Interim Results

Mears Group PLC 22 August 2006 MEARS GROUP PLC ANNOUNCEMENT OF INTERIM RESULTS SIX MONTHS TO 30 JUNE 2006 Mears Group PLC is once again pleased to announce record results for the six months ended 30 June 2006. The highlights for the six months include: • Turnover up 22.5% • Social housing turnover up 28.7% • Profit before tax up 23.4% • Diluted earnings per share up 24.6% • Interim dividend up 28.6% • Major contract awards £170m • Order book increased to £1.1 billion • Operating cash conversion of 101.9% • Market forecast turnover for 2007 is 78% secured • Market forecast turnover for 2008 is 64% secured Bob Holt, Chairman, said: 'I am excited by the opportunities and believe Mears is in a great position as the market moves towards a more integrated and long-term approach to support for the community. I am confident that our full year results will again be at the top end of market expectations and re-iterate our commitment to delivering impressive sustainable growth into the future.' For further information contact Bob Holt bob.holt@mearsgroup.co.uk 07778 798816 Stuart Black stuart.black@mearsgroup.co.uk 07971 151320 David Robertson david.robertson@mearsgroup.co.uk 07887 705357 Chairman's Statement You would expect me to be pleased with these half-year figures and I am. Again Mears Group PLC has kept its promises, delivering strong, consistent growth that stands out in a very competitive sector. We place particular importance on enhancing the scale and quality of our order book, exercising very firm financial management and investing our shareholders' funds wisely. Our objective is to deliver a good performance consistently, year-on-year. These results demonstrate the value of that approach. Strong momentum in our core market Turnover growth of 28.7% in social housing underlines the opportunities in our core market and our ability to win new business. For the most part our growth is organic and driven by careful investment in people, processes and infrastructure. We understand our market, we understand our strengths and we take a long-term view. Success comes from evolving the business today so we are ready to help clients meet their next set of challenges tomorrow. We use acquisitions to strengthen our core business. For example, our recent acquisition of Glasgow-based, social housing repairs and maintenance provider Laidlaw Scott Limited gives us an excellent foundation in Scotland, where there are plenty of new business opportunities for Mears. We will acquire companies whenever we think they can add significant long-term value to our core business. Strong leadership position in an evolving market Our market is entering a period of transition. There are three key aspects to this: First, we are experiencing a significant increase in opportunities in our core repair and maintenance market. Further, we are also seeing a strong link between the award of Decent Homes contracts having initially secured the repair and maintenance contract. Second, we continue to see substantial investment in existing housing stock through the Government's Decent Homes Programme and we expect this to continue for at least another six years. Third, I believe the Government-led 'Sustainable Communities' agenda will provide opportunities for the best companies in social housing to have an even more profound effect on quality of life for people in this country. Our recent Thought Leader conference brought industry leaders together to discuss this area. I believe our work with sustainable communities will be a logical extension of our existing community-led partnership approach to social housing. We have always thought about tenants first and buildings second. Looking ahead Anyone who has followed this company since we listed on the Alternative Investment Market in 1996 will know we have achieved a compound annual growth rate in profits of 42%. I am confident that our full year results will again be at the top end of market expectations and re-iterate our commitment to delivering impressive sustainable growth into the future. Finally, I would like to add that we do not judge our performance solely in terms of money. Corporate Social Responsibility is at the heart of this company, as the 'Our communities' section in this report shows. I'm pleased that Mears continues to develop imaginative and effective ways to support the wider community and ensure we act as a good corporate citizen. Over the last six months, for example, we have launched a new drive and aim to achieve a neutral position on carbon emissions within 2 years. I believe commitments such as these make Mears a better, stronger and more sustainable business. I am excited by the opportunities and believe Mears is in a great position as the market moves towards a more integrated and long-term approach to support for the community. Bob Holt Chairman bob.holt@mearsgroup.co.uk 21 August 2006 Operating and Financial review Turnover In the six months to 30 June 2006 we grew turnover to £118.0m (2005: £96.3m), an increase of 22.5%. Within this overall figure social housing turnover was up 28.7%, reflecting a strong performance in winning new business. Operating result We achieved an operating result before share option charges of £5.6m (2005: £4.6m), a 22.8% increase. The Group maintained its operating margin despite the rapid increase in turnover and we continue to invest in our infrastructure ahead of the projected organic growth. Share option charges The share option charge in the first half of 2006 was £0.3m, up from £0.2m in 2005. There is no cash impact from this new expense which arises from the adoption of International Financial Reporting Standards. Finance The Group again maintained its broadly neutral cash position throughout the six months to 30 June 2006 and achieved a net interest receipt of £0.02m (2005: £0.01m). The Group's focus on tight working capital control remains a cornerstone of our offering given the tremendous scale of growth being generated. Tax expense £1.4m has been provided for a tax charge (2005: £1.2m). The effective rate in the first half of 2006 of 26.2% (2005: 28.3%) is low due to the impact of a corporation tax deduction received on the exercise of share options. Earnings per share (EPS) Basic EPS increased 24.9% to 6.68p (2005: 5.35p). Our diluted EPS of 6.17p was up 24.6% on the comparative 2005 figure of 4.95p. All figures are stated after the impact of share-based payments. Dividend The dividend increase is in line with our earnings growth. An interim dividend of 0.9p per share is declared (2005: 0.7p), a 28.6% uplift. The dividend is payable on 6 November 2006 to shareholders on the register on 20 October 2006. Cash flow The cash flow position continues to underline our strength as a business. A net cash inflow of £1.3m was achieved in the first half of this year (2005: £1.7m inflow). The Group converted 101.9% of operating profit into operating cash flow (2005: 114.8%). Some £2.1m was used to acquire the business of Laidlaw Scott Limited and £0.1m was absorbed on the settlement of deferred consideration on previous acquisitions. A further £0.6m was invested in new technology and operational bases. Our net cash position at 30 June 2006 was £8.3m, up from £6.9m at the start of the year. Acquisition The acquisition of the entire share capital of Laidlaw Scott Limited was settled with an initial payment of £2.1m for net assets of £0.5m plus an additional payment of up to £2.9m subject to future performance to 31 December 2007. The business was substantially debt free and generated a profit before tax of £0.4m on a turnover of £6.0m in the year to 31 August 2005. The business is performing in line with our expectations and as a result of this acquisition we are now jointly pursuing our first three tender opportunities in Scotland. We continue to seek out quality businesses with the potential to help us further our strategic objectives and improve or broaden our services. While we monitor opportunities to acquire a business in Wales, we continue to develop organic growth opportunities in the area. We have been able to gain an invitation to tender for a significant contract with the Integrate Consortium which represents a number of local authorities in Wales. Order book The visibility of our earnings continues to improve. £170m of new work was secured in the period from 10 customers. Our order book now stands at £1,080m (2005: £960m). The element of market forecast turnover secured for 2007 is 78% with some 64% of the 2008 projection. We continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins. We also hold a healthy mix of Decent Homes and repairs and maintenance work, giving us a balanced position in the social housing market that is not reliant on clients' future discretionary spending. Total equity Total shareholders' equity value rose by £2.9m in the first half year from £28.1m to £31.0m at 30 June 2006. Restructuring Six months ago we reorganised our social housing business, changing it from two business units into three. This change addressed the need to strengthen our capability in the strong Midlands and Wales markets, where we are already busy and see potential for strong further growth. Our restructuring created a new Midlands and Wales business unit and we promoted the North Operations Director, Duncan Williams, to head this unit. Clive Turner has been recruited to run our North of England and Scotland business unit. David Miles continues to head the South business unit. This reorganisation was carried out seamlessly and we are very pleased with the way the three units are functioning. Mobilised contracts Over the last six months four key contracts have come on-stream. These are: • London Borough of Greenwich, five-year Decent Homes contract. • Portsmouth City Council, three-year repair and maintenance contract. • Kensington Housing Trust, five-year repair and void maintenance contract. • Nottingham City Homes, five-year Decent Homes contract. Major contract wins We have achieved a number of major successes, winning contracts valued at £170m in total over the last six months. Highlights included: • Ealing Homes - The addition of a new Decent Homes contract to add to our existing repairs and maintenance contract. We are one of the client's core partners and believe we are in a strong position to gain a significant share. Our client has already secured funding of £205m with potential for further additional funding. • GM Procure - We have been appointed as a primary contractor partner with GM Procure to deliver Decent Homes services to authorities in the North West. Again we believe our existing contract with Stockport Metropolitan Borough Council has been instrumental in securing this work. • Maidstone Housing Trust - A five-year repair and maintenance contract. • Orbit Homes in Kent and Sussex - A five-year repair and maintenance contract. • Twynham Housing Association in Dorset and Hampshire - A two-year repair and void maintenance contract. • Cross Keys Homes in Peterborough - We have secured two contracts with an existing customer to provide the gas maintenance and cyclical decorating for a period of five and seven years respectively. • Town and Country Housing Association in Kent and Sussex - We have secured a new five-year Decent Homes contract. Training and development We are now an established Investor in People and we are meeting the challenge of the skills shortage in our sector through a comprehensive national programme of employee development, together with structured work experience and training programmes for prospective employees. This year we will take all of our trade professionals through a trade-based NVQ programme and we are developing a unique Mears Professional Development Customer and Community Care NVQ to further raise our customer service standards. Awards We are delighted that since the start of the year we have received several awards recognising our commitment to customers, staff and investors: • Mears was awarded TPAS (Tenant Participation Advisory Service) Quality Standard Mark, which assesses the quality of resident involvement with contractors, tenants and landlords. This is the first time TPAS has awarded its quality mark to a supplier or contractor. • We were awarded 'Partnering Contractor of the Year' at the UK Housing Excellence Awards. • Mears and Richmond Housing Partnership won the 'Making Partnerships Work' award at the London Excellence Awards. • The Group achieved Age Positive Employer Champion status from the Department of Work and Pensions. • Mears was awarded Occupational Health and Safety Gold Award from RoSPA. • At the South West Financial and Corporate Communications Awards we were successful in the following categories: • 'Best Overall Winner: Company of the Year', • 'Best Commitment to Environmental and Social Responsibility' • 'Best South West Chairman/Chief Executive Communicator of the Year'. We believe we are well placed to continue delivering on 'improving homes, improving neighbourhoods, improving lives'. Stuart Black, Chief Executive stuart.black@mearsgroup.co.uk David Robertson, Finance Director david.robertson@mearsgroup.co.uk 21 August 2006 Our communities CSR strategy We work in some of the most socially deprived areas of the country. Along with our professional commitment to tenants, we feel a strong sense of responsibility towards the wider community and we work towards achieving three specific aims: • To support and strengthen the communities in which we work. • To recruit employees locally whenever we can. • To encourage employees to volunteer their time and skills to specific community projects. Helping a local community to thrive increases the quality of life for tenants and makes our job that little bit easier. It's also rewarding for our employees, especially as 90% of our people live in the community they support. Employee volunteering In 2006 our staff are on track to volunteer more than 10,000 hours to community work, an increase of more than 30% on 2005. We support upwards of 140 projects, including: The Daisy Chain Project in Stockton Mears employees have helped this award-winning project for children with special needs by providing landscaping services and helping to improve working areas. St Lukes in Wakefield Our work here has included supporting the refurbishment of an old school building and the building of a media centre. Shacklewell School in Hackney Mears and our employees have sponsored and supported the school's Breakfast Club and Reading Buddy schemes. Partnership with Shelter We are delighted by the success of our partnership with Shelter, which involves: • Supporting initiatives that improve communities. • Volunteer work with Shelter clients. • Fundraising activity by Mears employees, with a target of £100,000 this year. So far Mears employees have carried out fundraising and volunteering for a range of Shelter services, including Shelter's DIY skills service, which gives people the skills to carry out basic repair work to their homes. Employees also took part in the 2006 Flora London Marathon, in Shelter's Three-Peaks Challenge and in the BUPA Great North Run, raising over £10,000 for Shelter. Thought Leader conferences Our second Thought Leader conference - 'Delivering Sustainable Communities' - was a great success, attracting a diverse group of leaders from the social housing industry and generating valuable discussion and debate. We ran this with support from the Chartered Institute of Housing, the Tenant Participation Advisory Service and Shelter. We will continue to support open communication within our industry through the Thought Leader conferences. Unaudited consolidated income statement For the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000 ------------------------------------------------------------------------------- Sales revenue 1 117,998 96,295 203,543 Cost of sales (85,974) (68,710) (144,954) -------------------------------------------------------------------------------- Gross profit 32,024 27,585 58,589 Administrative expenses (26,431) (23,029) (48,302) -------------------------------------------------------------------------------- Operating result before share-based payments 1 5,593 4,556 10,287 Share option charges (270) (235) (515) -------------------------------------------------------------------------------- Operating result 5,323 4,321 9,772 Finance income 45 40 70 Finance costs (30) (34) (92) -------------------------------------------------------------------------------- Result for the period before tax 5,338 4,327 9,750 Tax expense 2 (1,400) (1,223) (2,540) -------------------------------------------------------------------------------- Net result for the period 3,938 3,104 7,210 ------------------------------------------------------------------------------- Earnings per share Basic 4 6.68p 5.35p 12.40p Diluted 4 6.17p 4.95p 11.45p ------------------------------------------------------------------------------- Unaudited consolidated balance sheet As at 30 June 2006 As at As at As at Note 30 June 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000 ________________________________________________________________________________ Assets Non-current Goodwill 14,610 11,069 10,647 Property, plant and equipment 5,941 5,593 5,827 Deferred tax asset 5 3,300 2,835 3,500 ------------------------------------------------------------------------------- 23,851 19,497 19,974 ------------------------------------------------------------------------------- Current Inventories 5,963 4,816 5,363 Trade and other receivables 33,783 34,331 29,511 Construction contracts 2,625 2,529 2,341 Cash at bank and in hand 14,136 11,688 9,774 ------------------------------------------------------------------------------- 56,507 53,364 46,989 ------------------------------------------------------------------------------- Total assets 80,358 72,861 66,963 ------------------------------------------------------------------------------- Equity Equity attributable to the shareholders Called up share capital 592 580 588 Share premium account 4,223 3,384 3,960 Share-based payment reserve 1,220 760 1,040 Retained earnings 24,969 18,310 22,466 ------------------------------------------------------------------------------- 31,004 23,034 28,054 ------------------------------------------------------------------------------- Minority interests - 97 - ------------------------------------------------------------------------------- Total equity 31,004 23,131 28,054 ------------------------------------------------------------------------------- Liabilities Non-current Other liabilities 3,280 1,713 855 ------------------------------------------------------------------------------- 3,280 1,713 855 ------------------------------------------------------------------------------- Current Short term borrowings and overdrafts 5,874 7,185 2,832 Trade and other payables 38,206 38,940 33,215 Current tax liabilities 1,701 1,782 1,764 Pension and other employee benefits 293 110 243 ------------------------------------------------------------------------------- Current liabilities 46,074 48,017 38,054 ------------------------------------------------------------------------------- Total liabilities 49,354 49,730 38,909 ------------------------------------------------------------------------------- Total equity and liabilities 80,358 72,861 66,963 Unaudited consolidated statement of recognised income and expense For the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000 ------------------------------------------------------------------------------- Actuarial losses on defined benefit pension scheme (50) (22) (101) (Decrease)/Increase in deferred tax asset 5 (260) 680 1,270 ------------------------------------------------------------------------------- Net (expense)/income recognised directly to equity (310) 658 1,169 Profit for the financial period 3,938 3,104 7,210 Total recognised income and expense for the period 3,628 3,762 8,379 ------------------------------------------------------------------------------- Unaudited consolidated cash flow statement For the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000 ------------------------------------------------------------------------------- Operating activities Result for the period before tax 5,338 4,327 9,750 Adjustments 6 975 888 1,974 Change in inventories (535) (2,717) (735) Change in operating receivables (3,371) (3,872) (1,442) Change in operating payables 3,015 6,334 1,120 ------------------------------------------------------------------------------- Cash inflow from operating activities before taxes paid 5,422 4,960 10,667 Taxes paid (1,523) (875) (2,271) ------------------------------------------------------------------------------- 3,899 4,085 8,396 ------------------------------------------------------------------------------ Investing activities Additions to property, plant and equipment (622) (1,850) (3,125) Proceeds from disposals of property, plant and equipment - - 330 Acquisition of subsidiary undertaking, net of cash (2,220) (550) (755) Sale of associated undertaking - 30 - Interest received 45 48 67 ------------------------------------------------------------------------------- (2,797) (2,322) (3,483) -------------------------------------------------------------------------------- Financing activities Proceeds from share issue 267 23 607 Discharge of finance lease liability (17) (58) (75) Interest paid (32) (43) (96) Dividends paid - - (1,225) -------------------------------------------------------------------------------- 218 (78) (789) -------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 6,942 2,818 2,818 Net increase in cash and cash equivalents 1,320 1,685 4,124 ------------------------------------------------------------------------------- Cash and cash equivalents at end of period 8,262 4,503 6,942 ------------------------------------------------------------------------------- Cash and cash equivalents is comprised as follows: Cash at bank and in hand 14,136 11,688 9,774 Short term borrowings and overdrafts (5,874) (7,185) (2,832) -------------------------------------------------------------------------------- Cash and cash equivalents 8,262 4,503 6,942 ------------------------------------------------------------------------------- Unaudited notes to the financial statements For the six months to 30 June 2006 1. Segment reporting The Group operates three business segments: social housing, mechanical and electrical (M&E) and vehicle distribution. All of the Group's activities are carried out within the United Kingdom. Six months to June 2006 -------------------------------------------------------------------------------- Social Vehicle Business housing M&E distribution Total segments £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------- Revenue 88,027 25,982 3,989 117,998 ------------------------------------------------------------------------------- Operating result pre share-based payments 4,903 523 167 5,593 ------------------------------------------------------------------------------- Six months to June 2005 -------------------------------------------------------------------------------- Social Vehicle Business housing M&E distribution Total segments £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------- Revenue 68,394 23,470 4,431 96,295 ------------------------------------------------------------------------------- Operating result pre share-based payments 3,910 462 184 4,556 ------------------------------------------------------------------------------- 2. Tax expense The tax charge for the six months ended 30 June 2006 has been based on the estimated tax rate for the full year. 3. Dividends The following dividends were declared on ordinary shares in the six months to 30 June 2006: Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000 ------------------------------------------------------------------------------- Final 2005 dividend of 1.90p (2005: final 2004 dividend of 1.40p) per share 1,125 815 ------------------------------------------------------------------------------- No dividends were paid during the six months to 30 June 2006. The proposed interim dividend of 0.90p (2005: 0.70p) per share has not been included within the interim financial statements as no obligation existed at 30 June 2006. 4. Earnings per share Basic earnings per share is based on equity earnings of £3.94m (2005: £3.10m) and 58.99m (2005: 57.94m) ordinary shares at 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 63.84m (2005: 62.65m) to reflect the potential dilution effect of employee share schemes. 5. Deferred taxation The Group asset for deferred tax as at 30 June 2006, which relates entirely to share-based payments, is £3.3m (2005: £2.8m). Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000 ------------------------------------------------------------------------------- At beginning of period 3,500 2,100 Credit to income statement 60 55 (Debit)/credit to consolidated statement of recognised income and expense (260) 680 ------------------------------------------------------------------------------- 3,300 2,835 ------------------------------------------------------------------------------- The cumulative amount credited to the income statement is limited to the tax effect of the associated cumulative share-based payment expense. The excess has been credited directly to equity. This is presented in the consolidated statement of recognised income and expense. 6. Notes to consolidated cash flow statement The following non operating cash flow adjustments have been made to the pre-tax result for the period: Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000 ------------------------------------------------------------------------------- Depreciation 707 641 Loss on disposal of fixed assets 13 17 Share-based payments 270 235 Finance income (45) (48) Finance cost 30 43 ------------------------------------------------------------------------------- Total 975 888 ------------------------------------------------------------------------------- 7. 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 2005. The consolidated results for the year ended 31 December 2005 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 2005 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. 8. Interim financial statements Further copies of the interim financial statements 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. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Mears Group (MER)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today