TIDMMER
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 Six months to
June 2017 June 2016 change
Revenue GBP470.8m GBP466.2m +1%
Statutory profit
for the period
before tax GBP12.7m GBP12.7m -
Adjusted profit
before tax* GBP18.3m GBP18.2m +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 GBP470.8m (2016: GBP466.2m), growth of 1%.
o The Housing division, which accounts for 85% of Group
revenues, reported revenues increasing to GBP402.1m (2016:
GBP389.6m), organic growth of 3%, reflecting the full year impact
of a busy period of new contract mobilisations in 2016.
o The Care division, which accounts for 15% of Group revenues,
reported revenues of GBP68.7m (2016: GBP76.6m). 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
GBP16.10 (30 June 2016: GBP14.12).
-- Operating margin before the amortisation of acquisition intangibles of 4.1% (2016: 4.2%).
o The Housing operating margin increased to 5.2% (2016: 4.8%),
reflecting fewer new contract mobilisations in the period.
o As previously announced, the Care division reported an
operating loss of GBP1.0m (2016: profit GBP1.0m) 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
GBP800m in 2017 against an original expectation of circa GBP830m
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 GBP19.6m (2016: GBP14.1m)
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 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 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 GBP470.8m (2016: GBP466.2m). Profit
before tax and before the amortisation of acquisition intangibles
increased to GBP18.3m (2016: GBP18.2m), 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 margins. Normalised 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 GBP178.1m (2016:
GBP167.4m), reflecting the organic growth of the Group. Trade
payables reduced to GBP176.1m (2016: GBP182.9m), 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 GBP85m (FY2016:
GBP85m) and includes the outflow of GBP5m 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 GBP800m in 2017, compared to our previous
expectation of circa GBP830m. 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 GBP402.1m (2016: GBP389.6m), 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 GBP105m at a win ratio of 30% by value. (2016: GBP259m 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 GBP68.7m (2016: GBP76.6m), 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 GBP1.0m (2016: profit GBP1.0m),
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 Implied Blended
per week revenue charge
run-rate rate per
GBPm hour GBP
----------------------------------- ---------- -----------
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 GBP97m of new contracts at a win rate of 64% by
value (2016: GBP165m 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 GBP1
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 GBP830m to GBP800m. 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 Six Year
months months
ended ended ended
31
30 June 30 June December
2017 2016 2016
Note GBP'000 GBP'000 GBP'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 Six Year
months months
ended ended ended
31
30 June 30 June December
2017 2016 2016
GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'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
Last Six Year
Six twelve months
months months
ended ended ended ended
31
30 June 30 June 30 June December
2017 2017 2016 2016
Note GBP'000 GBP'000 GBP'000 GBP'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 Share Share-based Non-
up
share premium payment Hedging Merger Retained controlling Total
capital account reserve reserve reserve earnings interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Six months
ended ended
30 June 2017 30 June 2016
------------------
Operating Operating
Revenue result Revenue result
GBP'000 GBP'000 GBP'000 GBP'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 Six
months months
ended ended
30 June 30 June
2017 2016
GBP'000 GBP'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 Six
months months
ended ended
30 June 30 June
2017 2016
GBP'000 GBP'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 Six Six Six
months months months 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 Six
months months
ended ended
30 June 30 June
2017 2016
GBP'000 GBP'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 Six
months 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
GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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 GBP0.004m and the total consideration of GBP0.188m
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:
Last Six
Six twelve months
months months
ended ended ended
30 June 30 June 30 June
2017 2017 2016
GBP'000 GBP'000 GBP'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
The company news service from the London Stock Exchange
END
IR GGUCCRUPMGRC
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