Mears Regulatory News (MER)

25 March 2020

Mears Group PLC

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

Covid-19 update

Mears Group PLC, a leading provider of services to the Housing sector in the UK, provides the following update on the impact of Covid-19.

Introduction

Mears provides vital front-line services, in many cases to vulnerable people. The Group's primary focus at the current time is to ensure continuity of service as far as possible, with the well-being of our customers and the health and safety of our staff of utmost importance. Working practices are evolving so as to minimise the spread of the virus. The Group recognises that it can play a significant role in supporting the national effort in navigating through the emerging situation. Mears is proud of doing the right thing in communities and, where the workforce is not engaged in essential maintenance, they may be available to provide other services to local communities.

Operational Impact

Over 90 per cent. of the Group's revenue is sourced through contracts with local and central government entities and accordingly, the Group is not exposed to counterparty credit risk.

An element of the Group's housing activities are regarded by central government as essential services. In addition, the Group provides emergency maintenance services and our Housing clients will wish to ensure that those services continue to be delivered. The Company believes that these services, which amount to around 30% of Group revenues, will continue to be paid for and delivered.

Other housing services will be classified as lower priority in the current environment. These services are largely non-discretionary and in normal circumstance provide a consistent and highly visible revenue stream. However in the current climate, local authorities may choose to defer these works at least for the period of the emergency and Mears expects to see a reduction in these activities in the short term. Where these services are paid under a block arrangement, clients are expected to continue to make payments under the contract. However where services are paid on a 'per activity' basis, this will result in an immediate revenue reduction. The Company expects these activities to recover when conditions return to normality.

The nature and potential scale of disruption means that it is unlikely that Mears will continue to interact with its customers as usual. The Company considers that it is likely that the Group will experience some disruption over the coming period.

Mitigating Actions

Given the uncertainty and rapidly changing nature of the situation, Mears is actively focused on cash conservation and cost management. The Group has been assessing a number of downside scenarios and is taking a number of actions to ensure that it protects the Group's liquidity.

The Government has given all public sector contracting authorities a clear directive to put in place the most appropriate payment measures to support supplier cash flow. Where services are paid 'per activity', which accounts for around half of Group revenues, the Group is holding discussions with its Local Authority customers to agree alternative pricing mechanisms which would allow the Group to retain those employees engaged on those activities and more broadly support the local supply chain. This key mitigating action would provide the greatest protection to revenue, profit and cash.

Over 90 per cent of debtors are with public bodies, and the Government has made a clear commitment that invoices will be settled quickly to maintain cash flow to the supply chain and to protect jobs. The Government's measures relating to workforce protection are also being implemented and will further reduce the Group's exposure.

The Board will also monitor other areas of discretionary spend, including capex, to ensure that only essential expenditure is incurred, to further preserve cash.

The Group has commenced dialogue with debt providers with regard to increasing the Group's facilities during this period of uncertainty. The Group's debt providers have indicated their strong support and the Group would expect to secure additional facilities over the next month. There is no immediate requirement but the Board wishes to secure sufficient headroom in the event that the current emergency continues for an extended period.

However, the Board has concluded, given the over-riding importance of cash management that it would currently be inappropriate to pay a dividend and therefore it confirms that it will not declare a final dividend with its final results when they are published in the near future. This decision will be kept under review and the Company would wish and expect to return to the payment of dividends once it is prudent so to do.

Balance Sheet and Liquidity

The Group has a committed revolving credit facility to the value of £170m which expires in November 2022. Net debt at 31 December 2019 was £51.0m, however the Directors consider the average daily net debt to be more reflective of the debt requirements of the business, and this was £114.4m for 2019. Following the mobilisation of the Group's AASC contract, average net debt during the last quarter of 2019 was £126.1m.

The Group has two banking covenants: Consolidated Net Debt to Consolidated EBITDA (before exceptional items) at 3.00x, and Consolidated EBITDA (before exceptional items) to Consolidated Net Finance Charges at 3.50x. The covenants are tested biannually on 30 June and 31 December. The Company will keep these covenants under review.

Outlook

The Board has concluded that, while positive progress is being made on the actions above, the level of uncertainty created by the Covid-19 pandemic is such that it should not provide guidance with regard to financial performance for the current year until a clearer outlook emerges.

The situation is evolving rapidly. Mears will provide further updates to the market as and when it is able to do so. While the short term remains uncertain, Mears considers that the services it provides will continue to be required by its customers in the longer term and that those long term prospects remain very positive.

David Miles, Chief Executive Officer of the Group, commented: 

"The rapidly evolving public health emergency created by Covid-19 will place increased demands on the Group's services, its people and its finances. We are taking all the necessary steps to overcome these challenges. I am confident that our staff will rise to the challenge of effective delivery in these difficult circumstances and that the Group will come through well. I thank all of our stakeholders for their forbearance and their support in these uniquely challenging times.

"The Group is well placed to battle through these short term challenges. Our long-term goal continues to be delivering controlled growth, improved profitability and reduced indebtedness."

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

For further information, contact:

Mears Group PLC

Buchanan

Mark Court/Charlotte Slater Tel: +44(0)20 7466 5000

mears@buchanan.uk.com

About Mears

Mears currently employs around 6,500 people and provides 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 and to provide accommodation and support for the most vulnerable.

We focus on long-term outcomes for people rather than short-term solutions, and invest in innovations that have a positive impact on people's quality of life and on their communities' social, economic and environmental wellbeing. Our innovative approaches and market leading positions are intended to create value for our customers and the people they serve while also driving sustainable financial returns for our providers of capital, especially our shareholders.