Mears Regulatory News (MER)

15 March 2011

Mears Group PLC

("Mears" or "the Group")

 Final Results

For the Year Ended 31 December 2010

Mears Group PLC, the provider of services to the Social Housing and Domiciliary Care sectors in the UK, is pleased to announce record results for the year ended 31 December 2010.

*Normalised diluted EPS is stated before exceptional costs and exclude the amortisation of acquisition intangibles together with an adjustment to reflect a full tax charge of 28%.

Summary of Operations and Outlook

Financial:

·; Major tender successes, with record contract wins valued at over £750m in the last twelve months and £1.2 billion including extensions.

·; Group operating margin increased to 6.0% (2009: 5.3%).

·; Operating profit to cash conversion at 97% (2009: 109%).

·; Strong balance sheet with net debt £12.2m (2009: net funds of £6.5m), after funding acquisitions of £28.1m

·; Bank facility for the Group of £85m committed until June 2013.

·; Dividend increased by 18% to 6.75p per share (2009: 5.70p).

Social Housing Division:

·; Record revenue of £379.4m (2009: £355.3m), growth of 7% including organic growth of 3%.

·; Operating margin maintained at market leading levels in excess of 6.0%.

Domiciliary Care Division:

·; Revenue increased by 67% to £100.4m(2009: £60.1m), including organic growth of 5%

·; Operating margin of 7.5% (2009: 5.2%), driven by the acquisition of Supporta.

Outlook:

·; Record order book of £2.7 billion (2009: £2.0 billion).

·; Visibility of 93% of consensus forecast revenue for 2011 and 80% for 2012.

·; Ageing demographics and current fiscal challenges provide significant opportunities for Mears

·; Targeting acquisitions in both core growth markets

Bob Holt, Chairman, Mears Group said:

"I am delighted to report our 15th year of uninterrupted growth and record final results for the Mears Group. In this watershed year, we have consolidated our market leading position in our selected growth markets. We have continued to work in partnership with our clients and endeavour to ensure that the public sector receive the best value for money. We are well positioned commercially, operationally and financially to seek and capitalise on the many opportunities in our chosen markets."

A presentation for analysts will be held at 10.30 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 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 12,000 people and provides maintenance and repairs services to in excess of 10% of the UK social housing stock. Mears also provides over 150,000 hours of domiciliary care to 20,000 service users each week.

Chairman's Statement

It gives me great pleasure to announce another record year in both revenue and operating profit before amortisation and exceptional items. Fifteen years of uninterrupted growth in revenue, profits and cash generation speak for themselves. The Mears' management team has worked together for many years focusing on providing first class value for money customer service through our partnership ethos. This has been rewarded in the significant success we have achieved in new contract bidding and the number of exciting new opportunities that are within our sales pipeline.

Strong Results and Cash Generation

In the year ended 31 December 2010, revenue increased by 11% to £523.9 million and operating profit before amortisation and exceptional items rising by 27% to £31.3 million. Revenues in Social Housing grew by 7% and in Domiciliary Care increased by 67%, bolstered by the acquisition of Supporta. In a year of tremendous success in new contract bidding and an unprecedented number of new contract mobilisations, the normalised diluted earnings per share still increased by 8.2% to 23.38p. The Board is recommending a final dividend of 4.85p per share making 6.75p per share for the year, an increase of 18.4%. This is the second year that we have increased the dividend well ahead of earnings which reflects the Board's confidence in the future opportunities in our growth markets. .

Of particular note is our strong cash generation. Cash generated from operations as a proportion of the profit for the year (before tax and amortisation) amounted to 97% (2009: 109%), with a net debt position at the year end of £12.2m. During a particularly active period in terms of new contract mobilisations, where one might anticipate a higher requirement for cash, it is a credit to the strength of our working capital management that we can report such robustness.

Record Levels of Contracts

This was a watershed year for Mears Group, the market leader in Social Housing and Domiciliary Care. We have won a record level of contracts in both divisions and we completed the acquisition of Supporta, thus cementing our leading position in Domiciliary Care, a market that continues to grow as care in the home is by far the most affordable solution for Local Authorities. Throughout our history we have sought to build a profitable long term platform for growth based on the fundamentals of our business model and the key drivers which protect both our revenue flow and our ability to build continually for the long term. The Social Housing sector has recently seen a number of very public corporate failures. A contributing factor to these failures was and continues to be the practice of tendering at unsustainable prices which lead to consequences that benefit no one. When businesses fail, tenants are left without essential services and employees lose their jobs. Fortunately for all concerned, Mears' long term partnership approach and financial and operational discipline, means that it is well placed to 'pick up the pieces' from competitor failures.

It has always been fundamental to the success of our Social Housing division to ensure that we have the best operators in the sector. Until these recent corporate failures, I do not believe the quality of our operations received sufficient recognition. I am delighted to now be in a position whereby I feel the quality of the operational team within our Domiciliary Care division can now match that of their Social Housing colleagues. The quality of management acquired with Supporta has exceeded our expectations. Bernadette Walsh, now Managing Director of the combined Mears Care, shares the Mears ethos of customer service at the fore, whilst maintaining a strong commercial awareness which is crucial to sustained success in a low margin, blue collar service environment.

Long Term Partnerships

We have, in the current financial climate, an increased responsibility to continue to demonstrate how a long term partnering based approach, combined with greater services integration, is the most effective way to respond to the challenges faced by many local authorities, housing associations and landlords. This has always been our approach and one which is even more relevant today. Following the results of HM Government's Comprehensive Spending Review, we believe that our Social Housing operations will continue to benefit from increased outsourcing opportunities in the sector as Local Authorities look to achieve further efficiency gains, particularly in the supply of essential repair and maintenance services. The significant majority of our Social Housing revenues are non-discretionary spend for services which our clients have a legal obligation to provide. The changes to the system for housing benefit will, in our opinion, promote the migration away from private dwellings towards social housing. The changes to the housing finance system is providing Local Authorities with opportunities to invest further in their housing stock which can only be positive for the leading service providers. In addition, commitments have been made to build 150,000 new Social Homes and to meet funding commitments on the Decent Homes Program. We continue to be highly selective on our bidding approach looking to build and reinforce long term partnerships that will be of value to the residents and our clients.

Social Housing - Market Leadership

Our 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 quality of service and tenant facing value for money services which clients are able to measure. In a period of austerity, where our clients are suffering budgetary constraints, it has been encouraging that we continue to find clients procuring services with a bias towards value and quality rather than purely on price considerations.

Domiciliary Care - Well Positioned

Mears is well placed to lead and consolidate the Domiciliary Care market which, in procurement terms, is several years behind the more developed Social Housing market. We can use the experience gained in Social Housing to enhance the market efficiencies in Domiciliary Care and share the benefits with our clients. Targeted acquisitions will be considered which broaden the diversity of Mears' Domiciliary Care offering along the services supply chain and expand the range of services we are able to provide to people in their own homes. Mears' clients will benefit from a national platform for the provision of an enhanced quality service.

Record Order Book - Bid Pipeline

Our order book stands at £2.7 billion and the demand for our services continues to be very strong with a bid pipeline of £2.0 billion. We are well placed to benefit from these trends and are confident that the demand and opportunity for our two growth markets will continue to be strong. We enter the current year with visibility of 93% of the £625m consensus revenue forecast for 2011. We also have visibility of 80% of the £666m consensus revenue forecast for 2012.

Board Changes

I was delighted to hand over the business in good health to David Miles in November 2010 who was appointed Chief Executive Officer. David has been instrumental in the growth and development of Mears from a regional provider of services with just five branches to the market leading Group that Mears is today. He has an unparalleled track record of delivering complex contracts and managing client relationships with his customer-centric philosophy. Over the past three years David has also built a strong operational team which will support him in his new role as CEO. David has been selected after a rigorous process of succession planning which has involved discussions with major shareholders and customers. The process has been underway internally for some time resulting in a stable and smooth transition. I will continue in my role of Chairman.

Mears has an on-going agenda of seeking to achieve high standards in Corporate Governance and early in 2010 I was delighted to welcome to the Board Davida Marston and Rory Macnamara, who have brought to the team a wealth of experience from which the Group is benefiting. It would be remiss of me to ignore the tremendous contribution made to the Group by Reg Pomphrett who stepped down as a Director at the last Annual General Meeting. Reg, a former City regulator, ensured we were compliant on every aspect of public company life during his 14 year tenure. I am delighted that Reg has accepted the offer to continue to serve the company as Group Company Secretary. I would also highlight the huge contribution made to the Group by our Senior Independent Non-Executive Director, Michael Macario. It is Michael's intention to also step down at our next Annual General Meeting in June 2011, at which time Peter Dicks will assume the role of Senior Independent Director.

Outlook

The demand for our services continues to be very strong. Our two growth markets, Social Housing and Domiciliary Care, are robust 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 and value offering for our clients

We are mindful of the need to ensure that the public sector receives 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 delivered. The coalition Government has a difficult task to maintain public services whilst reducing a huge fiscal deficit. We anticipate challenges in 2011 and 2012 but through our commitment to working in partnership, the Group will remain well positioned.

Our focus for Social Housing will be to continue growing through further contract wins, expand the geographic coverage through targeted acquisitions of regional businesses with existing relationships with Registered Social Landlords and on-going innovation through further partnerships such as that with British Gas. For Domiciliary Care, we will seek acquisitions that increase our ability to respond to the expected growing opportunities from NHS outsourcing and the increasing role General Practitioners will have in commissioning services locally.

We have a demonstrable track record of improving underdeveloped, inefficient markets for the benefit of customers, staff and investors. Lastly, we have the right management team in place to take our business forward and capitalise on the many opportunities in our growth markets.

I commend our employees for their commitment and energy throughout another significant year for the Group and

I look forward to bringing you news of further successes during the coming year.

Bob Holtbob.holt@mearsgroup.co.ukChairman

Chief Executive's Review

Social Housing

Social Housing has several growth drivers including the continued consolidation both in terms of the number of contractors and in the number of Landlords, both Local Authorities and Housing Associations. This trend in turn leads to increasing opportunities for organisations like Mears who operate at a local level but who bring the economies of a national player.

Reforms of the rental system and greater freedom for Local Authorities to retain and source their own funding, will enable Landlords to generate more income and fund both on-going maintenance and new build programs. Demographic trends are also positive for the sector as more people will rely on Social Housing through their retirement given obvious limitations in income from pensions and benefits.

We are already seeing more bundling of services into single partnering contracts, which enable a strategic approach to be taken to the management of the asset base. Mears breadth of services, including our presence in care provision, gives us real competitive advantage.

In 2010, Mears has begun to strengthen its position in Scotland, with a number of contract wins being achieved across Glasgow and Edinburgh. We see several opportunities to build on this in 2011, as we do in Wales, following our acquisition of the ROK operations based out of Bristol.

The next decade will see a significant expenditure on increasing the energy efficiency of the Social Housing stock. The Government has asked Energy Companies to fund a significant portion of this both in terms of energy efficiency and increasingly through micro-generation schemes, hence our strategic partnership with British Gas. Mears entered into this partnership to jointly address the challenges of energy efficiency within the social housing sector. The partnership will target funding opportunities under the Carbon Emissions Reduction Target (CERT) and the Community Energy Savings Programme (CESP) within our existing and growing Social Housing client base. Our aim is to increase our clients' share of British Gas's obligation funding streams, including CERT and CESP, enabling Social Housing Landlords to leverage more value from their capital budgets.

Through the latter part of 2010, we have been carrying out surveys on the entire housing stock for our Family Mosaic client. We have currently completed surveys on approximately 15% of the total stock and these surveys will be on-going throughout 2011. On the 4,000 properties where the surveys are complete, we have now moved to a second phase. Through our relationship with British Gas, we are now making environmental improvements to traditional homes to reduce their energy requirements with the resulting impact to fuel poverty. We will also be commencing major environmental works on the properties of our client, Cross Keys Homes. We are optimistic that on completion of the current schemes of work, we will extend this work to the remainder of their portfolio.

Mears has continued to develop a number of In-Sourcing models to address the needs of a wide range of clients. Approximately one quarter of the Social Housing maintenance market is yet to be outsourced, and there are a various reasons why a full outsourcing model may not always be appropriate. Mears can offer solutions from joint ventures through to more traditional consultancy arrangements. We have been notified of an award of our first In-sourcing solutions contract with a Local Authority to provide support to their Direct Labour Organisation (DLO). This represents a new customer relationship for the Group. The existing DLO has a reputation for delivering a high quality of service to the tenants. Mears will support the DLO through enhanced IT and Procurement approaches.

Social Housing - new contract bidding

In the last twelve months we have been awarded new social housing contracts valued in excess of £750m (£1.2 billion with extensions), including the following.

Domiciliary Care

I am pleased that our Domiciliary Care division had a successful year in what has been a transformational period for the Group. Early in 2010, we completed the acquisition and have now successfully integrated Supporta plc; a company that previously led the Domiciliary Care sector in terms of operational excellence and quality of service provision. The division reported organic growth of 5% in the period which is pleasing at a time where the management have been focused upon integrating two of the leading providers. The Domiciliary Care division has also benefited from the higher margin Supporta business. Our main focus now is to complete the development of our new Care IT platform, using the skills and experience learnt from the Social Housing division to generate opportunities for efficiencies for both ourselves and our clients and provide significant competitive advantage. We are however, equally determined to reinvest those savings to our care workforce, who provide quality care services for a relatively low wage and remain undervalued when considering the responsibility and social contribution of their roles.

Mears Care continues to build its capability with a geographical reach across the whole of the UK 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 business has been successful in converting a high proportion of targeted 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 now procure care services from fewer and larger 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 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. The Comprehensive Spending Review (CSR), committed a further £2 billion of NHS money into supporting care in the community .This is a significant amount of money, which should overcome pressures on Council funding related to the reduction in central subsidies.

The fundamental driver to growth is the fact that care in the service users own home gives the most affordable solution, being significantly lower cost than both residential care and care provided within NHS facilities. From a service quality perspective also, most people prefer to be looked after in their own home and studies show that this can have a positive impact on their well-being. The Government has made it very clear that it wants Local Authorities to outsource the remaining in-house services in this area (around 20% of the market) and to see greater focus generally on prevention methodologies to limit what had been spiralling demand upon the NHS. Mears is well placed to service this increase in demand for outsourced solutions.

Domiciliary Care - new contract bidding

We have announced previously our award of significant contracts during the last twelve months, estimated to be worth in the region of £40 million, reflecting on-going trends in awarding consolidating contracts to providers with an excellent quality reputation and a capability to deliver against the emerging personalisation agenda. The most significant successes include the following:

In total, 24 different care contracts were won in 2010, many of which being new clients further strengthening our geographic footprint.

Care and Repair

We continue to see more opportunities to provide integrated housing and care service to our customers and as a result, k are combining our care and housing branches wherever possible. For example, most recently in Welwyn, three care branches were combined and co-located within our housing branch. We are now operationally joining up the work of our housing operatives with that of the care worker, so that they operate as one team to the service recipient. The care workers can often spot fall hazards in a home and report them as a repair requirement, well before the service user identifies the problem. The importance of this is illustrated by the fact that the NHS spends almost £5m per day on falls, most of which are suffered by elderly people, often in their home environment.

The National Housing Federation concluded in its recent report that 'There are considerable advantages to service users, to the public purse, and to meeting the shared objectives of prevention and tackling inequalities, of increased collaboration across health, housing care and support. This is a key moment for public services, and a time at which there are major challenges facing service providers and commissioners in both sectors'.

The Government remains committed to prioritising the agenda of housing in an ageing society to ensure that as people grow older they also stay comfortable and secure in their own homes. We continue the roll out of our "integrated housing and care" offering which combines the service offerings of our Social Housing and Domiciliary Care divisions. The integration of services around the home aims to contribute to a high quality of life for the residents of the community by meeting diverse needs and providing choice to the relevant users of the service, as well as providing significant cost reduction opportunities.

Since our year end, Mears has completed the acquisition of a group of Home Improvement Agencies from Anchor Housing for a nominal fee. Home Improvement Agencies are currently contracted by Local Authorities to provide primarily home adaptation and handyman services, to vulnerable owner occupiers in local communities. Home Improvement Agencies play a vital role in helping to keep people in their own home for longer. Their role is likely to expand in the future to cover a broader range of services that support independent living, including home safety and signposting of services such as Domiciliary Care, to an increasing number of Individual Budget Holders. This further demonstrates the link we are forging with Local Authorities in providing integrated services and we thus see this acquisition as an important conduit to achieving this. We consider this purchase to be an excellent complement to our existing operations and which extends our geographic footprint into a number of Local Authorities where we previously had no presence.

Other Services

The Group's Other Services comprise predominantly the Mears Mechanical and Electrical ("M&E") business. This business performed well in the period and our Mechanical and Electrical business continued to make profit on the back of a resilient housing market in Docklands. Our M&E operation has for a number of years been developing a modular affordable home. I am delighted that the Group has now received its first order from a social housing client for this approach to modular housing. This pilot is hoped to be the first of many such opportunities of providing this solution to Registered Social Landlords.

Safety, Health and Environment (SHE)

For the fourth consecutive year, Mears has seen a reduction in all accident rates. A 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 and in 2010 Mears retained the award to become one of the few companies winning the award for two years running. With the introduction of new systems, procedures, management and operative training during 2010, we are optimistic of reporting further improvements this year.

Our Communities

We have operations throughout the UK and all our branches are dedicated towards helping to improve people's lives. We 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 and supports community cohesion and development.

David Milesdavid.miles@mearsgroup.co.ukChief Executive Officer

Financial Review

Income Statement

Revenue

In the year to 31 December 2010 we grew Group revenue to £523.9m (2009: £470.1m), an increase of 11.4%.

The Social Housing division contributed revenue of £379.4m (2009: £355.3m), growth of 6.8% including organic growth of 3.2%. 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 or will the Group lower its margin expectation to generate turnover. The Social Housing business continues its strong performance, although its organic growth in 2010 was diluted by the reduction in capital works as a number of Decent Homes schemes, which as expected, reached their natural conclusion. Revenue from Decent Homes works was down by £23m compared to 2009. Our core Repairs and Maintenance revenues reported underlying organic growth in excess of 10%. The reduced dependency on Decent Homes works will be mirrored in both 2011 and 2012 with the revenue stream from this type of work expected to reduce by approximately £30m in both years. This has been mitigated by the tremendous successes in bidding new contract opportunities enjoyed in 2010 and has provided the Group with unprecedented revenue visibility for the coming year and the Group is confident of reporting enhanced growth for 2011. New opportunities are emerging in the environmental space as landlords face the combined challenges of carbon reduction and reducing fuel poverty. This in turn will generate opportunities for our partnership with British Gas.

The Domiciliary Care division contributed revenue of £100.4m (2009: £60.1m). The growth of 67% in Domiciliary Care revenue is predominantly driven by the acquisition of Supporta plc. The underlying organic growth of 5% in the period is pleasing at a time where the management have been focused upon integrating the two operations. The high number of new contract successes over the course of the second half year will provide the foundations for delivering robust growth in 2011. Given the consolidation of what remains a relatively immature market, the Group continues to target double digit revenue growth for its Domiciliary Care division. The constricting factor to growth is not any shortage in new contract opportunities, but the availability of carers.

The Other Services division, which predominantly comprises our Mechanical & Electrical ("M&E") operation, reported a 19% reduction in revenue to £44.2m compared to last year (2009: £54.8m). This was an improvement on our initial forecasts and, in a year of continuing economic instability, represents a solid achievement for this division.

Operating profit

At a Group level, operating profit before exceptional costs and the amortisation of acquisition intangibles increased by 26.5% to £31.3m (2009: £24.8m) with the operating margin rising from 5.3% to 6.0%. This increase is substantially due to the margin enhancing acquisition of Supporta plc.

At a divisional level, operating margin is struck before amortisation, exceptional items and share option costs. The Social Housing division maintained its operating margin above 6.0% which continues to be at the top end for the sector. This is a tremendous achievement in a period when it has mobilised a large 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. The two largest new contract mobilisations in 2010 were the existing clients of Brighton and Family Mosaic, both of which saw a significantly enhanced scope of works. The financial performance of those contracts exceeded our expectations over the course of their mobilisation periods which reduced the originally estimated level of margin dilution, highlighting the strength of management and efficiencies of mobilisation. It is anticipated that all contracts mobilised during 2010 will make a positive contribution to 2011, whilst delivering a full operating margin by 2012.

Within Care, the operating margin has increased to 7.5% (2009: 5.2%) which represents a blend of the higher margin Supporta business and the lower margin of our original Careforce business. We do believe there are opportunities for further margin improvements through system enhancements, operating efficiency and economies of scale. Our focus remains on maintaining service quality whilst continuing to grow our Care offering. Our experience from Social Housing is that an enhanced margin will naturally follow from this.

The Other Services division's operating margin of 3.7% (2009: 1.6%) is pleasing as the business has shown strong management through difficult trading conditions. The Other Services division is well placed and enters 2011 with optimism.

Amortisation of acquisition intangibles

A charge of £10.1m (2009: £5.0m) arose in the period. The majority of this charge is in respect of the Group's Domiciliary Care division and represents the amortisation of the identified intangible assets acquired in relation to the acquisition of Careforce Group plc in 2007 and Supporta plc in 2010 together with a number of small bolt-on acquisitions between those two dates. In addition, the Social Housing division has completed a number of small acquisitions, typically of distressed businesses, over recent years.

The increase in the 2010 charge compared to the comparative period is primarily due to the acquisition of Supporta plc which contributed a charge of £2.0m in the year. In addition to this, the intangible asset recognised upon the acquisition of certain trade and assets of Connaught Partnership Limited and Rok Building Limited were written off entirely in the period resulting in a non-recurring charge of £1.5m.

Finance costs

The net finance cost for the year was £2.4m (£1.4m). Whilst the interest charge in respect of the working capital facility was maintained at £0.9m (2009: £0.9m), the overall finance cost has increased due to an additional interest charge in respect of the hedge arrangement of £0.9m (2009: £0.4m) and the net interest charge in respect of the defined benefit pension scheme was £0.3m (2009: £nil).

Exceptional items

The Group has incurred exceptional costs during the year of £2.5m (2009: £nil) relating mainly to the costs of acquisitions and the subsequent integration of the Supporta business into the Mears Care division. The costs relating to the acquisitions would previously have been capitalised and included within goodwill.

Pensions

Following the announcement in the June 2010 budget, the UK government have announced they will use the CPI measure of inflation rather than RPI to determine statutory pension increases for public sector schemes. The move to CPI has been treated as a change in benefits recognised as a negative past service cost in the income statement. As a result of this change, a credit of £3.7m has been recognised in the income statement. The credit is a non-cash item. As a result of this, the total credit to the result for the year in respect of defined benefit pension schemes was £1.0m (2009: £1.5m charge).

The latest full actuarial valuations for the schemes as at 31 December 2010 recorded an actuarial loss for the period of £3.8m (2009: £7.1m) which was recognised in the statement of comprehensive income. The opening deficit in respect of defined benefit schemes recognised in the balance sheet at December 2009 amounted to £3.2m. The acquisition of Supporta contributed a further deficit of £4.9m. The impact of the change to CPI together with the actuarial loss resulted in a closing deficit of £7.7m.

Tax expense

A tax charge of £1.6m has been provided (2009: £4.4m). The effective current corporation tax rate recognised in the income statement before adjustments for deferred tax is 14.3% (2009: 25.7%). The significant reduction in the Group's tax charge is due to a number of contributing factors, notably:

·; A corporation tax deduction in respect of the exercise of 0.5m (2009: 0.4m) share options

·; A deferred tax credit of £2.8m (2009: £1.4m) in respect of the amortisation of acquisition intangibles

·; A non-taxable pension benefit of £3.7m (2009: £nil) resulting from the change from RPI to CPI that resulted in a reduced past service cost.

Earnings per share (EPS)

Normalised basic EPS increased by 10.1% to 24.96p (2009: 22.67p). The normalised diluted EPS, which allows for the potential diluting impact of outstanding share options, was up 8.2% to 23.38p (2009: 21.61p). Normalised earnings are stated before exceptional costs and exclude the 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 once again ahead of earnings. A final dividend of 4.85p per share is proposed which combined with the interim dividend, gives a total dividend for the year of 6.75p (2009: 5.70p), an 18.4% increase. The dividend is payable on 1 July 2011 to shareholders on the register on 10 June 2011.

Balance Sheet

Non-current assets

The value of goodwill carried within the balance sheet is £97.4m, of which over three-quarters relates to the Group's Domiciliary Care division. The opening balance of goodwill was £52.4m, with the significant increase primarily due to the acquisition of Supporta plc, and to a lesser extent Jackson Lloyd Limited. Similarly, these same two acquisitions also account for the increase in intangible assets, moving from £17.1m to £27.1m. Whilst the acquisition of certain business assets of Rok and Connaught also increased intangible assets by £1.4m, it was considered prudent to write this off in the same period given the short term nature of those contracts acquired.

Further detail on all acquisition and disposals completed during the period are included below:

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 £1.9m (2009: £2.1m) is included within non-current trade and other receivables. This relates to sales retentions in relation to our M&E activities within our Other Services 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 £2.9m (2009: £3.7m) relates to IT hardware, other office equipment and the refurbishment of new office premises. Given a number of the new contract mobilisations were with clients where we had an existing presence, the capital expenditure for the year was relatively low. 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.

Working capital balances

The efficiency with which the Group manages working capital remains a cornerstone of our business. The Group's conversion of profit for the year before tax and pre amortisation to cash in the period was 96.8% (2009: 108.7%). 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 in excess of 90% over a period where the size of the business has more than doubled through organic growth. Our net debt position at 31 December 2010 was £12.2m (2009: net funds £6.5m).

Whilst the year end cash position was pleasing, the Group does currently operate with a core debt position of approximately £64m (2009: £40m). This increase in underlying core debt is primarily as a result of a cash outflow of £27.1m in respect of acquisitions (net of disposal proceeds). We have always been and remain conservative in respect of our appetite for debt.

On the back of the acquisition of Supporta plc, the Group took the opportunity to refinance 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 was extended to June 2013. Our relationship with our banking partners, Barclays and HSBC, remains very positive.

Non-current liabilities

Non-current liabilities increased from £9.1m to £15.6m. The primary cause of the increase relates to liabilities in respect of defined benefit pension schemes which reported an increase from £3.2m to £7.7m, predominantly due to the acquired liability of £4.9m as a result of the acquisition of Supporta plc. In addition, the deferred tax liability, again the majority of which related to the Supporta acquisition, increased from £4.6m to £7.0m.

Equity

Total shareholders' equity rose by £35.6m to £141.6m at 31 December 2010. The increase in net assets is primarily due to the new share capital issued in respect of the Supporta transaction together with retained profits.

Andrew Smithandrew.smith@mearsgroup.co.ukFinance Director

Consolidated income statement

for the year ended 31 December 2010

Consolidated statement of comprehensive income

for the year ended 31 December 2010

Consolidated balance sheet

as at 31 December 2010

Company number 3232863

Consolidated cash flow statement

for the year ended 31 December 2010

Consolidated statement of changes in equity

for the year ended 31 December 2010

Notes to the preliminary announcement

for the year ended 31 December 2010

1. Corporate information

Mears 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 2010 was authorised for issue in accordance with a resolution of the Directors on 8 March 2011.

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. 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 27 (Revised) 'Consolidated and Separate Financial Statements' and the adoption of IFRS 3 (Revised) 'Business Combinations'.

The adoption of IAS 27 (Revised) has not had a material impact on the Financial Statements. The adoption of IFRS 3 (Revised) has resulted in acquisition costs which would previously have been included in the cost of a business combination now being expensed through the income statement as they are incurred.

3. Segment reporting

Segment information is presented in respect of the Group's operating segments. Segments are determined by reference to the internal reports reviewed by the Board.

The Group operated three operating segments during the year:

Ÿ 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;

Ÿ Domiciliary Care - services within this sector comprise personal care services to people in their own homes; and

Ÿ Other - services within this sector comprise provision of design and build M&E services.

4. Finance income and finance costs

5. Exceptional items

Exceptional items have arisen as a result of acquisition and integration costs in the period.

The costs of acquisition relate to the acquisition of Supporta PLC and Jackson Lloyd Limited in the period.

The costs of integration relate to the integration of the Careforce and Supporta Care business and re-branding as Mears Care, as well as the costs of integration of the Jackson Lloyd social housing business in to the existing Mears social housing business.

6. Tax expense

Tax recognised in the Income Statement:

7. Dividends

The following dividends were paid on ordinary shares in the year:

The proposed final 2010 dividend of 4.85p per share has not been included within the consolidated financial statements as no obligation existed at 31 December 2010.

8. Earnings per share

A normalised EPS is disclosed in order to show performance undistorted by amortisation of intangibles. The Group defines normalised earnings as excluding the amortisation of acquisition intangibles and adjusted to reflect a full tax charge of 28%. The profit attributable to shareholders before and after adjustments for both basic and diluted EPS is:

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.

9. 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:

10. Acquisitions and Disposals

The Group acquired 100% of the issued share capital of Supporta plc, a number of social housing contracts from the administrators of Connaught Partnerships Limited, 100% of the issued share capital of Jackson Lloyd Limited and the social housing business assets of the Bristol social housing business of Rok Building Limited. The effect of the acquisitions on the Group's assets was as follows:

The fair value adjustments above relate to costs not accrued at the time of the acquisition and the alignment of the acquired company accounting policies with those of the Group.

The fair value of the assets and liabilities acquired in respect of Jackson Lloyd Limited and the social housing business assets of the Bristol social housing business of Rok Building Limited are currently considered to be provisional awaiting further information in respect of certain liabilities. The fair value included above is the Directors' best estimate of assets and liabilities acquired.

The Supporta intangible asset is recognised and valued at £10.1m. The value represents the expected value to be derived from the acquired order book, existing customer relationships and software rights. The Directors consider that the value assigned to goodwill represents the workforce acquired, the cost synergies available, the new geographical coverage as a result of this acquisition and the resultant critical mass.

The Connaught, Jackson Lloyd and Rok intangible assets are recognised and valued at £0.5m, £8.4m and £0.9m respectively. The values represent the expected value to be derived from the acquired order book and existing customer relationships:

Analysis of net outflow in respect of the purchase of the subsidiary undertakings:

During the year the Group paid £1.3m in respect of contingent consideration relating to acquisitions in prior periods.

In addition, Datacare Business Systems Limited ("Datacare") was acquired earlier in the year as part of the Supporta plc acquisition and was not considered core to the Group's strategy. The Group disposed of Datacare in September 2010 for £1.0m.

11. 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 2010 or 2009. The financial information for the year ended 31 December 2009 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 s498 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2010 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies.

The Listing Rules of the UK Listing Authority (LR 9.7A.1) require that preliminary unaudited statements of annual results must be agreed with the listed company's auditor prior to publication, even though an audit opinion has not yet been issued. In addition, the Listing Rules require such statements to give details of the nature of any likely modification that may be contained in the auditor's report to be included with the annual report and accounts. Mears Group PLC confirms that it has agreed this preliminary statement of annual results with Grant Thornton UK LLP and that the Board of Directors has not been made aware of any likely modification to the auditor's report required to be included with the annual report and accounts for the year ended 31 December 2010.