Mears Regulatory News (MER)

For Immediate Release 1 June 2015

Mears Group PLC

("Mears" or "the Group")

Acquisition of Care at Home division of Care UK Limited

Mears Group PLC, the provider of services to the Social Housing and Care sectors in the UK, is pleased to announce the acquisition of Care UK Homecare Limited and Care UK Community Care Agency Limited, the corporate entities comprising the Care at Home division of Care UK Limited ("CAH"). The total consideration is £11.3 million in cash comprising a base payment of £9.0 million valuing the business on a debt-free basis and assuming a normal level of working capital together with a further payment of £2.3 million made in respect of cash balances and excess working capital acquired on completion.

CAH provides community based care services to over 10,000 service users in England, Wales and Scotland, and it has contracts with over 90 local authorities and Clinical Commissioning Groups (CCGs), employing circa 6,000 staff.

Rationale for the acquisition

Prospects for the UK care market over the long term remain very strong given the underlying growth drivers of an ageing population and the need to look after people in their own homes rather than in hospital and residential settings. Domiciliary care will also benefit from greater integration of health and social care. The challenges facing the health and social care system are significant and require a change in the relationship with providers. Scale and capability are increasingly important. Scale is important as innovative commissioners look to partner providers around joint achievement of outcomes and a level of financial risk sharing - this is an approach Mears adopts within its Social Housing market and one which is now developing within Care, such as its contracts with Torbay and Wiltshire. Capability is important in terms of maximising the opportunities around looking after people with more complex conditions, often funded directly by the NHS and increasingly from pooled NHS and Social care budgets.

The acquisition of CAH significantly increases the scale of Mears within the domiciliary care market, making Mears the second biggest provider in the UK. CAH provides an excellent geographic fit with Mears' existing Care business with limited cross-over. The acquisition strengthens the Group's position with a number of strategically important client relationships which are believed to have potential to develop into output based contracts on re-tender. CAH has historically held one of the best track records of compliance with regulatory ratings amongst the national providers. While initial investment in CAH will be needed, the combination of capability and scale will make Mears a more attractive partner for the emerging, larger partnering orientated contracts such as those already held by Mears in Torbay and Wiltshire.

Key financial information

The enterprise value of £9.0 million is on a debt-free basis, assumes a normal level of working capital and is funded from Mears' existing banking facilities. In addition, a further payment of £2.3 million has been made in respect of cash balances and excess working capital acquired on completion. The total consideration of £11.3 million represents a £ for £ payment against the reported book value of tangible net assets of the CAH business.

For the year ended 30 September 2014, CAH reported revenues of £72.2 million and an operating loss before exceptional items of £2.6 million. Gross assets at 30 September 2014 were £42.4 million and excluding intangible assets were £21.2 million.

Based on the results for the six months ended 31 March 2015, the business reported annualised revenues of £65.2m, down approximately 10% on the prior year. The company has reported particularly poor results in certain regions and accordingly the CAH business has already commenced localised closure plans.  There is considerable scope to improve staff stability and related performance.

The Board is fully aware of the challenges in improving the operations and financial performance of CAH, however, having performed a similar turnaround with its acquisition of Morrison, is confident it can achieve a similar result with CAH. The short term focus will be in respect of improved service delivery. Mears has placed significant emphasis upon improving the terms and conditions of its Care workers. The Group has invested heavily in the terms and conditions of its carers and is committed to mirroring this investment within the newly acquired CAH business. In order to deliver service improvements, it is imperative that recruitment churn is reduced in order to build a settled and high quality workforce. This immediate enhancement in carer pay and conditions is built into the Group's valuation model.

The current senior management team of CAH will remain with the business following completion. There will be a review of both CAH and the Group's existing Care operations to ensure that this opportunity is used to drive improvements in both businesses. Whilst inevitably there are areas where removing duplication and pooling resources can realise better value, the immediate focus will be on investment. There will also be a review of the Group's IT systems in respect of the Care division.

The average remaining life on the CAH contract estate is circa 18 months. This provides opportunities to improve profitability in the medium term and underpins the Board's confidence that the acquired business can deliver an operating margin in line with the Group's existing Care margin, of 7.8% during the course of 2017.

The CAH business, under the terms of the acquisition, has a licence to use the Care UK brand for a maximum period of 90 days following completion. A full rebranding under Mears Care will immediately follow completion.

Valuation metrics

The Board believes the price being paid for CAH is attractive and is based on the following key assumptions:

*A trading loss of £8.0 million for the acquired activities has been assumed for 2015. This loss comprises trading losses combined with costs of restructure and rebranding. Given the subjectivity in the identification and classification of costs as exceptional, it is intended to expense this initial loss above the operating profit line and similarly include this within the Group's key performance measures. A further loss of £2.5 million has been assumed for 2016.

** The current revenue run-rate is circa £65 million. There is an expectation of a reduction in current volumes as a result of resolving certain operational and financial challenges, with estimated contract retention of 90%, thereby giving a recurring annual run-rate of circa £59 million.

Note: Nothing in this announcement is intended to be, or is to be construed as, a profit forecast or to be interpreted to mean that earnings per Mears' share for the current or future financial years, or those of Mears following the acquisition of CAH, will necessarily match or exceed the historical earnings per Mears' share.

Commenting on the Acquisition, David Miles, Chief Executive of Mears, said:

"I am delighted to have completed the acquisition of CAH. This deal in many respects mirrors our acquisition of Morrison. I believe we have acquired one of our most significant competitors at an attractive valuation. Our focus will be upon enhancing service delivery thus enabling financial improvements.

"This acquisition further strengthens Mears' market leadership and contract profile in Care. Given our strong operational platform and differentiated service delivery ethos, together with our ability to turnaround businesses, I am confident that we will deliver improvements to CAH's contracts, customers, service users and employees."

-ENDS-

For further information, contact:

Mears Group PLC

David Miles, Chief Executive Tel: +44(0)7778 220 185

Andrew Smith, Finance Director Tel: +44(0)7712 866 461

Bob Holt, Chairman Tel: +44(0)7778 798 816

Alan Long, Executive Director Tel: +44(0)7979 966 453

www.mearsgroup.co.uk

Buchanan

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

www.buchanan.uk.com

Notes for editors

Mears is a leading social housing repairs and maintenance service provider to Local Authorities and Registered Social Landlords in the UK and now commands a leading position in the UK Local Authorities' outsourced care market, providing personal care services to people in their own homes.

Following the CAH acquisition, Mears employs in excess of 17,000 people and provides maintenance and repairs services to in excess of 10% of the UK social housing stock. Mears also provides care, on a daily basis, to over 30,000 service users.