TIDMMER
RNS Number : 0112A
Mears Group PLC
21 March 2017
For Immediate Release 21 March 2017
Mears Group PLC
('Mears' or the 'Group' or the 'Company')
Final Results
For the year to 31 December 2016
Mears Group PLC, the provider of services to the Housing and
Care sectors in the UK, is pleased to announce its financial
results for the year ended 31 December 2016 reflecting excellent
progress in positioning both our core divisions for the future.
Financial Highlights
2016 2015 Change
Group revenue GBP940.1m GBP881.1m +7%
Housing revenue GBP787.5m GBP735.1m +7%
Care revenue GBP152.6m GBP146.0m +5%
Profit for the year before
tax* GBP40.1m GBP36.8m +9%
Profit for the year before
tax from continuing activities GBP29.4m GBP25.9m +13%
Diluted EPS* 23.41p 20.10p +16%
Normalised diluted EPS** 30.36p 27.94p +9%
Dividend per share 11.70p 11.00p +6%
* Continuing activities.
** Continuing activities, stated before amortisation of
acquisition intangibles. The normalised diluted EPS amount is
further adjusted to reflect a full tax charge.
-- Group revenue of GBP940.1m (2015: GBP881.1m), reflecting
strong organic growth in Housing following a record year for new
contract bidding in 2015.
-- Housing revenue of GBP787.5m (2015: GBP735.1m), reflecting
strong organic growth underpinned by the growth in Housing
Management.
-- Housing operating margin of 5.6% (2015: 5.8%) reflects some
dilution from the record number of new contract mobilisations.
-- Service quality remains our key differentiator; the
proportion of customers rating our service as 'excellent' was
maintained at the record level of 91% (2015: 91%).
-- Care revenue increased by 5% to GBP152.6m (2015: GBP146.0m),
reflecting the full-year impact of the acquisition of Care at Home
from Care UK.
-- Rationalisation of our Care business - closure of circa 20%
of Care branches and redirection of activities towards maintaining
a portfolio of good quality contracts that can provide clear and
sustainable margins with more sophisticated clients.
-- Care operating results reflect the cost of care
rationalisation. Excellent progress made in securing charge rate
increases following the introduction of the National Living
Wage.
-- EBITDA cash conversion of 70% (2015: 99%) is below our
historic norm. Average net debt of GBP85m (2015: GBP68m) and net
debt at 31 December 2016 of GBP12.4m (2015: net cash of GBP0.8m),
reflecting the working capital expansion required to fund organic
growth, a changing sales mix and an outflow of GBP10m relating to
deferred consideration payable in respect of the acquisition of
Omega.
-- Total dividend increased by 6% to 11.70p per share (2015:
11.00p), reflecting the Board's confidence in the underlying
performance of the Group and the future.
-- New contract wins of circa GBP500 million (2015: GBP1
billion); Housing awards of over GBP250m with a conversion rate of
39% (2015: GBP900m and 49%); and Care awards of over GBP200m with a
conversion rate of 74% (2015: GBP80m and 63%).
-- Order book at GBP3.1 billion (2015: GBP3.5 billion) and a
solid pipeline of new opportunities.
-- Visibility of 94% of consensus forecast revenue for 2017 and
in excess of 82% for 2018 (2015: 96% and 82% respectively).
Commenting, David Miles, Chief Executive of Mears, said:
"I am pleased with our progress in 2016, particularly with the
advancement made by our Housing division. We have positioned
ourselves to provide a broader service offering in housing to a
market where we are seeing an increasing blurring of the boundaries
between social, affordable and private rented housing. We are well
placed to benefit from a healthy and wider pipeline of
opportunities.
"We firmly believe in our long-term Care strategy and that Mears
is best placed to benefit from the inevitable market evolution. The
reduction in revenues, following our exit from around 20% of our
existing contracts, has allowed the business to focus on
operational quality and switch focus to those strategically
important clients that we believe have the potential to develop
into partnerships and where we are able to deliver a high quality
service at sustainable margins.
"Continued funding issues in the care market will create a
catalyst for change. Whilst we do not see strong prospects for
immediate fundamental change, we are clear in our view that,
increasingly, commissioners will have to look to rebalance their
contract estate, focusing on working with fewer, better run,
service delivery partners. Our market-leading approach to service
quality and innovation puts us in a strong position to meet this
and, as the care market evolves, we expect to benefit
disproportionately.
"Our dedication to providing our clients with first class
service and value remains undiminished and is key to how we manage
the business."
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 Tel: +44(0)7778 220 185
Executive
Andrew Smith, Finance Tel: +44(0)7712 866 461
Director
Alan Long, Executive Tel: +44(0)7979 966 453
Director
www.mearsgroup.co.uk
Buchanan
Richard Darby/Sophie Cowles Tel: +44(0)20 7466 5000
www.buchanan.uk.com
About Mears
Mears today employs over 15,000 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 around 20,000
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.
Chairman's statement
I am delighted to report a year of solid progress, particularly
within our Housing division, where we have continued to extend our
services from our traditional maintenance base to a broader
affordable housing offering. The year was the busiest on record for
new contract mobilisations, with nine new Housing contracts
successfully mobilised.
A particular highlight for the year was Mears' success in
securing and mobilising a new partnership with Milton Keynes
Council, which represents one of the single largest contracts ever
awarded to Mears. The contract initially saw the commencement of
repairs and maintenance services to nearly 11,500 homes. The scope
of works quickly expanded, with Mears engaged to develop 80 new
homes. In addition, a number of temporary accommodation solutions
are being developed through the joint venture partnership. We
anticipate seeing further new client opportunities, similar to
Milton Keynes, which bring together all elements of our Housing
service offering.
Our Housing Management business continues to deliver strong
growth. Since Mears extended its services to Housing Management,
accelerated by the acquisition of Omega in 2014, the Group has
successfully grown the business from around 2,000 homes under full
management to a figure in excess of 9,000. This remains an exciting
area for us given the urgency for our clients to find solutions to
address the homelessness issue, and the pipeline remains buoyant.
We are bringing a number of new innovative service models to this
area which I look forward to reporting on in the future.
We firmly believe in our long-term Care strategy and that Mears
is best placed to benefit from the inevitable market evolution.
During the year we took the decision to exit from around 20% of our
existing contracts where the pricing, longevity and certainty of
spend did not allow us to deliver a high quality service at
sustainable margins.
I am pleased to report a solid financial performance for the
year to 31 December 2016. Group revenue amounted to GBP940.1m
(2015: GBP881.1m), with this organic growth being driven by our
Housing business. Group profit margins edged upwards to 4.26%
(2015: 4.17%) with profit before tax and before acquired intangible
amortisation increasing by 9% to GBP40.1m (2015: GBP36.8m).
Normalised diluted earnings mirrored the increase in operating
profits, increasing by 9% to 30.36p (2015: 27.94p). Our performance
by operating division is discussed in greater detail in the Review
of Operations.
The order book sits at GBP3.1 billion, edging back from the
record high of GBP3.5 billion reported at the end of 2015.
Importantly, revenue visibility for 2017 at the turn of the year
stood at 93%, which is just below our key performance target of
95%. Revenue visibility for 2017 has subsequently increased to 94%.
Revenue visibility for 2018 is 82%, in line with our
expectations.
Cash generated from continuing operations as a proportion of
EBITDA was 70% (2015: 99%) and there was net debt at the year end
of GBP12.4m (2015: net funds of GBP0.8m). Average daily net debt
for the year increased to GBP85.0m (2015: GBP68.0m) reflecting the
working capital expansion required to fund the strong organic
growth this year together with the GBP10m of deferred consideration
payable in respect of the acquisition of Omega. We have a robust
cash management culture and, whilst I have no concerns in respect
of falling short of our cash target in 2016, we fully understand
the importance placed by our investors on this metric.
Dividend
The Board remains confident in the future opportunities in our
growth markets and consequently it expects to continue following a
progressive dividend policy. The Board has recommended a final
dividend of 8.40p per share which, when combined with the interim
dividend, gives a total dividend for the year of 11.70p (2015:
11.00p), a 6% increase, reflecting the Board's confidence in the
underlying performance of the Group. The dividend is payable,
subject to shareholder approval, on 6 July 2017 to shareholders on
the register on 16 June 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
The Board continues to set itself high standards of corporate
governance. Our Corporate Governance Report issued within our
Annual Report details how we approach governance and the areas of
focus for the Board in 2016 and into the future. In line with good
practice, we have reviewed and updated the Group's risk register.
The Senior Management Team plays a central role in reviewing and
challenging the Group's risks. The Group risk team presented risk
management training modules to all levels of management via the
Group development programme, to reinforce our strong risk
management ethos.
During 2016 the Group has continued to enhance its risk and
control environment. A number of new assurance provider functions
have been created, including an IT security governance team to
provide extra focus on the increasing challenges of
cyber-security.
Board evaluation and effectiveness
Performance evaluation of the Board, its Committees and
individual Directors takes place on an annual basis. The Directors
were asked for their views on a broad range of areas including
Group strategy, independence, experience and effectiveness and the
interaction between Board members. It is vital that as a Board we
have the right mix of skills, experience and diversity, ensuring
that Board members have sufficient knowledge of the Company whilst
maintaining their independence and objectivity. I am fortunate as
Chairman to be able to call upon a Board with a broad range of
expertise and specialist knowledge.
During the year, a number of our Non-Executive Directors reached
nine years' service on the Board, and as such are not offering
themselves for re-election. I would like to thank David Hosein and
Mike Rogers for their significant contribution to the Group.
It was also with deep regret that we announced the passing of
Rory Macnamara, who had been a Director since June 2010 and chaired
our Nomination Committee. Rory will be greatly missed by the Board
for his strong technical contribution, and as a trusted
colleague.
UK exit from the European Union
While uncertainty is never positive for business, Mears does not
envisage any significant negative impact from an EU exit. It was
disappointing that the Government's domestic policy agenda took a
back seat through much of 2016 as the referendum took centre stage.
It is pleasing now that since the turn of the year, significant
momentum is building in respect of both Housing and Care
policy.
Social value
At the heart of Mears lies a strong sense of responsibility
towards improving people's lives. We aim to lead the way with
social value in the markets where we operate, delivering lasting
and meaningful outcomes. During the year, we conducted a review of
our social value strategy, identifying our key priorities to ensure
that we effectively engage with communities and deliver social
value on the ground throughout the business, with an effective
measurement of the social impact that is created.
We continued to secure Social Mobility Champion status from the
Department for Business, Energy & Industrial Strategy. Social
mobility is about creating opportunities for young people from
disadvantaged backgrounds. At Mears, we aim to make sure jobs and
opportunities are open to everyone.
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 circa 15,000 staff including 400
apprentices; the vast majority of our employees live in the areas
in which they work.
Review of operations
Housing
The Board is very pleased with the progress made by our Housing
division, where we have positioned ourselves to provide a broader
service offering to a market where we are seeing an increasing
blurring of the boundaries around social, affordable and private
rented housing. Whilst we have increased the depth and breadth of
our capabilities, we place particular emphasis upon ensuring that
our wide spectrum of core skills is delivered from the individual
operating unit, which is important given the increasingly complex
housing challenges being faced by our clients.
The Housing business has continued to deliver excellent
financial performance with revenues of GBP787.5m (2015: GBP735.1m),
an increase of 7% reflecting a particularly busy period of new
contract mobilisations. Our operating margin of 5.6% (2015: 5.8%)
reflects some dilution given this high number of new contract
mobilisations. Typically, the Group anticipates a lower margin from
a new contract during its mobilisation phase, being a time when the
primary focus is in investing resources to establish excellent
customer service. Having reported an operating margin of below 5.0%
in the first half year, it is pleasing that operating margins
normalised during the second half of the year.
The Housing division has secured new contracts of over GBP250m,
with a contract win rate on competitively tendered works of 39% (by
value) (2015: GBP900m and 49%). Following a significant period of
new contract awards in 2015, in the past year we have focused our
attention upon existing contract renewals, notably Sedgefield and
Manchester, both of which I am pleased to confirm have chosen to
continue their existing relationship with Mears. We were also
successful in extending our relationship with Gateshead, although
the maintenance will now follow an insourcing solution.
Whilst we focus upon a single Housing division, the following
provides a breakdown of the revenue streams:
2016 2015
GBPm GBPm
-------------------------------- ------
Maintenance 602.0 589.0
Regeneration 86.0 98.4
Housing Management 99.5 47.7
------------------------ ------ ------
Total Housing revenues 787.5 735.1
------------------------ ------ ------
Maintenance
The Housing division saw Maintenance revenues increase to
GBP602.0m (2015: GBP589.0m). Organic growth of 2% underplays the
level of activity in this area. Whilst our historic record of
contract renewals is strong, we were disappointed to report, in
early 2016, the loss of our flagship contract with Birmingham City
Council following a competitive retender, a contract with annual
revenues of some GBP28m. However, it was pleasing to report overall
growth in 2016 despite the loss of such a significant contract. The
majority of new contract awards commenced in April 2016 and as such
only nine months' trading is reflected in the 2016 trading numbers.
Notable contract activities include:
-- Mears forming a new joint venture with Milton Keynes Council
called YourMK, focusing upon the regeneration of key areas in
Milton Keynes. The contract, which mobilised in April 2016,
initially delivered repairs and maintenance services to nearly
11,500 homes but has since enjoyed a significant extension to the
scope of works. This contract is valued at GBP250m.
-- Mears' success in resecuring its Sedgefield contract,
delivering responsive and planned maintenance to approximately
8,500 homes, which is valued at GBP110m over the ten-year contract
term. This is a contract renewal, with the original contract having
been awarded in 2008.
-- Mears being re-awarded with a multi-service contract with
Manchester City Council on its own behalf and on behalf of
Northwards Housing. The contract is for day-to-day repairs and
maintenance including void property and general building works to
Northwards Housing managed stock and leasehold properties and to
Manchester City Council managed hostels, shared houses and
residential dwellings. The contract is valued at GBP31m over its
initial four-year term with potential to increase to GBP78m,
subject to extension, over its full ten-year term.
Regeneration
The Housing division saw capital work revenues reduce to
GBP86.0m (2015: GBP98.4m). Whilst the level of spend on one-off
refurbishment projects has reduced, we are seeing a high number of
new development opportunities with existing customers. During the
last twelve months, Mears has broadened its service capability to
include the provision of new build services through our
supply-chain partnerships, primarily targeting our existing Housing
clients. Mears is not a property developer or general builder;
rather, we will use our entire portfolio of services to provide a
more integrated solution which enhances our focus on managing
assets for the benefit of owners and client public sector bodies.
We see this as a growth area for our Housing division; however,
during this transitional period, the new development opportunities
have not generated sufficient revenues to replace the reduction of
refurbishment works. Notable contracts secured during the period
include the following:
-- Further to the long-term maintenance works that we are
delivering for our Welwyn and Hatfield Council client, we have been
engaged to develop 29 affordable rented homes on a brownfield site.
The works are valued at GBP5.6m and the contract is due to complete
at the end of 2017. Mears will take over the long-term maintenance
of these new homes, giving a seamless solution to the housing
requirements of Welwyn and Hatfield Council.
-- Mears' success in securing the joint venture with Milton
Keynes Council, which saw the commencement of repairs and
maintenance services in April 2016, has already seen the scope of
works expanding. Mears has been engaged to develop 80 new homes
spread across seven infill sites around the city. These homes will
be for affordable rent, once finished, with a contract value of
approximately GBP11m. Site work commenced during the first quarter
of 2017 and will complete in early 2018.
Housing Management
The Housing division saw Housing Management revenues more than
double to GBP99.5m (2015: GBP47.7m). This business stream is seeing
significant growth opportunities with an annual revenue run rate
now at around GBP120m. Mears has quickly become the leading
provider of housing management services to the public sector,
delivering a range of innovative and unique solutions. The
innovative nature of these propositions has meant that much of the
work has been secured without the requirement for an extended,
competitive tender process. We expect this to be a continuing
trend.
-- Mears mobilised a Key Worker Housing contract providing a
full housing management service throughout the UK. This includes
sourcing properties, managing the application and allocation
process as well as the subsequent day-to-day administration. The
contract, which fully mobilised in April 2016, is valued at over
GBP160m over the initial three-year term.
-- Mears has been engaged by the London Borough of Bromley
('Bromley') to arrange the purchase and refurbishment of 400 homes
currently under private ownership. The key aim is to provide
Bromley with an alternative, affordable housing supply to replace
the significant bed and breakfast accommodation costs currently
incurred by Bromley. Mears has engaged funding partners to finance
the purchase of properties on behalf of the client. We will then
carry out refurbishment works and act as managing agent for the
portfolio. The contract will be operated by Bromley and Mears for
up to 40 years and is valued at circa GBP50m. The operation
mobilised in February 2016, and the purchase and refurbishment
phase will continue over a period of 24 months. This is typical of
a number of opportunities within the pipeline.
-- Mears has entered into a contract with Safe Haven, a charity
which acquires homes to use as temporary accommodation for the
London Borough of Ealing. Safe Haven owns around 200 homes with a
clear plan to increase this number to 400. Mears is engaged, over
an initial 20-year term, to carry out all housing management
services, including an initial refurbishment programme, so that the
homes will now be a long-term affordable housing provision.
-- Mears, through its Registered Provider of Social Housing, and
HB Villages are working in partnership to create a new supply of
purpose-built accommodation for the Care sector. The objective is
for HB Villages to develop and fund the new housing with Mears
providing long-term tenancy and asset management services to the
residents. The first scheme in Northampton is for an 80-home extra
care complex, with Mears providing both housing management and care
services.
-- Mears completed a transaction with Chapter 1 Housing
Association for the management of 900 homes in the South and West
of England. Following a strategic review by Chapter 1, this form of
private sector leased property for homeless families was considered
non-core and they searched for a partner that could ensure a
continuity of a quality service. This arrangement also introduced
Mears to a further twelve Local Authorities and Mears will look to
extend its service offering to those new customer
relationships.
Care
Revenues for the Care division were GBP152.6m (2015: GBP146.0m),
reflecting the full-year impact of the Care at Home acquisition.
The Care division reported a loss of GBP1.2m (2015: GBP1.6m),
broadly in line with management expectations and reflecting the
continued challenges of home care and the additional costs incurred
in restructuring our Care activities.
The Group has made significant progress in rebalancing its
portfolio of Care contracts to focus upon those which have a better
mix of longevity, certainty of spend and price. The Group entered
2016 with the imminent introduction of the National Living Wage
(NLW) hanging over the Care sector with an increase in the National
Minimum Wage from GBP6.70 to GBP7.20 per hour from April 2016. In
addition, the Scottish Living Wage (SLW) signposted an increase
from GBP6.70 to an enhanced GBP8.25 per hour, which further
impacted on around 25% of our Care operations. Whilst the majority
of care providers were very supportive of the principle of paying
carers a rate that is more reflective of the crucial role that they
deliver, the additional pressure on clients' already overstretched
budgets brought significant uncertainty as to how this additional
cost would be funded. The Government has continued to provide some
short-term relief, allowing Local Authorities to levy a new social
care precept of up to 2% on Council tax, with the money raised to
be spent exclusively on adult social care. In addition, the Spring
Budget 2017 committed a further GBP1 billion of additional funding
to 2017/18 that will go some way to preventing an immediate
collapse, but does not represent a long-term solution.
During the second half of 2015, and running into 2016, we
carried out a detailed review, on a contract-by-contract basis, of
charge rates and care worker pay rates. The process placed
particular focus upon managing the impact of the NLW and also
identifying more effective solutions to the sourcing and retention
of sufficient, good quality, care workers. Pleasingly a large
number of care commissioners have shown a deeper understanding of
the true underlying cost of delivering care. This has resulted in
an increasing acceptance that the NLW only really represents a
legal minimum, and that one cannot expect to recruit individuals to
deliver home care, and to accept the responsibilities that go with
this role, at this minimum rate. It remains a key part of our
long-term strategy to see care workers properly recognised as the
skilled workers they undoubtedly are.
In aggregate, Mears enjoyed an increase in charge rates of circa
7% within England and Wales and around 15% in Scotland, which is
generally in line with the increase in our carer payroll cost and
is better than the average increase given to providers across the
sector. The outcome of our review has highlighted those care
commissioners who we believe, in the medium term, have little
desire to change their commissioning strategies and where there is
little likelihood of contract pricing that will allow providers to
deliver care responsibly. This outcome led us to carry out a
substantial restructuring of our Care division, which has seen a
reduction in our Care activities by some 20%, a significant
proportion of which arose within the North of England, which has
the lowest charge rates and more traditional procurement methods.
The initial round of branch closures was substantially completed in
2016. Further refining has taken place since the end of the year,
seeing Mears withdraw from Northern Ireland and a number of
Midlands-based contracts.
A summary of the changing volumes and charge rates as a result
of the refocusing of our Care activities is detailed below:
Hours Annualised Charge
rate
per week revenue per hour
GBPm GBP
----------------------------------------- ----------- ----------
As at 1 January 2016 216,000 148.1 13.19
----------- ----------
Contract closures* (48,200)
----------- ----------
Material new contract awards 9,100
Other net volume decrease (15,500)
------------------------------ --------- ----------- ----------
As at 31 December 2016 161,400 126.2 15.04
------------------------------ --------- ----------- ----------
* Includes contracts under notice of termination as at balance
sheet date.
Whilst we have experienced significant downsizing in certain
geographic areas, we are experiencing a solid pipeline of good
quality bidding opportunities. In addition there are growth
opportunities with the majority of our remaining clients.
Whilst we have become increasingly selective in new contract
bidding, it is pleasing that we have enjoyed a particularly buoyant
period for winning new work, securing over GBP200m of contract wins
at a win rate of 74% by value (2015: GBP80m and 63%). 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 has increased to in
excess of five years and the number of providers reduced
significantly, which reflects the trends which we anticipated and
should in the future result in a better quality of earnings from
our Care activities. Notable wins include:
-- a contract with Devon County Council for the provision of
homecare services. The contract is for an initial five-year period
with an option to extend for a further two years and is worth over
GBP100m. Mears is acting as the lead provider partner in four
geographic areas across the South of Devon and is responsible for
organising and delivering personal care services in that area,
predominantly coordinating and supporting the local SME providers.
The contract commenced in July 2016;
-- further contracts by Wiltshire Council, as lead provider
within zones in the North and West regions of the county, to add to
our existing work in the South and East. The new contract, which is
valued at around GBP85m over its six-year term, means Mears is the
prime provider for the significant majority of this work across the
county, doubling its previous value of work. The new contract
commenced in August 2016;
-- the renewal of our existing Care contract with the London
Borough of Richmond, a client with whom we have enjoyed a
long-standing relationship. The new contract, which commenced in
July 2016, is for six years and will see us doubling our sales
volume; and
-- being re-awarded its existing Care contract with
Aberdeenshire Council, delivering a wide spectrum of homecare and
supported living services to people with complex needs, including
autism and mental health. The contract has increased our provision
to 4,000 hours of support per week.
The main limitation to achieving growth in Care and to
delivering a consistent, good quality service, remains the sourcing
and retention of sufficient care workers of good quality. Whilst we
have experienced some improvement in carer turnover during the
year, with churn rates falling by 14%, this still remains at
unsustainable levels. We remain committed to driving improvement to
the conditions of care workers, including better financial rewards
and incentives and a more formalised career pathway.
Our annual survey of staff also showed a significant increase in
job satisfaction, reflecting the effort we have put into making
Mears the place to work for care staff interested in developing a
career in the sector.
We are pleased to see the various UK regulators implementing
tougher standards around quality, which will play to our strengths.
We are particularly pleased with our regulatory performance in our
key Scottish market and, while we have seen some pressure points in
England, our processes and controls continue to improve.
There has never been greater stakeholder pressure to increase
funding into social care, including from organisations such as the
NHS, which has really been feeling the impact of the underfunded
social care system. Mears is playing its part in encouraging
additional investment to be made and the additional funding secured
from the Spring Budget 2017 and Council tax increases is positive.
Mears is widely recognised now as the organisation in homecare that
is doing the most to drive change, which we believe is a real
positive for the long-term development of our business.
Financial review
This provides further key information in respect of the
financial performance and financial position of the Group to the
extent that this is not already covered within the Review of
Operations.
Acquisitions
Having completed a number of significant acquisitions in recent
years, notably the Care at Home division of Care UK in 2015 and the
Omega Group in 2014, the past year was focused upon consolidation
and organic growth with no new acquisitions completed in the
period.
Contingent consideration of GBP10.0m was paid during the year
relating to the previous acquisition of Omega. A further payment of
GBP5.0m has been paid in the early part of 2017. The Directors
believe it is highly probable that the full contingent
consideration will be paid, with the final instalment of GBP5.0m
therefore anticipated in January 2018.
The acquisition of Omega included an interest in 50% of the
share capital of three jointly owned entities. During 2015, the
Group increased its holding to 75% in the year for a cash
consideration of GBP6.1m. Mears has agreed a forward purchase
agreement to acquire the remaining 25% for consideration of GBP6.1m
in January 2018.
Discontinued activities
In November 2013, the Group completed the disposal of the entire
share capital of Haydon Mechanical and Electrical Limited ('Haydon
UK'). As part of that disposal, the Group retained the beneficial
interest in 49% of the share capital of an investment in a company
registered in the United Arab Emirates, Haydon Mechanical and
Electrical Company LLC ('Haydon LLC'). This beneficial interest was
retained due to a number of performance guarantees in place at the
time of the disposal which would unwind as the underlying contracts
were completed. During the year, the Group reduced its interest to
1% of the share capital in return for a nominal consideration. At
31 December 2016, a balance of GBP3.3m was due from Haydon LLC to
the Group. Upon the remaining guarantees being satisfied and the
outstanding debtor settled, the Group is in the process of
transferring the remaining share to the local management.
In the year, the Group made a full provision against all
remaining amounts due from Haydon UK. This was balanced with an
operating profit generated by Haydon LLC in the period leading up
to its disposal. Accordingly, the net impact on the profit for the
year was zero.
Amortisation of acquisition intangibles
A charge for amortisation of acquisition intangibles of GBP10.7m
(2015: GBP10.8m) arose in the year. This charge relates to a number
of acquisitions in both Housing and Care over recent years. The
remaining unamortised value of GBP19.7m (2015: GBP26.8m),
predominantly relating to order book and customer relationships,
will be written off over their estimated lives.
Net finance charge
A net finance charge of GBP1.8m has been recognised in the year
(2015: GBP1.9m). The finance cost in respect of bank borrowings was
GBP2.8m (2015: GBP2.7m), reflecting a slightly higher average debt
level.
The Group held two interest rate swaps covering 2016. The first
fixed a rate of 1.92% on GBP27.5m of borrowings and expired in
August 2016. The second, which ran throughout the year, fixed a
rate of 1.85% on GBP30.0m of borrowings. The remaining debt bore a
variable LIBOR rate. The Group pays a margin over and above LIBOR
which is subject to a ratchet mechanism and which, during the year,
was typically in the region of 1.5% above LIBOR.
The Group entered into further interest rate swaps impacting
upon future periods. One swap, which commenced in January 2017,
fixed the rate for a period of four years at 0.83% on GBP40.0m of
borrowings.
The net finance costs also include a net credit generated from
defined benefit pension accounting of GBP0.9m (2015: GBP0.7m).
Tax expense
2016 2015
GBPm GBPm
----------------------------------------------------- ------
Current tax recognised in income statement 4.7 5.1
Deferred tax recognised in income statement (1.0) (1.3)
--------------------------------------------- ------ ------
Total tax expenses recognised in income
statement* 3.7 3.8
--------------------------------------------- ------ ------
Profit before tax and before amortisation
of acquired intangibles 40.1 36.8
Profit before tax 29.4 25.9
Effective current tax rate 16.0% 19.7%
--------------------------------------------- ------ ------
* Continuing activities.
The Group complies with all relevant tax laws and regulations
regarding the payment of tax and the provision of information to
tax authorities. Mears does not undertake any aggressive tax
planning or schemes that utilise low tax regimes in other
jurisdictions for the purposes of tax avoidance. Mears seeks to
maintain an open and honest relationship with the tax authorities
and benefits from an HMRC 'low risk' status.
The headline UK corporation tax rate for the year was 20.0%
(2015: 20.3%). The total tax charge for the year on continuing
operations was GBP3.7m (2015: GBP3.8m) resulting in an effective
total tax rate of 11.6% (2015: 14.7%). The key reconciling items to
the headline rate were the utilisation of brought forward losses
relating to previous acquisitions, an annual corporation tax
deduction in respect of share options and adjustments in respect of
the prior year estimated tax charge.
Total tax includes deferred tax, which is an estimate of the tax
due on any differences between the carrying value and the tax base
of assets or liabilities. The current tax charge excludes deferred
tax and is therefore affected by both permanent and temporary
differences in the recognition of items for tax and accounting
purposes.
The current tax charge for the year on continuing operations was
GBP4.7m (2015: GBP5.1m), which represents an effective tax rate of
16.0% (2015: 19.7%). For both the years, the key reconciling items
to the headline rate were permanent differences on the amortisation
of acquisition intangibles and the utilisation of brought forward
tax losses primarily associated with the Morrison business.
Earnings per share (EPS)
2016 2015 Change
p p %
------------------------------------- ------ -------
Diluted earnings per share* 23.41 20.10 +16%
Normalised diluted earnings
per share** 30.36 27.94 +9%
Dividend per share 11.70 11.00 +6%
----------------------------- ------ ------ -------
* Continuing activities.
**Continuing activities before acquired intangible amortisation
with an adjustment to reflect a full tax charge.
The normalised diluted EPS, which allows for the potential
dilutive impact of outstanding share options, increased by 9% to
30.36p (2015: 27.94p). Normalised earnings are based upon
continuing activities and exclude the amortisation of acquisition
intangibles together with an adjustment to reflect a full tax
charge of 18% (2015: 18%). We believe that this normalised diluted
EPS 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.
Cash performance
2016 2015
GBPm GBPm
------------------------------------------------ ------
Operating profit* 41.9 38.7
Depreciation and amortisation 7.4 6.3
--------------------------------------- ------- ------
EBITDA 49.3 45.0
--------------------------------------- ------- ------
Cash inflow from operating activities 34.5 44.5
--------------------------------------- ------- ------
EBITDA to cash conversion 70% 99%
--------------------------------------- ------- ------
Net (debt)/cash at balance sheet date (12.4) 0.8
Average net debt in year** 85.0 68.0
--------------------------------------- ------- ------
* Before amortisation of acquisition intangibles.
** Average debt represents a 366-day mean.
The efficiency with which the Group manages working capital
remains a cornerstone of our business. The Group's conversion of
EBITDA to cash in the year was below target at 70% (2015: 99%),
reflecting the organic growth delivered in 2016 resulting in some
working capital expansion and the increase in trade receivables
reflects this. The Group saw a reduction in trade payables and its
associated cash outflow, impacted by a changing sales mix. The
Group continues to drive a cash culture internally, which is so
important in a high volume, low value and public sector
environment. A cash conversion target of in excess of 90% remains
the key performance measure and one which historically the Group
has an excellent track record of delivering.
Balance sheet
2016 2015
GBPm GBPm
------------------------------------------ --------
Goodwill and intangible assets 219.6 224.9
Property, plant and equipment 20.3 18.4
Inventories 11.2 9.0
Trade receivables 157.2 146.9
Trade payables (186.6) (188.5)
Net (debt)/cash (12.4) 0.8
Deferred consideration (16.5) (20.9)
Cash flow hedge 0.4 (0.9)
Pension 8.5 4.0
Taxation (3.0) (2.1)
-------------------------------- -------- --------
Net assets 198.7 191.6
-------------------------------- -------- --------
Goodwill and intangible assets
The carrying value of identifiable acquisition intangibles at 31
December 2016 was GBP19.8m (2015: GBP26.8m), which predominantly
relates to order book and customer relationships valued on
acquisition. The carrying value will be amortised over its useful
economic life, with over half of this value being expensed over the
next two years. The net movement in the year comprised an increase
of GBP3.7m relating to the finalisation of the fair value
adjustments made in respect of the Care at Home acquisition
completed in 2015 together with a reduction of GBP10.7m relating to
amounts amortised and charged to the Income Statement during the
year.
The carrying value of goodwill of GBP193.7m (2015: GBP193.1m) is
not amortised but is reviewed for impairment on an annual basis or
more frequently where there is an indication of impairment. The
headroom between the goodwill carrying value of the Care division
has been low for a number of years. The Board has carried out a
detailed impairment review and was encouraged that the improved
financial and non-finance performance, driven by the Care
rationalisation, has resulted in a significant improvement in this
headroom.
In addition, intangible assets includes the capitalisation of
expenditure incurred in developing the in-house IT platform.
Additions in the year amounted to GBP2.9m (2015: GBP3.0m) with a
carrying value of GBP6.1m (2015: GBP5.1m), which is amortised over
four years.
Tangible fixed assets
The Group capital expenditure of GBP7.4m (2015: GBP6.2m) relates
to IT hardware, other office equipment and the refurbishment of new
office premises. The level of capital expenditure in respect of
property, plant and equipment in any single year has a close
correlation to the number of new contracts mobilised in that
period. As detailed within the Review of Operations, 2016 was a
record year in respect of new contract mobilisations.
The majority of plant utilised by our operational teams is
subject to short-term hire and motor vehicles are subject to
operating leases and hence neither are included within capital
expenditure or recognised as an asset within the balance sheet.
Similarly, the Housing Management business has a large number of
short-term property leases which are similarly not carried on the
balance sheet. The new accounting standard IFRS 16 'Leases'
requires lessees to recognise assets and liabilities for all
leases, subject to materiality, and is effective for the Group's
2019 year end. A detailed analysis is being prepared during the
course of 2017 to properly understand the impact of this new
standard. The Directors' current expectation is that the accounting
methodology will have a material impact upon the balance sheet but
is not expected to have a material impact upon the profit before
tax. The Group's bank facility agreement, and associated covenants,
will not be impacted by these changes.
Working capital and net debt
Trade receivables and inventories increased to GBP168.4m (2015:
GBP155.9m), which reflects the working capital expansion required
to fund the organic growth delivered in the year. Trade payables
reported a reduction to GBP186.6m (2015: GBP188.5m), reflecting a
shift in the sales mix in favour of Housing Management, which
carries a lower level of trade payables compared to the Housing
maintenance activities.
Our net debt position at 31 December 2016 was GBP12.4m (2015:
net cash of GBP0.8m). The Group seeks to minimise its trade
receivables at both its June and December period ends, resulting in
an atypical low net debt balance. A far more important metric is
the Group's daily net debt balance, which provides a better
indication of working capital management. The average net debt over
the year was GBP85m, which represents an increase compared to the
prior year, having funded both acquisitions and organic growth.
During the year, the Group completed an 'amend and extend' to
its revolving capital facility which extended the expiry date from
July 2018 to July 2020. The total commitment under the facility
increased from GBP120m to GBP140m. The revised facility enjoys a
reduction to the interest cost, with the margin payable over and
above LIBOR, which is subject to a ratchet mechanism, reducing from
a range of 150-250bps to 120-220bps. The Group continues to
maintain a strong relationship with both of its bankers, Barclays
and HSBC, and meets with them regularly.
Pensions
2016
----------------------------
Group Other
schemes schemes Total
GBPm GBPm GBPm
--------------------------------- -------- --------
Scheme assets 149.5 406.9 556.5
Scheme liabilities (137.7) (410.3) (548.0)
----------------------- -------- -------- --------
Net asset/(liability) 11.8 (3.3) 8.5
----------------------- -------- -------- --------
Current service cost 2.1 4.4 6.5
----------------------- -------- -------- --------
2015
----------------------------
Group Other
schemes schemes Total
GBPm GBPm GBPm
--------------------------------- -------- --------
Scheme assets 116.5 332.7 449.2
Scheme liabilities (111.3) (333.8) (445.1)
----------------------- -------- -------- --------
Net asset/(liability) 5.2 (1.1) 4.1
----------------------- -------- -------- --------
Current service cost 2.1 5.5 7.7
----------------------- -------- -------- --------
The Group participates in two principal Group pension schemes
(2015: two) together with a further 33 (2015: 30) individual
defined benefit schemes where the Group has received Admitted Body
status in a Local Government Pension Scheme. At the point of
tendering for new contract opportunities, the Group seeks to
minimise its exposure to future changes in the required pension
contribution rates and to future liabilities resulting from scheme
deficits.
Whilst the aggregate of all the schemes reports a net asset
position, the Group is mindful of managing its risks in this area.
Under IAS 19, pension scheme liability values are driven by changes
in the net discount rate, which is the yield on high quality
corporate bonds less the long-term rate of expected price
inflation. Following the result of the EU referendum, an
increasingly volatile macro-economic environment has resulted in a
downward move in the net discount rate. This has led to a
significant increase in pension liabilities. Positively, the
pension schemes are reporting strong increases in their scheme
assets which have, in aggregate, exceeded the increase in the
associated defined benefit obligation. Overall, the Group has
reported an increase in its pension net asset from GBP4.1m to
GBP8.5m.
However, one significant negative resulting from the changing
assumptions is the charge to the income statement, being the
current service cost. The pension charge to the income statement
for 2017, which is fixed at the start of the year using the
assumptions set at December 2016, is GBP9.0m, increasing from
GBP6.5m. This element of pension accounting is a non-cash item.
Typically cost recovery for pension costs within the underlying
customer contracts is aligned to employers' contributions which
are, in the short term at least, unchanged.
Guidance for 2017
The 93% visibility of consensus forecast revenues secured for
2017 at the turn of the year fell marginally short of the 95%
target. Revenue visibility for 2017 has subsequently increased to
94%. The Group targets annual revenue growth in Housing of 5% to
10% per annum and our expectation for growth in 2017, given the
small short-fall on the headline visibility measure, would be at
the bottom end of that range.
Our Housing margin has historically been in the range of
5.6%-5.9%. The lower number of new contract mobilisations in 2017
will remove some of the margin dilution experienced in 2016. The
shifting sales mix towards Housing Management services, which
typically generate a higher operating margin, also provides an
opportunity for margins to improve slightly. On the downside, the
increase in pension service costs, following a reduction in the
associated net discount rate, will reduce Housing profits by circa
GBP2.5m.
In Care, the Group is focused on achieving good levels of
service at sustainable margins and there is less ambition for
achieving revenue growth. During 2016, the Group took the decision
to exit from around 20% of its Care contracts and a number of these
closures have continued into 2017. However, a number of key new
contract wins have also delivered some strong organic growth. The
Group has previously made commitments on its Care margins, with the
expectation that over time a margin can be delivered in Care that
is similar to those delivered in Housing. In 2017, we expect Care
performance to be in line with that trajectory and return to
profit.
We will continue to manage working capital to a high standard,
targeting EBITDA to cash conversion in excess of 90%.
Consolidated income statement
For the year ended 31 December 2016
2016 2015
Note GBP'000 GBP'000
------------------------------------------------- ---------- ----------
Continuing operations
Sales revenue 1 940,100 881,139
Cost of sales (695,206) (649,007)
------------------------------------------------- ---------- ----------
Gross profit 244,894 232,132
------------------------------------------------- ---------- ----------
Other administrative expenses (203,044) (193,470)
Amortisation of acquisition intangibles (10,690) (10,837)
------------------------------------------------- ---------- ----------
Total administrative costs (213,734) (204,307)
------------------------------------------------- ---------- ----------
Operating profit before amortisation
of acquisition intangibles 41,850 38,662
------------------------------------------------- ---------- ----------
Operating profit 31,160 27,825
Finance income 2 1,152 1,171
Finance costs 2 (2,940) (3,076)
------------------------------------------ ----- ---------- ----------
Profit for the year before tax and
the amortisation of acquisition intangibles 40,062 36,757
------------------------------------------------- ---------- ----------
Profit for the year before tax 29,372 25,920
------------------------------------------------- ---------- ----------
Tax expense 3 (3,676) (3,832)
------------------------------------------ ----- ---------- ----------
Profit for the year from continuing
operations 25,696 22,088
------------------------------------------------- ---------- ----------
Discontinued operations
Loss from discontinued operations - (7,964)
Tax income from discontinued operations - 165
------------------------------------------------- ---------- ----------
Loss for the year after tax from discontinued
operations - (7,799)
------------------------------------------------- ---------- ----------
Profit for the year from continuing
and discontinued operations 25,696 14,289
------------------------------------------------- ---------- ----------
Attributable to:
Owners of the Parent 21,526 12,874
Non-controlling interest 4,170 1,415
------------------------------------------------- ---------- ----------
Profit for the year 25,696 14,289
------------------------------------------------- ---------- ----------
Earnings per share - from continuing operations
Basic 5 23.54p 20.31p
Diluted 5 23.41p 20.10p
------------------------------------------ ----- ---------- ----------
Earnings per share - from continuing and discontinued
operations
Basic 5 21.03p 12.65p
Diluted 5 20.91p 12.52p
------------------------------------------ ----- ---------- ----------
The accompanying accounting policies and notes form an integral
part of the preliminary announcement.
Consolidated statement of comprehensive income
For the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------------------------------------------------------------------------------------------------------- --------
Profit for the year 25,696 14,289
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
Other comprehensive income/(expense):
Which will be subsequently reclassified to the income
statement:
Cash flow hedges:
- losses arising in the year (884) (72)
- reclassification to the income statement 643 559
Increase/(decrease) in deferred
tax asset in respect of cash
flow hedges 39 (97)
Which will not be subsequently
reclassified to the income statement:
Actuarial gain/(loss) on defined
benefit pension scheme 3,676 (3,371)
(Decrease)/increase in deferred
tax asset in respect of defined
benefit pension schemes (804) 675
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
Other comprehensive income/(expense)
for the year 2,670 (2,306)
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
Total comprehensive income for
the year 28,366 11,983
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
Attributable to:
Owners of the Parent 24,196 10,568
Non-controlling interest 4,170 1,415
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
Total comprehensive income for
the year 28,366 11,983
---------------------------------------------------------------------------- ---------------------------------------------------------------------------------- --------
The accompanying accounting policies and notes form an integral
part of the preliminary announcement.
Consolidated balance sheet
As at 31 December 2016
2016 2015
GBP'000 GBP'000
---------------------------------------------------------- --------
Assets
Non-current
Goodwill 193,712 193,058
Intangible assets 25,913 31,851
Property, plant and equipment 20,265 18,436
Pension and other employee benefits 15,992 8,272
Financial assets 677 -
Deferred tax asset 5,704 6,584
---------------------------------------------- ---------- --------
262,263 258,201
---------------------------------------------------------- --------
Current
Assets included in disposal
group classified as held for
sale - 13,255
Inventories 11,234 9,021
Trade and other receivables 157,181 146,879
Financial assets 839 -
Cash at bank and in hand 52,904 68,612
------------------------------------------------ -------- --------
222,158 237,767
---------------------------------------------------------- --------
Total assets 484,421 495,968
------------------------------------------------ -------- --------
Equity
Equity attributable to the shareholders of Mears
Group PLC
Called up share capital 1,026 1,019
Share premium account 58,320 58,124
Share-based payment reserve 1,975 1,651
Hedging reserve (774) (572)
Merger reserve 46,214 46,214
Retained earnings 92,555 86,438
------------------------------------------------ -------- --------
Total equity attributable to the shareholders
of Mears Group PLC 199,316 192,874
Non-controlling interest (642) (1,246)
------------------------------------------------ -------- --------
Total equity 198,674 191,628
------------------------------------------------ -------- --------
Liabilities
Non-current
Long-term borrowing and overdrafts 60,000 57,500
Pension and other employee benefits 7,498 4,224
Deferred tax liabilities 7,120 6,970
Financial liabilities 612 368
Other payables 15,950 15,396
---------------------------------------------- ---------- --------
91,180 84,458
---------------------------------------------------------- --------
Current
Liabilities included in disposal
group classified as held for
sale - 13,255
Short-term borrowings and overdrafts 5,278 10,290
Trade and other payables 187,264 194,103
Financial liabilities 478 510
Current tax liabilities 1,547 1,724
------------------------------------------------ -------- --------
Current liabilities 194,567 219,882
------------------------------------------------ -------- --------
Total liabilities 285,747 304,340
------------------------------------------------ -------- --------
Total equity and liabilities 484,421 495,968
------------------------------------------------ -------- --------
The accompanying accounting policies and notes form an integral
part of the preliminary announcement.
Consolidated cash flow statement
For the year ended 31 December 2016
2016 2015
Note GBP'000 GBP'000
------------------------------------------------- --------- ---------
Operating activities
Result for the year before tax 29,372 25,920
Adjustments 6 20,438 19,887
Change in inventories (2,213) (553)
Change in trade and other receivables (8,793) 6,668
Change in trade and other payables (4,289) (7,458)
------------------------------------------------- --------- ---------
Cash inflow from operating activities
of continuing operations before taxation 34,515 44,464
Taxes paid (4,877) (5,888)
------------------------------------------------- --------- ---------
Net cash inflow from operating activities
of continuing operations 29,638 38,576
Net cash outflow from operating activities
of discontinued operations (3,925) (4,503)
------------------------------------------------- --------- ---------
Net cash inflow from operating activities 25,713 34,073
------------------------------------------------- --------- ---------
Investing activities
Additions to property, plant and equipment (10,029) (4,297)
Additions to other intangible assets (2,904) (2,978)
Proceeds from disposals of property,
plant and equipment 2 86
Acquisition of subsidiary undertakings,
net of cash (10,019) (17,590)
Loans made to other entities (non-controlled) (211) -
Interest received 35 158
------------------------------------------------- --------- ---------
Net cash outflow from investing activities (23,126) (24,621)
------------------------------------------------- --------- ---------
Financing activities
Proceeds from share issue 202 1,418
Discharge of finance lease liability (661) (545)
Interest paid (2,822) (2,764)
Dividends paid - Mears Group shareholders (11,483) (10,445)
Dividends paid - non-controlling interests (1,019) (128)
------------------------------------------------- --------- ---------
Net cash outflow from financing activities (15,783) (12,464)
------------------------------------------------- --------- ---------
Cash and cash equivalents, beginning
of year 822 3,834
Net decrease in cash and cash equivalents (13,196) (3,012)
------------------------------------------------- --------- ---------
Cash and cash equivalents, end of year (12,374) 822
------------------------------------------------- --------- ---------
Cash and cash equivalents comprises the following:
- cash at bank and in hand 52,904 68,612
- borrowings and overdrafts (65,278) (67,790)
------------------------------------------------- --------- ---------
Cash and cash equivalents (12,374) 822
------------------------------------------------- --------- ---------
Cash conversion key performance indicator
Cash inflow from operating activities
of continuing operations 34,515 44,464
EBITDA for continuing operations 49,260 44,940
------------------------------------------------- --------- ---------
Conversion 70.1% 98.9%
------------------------------------------------- --------- ---------
The accompanying accounting policies and notes form an integral
part of the preliminary announcement.
Consolidated statement of changes in equity
For the year ended 31 December 2016
Attributable to equity shareholders of the Company
-------------------------------- -------------------------------------------------------------------------
Share-
--------------------------------
Share based Non-
Share premium payment Hedging Merger Retained controlling Total
capital account reserve reserve reserve earnings interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
At 1 January 2015 1,011 56,714 1,653 (962) 46,214 92,179 (2,347) 194,462
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Net result for the year - - - - - 12,874 1,415 14,289
Other comprehensive
income/(expense) - - - 390 - (2,696) - (2,306)
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Total comprehensive income for
the year - - - 390 - 10,178 1,415 11,983
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Deferred tax on share-based
payments - - - - - (552) - (552)
Issue of shares 8 1,410 - - - - - 1,418
Share option charges - - 771 - - - - 771
Exercise of share options - - (773) - - 773 - -
On acquisition - - - - - - 282 282
Transactions with
non-controlling interests - - - - - (5,695) (468) (6,163)
Dividends - - - - - (10,445) (128) (10,573)
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
At 1 January 2016 1,019 58,124 1,651 (572) 46,214 86,438 (1,246) 191,628
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Net result for the year - - - - - 21,526 4,170 25,696
Other comprehensive income - - - (202) - 2,872 - 2,670
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Total comprehensive income for
the year - - - (202) - 24,398 4,170 28,366
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
Deferred tax on share-based
payments - - - - - (635) - (635)
Issue of shares 7 196 - - - - - 203
Share option charges - - 324 - - - - 324
On disposal - - - - - - (2,570) (2,570)
Transactions with
non-controlling interests - - - - - (6,163) 23 (6,140)
Dividends - - - - - (11,483) (1,019) (12,502)
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
At 31 December 2016 1,026 58,320 1,975 (774) 46,214 92,555 (642) 198,674
-------------------------------- -------- -------- -------- -------- -------- --------- ------------ ---------
The accompanying accounting policies and notes form an integral
part of the preliminary announcement.
Notes to the preliminary announcement
For the year ended 31 December 2016
1. Segment reporting
Segment information is presented in respect of the Group's
operating segments. Segments are determined by reference to the
internal reports reviewed by the Board.
The Group operated two operating segments during the year:
-- Housing - services within this sector comprise a full housing
management service predominantly to Local Authorities and other
Registered Social Landlords; and
-- Care - services within this sector comprise personal care
services to people in their own homes.
All of the Group's activities are carried out within the United
Kingdom and the Group's principal reporting to its chief operating
decision maker is not segmented by geography.
The principal financial measures used by the chief operating
decision maker and the Board to review the performance of the
operating segments are that of revenue growth and operating margins
in both the core divisions of Housing and Care. The operating
result utilised within the key performance measures is stated
before amortisation of acquisition intangibles, exceptional costs
and costs relating to the long-term incentive plans.
2016 2015
----------------------------------- ---------------------------- ----------------------------
Housing Care Total Housing Care Total
Operating segments GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- -------- -------- --------
Revenue 787,530 152,570 940,100 735,129 146,010 881,139
----------------------------------- -------- -------- -------- -------- -------- --------
Operating result pre amortisation
of acquisition intangibles
and long-term incentive
plans 44,057 (1,199) 42,858 42,413 (1,601) 40,812
Operating margin pre amortisation
of acquisition intangibles
and long-term incentive
plans 5.60% (0.79%) 4.56% 5.77% (1.10%) 4.63%
Long-term incentive plans (1,008) - (1,008) (2,150) - (2,150)
----------------------------------- -------- -------- -------- -------- -------- --------
Operating result pre amortisation
of acquisition intangibles 43,049 (1,199) 41,850 40,263 (1,601) 38,662
Amortisation of acquisition
intangibles (10,690) (10,837)
Finance costs, net (1,788) (1,905)
Tax expense (3,676) (3,832)
----------------------------------- ---------------------------- ----------------------------
Profit for the year from
continuing activities 25,696 22,088
----------------------------------- ---------------------------- ----------------------------
All revenue and all non-current assets arise within the United
Kingdom. All of the revenue reported is external to the Group. No
revenue in respect of a single customer comprises more than 10% of
the total revenue reported.
2. Finance income and finance costs
2016 2015
GBP'000 GBP'000
-------------------------------------------------------- --------
Interest charge on overdrafts and short-term
loans (2,134) (2,136)
Interest charge on hedged items (effective
hedges) (643) (559)
Other interest (26) (4)
---------------------------------------------- -------- --------
Finance costs on bank loans, overdrafts
and finance leases (2,803) (2,699)
Interest charge on defined benefit
obligations (137) (252)
Unwinding of discounting - (125)
---------------------------------------------- -------- --------
Total finance costs (2,940) (3,076)
---------------------------------------------- -------- --------
Interest income resulting from short-term
bank deposits 19 16
Interest income resulting from defined
benefit asset 1,085 964
Unwinding of discounting 40 49
Other interest income 8 142
---------------------------------------------- -------- --------
Finance income 1,152 1,171
---------------------------------------------- -------- --------
Net finance charge (1,788) (1,905)
---------------------------------------------- -------- --------
3. Tax expense
Tax recognised in the income statement
2016 2015
GBP'000 GBP'000
-------------------------------------------------------- --------
United Kingdom corporation tax 5,672 5,783
Adjustment in respect of previous periods (972) (642)
---------------------------------------------- -------- --------
Total current tax recognised in income
statement 4,700 5,141
---------------------------------------------- -------- --------
Deferred taxation charge:
- on defined benefit pension obligations 146 133
- on share-based payments (65) (151)
- on accelerated capital allowances 194 (232)
- on amortisation of acquisition intangibles (2,066) (2,130)
- on short-term temporary timing differences 277 (276)
- on corporate tax losses 617 1,609
- impact of change in statutory tax (19) -
rates
Adjustment in respect of previous periods (108) (262)
---------------------------------------------- -------- --------
Total deferred taxation recognised
in income statement (1,024) (1,309)
---------------------------------------------- -------- --------
Total tax expense recognised in income
statement on continuing operations 3,676 3,832
Total tax credit recognised in income
statement on discontinued operations - (165)
---------------------------------------------- -------- --------
Total tax expense recognised in income
statement 3,676 3,667
---------------------------------------------- -------- --------
The following tax has been charged to other comprehensive income
or equity during the year:
2016 2015
GBP'000 GBP'000
-------------------------------------------------- --------
Deferred tax recognised in other comprehensive income
- on defined benefit pension obligations 804 (675)
- on cash flow hedges (39) 97
------------------------------------------ ------ --------
Total deferred tax recognised in other
comprehensive income 765 (578)
------------------------------------------ ------ --------
Deferred tax recognised directly in equity
Deferred tax charge:
- on share-based payments (635) (552)
------------------------------------------ ------ --------
Total deferred tax recognised in equity (635) (552)
------------------------------------------ ------ --------
4. Dividends
The following dividends were paid on ordinary shares in the
year:
2016 2015
GBP'000 GBP'000
------------------------------------------------- --------
Final 2015 dividend of 7.90p (2015:
final 2014 dividend of 7.15p) per share 8,099 7,286
Interim 2016 dividend of 3.30p (2015:
interim 2015 dividend of 3.10p) per
share 3,384 3,159
----------------------------------------- ------ --------
11,483 10,445
------------------------------------------------- --------
The proposed final 2016 dividend of 8.40p per share has not been
included within the consolidated financial statements as no
obligation existed at 31 December 2016.
5. Earnings per share
Basic (continuing) Basic (discontinued) Basic (continuing and discontinued)
--------------------- ----------------------- --------------------------------------
2016 2015 2016 2015 2016 2015
p p p p p p
------------------------------------------ --------- ----------- ---------- ------------------ ------------------
Earnings per share 23.54 20.31 (2.51) (7.66) 21.03 12.65
Effect of amortisation of
acquisition intangibles 10.44 10.65 - - 10.44 10.65
Effect of full tax adjustment (3.45) (2.73) - - (3.45) (2.73)
------------------------------ ---------- --------- ----------- ---------- ------------------ ------------------
Normalised earnings per share 30.53 28.23 (2.51) (7.66) 28.02 20.57
------------------------------ ---------- --------- ----------- ---------- ------------------ ------------------
Diluted
Diluted Diluted (continuing
(continuing) (discontinued) and discontinued)
------------------------------- ---------------- ------------------ ---------------------
2016 2015 2016 2015 2016 2015
-------------------------------
p p p p p p
------------------------------- ------- ------- -------- -------- ---------- ---------
Earnings per share 23.41 20.10 (2.50) (7.58) 20.91 12.52
Effect of amortisation
of acquisition intangibles 10.39 10.54 - - 10.39 10.54
Effect of full tax adjustment (3.44) (2.70) - - (3.44) (2.70)
------------------------------- ------- ------- -------- -------- ---------- ---------
Normalised earnings per
share 30.36 27.94 (2.50) (7.58) 27.86 20.36
------------------------------- ------- ------- -------- -------- ---------- ---------
A normalised EPS is disclosed in order to show performance
undistorted by amortisation of intangibles. The Group defines
normalised earnings as excluding the amortisation of acquisition
intangibles and exceptional costs and adjusted to reflect a full
tax charge. The profit attributable to shareholders before and
after adjustments for both basic and diluted EPS is:
Normalised
Normalised Normalised (continuing
(continuing) (discontinued) and discontinued)
------------------------------- ------------------ ------------------ ---------------------
2016 2015 2016 2015 2016 2015
-------------------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- -------- ---------- ---------
Profit/(loss) attributable
to shareholders: 24,096 20,673 (2,570) (7,799) 21,526 12,874
- amortisation of acquisition
intangibles 10,690 10,837 - - 10,690 10,837
- full tax adjustment (3,535) (2,784) - - (3,535) (2,784)
------------------------------- -------- -------- -------- -------- ---------- ---------
Normalised earnings 31,251 28,726 (2,570) (7,799) 28,681 20,927
------------------------------- -------- -------- -------- -------- ---------- ---------
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.
2016 2015
Million Million
-------------------------------------------------- --------
Weighted average number of shares in
issue: 102.35 101.77
- dilutive effect of share options 0.57 1.06
----------------------------------------- ------- --------
Weighted average number of shares for
calculating diluted earnings per share 102.92 102.83
----------------------------------------- ------- --------
6. Notes to the Consolidated Cash Flow Statement
The following non-operating cash flow adjustments have been made
to the result for the year before tax:
2016 2015
GBP'000 GBP'000
---------------------------------------------- --------
Depreciation 5,573 4,963
Loss on disposal of property, plant
and equipment 48 45
Amortisation 12,527 12,151
Share-based payments 324 771
IAS 19 pension movement (770) (660)
Finance income (67) (158)
Finance cost 2,803 2,775
------------------------------------- ------- --------
Total 20,438 19,887
------------------------------------- ------- --------
7. Publication of non-statutory accounts
The financial information set out in the announcement does not
constitute the Group's statutory accounts for the years ended 31
December 2016 or 2015. The financial information for the year ended
31 December 2015 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
auditor reported on those accounts; its report was unqualified and
did not contain a statement under Section 498 of the Companies Act
2006. The statutory accounts for the year ended 31 December 2016
will be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and
will be delivered to the Registrar of Companies.
The Listing Rules of the UK Listing Authority (LR 9.7A.1)
require that preliminary unaudited statements of annual results
must be agreed with the listed Company's auditor prior to
publication, even though an audit opinion has not yet been issued.
In addition, the Listing Rules require such statements to give
details of the nature of any likely modification that may be
contained in the Auditor's Report to be included with the Annual
Report and Accounts. Mears Group PLC confirms that it has agreed
this preliminary statement of annual results with Grant Thornton UK
LLP and that the Board of Directors has not been made aware of any
likely modification to the Auditor's Report required to be included
with the Annual Report and Accounts for the year ended 31 December
2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DGGDXUUDBGRG
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March 21, 2017 03:01 ET (07:01 GMT)
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