Mears Regulatory News (MER)

8 November 2012

Mears Group PLC

("Mears" or "the Group")

Interim Management Statement

Interim Management Statement

Mears releases its Interim Management Statement ("IMS") for the period from 1 July 2012 to date.

Mears today also announces the acquisition of Morrison Facilities Services Limited ("Morrison"). The information included in this IMS Statement does not reflect the impact of this acquisition.

Summary of Key Highlights

Group:

·; Today separately announces the acquisition of Morrison.

·; The Group is continuing to experience solid trading in both its core divisions of Social Housing and Care.

·; Group order book of £2.6 billion with secured revenues of 99% of current consensus forecast revenues for 2012, 86% for 2013.

·; Bid pipeline remains in excess of £3.0 billion, with an immediate bidding opportunity of £1.1 billion, underpinning the Board's continuing confidence in the future.

Social Housing Division:

·; April mobilisations now bedded down with a positive impact on H2 margins.

·; New contracts awarded to the Social Housing division in the last 3 months with a value of £107m.

·; Successful mobilisations of new contracts with Southwark Council and Notting Hill Housing Trust.

·; Our on-going commitment to provide energy solutions to address fuel poverty has given rise to a number of opportunities with existing clients.

Care Division:

·; New contracts awarded to the Care division in the last 3 months with a value of £19m.

·; Notable new contract success with Cambridgeshire County Council under a Strategic Partnership arrangement.

Commenting, David Miles, Chief Executive, Mears Group, said:

"I am delighted with the progress Mears has made in recent months. The acquisition of Morrison will further consolidate our market leading position and contract profile in Social Housing. Group revenue visibility stands at 99% and our order book and pipeline are particularly strong.

 "The new contract success with Cambridgeshire County Council is extremely positive. We expect this strategic partnership to develop in a way similar to many of our housing contracts, with a focus on achieving a range of life enhancing outcomes for our clients rather than just the traditional task and time approach that is common within care services today. Cambridgeshire County Council has shown real vision by recognising that the best way to meet some of the most difficult challenges within health and social care is through working closely together in partnership. This is an important milestone for us and I remain positive in our ability to shape and prosper in this market."

Trading update

The Group is continuing to experience solid trading in both its core divisions of Social Housing and Care and, excluding the impact of the acquisition of Morrison, the anticipated outcome for the full year results remains in line with management's expectations.

The first half of 2012 saw the most intense period of new contract mobilisation in our history, with seven significant new contracts commencing in this period with an annual value of in excess of £50 million. As we reported in our interim results on 14 August 2012, the quality of the mobilisations and the subsequent service delivery had exceeded our high expectations, however, the large volume of new works had resulted in a dilution of the social housing operating margin in the first half, as mobilisation costs are expensed upfront. Since 1 July 2012, the newly mobilised contracts have bedded down further, and in line with our expectations, we are seeing an improvement in the operating margin of those contracts.

Social Housing

Since 1 July 2012, we have secured new contracts worth £107m, taking our order intake for the current year to £142m. The pipeline is strong with the decisions over the award of our key target opportunities falling in the back end of the year. Our new contract win rate in the current year is 25% and there is currently over £1.1 billion of new contracts at pre-qualification or tender stage.

The period since 1 July 2012 has seen the successful mobilisation of new contracts with Southwark Council and Notting Hill Housing Trust. Both opportunities arose as a result of an early termination of a previous contract with the incumbent contractor. Whilst delivering a high quality service necessitates a disproportionate upfront investment in these contracts given their initial short term nature, the Group anticipates developing a long term relationship with both these key clients.

The Mears Energy offering provides an end to end service, able to assist clients to access funding, survey stock, install measures and carry out aftercare and maintenance programmes. We will deliver Community Energy Saving Programme ("CESP") work for clients prior to this scheme being replaced by the Energy Company Obligation ("ECO") at the end of 2012. Our strategy is not linked to any one specific product type but to being able to provide an energy solution for every home. Since 1 July 2012, we have been awarded £15m of funding from an energy provider, which has been used to secure additional work in the North West of England and in Scotland.

Care

Since 1 July 2012, we have secured new contracts worth £19m, taking our order intake for the current year to £58m, representing a new contract win rate of 60%.

A notable new contract award was with Cambridgeshire County Council where we have been appointed as a strategic partner with a very clear brief to work alongside the Council in finding new innovative ways to improve services going forward. The contract term is five years with a potential for a further two year extension. Over 30 providers are being removed from the Cambridgeshire Framework as part of this tender. Initially we expect our annual revenues with Cambridgeshire to grow from £2m to £3m, with further upside potential. This has been driven through an increase in hours in our core domiciliary work, as well as through working in partnership with the in house team in providing reablement services, aimed at supporting the independence of service users. We expect the partnership to develop in ways similar to many of our housing contracts, with a focus on achieving a range of life enhancing outcomes rather than just the traditional task and time approach that is common within care services today. The partnership will involve joint working, shared diary management and the development of clear career paths, including apprenticeships and more integrated service offerings with links to Telecare and community equipment.

We have continued to develop our partnership thinking into new areas. Our work with Tunstall on the implementation of the largest Telecare project in the UK has gone very well and is attracting interest from other Councils, given the Government's stated intent to drive the use of assistive technology. We have also formed close ties with Community Equipment provider NRS, which is now allowing us to offer a full independent living service to our clients. This proposition, which has the potential to improve service and lower cost, is seeing significant interest from a number of clients, including Cambridgeshire.

We have also secured a contract with Allianz Global Assistance who is looking to add Personal Care at Home onto Personal Accident Plans, so in the event of an accident, not only will the customer receive a cash pay-out, they will also receive physical support with a Personal Care at Home package to support them through their rehabilitation period. Whilst we have not placed a value upon this within our order book, it is potentially a significant new opportunity for our Care division.

Other Services

Other Services predominantly comprises the M&E operation. Within our interim report, we highlighted the challenges faced by the division and that we did not anticipate a profit contribution in the current year. Whilst these challenges have continued since 1 July 2012, there are a number of significant opportunities at an advanced stage of tendering that would have a positive impact on the divisional results for next year. The end of the London Olympics has had a positive impact on the number of new bidding opportunities coming through.

Balance Sheet

The Group's revolving credit facility of £120 million is committed until July 2016 and provides significant headroom above our current working capital requirements. Strong working capital management has always been and remains a cornerstone of our business.

-ENDS-

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Notes for editors

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

Mears, post the acquisition of Morrison, employs in excess of 15,000 people and provides maintenance and repairs services to in excess of 15% of the UK social housing stock. Mears also provides over 160,000 hours of care to 20,000 service users each week.