Half Yearly Report

RNS Number : 5316L
Mears Group PLC
13 August 2013
 



13 August 2013

Mears Group PLC

("Mears" or "the Group")

Interim Results

For the six months to 30 June 2013

 

Mears Group PLC, the support services group to the Social Housing and Care sectors in the UK, is pleased to announce interim results for the six months to 30 June 2013.

 

Financial Highlights

 

 

Six months to 30 June 2013

 

Six months to

30 June 2012

(as restated)

 

 

 

Change


Revenue


£457.8m


£307.2m


up 49%

 

Adjusted profit before tax*

 

£15.5m

 

£13.5m

 

up 15%


Diluted EPS (stated after exceptional costs)


3.61p


9.53p


down 62%


Normalised diluted EPS**


12.23p


11.39p


up 7%


Dividend per share


2.50p


2.30p


up 9%

 

* Adjusted measure is stated before amortisation of acquisition intangibles and exceptional costs

** Normalised EPS is stated before amortisation of acquisition intangibles, exceptional costs and adjusted to reflect a full tax charge

 

Summary of Operations and Outlook

Financial:

·      Revenue increased by 49%.

·      EBITA to cash conversion at 100% (2012: 100%) for the rolling 12 month period to June 2013.

·      Strong Balance sheet.

 

Social Housing Division:

·      Revenues grew by 76%, including strong organic growth of 17% to £378.9m (£215.0m).

·      Operating margin delivered at 3.7% - a blend of a Mears margin at 5.6% (2012: 5.0%) and Morrison at break-even.

 

Care Division:

·      Revenue increased by 8% to £60.5m (2012: £56.1m) as a result of the acquisition of ILS.

·      Operating margin maintained at 8.1% (2012: 8.1%).

·      Acquisition of ILS enhances our higher acuity care offering.

 

Group Outlook:

·      Order book of £3.8 billion (2012: £2.7 billion). Solid pipeline of new opportunities.

·      Full visibility of consensus forecast revenue for 2013 and in excess of 85% for 2014.

·      Two new infill acquisitions to develop further our housing management offering.

 

Commenting, David Miles, Chief Executive, Mears Group, said:

 

"I am delighted at the progress made by the Group in the first half of 2013 and a continued strong performance. We delivered both record revenue and record operating profits. The integration of the Morrison social housing business is now substantially complete. As anticipated, integrating Morrison is realising valuable synergies.

 

"Our Social Housing business has long been recognised as the market leader in terms of operational performance and customer satisfaction.  I believe that the opportunities for us in social housing remain very strong.

 

"In Care, as a robust high quality provider at the forefront of change in the sector, we remain very well placed strategically as the current changes in the market play out. The long-term opportunities for Mears within Care look encouraging. The ageing population and the fundamental desire of people to stay in their own homes remain the foundations for this sector. Economic necessity is, of course, the third driver, which has led to significant political activity.

 

"We will continue to move further up the acuity chain through acquisition and organic growth, building on the ILS acquisition and extending the Nurseplus model across our client base. This will increase our ability to respond to growing opportunities from health and social care outsourcing and the implementation of new localised commissioning models."

 

A presentation for analysts will be held at 9.30 a.m. today at the offices of Investec Bank PLC, 2 Gresham Street, London, EC2V 7QP.

 

About Mears

www.mearsgroup.co.uk

(tickers: MER.L MER.LN  MER.PL)

Mears is a leading social housing repairs and maintenance service provider to Local Authorities and Registered Social Landlords in the UK and now commands a leading position in the UK Local Authorities' outsourced care market, providing personal care services to people in their own homes.

 

Mears employs in excess of 15,000 people and provides maintenance and repairs services to in excess of 10% of the UK social housing stock. Mears also provides circa 200,000 hours of care to over 20,000 service users each week.



 

Enquiries:

 

 

Mears Group PLC


David Miles, Chief Executive

Andrew Smith, Finance Director

Bob Holt, Chairman

Tel: +44(0)7778 220 185

Tel: +44(0)7712 866 461

Tel: +44(0)7778 798 816

 

Joint Broker - Investec

Keith Anderson/Daniel Adams      

 

Tel: +44(0)20 7597 5970

 

Joint Broker - Canaccord Genuity

Piers Coombs/Lucy Tilley   

 

Tel: +44(0)20 7523 8350

 

 

Gable Communications             

John Bick/Justine James          

mears@gablecommunications.com 

Tel: +44(0)20 7193 7463

Tel: +44(0)7872 061 007

 

 



 

Mears Group PLC

Interim Statement

 

In this, our 25th anniversary year, we are pleased to announce strong interim results for the six months ended 30 June 2013.

 

Revenue was up 49% to £457.8m (2012: £307.2m). Profit before tax, amortisation and exceptional costs was up 15% to £15.5m with the normalised diluted earnings per share up 7% to 12.23p. We have full visibility of consensus forecast revenue for the current year and in excess of 85% for 2014.

 

Exceptional costs of £6.5 million, primarily relating to the integration and restructure following the Morrison acquisition, were in line with our original expectations. Similarly the increase in acquisition intangible amortisation reflects the impact of Morrison.

 

Our cash position continues to improve with cash generated from operations as a proportion of EBITA in excess of  100% for the rolling 12 month period to 30 June 2013. This is a tremendous achievement given the anticipated cash out flow experienced as a result of the acquisition and integration of Morrison.

 

The Directors are declaring an interim dividend of 2.50p per share payable on 4 November 2013 to shareholders on the register of members on 18 October 2013. This represents an increase of 9% (2012: 2.30p).

 

Social Housing

The Social Housing business has continued to perform very strongly with revenues increasing from £215.0m to £378.9m. The impact of the acquisition of Morrison added £128.0m in the half-year and is anticipated to contribute revenues of circa £240.0m for the full year.

Prior to the acquisition, Morrison had encountered significant challenges having pursued an aggressive growth strategy at the expense of operating margin and service delivery. The initial priority following acquisition was to address a number of service delivery failures before seeking resolution to the financial challenges. The speed of the turnaround has exceeded our original expectation, notably:

·      The Group has retained all material contracts.

·      The Group has completed the restructuring of the senior operational management and social housing support functions. The exceptional cost of £6.4m relating to this restructuring is in line with expectations and this has now reached its conclusion. The quantum of synergies generated to date through cost savings and enhanced procurement is in excess of £10.0m.

·      The migration of Morrison to the Mears IT systems is now well advanced with around 60% of Morrison contracts operating from the Mears IT platform. We anticipate concluding the IT migration before the end of 2013.

·      The Group will continue to seek further synergies and it is anticipated that the Morrison activities will generate a positive contribution to profit in the second half of this year.

 

We are delighted that our Social Housing division continues to report further improvement in service delivery notwithstanding the high standards already achieved. Service quality remains our key differentiator. Whilst management is delighted with the strong performance delivered in terms of both new contract bidding and ultimately the financial outputs, it is important to remember that it is service quality that has always underpinned our success.

 

Contract Awards

The Group has continued to experience significant success in winning new contracts. In Social Housing we have won 33% (by value) of all contracts bid, with a total value in excess of £235 million. We remain on target to tender for £1.7 billion of new contract opportunities in 2013. The most significant awards include:

Contract

Detail

Hyde Housing Association (HHA)

We are delighted to have been awarded a number of contracts with Hyde Housing Association (HHA).  The contracts are worth up to £74 million over the initial 10-year period.  We will be providing responsive repairs and voids services for two of HHAs regions in London and Minster. We have also been awarded Internal and External planned maintenance contracts for the Minster region worth £6 million as part of a 4 year framework arrangement.  Hyde Housing Association own circa 48,000 homes across London, Kent and Minster regions.

London Borough of Southwark (LBS)

We secured a repairs and maintenance contract with LBS.  The contract is worth £57.5 million for the initial 5 year period. We will be providing responsive repairs and voids services and an out-of-hours facility to the Council. There is an option to extend the contract for a further 5 years taking the total opportunity to £115 million. LBS are an existing valued client of Mears; we were awarded a 12 month interim repairs contract in 2012, following the termination of the Morrison contract.

 

Environmental Opportunity

The Government continues to look for solutions to tackle Fuel Poverty and Carbon reduction challenges in housing.  Mears Energy was launched during 2012 giving the Group a solid platform to benefit from the carbon reduction and fuel poverty tenders now entering the pipeline. Mears Energy provides an end to end service, assisting clients with access to funding, survey stock, installation measures and aftercare and maintenance programmes. Our strategy is not linked to any one specific product type but to being able to provide an energy solution for every home.

 

We have been awarded a contract for energy retrofit services to stock owned by Home Group in the North East.  The contract is valued at £5 million and the services to be provided include external insulation to blocks and housing owned and managed by the Group.

 

Housing Management

We are pleased to announce two acquisitions which together will accelerate our capabilities and increase our credibility to help tackle a wider range of clients' white collar housing management challenges. Both acquisitions were made for a nominal consideration.

 

Our clients are looking to consolidate and transform an array of housing management activities, such as planning and asset management, income optimisation, lettings, and the operation of related call centre infrastructure. The market for these types of white collar activities is significant at circa £4 billion and is largely untouched by third party outsourcers. An evolving social housing market, following recent changes in the welfare system and tenancy arrangements, over and above the on-going pressure on budgets generally, has increased the pressure on our clients to rethink how best to meet the needs of not only existing tenants but also the three million potential tenants on social housing long waiting lists.

 

Recognising how Mears has worked in partnership with them in the past to tackle more broad-based blue collar challenges, we have been encouraged to collaborate to tackle the sector's housing management issues.

 

The two acquisitions will enhance Mears' ability to build workable solutions to meet our clients evolving needs:

 

·      The acquisition of the entire share capital of Plexus UK (First Project) Limited ("Plexus"). Plexus is a registered social landlord with a portfolio of 650 properties within Central London. Plexus acts as a conduit between private landlords and social housing providers, helping Local Authorities address homelessness issues by procuring decent affordable homes for their customers; and

 

·      The acquisition of a 50% interest in the trade and assets of JustCall 24/7 Limited, a provider of call centre services to a large number of social housing providers. This acquisition also brings expertise that include the management of Direct Labour Organisations, void lettings and rent collection.

 

In both cases, the acquired capabilities and credibility will be leveraged using Mears unique service offering of a national customer base, differentiated partnering ethos, and market leading levels of customer service and innovation. In the case of Plexus, which is loss-making, the business will undergo a period of reorganisation and a small investment of working capital.

 

Over and above delivering immediate benefits, these two businesses will provide the opportunity to build a significant white collar offering to our prime market in social housing making Mears even more relevant to customers and tenants.

 

Care

The Board is pleased with the performance of the Care division in terms of both the quality of service delivery and solid financial performance.

 

In April 2013, Mears acquired the entire issued share capital of ILS, a leading homecare company, for a total investment of £22.5m (comprised of £8.3m in consideration for the share capital and £14.2m to settle the outstanding net debt). ILS provides high quality community based care services to approximately 3,400 service users in Scotland and has contracts with 20 local authorities, employing over 1,600 staff. The acquisition is in line with Mears' strategic objective for its Care business which is to increase the level of work in higher acuity services. The short period since acquisition has seen an encouraging response from both ILS customers and employees. The business has now been fully integrated and the Care business has been restructured under two divisional managers covering the north and south of the UK.

 

The Care division reported growth of 8% with revenues increasing to £60.5m (2012: £56.1m). This growth in Care revenues includes the acquisition of ILS. The underlying organic growth was 0.7%.  Maintaining the operating margin at 8.1% is a tremendous achievement in a sector where pricing in the short term remains under pressure. Whilst the immediate budget pressures and structural change have stalled short term market growth, we continue to see this sector as providing significant medium and long term growth opportunities.

 

One of the principle reasons for acquiring ILS was for its greater proportion of work in higher acuity activities, which are delivered through our Nurseplus brand. These activities have made strong progress since the acquisition with an increase in volume from 2,500 to 2,800 hours per week. Notably four new high acuity packages have been secured including some early success with existing Mears Care clients where we are looking to offer the Nurseplus services we could not offer before.

 

Contract Awards

In Care, contract bidding success rate (by value) of all contracts bid was 37% of all contracts bid, amounting to a total value of £20.7 million, including:

Client

 

Services

 

Term (base period + extension)

 

Hours per week

 

Value per annum

 

Base value

 

Solihull Metropolitan Borough Council

Home care support services

2 + 2 years

1,410

£0.9m

£1.7m

West Berkshire DC

Extra Care scheme

5 + 2 years

726

£0.5m

£2.3m

London Borough of Richmond upon Thames

Home care support services

3 + 1 years

1,500

£1.0m

£2.9m

Northamptonshire County Council

Personal care and support services

4 + 0 years

1,710

£1.3m

£5.2m

Aberdeenshire Council

Supported living - learning disability

2 + 2 years

3,661

£2.8m

£5.5m

 

Other Services

Mears' Other Services predominantly comprises its Mechanical & Electrical (M&E) operation. This division experienced particularly challenging trading conditions during 2012 and, as anticipated, this has continued in the first half of 2013.  The division reported revenues of £18.7m (2012: £36.1m) and an operating loss of £1.5m (2012: £0.4m). The Board is actively exploring all options for this business to address the underperformance.

Sector Developments

The main measures in the Government's recently published Spending Review, and subsequent announcements, for housing were:

·      £3.3 billion capital investment in affordable housing forecast to support the delivery of 165,000 new affordable homes in England over the course of the next three years;

·      The approach to affordable housing is set out in the paper 'Investing in Britain's Future'.  This includes Social Housing rent increase policy set at CPI +1% for 10 years from 2015, replacing the current policy of annual increases of RPI + ½%. This will enable continuation of Landlord investment plans, both in terms of housing repairs and maintenance and plans to expand the number of affordable homes;

·      The challenging income collection requirements, which will see the switching from direct payment of housing benefit to collection from tenants, which are due to commence later this year, will create a focus for clients on cash flow; and

·      The capping of total spending on Welfare Benefits from 2015/16 is an added complexity which is likely to have a further impact on clients and many of their customers.

The main measures in the Spending Review, and subsequent announcements, for Care were:

·      The Government will put £3.8 billion into a pooled integration fund for health and social care services to work more closely together in local areas, in order to deliver better services to older and disabled people, keeping them out of hospital and avoiding long hospital stays. This will offset the negative impact of the further 10% reductions in spending by local authorities and should lead to an increasing net spend on homecare from 2015. Outside of the Comprehensive Spending Review, Social Care continues to see many significant policy and budgetary announcements addressing issues of quality, integration, commissioning and funding;

·      The Health and Social Care Act 2012, came into force on 1 April 2013. This introduced a number of changes to the NHS.  Importantly for Mears, being the establishment of Health and Wellbeing Boards to promote integration. A later consultation paper, "Our Shared Commitment" is now giving Clinical Commissioning Groups and Health and Wellbeing Boards statutory duties to promote and encourage the delivery of integration within their local areas; and

·      The Care Bill (published on 10 May 2013), is a provisional Bill currently at the House of Lords Committee Stage. The Bill includes the following elements aimed at addressing funding and quality issues:

 

Creating a cap on care costs which people will pay.  This will be £72,000 (in 2017/18 prices) for people over the state retirement age;

Create a single, consistent route to establishing an entitlement to public care and support for all adults with needs for care and support;

Provide for the development of national eligibility criteria, bringing people greater transparency and consistency across the country; and

Support balancing the focus of care and support on promoting wellbeing and preventing or delaying needs in order to reduce dependency, rather than only intervening at crisis point.

 

We are also pleased to note that the Care regulator, CQC, is currently consulting on a return to an updated version of the previous 'star rating' quality system. This will reward providers such as Mears, who focus on service quality.

 

The long-term opportunities for Mears within Care look encouraging. The ageing population and the fundamental desire of people to stay in their own homes remain the foundations for this sector. Economic necessity is, of course, the third driver, which has led to significant political activity.

 

In summary, the Care and Support system as well as the whole Healthcare system, is going through a period of significant change. This does, of course, present short term challenges to Mears but we have strategically built a capability that is unique in the market and one that is very well placed to meet the longer term opportunities.

 

Balance Sheet

Strong working capital management has always been and remains a cornerstone of our business. Our internally developed IT systems have a strong financial focus and this is a driving force behind efficient cash management. The IT system is also central to the valuation of work in progress and amounts recoverable on contracts ensuring that valuations are robust and less reliant upon significant estimates or judgments. Consistent with past practice, we maintain a conservative balance sheet.

 

Net debt at 30 June 2013 was £21.7m following conversion of 100.3% of EBITA into cash over the rolling twelve month period to June 2013. The average net debt for the six month period was £74.2m. (2012: £65.5m) resulting from the acquisitions of Morrison and ILS which together utilised £23.3m of debt funding.

 

Total shareholders' equity rose from £168.8m to £188.0m at 30 June 2013. The increase in net assets is primarily driven by the issue of equity to support the acquisition of ILS together with retained profits.

 

Risk Management

We have continued to invest resources towards our corporate governance with particular focus upon further enhancing our risk management process. Over the last six months:

·      We have updated the Mears Care risk register to encompass the key risks identified following the ILS acquisition and higher acuity chain work;

·      Mears Energy has posed a number of new challenges which have been summarised into a separate Energy risk register;

·      Our Internal audit plan has included branch and support services risk audit work including testing the Morrison integration, with good progress made to date;

·      Following the Morrison acquisition, work has started on the standardisation of all Group documentation, including policies, procedures and a combined Social Housing risk register; and

·      We have developed a plan to pro-actively further improve our management of the risk of fraud consistently across the Group.

The key risks of the Group as at 30 June 2013 are detailed within the Annual Report and Accounts for the year to December 2012 and remain unchanged.

Safety, Health and Environment (SHE)

The first half of 2013 proved to be a safer year than 2012. We also trained more operatives and managers, improved our re-cycling rates and reduced our waste costs. Through our partnership with Network Waste, we have improved our recycling rates to over 92%.We are now seeing closer SHE relationships with our clients, assisting with their training requirements and using our in-house expertise to improve their specific SHE management needs on contracts.

 

The merging of Morrison SHE into the Mears Safety department went  smoothly; with training, structures and processes now working as one. This has not only created one standard across the Mears Group, but has also seen significant savings from the merger including bringing training in-house. With the acquisition of ILS, the SHE Team for Care have recruited a new SHE Advisor to the team, who currently works in ILS, and will bring the required skills to help manage and reduce any associated risks with new service provision.

 

Training and People Development

In 2012, we cemented our commitment to developing our people by establishing a new Mears and Morrison integrated Learning and Development strategy and central team. As we continue to grow, the strategy is ensuring that best practice is shared across the business, that activity represents value for money and that we have structured plans in place that will support the needs and future growth of the Group.

 

We have continued to invest in the future generation. At the beginning of 2013, Mears employed almost 400 apprentices, boosted by the acquisition of Morrison, and will soon launch the National Apprenticeship Scheme, a group wide approach to the end-to-end apprenticeship process.  As the 2011/13 graduate trainees prepare to complete their programme, we have recruited a 2013 intake of high potential people who will benefit from two years of intensive development to prepare them for roles as future leaders of our business.

 

Our corporate strategy includes the establishment of an internal talent scheme which will recognise the potential of our existing workforce, and maximise the probability of retaining our most promising people. In the latter half of 2013, we will launch a new development programme for managers aspiring to senior leadership roles and to address succession planning. The bespoke programme calls on internal experts and external specialists in order to create a blended scheme, combining the best of Mears with the latest in leadership practice. We also have outline plans in place for early 2014 to introduce similar programmes for supervisory and branch manager roles. In addition, we are taking on management trainees under a fresh programme and these are drawn equally from in house and external applicants.

 

We were delighted to be awarded National Skills Academy Status by the Construction Industry Training Board in five regions of the UK at the end of 2012. This attracts significant additional funding each year for three years, through a programme of planned skills development. This includes supporting our supply chain to develop their capability to support the Group through formal qualifications and improved leadership and management skills. It also complements our existing comprehensive programme of community investment by recognising the value of work experience, apprenticeships and support for school and college students.

 

In early 2013, we re-launched our technical training centre from our Welwyn base. The centre provides up-skilling across a wide range of trade disciplines in a cost-effective way, helping to increase productivity, quality and efficiency. We have completed work to make the centre an approved base for training for the Tetra working at height system, and have launched an innovative programme of diagnostic training for call centre agents.

 

The acquisition of Morrison has boosted our technical and trade training facilities through a partnership with Full Circle Learning based in the 'Rotherham Academy'.  The Academy provides a range of high quality and bespoke training programmes and qualifications to employees, as well as adding value for the local community through apprenticeships, NEET programmes and adult learner schemes.

 

Our Communities

We have operations throughout the UK and all our branches are dedicated to helping to improve people's lives. We work in some of the most socially deprived areas of the country and so we feel a strong sense of responsibility toward the wider community. Helping a community to thrive increases the quality of life for residents and supports community cohesion and development. Commitment to local communities is seen at every level of the organisation.

 

Over 450 Community projects were undertaken by our staff in the first half of 2013. One area of focus has been safety at home for vulnerable people.  Our 'Doorstep challenge', undertaken with local police and community groups, involves the free fitting of door safety chains and mirrors.

 

Outlook

We operate in robust and defensive markets where spend is largely non-discretionary. We continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins, whilst at the same time providing a first class service and value offering for our clients. We will continue to differentiate ourselves through, tenant-centric customer service and proposition innovations developed in partnership with our customers, combined with robust finances.

 

We expect our Social Housing business to continue to grow through further contract wins, underpinned by our market leading service delivery and, where appropriate, regional in-fill acquisitions, together with further operational and financial improvements from Morrison. In our Care business, we will continue to move further up the acuity chain through acquisition and organic growth, building on the ILS acquisition and extending the Nurseplus model across our client base. This will increase our ability to respond to growing opportunities from health and social care outsourcing and the implementation of new localised commissioning models. We will look to enhance and broaden our offering through partnerships and acquisitions.

 

We have had a good first half, delivering healthy organic growth and successfully integrating the two recent sizeable acquisitions of Morrison and ILS and we look forward to bringing you news of further successes over the course of the second half year.

 

David Miles

david.miles@mearsgroup.co.uk

Chief Executive Officer

 

Bob Holt

bob.holt@mearsgroup.co.uk

Chairman

 



 

Half-year condensed consolidated income statement

for the six months ended 30 June 2013

 



Six months ended

30 June 2013

 

 

Six months ended

30 June 2012 (as restated)


Note

£'000

£'000

£'000

£'000

Sales revenue

5


457,831


307,238

Cost of sales



(344,973)


(227,279)

Gross profit



112,858


79,959

Other administration expenses


(96,597)


(65,074)


Operating result before intangible amortisation and exceptional costs

5

16,261


14,885


Exceptional costs

4

(6,477)


-


Amortisation of acquisition intangibles


(5,005)


(3,190)


Total administration expenses



(108,079)


(68,264)

Operating profit

5


4,779


11,695

Net finance charge

6


(793)


(1,399)

Profit for the period before tax



3,986


10,296

Tax expense

7


(480)


(1,777)

Net profit for the period



3,506


8,519

Attributable to:






- equity holders of the parent



3,693


8,519

- non-controlling interests



(187)


-

Profit for period



3,506


8,519

Earnings per share






Basic

9


3.72p


9.81p

Diluted

9


3.61p


9.53p

 

Adjusted profit before tax - key performance indicator





Operating result before intangible amortisation and exceptional costs


16,261


14,885

Net finance charge


(793)


(1,399)

Adjusted profit before tax


15,468


13,486



 

Half-year condensed consolidated statement of comprehensive income

for the six months ended 30 June 2013

 


Six months

ended

30 June

2013

£'000

Six months

ended

(as restated)

30 June

2012

£'000

Net result for the period

3,506

8,519

Other comprehensive income for the period



- which will be subsequently reclassified to the Income Statement



Cash flow hedges:



- gains/(losses) arising in the year

414

(790)

- reclassification to Income Statement

392

250

(Decrease)/increase in deferred tax asset in respect of cash flow hedges

(186)

90

- which will not be subsequently reclassified to the Income Statement



Actuarial gain on defined benefit pension scheme

-

797

Other comprehensive income for the period

620

347

Total comprehensive income for the period

4,126

8,866

Attributable to:



- equity holders of the parent

4,313

8,866

- non-controlling interests

(187)

-

Total comprehensive income for the year

4,126

8,866

 



 

Half-year condensed consolidated balance sheet

as at 30 June 2013

Company number: 3232863

 


Note

As at

30 June

2013

£'000

As at

31 December

2012

£'000

As at

30 June

2012

£'000

Assets





Non-current





Goodwill


143,318

124,279

100,806

Intangible assets


38,783

39,365

23,820

Property, plant and equipment


15,185

15,981

13,447

Pension and other employee benefits


14,023

14,023

-

Deferred tax asset


15,462

15,428

7,469

Trade and other receivables


2,791

2,798

2,275



229,562

211,874

147,817

Current





Inventories


11,097

11,833

12,337

Trade and other receivables


195,912

180,270

134,937

Cash at bank and in hand


58,326

57,616

58,793



265,335

249,719

206,067

Total assets


494,897

461,593

353,884

Equity





Equity attributable to the shareholders of Mears Group PLC





Called up share capital

10

985

919

881

Share premium account


54,547

34,910

34,340

Share-based payment reserve


2,702

1,685

3,015

Hedging reserve


(1,293)

(1,913)

(1,709)

Merger reserve


46,214

46,214

38,243

Retained earnings


85,418

87,342

82,043

Total equity shareholders' funds


188,573

169,157

156,813

Non-controlling interest


(526)

(339)

-

Total equity


188,047

168,818

156,813

Liabilities





Non-current





Long-term borrowing and overdrafts


55,000

55,000

55,000

Pension and other employee benefits


5,695

5,741

5,840

Deferred tax liabilities


11,382

11,488

4,324

Financing liabilities


1,162

1,823

1,697

Other liabilities


879

879

879



74,118

74,931

67,740

Current





Short-term borrowings and overdrafts


25,000

15,000

10,000

Trade and other payables


198,917

199,418

109,668

Financing liabilities


595

711

572

Current tax liabilities


2,603

2,715

4,393

Dividend payable


5,617

-

4,698



232,732

217,844

129,331

Total liabilities


306,850

292,775

197,071

Total equity and liabilities


494,897

461,593

353,884

 



 

Half-year condensed consolidated cash flow statement

for the six months ended 30 June 2013

 


Note

Six months

ended

30 June

2013

£'000

Twelve months ended 30 June

2013

£'000

Six months

ended

 30 June

2012

(as restated)

£'000

Operating activities





Result for the period before tax


3,986

11,889

10,296

Adjustments

11

9,768

17,279

6,739

Change in inventories and operating receivables


(11,630)

(17,713)

(8,727)

Change in operating payables


(3,088)

12,643

3,684

Cash (outflow) / inflow from operating activities before taxes paid


(964)

24,098

11,992

Taxes paid


(1,749)

(4,051)

(1,041)

Net cash (outflow)/inflow from operating activities


(2,713)

20,047

10,951

Investing activities





Additions to property, plant and equipment


(1,275)

(2,287)

(2,382)

Additions to other intangible assets


(399)

(864)

(649)

Proceeds from disposals of property, plant and equipment


4

18

14

Acquisition of subsidiary undertaking, net of cash


(23,083)

(43,543)

(60)

Interest received


-

11

-

Net cash outflow from investing activities


(24,753)

(46,665)

(3,077)

Financing activities





Proceeds from share issue


19,703

20,283

810

Repayment of obligations under finance leases


-

(5)

(33)

Interest paid


(1,527)

(2,387)

(1,429)

Dividends paid


-

(6,740)

-

Net cash inflow/(outflow) from financing activities


18,176

11,151

(652)

Cash and cash equivalents at beginning of period


(12,384)

(6,207)

(13,429)

Net (decrease)/increase in cash and cash equivalents


(9,290)

(15,467)

7,222

Cash and cash equivalents at end of period


(21,674)

(21,674)

(6,207)

Cash and cash equivalents is comprised as follows:





- cash at bank and in hand


58,326

58,326

58,793

- borrowings and overdrafts


(80,000)

(80,000)

(65,000)

Cash and cash equivalents


(21,674)

(21,674)

(6,207)






Cash conversion key performance indicator





Cash (outflow) / inflow from operating activities


(964)

24,098

11,992

EBITA


9,784

24,020

14,885

Conversion (%)


(9.9%)

100.3%

81%

 



 

Half-year condensed consolidated statement of changes in equity

for the six months ended 30 June 2013

 


Attributable to equity shareholders of the Company




Share

capital

£'000

Share

premium

 account

£'000

Share-based

payment

 reserve

£'000

Merger

reserve

£'000

Hedging

reserve

£'000

Retained

 earnings

£'000

 

 

Non-controlling

interest

£'000

Total

equity

£'000

At 1 January 2012

857

33,554

2,965

38,243

(1,259)

77,425

-

151,785

Net result for the period

-

-

-

-

-

8,519

-

8,519

Other comprehensive (expense)/income

-

-

-

-

(450)

797

-

347

Total comprehensive (expense) / income for the period

-

-

-

-

(450)

9,316

-

8,866

Issue of shares

24

786

-

-

-

-

-

810

Share option charges

-

-

50

-

-

-

-

50

Equity dividends declared

-

-

-

-

-

(4,698)

-

(4,698)

At 30 June 2012

881

34,340

3,015

38,243

(1,709)

82,043

-

156,813

At 1 January 2013

919

34,910

1,685

46,214

(1,913)

87,342

(339)

168,818

Net result for the period

-

-

-

-

-

3,693

(187)

3,506

Other comprehensive income

-

-

-

-

620

-

-

620

Total comprehensive income for the period

-

-

-

-

620

3,693

(187)

4,126

Issue of shares

66

19,637

-

-

-

-

-

19,703

Share option charges

-

-

1,017

-

-

-

-

1,017

Dividends

-

-

-

-

-

(5,617)

-

(5,617)

At 30 June 2013

985

54,547

2,702

46,214

(1,293)

85,418

(526)

188,047

 



 

Notes to the half-year condensed consolidated statements

for the six months ended 30 June 2013

 

1. Corporate information

Mears Group PLC is a public limited company incorporated in England and Wales whose shares are publicly traded. The half-year condensed consolidated financial statements of the Company and its subsidiaries for the six months ended 30 June 2013 were authorised for issue in accordance with a resolution of the Directors on [•] [August 2013.

 

2. Basis of preparation and accounting principles

(a) Basis of preparation

The half-year condensed consolidated financial statements for the six months ended 30 June 2013 have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and with IAS 34 'Interim Financial Reporting'. The half-year condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2012, which have been prepared in accordance with IFRS as adopted by the European Union.

This half-year condensed consolidated financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2012 were approved by the Board of Directors on 9 April 2013. These accounts, which contained an unqualified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

The half-year condensed consolidated financial statements for the six months ended 30 June 2013 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

There have been no significant changes to estimates of amounts reported in prior financial years.

(b) Significant accounting policies

The accounting policies adopted in the preparation of the half-year condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2012 with the exception of the adoption of IAS19 (revised) 'Employee Benefits' which was effective from 1 January 2013.

 

3. Restatement of results for the six months ended 30 June 2012 for the adoption of IAS19 (revised) 'Employee benefits'

The revised standard combines interest on obligation and expected return on plan assets and requires the disclosure of the net interest on liability; it also requires the separate disclosure of expenses for running the plan. As a result asset returns are now based on the discount rate instead of the expected rate of return on assets. This has resulted in a lower expected return in the Income Statement and a higher gain in the Statement of Comprehensive Income. The revised standard requires the restatement of the prior year comparative. The effect on the Income Statement for six months ended 30 June 2012 was an increase in operating costs of £0.03m and a decrease in finance income of £0.8m. There was a corresponding decrease in the actuarial loss recognised in the Statement of Consolidated Income of £0.8m. There was no change to net assets.

The effect on the Income Statement for the six months to 30 June 2012 is detailed below:


Six months ended 30 June 2012 (restated)

Six months ended 30 June 2012 (as originally stated)


£'000

£'000

Gross profit

79,759

79,959

Other administration expenses

(65,074)

(65,049)

Intangible amortisation

(3,190)

(3,190)

Total administration expenses

(68,264)

(68,239)

Operating profit

11,695

11,720

Net finance charge

(1,399)

(627)

Profit for the period before tax

10,296

11,093

 



 

4. Exceptional costs

Exceptional costs incurred in the period are detailed below.  These costs are considered either non-trading or non-recurring in nature. The costs of acquisition relates to the costs incurred on the acquisition of ILS. The costs of integration relate to the costs associated with restructuring of the social housing support functions following the acquisition of Morrison.


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

£'000

Costs of acquisition

113

-

Costs of integration

6,364

-

Exceptional costs

6,477

-

 

 

5. Segment reporting

Segment information is presented in respect of the Group's business segments. Segments are determined by reference to the internal reports reviewed by the chief operating decision maker.

The Group operated three business segments during the period:

•     Social Housing - services within this segment comprise a full repairs and maintenance service to Local Authorities and other Registered Social Housing Landlords in the UK;

•     Care - services within this segment comprise personal care services for people in their own homes; and

•     Other Services - services within this segment comprise provision of design and build M&E.

All of the Group's activities are carried out within the UK and the Group's principal reporting to its chief operating decision maker is not segmented by geography. The principal measures utilised by the chief operating decision maker to review the performance of the operating segments is that of revenue growth and operating margins in both core divisions of Social Housing and Care. The operating result utilised within the key performance measures is stated before amortisation of acquisition intangibles, exceptional items and share-based payments. There is a small cyclical element to the Group's activities, which combined with organic growth results in the second half of the year traditionally showing increased margins over and above the first half of the year.


Six months ended

30 June 2013

 

 

Six months ended

30 June 2012

(as restated)


Revenue

£'000

Operating

result

£'000

Revenue

£'000

Operating

Result

£'000

Social Housing

378,641

13,914

215,035

10,756

Domiciliary Care

60,450

4,873

56,065

4,540

Other Services

18,740

(1,509)

36,138

(361)


457,831

17,278

307,238

14,935

Share based payments and management incentive plan

-

(1,017)

-

(50)

Operating result before intangible amortisation

-

16,261

-

14,885

Exceptional costs

-

(6,477)

-

-

Amortisation of acquisition intangible

-

(5,005)

-

(3,190)


457,831

4,779

307,238

11,695

 

Reconciliation to the half-year condensed consolidated income statement:


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

(as restated)

£'000

Operating result

4,779

11,695

Finance costs, net

(793)

(1,399)

Tax expense

(1,650)

(1,777)

Net result for the period

2,336

8,519

 



 

6. Net finance charge


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

(as restated)

£'000

Interest charge on overdrafts and short-term loans

(1,151)

(1,191)

Interest charge on interest rate swap

(392)

(250)

Interest charge on defined benefit obligation

(3,200)

(2,029)

Finance costs

(4,743)

(3,470)

Interest income resulting from short-term bank deposits

-

12

Interest income resulting from defined benefit obligation

3,950

2,059

Net finance charge

(793)

(1,399)

 

7. Tax expense

The tax charge for the six months ended 30 June 2013 has been based on the estimated tax rate for the full year.

Tax recognised in the Income Statement:


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

£'000

United Kingdom corporation tax effective rate 18% (2012: 19%)
and total current tax recognised in Income Statement

1,650

2,750

Adjustment in respect of previous periods

(19)

-

Total current tax recognised in Income Statement

1,631

2,750

Total deferred taxation recognised in Income Statement

(1,151)

(973)

Total tax expense recognised in Income Statement

480

1,777

 

8. Dividends

The interim dividend of 2.50p (2012: 2.30p) per share is not recognised as a liability at 30 June 2013 and will be payable on 4 November 2013 to shareholders on the register at the close of business on 18 October 2013. The dividend disclosed within the Half-year condensed consolidated statement of changes in equity represents the final dividend of 5.70p (2012: 5.35p) per share proposed in the 31 December 2012 financial statements and approved at the Group's Annual General Meeting on 5 June 2013 (not recognised as a liability at 31 December 2012).

 

9. Earnings per share


Basic


Diluted


Six months

ended

30 June

2013

p

Six months

ended

30 June

2012 (as restated)

p

Six months

ended

30 June

2013

p

Six months

ended

30 June

2012 (as restated)

p

Earnings per share

3.72

9.81

3.61

9.53

Effect of amortisation of acquisition intangibles

5.31

3.67

5.16

3.57

Effect of exceptional costs

5.27

-

5.12

-

Effect of full tax adjustment

(1.71)

(1.76)

(1.66)

(1.71)

Normalised earnings per share

12.59

11.72

12.23

11.39

 

Normalised earnings exclude amortisation of acquisition intangibles. A further adjustment is made to reflect a full tax charge, being the headline rate of corporation tax for the period. This normalised measure better allows the assessment of operational performance, the analysis of trends over time, the comparison of different businesses and the projection of future performance. The profit attributable to shareholders before and after adjustments for both basic and diluted earnings per share is:


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

(as restated)

£'000

Profit attributable to shareholders:

3,506

8,519

- amortisation of acquisition intangibles

5,005

3,190

- exceptional costs (net of tax)

4,971

-

- full tax adjustment

(1,610)

(1,527)

Adjusted profit attributable to shareholders

11,872

10,182

 

The calculation of earnings per share is based on a weighted average number of ordinary shares in issue during the period. The diluted earnings per share is based on a weighted average number 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 earnings per share use the same weighted average number of shares as the basic and diluted earnings per share.


Six months

ended

30 June

2013

Millions

Six months

ended

30 June

2012

Millions

Weighted average number of shares in issue:

94.32

86.86

- dilutive effect of share options

2.73

2.51

Weighted average number of shares for calculating diluted earnings per share

97.05

89.37

 

10. Share capital


Six months

ended

30 June

2013

£'000

Six months

ended

30 June

2012

£'000

Allotted, called up and fully paid



At 1 January 91,859,911 (2012: 85,658,763) ordinary shares of 1p each

919

857

Issue of 6,368,069 (2012: nil) ordinary shares of 1p each on placement

63

-

Issue of 312,944 (2012: 2,477,885) ordinary shares of 1p each on exercise of share options

3

24

At 30 June 2013 98,540,924 (2012: 88,136,648) ordinary shares of 1p each

985

881

 

6,368,069 (2012: nil) ordinary 1p shares were issued as a placement to fund the acquisition of ILS Group Limited. The difference between the nominal value of £0.06m and the total consideration of £19.2m has been credited to the share premium account.

312,944 (2012: 2,477,885) ordinary 1p shares were issued in respect of share options exercised. The difference between the nominal value of £0.003m and the total consideration of £0.6m has been credited to the share premium account.

 

11. Notes to the half-year condensed consolidated cash flow statement

The following non-operating cash flow adjustments have been made to the pre-tax result for the period:


Six months

ended

30 June

2013

£'000

Year

ended

 30 June

2013

£'000

Six months

ended

30 June

2012

(as restated)

£'000

Depreciation

2,429

4,533

1,603

Profit on disposal of property, plant and equipment

(3)

(1)

-

Intangible amortisation

5,532

10,783

3,662

Share-based payment charges

1,017

1,217

50

IAS 19 pension movement

(750)

(2,961)

(30)

Net finance charge

1,543

2,878

1,454

Costs associated with acquisitions recorded as expenses

-

830

-

Total

9,768

17,279

6,739

 

12. Acquisitions

The Group acquired 100% of the share capital of ILS Group Limited (ILS) on 24 April 2013. ILS provides high quality community based care services to approximately 3,400 service users in Scotland and has contracts with 20 local authorities, employing over 1,600 staff. Over 40% of ILS's work is in higher acuity Care services. The acquisition of ILS provides Mears with the necessary platform to roll out higher acuity services across the UK.

The Group acquired 100% of the share capital of Helcim Group Limited on 15 May 2013. Helcim Group Limited owns Plexus UK (First Projects) Limited ('Plexus') which operates as a registered social landlord with a portfolio of 650 properties within Central London. Plexus acts as a conduit between private landlords and social housing providers, helping Local Authorities address homelessness issues by procuring decent affordable homes for their customers.

Finally, the Group acquired 50% of the interest in the trade and assets of JustCall 24/7 Limited, a provider of call centre services to a large number of social housing providers.

 

The provisional effect of these acquisitions on the Group's assets was as follows:




Provisional


book and fair value


£'000

Property, plant and equipment

358

Inventories

-

Receivables

1,700

Payables

(1,519)

Borrowings and overdrafts

(14,780)

Net liabilities acquired

(14,241)

Intangibles capitalised

4,551

Deferred tax liability recognised in respect of intangibles capitalised

(1,047)

Goodwill capitalised

19,040


8,303

Satisfied by:


Cash

8,303

The fair value of assets acquired is considered to be provisional due to the scale and complexity of the transaction. The full exercise to determine the intangible assets acquired is still to be completed, thus these numbers are also provisional.

Analysis of net outflow in respect of the purchase of subsidiary undertakings:


Six months


to 30 June


2013


£'000

Short term borrowings and overdrafts

(14,780)

Cash paid in respect of current year acquisitions

(8,303)


(23,083)

 

13. Half-year condensed consolidated financial statements

Further copies of the Interim Report are available from the registered office of Mears Group PLC at 1390 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH or www.mearsgroup.co.uk.

 

14. Principal risks and uncertainties

The nature of the principal risks and uncertainties faced by the Group has not changed significantly from those set out on pages 24 and 25 of the 2012 Annual report and accounts. Those risk and uncertainties are separated into ten categories: macroeconomy; people; reputation; liquidity; health and safety; business retention and new business; business continuity; legal and regulatory; integrity; and operational risk.

 

15. Forward-looking statements

This report contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of Mears Group PLC. These statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.

 

 

The Directors confirm, to the best of their knowledge, that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Report includes a fair review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the UK Financial Services Authority.

The names and functions of the Directors of Mears Group PLC are as listed in the Group's Annual Report for 2012.

By order of the Board

 

 

D J Miles                                                               A C M Smith

Chief Executive Officer                                    Finance Director

13 August 2013                                                   13 August 2013

Shareholder and corporate information

 


Bob Holt

Chairman

David J Miles

Chief Executive Officer

Andrew C M Smith

Finance Director

Alan Long

Executive Director

Peter F Dicks

Non-Executive Deputy Chairman

Michael G Rogers

Non-Executive Director

David L Hosein

Non-Executive Director

Davida Marston

Non-Executive Director

Rory Macnamara

Non-Executive Director

Reginald B Pomphrett

Company Secretary

 

Registered office

1390 Montpellier Court
Gloucester Business Park
Brockworth
Gloucester GL3 4AH
Tel: 01452 634600
www.mearsgroup.co.uk

Company registration number

3232863

Company secretary

Reginald B Pomphrett

1390 Montpellier Court
Gloucester Business Park
Brockworth
Gloucester GL3 4AH
Tel: 01452 634600

Bankers

Barclays Bank PLC

Wales and South West
Business Banking
PO Box 119
Park House
Newbrick Road
Stoke Gifford
Bristol BS34 8TN
Tel: 01452 365353

HSBC Bank plc

West & Wales
Corporate Banking Centre
3 Rivergate
Temple Quay
Bristol BS1 6ER
Tel: 0845 583 9796

Solicitors

BPE

St James' House
St James' Square
Cheltenham GL50 3PR
Tel: 01242 224433

Auditor

Grant Thornton UK LLP

Registered Auditor
Chartered Accountants
Hartwell House
55-61 Victoria Street
Bristol BS1 6FT
Tel: 0117 305 7600

Joint financial advisers
and stockbrokers

Investec Bank PLC

2 Gresham Street
London EC2V 7QP
Tel: 020 7597 2000

Canaccord Genuity Limited

88 Wood Street
London EC2V 7QR
Tel: 020 7523 8000

Registrar

Neville Registrars Ltd

Neville House
18 Laurel Lane
Halesowen
West Midlands B63 3DA
Tel: 0121 585 1131

Investor relations

Gable Communications

34 Lime Street
London ECM 7AT

Tel: 020 7193 7463

mears@gablecommunications.com

Internet

The Group operates a website which can be found at www.mearsgroup.co.uk. This site is regularly updated to provide information about the Group. In particular all of the Group's press releases and announcements can be found on the site.

Registrar

Any enquiries concerning your shareholding should be addressed to the Company's Registrar. The Registrar should be notified promptly of any change in a shareholder's address or other details.

Investor relations

Requests for further copies of the Annual Report and Accounts, or other investor relations enquiries, should be addressed to the registered office.


 

The Group's commitment to environmental issues is reflected in this Interim Report which has been printed on Cocoon Offset which is made from 100% post-consumer fibres, FSC® certified and PCF (Process Chlorine Free). Printed in the UK by [Pureprint®] using their alcofree and pureprint environmental printing technology. Vegetable inks were used throughout. [Pureprint®] is a CarbonNeutral® company. Both manufacturing mill and the printer are registered to the Environmental Management System ISO14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified.

The unavoidable carbon emissions generated during the manufacture and delivery of this document, have been reduced to net zero through a verified carbon offsetting project.

 

 

 

Mears Group PLC

1390 Montpellier Court
Gloucester Business Park
Brockworth
Gloucester GL3 4AH
Tel: 01452 634 600

www.mearsgroup.co.uk

 

 

 


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