Group has a proven, robust and sustainable business model upon which to
expand both the size of the Group and the range of services provided. The
demand for our services has never been stronger and we continue to seek out
those customers who are looking to forge long-term relationships.
Our future earnings are highly visible whilst the excellent generation of cash
from our operations continues.
The record order book demonstrates a commitment to building a long-term business
in stable market sectors. This commitment would not be possible without the
positive approach to business that our team ethos engenders and all levels of
staff are to be commended.
Again I should like to express publicly my most sincere congratulations to all
those involved in the progress of the Group to date and to applaud those
employees who have invested in our third Save
As You Earn Share Option Scheme, and given their firm commitment to the future
success of the Group - well done.
The Board remains optimistic about the future and continues to create an
environment where there is good investor interest in the Group. The strategy
is simple, we have a business where the attention to detail is paramount. We
have demonstrated each and every year that the Group has a robust business model
with a conservative and prudent management team who are very capable of growing
the earnings year on year. The Group's biggest assets are its employees and
its customers. We are committed to creating a long-term partnership ethos with
them. Our Business in The Community initiative and our recent long-term reward
schemes for staff demonstrate this commitment.
I commend the commitment of staff at all levels and I look forward to being able
to report another excellent year of progress in twelve months time.
R Holt
Chairman
1 April 2003
Consolidated Profit and Loss Account
for the year ended 31 December 2002
2002 2002 2001 2001
Note £ £ £ £
Turnover 2
Continuing operations 78,535,297 68,579,597
Acquisitions 298,700 -
78,833,997 68,579,597
Cost of sales (58,758,960) (51,638,639)
Gross profit
Continuing operations 20,028,667 16,940,958
Acquisitions 46,370 -
20,075,037 16,940,958
Administrative expenses (16,562,778) (14,362,652)
Operating profit
Continuing operations 3,512,259 2,578,306
Acquisitions - -
3,512,259 2,578,306
Share of operating profit in 7,609 -
associate
3,519,868 2,578,306
Net interest 86,321 (69,908)
Profit on ordinary activities
before taxation 3,606,189 2,508,398
Tax on profit on ordinary 3 (1,112,007) (378,500)
activities
Profit on ordinary activities
after taxation 2,494,182 2,129,898
Equity minority interests 35,086 10,157
Profit for the financial year 2,529,268 2,140,055
Dividends 4 (565,325) (444,131)
Profit retained 1,963,943 1,695,924
Earnings per share
Basic 5 4.51p 4.00p
Basic - normalised 5 4.51p 3.30p
Diluted 5 4.36p 3.61p
There were no recognised gains or losses other than the profit for the financial
year.
All activities are continuing.
Consolidated Balance Sheet
at 31 December 2002
2002 2002 2001 2001
Note £ £ £ £
Fixed assets
Intangible assets 5,433,006 2,243,136
Tangible assets 1,641,095 1,360,633
Investments - associate 36,944 -
Investments - other 61,927 55,677
7,172,972 3,659,446
Current assets
Stocks 1,266,334 1,232,170
Debtors 15,919,547 15,739,056
Cash at bank and in hand 5,565,728 4,576,203
22,751,609 21,547,429
Creditors: amounts falling due
within one year (18,129,054) (18,194,870)
Net current assets 4,622,555 3,352,559
Total assets less current 11,795,527 7,012,005
liabilities
Creditors: amounts falling due
after more than one year (2,260,000) -
9,535,527 7,012,005
Capital and reserves
Called up share capital 565,405 537,352
Share premium account 2,969,684 2,397,851
Profit and loss account 6,023,673 4,059,730
Equity shareholders' funds 9,558,762 6,994,933
Equity minority interests (23,235) 17,072
9,535,527 7,012,005
The financial statements were approved by the Board of Directors on 1 April 2003.
R Holt D J Robertson
Director Director
Consolidated Cash Flow Statement
for the year ended 31 December 2002
2002 2001
Note £ £
Net cash inflow from operating activities 6 4,743,346 4,288,850
Returns on investments and servicing of finance
Interest received 86,109 3,112
Interest paid (3,158) (76,617)
Net cash inflow/(outflow) from returns on investments
and servicing of finance 82,951 (73,505)
Taxation paid (537,920) (104,912)
Capital expenditure
Purchase of tangible fixed assets (730,616) (665,169)
Sale of tangible fixed assets 17,000 38,373
Purchase of investment (36,250) -
Net cash outflow from capital expenditure (749,866) (626,796)
Acquisitions
Purchase of subsidiary undertakings (836,780) -
Net cash acquired with subsidiary undertakings 478,657 -
Net cash outflow from acquisitions (358,123) -
Equity dividends paid (478,683) (373,771)
Financing
Issue of shares 251,276 111,275
Repayment of borrowings - (1,100,040)
Net cash inflow/(outflow) from financing 251,276 (988,765)
Increase in cash 7 2,952,981 2,121,101
Consolidated Cash Flow Statement
for the year ended 31 December 2002
1.Basis of preparation
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2002 or 2001. The
financial information for the year ended 31 December 2001 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was unqualified
and did not contain a statement under s237(2) or (3) Companies Act 1985. The
statutory accounts for the year ended 31 December 2002 will be finalised on the
basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's annual general meeting.
2. Segmental analysis
Turnover and profit on ordinary activities before taxation are attributable to
the following activities carried out entirely within the UK.
Turnover Profit before taxation Net assets
2002 2001 2002 2001 2002 2001
£ £ £ £ £ £
Maintenance, mechanical 62,915,818 59,775,925 2,530,601 1,914,434 8,207,580 5,925,985
and electrical services:
Motor vehicle 15,918,179 8,803,672 1,075,588 593,964 1,327,947 1,086,020
distribution
78,833,997 68,579,597 3,606,189 2,508,398 9,535,527 7,012,005
3. Tax on profit on ordinary activities
The tax charge represents:
2002 2001
£ £
United Kingdom corporation tax at 30% (2001: 15.9%) 1,111,007 405,000
Share of tax charge of associate 1,000 -
Adjustments in respect of prior years - (20,000)
Total current tax 1,112,007 385,000
Origination and reversal of timing differences - (6,500)
Tax on profit on ordinary activities 1,112,007 378,500
4. Dividends
2002 2001
£ £
Ordinary shares
- interim dividend of 0.25p (2001: 0.20p) per share 141,272 106,720
paid
- proposed final dividend of 0.75p (2001: 0.60p) per 424,053 337,411
share
565,325 444,131
5. Earnings per share
Basic earnings per share is based on equity earnings of £2,529,268 (2001:
£2,140,055) and 56,132,881 (2001: 53,538,267) ordinary shares at 1p each, being
the average number of shares in issue during the year.
For diluted earnings per share the average number of shares in issue is
increased to 58,030,209 (2001: 59,232,325) to reflect the potential dilution
effect of employee share schemes.
The earnings in 2001 had been affected by the utilisation of tax losses
generated by Haydon and Company Limited in 1999 and 2000. A full tax earnings
per share, shown as normalised, is disclosed in order to show performance
undistorted by this effect. The normalised earnings per share in 2001 was based
on equity earnings, subject to a notional corporation tax charge of 30%, of
£1,766,036.
Basic Diluted
2002 2001 2002 2001
p p p p
Earnings per share 4.51 4.00 4.36 3.61
Effect of full tax adjustment - (0.70) - (0.63)
Normalised earnings per share 4.51 3.30 4.36 2.98
6. Net cash inflow from operating activities
2002 2001
£ £
Operating profit 3,512,259 2,578,306
Depreciation and amortisation 609,987 451,398
Loss/(profit) on disposal of fixed assets 6,262 (2,178)
(Increase)/ decrease in stocks (29,164) 504,983
Decrease in debtors 574,931 473,620
Increase in creditors 69,071 282,721
Net cash inflow from operating activities 4,743,346 4,288,850
7. Reconciliation of net cash flow to movement in net funds
2002 2001
£ £
Increase in cash in the year 2,952,981 2,121,101
Cash outflow from financing - 1,100,040
Change in net funds resulting from cash flows 2,952,981 3,221,141
Net funds at 1 January 2002 2,612,747 (608,394)
Net funds at 31 December 2002 5,565,728 2,612,747
8. Analysis of changes in net funds
At At
1 January Cash 31 December
2002 flow 2002
£ £ £
Cash at bank and in hand 4,576,203 989,525 5,565,728
Overdrafts (1,963,456) 1,963,456 -
2,612,747 2,952,981 5,565,728
9. Calendar
i. The proposed final dividend will be paid on 1 July 2003 to shareholders on the register on 6 June 2003.
ii. The Annual Report will be posted to shareholders on 2 May 2003 and will be available from the registered office at
Salter Street, Berkeley, Gloucestershire, GL13 9DB.
iii. The Annual General Meeting will be held on 4 June 2003 at the offices of Arbuthnot, 2 Lambeth Hill, London, EC4 4GG
iv. This preliminary announcement of results for the year ended 31 December 2002 was approved by the Directors on 1
April 2003.
END
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