Interim Management Statement

RNS Number : 7718W

Mears Group PLC

12 November 2014

 

For Immediate Release

 12 November 2014

Mears Group PLC

("Mears" or "the Group")

Interim Management Statement

Mears, the provider of support services to the Social Housing and Care sectors in the UK, today releases its voluntary Interim Management Statement ("IMS") for the period from 1 January 2014 to date.

As indicated at the Company's interim results, the Group has continued to experience a lower level of new Social Housing bidding opportunities resulting in 96% visibility of the £864m market consensus revenue forecast for 2014 and in excess of 86% visibility of the £934m market consensus revenue forecast for 2015. 

Mears continues to deliver a solid trading performance across both core divisions and is pleased to report ongoing strong margin progression, driven primarily by continued efficiencies within the ex-Morrison business.  The Board expects earnings to be generally in line with its expectations for the 2014 full year.

Business Development

Mears has secured new contracts from its traditional Social Housing bidding pipeline in excess of £170 million in the period. A strong bidding success rate of 35% (by value) of all contracts bid during the period has been maintained. 

As detailed within our interim results, changes to our clients' income generation have delivered significant surpluses to their Housing Revenue Accounts. These changes have resulted in delays in new bidding opportunities as clients assess how best to deploy these surpluses and, as previously reported, the absolute level of opportunities to bid for in the year being lower than originally anticipated.We can expect to see a continuing lower than normal level of broad maintenance strategic partnerships in 2015, with an improving picture in 2016 and increasingly encouraging signs thereafter. The bidding opportunities available to the Group over the longer term are expected to return to more normal historical levels.

Mears has been focused over the last twelve months on providing a broader housing offering to its customers. Our extended range of services has mirrored our changing client requirements in areas such as Housing Management and new forms of partnering arrangements.

In Care, we have secured new contracts worth in excess of £75 million in the period, a bidding success rate of 61% (by value) of all contracts bid.  In addition, tender opportunities are showing a further move towards fewer providers with increasing contract length, which accords well with our long term partnership approach.

Acquisition of Omega Group

During October 2014, Mears completed the acquisition of the Omega Group ("Omega"). Omega is a leading private sector provider of residential lettings and management services to the Social Housing market, with a portfolio of circa 1,700 properties and a client base of 24 Local Authorities and Housing Associations.

The acquisition of Omega is in line with the Group's strategic aim to continue growing in the evolving Social Housing market; it will add further innovation to Mears' Housing Management offering and is sympathetic to our partnership ethos. More specifically, the acquisition is a logical extension to the services provided within our Social Housing division and will add value to our existing customer base.  Furthermore, this acquisition will enhance our ability to work more widely with housing providers to improve the delivery of housing and property management services and to increase the supply and management of housing.  Omega has been very successful in developing customer relationships and Mears' national footprint will offer a wider range of customer relationships for Omega's services.

The initial consideration for the acquisition was £20.0 million in cash, funded from Mears' existing banking facilities, and the Omega business was acquired with a normal level of working capital. Additional deferred consideration is payable in the event that average EBITDA over a 36 month period to 31 October 2017 exceeds £3.40 million per annum. The additional consideration payable will be an amount based upon a multiple of 6.8 applied to the average EBITDA, less the initial consideration paid, with total consideration capped at £40.0 million. The deferred consideration will be satisfied using either cash or shares, at the discretion of the Company.

In the brief period since the acquisition, the performance of Omega has proceeded well and we are pleased to announce that Omega Lettings has won a contract with Central Bedfordshire Council to provide lettings, housing management and temporary accommodation services in the Central Bedfordshire area. This contract, which will support Central Bedfordshire Council by placing homeless households into quality and affordable private sector rented accommodation, further strengthens Omega Group's presence in the Home Counties.  

Financial position

Mears continues to benefit from a strong balance sheet. Robust working capital management has always been, and remains, a cornerstone of our business and we have maintained a particular focus on efficient cash management. The Group's revolving credit facility of £120 million is committed until July 2018 and provides comfortable headroom above our current working capital requirements.

Outlook

We expect our core Social Housing business to continue to grow through further contract wins. Whilst we are the market leader, we deliver services to just 15% of the UK Social Housing stock which still leaves significant further growth opportunities underpinned by our market-leading service delivery.   We will continue to make further operational and financial improvements to the former Morrison contracts as this area of the business sees margin development up to the historical Mears market-leading level.

We will continue to broaden the services that we provide and we see the development of our Housing Management services as an important extension of our Social Housing activities. The demand for affordable housing will provide opportunities to work with housing providers to improve the delivery of housing and property management services and to increase the supply and management of housing through innovation and partnership. This area is currently highly fragmented and undeveloped but we believe the Group is well positioned to progress and deliver strong organic growth. We will consider further acquisitions in this area to develop both the breadth of services and scale.

In our Care business, we will continue to move further up the acuity chain, with an increased focus upon organic growth supported by in-fill acquisitions, extending the Mears 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.

The Board is pleased with the progress made during the period; however the temporary delays in tendering new opportunities in Social Housing have been frustrating.

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

"Our Social Housing business has long been recognised as the market leader in terms of operational performance and customer satisfaction.  We have increased our focus upon positioning us for future market growth in Housing Management and on continuing margin improvement. I believe the opportunities for us in Social Housing remain very strong as our clients seek broader solutions to their increasingly complex housing challenges.

"In Care, as a robust high quality provider at the forefront of change in the sector, we remain very well placed strategically to take advantage of the longer term opportunities.  I am delighted at the success we have achieved in new contract bidding and importantly, we continue to see a positive move in the structure of tendered opportunities with new contracts being awarded to fewer providers with increasing contract lengths. There has been a marked move away from frameworks towards Strategic Partnerships; this will benefit us disproportionately given our long term partnership ethos.

"We will continue to develop further our services provided at the higher end of the acuity chain, with an increased focus upon organic growth supported by in-fill acquisitions, 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."

For further information, contact:

Mears Group PLC

David Miles, Chief Executive                                                             Tel: [phone]

Andrew Smith, Finance Director                                                       Tel: [phone]

Bob Holt, Chairman                                                                            Tel: [phone]

Alan Long, Executive Director                                                           Tel: [phone]

www.mearsgroup.co.uk

Buchanan

Richard Darby/ Sophie McNulty/ Sophie Cowles                         Tel: [phone]

www.buchanan.uk.com

Notes for editors

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 care to over 20,000 service users.

 

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