Full Year Trading Update

RNS Number : 3853A

Mears Group PLC

21 January 2020

 

21 January 2020

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No 596/2014).  Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Mears Group PLC

("Mears" or "the Group" or "the Company")

Full Year Trading Update, planned disposal of standalone Domiciliary Care activities

 and Notice of Results

Mears (LSE: MER), the provider of support services to the UK Housing sector, announces the following unaudited update for the year ended 31 December 2019 ('FY2019') and also that it is at an advanced stage in the sale and exit from its standalone Domiciliary Care operations.

Overview

Mears expects to report underlying profit before tax on continuing activities in line with Board expectations and with a strong closing cash performance. The Board has reached an advanced stage in the sale of the England and Wales Domiciliary Care business and intends to dispose of its Scottish standalone Domiciliary Care business in 2020. Both these activities will accordingly be reported as discontinuing within the 2019 results.

The Board expects to report revenues, on continuing activities which excludes the Group's standalone Domiciliary Care activities, of more than £900m (2018 adjusted: £773m). The revenue growth of around 16% is predominantly driven by the acquisition of MPS, which delivered revenues of circa £115m.

The Group is expected to report a closing net debt of circa £52m (2018: £65.9m) which reflects conversion of EBITDA to operating cash in excess of 100%. Average daily net debt during 2019 was £114m, which was impacted by the working capital absorbed during the mobilisation of the Asylum Accommodation and Support Contract ('AASC').

The Group continues to target a pre-IFRS 16 average net debt to EBITDA of 1x.

The order book, adjusted to reflect continuing activities only, stands at £2.5bn (2018 adjusted: £3.0bn) which is lower due to the timing of existing contracts coming up for renewal.

Asylum Accommodation and Support Contract

The Board is pleased to report that the AASC mobilisation has been executed successfully and is now fully operational. The contract has delivered revenues in the year of approximately £45m, with annualised revenues expected to be in excess of £100m. Mears made substantial changes to the contract's property portfolio during the fourth quarter which better positions the Group to improve returns whilst delivering a high quality service. The Company is well placed to deliver further improvements in 2020.

Housing Development

As previously advised, the Group intends to reduce its exposure to Development. The Company continues to withdraw from this activity through a controlled unwinding of revenue whilst keeping working capital under tight control.

Also, as previously indicated, the property acquisition facility, which was introduced in 2017 to enable the Group to acquire and build portfolios of properties prior to their disposal to long term funding partners, was paid down and has been cancelled.

Planned disposal of standalone Domiciliary Care activities

As indicated previously, the Group has considered opportunities to accelerate an exit from standalone care.  The Group has continued to progress this since indicating this intention within the 2019 half year statement.

The Group announces that it is at an advanced stage in the sale of the England and Wales Domiciliary Care business.  These activities generated revenues of circa £36.0m and a profit contribution, after an allocation of support costs, of circa £1.7 million in 2019. The disposal will result in around 1,500 employees leaving the Group across 18 branches.

In addition, during the fourth quarter of 2019, the Group completed the closure of a small number of England-based branches, delivering annual revenues of circa £21.0m and a low profit contribution, which were not subject to the sale.

The Board expects to complete the disposal of its Scotland Domiciliary Care business during 2020. The Scottish business generated revenues of circa £22m and a profit contribution, after an allocation of support costs, of circa £0.9m in 2019. It employs around 1,000 people across 16 branches.

The standalone Domiciliary Care activities as a whole will be reported as discontinuing in the 2019 results and the associated intangible asset will be written down to reflect this.  This impairment review will be concluded before the 2019 results are reported but it is estimated that the goodwill impairment will be approximately £85.0m before other costs relating to the closure, including the impairment of fixed assets and transaction related legal costs. Full provision will be made for the closure and disposal in the 2019 results. The impairment of goodwill and fixed assets are non-cash items.

Importantly, as a result of the Domiciliary Care disposal, a number of personnel from a range of support functions also transfer with the business. This will provide the Group an opportunity to further rationalise its support functions in due course.

The Extra Care and Supported Living activities remain core to the Group's Housing with Care strategy and will be retained. In the year ended 31 December 2019, revenues from these activities were approximately £20m with an operating margin in excess of 5.0%. They will be reported within the Housing segment and continuing activities. The retention of these capabilities provide the Group with a demonstrable competence in the management of vulnerable people, and is expected to facilitate other value generating opportunities in the future.

Capital Markets Event and Notice of Results

The Group is today hosting a number of institutional investors with a presentation on the Asylum Accommodation and Support Contract. The presentation will be made available on the Company's website.

Mears will issue its full year results for FY2019 on Tuesday 24 March 2020.

The numbers in this update remain subject to final close procedures and the full year audit.

David Miles, Chief Executive Officer of the Group, commented:

"2019 was a very busy year for Mears. A significant amount of time and focused effort has been directed towards the integration of MPS and the mobilisation of the asylum housing contract. I am confident that we are well placed to benefit from this upfront investment in our core business.

"Our exit from standalone Domiciliary Care will enable us to focus our efforts where we can deliver superior returns for shareholders.  In line with this, we also continue to make progress unwinding our exposure to Development activities.

"We continue to see a good pipeline of opportunities providing Housing with Care, in the majority of cases to provide, manage and maintain accommodation and to care for the service users.

"Our deep understanding of the challenges faced by service users and proven ability to support vulnerable customers, many of whom have a care requirement, has been central to our success in Housing, and most recently in securing the asylum housing contract. This bespoke skillset is key to our future success."

For further information, contact:

Mears Group PLC            

David Miles, Chief Executive Officer		Tel: [phone]
Andrew Smith, Finance Director		Tel: [phone]
Alan Long, Executive Director		Tel: [phone]
www.mearsgroup.co.uk

Buchanan

Mark Court/Charlotte Slater                                       Tel: [phone]

[e-mail]

About Mears

Mears currently employs around 9,000 people and provides services in every region of the UK. In partnership with our Housing clients, we maintain, repair and upgrade the homes of hundreds of thousands of people in communities from remote rural villages to large inner city estates. Mears has extended its activities to provide broader housing solutions to solve the challenge posed by the lack of affordable housing and to provide accommodation and support for the most vulnerable. Following the disposal of the Group's standalone Domiciliary Care activities, the employee number will reduce to around 6,500.

We focus on long-term outcomes for people rather than short-term solutions, and invest in innovations that have a positive impact on people's quality of life and on their communities' social, economic and environmental wellbeing. Our innovative approaches and market leading positions are intended to create value for our customers and the people they serve while also driving sustainable financial returns for our providers of capital, especially our shareholders.

 

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