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RNS
Mears Group PLC  -  MER   

Interim Results

Released 07:00 15-Aug-2017

RNS Number : 9747N
Mears Group PLC
15 August 2017
 


 

15 August 2017

 

Mears Group PLC

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

Interim Results

For the six months to 30 June 2017

 

Mears Group PLC, the provider of support services to the Social Housing and Care sectors in the UK, is pleased to announce its interim results for the six months to 30 June 2017.

 

Financial Highlights

 


Six months to

June 2017

Six months to

June 2016

change

Revenue

£470.8m

£466.2m

+1%

Statutory profit for the period before tax

£12.7m

£12.7m

-

Adjusted profit before tax*

£18.3m

£18.2m

+1%

Operating profit margin*

4.1%

4.2%


Statutory diluted EPS

9.86p

9.97p

-1%

Normalised diluted EPS*

13.98p

13.55p

+3%

Interim dividend per share

3.45p

3.30p

+5%

Cash conversion

70%

91%


 

* Stated before amortisation of acquisition intangibles. The normalised diluted EPS measure is further adjusted to reflect a full tax charge.

 

·      Interim results are in line with management expectations.

·      Revenue of £470.8m (2016: £466.2m), growth of 1%.

The Housing division, which accounts for 85% of Group revenues, reported revenues increasing to £402.1m (2016: £389.6m), organic growth of 3%, reflecting the full year impact of a busy period of new contract mobilisations in 2016.

The Care division, which accounts for 15% of Group revenues, reported revenues of £68.7m (2016: £76.6m). The reduction of only 10% reflects significant progress in securing new contracts to replace the lost revenues following the previously announced closure of sub-optimal branches accounting for around 30% of Care revenues. Our blended hourly fee rate as at 30 June 2017 was £16.10 (30 June 2016: £14.12).

·      Operating margin before the amortisation of acquisition intangibles of 4.1% (2016: 4.2%).

The Housing operating margin increased to 5.2% (2016: 4.8%), reflecting fewer new contract mobilisations in the period. 

As previously announced, the Care division reported an operating loss of £1.0m (2016: profit £1.0m) reflecting the lost productivity and additional costs incurred in restructuring our Care activities.

·      The recent tragic events at Grenfell Tower will impact the Housing division later this year as clients review the commissioning and safety practices at their properties. These unexpected events will inevitably impact the timing of our planned workloads as clients' attentions have naturally been diverted towards ensuring their housing portfolios are safe and fully compliant. Consequently, we expect to see delays in planned works orders this year and therefore anticipate Housing revenues of circa £800m in 2017 against an original expectation of circa £830m with a resulting loss of profit and lower overhead recovery. These delays in procurement decisions are expected to be temporary given the contractual nature of the work and the Housing order book is not affected.

·      Net debt at 30 June 2017 was £19.6m (2016: £14.1m) reflecting the increase in working capital required to support the new contract mobilisations in 2016. This is also reflected in the cash conversion of 70% of EBITDA from continuing operations over the rolling twelve-month period to June 2017 (2016: 91%). Cash generation for the full year is expected to be in line with historic norms in the 90-100% range.

·      The Board remains confident in the Group's long-term prospects and is declaring an interim dividend of 3.45p per share (2016: 3.30p), an increase of 5%.

 

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

 

"The Group has made solid progress in the period and I remain confident and optimistic for the future.

 

"In Housing, Mears is increasingly being asked by customers and other stakeholders to take greater involvement in helping customers deliver appropriate housing outcomes for a range of tenants and utilising a broader range of services.  Consequently, the Mears addressable market is becoming much larger than it was previously and more complex. Our strategy to broaden our service offering has created a significant sustainable competitive advantage for Mears.

 

"Despite continuing to find the Care market challenging, we have made good ongoing progress in this area and our order book is significantly improved with a portfolio of good quality contracts at clear, sustainable margins. Given the scale of the reductions in the portfolio in the last twelve months, the revenue performance of Care in the period is encouraging. We remain confident we have the right strategy and the business is best placed to take advantage of industry evolution as it happens.

 

"We continue to achieve high levels of service delivery and customer satisfaction. The quality of our service delivery together with our ability to adapt and find innovative solutions to address the immediate needs of our clients continues to be our key differentiator underpinning our success.

 

"Whilst the likely revenue shortfall for the full year is frustrating, it is entirely understandable in the circumstances and the Group will be working closely with its partners and clients at this time to address their immediate priorities. Our order book remains strong and the Board remains confident in the Group's future prospects."

 

A presentation for analysts will be held at 9.30am today at the offices of Buchanan, 107 Cheapside, London EC2V 6DN

For further information, contact:

Mears Group PLC

David Miles, Chief Executive

Tel: +44(0)7778 220 185

Andrew Smith, Finance Director

Tel: +44(0)7712 866 461

Alan Long, Executive Director             

Tel: +44(0)7979 966 453




 

Buchanan

 

Richard Darby/Sophie Cowles                          Tel: +44(0)20 7466 5000

www.buchanan.uk.com

 

About Mears

 

Mears today employs over 13,000 people, providing services in every region of the UK. In partnership with our Housing clients, we maintain, repair and upgrade the homes of hundreds of thousands of people in communities from remote rural villages to large inner city estates. Mears has extended its activities to provide broader housing solutions to solve the challenge posed by the lack of affordable housing. Our Care teams provide support to over 15,000 people a year, enabling older and disabled people to continue living in their own homes.

We focus on long-term outcomes for people rather than short-term solutions, and invest in innovations that make a positive impact on people's quality of life and on their communities' social, economic and environmental wellbeing.



 

Business Review

 

We are pleased to announce our interim results for the six months ended 30 June 2017, which are in line with management expectations.

 

Group revenue increased to £470.8m (2016: £466.2m).  Profit before tax and before the amortisation of acquisition intangibles increased to £18.3m (2016: £18.2m), which includes a lower first half performance of the Care division following  further branch closures to focus on contracts that can provide clear and sustainable marginsNormalised diluted earnings per share, based upon earnings before amortisation of acquisition intangibles and after an 18% tax charge, increased by 3% to 13.98p (2016: 13.55p).

 

Cash generated from continuing operations as a proportion of EBITDA was 70% for the rolling twelve month period to 30 June 2017 (2016: 91%), a period which included significant working capital investment, as previously reported, in the second half of 2016. Trade receivables and inventories increased to £178.1m (2016: £167.4m), reflecting the organic growth of the Group. Trade payables reduced to £176.1m (2016: £182.9m), driven by the increasing significance of housing management activities in the Group's changing sales mix. Cash generation for the full year is expected to recover to levels in line with historic norms. Average daily net debt for the period was maintained at £85m (FY2016: £85m) and includes the outflow of £5m cash to fund the deferred consideration resulting from prior acquisitions.

 

Whilst the half year results are in line with management expectations, the recent tragic events at Grenfell Tower will impact the Housing division later this financial year as clients review the commissioning and safety practices at their properties. These unexpected events will inevitably impact the timing of our planned workloads as clients' attentions have naturally been diverted towards ensuring that their housing portfolios are safe and fully compliant. As a consequence, we expect to see delays in planned works orders and therefore the Board has reassessed its guidance for the full year. Housing revenues are now expected to be in the region of £800m in 2017, compared to our previous expectation of circa £830m. This shortfall in revenues will mean both a loss of profit and, more significantly, lower overhead recovery. As a result, the Board anticipates Housing margins in 2017 to be in the range of 5.3-5.5% rather than the previous expectation of 5.6-5.8%.  These delays in procurement decisions are expected to be temporary given the contractual nature of the work and the Housing order book is not affected. Reassuringly, the significant majority of the Group's Housing revenues are non-discretionary with only around 15% of revenues being considered discretionary; it is predominantly this spending which is at risk of being delayed or re-phased in the short-term.  The Board's medium-term expectations for Housing remain unchanged with a blended annual revenue growth rate in excess of 5% p.a. and the Housing margin returning to our historic normalised range of 5.6-5.9%.  In the meantime, the Group will be working closely with its partners and clients on their immediate priorities.

 

The Board is declaring an interim dividend of 3.45p per share (2016: 3.30p), an increase of 5%.  The Board regularly reviews the dividend policy to maximise returns to shareholders whilst maintaining a prudent capital structure. The Board is confident in the future opportunities in both our markets. 

 

Housing

 

In a period where high quality affordable housing has been at the top of the political and social agenda, the Board is extremely satisfied with the progress made by our Housing division, which contributes 85% of the Group's revenues.

 

The Housing division has continued to deliver a solid financial performance with revenues of £402.1m (2016: £389.6m), an increase of 3% reflecting the full year impact of a particularly busy period of new contract mobilisations in 2016.  Our operating margin in the first half year increased to 5.2% (2016: 4.8%), reflecting fewer new contract mobilisations in the period, which are typically dilutive to operating margin. 

 

Over time, Mears has redefined the contracting market in social housing, effectively setting the standard for partnering with Local Authorities and Housing Associations to tackle and address a changing market.  Mears has broadened its offer in housing to encompass helping clients with more planning and coordination work, referred to as Housing Management. In this way, Mears is often involved in managing the estate of properties in a more holistic fashion over and above simply scheduling and delivering various maintenance and repairs. Mears is increasingly being asked by clients and other stakeholders to take greater involvement in helping clients deliver appropriate housing outcomes for a range of tenants.  Consequently, whilst the overall market is growing slowly, the Mears addressable market is becoming much larger than it was previously and more complex. This larger market is best characterised by two solutions; contracting partnerships and placemaking partnerships. Contracting partnerships comprises maintenance and regeneration together with some elements of housing management outsourcing; this market is essentially the latest incarnation of the traditional Mears market. It is large and, while exhibiting lower growth, is also lower risk.  Placemaking partnerships, on the other hand, are a new, faster growing part of the extended housing market. It comprises our traditional maintenance contracting, but also requires a full housing management offering which includes full asset management.

 

Over recent years, the Group positioned itself to provide a broader service offering to address the changing needs of our clients, who face increasingly complex housing challenges. Whilst the pipeline of traditional contracting partnership opportunities continues to flow through at a consistent level, Mears remains highly selective as to the opportunities for which it chooses to tender. The main focus of our housing operation has switched towards developing placemaking partnerships. These opportunities, which are often secured through a less competitive tender process, require a wide spectrum of core skills to address the increasingly complex housing challenges being faced by our clients and which also act as a barrier to entry. These opportunities will provide Mears with a far greater influence on delivering revenue growth combined with a good mix of margin and longevity.

 

As Mears has broadened its service offering, an increasingly important component of our offering is to identify funding solutions to sit beside our Housing Maintenance and Management solutions. An early example of this was our contract with the London Borough of Bromley, completed in 2016, whereby Mears was engaged to arrange the purchase and refurbishment of 400 homes from private ownership. As part of this service, Mears engaged funding partners to finance the purchase. Mears has developed an extensive pipeline of opportunities requiring the support of a funding partner. The Group may, in the short-term, take on a small amount of leverage to facilitate a number of these opportunities.  Medium to longer term, the Group has identified a partner that is a leading originator and provider of finance to long-term social infrastructure assets in the UK and is developing a new and highly scalable platform to invest in social housing assets which will serve to increase Mears' capabilities in servicing its Housing clients.

 

The Homeless Reduction Bill passed its final reading and has become law, coming into force in early 2018. The onus will now be on Councils to provide housing plans for all families and single people approaching them. Realistically the solution for the vast majority will not be a social tenancy. Much work will be in sustaining vulnerable private tenancies and sourcing more homes in the private rented sector. The continued deflation of Housing Benefit rates and the buoyant rental market sets a major challenge for Councils with new statutory duties. Consequently we are seeing increased demand for accommodation from all our existing Council partners.

 

The Housing division experienced a quieter period in respect of securing new traditional maintenance opportunities with new orders of circa £105m at a win ratio of 30% by value. (2016: £259m and 33%). The pipeline of Housing Management opportunities remains strong and a number of opportunities are at a late stage of negotiation.

Care

 

The Care division, which accounts for circa 15% of Group revenues, continues to find current market conditions challenging although our underlying trading shows improvement month on month as the benefits of our restructuring decisions begin to be realised.

 

Care revenues were £68.7m (2016: £76.6m), a reduction of only 10% reflecting the significant progress made in rebalancing the Group's portfolio of Care contracts so as to focus upon those which have a better mix of longevity, certainty of spend and price.  As previously announced, during the second half of 2016, following a detailed contract by contract review of charge rates and care worker pay rates, the Group commenced a restructuring of the Care division. This resulted in a reduction in Care revenues of some 20%, a significant proportion of which arose within our North region, which had the lowest charge rates and traditional procurement methods. That initial round of branch closures was commenced and substantially completed in the second half of the 2016 financial year. We have continued to place significant emphasis on maintaining a portfolio of contracts that can provide clear and sustainable margins. Further closures have been made during the first half of 2017, predominantly in the Midlands and London region, covering a further 10% of revenues. Given these closures in the last twelve months, which account for around 30% of Care revenues, it is encouraging to note the strong progress made in securing new orders at higher fee rates such that the Care division has reported a reduction in revenues of just 10% in the period.

 

In the first half year, as previously reported, the Care division reported a loss of £1.0m (2016: profit £1.0m), reflecting the lost productivity and additional costs incurred in restructuring the Care activities. 

 

A summary of the changing volumes and charge rates as a result of the refocusing of our Care activities is detailed below:




Hours

per week

Implied

revenue run-rate £m

 Blended charge rate per hour £

As at 1 January 2016

216,000

148.1

13.19

Net volume decrease

(11,800)



As at 30 June 2016

204,200

149.9

14.12

Contract closures

(48,200)



Net volume increase

5,400



As at 31 December 2016

161,400

126.2

15.04

Contract closures

(12,800)



Net volume increase

8,000



As at 30 June 2017

156,600

131.1

16.10

The above figures exclude contracts under notice of termination at the relevant date.

 

During the first half of the year, the Care division has secured good price increases to match the increases in its cost base driven by the National Living Wage ('NLW') and Apprentice Levy; an increase in charge rates of circa 3.6% is in line with the increase in our carer payroll cost.  The greatest challenge within Care remains the recruitment and retention of good quality carers.

 

Whilst we have become increasingly selective in new contract bidding, it is pleasing that there continues to be a solid pipeline of good quality bidding opportunities. During the first half, we have secured circa £97m of new contracts at a win rate of 64% by value (2016: £165m and 77%). More importantly, the quality of the new orders secured is much improved, enjoying a significantly higher charge rate which enables us to reflect this within our carer pay and conditions. The average contract lengths of these latest awards is in excess of five years and the number of providers has reduced significantly; this reflects the trends we anticipated and should, in the future, result in a better quality of earnings from our Care activities.

 

We continue to see a great deal of interest from Local Authorities to procure new care accommodation for supported living and extra care services. Our care based experience is obviously relevant to this and, in the majority of instances, an integrated fund, build, property management and care provision is seen as being very attractive. Mears, through its Registered Provider of Social Housing, and a funding partner HB Villages, are working together to create a new supply of purpose-built accommodation for the Care sector. The plan is for HB Villages to develop and fund the new housing with Mears providing long-term tenancy and asset management services to the residents. Our first schemes in Northampton, Winsford and Bolton will be on site in 2017 and there is a good pipeline developing. 

 

There has never been greater stakeholder pressure to increase funding into social care, including from organisations such as the NHS which has been impacted by the underfunded social care system. Mears is playing its part in encouraging additional investment. Overall, Local Authority spend has seen a slight increase in the last year, partly financed by the ability of councils to increase Council Tax by an additional 2% to help fund NLW cost increases.  In addition, the Spring Budget this year committed a further £1 billion of additional funding in 2017/18 which will go some way to preventing an immediate collapse but does not represent a long-term solution. The Mears strategy is clear and focused, being to concentrate our support on those Councils and NHS Trusts that are prepared to invest in front line homecare services as a means to prevent much greater cost increases across the health and social care spectrum. We have demonstrated market leadership by exiting contracts where councils continue to focus on an outdated and unsustainable hourly charge rate. We believe that by continuing to support the innovators in the sector, and by remaining resilient when encountering poor commissioning practices, that we can drive the change that the homecare market needs. Mears continues to drive change and we believe these actions are a real positive for the long-term development of the sector and our leading position in the public sector.

 

Dividend

 

The Board remains confident in the future opportunities in both our markets and consequently it expects to continue following a progressive dividend policy. The Board is declaring an increased interim dividend of 3.45p per share (2016: 3.30p) payable on 7 November 2017 to shareholders on the Register on 20 October 2017.  The Board regularly reviews the Group's dividend policy to maximise returns to shareholders whilst maintaining a prudent capital structure and retaining the ability to invest for growth.

 

Corporate governance and risk management

 

Our Corporate Governance Report issued within our Annual Report for 2016 detailed how we embrace governance. The Board continues to set high standards of corporate governance. 

 

The Board was delighted to welcome Roy Irwin and Jason Burt as Non-Executive Directors of the Company following their appointment at the 2017 AGM. Both Roy and Jason bring the right skills and experience that will add considerably to the Board. The Board wishes to place on record its thanks to Michael Rogers and David Hosein for their significant contribution and who, having served as Non-Executive Directors for nine years, did not offer themselves for re-election at the AGM.

 

We continue to review our risk management and principal risks. The Senior Management Team reviews and identifies the key risks which will impact upon the achievement of the Group's strategic goals and considers how these risks are developing as a result of changes in its operations.  The key risks of the Group as at 30 June 2017 remain those detailed within the Annual Report for 2016.

 

Following the tragic events at Grenfell Tower, the Government has expressed concerns with certain cladding systems, notably those utilising Aluminium Composite Material ('ACM'). These events have prompted Mears to review its contract delivery register to ensure a high level of detail around product specification continues to be captured and can be easily retrieved. As part of this process, an initial review of the types of facade systems installed in dwellings over the past five years has been undertaken with no instances identified of Mears utilising ACM cladding.

 

Our people

 

I commend our employees for their commitment and energy throughout another significant period for the Group and I continue to be impressed by their quality, professionalism and loyalty. Mears has a diverse workforce of over 13,000 staff including 400 apprentices; the vast majority of our employees live in the areas in which they work. Diversity and respect for all remains core to our induction, recruitment and customer care programmes.

 

At the heart of Mears lies a strong sense of responsibility towards improving people's lives. We aim to lead the way in terms of social value in the markets where we operate, delivering lasting and meaningful outcomes. Social mobility is about creating opportunities for young people from disadvantaged backgrounds. At Mears, we aim to ensure that jobs and opportunities are open to everyone.

 

Outlook for the Group

 

Our dedication to providing our clients with first class service and value remains undiminished and is key to how we manage the business.

 

Housing

 

We are pleased with the progress made by the Group which has been underpinned by our strategy to broaden our service offering in Housing. This has created a significant sustainable competitive advantage for Mears.

 

Following the recent tragic events at Grenfell Tower, the Board has reassessed its previous guidance for full year Housing revenues from £830m to £800m. This shortfall in revenues will mean both a loss of profit and, more significantly,  lower overhead recovery. As a result, the Board anticipates Housing margins in 2017 to be in the range of 5.3-5.5% rather than the previous expectation of 5.6-5.8%. The Board will continue to monitor this situation closely as a number of key clients complete their compliance reviews over the next few months.

 

Notwithstanding this, the Board remains confident in the future prospects for Housing. Notably:

 

·      In the traditional contracting partnerships, which comprises circa 80% of Housing revenues, Mears anticipates a consistent level of new bidding opportunities. Positively, Mears has few significant contract renewals in the period leading up to 2020. Moreover, Mears has become increasingly selective towards the opportunities it chooses to tender. Whilst we are the market leader, delivering services to around 15% of the UK's social housing market, the market still provides headroom for growth.

 

·      Increasingly, the Group's focus is towards developing placemaking partnerships, which comprises circa 20% of Housing revenues. Mears is increasingly being asked by clients and other stakeholders to take a greater involvement in helping clients deliver appropriate housing outcomes for a range of tenants, utilising a broader range of services.  Consequently, the Mears addressable market is becoming much larger than it was previously and more complex. Mears is in a very strong position to maximise opportunities in this area, building on the ground-breaking joint venture with Milton Keynes Council. We have an established integrated offering combining our traditional maintenance contracting with a full suite of housing management and asset management services including financing, development and management of multi-tenure solutions. We would expect to achieve higher annual growth in respect of this new, faster growing part of the extended housing market.

 

Our medium-term growth expectations for Housing remain unchanged with a blended annual revenue growth rate of 5% per annum and a margin returning to our historic normalised range of 5.6-5.9%.

 

Over recent years, the Group has, through a combination of acquisition and recruitment, developed a full service offering to address increasingly complex housing challenges. Where appropriate, we will continue to make acquisitions to develop the breadth and depth of our services and to build further on our market leading, innovative housing solutions.

 

Care

 

We firmly believe in our long-term Care strategy and that Mears is best placed to benefit from the inevitable market evolution. The restructuring announced last year allows the business to focus on operational quality and switch focus to those strategically important clients which we believe have the potential to develop into partnerships and where we are able to deliver a high-quality service at sustainable margins. Whilst the cost of these changes has impacted negatively on our financial performance in the current financial year, we believe the margin generated by this division can reach similar levels to those of Housing in the medium to long-term.  We expect Care to report an improved second-half year performance, resulting in a small profit for the full year, and in the future, to deliver operating margins in the low to middle single-digit range.

 

Continued funding issues in the care market will create a catalyst for change. Whilst we do not see a strong prospect of immediate fundamental change, we are clear in our view that, increasingly, Commissioners will have to look to change their procurement practices, focusing on working with fewer, better-run, service delivery partners. Moreover, further opportunities will result from localised health related outsourcing. Our market-leading approach to service quality and innovation puts us in a strong position and, as the care market evolves, we expect to benefit disproportionately.

 

 

David Miles

david.miles@mearsgroup.co.uk

Chief Executive Officer

15 August 2017

Half year condensed consolidated income statement

For the six months ended 30 June 2017

 

 

 

Six months

Six months

Year

 

 

ended

ended

ended 31

 

 

30 June

30 June

December

 

 

2017

2016

2016

 

 Note

£'000

£'000

£'000

Sales revenue

3

470,782

466,153

940,100

Cost of sales


(356,085)

(346,667)

(695,206)

Gross profit


114,697

119,486

244,894

Operating result before intangible amortisation

3

19,428

19,381

41,850

Other administration expenses


(95,269)

(100,105)

(203,044)

Amortisation of acquisition intangibles


(5,550)

(5,419)

(10,690)

Total administration expenses


(100,819)

(105,524)

(213,734)

Operating profit

3

13,878

13,962

31,160

Net finance charge

4

(1,148)

(1,226)

(1,788)

Profit for the period before tax


12,730

12,736

29,372

Tax expense

5

(1,991)

(1,536)

(3,676)

Profit for the period


10,739

11,200

25,696




 

 

Attributable to:



 

 

Equity holders of the Company


10,173

10,266

21,526

Non-controlling interests


566

934

4,170

Profit for the period


10,739

11,200

25,696




 

 

Earnings per share



 

 

Basic

7

9.90p

10.08p

21.03p

Diluted

7

9.86p

9.97p

20.91p

Normalised diluted

7

13.98p

13.55p

30.36p

 



 

Half year condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

 

 

Six months

Six months

Year

 

ended

ended

ended 31

 

30 June

30 June

December

 

2017

2016

2016

 

£'000

£'000

£'000

Net result for the period

10,739

11,200

25,696

Other comprehensive income for the period


 

 

Which will be subsequently reclassified to the Income Statement:


 

 

Cash flow hedges:


 

 

- gains/(losses) arising in the period

124

(126)

(884)

- reclassification to the Income Statement

310

260

643

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

(97)

(22)

39

Which will not be subsequently reclassified to the Income Statement:


 

 

Actuarial gain on defined benefit pension scheme

-

-

3,676

Decrease in deferred tax asset in respect of defined benefit pension schemes

-

-

(804)

Other comprehensive income for the period

337

112

2,670

Total comprehensive income for the period

11,076

11,312

28,366



 

 

Attributable to:


 

 

Equity holders of the Parent

10,510

10,378

24,196

Non-controlling interests

566

934

4,170

Total comprehensive income for the period

11,076

11,312

28,366

 



 

Half year condensed consolidated balance sheet

As at 30 June 2017

 

 

 

As at

As at

As at

 

 

30 June

30 June

31 December

 

 

2017

2016

2016

 

Note

£'000

£'000

£'000

Assets





Non-current





Goodwill


193,712

193,058

193,712

Intangible assets


21,280

30,019

25,913

Property, plant and equipment


20,993

19,468

20,265

Pensions and other employee benefits


15,992

8,272

15,992

Financing assets


-

650

677

Deferred tax asset


5,704

6,617

5,704



257,681

258,084

262,263

Current



 

 

Inventories


10,552

8,368

11,234

Trade and other receivables


167,525

158,995

157,181

Financing assets


-

553

839

Cash at bank and in hand


75,367

53,668

52,904



253,444

221,584

222,158

Total assets


511,125

479,668

484,421

Equity



 

 

Equity attributable to the shareholders of Mears Group PLC



 

 

Called up share capital

9

1,030

1,025

1,026

Share premium account


58,504

58,248

58,320

Share-based payment reserve


2,375

1,651

1,975

Hedging reserve


(437)

(460)

(774)

Merger reserve


46,214

46,214

46,214

Retained earnings

 

94,077

88,754

92,555

Total equity attributable to the shareholders of Mears Group PLC


201,763

195,432

199,316

Non-controlling interest


(76)

(312)

(642)

Total equity


201,687

195,120

198,674

Liabilities



 

 

Non-current



 

 

Long-term borrowing and overdrafts


95,000

57,500

60,000

Pensions and other employee benefits


7,498

4,224

7,498

Deferred tax liabilities


6,259

5,906

7,120

Financing liabilities


149

1,346

612

Other liabilities


5,078

9,929

15,950



113,984

78,905

91,180

Current



 

 

Short-term borrowings and overdrafts


-

10,284

5,278

Trade and other payables


182,449

183,179

187,264

Financing liabilities


481

626

478

Current tax liabilities


3,873

3,454

1,547

Dividend payable


8,651

8,100

-



195,454

205,643

194,567

Total liabilities


309,438

284,548

285,747

Total equity and liabilities


511,125

479,668

484,421

 



 

Half year condensed consolidated cash flow statement

For the six months ended 30 June 2017

 

 

 

 

Six months

Last twelve months 

 

Six months

 

Year

 

 

ended

ended

ended

ended 31

 

 

30 June

30 June

30 June

December

 

 

2017

2017

2016

2016

 

Note

£'000

£'000

£'000

£'000

Operating activities






Result for the period before tax


12,730

29,366

12,736

29,372

Adjustments

10

10,846

20,822

10,462

20,438

Change in inventories and operating receivables


(8,617)

(7,968)

(11,655)

(11,006)

Change in operating payables


(10,292)

(7,355)

(7,226)

(4,289)

Cash inflow from continuing operating activities before taxes paid


4,667

34,865

4,317

34,515

Taxes paid


(622)

(4,575)

(924)

(4,877)

Net cash inflow from operating activities of continuing operations


4,045

30,290

3,393

29,638

Net cash outflow from operating activities of discontinued operations


(1,045)

(4,970)

-

(3,925)

Net cash inflow from operating activities


3,000

25,320

3,393

25,713

Investing activities




 

 

Additions to property, plant and equipment


(2,197)

(7,061)

(5,165)

(10,029)

Additions to other intangible assets


(1,551)

(2,917)

(1,538)

(2,904)

Proceeds from disposals of property, plant and equipment


-

2

-

2

Acquisition of subsidiary undertaking, net of cash


(5,000)

(5,000)

(10,019)

(10,019)

Loans made to other group entities (non-controlled)


(252)

(463)

-

(211)

Interest received


14

39

10

35

Net cash outflow from investing activities


(8,986)

(15,400)

(16,712)

(23,126)

Financing activities




 

 

Proceeds from share issue


188

260

130

202

Finance lease payments


(291)

(632)

(320)

(661)

Interest paid


(1,170)

(2,563)

(1,429)

(2,822)

Dividends paid - Mears Group PLC shareholders


-

(11,483)

-

(11,483)

Dividends paid - non-controlling interests


-

(1,019)

-

(1,019)

Net cash outflow from financing activities


(1,273)

(15,437)

(1,619)

(15,783)

Cash and cash equivalents at beginning of period


(12,374)

(14,116)

822

822

Net decrease in cash and cash equivalents


(7,259)

(5,517)

(14,938)

(13,196)

Cash and cash equivalents at end of period


(19,633)

(19,633)

(14,116)

(12,374)





 

 

Cash and cash equivalents is comprised as follows:




 

 

- cash at bank and in hand


75,367

75,367

53,668

52,904

- borrowings and overdrafts


(95,000)

(95,000)

(67,784)

(65,278)

Cash and cash equivalents


(19,633)

(19,633)

(14,116)

(12,374)





 

 

Cash conversion key performance indicator




 

 

Cash inflow from operating activities


4,667

34,865

4,317

34,515

EBITDA


23,071

49,458

22,873

49,260

Conversion


20.2%

70.5%

18.9%

70.1%

 



 

Half year condensed consolidated statement of changes in equity

For the six months ended 30 June 2017

 

 

Attributable to equity shareholders of the Company

 

 

 

Called up

Share

Share-based

 

 

 

Non-

 

 

share

premium

payment

Hedging

Merger

Retained

controlling

Total

 

capital

account

reserve

reserve

reserve

earnings

interests

equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2016

1,019

58,124

1,651

(572)

46,214

86,438

(1,246)

191,628

Net result for the period

-

-

-

-

-

10,266

934

11,200

Other comprehensive income

-

-

-

112

-

-

-

112

Total comprehensive income for the period

-

-

-

112

-

10,266

934

11,312

Issue of shares

6

124

-

-

-

-

-

130

Share option charges

-

-

150

-

-

-

-

150

Exercise of share options

-

-

(150)

-

-

150

-

-

Dividends

-

-

-

-

-

(8,100)

-

(8,100)

At 30 June 2016

1,025

58,248

1,651

(460)

46,214

88,754

(312)

195,120

At 1 January 2017

1,026

58,320

1,975

(774)

46,214

92,555

(642)

198,674

Net result for the period

-

-

-

-

-

10,173

566

10,739

Other comprehensive income

-

-

-

337

-

-

-

337

Total comprehensive income for the period

-

-

-

337

-

10,173

566

11,076

Issue of shares

4

184

-

-

-

-

-

188

Share option charges

-

-

400

-

-

-

-

400

Exercise of share options

-

-

-

-

-

-

-

-

Dividends

-

-

-

-

-

(8,651)

-

(8,651)

At 30 June 2017

1,030

58,504

2,375

(437)

46,214

94,077

(76)

201,687

 



 

Notes to the half year condensed consolidated statements

For the six months ended 30 June 2017

 

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 2017 were authorised for issue in accordance with a resolution of the Directors on 14 August 2017.

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 2017 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 2016, 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 2016 were approved by the Board of Directors on 27 March 2017. 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 2017 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information.

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

After reviewing the Group's performance against budget for the current financial year, and longer-term plans, the Directors consider that at the date of approving this half-year statement, it is appropriate to adopt the going concern basis in its preparation.

(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 2016.

3. 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 two business segments during the period:

·   Housing - services within this segment comprise a full housing maintenance and management service predominately to Local Authorities and other Registered Social Landlords; and

·   Care - services within this segment comprise personal care services for people in their own homes.

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 are that of revenue growth and operating margins in both core divisions of Housing and Care. The operating result utilised within the key performance measures is stated before amortisation of acquisition intangibles and costs relating to long-term incentive plans.

 

Six months ended

Six months ended

 

30 June 2017

30 June 2016

 

 

Operating

 

Operating

 

Revenue

result

Revenue

result

 

£'000

£'000

£'000

£'000

Housing

402,052

20,813

389,588

18,873

Care

68,730

(985)

76,565

1,008


470,782

19,828

466,153

19,881

Long-term incentive plans


(400)

 

(500)

Operating result before intangible amortisation


19,428

 

19,381

Amortisation of acquisition intangibles


(5,550)

 

(5,419)



13,878

 

13,962

Net finance costs


(1,148)

 

(1,226)

Tax expense


(1,991)

 

(1,536)

Profit for the period


10,739

 

11,200

 

4. Net finance charge

 

Six months

Six months

 

ended

ended

 

30 June

30 June

 

2017

2016

 

£'000

£'000

Interest charge on overdrafts and short-term loans

(957)

(1,151)

Interest charge on interest rate swap (effective hedges)

(310)

(260)

Interest charge on interest rate swap (ineffective hedges)

-

-

Interest charge on defined benefit obligation

(105)

(150)

Finance costs

(1,372)

(1,561)

Interest income resulting from short-term bank deposits

14

10

Interest income resulting from defined benefit obligation

210

325

Net finance charge

(1,148)

(1,226)

 

5. Tax expense

The tax charge for the six months ended 30 June 2017 has been based on the estimated tax rate for the full year.

Tax recognised in the Income Statement:

 

Six months

Six months

 

ended

ended

 

30 June

30 June

 

2017

2016

 

£'000

£'000

United Kingdom corporation tax and total current tax recognised in the Income Statement

2,949

2,654

Adjustment in respect of previous periods

-

-

Total current tax recognised in the Income Statement

2,949

2,654

Total deferred taxation recognised in the Income Statement

(958)

(1,118)

Total tax expense recognised in the Income Statement

1,991

1,536

 

6. Dividends

The interim dividend of 3.45p (2016: 3.30p) per share is not recognised as a liability at 30 June 2017 and will be payable on 7 November 2017 to shareholders on the Register of Members at the close of business on 20 October 2017. The dividend disclosed within the half-year condensed consolidated statement of changes in equity represents the final dividend of 8.40p (2016: 7.90p) per share proposed in the 31 December 2016 financial statements and approved at the Group's Annual General Meeting on 7June 2017 (not recognised as a liability at 31 December 2016).

7. Earnings per share

 

Basic

Diluted

 

Six months

Six months

Six months

Six months

 

ended

ended

ended

ended

 

30 June

30 June

30 June

30 June

 

2017

2016

2017

2016

 

p

p

p

p

Earnings per share

9.90

10.08

9.86

9.97

Effect of amortisation of acquisition intangibles

5.40

5.32

5.38

5.26

Effect of full tax adjustment

(1.26)

(1.70)

(1.26)

(1.68)

Normalised earnings per share

14.04

13.70

13.98

13.55

 

A normalised earnings per share (EPS) is disclosed in order to show performance undistorted by amortisation of intangibles and adjusted to reflect a full tax charge. The Directors believe that 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 EPS is:

 

Six months

Six months

 

ended

ended

 

30 June

30 June

 

2017

2016

 

£'000

£'000

Profit attributable to shareholders:

10,173

10,266

- amortisation of acquisition intangibles

5,550

5,419

- full tax adjustment

(1,299)

(1,732)

Normalised earnings

14,424

13,953

 

The calculation of EPS is based on a weighted average of ordinary shares in issue during the year. The diluted EPS is based on a weighted average 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 EPS use the same weighted average number of shares as the basic and diluted EPS.

 

Six months

Six months

 

ended

ended

 

30 June

30 June

 

2017

2016

 

Millions

Millions

Weighted average number of shares in issue:

102.80

101.84

- dilutive effect of share options

0.40

1.14

Weighted average number of shares for calculating diluted earnings per share

103.20

102.98

 

8. Fair value measurement of financial instruments

IAS 34 requires that interim financial statements include certain of the disclosures about fair value of financial instruments set out in IFRS 13 and IFRS 7. These disclosures include the classification of fair values within a three-level hierarchy. The three levels are defined, based on the observability of significant inputs to the measurement, as follows:

·   Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

·   Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

·   Level 3: unobservable inputs for the asset or liability.

The following table shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 30 June 2017, 31 December 2016 and 30 June 2016:

 

As at

As at

As at

 

30 June

30 June

31 December

 

2017

2016

2016

 

£'000

£'000

£'000

Financial assets




Loans and receivables




Trade receivables

54,243

54,254

49,086

Amounts recoverable on contracts

97,650

101,250

98,405

Cash at bank and in hand

75,367

53,668

52,904

Fair value (Level 2)


 

 

Forward commodity contracts - effective

-

1,203

-


227,260

210,375

200,395

Financial liabilities


 

 

Fair value (Level 2)


 

 

Interest rate swaps - effective

(630)

(1,972)

(1,090)

Fair value (Level 3)


 

 

Contingent consideration in respect of acquisitions

(11,457)

(10,294)

(16,457)

Amortised cost


 

 

Bank borrowings and overdrafts

(95,000)

(67,784)

(65,278)

Trade payables

(110,865)

(114,852)

(111,490)

Other creditors

(5,564)

(6,803)

(8,668)


(223,516)

(201,705)

(202,983)


3,744

8,670

(2,588)

 

The fair values of interest rate swaps and forward commodity contracts have been calculated by a third party expert discounting estimated future cash flows on the basis of market expectations of future interest rates (Level 2).

The fair values of deferred and contingent consideration have been calculated by the Directors by reference to expected future income and expenditure in respect of the acquired businesses.

There were no transfers between Level 1 and Level 2 during the six-month period to 30 June 2017 or the year to 31 December 2016.

The reconciliation of the carrying values of financial instruments classified within Level 3 is as follows:

 

As at

As at

As at

 

30 June

30 June

31 December

 

2017

2016

2016

 

£'000

£'000

£'000

Balance, beginning of period

16,457

20,861

20,861

Increase due to forward purchase agreement

-

-

6,163

Paid in respect of acquisitions

(5,000)

(10,019)

(10,019)

Released on reassessment

-

(548)

(548)

Unwinding of discounting

-

-

-

Balance, end of period

11,457

10,294

16,457

 

Contingent consideration represents an estimate of future consideration likely to be payable in respect of acquisitions. Contingent consideration is discounted for the likelihood of payment and for the time value of money. Contingent consideration becomes payable based upon the profitability of acquired businesses.

The carrying value of the following financial assets and liabilities is considered a reasonable approximation of fair value:

·   trade and other receivables;

·   cash and cash equivalents; and

·   trade and other payables.

9. Share capital

 

As at

As at

As at

 

30 June

30 June

31 December

 

2017

2016

2016

 

£'000

£'000

£'000

 

 

 

 

Allotted, called up and fully paid




At 1 January 102,559,799 (2016: 101,938,355) ordinary shares of 1p each

1,026

1,019

1,019

Issue of 431,768 (2016: 588,089) ordinary shares of 1p each on exercise of share options

4

6

7

At 30 June 102,991,567 (2016: 102,526,424) ordinary shares of 1p each

1,030

1,025

1,026

 

431,768 (2016: 588,089) ordinary 1p shares were issued in respect of share options exercised. The difference between the nominal value of £0.004m and the total consideration of £0.188m has been credited to the share premium account.

10. 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

Last twelve months  

 

Six months

 

ended

ended

ended

 

30 June

30 June

30 June

 

2017

2017

2016

 

£'000

£'000

£'000

Depreciation

2,670

5,571

2,672

Loss on disposal of property, plant and equipment

-

48

-

Intangible amortisation

6,523

12,811

6,239

Share-based payment charges

400

574

150

IAS 19 pension movement

-

(770)

-

Net finance charge

1,253

2,588

1,401

Total

10,846

20,822

10,462

 

11. 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.

12. 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 18 to 21 of the 2016 Annual Report and Accounts and is not expected to change over the next six months. The four principal risks identified are: reputation, people, health and safety, and IT and data.

13. 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 2016.

By order of the Board

 

D J Miles                                               A C M Smith

Chief Executive Officer                    Finance Director

david.miles@mearsgroup.co.uk      andrew.smith@mearsgroup.co.uk

15 August 2017


This information is provided by RNS
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