Mears Regulatory News (MER)

11 Mar 2008 07:00

Mears Group PLC11 March 2008 Embargoed Release: 07:00hrs Tuesday 11 March 2008 Mears Group PLC ('Mears' or the 'Group') Preliminary Announcement Year Ended 31 December 2007 Mears Group PLC is once again pleased to announce record results for the yearended 31 December 2007. The highlights for the year include: • Turnover £304.6m (2006: £241.4m), up 26.2% • Operating profit pre amortisation £17.1m (2006: £12.5m), up 36.5% • Diluted EPS - normalised for full tax pre amortisation 16.40p (2006: 13.63p), up 20.3% • Dividend per share 4.0p (2006: 3.3p), up 21.2% • Operating profit to cash conversion 92.9% (2006: 99.4%) • Operating margins increased across all business segments • Acquisition of Careforce Group plc and a further 10 Care acquisitions • Record forward order book currently at £1.4 billion with robust bid pipeline Bob Holt, Chairman, said: "2007 has been a very good year for Mears and I am grateful to all Mearsemployees for their tremendous work. 2008 and beyond looks even brighter for ourcustomers, our staff, our partners and our investors. I have personally neverbeen more excited about, nor committed to, the future of this Group. Our order book is at record levels with a very healthy new business pipeline.Government policy, which both embraces investment in communities and ongoingpublic private sector partnership, continues to generate new opportunities. Ourinvestment in people, IT and operational best practice ensures that we have thecapability to make the most of the growth opportunities." Enquiries: Bob Holt, Chairman, Mears Group tel: 07778 798816 Andrew Smith, Executive Director, Mears Group tel: 07712 866461 Media enquiries:Threadneedle Communications, Trevor Bass/Alex White tel: 020 7936 9666 Joint broker and Nominated adviser, Investec tel: 020 7597 4000 Joint broker, Arbuthnot Securities tel: 020 7012 2000 A presentation for analysts will be held at 10.00 a.m. today at the offices ofInvestec, 2 Gresham Street, London, EC2V 7QP. Chairman's statement I am delighted to announce another record year in both turnover andprofitability. All business segments achieved record results and are well placedto continue building on our success in 2008. Since joining the AlternativeInvestment Market this is our twelfth consecutive year of profitable growth andwe have delivered compound growth in profit before tax pre amortisation of 40%over that period. In the year ended 31 December 2007, turnover was up 26.2% to £304.6m (2006:£241.4m). Operating profit before amortisation was up 36.5% to £17.1m (2006:£12.5m). Diluted normalised earnings per share was up 20.3% to 16.40p (2006:13.63p). We now employ 6,000 people, which is more than double a year ago. I am particularly pleased by the performance of our Development team, with over£500m of new business being secured across the Group, while retaining ourstrategy of focusing on quality contracts with partnership principles at theirheart. We have an order book of £1.4 billion and have already secured 97% ofconsensus forecast turnover for 2008 and 77% for 2009. The strategic acquisition of Careforce in April 2007 allowed the Group to gain afoothold in the Domiciliary Care market and has been followed by eight smalleracquisitions in 2007 and a further two acquisitions in 2008, giving us thefoundation for achieving market leadership. The latest acquisition has seen anextension of our care to cover those with learning difficulties which we areconfident gives us scope for developing a national offering. The postacquisition integration has gone well and the Careforce team is working closelywith their Mears colleagues. One of our first actions has been to bring Mearsexperience of tendering and bid management to improve the Careforce tendersubmissions. In addition we have invested significant resource into both the ITand accounting systems and the Careforce workforce development and trainingprogrammes. It is the quality of our care workers by which our service will bejudged. We see the social services domiciliary care market being in a similar positionto where the social housing market was some seven years ago. I believe that aMears-style care provision will be a competitive and efficient force in arapidly evolving market and I am determined that Careforce will be the qualityoffering and the partner of choice. We have already established our firstpartnership serving both the domiciliary care and housing repair needs of asingle community in Wigan. Development success built on Partnering A return to bidding on a highly selective basis has yielded immediate returnsfor Mears. Particularly pleasing have been new major wins in Birmingham,Sedgefield and midlands-based Midland Heart, as well as securing a 15 yearpartnership with Welwyn Hatfield District Council. We have been working inWelwyn and Hatfield for the last 6 years and this new contract worth over £168mreflects the success of our partnership approach. In total over £400m of newSocial Housing business was won in 2007. Our Care business has also seensignificant new wins including Wigan and Hertfordshire. Moreover, we have seenour M&E division secure record new contracts, establishing itself as one of themost successful contractors of its type. I would like to take this opportunity to thank all our partners for theirsupport in 2007. We apply the principles of partnering across our supply chainwhich has been significantly rationalised in 2007 down to a small group ofpartners with whom we share similar aspirations. People Mears success has been built on the ability and commitment of its people andtheir desire to serve customers to the best of their abilities. We have againincreased our customer satisfaction levels in 2007, with 98% of tenantsregarding our service as satisfactory whilst over 70% of those regard ourservice as excellent. Both measures substantially exceed reported averagesatisfaction levels for the market as a whole. Our people continue to make areal difference to the communities in which they work. Once again we recognisethe outstanding contribution of our employees highlighted by the achievements offour people each representing their colleagues across the Group; they are PaulMartin, Chris Senior and Luke Brownbridge, all from our new Scunthorpe branch,each awarded the Mears Customer Service Champion of the Year Award and JayneCornell from Careforce who won our Carer of the Year Award. Development of our people remains a top priority for Mears. I am pleased towelcome both David Miles and Andrew Smith to the PLC Board. David joined Mearsin 1996 and has led our Social Housing division for many years. Andrew has eightyears experience with Mears and is a further example of Mears developing its owntalent for the future. Andrew takes over from David Robertson who is steppingdown from the role of Group Finance Director. We signalled this change in Augustof last year. David has been an integral part of Mears success and I do notbelieve that we would have been so successful in our early years without hisskills and commitment. David will be missed by myself and all his colleagues. Iwish him and Linda a long and healthy retirement. In the year we have welcomed into the Group in excess of 3,000 employees fromthe domiciliary care sector. We are committed to building a leading position inthis sector. Mike Rogers the founder of Careforce joined the PLC Board in April2007. I also welcome Peter Dicks and David Hosein to the PLC Board as Non ExecutiveDirectors. Their experience will be invaluable through the next stage of ourdevelopment. Improving communities is part of our DNA Those who have read previous commentary from me will know the importance I placeon corporate social responsibility. Our community work is second to none withover 50% of our staff volunteering their time to help schools, communitycentres, homeless facilities, training and work experience provision andenvironmental improvement projects. Our work here is aligned directly to ourGroup strategy. By building strong community links, we build relationships andunderstanding with these communities. By encouraging our staff to make apersonal commitment we see people taking on new challenges, increasing jobsatisfaction and indeed making a difference to the communities in which theyoften live. It was hard to choose the best overall community project that Mearssupported in 2007, given that there were over 220, but congratulations go to ourWycombe branch for their work with the homeless. A strong position in growth markets The outlook I outlined a year ago remains unchanged. There remain excellentprospects in social housing. We have demonstrated in 2007 that there is realdemand for larger, longer-term contracts, which play to our strengths as aleader in that market. The political and economic climate is not one that willundermine the Social Housing sector and indeed the 2007 Comprehensive SpendingReview outlined significant increased investment to address underlying demandissues and moreover set an agenda for efficiency which is good for us. Given ourscale, our focus on customers and their communities and the quality of people weemploy, we are well placed to benefit from these opportunities. The UK Care market is also one with significant growth potential. Demographictrends as well as the political and social will for people to stay in their ownhomes when they get older will continue to drive growth in this sector. I alsoexpect to see changes in procurement practices that will increase servicequality and will provide opportunities for organisations like Mears, which havethe reputation and the right skills to deliver the services required efficientlyand effectively and with empathy. Outlook 2007 has been a very good year for Mears and I am grateful to all Mearsemployees for their tremendous work. 2008 and beyond looks even brighter for ourcustomers, our staff, our partners and our investors. I have personally neverbeen more excited about, nor committed to, the future of this Group. Our order book is at record levels with a very healthy new business pipeline.Government policy, which both embraces investment in communities and ongoingpublic private sector partnership, continues to generate new opportunities. Ourinvestment in people, IT and operational best practice ensures that we have thecapability to make the most of the growth opportunities. Bob Holtbob.holt@mearsgroup.co.ukChairman Operating and Financial Review Turnover In the year to 31 December 2007 we grew turnover to £304.6m (2006: £241.4m), anincrease of 26.2%. The domiciliary care division contributed £28.7m of thisgrowth which was predominantly generated through acquisition. Operating result We achieved an operating result before amortisation of £17.1m (2006: £12.5m), a36.5% increase. All business segments reported increased operating margins. TheGroup increased operating margin before amortisation from 5.2% in 2006 to 5.6%in 2007. Even after excluding the margin enhancing care acquisition, the marginshows an increase in 2007 to 5.5% on a like for like basis. We are nowbenefiting from the significant investment made in our in-house informationtechnology platform which has helped to further enhance the financial controlthroughout the business. We continue to invest in our infrastructure ahead ofthe projected organic growth. Amortisation of acquisition intangibles The Group carried out ten acquisitions during the course of 2007 which createdintangibles amounting to £12.9m which will be amortised over their usefuleconomic life. This resulted in a charge of £1.5m in 2007 (2006: £0.3m). Theexcess of purchase price over the fair value of net assets is capitalised asgoodwill and under IFRS is not amortised however will be subject to an annualimpairment review. Share based payments The share-based payment charge in 2007 was £0.6m (2006: £0.5m). Finance costs The Group again maintained its broadly neutral cash position throughout the 12months to 31 December 2007 and suffered a net interest charge of £0.12m (2006:income £0.01m). The Group's focus on tight working capital control remains acornerstone of our offering given the tremendous scale of growth encounteredduring the later part of 2007 and continuing into 2008. Tax expense £4.7m has been provided as a tax charge, an effective rate of 30.4% (2006:17.3%). This is marginally higher than the standard rate of 30% as a result ofadjustment for amortisation of acquisition intangibles, depreciation andshare-based payments. The effective rate is higher than in 2006 as thecomparative period benefited from an exceptional level of employee share optionexercises in a single period. Earnings per share (EPS) The normalised diluted EPS pre intangible amortisation and incorporating a fullcorporation tax charge of 30% shows an increase of 20.3% rising to 16.40p from13.63p. Dividend The dividend increase is in line with our earnings growth. A final dividend of2.9p per share is proposed which combined with the 1.1p interim dividend gives atotal dividend in the year of 4.0p per share (2006: 3.3p). The final dividendhas not been recognised within the preliminary announcement as it did notrepresent an obligation at the balance sheet date. The dividend is payable on 2 July 2008 to shareholders on the register on 13June 2008. Borrowings, cash flow and treasury Group net cash position at 31 December 2007 was £15.3m, up from £11.9m at thestart of the year. The cash flow position continues to underline our strength as a business. TheGroup converted into cash 92.9% of operating profit before amortisation intooperating cash flow (2006: 99.4%). The Group used £28.4m to fund the acquisition of Careforce Group PLC ('Careforce') together with further bolt-on acquisitions. The Group financed thisby raising £24.2m by way of placing 7.5m shares, with the balance of £4.2m beingfinanced through working capital. A sum of £3.5m was invested in new technologyand operational bases. The Group benefited from the exercise of options in 2007by some £1.4m. Acquisition During the year, the Group expanded into domiciliary care through initially theacquisition of Careforce for a total consideration of £23.8m. This considerationcomprised of £12.2m of cash with the balance settled by the issue of 3.3m Mearsshares in exchange for existing Careforce shares. A further £5.6m was used tosettle the debt facility held by Careforce. This acquisition gave the Group asignificant foothold within the domiciliary care market from where it hascontinued to grow both organically and through acquisition. The Group carried out a further eight domiciliary care acquisitionsstrengthening our national coverage of this market. The entire share capital ofeach business was purchased for a combined cash consideration of £10.6m(including costs). All acquisitions were structured on a similar basis,typically on a multiple of between four or five times EBITDA. Furtherconsideration of £3.0m is deferred subject to meeting future performancetargets. The domiciliary care business is performing in line with our expectations andended the year with a run rate in excess of 75,000 hours per week, an increaseof some 50% on the original Careforce business. The Group also acquired the social housing contracts from Makers UK Limited fora nominal consideration. An additional payment of £1.3m was made to acquire thework in progress at book value. Order book The visibility of our earnings continues to improve with in excess of £500m ofnew work being secured in 2007. Our order book now stands at £1.4 billion (2006:£1.1 billion). The element of market forecast turnover secured for 2008 is 97%and 77% for 2009. We continue to place great emphasis on winning good qualitycontracts that can provide clear and sustainable margins. Balance sheet Total shareholders' equity value rose by £44.7m to £82.7m at 31 December 2007.The increase in net assets is due to retained profits and the shares issued inthe year. Significant movements in the balance sheet are: • The Group recognised £33.0m of goodwill and £13.1m of intangibleassets predominantly relating to the acquisition of Careforce Group plc andadditional eight bolt-on domiciliary care acquisitions. • Trade and other receivables at 31 December 2007 were £51.6m, anincrease of £11.3m of which £6.1m was due to the inclusion of the acquisitions. • Trade and other payables at 31 December 2007 were £52.4m, an increaseof £10.2m of which £6.2m was due to inclusion of the acquisitions and £2.8m ofdeferred consideration that has now fallen payable in less than one year. Major contract wins and mobilisations We have achieved a number of major successes, winning contracts valued at inexcess of £500m in total over the last twelve months. Social Housing contract wins We won a 10 year contract, worth £50m, to carry out response and repairs workfor Midland Heart Housing Association. Midland Heart is one of the top tenhousing and regeneration groups in the country and the largest based in theMidlands. The contract mobilised in December 2007. We were awarded the 15 year sole partner contract with Welwyn Hatfield DistrictCouncil to deliver their entire housing maintenance and improvement programme.This is worth a minimum of £168m over 15 years but further negotiated workscould see that rise. We have been working in Welwyn and Hatfield since 2001.This award demonstrates the value of choosing customers with a strongpartnership ethos and represents the biggest sole partner contract award inMears history. We were successful in winning a major new £89m partnership contract inSedgefield in the North East of England. The contract term is 5 years with apossible 2 year extension. This strategic partnership covers all aspects ofhousing repairs, maintenance and decent homes across the 8,500 properties inSedgefield Borough Council with 170 existing Sedgefield employees havingtransferred to Mears. The contract mobilised in February 2008. We were successful in obtaining a flagship contract worth £65m with BirminghamCity Council to provide responsive repairs and voids refurbishment in theNorthern area of the City. The work will encompass the transfer of over 300staff and it will last for an initial period of 4.5 years with an option toextend to a full term of 7 years. This win follows an extensive tender process,lasting over 6 months, through which Mears was able to demonstrate service andefficiency benefits for both the Council and the residents of North Birmingham.The contract goes live on 1 April 2008. We were awarded a £10m, 5 year contract with Mole Valley Housing Association.The work is for planned maintenance and voids and can be extended for a further5 years. Mole Valley Housing Association, based in Surrey, was created in 2007following a transfer from Mole Valley District Council and has over 3,800 homes.It is part of the Circle Anglia Group which has a housing stock of over 27,000properties and is one of the largest housing associations in the UK. Thecontract is currently mobilising and is due to commence on 1 April 2008. We received a five year contract extension on the response and voids maintenancecontract with Wycombe District Council. This is worth £20m over 5 years and isawarded on the back of providing the tenants a high quality service. The mostefficient way to win new business is to renew existing contracts. We haverenewed the majority of contracts as they come up for renewal. In the last 10years, we have failed to renew only one material contract. Domiciliary Care contract wins The Group won a number of domiciliary care contracts including a contract withWigan Metropolitan Borough Council for the provision of domiciliary careservices for an initial period of three years plus a further potential two yearextension. The initial contract value will be around £1m per annum. The Groupwas also successful in obtaining contracts for Homecare in Trafford, NorthTyneside and for Extra Care Sheltered Housing in Nottinghamshire. These threecontracts have combined annual revenues of approximately £1.5m. Careforce has also been successful in securing future revenues in two areaswhere existing contracts having come to the end of their natural term were beingretendered. In both cases, Careforce has been successful in winning highervolumes of the outsourced work at similar or increased billing rates. InRotherham, Careforce has won the maximum possible allocation of three blocks andin Hertfordshire we won contracts which will lead to significantly increasedvolumes that will run to at least 2015 with possible extensions to 2018. Theanticipated aggregate forward sales value of the new contracts in Rotherham andHertfordshire is in the region of £34m during the basic contract terms or around£52m if the options to extend both contracts are taken up. Training and development We are an established 'Investor in People' and we are meeting the challenge ofthe skills shortage in our sector through a comprehensive national programme ofemployee development, together with structured work experience and trainingprogrammes for prospective employees. We are particularly proud of our safety record which has been further enhancedby our new safety course for staff that we have developed together with theBritish Safety Council. All our operatives have received this additionaltraining in 2007. In addition to our existing Training Foundation in Hackney, we have supportedthe launch of the Ealing Diploma and Enterprise Centre (EDEC) which aims to giveyoung people aged 14-19 years broader options alongside other qualificationssuch as GCSEs and A-Levels. Students who attend are given the opportunity tolearn skills that they would not learn in mainstream education and achieve theDiploma in Construction and the Built Environment. We plan to invest in furthertraining centres in 2008 in Birmingham and Sedgefield. Customer and Community care With over 50% of our staff participating in community improvement projects,Mears has one of the highest levels of volunteering of any company of its sizein the UK. Over 13,000 hours of community work was undertaken, with over 220individual projects. Over the last 3 years, we have been a particular supporter of the Bobby MooreBowel Cancer Fund with some £250,000 having been collected by our staff througha huge variety of events, from coffee mornings, to supporting projects inBrazil, India and South Africa. One of the biggest issues for vulnerable people can be the risk of falling.Mears has invested in providing special anti-fall slippers to tenants to reducethis risk. Environment We are committed to reducing our carbon emissions per employee by 5% per annumas well as to recycling over 50% of our waste. We have had a dynamic recyclingpolicy throughout our history and it is pleasing to see our continuingcommitment. Through our Thought Leader Conference in London in November weworked with clients, suppliers and key stakeholders to put greater focus on theneed to tackle carbon reduction within the existing social housing stock, ratherthan to just focus on new build, where most of the Government focus has been sofar. Our activity is now broad, from working with our suppliers to identifysustainable materials, through to working with the Tenants ParticipationAdvisory Service to help Tenants take action to reduce both energy usage andwaste. Bob Holt, Chief Executivebob.holt@mearsgroup.co.uk David Robertson, Finance Directordavid.robertson@mearsgroup.co.uk Corporate Social Responsibility Goals Mears regularly reviews its Corporate Responsibility goals and ensures that theyare fully aligned to business strategy Our 4 Goals are:• To improve the lives of vulnerable people.• To help build community cohesion and integration.• To provide career opportunities to those needing them the most.• To be a positive contributor to the environment. Our Communities We work throughout the UK and have branches in every kind of community. In areasas diverse as rural villages, bustling market towns, historic boroughs, gardencities, busy metropolitan cities and industrial heartlands you will find Mearsworking to improve peoples lives. We do work in some of the most sociallydeprived areas of the country so we feel a strong sense of responsibilitytowards the wider community. Helping a local community to thrive increases the quality of life for tenantsand makes our job that little bit easier. 90% of our employees live in thecommunities they support. In 2007 our staff delivered over 13,000 hours of community work with 50% ofstaff actively volunteering. We supported over 220 different projects: • 45 schools have received direct support from us.• 2,200 people in 55 community centres, homeless centres and hospices have had their facilities improved.• 183 youngsters have been given work experience and/or taken part in one of our apprenticeship schemes.• 1,000 children have received information on safety at home through our Mr Menda campaign.• 100 children have had their reading skills improved through our reading buddies scheme.• £100,000 of fund raising has helped various charities. At our annual conference this year awards were given to our top five nominatedcommunity projects: The Big Breakfast in High Wycombe Employees have supported their local homeless charity in a very practical wayover recent years by helping out every month in the preparation and serving ofbreakfasts to the clients. Over the years every member of staff from the branchhas taken part in this project demonstrating a long term commitment to communityinvolvement. Growing Together in Broadstairs Working with local school children and the elderly residents of a shelteredhousing complex we helped them to plan, design and create a community gardenthat enhanced the environment and brings young and old together in a verysustainable way. The Triangle Community Centre in Northampton Following an approach from members of a local community association after theircentre had been vandalised, our whole branch turned out over a weekend to helprestore and refurbish the centre. Since then the centre has thrived andvandalism hugely reduced as the centre gets greater use and is open for thecommunity. Young Offenders Project in Peterborough We have provided mentoring and vocational skills training to a number of formeryoung offenders enabling them to gain new skills and confidence and helping themback into community engagement and work opportunities. DIY Training for Residents in Christchurch Residents from two local housing associations were given training in DIY skills.Using a community hall which we kitted out as a training centre, our employeestook residents through practical painting and decorating examples, enabling themto feel confident to carry out improvements to their own homes. Supporting good causes Our commitment to the community is recognised in Mears attaining the Business inthe Community 'Percent Standard'. This benchmark measures the contributions madeby companies through cash donations, staff and management time and gifts inkind, calculated as a percentage of pre-tax profit. The Percent Club recognisesthose companies who put the equivalent of at least 1% of their pre-tax profitinto community work. We have also expanded the support provided by the Mears "Future Champions"project. This provides both financial and practical support to ten youngtalented athletes from communities in which we work. We hope to see theseinspirational youngsters participating in a number of national and internationalevents culminating in the London Olympics 2012. We have developed a very strong relationship with the Bobby Moore Bowel CancerFund, helping raise some £250,000 for this important charity over the last 3years. Our workplace We want to become a recognised 'Employer of Choice' within our sector with aworkforce that fully reflects the communities we serve. To help us achieve this,we have three key aims: • To develop a culture of good communication and trust within the business, so that every employee shares the same values and works towards the same business objectives.• To manage change in a fast-growing, high-performance organisation by anticipating the people and resources we will need well before they are needed.• To encourage our employees to work together effectively in all situations. Training and development We are an established 'Investor in People', retaining the award in 2007 and weare meeting the challenge of the skills shortage in our sector through acomprehensive national programme of employee development, together withstructured work experience and training programmes for prospective employees. We have invested heavily in employee development including: • Taking all our trades professionals through a trades based NVQ programme.• The development of a unique Mears Professional Development Customer and Community Care NVQ to help raise our customer service standards even higher.• Supporting new training centres including the Western Skills Centre in Wigan, the Ealing Diploma and Enterprise Centre and the Foundation Training Centre in Hackney.• Launching a national apprentice recruitment campaign. Culture and diversity In Mears, diversity is about having a group of employees who reflect thecommunity they serve. It is about having the right blend of age, sex, race andcultural background required to understand the needs of the people we support.We operate in a sector that has been very male-orientated for many years, but weare addressing that imbalance. We will continue to address the issues involvedand support the Women in Construction programme. We also achieved the AgePositive award in 2007, demonstrating our fair approach across all age groups. Support for employees We continue to provide a free 24 hour, 365 days per year confidential helplinecalled Mears Assist. This provides employees with advice on a wide range ofpersonal and work-related matters and is available to their immediate families.We see Mears as a community in its own right and initiatives such as this areintended to help people get the most from their life while working here. Our market We are leaders in the social housing sector and we believe we have aresponsibility to help improve knowledge, understanding and the overallperformance of our market. In particular, we set out: • To find and work with partners who share our values.• To help clients and other organisations meet and learn from one another.• To look for innovative ways to improve efficiency and effectiveness - for the benefit of clients, tenants, local communities and tax payers. Thought leadership We have run and published our fourth Thought Leader report on the subject ofimproving the carbon footprint of the UK's social housing stock. We run thiswith support from the Chartered Institute of Housing, the Tenant ParticipationAdvisory Service and others. Professionals from the Housing industry debated howto deliver real community improvements effectively. The report is available fromour website www.thoughtleader.org.uk. Procurement policies Mears is determined to use true partnering and open book principles in thesupply chain to ensure best value for all parties, in particular, our clients.Our nationally agreed supply chain partnering arrangements balance financial,service and sustainability requirements to ensure that we are delivering genuineall round best value to our clients. Our environment We take our environmental performance very seriously and work continuously toimprove our practices. Our aims are: • In 2007 we achieved recycling levels of in excess of 50% and we have a short term target of recycling 80% of our waste.• Reduce carbon emissions by 5% per annum per employee for next 5 years.• Offset the majority or all of our carbon footprint.• Improve the energy efficiency of 50,000 homes per annum.• Raise the percentage of wood sourced from certified sources to 90% by 2010. We have achieved the ISO 14001 standard in many of our branches and are rollingthis out across the remaining locations. As a part of this we are significantlyimproving the level of waste we recycle. At Mears we are always working tirelessly to ensure that we do everything in ourpower to reduce our carbon footprint. In order to do this we are currentlyseeking to implement a number of key initiatives, which we believe will make ustotally carbon neutral in the very near future. These initiatives include: • Commissioning an external verification of our existing carbon footprint together with the production of a vigorous carbon reduction strategy.• Planting 32,000 renewable saplings in 2008.• Introducing fuel efficient vehicles.• Providing special Energy Saving Packs for tenants.• Improving procurement of sustainable products. As well as these important projects, Mears also encourages many of our staff toqualify for City and Guilds Energy Advisory Certificates. These qualificationsenable our staff to provide tenants with practical advice on the best way toachieve energy efficiency within their homes. We believe this is an important area for our business in the future. Most of thefocus on housing environmental improvement has been on new build so far and wesee more of the focus shifting to refurbishment strategies if the UK is toachieve its carbon reduction targets. Health and safety Mears Group substantially increased its Health and Safety training in 2007. Inpartnership with the British Safety Council, Mears has developed a Companyspecific accredited Safety, Health and Environment course, which was rolled outin 2007 to all our employees. This was the first time the British Safety Councilhas worked with a company to produce such a course. We are proud to continue to hold the RoSPA Gold Health and Safety Award. In 2007we reduced our Accident Incident Rate again as we have done year on year. Consolidated income statement for the year ended 31 December 2007 2007 2007 2006 2006 Note £'000 £'000 £'000 £'000 Sales revenue 2 304,620 241,414Cost of sales (224,808) (174,399)Gross profit 79,812 67,015Other administrative (62,186) (53,970)expensesOperating result before share-based payments and amortisation of 17,626 13,045acquisition intangiblesAmortisation of acquisition intangibles (1,500) (255)Share-based payments (550) (535)Total administrative costs (64,236) (54,760)Operating result 2 15,576 12,255Finance income 222 130Finance costs (345) (118)Result for the year before 15,453 12,267taxTax expense 3 (4,519) (2,068)Net result for the year 10,934 10,199 Earnings per shareBasic 5 15.65p 17.05pDiluted 5 15.11p 15.99p All activities are continuing. Consolidated balance sheet as at 31 December 2007 2007 2006 £'000 £'000AssetsNon-currentGoodwill 46,781 13,811Intangible assets 12,608 1,029Property, plant and equipment 8,199 5,716Trade and other receivables 1,710 701Deferred tax asset 1,116 3,000 70,414 24,257CurrentInventories 9,277 9,104Trade and other receivables 49,929 39,633Cash at bank and in hand 15,250 12,127 74,456 60,864Total assets 144,870 85,121 EquityEquity attributable to the shareholders of Mears GroupPLCCalled up share capital 732 615Share premium account 31,007 5,547Share-based payment reserve 2,035 1,485Merger reserve 11,548 -Retained earnings 37,373 30,363Total equity 82,695 38,010 LiabilitiesNon-currentDeferred tax liabilities 3,721 -Other liabilities 3,191 2,876 6,912 2,876CurrentShort term borrowings and - 228overdraftsTrade and other payables 52,410 42,186Current tax liabilities 2,798 1,438Pension and other employee 55 383benefitsCurrent liabilities 55,263 44,235Total liabilities 62,175 47,111Total equity and liabilities 144,870 85,121 Consolidated statement of recognised income and expense for the year ended 31December 2007 2007 2006 £'000 £'000Actuarial gain (loss) on defined benefit pension scheme 295 (77)Decrease in deferred tax asset (1,675) (550)Net expense recognised directly to equity (1,380) (627)Profit for the financial period 10,934 10,199Total recognised income and expense for the period 9,554 9,572 Consolidated cash flow for the year ended 31 December 2007 2007 2006 Note £'000 £'000Operating activitiesResult for the year before tax 15,453 12,267Adjustments 6 3,767 2,312Change in inventories (134) (3,468)Change in operating receivables (5,190) (7,697)Change in operating payables 1,971 9,023Cash inflow from operating activities before 15,867 12,437taxes paidTaxes paid (3,506) (2,394) 12,361 10,043Investing activitiesAdditions to property, plant and equipment (3,314) (1,371)Additions to development expenditure (225) (222)Proceeds from disposals of property, plant and 143 146equipmentAcquisition of subsidiary undertaking, net of (28,391) (3,543)cashInterest received 280 136 (31,507) (4,854)Financing activitiesProceeds from share issue 25,544 1,614Discharge of finance lease liability (88) (46)Interest paid (415) (124)Dividends paid (2,544) (1,676) 22,497 (232)Cash and cash equivalents, beginning of year 11,899 6,942Net increase in cash and cash equivalents 3,351 4,957Cash and cash equivalents, end of year 15,250 11,899 Cash and cash equivalents is comprised asfollows:Cash at bank and in hand 15,250 12,127Short term borrowings and overdrafts - (228)Cash and cash equivalents 15,250 11,899 Notes to the preliminary announcement for the year ended 31 December 2007 1. Basis of preparation The preliminary announcement contains extracts from the full financialstatements. The full financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion and also in accordance with IFRS as issued by the International AccountingStandards Board. The financial statements are prepared under the historical costconvention. The accounting policies remain unchanged from the previous year. 2. Segment reporting The Group operates four (2006: three) business segments: social housing,domiciliary care, mechanical and electrical (M&E) and vehicle distribution. Allof the Group's activities are carried out within the United Kingdom. 2007Business segments Social Domiciliary M&E Vehicle Total housing Care distribution £'000 £'000 £'000 £'000 £'000Revenue 205,559 28,718 61,181 9,162 304,620Operating result pre amortisation 12,208 1,801 2,587 480 17,076of acquisition intangiblesAmortisation of acquisition (300) (1,200) - - (1,500)intangiblesOperating result 11,908 601 2,587 480 15,576 2006Business segments Social Domiciliary M&E Vehicle Total housing Care distribution £'000 £'000 £'000 £'000 £'000Revenue 184,017 - 49,069 8,328 241,414Operating result pre amortisation 10,323 - 1,793 394 12,510of acquisition intangiblesAmortisation of acquisition (255) - - - (255)intangiblesOperating result 10,068 - 1,793 394 12,255 3. Tax expense Tax recognised in the income statement 2007 2006 £'000 £'000United Kingdom corporation tax effective rate 30.4% (17.3%) 4,703 2,118Adjustment in respect of previous periods (203) -Total current tax recognised in income statement 4,500 2,118Deferred taxation charge:- on defined benefit pension obligations 10 -- on share-based payments 200 (50)- on accelerated capital allowances 300 -- on amortisation of acquisition intangibles (491) -Total deferred taxation recognised in income statement 19 (50)Total tax expense recognised in income statement 4,519 2,068 Deferred tax recognised directly in equity Deferred taxation charge: - on defined benefit pension obligations 25 - - on share based payments (1,700) (550)Total deferred taxation recognised in equity (1,675) (550) 4. Dividends The following dividends were paid on ordinary shares in the year: 2007 2006 £'000 £'000Final 2006 dividend of 2.40p (2006: final 2005 dividend of 1.90p) per share 1,743 1,125Interim 2007 dividend of 1.10p (2006: interim 2006 dividend of 0.90p) per share 801 550 2,544 1,675 The proposed final dividend of 2.90p per share has not been included within theGroup financial statements as no obligation existed at 31 December 2007. 5. Earnings per share Basic Diluted 2007 2006 2007 2006 p p p pEarnings per share 15.65 17.05 15.11 15.99Effect of amortisation of acquisition intangibles 2.15 0.35 2.07 0.33Effect of full tax adjustment (0.81) (2.87) (0.78) (2.69)Normalised pre amortisation earnings per share 16.99 14.53 16.40 13.63 A normalised earnings per share is disclosed in order to show performanceundistorted by amortisation of intangibles and the tax effect of share options.The profit attributable to shareholders before and after adjustments for bothbasic and diluted earnings per share is: 2007 2006 £'000 £'000Profit attributable to shareholders 10,934 10,199 - amortisation of acquisition intangibles 1,500 255 - tax effect of share options (567) (1,765)Adjusted profit attributable to shareholders 11,867 8,689 The calculation of earnings per share is based on a weighted average of ordinaryshares in issue during the year. The diluted earnings per share is based on aweighted 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 averagenumber of shares as the basic and diluted EPS. 2007 2006 millions millionsWeighted average number of shares in issue 69.85 58.82 - dilutive effect of share options 2.51 4.97Weighted average number of shares for calculating diluted earnings per share 72.36 63.79 6 Notes to consolidated cash flow statement The following non operating cash flow adjustments have been made to the pre-taxresult for the year: 2007 2006 £'000 £'000Depreciation 1,666 1,513(Profit)/loss on disposal of property, plant and equipment (127) 21Amortisation 1,555 255Share-based payments 550 535Finance income (222) (130)Finance cost 345 118Total 3,767 2,312 7. Publication of Non Statutory Accounts The financial information set out in the announcement does not constitute theGroup's statutory accounts for the years ended 31 December 2007 or 2006. Thefinancial information for the year ended 31 December 2006 is derived from thestatutory accounts for that year which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts; their report was unqualifiedand did not contain a statement under s.237(2) or (3) Companies Act 1985. TheStatutory accounts for the year ended 31 December 2007 have not yet beendelivered to the Registrar of Companies nor have the auditors reported on them.They will be finalised on the basis of the information presented by theDirectors in this preliminary announcement. This information is provided by RNS The company news service from the London Stock Exchange