Interim Results
Mears Group PLC
03 September 2002
3 September 2002
Mears Group PLC - Interim Results
Chairman's Statement
I am again pleased to announce record profits for the six months ended 30 June
2002. Profits before tax were up 31% at £1,577,418 (2001: £1,205,057) on
turnover increased by 8% to £38,060,571 (2001: £35,224,884).
Earnings increased by 27% to 2.02p per share, after providing for a notional
full tax charge and the amortisation of goodwill. The normalised earnings for
the same period in 2001 were 1.59p per share. Of particular mention, again, is
the significant improvement in net profit margin which increased to 4.1% from
3.4% in the comparable period last year and from
3.7% in the year ended 31 December 2001.
The Group has made excellent progress in the six months ended 30 June 2002 and
continues to develop long-term partnership strategies with its customers. It has
strengthened further its relationships in all core markets in which it operates.
Each of the divisions of the Group is trading ahead of expectations. The
non-cyclical nature of our revenue for the core business which is underpinned by
long-term contracts provides highly visible and robust revenues.
The order book of £267 million includes £170 million of future work at fixed net
margins.
The excellent management of cash again resulted in the generation of £1.6
million of positive cash flow in the period. The Board has declared an interim
dividend of 0.25p per share (2001: 0.20p) an increase of 25%, payable on 8
November 2002 to shareholders on the register on 18 October 2002.
The Group continues to expand in a controlled manner and is highly selective
when looking for growth opportunities. The further increase again in gross
margins, operating margins and net profit margins and the continual generation
of cash, underline the determination to build
a long-term business on solid foundations.
The Group was awarded its two largest ever contracts within the last twelve
months. Both these contracts have contributed to profitability in the period
reported and are likely to increase as the Group demonstrates an ability to take
on further services. In addition the Group is in discussion with a number of
other existing customers to increase both the size and length of certain
contracts. The partnership ethos continues to bring to the Group excellent
long-term opportunities for profitable, cash generative growth.
Operational structure
The Group operates principally in four sectors.
Public sector services
By far the largest part of the Group is the provision of a range of maintenance
services in the social housing sector. The sector provides the Group with
long-term contracts with local authorities, registered social landlords and
housing associations. The current level of spend in this sector is in the order
of £5 billion per annum. The Group is the largest provider of such services in
the public sector and the outlook for our primary business has never been
stronger.
Mechanical and electrical services
The business operates as Haydon and Company Limited in the housing, education
and healthcare sectors providing primarily fast track mechanical and electrical
fit-out services to private sector customers. The business enjoys excellent
relationships with its customers, the majority of whom have dealt with Haydon
over many years. The business was acquired by the Group in 1999 and has been an
excellent contributor to both profit and cash.
Motor vehicle distribution
United Fleet Distribution ('UFD') was acquired by the Group in 1998 and provides
vehicle collection and delivery services to the commercial sector with trade
plated drivers who, typically, collect individual vehicles at the end of their
lease period and deliver the vehicles into the retail or vehicle auction
markets. UFD, which holds some of the largest contracts in the UK for these
services, has performed excellently in the period. The business expanded its
activities significantly in the current period. Again, this business is the
market leader for trade plated drivers in the UK.
Facility management
The Group formed this subsidiary in 2001 having headhunted a senior manager from
Interserve PLC to head up the business. In its first year the business has been
successful in winning contracts in the private sector with GAP, Unwins and most
recently for a full FM contract for the Veritas buildings in Reading. Although
early days, I am excited at the prospects for this Group company.
Strategy
The Group has positioned itself well in the emerging public sector markets and
continues to grow in its traditional public and private sector markets. The
education and health sectors are two areas for growth in which the Group is
working to become more involved. The Group has recently expanded its central
business development team with the recruitment of two managers with senior level
negotiating skills from the private and public sectors.
The Group has a proven, robust and sustainable business model upon which to
expand the size and range of services provided. The demand for our services has
never been stronger and we continue to seek out those customers who are looking
to forge long-term relationships.
Our future earnings are highly visible whilst the excellent generation of cash
from our operation continues.
With the recent debate within the support services sector regarding the
accounting treatment of contract bidding costs, I am pleased to confirm that we
write-off all such costs as incurred and therefore have no such historical costs
to be written off against future profits.
Our financial management is, and will continue to be, of a prudent nature.
The record order book demonstrates a commitment to building a long-term business
in stable market sectors. This commitment would not be possible without the
positive approach to business that our team ethos engenders and staff at all
levels are to be commended.
Again I should like to express publicly my most sincere congratulations to all
those involved in the progress of the Group to date and to applaud those
employees who have invested in our third Save As You Earn Share Option Scheme,
and given their firm commitment to the future success of the Group - well done.
I look forward to bringing further news of developments in the Group in the
future.
R Holt
Chairman
2 September 2002
Financial Review
Margin improvement at gross and operating levels is a most pleasing aspect in
the period. Gross profit rose to 25.2% from 23.9%, whilst operating margin hit
4.1% up from 3.6% in the first half of last year. These improvements came from
tighter business controls and business retention at increased rates.
The Group achieved a net interest receipt of £17,589 in the period and continues
to trade with £nil borrowings. Significant investment in information technology
and internal audit personnel should further secure the predictability of future
earnings.
I am pleased to confirm that all development and bid costs are expensed as they
are incurred. Furthermore, the Group continues to adopt a prudent approach to
revenue recognition on long-term contracts and does not have any defined benefit
pension schemes.
D J Robertson
Finance Director
2 September 2002
Unaudited Interim Profit and Loss Account
for the six months ended 30 June 2002
6 months to 6 months to Year to
30 June 2002 30 June 2001 31 December 2001
Note £ £ £
Turnover 1 38,060,571 35,224,884 68,579,597
Cost of sales (28,477,657) (26,801,734) (51,638,639)
------------------ ------------------ --------------------
Gross profit 9,582,914 8,423,150 16,940,958
Administrative expenses (8,023,611) (7,162,662) (14,362,652)
------------------ ------------------ --------------------
Operating profit 1,559,303 1,260,488 2,578,306
Share of operating profit in associate 526 - -
------------------ ------------------ --------------------
1,559,829 1,260,488 2,578,306
Net interest 17,589 (55,431) (69,908)
------------------ ------------------ --------------------
Profit on ordinary activities before
taxation 1,577,418 1,205,057 2,508,398
Tax on profit on ordinary activities 2 (473,000) (237,000) (378,500)
------------------ ------------------ --------------------
Profit on ordinary activities
after taxation 1,104,418 968,057 2,129,898
Equity minority interests 22,964 (2,200) 10,157
------------------ ------------------ --------------------
Profit for the financial period 1,127,382 965,857 2,140,055
Dividends 3 (141,271) (106,720) (444,131)
------------------ ------------------ --------------------
Profit retained 986,111 859,137 1,695,924
========== ========== ===========
Earnings per share 4
Basic 2.02p 1.82p 4.00p
Basic - normalised 2.02p 1.59p 3.30p
Diluted earnings per share 1.95p 1.65p 3.61p
Unaudited Consolidated Balance Sheet
as at 30 June 2002
As at As at As at
30 June 2002 30 June 2001 31 December 2001
Note £ £ £
Fixed assets
Intangible assets 2,518,083 2,261,867 2,243,136
Tangible assets 1,547,366 1,099,130 1,360,633
Investment in associate 30,526 - -
Investments 55,677 55,677 55,677
------------------ ------------------ --------------------
4,151,652 3,416,674 3,659,446
Current assets
Stocks 1,240,702 1,836,482 1,232,170
Debtors 15,779,938 16,471,212 15,739,056
Cash at bank and in hand 6,181,253 2,656,091 4,576,203
------------------ ------------------ --------------------
23,201,893 20,963,785 21,547,429
Creditors: amounts falling due
within one year (18,786,970) (18,265,594) (18,194,870)
------------------ ------------------ --------------------
Net current assets 4,414,923 2,698,191 3,352,559
------------------ ------------------ --------------------
Total assets less current liabilities 8,566,575 6,114,865 7,012,005
Provisions for liabilities and charges - (6,500) -
------------------ ------------------ --------------------
8,566,575 6,108,365 7,012,005
========== ========== ===========
Capital and reserves
Called up share capital 565,084 536,102 537,352
Share premium account 2,966,555 2,382,538 2,397,851
Other reserve - (249,898) -
Profit and loss account 5,045,841 3,472,841 4,059,730
------------------ ------------------ --------------------
Equity shareholders' funds 8 8,577,480 6,141,583 6,994,933
Equity minority interests (10,905) (33,218) 17,072
------------------ ------------------ --------------------
8,566,575 6,108,365 7,012,005
========== ========== ===========
Unaudited Consolidated Cash Flow Statement
for the six months ended 30 June 2002
6 months to 6 months to Year to
30 June 2002 30 June 2001 31 December 2001
Note £ £ £
Net cash inflow from operating 5 1,717,604 1,604,211 4,288,850
activities
Returns on investments and servicing
of finance
Interest received 18,723 1,473 3,112
Interest paid (3,158) (62,404) (76,617)
--------------------- --------------------- --------------------
Net cash inflow/(outflow) from
returns on investments and servicing
of finance 15,565 (60,931) (73,505)
--------------------- --------------------- --------------------
Taxation received/(paid) 4,502 (36,496) (104,912)
Capital expenditure
Purchase of tangible fixed assets (402,543) (208,335) (665,169)
Sale of tangible fixed assets 2,000 21,376 38,373
Purchase of investment (30,000) - -
--------------------- -------------------- --------------------
Net cash outflow from capital (430,543) (186,959) (626,796)
expenditure
--------------------- --------------------- --------------------
Equity dividends paid - - (373,771)
Financing
Issue of shares 247,826 94,712 111,275
Repayment of borrowings - (600,040) (1,100,040)
--------------------- --------------------- --------------------
Net cash inflow/(outflow) from 247,826 (505,328) (988,765)
financing
--------------------- --------------------- --------------------
Increase in cash 6 1,554,954 814,497 2,121,101
============ ============ ===========
Unaudited Notes to the Financial Statements
For the six months ended 30 June 2002
1 Turnover and profit on ordinary activities before taxation
Turnover and profit on ordinary activities before taxation are attributable to
the following activities carried out entirely within the UK.
Turnover Profit before taxation Net assets
6 months to 6 months to 6 months to 6 months to As at As at
30 June 2002 30 June 2001 30 June 2002 30 June 2001 30 June 2002 30 June 2001
£ £ £ £ £ £
Maintenance,
mechanical and
electrical
services 30,879,385 30,865,169 1,082,931 887,541 7,325,413 5,196,920
Motor vehicle
distribution 7,181,186 4,359,715 494,487 317,516 1,241,162 911,445
--------------- --------------- --------------- --------------- --------------- ---------------
38,060,571 35,224,884 1,577,418 1,205,057 8,566,575 6,108,365
======== ======== ======== ======== ======== ========
2 Taxation
The tax charge for the six months ended 30 June 2002 has been based on the
estimated tax rate for the full year before adjustments.
3 Dividends
6 months to 6 months to
30 June 2002 30 June 2001
£ £
Ordinary shares
- interim dividend of 0.25p (2001: 0.20p)
per share payable on 8 November 2002 141,271 106,720
========= ========
4 Earnings per share
Basic earnings per share is based on equity earnings of £1,127,382 (2001:
£965,857) and 55,765,018 (2001: 52,964,842) ordinary shares of 1p each, being
the average number of shares in issue during the period.
For diluted earnings per share the average number of shares in issue is
increased to 57,828,439 (2001: 58,596,220) to reflect the potential diluting
effect of employee share schemes.
The earnings in previous years were enhanced by the utilisation of tax losses in
2000 and 2001 generated by Haydon and Company Limited in 1999 and 2000, and the
write-back of negative goodwill in both those years. In order to show earnings
per share performance undistorted by those tax benefits, earnings per share
comparatives are shown on a fully taxed basis. The normalised earnings per share
is based on equity earnings of £1,127,157 (2001: £841,340) subject to a notional
corporation tax charge of 30% (2001: 30%).
Basic Basic Diluted Diluted
2002 2001 2002 2001
p p p p
Earnings per share 2.02 1.82 1.95 1.65
Effect of full tax adjustment - (0.23) - (0.21)
----------------------- --------------- --------------- --------------
Normalised earnings per share 2.02 1.59 1.95 1.44
============= ======== ======== ========
5 Net cash inflow from operating activities
6 months to 6 months to Year to
30 June 2002 30 June 2001 December 2001
£ £ £
Operating profit 1,559,303 1,260,488 2,578,306
Depreciation and amortisation 280,915 211,167 451,398
Loss/(profit) on disposal of fixed assets 1,547 (1,659) (2,178)
(Increase)/decrease in stocks (8,532) (99,329) 504,983
(Increase)/decrease in debtors (40,882) (278,536) 473,620
(Decrease)/increase in creditors (74,747) 512,080 282,721
-------------------------- ----------------------- -------------------------
Net cash inflow from operating
activities 1,717,604 1,604,211 4,288,850
============== ============= ==============
6 Reconciliation of net cash flow to movement in net funds
6 months to 6 months to Year to
30 June 2002 30 June 2001 December 2001
£ £ £
Increase in cash in the period 1,554,954 814,497 2,121,101
Cash outflow from debt financing - 600,040 1,100,040
--------------------- ----------------------- -------------------------
Change in net funds resulting from
cash flows and movement in net funds
in the period 1,554,954 1,414,537 3,221,141
Net funds/(debt) at start of period 2,612,747 (608,394) (608,394)
--------------------- ----------------------- -------------------------
Net funds at end of period 4,167,701 806,143 2,612,747
============ ============= ==============
7 Analysis of changes in net funds
At At
1 January 2002 Cash flow 30 June 2002
£ £ £
Cash at bank and in hand 4,576,203 1,605,050 6,181,253
Overdrafts (1,963,456) (50,096) (2,013,552)
------------------------- ------------------ --------------------
Funds 2,612,747 1,554,954 4,167,701
============== ========== ===========
8 Reconciliation of movements in equity shareholders' funds
6 months to 6 months to Year to
30 June 2002 30 June 2001 December 2001
£ £ £
Profit for the financial period 1,127,382 965,857 2,140,055
Dividends (141,271) (106,720) (444,131)
--------------------- ------------------ ---------------------
986,111 859,137 1,695,924
Issue of shares 596,436 230,337 246,900
--------------- ------------------ ---------------------
Net increase in equity shareholders' funds 1,582,547 1,089,474 1,942,824
Equity shareholders' funds at start of period 6,994,933 5,052,109 5,052,109
--------------- ------------------ ---------------------
Equity shareholders' funds at end of period 8,577,480 6,141,583 6,994,933
======== ========== ============
9 Preparation of interim financial information
The interim financial statements have been prepared on a basis consistent with
the accounting policies disclosed in the Annual Report and Accounts for the year
ended 31 December 2001.
The consolidated results for the year ended 31 December 2001 have been extracted
from the financial statements for that year and do not constitute full statutory
accounts for the Group. The Group accounts for the year ended 31 December 2001
received an unqualified audit report and did not include a statement under
section 237 (2) or (3) of the Companies Act 1985 and have been filed with the
Registrar of Companies.
10 Interim financial statements
Further copies of the interim statements are available from the registered
office of Mears Group PLC at The Leaze, Salter Street, Berkeley, Gloucestershire
GL13 9DB, or on www.mearsgroup.co.uk.
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