Final Results

Mears Group PLC 11 March 2008 Embargoed Release: 07:00hrs Tuesday 11 March 2008 Mears Group PLC ('Mears' or the 'Group') Preliminary Announcement Year Ended 31 December 2007 Mears Group PLC is once again pleased to announce record results for the year ended 31 December 2007. The highlights for the year include: • Turnover £304.6m (2006: £241.4m), up 26.2% • Operating profit pre amortisation £17.1m (2006: £12.5m), up 36.5% • Diluted EPS - normalised for full tax pre amortisation 16.40p (2006: 13.63p), up 20.3% • Dividend per share 4.0p (2006: 3.3p), up 21.2% • Operating profit to cash conversion 92.9% (2006: 99.4%) • Operating margins increased across all business segments • Acquisition of Careforce Group plc and a further 10 Care acquisitions • Record forward order book currently at £1.4 billion with robust bid pipeline Bob Holt, Chairman, said: '2007 has been a very good year for Mears and I am grateful to all Mears employees for their tremendous work. 2008 and beyond looks even brighter for our customers, our staff, our partners and our investors. I have personally never been more excited about, nor committed to, the future of this Group. Our order book is at record levels with a very healthy new business pipeline. Government policy, which both embraces investment in communities and ongoing public private sector partnership, continues to generate new opportunities. Our investment in people, IT and operational best practice ensures that we have the capability to make the most of the growth opportunities.' Enquiries: Bob Holt, Chairman, Mears Group tel: 07778 798816 Andrew Smith, Executive Director, Mears Group tel: 07712 866461 Media enquiries: Threadneedle Communications, Trevor Bass/Alex White tel: 020 7936 9666 Joint broker and Nominated adviser, Investec tel: 020 7597 4000 Joint broker, Arbuthnot Securities tel: 020 7012 2000 A presentation for analysts will be held at 10.00 a.m. today at the offices of Investec, 2 Gresham Street, London, EC2V 7QP. Chairman's statement I am delighted to announce another record year in both turnover and profitability. All business segments achieved record results and are well placed to continue building on our success in 2008. Since joining the Alternative Investment Market this is our twelfth consecutive year of profitable growth and we have delivered compound growth in profit before tax pre amortisation of 40% over that period. In the year ended 31 December 2007, turnover was up 26.2% to £304.6m (2006: £241.4m). Operating profit before amortisation was up 36.5% to £17.1m (2006: £12.5m). Diluted normalised earnings per share was up 20.3% to 16.40p (2006: 13.63p). We now employ 6,000 people, which is more than double a year ago. I am particularly pleased by the performance of our Development team, with over £500m of new business being secured across the Group, while retaining our strategy of focusing on quality contracts with partnership principles at their heart. We have an order book of £1.4 billion and have already secured 97% of consensus forecast turnover for 2008 and 77% for 2009. The strategic acquisition of Careforce in April 2007 allowed the Group to gain a foothold in the Domiciliary Care market and has been followed by eight smaller acquisitions in 2007 and a further two acquisitions in 2008, giving us the foundation for achieving market leadership. The latest acquisition has seen an extension of our care to cover those with learning difficulties which we are confident gives us scope for developing a national offering. The post acquisition integration has gone well and the Careforce team is working closely with their Mears colleagues. One of our first actions has been to bring Mears experience of tendering and bid management to improve the Careforce tender submissions. In addition we have invested significant resource into both the IT and accounting systems and the Careforce workforce development and training programmes. It is the quality of our care workers by which our service will be judged. We see the social services domiciliary care market being in a similar position to where the social housing market was some seven years ago. I believe that a Mears-style care provision will be a competitive and efficient force in a rapidly evolving market and I am determined that Careforce will be the quality offering and the partner of choice. We have already established our first partnership serving both the domiciliary care and housing repair needs of a single community in Wigan. Development success built on Partnering A return to bidding on a highly selective basis has yielded immediate returns for Mears. Particularly pleasing have been new major wins in Birmingham, Sedgefield and midlands-based Midland Heart, as well as securing a 15 year partnership with Welwyn Hatfield District Council. We have been working in Welwyn and Hatfield for the last 6 years and this new contract worth over £168m reflects the success of our partnership approach. In total over £400m of new Social Housing business was won in 2007. Our Care business has also seen significant new wins including Wigan and Hertfordshire. Moreover, we have seen our M&E division secure record new contracts, establishing itself as one of the most successful contractors of its type. I would like to take this opportunity to thank all our partners for their support in 2007. We apply the principles of partnering across our supply chain which has been significantly rationalised in 2007 down to a small group of partners with whom we share similar aspirations. People Mears success has been built on the ability and commitment of its people and their desire to serve customers to the best of their abilities. We have again increased our customer satisfaction levels in 2007, with 98% of tenants regarding our service as satisfactory whilst over 70% of those regard our service as excellent. Both measures substantially exceed reported average satisfaction levels for the market as a whole. Our people continue to make a real difference to the communities in which they work. Once again we recognise the outstanding contribution of our employees highlighted by the achievements of four people each representing their colleagues across the Group; they are Paul Martin, Chris Senior and Luke Brownbridge, all from our new Scunthorpe branch, each awarded the Mears Customer Service Champion of the Year Award and Jayne Cornell from Careforce who won our Carer of the Year Award. Development of our people remains a top priority for Mears. I am pleased to welcome both David Miles and Andrew Smith to the PLC Board. David joined Mears in 1996 and has led our Social Housing division for many years. Andrew has eight years experience with Mears and is a further example of Mears developing its own talent for the future. Andrew takes over from David Robertson who is stepping down from the role of Group Finance Director. We signalled this change in August of last year. David has been an integral part of Mears success and I do not believe that we would have been so successful in our early years without his skills and commitment. David will be missed by myself and all his colleagues. I wish him and Linda a long and healthy retirement. In the year we have welcomed into the Group in excess of 3,000 employees from the domiciliary care sector. We are committed to building a leading position in this sector. Mike Rogers the founder of Careforce joined the PLC Board in April 2007. I also welcome Peter Dicks and David Hosein to the PLC Board as Non Executive Directors. Their experience will be invaluable through the next stage of our development. Improving communities is part of our DNA Those who have read previous commentary from me will know the importance I place on corporate social responsibility. Our community work is second to none with over 50% of our staff volunteering their time to help schools, community centres, homeless facilities, training and work experience provision and environmental improvement projects. Our work here is aligned directly to our Group strategy. By building strong community links, we build relationships and understanding with these communities. By encouraging our staff to make a personal commitment we see people taking on new challenges, increasing job satisfaction and indeed making a difference to the communities in which they often live. It was hard to choose the best overall community project that Mears supported in 2007, given that there were over 220, but congratulations go to our Wycombe branch for their work with the homeless. A strong position in growth markets The outlook I outlined a year ago remains unchanged. There remain excellent prospects in social housing. We have demonstrated in 2007 that there is real demand for larger, longer-term contracts, which play to our strengths as a leader in that market. The political and economic climate is not one that will undermine the Social Housing sector and indeed the 2007 Comprehensive Spending Review outlined significant increased investment to address underlying demand issues and moreover set an agenda for efficiency which is good for us. Given our scale, our focus on customers and their communities and the quality of people we employ, we are well placed to benefit from these opportunities. The UK Care market is also one with significant growth potential. Demographic trends as well as the political and social will for people to stay in their own homes when they get older will continue to drive growth in this sector. I also expect to see changes in procurement practices that will increase service quality and will provide opportunities for organisations like Mears, which have the reputation and the right skills to deliver the services required efficiently and effectively and with empathy. Outlook 2007 has been a very good year for Mears and I am grateful to all Mears employees for their tremendous work. 2008 and beyond looks even brighter for our customers, our staff, our partners and our investors. I have personally never been more excited about, nor committed to, the future of this Group. Our order book is at record levels with a very healthy new business pipeline. Government policy, which both embraces investment in communities and ongoing public private sector partnership, continues to generate new opportunities. Our investment in people, IT and operational best practice ensures that we have the capability to make the most of the growth opportunities. Bob Holt bob.holt@mearsgroup.co.uk Chairman Operating and Financial Review Turnover In the year to 31 December 2007 we grew turnover to £304.6m (2006: £241.4m), an increase of 26.2%. The domiciliary care division contributed £28.7m of this growth which was predominantly generated through acquisition. Operating result We achieved an operating result before amortisation of £17.1m (2006: £12.5m), a 36.5% increase. All business segments reported increased operating margins. The Group increased operating margin before amortisation from 5.2% in 2006 to 5.6% in 2007. Even after excluding the margin enhancing care acquisition, the margin shows an increase in 2007 to 5.5% on a like for like basis. We are now benefiting from the significant investment made in our in-house information technology platform which has helped to further enhance the financial control throughout the business. We continue to invest in our infrastructure ahead of the projected organic growth. Amortisation of acquisition intangibles The Group carried out ten acquisitions during the course of 2007 which created intangibles amounting to £12.9m which will be amortised over their useful economic life. This resulted in a charge of £1.5m in 2007 (2006: £0.3m). The excess of purchase price over the fair value of net assets is capitalised as goodwill and under IFRS is not amortised however will be subject to an annual impairment review. Share based payments The share-based payment charge in 2007 was £0.6m (2006: £0.5m). Finance costs The Group again maintained its broadly neutral cash position throughout the 12 months to 31 December 2007 and suffered a net interest charge of £0.12m (2006: income £0.01m). The Group's focus on tight working capital control remains a cornerstone of our offering given the tremendous scale of growth encountered during the later part of 2007 and continuing into 2008. Tax expense £4.7m has been provided as a tax charge, an effective rate of 30.4% (2006: 17.3%). This is marginally higher than the standard rate of 30% as a result of adjustment for amortisation of acquisition intangibles, depreciation and share-based payments. The effective rate is higher than in 2006 as the comparative period benefited from an exceptional level of employee share option exercises in a single period. Earnings per share (EPS) The normalised diluted EPS pre intangible amortisation and incorporating a full corporation tax charge of 30% shows an increase of 20.3% rising to 16.40p from 13.63p. Dividend The dividend increase is in line with our earnings growth. A final dividend of 2.9p per share is proposed which combined with the 1.1p interim dividend gives a total dividend in the year of 4.0p per share (2006: 3.3p). The final dividend has not been recognised within the preliminary announcement as it did not represent an obligation at the balance sheet date. The dividend is payable on 2 July 2008 to shareholders on the register on 13 June 2008. Borrowings, cash flow and treasury Group net cash position at 31 December 2007 was £15.3m, up from £11.9m at the start of the year. The cash flow position continues to underline our strength as a business. The Group converted into cash 92.9% of operating profit before amortisation into operating cash flow (2006: 99.4%). The Group used £28.4m to fund the acquisition of Careforce Group PLC (' Careforce') together with further bolt-on acquisitions. The Group financed this by raising £24.2m by way of placing 7.5m shares, with the balance of £4.2m being financed through working capital. A sum of £3.5m was invested in new technology and operational bases. The Group benefited from the exercise of options in 2007 by some £1.4m. Acquisition During the year, the Group expanded into domiciliary care through initially the acquisition of Careforce for a total consideration of £23.8m. This consideration comprised of £12.2m of cash with the balance settled by the issue of 3.3m Mears shares in exchange for existing Careforce shares. A further £5.6m was used to settle the debt facility held by Careforce. This acquisition gave the Group a significant foothold within the domiciliary care market from where it has continued to grow both organically and through acquisition. The Group carried out a further eight domiciliary care acquisitions strengthening our national coverage of this market. The entire share capital of each business was purchased for a combined cash consideration of £10.6m (including costs). All acquisitions were structured on a similar basis, typically on a multiple of between four or five times EBITDA. Further consideration of £3.0m is deferred subject to meeting future performance targets. The domiciliary care business is performing in line with our expectations and ended the year with a run rate in excess of 75,000 hours per week, an increase of some 50% on the original Careforce business. The Group also acquired the social housing contracts from Makers UK Limited for a nominal consideration. An additional payment of £1.3m was made to acquire the work in progress at book value. Order book The visibility of our earnings continues to improve with in excess of £500m of new work being secured in 2007. Our order book now stands at £1.4 billion (2006: £1.1 billion). The element of market forecast turnover secured for 2008 is 97% and 77% for 2009. We continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins. Balance sheet Total shareholders' equity value rose by £44.7m to £82.7m at 31 December 2007. The increase in net assets is due to retained profits and the shares issued in the year. Significant movements in the balance sheet are: • The Group recognised £33.0m of goodwill and £13.1m of intangible assets predominantly relating to the acquisition of Careforce Group plc and additional eight bolt-on domiciliary care acquisitions. • Trade and other receivables at 31 December 2007 were £51.6m, an increase of £11.3m of which £6.1m was due to the inclusion of the acquisitions. • Trade and other payables at 31 December 2007 were £52.4m, an increase of £10.2m of which £6.2m was due to inclusion of the acquisitions and £2.8m of deferred consideration that has now fallen payable in less than one year. Major contract wins and mobilisations We have achieved a number of major successes, winning contracts valued at in excess of £500m in total over the last twelve months. Social Housing contract wins We won a 10 year contract, worth £50m, to carry out response and repairs work for Midland Heart Housing Association. Midland Heart is one of the top ten housing and regeneration groups in the country and the largest based in the Midlands. The contract mobilised in December 2007. We were awarded the 15 year sole partner contract with Welwyn Hatfield District Council to deliver their entire housing maintenance and improvement programme. This is worth a minimum of £168m over 15 years but further negotiated works could see that rise. We have been working in Welwyn and Hatfield since 2001. This award demonstrates the value of choosing customers with a strong partnership ethos and represents the biggest sole partner contract award in Mears history. We were successful in winning a major new £89m partnership contract in Sedgefield in the North East of England. The contract term is 5 years with a possible 2 year extension. This strategic partnership covers all aspects of housing repairs, maintenance and decent homes across the 8,500 properties in Sedgefield Borough Council with 170 existing Sedgefield employees having transferred to Mears. The contract mobilised in February 2008. We were successful in obtaining a flagship contract worth £65m with Birmingham City Council to provide responsive repairs and voids refurbishment in the Northern area of the City. The work will encompass the transfer of over 300 staff and it will last for an initial period of 4.5 years with an option to extend to a full term of 7 years. This win follows an extensive tender process, lasting over 6 months, through which Mears was able to demonstrate service and efficiency benefits for both the Council and the residents of North Birmingham. The contract goes live on 1 April 2008. We were awarded a £10m, 5 year contract with Mole Valley Housing Association. The work is for planned maintenance and voids and can be extended for a further 5 years. Mole Valley Housing Association, based in Surrey, was created in 2007 following a transfer from Mole Valley District Council and has over 3,800 homes. It is part of the Circle Anglia Group which has a housing stock of over 27,000 properties and is one of the largest housing associations in the UK. The contract is currently mobilising and is due to commence on 1 April 2008. We received a five year contract extension on the response and voids maintenance contract with Wycombe District Council. This is worth £20m over 5 years and is awarded on the back of providing the tenants a high quality service. The most efficient way to win new business is to renew existing contracts. We have renewed the majority of contracts as they come up for renewal. In the last 10 years, we have failed to renew only one material contract. Domiciliary Care contract wins The Group won a number of domiciliary care contracts including a contract with Wigan Metropolitan Borough Council for the provision of domiciliary care services for an initial period of three years plus a further potential two year extension. The initial contract value will be around £1m per annum. The Group was also successful in obtaining contracts for Homecare in Trafford, North Tyneside and for Extra Care Sheltered Housing in Nottinghamshire. These three contracts have combined annual revenues of approximately £1.5m. Careforce has also been successful in securing future revenues in two areas where existing contracts having come to the end of their natural term were being retendered. In both cases, Careforce has been successful in winning higher volumes of the outsourced work at similar or increased billing rates. In Rotherham, Careforce has won the maximum possible allocation of three blocks and in Hertfordshire we won contracts which will lead to significantly increased volumes that will run to at least 2015 with possible extensions to 2018. The anticipated aggregate forward sales value of the new contracts in Rotherham and Hertfordshire is in the region of £34m during the basic contract terms or around £52m if the options to extend both contracts are taken up. Training and development We are an established 'Investor in People' and we are meeting the challenge of the skills shortage in our sector through a comprehensive national programme of employee development, together with structured work experience and training programmes for prospective employees. We are particularly proud of our safety record which has been further enhanced by our new safety course for staff that we have developed together with the British Safety Council. All our operatives have received this additional training in 2007. In addition to our existing Training Foundation in Hackney, we have supported the launch of the Ealing Diploma and Enterprise Centre (EDEC) which aims to give young people aged 14-19 years broader options alongside other qualifications such as GCSEs and A-Levels. Students who attend are given the opportunity to learn skills that they would not learn in mainstream education and achieve the Diploma in Construction and the Built Environment. We plan to invest in further training centres in 2008 in Birmingham and Sedgefield. Customer and Community care With over 50% of our staff participating in community improvement projects, Mears has one of the highest levels of volunteering of any company of its size in the UK. Over 13,000 hours of community work was undertaken, with over 220 individual projects. Over the last 3 years, we have been a particular supporter of the Bobby Moore Bowel Cancer Fund with some £250,000 having been collected by our staff through a huge variety of events, from coffee mornings, to supporting projects in Brazil, India and South Africa. One of the biggest issues for vulnerable people can be the risk of falling. Mears has invested in providing special anti-fall slippers to tenants to reduce this risk. Environment We are committed to reducing our carbon emissions per employee by 5% per annum as well as to recycling over 50% of our waste. We have had a dynamic recycling policy throughout our history and it is pleasing to see our continuing commitment. Through our Thought Leader Conference in London in November we worked with clients, suppliers and key stakeholders to put greater focus on the need to tackle carbon reduction within the existing social housing stock, rather than to just focus on new build, where most of the Government focus has been so far. Our activity is now broad, from working with our suppliers to identify sustainable materials, through to working with the Tenants Participation Advisory Service to help Tenants take action to reduce both energy usage and waste. Bob Holt, Chief Executive bob.holt@mearsgroup.co.uk David Robertson, Finance Director david.robertson@mearsgroup.co.uk Corporate Social Responsibility Goals Mears regularly reviews its Corporate Responsibility goals and ensures that they are fully aligned to business strategy Our 4 Goals are: • To improve the lives of vulnerable people. • To help build community cohesion and integration. • To provide career opportunities to those needing them the most. • To be a positive contributor to the environment. Our Communities We work throughout the UK and have branches in every kind of community. In areas as diverse as rural villages, bustling market towns, historic boroughs, garden cities, busy metropolitan cities and industrial heartlands you will find Mears working to improve peoples lives. We do work in some of the most socially deprived areas of the country so we feel a strong sense of responsibility towards the wider community. Helping a local community to thrive increases the quality of life for tenants and makes our job that little bit easier. 90% of our employees live in the communities they support. In 2007 our staff delivered over 13,000 hours of community work with 50% of staff actively volunteering. We supported over 220 different projects: • 45 schools have received direct support from us. • 2,200 people in 55 community centres, homeless centres and hospices have had their facilities improved. • 183 youngsters have been given work experience and/or taken part in one of our apprenticeship schemes. • 1,000 children have received information on safety at home through our Mr Menda campaign. • 100 children have had their reading skills improved through our reading buddies scheme. • £100,000 of fund raising has helped various charities. At our annual conference this year awards were given to our top five nominated community projects: The Big Breakfast in High Wycombe Employees have supported their local homeless charity in a very practical way over recent years by helping out every month in the preparation and serving of breakfasts to the clients. Over the years every member of staff from the branch has taken part in this project demonstrating a long term commitment to community involvement. Growing Together in Broadstairs Working with local school children and the elderly residents of a sheltered housing complex we helped them to plan, design and create a community garden that enhanced the environment and brings young and old together in a very sustainable way. The Triangle Community Centre in Northampton Following an approach from members of a local community association after their centre had been vandalised, our whole branch turned out over a weekend to help restore and refurbish the centre. Since then the centre has thrived and vandalism hugely reduced as the centre gets greater use and is open for the community. Young Offenders Project in Peterborough We have provided mentoring and vocational skills training to a number of former young offenders enabling them to gain new skills and confidence and helping them back into community engagement and work opportunities. DIY Training for Residents in Christchurch Residents from two local housing associations were given training in DIY skills. Using a community hall which we kitted out as a training centre, our employees took residents through practical painting and decorating examples, enabling them to feel confident to carry out improvements to their own homes. Supporting good causes Our commitment to the community is recognised in Mears attaining the Business in the Community 'Percent Standard'. This benchmark measures the contributions made by companies through cash donations, staff and management time and gifts in kind, calculated as a percentage of pre-tax profit. The Percent Club recognises those companies who put the equivalent of at least 1% of their pre-tax profit into community work. We have also expanded the support provided by the Mears 'Future Champions' project. This provides both financial and practical support to ten young talented athletes from communities in which we work. We hope to see these inspirational youngsters participating in a number of national and international events culminating in the London Olympics 2012. We have developed a very strong relationship with the Bobby Moore Bowel Cancer Fund, helping raise some £250,000 for this important charity over the last 3 years. Our workplace We want to become a recognised 'Employer of Choice' within our sector with a workforce that fully reflects the communities we serve. To help us achieve this, we have three key aims: • To develop a culture of good communication and trust within the business, so that every employee shares the same values and works towards the same business objectives. • To manage change in a fast-growing, high-performance organisation by anticipating the people and resources we will need well before they are needed. • To encourage our employees to work together effectively in all situations. Training and development We are an established 'Investor in People', retaining the award in 2007 and we are meeting the challenge of the skills shortage in our sector through a comprehensive national programme of employee development, together with structured work experience and training programmes for prospective employees. We have invested heavily in employee development including: • Taking all our trades professionals through a trades based NVQ programme. • The development of a unique Mears Professional Development Customer and Community Care NVQ to help raise our customer service standards even higher. • Supporting new training centres including the Western Skills Centre in Wigan, the Ealing Diploma and Enterprise Centre and the Foundation Training Centre in Hackney. • Launching a national apprentice recruitment campaign. Culture and diversity In Mears, diversity is about having a group of employees who reflect the community they serve. It is about having the right blend of age, sex, race and cultural background required to understand the needs of the people we support. We operate in a sector that has been very male-orientated for many years, but we are addressing that imbalance. We will continue to address the issues involved and support the Women in Construction programme. We also achieved the Age Positive award in 2007, demonstrating our fair approach across all age groups. Support for employees We continue to provide a free 24 hour, 365 days per year confidential helpline called Mears Assist. This provides employees with advice on a wide range of personal and work-related matters and is available to their immediate families. We see Mears as a community in its own right and initiatives such as this are intended to help people get the most from their life while working here. Our market We are leaders in the social housing sector and we believe we have a responsibility to help improve knowledge, understanding and the overall performance of our market. In particular, we set out: • To find and work with partners who share our values. • To help clients and other organisations meet and learn from one another. • To look for innovative ways to improve efficiency and effectiveness - for the benefit of clients, tenants, local communities and tax payers. Thought leadership We have run and published our fourth Thought Leader report on the subject of improving the carbon footprint of the UK's social housing stock. We run this with support from the Chartered Institute of Housing, the Tenant Participation Advisory Service and others. Professionals from the Housing industry debated how to deliver real community improvements effectively. The report is available from our website www.thoughtleader.org.uk. Procurement policies Mears is determined to use true partnering and open book principles in the supply chain to ensure best value for all parties, in particular, our clients. Our nationally agreed supply chain partnering arrangements balance financial, service and sustainability requirements to ensure that we are delivering genuine all round best value to our clients. Our environment We take our environmental performance very seriously and work continuously to improve our practices. Our aims are: • In 2007 we achieved recycling levels of in excess of 50% and we have a short term target of recycling 80% of our waste. • Reduce carbon emissions by 5% per annum per employee for next 5 years. • Offset the majority or all of our carbon footprint. • Improve the energy efficiency of 50,000 homes per annum. • Raise the percentage of wood sourced from certified sources to 90% by 2010. We have achieved the ISO 14001 standard in many of our branches and are rolling this out across the remaining locations. As a part of this we are significantly improving the level of waste we recycle. At Mears we are always working tirelessly to ensure that we do everything in our power to reduce our carbon footprint. In order to do this we are currently seeking to implement a number of key initiatives, which we believe will make us totally carbon neutral in the very near future. These initiatives include: • Commissioning an external verification of our existing carbon footprint together with the production of a vigorous carbon reduction strategy. • Planting 32,000 renewable saplings in 2008. • Introducing fuel efficient vehicles. • Providing special Energy Saving Packs for tenants. • Improving procurement of sustainable products. As well as these important projects, Mears also encourages many of our staff to qualify for City and Guilds Energy Advisory Certificates. These qualifications enable our staff to provide tenants with practical advice on the best way to achieve energy efficiency within their homes. We believe this is an important area for our business in the future. Most of the focus on housing environmental improvement has been on new build so far and we see more of the focus shifting to refurbishment strategies if the UK is to achieve its carbon reduction targets. Health and safety Mears Group substantially increased its Health and Safety training in 2007. In partnership with the British Safety Council, Mears has developed a Company specific accredited Safety, Health and Environment course, which was rolled out in 2007 to all our employees. This was the first time the British Safety Council has worked with a company to produce such a course. We are proud to continue to hold the RoSPA Gold Health and Safety Award. In 2007 we reduced our Accident Incident Rate again as we have done year on year. Consolidated income statement for the year ended 31 December 2007 2007 2007 2006 2006 Note £'000 £'000 £'000 £'000 Sales revenue 2 304,620 241,414 Cost of sales (224,808) (174,399) Gross profit 79,812 67,015 Other administrative (62,186) (53,970) expenses Operating result before share-based payments and amortisation of 17,626 13,045 acquisition intangibles Amortisation of acquisition intangibles (1,500) (255) Share-based payments (550) (535) Total administrative costs (64,236) (54,760) Operating result 2 15,576 12,255 Finance income 222 130 Finance costs (345) (118) Result for the year before 15,453 12,267 tax Tax expense 3 (4,519) (2,068) Net result for the year 10,934 10,199 Earnings per share Basic 5 15.65p 17.05p Diluted 5 15.11p 15.99p All activities are continuing. Consolidated balance sheet as at 31 December 2007 2007 2006 £'000 £'000 Assets Non-current Goodwill 46,781 13,811 Intangible assets 12,608 1,029 Property, plant and equipment 8,199 5,716 Trade and other receivables 1,710 701 Deferred tax asset 1,116 3,000 70,414 24,257 Current Inventories 9,277 9,104 Trade and other receivables 49,929 39,633 Cash at bank and in hand 15,250 12,127 74,456 60,864 Total assets 144,870 85,121 Equity Equity attributable to the shareholders of Mears Group PLC Called up share capital 732 615 Share premium account 31,007 5,547 Share-based payment reserve 2,035 1,485 Merger reserve 11,548 - Retained earnings 37,373 30,363 Total equity 82,695 38,010 Liabilities Non-current Deferred tax liabilities 3,721 - Other liabilities 3,191 2,876 6,912 2,876 Current Short term borrowings and - 228 overdrafts Trade and other payables 52,410 42,186 Current tax liabilities 2,798 1,438 Pension and other employee 55 383 benefits Current liabilities 55,263 44,235 Total liabilities 62,175 47,111 Total equity and liabilities 144,870 85,121 Consolidated statement of recognised income and expense for the year ended 31 December 2007 2007 2006 £'000 £'000 Actuarial gain (loss) on defined benefit pension scheme 295 (77) Decrease in deferred tax asset (1,675) (550) Net expense recognised directly to equity (1,380) (627) Profit for the financial period 10,934 10,199 Total recognised income and expense for the period 9,554 9,572 Consolidated cash flow for the year ended 31 December 2007 2007 2006 Note £'000 £'000 Operating activities Result for the year before tax 15,453 12,267 Adjustments 6 3,767 2,312 Change in inventories (134) (3,468) Change in operating receivables (5,190) (7,697) Change in operating payables 1,971 9,023 Cash inflow from operating activities before 15,867 12,437 taxes paid Taxes paid (3,506) (2,394) 12,361 10,043 Investing activities Additions to property, plant and equipment (3,314) (1,371) Additions to development expenditure (225) (222) Proceeds from disposals of property, plant and 143 146 equipment Acquisition of subsidiary undertaking, net of (28,391) (3,543) cash Interest received 280 136 (31,507) (4,854) Financing activities Proceeds from share issue 25,544 1,614 Discharge of finance lease liability (88) (46) Interest paid (415) (124) Dividends paid (2,544) (1,676) 22,497 (232) Cash and cash equivalents, beginning of year 11,899 6,942 Net increase in cash and cash equivalents 3,351 4,957 Cash and cash equivalents, end of year 15,250 11,899 Cash and cash equivalents is comprised as follows: Cash at bank and in hand 15,250 12,127 Short term borrowings and overdrafts - (228) Cash and cash equivalents 15,250 11,899 Notes to the preliminary announcement for the year ended 31 December 2007 1. Basis of preparation The preliminary announcement contains extracts from the full financial statements. The full financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and also in accordance with IFRS as issued by the International Accounting Standards Board. The financial statements are prepared under the historical cost convention. The accounting policies remain unchanged from the previous year. 2. Segment reporting The Group operates four (2006: three) business segments: social housing, domiciliary care, mechanical and electrical (M&E) and vehicle distribution. All of the Group's activities are carried out within the United Kingdom. 2007 Business segments Social Domiciliary M&E Vehicle Total housing Care distribution £'000 £'000 £'000 £'000 £'000 Revenue 205,559 28,718 61,181 9,162 304,620 Operating result pre amortisation 12,208 1,801 2,587 480 17,076 of acquisition intangibles Amortisation of acquisition (300) (1,200) - - (1,500) intangibles Operating result 11,908 601 2,587 480 15,576 2006 Business segments Social Domiciliary M&E Vehicle Total housing Care distribution £'000 £'000 £'000 £'000 £'000 Revenue 184,017 - 49,069 8,328 241,414 Operating result pre amortisation 10,323 - 1,793 394 12,510 of acquisition intangibles Amortisation of acquisition (255) - - - (255) intangibles Operating result 10,068 - 1,793 394 12,255 3. Tax expense Tax recognised in the income statement 2007 2006 £'000 £'000 United Kingdom corporation tax effective rate 30.4% (17.3%) 4,703 2,118 Adjustment in respect of previous periods (203) - Total current tax recognised in income statement 4,500 2,118 Deferred taxation charge: - on defined benefit pension obligations 10 - - on share-based payments 200 (50) - on accelerated capital allowances 300 - - on amortisation of acquisition intangibles (491) - Total deferred taxation recognised in income statement 19 (50) Total tax expense recognised in income statement 4,519 2,068 Deferred tax recognised directly in equity Deferred taxation charge: - on defined benefit pension obligations 25 - - on share based payments (1,700) (550) Total deferred taxation recognised in equity (1,675) (550) 4. Dividends The following dividends were paid on ordinary shares in the year: 2007 2006 £'000 £'000 Final 2006 dividend of 2.40p (2006: final 2005 dividend of 1.90p) per share 1,743 1,125 Interim 2007 dividend of 1.10p (2006: interim 2006 dividend of 0.90p) per share 801 550 2,544 1,675 The proposed final dividend of 2.90p per share has not been included within the Group financial statements as no obligation existed at 31 December 2007. 5. Earnings per share Basic Diluted 2007 2006 2007 2006 p p p p Earnings per share 15.65 17.05 15.11 15.99 Effect of amortisation of acquisition intangibles 2.15 0.35 2.07 0.33 Effect of full tax adjustment (0.81) (2.87) (0.78) (2.69) Normalised pre amortisation earnings per share 16.99 14.53 16.40 13.63 A normalised earnings per share is disclosed in order to show performance undistorted by amortisation of intangibles and the tax effect of share options. The profit attributable to shareholders before and after adjustments for both basic and diluted earnings per share is: 2007 2006 £'000 £'000 Profit attributable to shareholders 10,934 10,199 - amortisation of acquisition intangibles 1,500 255 - tax effect of share options (567) (1,765) Adjusted profit attributable to shareholders 11,867 8,689 The calculation of earnings per share is based on a weighted average of ordinary shares in issue during the year. The diluted earnings per share is based on a weighted average of ordinary shares calculated in accordance with IAS 33 - Earnings per share, which assumes that all dilutive options will be exercised. The additional normalised basic and diluted EPS use the same weighted average number of shares as the basic and diluted EPS. 2007 2006 millions millions Weighted average number of shares in issue 69.85 58.82 - dilutive effect of share options 2.51 4.97 Weighted average number of shares for calculating diluted earnings per share 72.36 63.79 6 Notes to consolidated cash flow statement The following non operating cash flow adjustments have been made to the pre-tax result for the year: 2007 2006 £'000 £'000 Depreciation 1,666 1,513 (Profit)/loss on disposal of property, plant and equipment (127) 21 Amortisation 1,555 255 Share-based payments 550 535 Finance income (222) (130) Finance cost 345 118 Total 3,767 2,312 7. Publication of Non Statutory Accounts The financial information set out in the announcement does not constitute the Group's statutory accounts for the years ended 31 December 2007 or 2006. The financial information for the year ended 31 December 2006 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 s.237(2) or (3) Companies Act 1985. The Statutory accounts for the year ended 31 December 2007 have not yet been delivered to the Registrar of Companies nor have the auditors reported on them. They will be finalised on the basis of the information presented by the Directors in this preliminary announcement. This information is provided by RNS The company news service from the London Stock Exchange

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Mears Group (MER)
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