Last checked at 9 Mar 2010 07:00
9 March 2010
Mears Group PLC
("Mears" or "the Group")
Record Preliminary Results
For the Year Ended 31 December 2009
Mears Group PLC, the support services group to the Social Housing and Domiciliary Care sectors in the UK, is pleased to announce record results for the year ended 31 December 2009.
| Financial Highlights | Year ended 31 December 2009 | Year ended 31 December 2008 | Change |
| Social Housing revenue | £355.3m | £282.0m | up 26% |
| Domiciliary Care revenue | £60.1m | £54.6m | up 10% |
| Operating profit pre amortisation of acquisition intangibles | £24.8m | £21.0m | up 18% |
| Normalised diluted EPS | 21.61p | 18.99p | up 14% |
| Dividend per share | 5.70p | 4.75p | up 20% |
Summary of Operations and Outlook
Financial:
·; Major tender successes, with record contract wins valued at over £650m in the last twelve months.
·; Group operating margin increased to 5.3%.
·; Operating profit to cash conversion at 108.7%.
·; Strong balance sheet with net funds of £6.5m.
·; New bank facility for the enlarged Group committed of £85m until June 2013.
·; Dividend increased by 20%.
Social Housing Division:
·; Record level of revenue increased to £355.3m (2008: £282.0m), growth of 26% including organic growth of 18%.
·; Operating margin maintained at market leading levels in excess of 6.0%. (margin is stated after integration costs and post acquisition losses of £0.5m generated by 3C Asset Management Limited).
Domiciliary Care Division:
·; Strategic acquisition of Supporta plc for £27m.
·; Revenue increased by 10% to £60.1m compared to £54.6m in 2008.
·; Operating margin of 5.2% (2008: 5.6%) inline with management expectations following number of new contract mobilisations during the year.
Outlook:
·; Unprecedented levels of opportunity in the public sector
·; Order book of £2.0 billion (2008: £1.6 billion).
·; 88% visibility of consensus forecast revenue for 2010 and 69% for 2011.
·; Social Housing - bid pipeline £3.9 billion (2008: £2.8 billion) with a significant proportion of contract opportunities at an advanced stage of bidding.
·; Domiciliary Care - integration of care businesses on track to operate under single 'Mears Care' brand.
Bob Holt, Chairman, Mears Group said:
"The order book stands at a record £2.0 billion and demand for our services continues to be very strong. The bid pipeline currently stands at its highest ever level of £3.9 billion and there are a number of particularly exciting opportunities where we are at an advanced stage of bidding. We continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins. There are tremendous opportunities with existing customers to unlock significant additional revenue.
"Importantly, our two growth markets Social Housing and Domiciliary Care, which account for close to 90% of Group revenues are defensive sectors where spend is largely non-discretionary and is therefore unlikely to be affected by any public sector cutbacks. It should also be noted that a significant proportion of our social housing revenue is derived from Housing Associations who would be less affected by a reduction in public sector spending. We are seeing unprecedented levels of opportunity within the public sector and drivers such as budgetary pressures are more likely to encourage our Local Authority clients to consider more innovative and higher scale partnerships. Mears is well placed to benefit from this and regardless of the outcome of the forthcoming election we believe that the demand and opportunity for our two growth markets will continue to be strong.
"Reflecting the Board's confidence in the future opportunities for our growth markets, the dividend is increased by 20%.
"The Group has a clear strategy of building market leading positions in each of its core businesses. We consider it to be of paramount importance to be recognised as the provider of quality services. I have total confidence that, through the acquisition of Supporta, our shareholders will benefit significantly from our continuing investment into Care."
A presentation for analysts will be held at 10.00 a.m. today at the offices of Investec, 2 Gresham Street, London, EC2V 7QP.
About Mears www.mearsgroup.co.uk (tickers: MER.L MER.LN MER.PL)
Mears is a leading social housing repairs and maintenance service provider to Local Authorities and Registered Social Housing Landlords in the UK and, following the acquisition of Supporta, now commands a leading position in the UK Local Authorities' outsourced domiciliary care market, providing personal care services to people in their own homes.
Mears employs in excess of 11,000 people and provides maintenance and repairs services to 500,000 homes nationwide. Mears also provides over 150,000 hours of domiciliary care to 20,000 service users each week.
| Enquiries:
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| Mears Group PLC |
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| Bob Holt, Chairman | Tel: +44(0)7778 798 816 |
| Andrew Smith, Finance Director | Tel: +44(0)7712 866 461 |
| Joint Broker - Investec |
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| Keith Anderson/Daniel Adams | Tel: +44(0)20 7597 5970 |
| Joint Broker - Collins Stewart |
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| Mark Dickenson/Piers Coombs | Tel: +44(0)20 7523 8350 |
| Financial PR |
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| Threadneedle Communications |
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| Trevor Bass/Alex White | Tel: +44(0)20 7936 9666 |
| IR - Hansard Communications |
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| John Bick/Kirsty Corcoran | Tel: +44(0)7245 1100 Tel: +44(0)7872 061007 |
Chairman's statement
It gives me great pleasure to announce our fourteenth consecutive year of double digit growth in both revenue and record profits. These results were achieved during a period of deep recession and represent a brilliant performance from our two growth markets and a fantastic effort from the Mears team who continue to build a profitable platform for the future. I commend all our employees.
In the year ended 31 December 2009, revenue increased by 11.8% to £470.1 million and operating profit before amortisation was up 17.7% to £24.8 million. Revenues in Social Housing grew by 26.0% and normalised diluted earnings per share were up 13.8% to 21.61p.
To reflect the Board's confidence in the future opportunities in our growth markets the dividend is increased by 20% to 5.70p. per share.
Our organic growth combined with the Supporta acquisition means that we have continued to expand our workforce and are now a significant employer in the private sector with over 11,000 employees in the Group.
Of particular note is our strong cash generation. Cash generated from operations as a proportion of operating profit pre amortisation amounted to 108.7%, with a net funds position at the year end of £6.5m.
In line with our normal accounting and operational practice, earnings have been presented after expensing the total costs of the set up of new contract awards and the full cost of the turnaround, integration and trading losses of 3C Asset Management since acquisition.
In February 2010 we completed the acquisition of Supporta plc, which we believe is transformational for our care business and will make the Group one of the clear market leaders in the provision of domiciliary care services to the public sector. Supporta Care has long been seen as the provider of the highest standards of care in the sector as well as attaining the highest level of profitability. Supporta brings to the Group a strong management team and we are already well advanced with rebranding our two Care operations as Mears Care under the management of Bernadette Walsh, the former Managing Director of Supporta Care. I am delighted to welcome all the Supporta employees to the Group. I have total confidence that shareholders will benefit significantly from our continuing investment into Care, which consolidates a second growth engine into the Group. The acquisition of Supporta accelerates the ability of the Group to provide a Care and Repair service to its public sector customers in line with Government initiatives.
Our order book stands at £2.0 billion and the demand for our services continues to be very strong. The bid pipeline currently stands at its highest ever level of £3.9 billion and there are a number of particularly exciting opportunities where we are at an advanced stage of bidding. Importantly, our two growth markets, Social Housing and Domiciliary Care, which account for close to 90% of Group revenues are defensive sectors where spend is largely non-discretionary and it is therefore unlikely to be affected by any public sector cutbacks. It should also be noted that a significant proportion of the social housing revenue is derived from Housing Associations who would be less affected by a reduction in public sector spending.
We are seeing unprecedented levels of opportunity within the public sector. Budgetary pressures are more likely to encourage our Local Authority clients to consider more innovative and higher scale partnerships. We are well placed to benefit from this. We believe that the demand and opportunity for our two growth markets will continue to be strong regardless of the outcome of the forthcoming election. In addition we have not experienced any work delays from our public sector customers. We enter the current year with visibility of 88% of 2010 consensus forecast revenue and we have visibility over 69% of consensus forecast revenue for 2011.
The Mears Social Housing division has long been recognised as a market leader in terms of operational performance and tenant satisfaction. Our differentiated offering is focussed on tenant quality of service and customer value for money which clients are able to measure. Whilst in a period where our clients are suffering budgetary constraints, it has been very encouraging that we continue to find clients procuring services with a bias towards value and quality rather than purely on price considerations.
We have led the Social Housing sector for a number of years. It is a tremendous accolade to the strength of our Mears brand that the best senior managers in the sector continue to have a desire to join the best service provider. The quality of our operational delivery underpins our strategy and continues to give us clear competitive advantage. It is a testament to our excellent operational team, headed by David Miles, that in 2009 we were able to start a number of significant contracts and still maintain operational excellence. Again the team are to be congratulated.
I am pleased that our Domiciliary Care division had a successful year in what is seen as a difficult trading environment. Despite tightening public sector budgetary constraints, the business still grew in excess of 10% as a result of our professional approach to long-term partnership contract bidding. Operational margins improved before we absorbed the cost of a number of new contract set ups. The increasing trend of Local Authorities to procure services from fewer and larger care providers is entirely in line with our strategy to work in partnership with our clients with the longer term aim towards improved outcome-based solutions.
The Government remains committed to prioritising the agenda of housing in an ageing society to ensure that as people grow older they stay comfortable and secure in their own homes. We continue to see a convergence between our Social Housing and Care divisions and believe there are increasing opportunities to combine our Care and Repair offerings, thereby adding further value to our customers. The integration of services around the home aims to contribute to a high quality of life by meeting diverse needs and providing choice to the relevant users of the service. With this in mind we are progressing with developing pilot projects which we believe can demonstrate the benefits of a combined care and repair solution which delivers an improved outcome for tenants.
Our Mechanical and Electrical division had an excellent year. In spite of the economic downturn, the division performed well, with significant success in winning new orders which takes the business into 2010 and beyond with increased optimism.
We have a stated intention to have the best trained and equipped workforce in the sectors in which we operate and continue to provide enhanced career opportunities for all staff. The Board understands that they must provide the best possible opportunities for all existing employees to prosper, whilst continuing to attract the best possible talent available.
Once again these results demonstrate the quality of our employees. I commend our workforce at all levels for their commitment and endeavour.
Our community affairs program continues to excel and ensures that every Mears employee has the opportunity to give something back into the community either on a local, national or international basis.
Corporate governance
Your Board has been mindful as to position the business for its next stage of growth and alongside this reinforce the Group's corporate governance to better reflect our Main List status. I am therefore pleased to announce the following changes to the Group's Board:
·; As previously highlighted, it is my intention to relinquish the role of Chief Executive and appoint an internal candidate into this role before the end of 2010. I will remain as Chairman to concentrate on strategic development and investor and employee relations.
·; Davida Marston will be appointed to the Board and the Audit Committee at the AGM in June 2010. She has an excellent background in finance, banking and the public sector. Davida will be appointed Chair of the Audit Committee on the retirement of Michael Macario.
·; Rory Macnamara will be appointed to the Board and the Remuneration Committee at the AGM in June 2010. He has an excellent background in finance and public company management. It is envisaged that he will be appointed Chairman of the Nominations Committee.
·; Reg Pomphrett who joined the Board in 1998 will not be seeking re-election at the AGM to be held in June 2010, but will remain as Group Company Secretary. Reg is currently Chair of the Remuneration Committee and it is envisaged that Peter Dicks will assume this role from June 2010.
·; Michael Macario who joined the Board in 1996 will not seek re-election at the AGM to be held in June 2011. He currently Chairs the Audit Committee and is the Senior Independent Director.
We have always been mindful of the need to build long term relationships with all stakeholders whilst providing them an opportunity to better understand our business. Throughout the year we arranged a number of site visits for shareholders and other city commentators with the aim of providing them with increased exposure to our operations and management.
Outlook
The demand for our services continues to be very strong. Our two growth markets, Social Housing and Domiciliary Care, are defensive sectors where spend is largely non-discretionary. We continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins whilst at the same time providing a first class service.
The sales pipeline remains buoyant and there are a number of significant opportunities well advanced in the bidding process. In addition we have a number of opportunities with existing customers to unlock significant additional revenue. The Group has a clear strategy of building and maintaining market leading positions in each of its core businesses where we can clearly be recognised as the provider of quality services.
We are mindful of the need to ensure that the public sector receive the best value for money. The public sector faces unprecedented fiscal challenges which is made all the more difficult by rising consumer expectations and an ageing population. Mears response is simple; to ensure efficiencies are realised wherever possible and working in partnership with our clients so that we continue to improve the quality of services provided. My view on life has always been the same: to strive to be the best in whatever we do.
I look forward to bringing you news of further successes in the future.
Bob Holtbob.holt@mearsgroup.co.uk Chairman
Business review
Revenue
In the year to 31 December 2009 we grew revenue to £470.1m (2008: £420.4m), an increase of 11.8%.
The Social Housing division contributed revenue of £355.3m (2008: £282.0m), growth of 26.0% including organic growth of 18.0%. The Group has consistently reported organic growth in excess of that achieved by the other major competitors in the sector, underpinned by our quality of service delivery. At no time has the Group lowered its margin expectation to generate turnover.
The Domiciliary Care division contributed revenue of £60.1m (2008: £54.6m). The Domiciliary Care division has been successful in converting a high proportion of tenders into new contract awards which have contributed to the organic growth in 2009 of 9.2%. There were two further small bolt-on acquisitions in 2009 which accounted for 0.8% of turnover growth.
The Mechanical & Electrical division (M&E) reported a 29.7% reduction in revenue to £54.8m compared to last year (2008: £78.0m). This was significantly ahead of our initial forecasts and, in a year of economic instability, represents a tremendous achievement for this division.
Operating profit
At a Group level, operating profit before amortisation of acquisition intangibles increased by 17.7% to £24.8m (2008: £21.0m) resulting in the operating margin rising from 5.0% to 5.3%. This increase is due to a change in the sales mix, with our higher margin Social Housing division contributing 76% of Group revenues (2008: 67%).
At a divisional level, operating margin is struck before amortisation and share option costs. The Social Housing division maintained its operating margin above 6.0% which continues to be at the higher end for the sector. This is a tremendous achievement at a time when it has mobilised a number of new contracts. Typically the Group anticipates a low margin from a new contract during its mobilisation phase at a time where it is critical to ensure that robust processes are put in place while focusing on excellent customer service. Mears does not capitalise any of these initial inefficiencies and the losses associated with new mobilisations are fully expensed in the period. At a time of high growth, one would expect to see an initial dilution in operating margin, so it is particularly encouraging to see this dilution counterbalanced by robust margins generated by our more mature contracts. In addition, in January 2009, the Group acquired 3C Asset Management Limited (3C). This company had been through a period of significant financial upheaval and was loss making at the time of acquisition. 3C underwent a major restructure and is now fully integrated within the social housing division. 3C reported a loss in the 11 months since acquisition of £0.5m, which has been expensed within our headline numbers.
The Domiciliary Care division reported an operating margin at 5.2%, down from the 5.6% reported in 2008. This reduction in margin was due to the costs of mobilising a number of new block contract awards. In particular a new contract award with Norfolk County Council proved particularly challenging in terms of operational service delivery with the inevitable impact on margin. Were it not for this, the underlying margin would show an enhancement in the period. The acquisition of Supporta plc provides significant opportunity for margin enhancement through operating and system improvements, synergies and further economies of scale. Our focus remains on improving service quality and contract profitability whilst gaining further scale in our Care offering.
The M&E operating margin of 1.6% (2008: 2.7%) is pleasing in a business that has shown strong management through difficult trading conditions. The 2009 margin has been reduced by the commencement of a major new contract in relation to the London 2012 Athletes Village, as no profit is recognised in these early stages of contracts. The M&E division is well placed and enters 2010 with increased optimism.
Amortisation of acquisition intangibles
A charge of £4.98m (2008: £3.60m) arose in the period. This represents the amortisation of the identified intangible assets acquired predominantly in relation to the acquisition of the Domiciliary Care division in 2007 and a number of subsequent bolt-on acquisitions. The increase in 2009 compared to the comparative period is due to the acquisition of 3C Asset Management Limited in January 2009. The excess of purchase price over the fair value of identified net assets is capitalised as goodwill and is not amortised but is subject to an annual impairment review.
Tax expense
A tax charge of £4.4m has been provided (2008: £3.8m). The effective current corporation tax rate recognised in the income statement before adjustments for deferred tax is 25.7% (2008: 26.3%). The Group benefited from a reduction in the rate of Corporation Tax in March 2008 from 30% to 28% with the current period having benefited from the full year impact of this. The Group also benefited from a corporation tax deduction in respect of the exercise of 0.4m (2008: 0.8m) share options and a deferred tax credit of £1.4m (2008: 1.0m) in respect of the amortisation of acquisition intangibles.
Earnings per share (EPS)
Normalised basic EPS increased by 15.7% to 22.67p (2008: 19.60p). The normalised diluted EPS, which allows for the potential diluting impact of outstanding share options, was up 13.8% to 21.61p (2008: 18.99p). Normalised earnings exclude amortisation of acquisition intangibles together with an adjustment to reflect a full tax charge of 28%. 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.
Dividend
These excellent results, combined with our confidence in the future opportunities in our growth markets, allow the Group to increase the dividend ahead of earnings. A final dividend of 4.10p per share is proposed which combined with the interim dividend, gives a total dividend in the year of 5.70p (2008: 4.75p), a 20% increase. The dividend is payable on 2 July 2010 to shareholders on the register on 11 June 2010.
Cash
The efficiency with which the Group manages working capital remains a cornerstone of our business. The Group's conversion of operating profit pre amortisation to cash in the period was 108.7% (2008: 44.3%). The Group has consistently set high standards of working capital management and high levels of conversion of operating profit into cash with an average conversion rate during the last five years of 87% over a period where the size of the business has more than doubled through organic growth. Our net cash position at 31 December 2009 was £6.5m (2008: £6.6m).
Financing
In December 2009, at the time of the Supporta plc acquisition, the Group entered into a revised bank facility agreement with its principal banks to refinance the debt in Supporta, to provide additional funding and to take the opportunity to ensure that the facility better addressed the future requirements of the Group. The new £85m facility is available to fund further acquisitions and to provide additional working capital to fund the existing business and future organic growth. The term has been extended to June 2013.
In January 2009, the Group took advantage of the continued reduction in the Bank of England base rate by entering into a hedging arrangement to fix interest rates on £15m of core debt for a 4 year term.
The net interest cost in the period increased in the period to £1.4m (2008: £0.8m). The interest charge includes a hedging loss of £0.4m (2008: £nil).
Acquisitions during the year
Early in 2009, the Group announced the acquisition of 3C Asset Management Limited (3C). The company had previously suffered significant financial upheaval. The initial consideration for 3C was £1m for the goodwill plus a payment in respect of net assets. An additional deferred contingent consideration was to be paid over the 24 month period to 31 December 2010 linked to contract retention and profitability. The deferred contingent consideration has subsequently been renegotiated and is to be settled early. The level of contract retention since the acquisition has exceeded our expectation, which is a credit to our operational teams. The 3C business generated a loss pre-amortisation of £0.5m in 2009 and is now trading profitably.
The Group has completed a further two small Care acquisitions for a combined initial sum of £1.0m, with up to £0.1m deferred subject to future profitability.
Balance Sheet
We maintain a conservative balance sheet. All costs relating to tender, contract set-up and the initial inefficiencies during the period of contract mobilisation are written off as they are incurred. A balance of £2.1m (2008: £2.0m) is included within non-current trade and other receivables. This relates to sales retentions in relation to our M&E division. This is normal practice within that sector, where a small percentage of the contract sum is withheld for a short period. This is typically settled twelve months after the completion of works.
The Group capital expenditure of £3.7m is in line with the prior year. The majority relates to IT hardware, other office equipment and the refurbishment of new office premises. Predominantly all our plant and machinery is hired, and motor vehicles subject to operating leases and hence are not included within capital expenditure or recognised as an asset within the balance sheet.
The IT system is central to both the quality of our service delivery and our robust financial management. During the year the Group spent £0.8m further developing our Social Housing and Domiciliary Care contract management system.
Total shareholders' equity rose by £10.2m to £105.9m at 31 December 2009. The increase in net assets is primarily due to retained profits.
Order book and sales pipeline
The visibility of our earnings continues to improve with over £650m of new work secured in the period. Our order book now stands at £2.0 billion (comparative: £1.6 billion), an all time high. Market forecast consensus revenue visibility for 2010 now stands at 88% (comparative: 92%) and 69% (comparative 71%) of the 2011 projection. There are a number of exciting opportunities within the sales pipeline at an advanced stage of the bidding process. There are also tremendous opportunities with existing customers to unlock significant additional revenue which are not included within our order book or in our visibility statistics. This excellent order book, coupled with our robust bid pipeline, reflects our confidence in the demand drivers for repair and maintenance spending of our public sector partners, and was a major factor in the Board's decision to increase the dividend payment.
Social Housing
Mears has been awarded a number of new social housing contract awards including the following:
Brighton & Hove City Council
A ten-year partnership to provide housing stock upgrades, responsive repairs and comprehensive maintenance services. The contract is valued at £200 million for the ten-year period commencing in April 2010. Brighton & Hove manages 12,500 homes. The new contract builds on Mears' existing contract with Brighton & Hove which provides responsive and void repairs together with gas servicing and also adds programmed, cyclical and further maintenance works to Brighton & Hove's extensive portfolio of council houses.
Shoreline Housing Partnership
A six-year partnership to provide responsive repairs and maintenance services. The contract is valued at £50 million for the six-year period and has a potential worth in excess of £80 million subject to an opportunity for a further four-year extension. Shoreline is a registered social landlord which manages 8,200 homes centred on Grimsby which were previously the subject of a stock transfer from North East Lincolnshire Council. This award widens the range of services we provide to Shoreline, adding to the partnering arrangements we hold with them for Decent Homes and Gas Servicing & Maintenance. The contract has the potential to develop into an all encompassing solution to cover all parts of Shoreline's housing maintenance provision post 2010.
Sedgefield Borough Homes
A 5-year partnership with Sedgefield Borough Homes carrying out Decent Homes services. The contract value to Mears is estimated to be £32 million. Sedgefield Borough Homes is an existing client of the Group and we are delighted to be able to extend the range of services currently provided.
Crawley Borough Council
A 10 year partnership with Crawley Borough Council in West Sussex to provide responsive repairs and voids services. Crawley Borough Council has been a client of Mears since 2004. The contract sum is valued at £30 million for the 10 year period.
Canterbury City Council and Thanet District Council
A five year partnership to provide responsive repairs and voids services to Canterbury City Council. The contract includes external decoration programmes and disabled aids and adaptation improvements. The contract is valued at £28 million for the initial five year period with a performance option to extend to 15 years increasing the value to in excess of £82 million. We are the sole provider appointed to provide services to the Council's 5,298 homes.
This contract was jointly procured with Thanet District Council where we have been awarded a five year partnership to provide responsive repairs and voids services. The contract includes external decoration programmes and disabled aids and adaptation improvements. The contract is valued at £13 million for the initial five year period and also includes a performance option to extend to 15 years giving a value of in excess of £40 million. We are the sole provider appointed to provide services to the Councils 3,116 homes. We first worked for Thanet District Council in 1995.
Our success continues on the back of outstanding service levels. The Social Housing sector continues to be key to all three political parties, as evidenced by their commitment to sign up to the House Proud Campaign to make housing a key part of their manifestos.
While pressures on finances are clear, there remain significant opportunities for innovation amongst leading providers. An example of this would be our newly created Mears Direct service, which provides a wide range of management support to Direct Labour organisations, looking to improve efficiency of service but where a full outsource is deemed not to be appropriate. We are also seeing more strategic partnerships where Landlords are bundling together a range of services into one contract. This again plays to the strength of Mears.
The review of the Housing revenue account is likely to see additional opportunities amongst some Local Authorities for investment in maintenance services, where they split housing from the Council's general funds.
The consolidation of Social Landlords continues, as does the commitment to build new Social Homes. An extra £1.5bn has been allocated to this including a large proportion to some Councils whose scope has been expanded to include the ability to build new Social Homes again.
Environmental opportunities within Social Housing are beginning to materialise, given demands upon landlords to cut Social Housing carbon emissions by one third by 2020. Mears is developing strong credentials for this emerging opportunity. Work on a housing refurbishment project in Hyde, led to three key awards being given for delivery excellence. We have also undertaken work on Combined Heating and Power pilots and have extensive experience of implementing and maintaining a wide range of carbon reducing fixtures.
Domiciliary Care
Mears Care continues to build a presence across a growing geographical area and is well placed to take a leading position in the consolidation of the Domiciliary Care market. Investment in infrastructure and people continues as we grow the business.
The revenue increase of 10% is predominantly generated organically. The business has been successful in converting a high proportion of tender opportunities into new contract awards as a result of our professional approach to long-term partnership contract bidding. The increasing trend of Local Authorities to procure services from fewer and larger care providers is entirely in line with our philosophy to work in partnership with our clients with the longer term aim towards improved outcome-based solutions.
The Care division continues to build a presence across a growing geographical area and is well placed to take a leading position in the consolidation of the Domiciliary Care market. Investment in infrastructure and people continues as we grow the business.
In February 2010, the Group completed the acquisition of Supporta plc for consideration of £27.2m satisfied by the issue of 10.1 million ordinary shares. Supporta is a leading provider of support services with over 75% of revenues derived from the provision of domiciliary care services. Supporta Care is one of the largest providers of care at home in the UK currently providing in excess of 60,000 hours of care per week through 23 offices.
Supporta Care's services include the following:
·; Live-in Care and Respite Services - provides an alternative to nursing or residential care and gives patients the opportunity to remain in their own home.
·; Palliative Care - a bespoke service is provided to offer flexible and sympathetic care to the terminally ill and their families.
·; Rapid Response - this service is provided at short notice to enable speedy hospital discharges or prevent admissions which can be a significant problem for health and social care services.
·; Extra Care Schemes - a number of support services are managed and provided to five care schemes nationally. These services incorporate a range of needs from that of supported living to complex dual sensory impairment.
The future for Domiciliary Care is very positive. Demographic changes mean 1.7 million more adults will require care over the next 20 years. The political debate is not one of reducing care spend, but rather where the money will come from to help pay for increasing demand. A key factor here is the increasing role that the NHS is taking in joint commissioning across both health and care. A recent Care Quality Commission (CQC) report showed that if all parts of the country were performing at the levels of the best performing areas, in terms of reducing emergency emissions, some £2 billion would be saved. Domiciliary Care is best placed to unlock this saving.
We continue to see consolidation of providers and budgetary constraints are leading to increasing amount of work being outsourced by Commissioners. Personalisation brings new opportunities to extend our service offering and even more importantly to integrate our care and housing services to deliver a full service provision to budget holders. New partnerships are emerging including the commencement of a partnership between ourselves and Peverel Homes, which is the largest provider of private residential accommodation in the country. Subject to a successful trial, this will role out in 2010.
The acquisition of Supporta provides the Group with the scale required to enable it to deliver on its stated strategy and allow the Group to pursue further, larger and more comprehensive contracts. Moreover, operational benefits can be achieved. The integration of some branches and services and the ability to more easily reach different geographic areas will reduce mobilisation cost and risk. Fundamentally we are uniquely placed to deliver clear and visible leadership with our larger domiciliary care business.
Safety, Health and Environment (SHE)
For the fourth consecutive year, Mears has seen a reduction in all accident rates. This 10% reduction in the year is the result of a team effort between branch management, staff, and the SHE team. The introduction of specific objectives set for each member of the SHE team has contributed, alongside the rigorous training regimes introduced in 2008 and 2009.
In 2008 we introduced our own in house training course that was accredited by the British Safety Council. This has been a great success and without a doubt a contributor to the impressive accident reductions and improved safety performance. In 2009 Mears were presented with the prestigious RoSPA Training trophy beating off hundreds of other entrants. With the introduction of new systems, procedures, management and operative training for 2010, we are optimistic of reporting further improvements in this next year.
Environmental
During 2009 we maintained and built on our strong environmental performance of 2008. During the year we saved 176 tonnes of CO2 through our commitment to recycle all our paper and cardboard. This equates to taking approximately 220 cars off the road per year.
With the change in legislation announced in April 2009 we also managed to divert 175 tonnes of plasterboard from going directly into landfill. Materials are segregated at source and taken to recycling facilities for reprocessing. Through working closely with our waste partner, we have set a target of recycling 80% of our waste during 2010.
To achieve this figure we will be using a network of recycling facilities and transfer stations selected for their recycling capabilities. It is also our intention to use designated waste containers on sites where space allows us to achieve our maximum recycling potential.
Training and development
In 2009, we retained our accreditation to Investors in People with extremely positive feedback.
We continue to be proud with our equality and diversity agenda and have established a work group who will review our policy and update our diversity plan. The work group has been made up of clients, tenants, employee representatives and management.
Our Customer Services level 3 training programme has successfully continued with a further eight Customer Services staff completing in 2009.
We are continuing to support young people with increasing numbers of work placements which provide valuable skills in office and operational roles and in 2009 we made a commitment to support the charity Preset, who work with inner city minority groups to support training and work placements.
Management training has been a key focus throughout 2009 with 15 managers completing the Institute of Leadership and Management level 2 and 5 additional completing level 3. We already have 50 managers signed up for the programme for 2010. This management training is supported by internal training in Human Resource Management, Finance, Customer Care, Health and Safety and IT.
People
We have a stated intention to have the best-trained and equipped workforce in the sector and are committed to a policy of providing enhanced career opportunities for all of our staff. We commend our workforce at all levels for their commitment and endeavour.
Our Communities
We work throughout the UK and all our branches are dedicated towards helping to improve people's lives. We do work in some of the most socially deprived areas of the country and so we feel a strong sense of responsibility toward the wider community. Helping a community to thrive increases the quality of life for residents, supports community cohesion and development, all of which makes our job that little bit easier.
In 2009 Mears employees delivered over 18,500 hours of community work and supported over 575 community projects. These range from large-scale environmental improvements involving many employees to smaller acts of help and support given by just a couple of staff. What makes them all special is the impact they have on the people and communities involved. Our people are to be commended for their efforts, all of which is on a voluntary basis.
David Milesdavid.miles@mearsgroup.co.uk Chief Operating Officer
Andrew Smithandrew.smith@mearsgroup.co.uk Finance Director
Consolidated income statementfor the year ended 31 December 2009
|
|
| 2009 |
| 2008 | ||
|
| Note | £'000 | £'000 | £'000 | £'000 | |
| Sales revenue | 3 |
| 470,146 |
| 420,376 | |
| Cost of sales |
|
| (336,848) |
| (309,721) | |
| Gross profit |
|
| 133,298 |
| 110,655 | |
| Other administrative expenses |
| (108,545) |
| (89,626) |
| |
| Operating result before amortisation of acquisition intangibles | 3 | 24,753 |
| 21,029 |
| |
| Amortisation of acquisition intangibles |
| (4,980) |
| (3,600) |
| |
| Total administrative costs |
|
| (113,525) |
| (93,226) | |
| Operating profit |
|
| 19,773 |
| 17,429 | |
| Finance income | 4 |
| 190 |
| 263 | |
| Finance costs | 4 |
| (1,584) |
| (1,110) | |
| Profit for the year before tax |
|
| 18,379 |
| 16,582 | |
| Tax expense | 5 |
| (4,423) |
| (3,800) | |
| Net profit for the year |
|
| 13,956 |
| 12,782 | |
|
|
|
|
|
|
| |
| Earnings per share |
|
|
|
|
| |
| Basic | 7 |
| 18.81p |
| 17.36p | |
| Diluted | 7 |
| 17.94p |
| 16.82p | |
Consolidated statement of comprehensive incomefor the year ended 31 December 2009
|
|
| 2009 | 2008 |
|
|
| £'000 | £'000 |
| Net result for the year |
| 13,956 | 12,782 |
| Other comprehensive income/(expense) |
|
|
|
| Actuarial loss on defined benefit pension scheme |
| (3,634) | (967) |
| Increase in deferred tax asset in respect of defined benefit pension scheme |
| 919 | 135 |
| Other comprehensive expense for the year |
| (2,715) | (832) |
| Total comprehensive income for the year |
| 11,241 | 11,950 |
| Attributable to: |
|
|
|
| Equity holders of the parent |
| 11,241 | 11,950 |
Consolidated balance sheetas at 31 December 2009
|
|
| 2009 | 2008 | 2007 |
|
|
| £'000 | £'000 | £'000 |
| Assets |
|
|
|
|
| Non-current |
|
|
|
|
| Goodwill |
| 52,393 | 50,258 | 46,781 |
| Intangible assets |
| 17,072 | 11,214 | 12,608 |
| Property, plant and equipment |
| 12,142 | 9,517 | 8,199 |
| Deferred tax asset |
| 6,098 | 3,485 | 1,116 |
| Trade and other receivables |
| 2,119 | 2,031 | 1,710 |
|
|
| 89,824 | 76,505 | 70,414 |
| Current |
|
|
|
|
| Inventories |
| 17,349 | 8,392 | 9,277 |
| Trade and other receivables |
| 82,933 | 85,654 | 49,929 |
| Cash at bank and in hand |
| 23,511 | 16,094 | 15,250 |
|
|
| 123,793 | 110,140 | 74,456 |
| Total assets |
| 213,617 | 186,645 | 144,870 |
|
|
|
|
|
|
| Equity |
|
|
|
|
| Equity attributable to the shareholders of Mears Group PLC |
|
|
|
|
| Called up share capital |
| 744 | 740 | 732 |
| Share premium account |
| 32,505 | 31,940 | 31,007 |
| Share-based payment reserve |
| 2,649 | 3,235 | 2,035 |
| Merger reserve |
| 11,548 | 11,548 | 11,548 |
| Retained earnings |
| 58,482 | 48,241 | 37,373 |
| Total equity |
| 105,928 | 95,704 | 82,695 |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Non-current |
|
|
|
|
| Pension and other employee benefits |
| 3,205 | 488 | 55 |
| Deferred tax liabilities |
| 4,646 | 3,159 | 3,721 |
| Other liabilities |
| 1,230 | - | 3,191 |
|
|
| 9,081 | 3,647 | 6,967 |
| Current |
|
|
|
|
| Short-term borrowings and overdrafts |
| 17,000 | 9,500 | - |
| Trade and other payables |
| 77,607 | 74,903 | 52,410 |
| Current tax liabilities |
| 4,001 | 2,891 | 2,798 |
| Current liabilities |
| 98,608 | 87,294 | 55,208 |
| Total liabilities |
| 107,689 | 90,941 | 62,175 |
| Total equity and liabilities |
| 213,617 | 186,645 | 144,870 |
Consolidated cash flow statementfor the year ended 31 December 2009
|
|
| 2009 | 2008 |
|
| Note | £'000 | £'000 |
| Operating activities |
|
|
|
| Result for the year before tax |
| 18,379 | 16,582 |
| Adjustments | 8 | 9,368 | 7,459 |
| Change in inventories |
| (6,738) | 598 |
| Change in operating receivables |
| 8,097 | (35,884) |
| Change in operating payables |
| (3,712) | 20,194 |
| Cash flow from operating activities before taxation |
| 25,394 | 8,949 |
| Taxes paid |
| (4,814) | (4,980) |
| Net cash inflow from operating activities |
| 20,580 | 3,969 |
| Investing activities |
|
|
|
| Additions to property, plant and equipment |
| (3,732) | (3,705) |
| Additions to other intangible assets |
| (796) | (725) |
| Proceeds from disposals of property, plant and equipment |
| 82 | 8 |
| Acquisition of subsidiary undertaking, net of cash |
| (11,056) | (7,778) |
| Disposal of business activities |
| - | 2,454 |
| Interest received |
| 190 | 263 |
| Net cash outflow from investing activities |
| (15,312) | (9,483) |
| Financing activities |
|
|
|
| Proceeds from share issue |
| 569 | 941 |
| Discharge of finance lease liability |
| (820) | (23) |
| Interest paid |
| (1,390) | (928) |
| Dividends paid |
| (3,710) | (3,132) |
| Net cash outflow from financing activities |
| (5,351) | (3,142) |
| Cash and cash equivalents, beginning of year |
| 6,594 | 15,250 |
| Net decrease in cash and cash equivalents |
| (83) | (8,656) |
| Cash and cash equivalents, end of year |
| 6,511 | 6,594 |
|
|
|
|
|
| Cash and cash equivalents is comprised as follows: |
|
|
|
| Cash at bank and in hand |
| 23,511 | 16,094 |
| Short-term borrowings and overdrafts |
| (17,000) | (9,500) |
| Cash and cash equivalents |
| 6,511 | 6,594 |
Consolidated statement of changes in equityfor the year ended 31 December 2009
|
|
| Share | Share-based |
|
|
|
|
| Share | premium | payment | Merger | Retained | Total |
|
| capital | account | reserve | reserve | earnings | equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 1 January 2007 | 615 | 5,547 | 1,485 | - | 30,363 | 38,010 |
| Net result for the year | - | - | - | - | 10,934 | 10,934 |
| Deferred tax on pension liability | - | - | - | - | 25 | 25 |
| Pension obligation | - | - | - | - | 295 | 295 |
| Total comprehensive income for the year | - | - | - | - | 11,254 | 11,254 |
| Deferred tax on share-based payments | - | - | - | - | (1,700) | (1,700) |
| Issue of shares | 117 | 25,460 | - | 11,548 | - | 37,125 |
| Share option charges | - | - | 550 | - | - | 550 |
| Dividends | - | - | - | - | (2,544) | (2,544) |
| At 1 January 2008 | 732 | 31,007 | 2,035 | 11,548 | 37,373 | 82,695 |
| Net result for the year | - | - | - | - | 12,782 | 12,782 |
| Deferred tax on pension liability | - | - | - | - | 135 | 135 |
| Pension obligation | - | - | - | - | (967) | (967) |
| Total comprehensive income for the year | - | - | - | - | 11,950 | 11,950 |
| Deferred tax on share-based payments | - | - | - | - | 2,050 | 2,050 |
| Issue of shares | 8 | 933 | - | - | - | 941 |
| Share option charges | - | - | 1,200 | - | - | 1,200 |
| Dividends | - | - | - | - | (3,132) | (3,132) |
| At 1 January 2009 | 740 | 31,940 | 3,235 | 11,548 | 48,241 | 95,704 |
| Net result for the year | - | - | - | - | 13,956 | 13,956 |
| Deferred tax on pension liability | - | - | - | - | 919 | 919 |
| Pension obligation | - | - | - | - | (3,634) | (3,634) |
| Total comprehensive income for the year | - | - | - | - | 11,241 | 11,241 |
| Deferred tax on share-based payments | - | - | - | - | 1,624 | 1,624 |
| Issue of shares | 4 | 565 | - | - | - | 569 |
| Share option charges | - | - | 500 | - | - | 500 |
| Exercise of share options | - | - | (1,086) | - | 1,086 | - |
| Dividends | - | - | - | - | (3,710) | (3,710) |
| At 31 December 2009 | 744 | 32,505 | 2,649 | 11,548 | 58,482 | 105,928 |
Notes to the preliminary announcement
for the year ended 31 December 2009
1. Corporate informationMears Group PLC is a public limited company incorporated in England and Wales whose shares are publicly traded. The preliminary announcement of the company and its subsidiaries ('the Group') for the year ended 31 December 2009 were authorised for issue in accordance with a resolution of the Directors on 8 March 2010.
2. Basis of preparation and accounting principles
(a) Basis of preparation
The preliminary announcement contains extracts from the full financial statements.
The full financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and also in accordance with IFRS as issued by the International Accounting Standards Board. The financial statements are prepared under the historical cost convention.
(b) Significant accounting policies
The accounting policies remain unchanged from the previous year except for the adoption of IAS 1 (Revised) 'Presentation of Financial Statements' and the adoption of IFRS 8 'Operating Segments'.
The adoption of IAS 1 (Revised) has resulted in a change to the presentation of the primary statements. The adoption of IFRS 8 has required the disclosure of segmental information in line with the way the business is managed. The Group has previously reported in this way and therefore the segments disclosed have not changed as a result of adoption of IFRS 8.
3. Segment reporting
The Group operated three business segments during the year.
·; Social Housing - services within this sector comprise a full repairs and maintenance service to Local Authorities and other Registered Social Housing Landlords in the UK
·; Domiciliary Care - services within this sector comprise personal care services to people in their own homes
·; Mechanical and Electrical - services within this sector comprise provision of design and build mechanical and electrical services
During 2008 the Group disposed of the Vehicle Distribution segment. All of the Group's activities are carried out within the United Kingdom.
|
| 2009 | 2008 |
| ||||||||
|
| Social | Domiciliary |
|
| Social | Domiciliary |
| Vehicle |
| ||
|
| Housing | Care | M&E | Total | Housing | Care | M&E | Distribution | Total | ||
| Business segments | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Revenue | 355,260 | 60,050 | 54,836 | 470,146 | 282,046 | 54,611 | 78,008 | 5,711 | 420,376 | ||
| Operating result Pre amortisation of acquisition intangibles and share based payment | 21,252 (6.0%) | 3,151 (5.2%) | 850 (1.6%) | 25,253 (5.4%) | 17,091 (6.1%) | 3,065 (5.6%) | 2,071 (2.7%) | 2 (-) | 22,229 (5.3%) | ||
| Share based payment |
|
|
| (500) |
|
|
|
| (1,200) | ||
| Operating result Pre amortisation of acquisition intangibles |
|
|
| 24,753 (5.3%) |
|
|
|
| 21,029 (5.0%) | ||
4. Finance income and finance costs
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Interest charge on overdrafts and short-term loans | (896) | (1,104) |
| Interest charge on interest rate swap | (368) | - |
| Finance charges in respect of finance leases | (137) | (6) |
| Interest charge on defined benefit obligation | (143) | - |
| Unwinding of discounting in deferred consideration | (40) | - |
| Finance costs | (1,584) | (1,110) |
| Interest income resulting from short-term bank deposits | 74 | 251 |
| Interest income resulting from defined benefit obligation | 116 | 12 |
| Net finance charge | (1,394) | (847) |
5. Tax expense
Tax recognised in the income statement:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| United Kingdom Corporation Tax effective rate 25.7% (2008: 26.3%) | 6,001 | 5,304 |
| Adjustment in respect of previous periods | (114) | (312) |
| Total current tax recognised in income statement | 5,887 | 4,992 |
| Deferred taxation charge: |
|
|
| - on defined benefit pension obligations | 157 | 16 |
| - on share-based payments | (227) | (200) |
| - on accelerated capital allowances | - | - |
| - on amortisation of acquisition intangibles | (1,394) | (1,008) |
| Total deferred taxation recognised in income statement | (1,464) | (1,192) |
| Total tax expense recognised in income statement | 4,423 | 3,800 |
6. Dividends
The following dividends were paid on ordinary shares in the year:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Final 2008 dividend of 3.40p (2008: final 2007 dividend of 2.90p) per share | 2,522 | 2,135 |
| Interim 2009 dividend of 1.60p (2008: interim 2008 dividend of 1.35p) per share | 1,188 | 997 |
|
| 3,710 | 3,132 |
The proposed final 2009 dividend of 4.10p per share has not been included within the Group financial statements as no obligation existed at 31 December 2009.
7. Earnings per share
The Group defines normalised earnings as excluding the amortisation of acquisition intangibles and adjusted to reflect a full tax charge of 28%.
|
| Basic | Diluted | ||
|
| 2009 | 2008 | 2009 | 2008 |
|
| p | p | p | p |
| Earnings per share | 18.81 | 17.36 | 17.94 | 16.82 |
| Effect of amortisation of acquisition intangibles | 6.71 | 4.89 | 6.40 | 4.74 |
| Effect of full tax adjustment | (2.85) | (2.65) | (2.73) | (2.57) |
| Normalised earnings per share | 22.67 | 19.60 | 21.61 | 18.99 |
A normalised earnings per share is disclosed in order to show performance undistorted by amortisation of intangibles. The profit attributable to shareholders before and after adjustments for both basic and diluted earnings per share is:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Profit attributable to shareholders: | 13,956 | 12,782 |
| - amortisation of acquisition intangibles | 4,980 | 3,600 |
| - full tax adjustment | (2,118) | (1,953) |
| Normalised earnings | 16,818 | 14,429 |
The calculation of earnings per share is based on a weighted average of ordinary shares in issue during the year. The diluted earnings per share 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 earnings per share use the same weighted average number of shares as the basic and diluted earnings per share.
|
| 2009 | 2008 |
|
| Millions | Millions |
| Weighted average number of shares in issue: | 74.20 | 73.63 |
| - dilutive effect of share options | 3.62 | 2.34 |
| Weighted average number of share for calculating diluted earnings per share | 77.82 | 75.97 |
8. Notes to the consolidated cash flow statement
The following non operating cash flow adjustments have been made to the pre-tax result for the year:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
| Depreciation | 2,146 | 1,989 |
| Loss/(profit) on disposal of property, plant and equipment | 114 | 109 |
| Profit on disposal of investments | - | (398) |
| Amortisation | 5,214 | 3,712 |
| Share-based payments | 500 | 1,200 |
| Finance income | (190) | (263) |
| Finance cost | 1,584 | 1,110 |
| Total | 9,368 | 7,459 |
9. 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 2009 or 2008. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2009 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 31st December 2009.