Mears Regulatory News (MER)

21 Aug 2007 07:00

Mears Group PLC21 August 2007 MEARS GROUP PLCANNOUNCEMENT OF INTERIM RESULTSSIX MONTHS TO 30 JUNE 2007 Mears Group PLC is once again pleased to announce record results for the sixmonths ended 30 June 2007. The highlights for the six months include: * Turnover up 16.0% * Profit before tax up 23.3% * Diluted earnings per share up 19.7% * Interim dividend up 22.2% * Major contract awards £196m * Order book increased to £1.24 billion * Acquisition of Careforce Group plc Bob Holt, Chairman, said: "I am pleased to announce record results for the 6 months ended 30 June 2007.Your Group is in good hands for the next stage of development. The managementteam remodelled how social housing services have been provided and purchased bylocal authorities. We will strive to replicate our success in the care sectorand continue to be a market leader in all markets in which we operate." For further information contact Bob Holtbob.holt@mearsgroup.co.uk07778 798816 David Robertsondavid.robertson@mearsgroup.co.uk07887 705357 Chairman's Statement I am pleased to announce record results for the 6 months ended 30 June 2007.These are the first set of results since I returned to the position of CEO.Profits before tax rose 23.3% up to £6.58m (2006: £5.34m) on turnover of £136.9m(2006: £118.0m) up 16.0%. Following a re-organisation of the Group I am particularly pleased by ourdecision to concentrate solely upon working with long term partners in oursocial housing division. We continue to work closely with those partners withwhom we share the ambition of improving lives for those in the community for thevery long term. The recent contract award of Welwyn and Hatfield for 15 years ata base award value of £168m is a testament to how this Group has been built. In March of this year we announced the acquisition of Careforce Group plc, thestepping stone to becoming a substantial provider of care services in thecommunity. Subsequent to the Careforce acquisition we have completed three otheracquisitions in the sector and today we believe that we will become the leadingprovider of care services to public sector clients. I hope to bring you news offurther developments in this sector in due course. The post acquisitionintegration has gone well and the Careforce team are working closely with theirMears colleagues. One of our first actions has been to bring Mears experience oftendering and bid writing to improve and develop further the quality of theCareforce tender submissions. In addition we have invested significant resourceinto both IT and accounting systems and the Careforce workforce development andtraining programmes. It is the quality of our care workers by which our servicewill be judged. We see the social services domiciliary care market being in asimilar position to where the social housing market was some five years ago. Webelieve that a Mears care provision will be a competitive force in a rapidlyevolving market and I am determined that Careforce will be the quality offeringand the partner of choice. David Robertson, who has been Finance Director since July 1997, has decided tostep down from the Board in March 2008 in order to spend time with his family.David will be sadly missed by both employees and shareholders alike as he hasbeen one of the major successes of this Group. In the 10 years I have workedwith David at Mears he has been a most loyal working colleague and friend.David's retirement will see the appointment of Andrew Smith as Group FinanceDirector. Andrew joined the Group in 1999 and was appointed to the main Boardearlier this year in order to facilitate his move into this position. Andrew isextremely capable and his appointment is recognition of the years he has spenthelping to grow the Group. Shareholders will be aware of the recent BBC radio programme which suggestedmalpractices from one of our London offices. The Group and our client carriedout an immediate investigation and we have both been satisfied with the outcome.We warmly welcome the actions of The Housing Corporation to whom our clientbelongs in insisting on an independent investigation which has our full backing.This investigation commenced on 6 August and the results will not be known for anumber of weeks. I have personally interviewed all of our team at Hackney and Iam happy that Mears will be fully exonerated by this investigation. It is a sadreflection of the times in which we live whereby the livelihoods of our 5,000employees along with other stakeholders are put at risk without the opportunityto defend any situation before the media broadcast such a programme. Criticismhas made us more determined to show that we continue to provide a first classservice and to demonstrate that our impeccable reputation is beyond reproach.Your Board will leave no stone unturned to ensure that we are operatingcorrectly and that these unfounded accusations are refuted. Your Group is in good hands for the next stage of development. This Group hasbeen built with a great deal of passion, hard work and determination to succeed.The management team remodelled how social housing services have been providedand purchased by local authorities. We will strive to replicate our success inthe care sector and continue to be a market leader in all markets in which weoperate. I am firmly committed to drive this Group onto the next stage and asalways maintain an open management style allowing discussions with employees andstakeholders at every opportunity. We now enter an exciting and challengingperiod with a young management team eager to take the Group forward. I shouldlike to take this opportunity to thank all our supporters both internally andexternally for their commitment and look forward to bringing you further news ofacquisitions and organic growth throughout the next decade. Bob Holtbob.holt@mearsgroup.co.ukChairman and Chief Executive21 August 2007 Business Review Turnover In the six months to 30 June 2007 we grew turnover to £136.9m (2006: £118.0m),an increase of 16.0%. Within this overall figure social housing turnover was up10.3%. The acquisition of Careforce Group plc in April 2007 yielded £8.3m ofturnover. Both the mechanical & electrical division ( M&E ) and vehiclecollection business produced increased turnover compared to last year. Operating result We achieved an operating result before share-based payments and amortisation of£7.2m (2006: £5.6m), a 27.9% increase. The Group increased its operating marginfrom 4.7% to 5.2% partly due to the higher margin of 6.8% in our DomiciliaryCare division. Social Housing margin was maintained at 5.6% whilst there was auseful increase in the M&E margin from 2.0% to 3.7% in the period. Share-based payments The share option charge in the first half of 2007 was £0.3m, unchanged from2006. There is no cash impact from this expense. Amortisation A charge of £0.3m (2006: £nil) arose in the period. This represents the writedown of the identified intangible assets acquired on the acquisitions ofCareforce Group plc in April 2007 and Laidlaw Scott Limited in June 2006. Theexcess of purchase price over the fair value of identified net assets iscapitalised as goodwill and under IFRS is not amortised but will be subject toan annual impairment review. Finance The Group again maintained its broadly neutral cash position throughout the sixmonths to 30 June 2007 and achieved a net interest receipt of £0.01m (2006:£0.02m). The Group's focus on tight working capital control remains acornerstone of our business. Tax expense £1.8m has been provided for a tax charge (2006: £1.4m). The effective rate inthe first half of 2007 of 26.9% (2006: 26.2%) is low due to the impact of acorporation tax deduction received on the exercise of share options. Earnings per share (EPS) Basic EPS increased 14.7% to 7.26p (2006: 6.33p). Our diluted EPS of 7.00p wasup 19.7% on the comparative 2006 figure of 5.85p. All figures are stated afterthe impact of share-based payments and a full tax charge. Dividend The dividend increase is in line with our earnings growth. An interim dividendof 1.1p per share is declared (2006: 0.9p), a 22.2% uplift. The dividend ispayable on 5 November 2007 to shareholders on the register on 19 October 2007. Cash flow A net cash inflow of £6.2m arose in the first half of this year (2006: £1.3minflow). The Group raised £24.2m after costs to fund the purchase of CareforceGroup plc but used only £12.2m to complete the transaction. The balance wassatisfied by the issue of 3.3m new shares. Some £1.3m was invested in newtechnology and operational bases. Our net cash position at 30 June 2007 was£18.1m, up from £11.9m at the start of the year. Acquisition The acquisition of the entire share capital of Careforce Group plc in April 2007created a new business segment for the Group. The business had £5.9m of debtupon acquisition and this was subsequently repaid to take advantage of thepreferential borrowing rates available to Mears. The business is performing in line with our expectations and came with a healthypipeline of acquisition opportunities in the highly fragmented care sector. Todate we have completed 3 further small acquisitions for a combined initial sumof £2.3m, with up to £0.6m deferred subject to future profitability. We have anumber of other care acquisitions at various stages and are hopeful ofconverting some prior to December 2007. Order book The visibility of our earnings continues to improve. £196m of new work wassecured in the period. Our order book now stands at £1.24 billion. Theproportion of market forecast turnover secured for 2008 is 89% with some 71% ofthe 2009 projection. We continue to place great emphasis on winning good quality contracts that canprovide clear and sustainable margins. We also hold a healthy mix of decenthomes and repairs and maintenance work, giving us a balanced position in thesocial housing market that is not reliant on clients' future discretionaryspending. The £168m over 15 years award from Welwyn and Hatfield on a solepartnership basis is the perfect demonstration of the benefits of adopting along term partnering approach to our business. We intend to introduce this ethosinto our Care division to unlock its potential for sustained growth. Total equity Total shareholders' equity value rose by £39.0m in the first half year from£38.0m to £77.0m at 30 June 2007. This was largely due to the strategicacquisition of Careforce Group plc where some £28.4m of goodwill and intangibleassets were created by the transaction. Mobilised contracts Over the last six months nine key contracts have come on-stream. These are: • North Lincolnshire Homes - A decent homes partnership, valued at £38.4m over a four and a half year period. • Shoreline Housing Association - We commenced a gas servicing partnership, worth £4.8m over four years. This is in addition to our decent homes partnership, which we commenced last year with this client. • Brighton and Hove City Council - We commenced a response and void maintenance partnership worth £25.0m over five years. This is in addition to our gas servicing partnership with this client. • Yorkshire Coast Homes - A kitchen replacement project, worth an initial £2.5m. We are also bidding for further opportunities with this customer. • Cross Keys Homes - We commenced two contracts for gas servicing and cyclical decorating. We are already carrying out a decent homes project for this client. • Orbit Housing Association - We mobilised a gas servicing partnership, worth £4.9m over four years. • Watford Borough Council - A Heating Installation and gas servicing partnership, worth £3.3m over three years. • Catalyst Communities Housing Association - A revenue works and decent homes contract worth £18.0m per annum over 5 years. Training and development We are now 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. This year we will take all of our trade professionals through a trade-based NVQprogramme and we are developing a unique Mears Professional Development Customerand Community Care NVQ to further raise our customer service standards. Awards We are delighted that since the start of the year we have received severalawards recognising our commitment to customers, staff and investors: • Mears won the 'Best Investor Communication' award at the AIM Investment Awards. • We were awarded 'Best Annual Report and most effective communication, small cap' at the IR Best Practice awards. • At the South West Financial and Corporate Communications Awards we were successful in the following categories: • 'Best Annual Report Design and Presentation' • 'Best Commitment to Environmental and Social Responsibility' • 'Best South West Chairman/Chief Executive Communicator of the Year'. We believe we are well placed to continue delivering on 'improving homes,improving neighbourhoods, improving lives'. Bob Holtbob.holt@mearsgroup.co.ukChairman and Chief Executive David Robertsondavid.robertson@mearsgroup.co.ukFinance Director21 August 2007 Our Communities CSR strategy We work in some of the most socially deprived areas of the country. Along withour professional commitment to tenants, we feel a strong sense of responsibilitytowards the wider community and we work towards achieving three specific aims: • To support and strengthen the communities in which we work. • To recruit employees locally whenever we can. • To encourage employees to volunteer their time and skills to specific community projects. Helping a local community to thrive increases the quality of life for tenantsand makes our job that little bit easier. It's also rewarding for our employees,especially as 90% of our people live in the community they support. Employee volunteering In 2007 our staff are on track to volunteer around 15,000 hours to communitywork, an increase of more than 25% on 2006 with over 50% of staff participating.We support over 200 projects, including: Russell Gardens in Stockport This sheltered housing development was in danger of closure due to its poorcondition. Mears staff completely redeveloped the gardens, improving residents'pride in their surroundings and their well being. This has helped keep thehousing scheme open for the benefit of all the residents. Western Skills Training Centre in Wigan Mears developed a partnership with the local authority and five schools to helpset up the skills centre. The aim has been to provide youngsters with directtraining on key trades as part of their studies. Mears has provided support in anumber of areas; staff have volunteered their time to mentor the pupils anddonating all the tools and safety equipment for the Centre. This training hasgiven many young people the opportunity to consider going on to formal tradequalifications. Garden Makeover Scheme, Dorchester Mears staff worked with residents of a hostel to create a communal garden intheir courtyard. Service users were involved at every stage of the process, fromplanning to completion, to ensure the garden met their needs. Ealing Diploma and Enterprise Centre We have refurbished premises for the centre which will offer vocational coursesfor 14-16 year olds studying Construction and other courses from September 2007.We have committed to delivering training at the centre four days per week toensure courses are relevant to employment today. Community Allotment, Sheffield Staff in Sheffield are supporting a local tenant group in creating a communityallotment, by erecting fencing to secure the land, supplying children's safetyclothing and equipment and assisting with start-up costs. The facility will beused by Surestart to give children the experience of growing organic vegetablesand fruits. This will improve their understanding of healthy eating, recyclingand organic growing methods. Community Coffee Morning Careforce and Mears staff worked together to organise coffee morning eventsacross the country. These events were organised in order to raise awareness ofelder abuse issues, for older residents and the general public. To coincide withthese events, Mears staff also undertook hands-on community projects, such asthe Wakefield Community Garden makeover in a local Day Centre for Older People. Thought Leader conferences (www.thoughtleader.org.uk) The Thought Leader conference aims to provide answers to the main issues facingLocal Authorities and Registered Social Landlords. By bringing together leadingfigures within the social housing sector, the Thought Leader conference debatesand recommends practical ways to deliver best practice solutions to the mainissues facing the housing sector. The next conference in this series, which willfeature the important issue of: 'Meeting the carbon challenge on existing socialhousing stock', will be held at Wembley Stadium on November 1st 2007. Unaudited consolidated income statement For the six months ended 30 June 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000 £'000 £'000 £'000Sales revenueContinuing operations 128,555 117,998 241,414Acquisitions 8,344 - - 1 136,899 117,998 241,414Cost of salesContinuing operations (95,250) (85,974) (174,399)Acquisitions (5,707) - - (100,957) 85,974 (174,399)Gross profitContinuing operations 33,305 32,024 67,015Acquisitions 2,637 - - 35,942 32,024 67,015Administrative expenses (28,787) (26,431) (53,970) Operating result 1 7,155 5,593 13,045before share-basedpayments andintangibleamortisation Intangible amortisation (332) - (255) Share-based payments (250) (270) (535) Operating result Continuing operations 6,178 5,323 12,255Acquisitions 395 - - 6,573 5,323 12,255 Finance income 128 45 130Finance costs (120) (30) (118) Result for the period 6,581 5,338 12,267before tax Tax expense 2 (1,770) (1,400) (2,068) Net result for the 4,811 3,938 10,199period Earnings per share Basic - normalised 4 7.26p 6.33p 14.53pDiluted - normalised 4 7.00p 5.85p 13.63p Unaudited consolidated balance sheetAs at 30 June 2007 As at As at As at 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000AssetsNon-currentGoodwill 35,873 14,610 13,811Intangible assets 7,065 - 1,029Property, plant and equipment 6,496 5,941 5,716Deferred tax asset 5 1,990 3,300 3,000 51,424 23,851 23,556CurrentInventories 11,053 5,963 9,104Trade and other receivables 49,294 36,408 40,334Cash at bank and in hand 23,733 14,136 12,127 84,080 56,507 61,565Total assets 135,504 80,358 85,121 EquityEquity attributable to the shareholdersof Mears Group PLCCalled up share capital 726 592 615Share premium account 42,172 4,223 5,547Share-based payment reserve 1,735 1,220 1,485Retained earnings 32,349 24,969 30,363Total equity 76,982 31,004 38,010 LiabilitiesNon-currentOther liabilities 2,858 3,280 2,876 2,858 3,280 2,876CurrentShort-term borrowings and overdrafts 5,629 5,874 228Trade and other payables 47,432 38,206 42,186Current tax liabilities 2,145 1,701 1,438Pension and other employee benefits 458 293 383 Current liabilities 55,664 46,074 44,235 Total liabilities 58,522 49,354 47,111 Total equity and liabilities 135,504 80,358 85,121 Unaudited consolidated statement of recognised income and expenseFor six months ended 30 June 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000 Actuarial losses on defined benefit (75) (50) (77)pension scheme Decrease in deferred tax asset 5 (1,010) (260) (550) Net expense recognised directly to (1,085) (310) (627)equity Profit for the financial period 4,811 3,938 10,199 Total recognised income and expense for 3,726 3,628 9,572the period Unaudited consolidated cash flow statementFor the six months ended 30 June 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000Operating activitiesResult for the period before tax 6,581 5,338 12,267Adjustments 6 1,418 975 2,312Change in inventories (1,949) (535) (3,468)Change in operating receivables (3,947) (3,371) (7,697)Change in operating payables 1,308 3,015 9,023Cash inflow from operating 3,411 5,422 12,437activities before taxes paidTaxes paid (1,213) (1,523) (2,394) 2,198 3,899 10,043Investing activitiesAdditions to property, plant and (1,251) (622) (1,593)equipmentProceeds from disposals of - - 146property, plant and equipmentAcquisition of subsidiary (19,865) (2,220) (3,543)undertaking, net of cashInterest received 108 45 136 (21,008) (2,797) (4,854)Financing activitiesProceeds from share issue 25,155 267 1,614Discharge of finance lease (40) (17) (46)liabilityInterest paid (100) (32) (124)Dividends paid - - (1,676) 25,015 218 (232)Cash and cash equivalents at 11,899 6,942 6,942beginning of periodNet increase in cash and cash 6,205 1,320 4,957equivalentsCash and cash equivalents at end of 18,104 8,262 11,899period Cash and cash equivalents iscomprised as follows:Cash at bank and in hand 23,733 14,136 12,127Short-term borrowings and (5,629) (5,874) (228)overdraftsCash and cash equivalents 18,104 8,262 11,899 Unaudited notes to the financial statementsFor the six months ended 30 June 2007 1. Segment reporting The Group operates four business segments: social housing, mechanical andelectrical, domiciliary care and vehicle distribution. All of the Group'sactivities are carried out within the United Kingdom. Six months to 30 June 2007 Six months to 30 June 2006 Revenue Operating Revenue Operating profit before profit before share-based share-based payments and payments and pre pre amortisation amortisation £'000 £'000 £'000 £'000 Social housing 97,069 5,416 88,027 4,903 Mechanical and electrical 26,904 982 25,982 523 Domiciliary care 8,344 570 - - Vehicle distribution 4,582 187 3,989 167 Total 136,899 7,155 117,998 5,593 2. Tax expense The tax charge for the six months ended 30 June 2007 has been based on theestimated tax rate for the full year. 3. Dividends The following dividends were declared on ordinary shares in the six months to 30 June 2007: Six months Six months to 30 June to 30 June 2007 2006 £'000 £'000Final 2006 dividend of 2.40p (2006: final 2005 1,740 1,125dividend of 1.90p) per share No dividends were paid during the six months to 30 June 2007. The proposedinterim dividend of 1.10p (2006: 0.90p) per share has not been included withinthe interim financial statements as no obligation existed at 30 June 2007. 4. Earnings per share Basic earnings per share is based on equity earnings of £4.81m (2006: £3.94m)and 66.63m (2006: 58.99m) ordinary shares at 1p each, being the average numberof shares in issue during the period. For diluted earnings per share the averagenumber of shares in issue is increased to 69.11m (2006: 63.84m) to reflect thepotential dilution effect of employee share schemes. A normalised pre amortisation earnings per share is disclosed in order to showperformance undistorted by amortisation of intangibles and the tax effect ofshare options. The normalised earnings per share is based on equity earnings of£4.84m (2006: £3.74m). Basic Diluted Six Six Six Six months to months to months to months to 30 June 30 June 30 June 30 June 2007 2006 2007 2006 p p p p Earnings per share 7.22 6.68 6.96 6.17 Effect of amortisation of intangibles 0.48 - 0.50 - Effect of share option tax adjustment (0.44) (0.35) (0.46) (0.32) Normalised pre amortisation earnings per share 7.26 6.33 7.00 5.85 5. Deferred taxation The Group asset for deferred tax as at 30 June 2007, which relates entirely toshare-based payments, is £2.29m (2006: £3.30m). Six months Six months to 30 June to 30 June 2007 2006 £'000 £'000 At beginning of period 3,000 3,500 Credit to income statement - 60 Debit to consolidated statement of recognised income and expense (1,010) (260) 1,990 3,300 The cumulative amount recognised in the income statement is limited to the taxeffect of the associated cumulative share-based payment expense. The deficit hasbeen debited directly to equity. This is presented in the consolidated statementof recognised income and expense. 6. Notes to consolidated cash flow statement The following non operating cash flow adjustments have been made to the pre-taxresult for the period: Six months Six months to 30 June to 30 June 2007 2006 £'000 £'000Depreciation 844 707 Intangible amortisation 332 - Loss on disposal of - 13fixed assets Share-based payments 250 270 Finance income (128) (45) Finance cost 120 30 Total 1,418 975 7. Preparation of interim financial information The interim financial statements have been prepared on a basis consistent withthe accounting policies disclosed in the Annual Report and Accounts for the yearended 31 December 2006. The consolidated results for the year ended 31 December 2006 have been extractedfrom the financial statements for that year and do not constitute full statutoryaccounts for the Group. The Group accounts for the year ended 31 December 2006received an unqualified audit report and did not include a statement undersection 237 (2) or (3) of the Companies Act 1985 and have been filed with theRegistrar of Companies. 8. Interim financial statements Further copies of the interim financial statements are available from theregistered office of Mears Group PLC at 1390 Montpellier Court, GloucesterBusiness Park, Brockworth, Gloucester GL3 4AH or www.mearsgroup.co.uk This information is provided by RNS The company news service from the London Stock Exchange