|
|
("Mears" or "the Group" or "the Company")
Interim Results
For the six months to 30 June 2015
Financial Highlights
· Profit before tax* of
· Improved operating margins of 4.9% (2014: 4.7%) driven by
· Excellent EBITDA cash conversion for the twelve months to
· New contract wins in excess of
o
o Care awards of
· Strong balance sheet with net debt at
|
2015 |
2014 |
Change |
Total Group Revenue - continuing operations |
|
|
- |
Profit before tax* |
|
|
+3% |
Diluted earnings per share |
11.16p |
9.75p |
+14% |
Normalised diluted EPS* |
14.62p |
14.34p |
+2% |
Interim dividend per share |
3.10p |
2.85p |
+9% |
* Stated before amortisation of acquisition intangibles. The normalised diluted EPS measure is further adjusted to reflect a full tax charge.
Social Housing Division:
· Revenue of
· Operating margin of 5.0% (2014: 4.2%), reflecting continued margin improvement driven by efficiencies from former Morrison contracts and sales mix moving towards higher margin Housing Management activities
· Continuing high levels of customer satisfaction
· Strong period of business development in Housing Management
· Hiatus in maintenance contract opportunities coming to an end
Care Division:
· Revenue of
· Operating margin, before the impact of the Care
· Continued strong regulatory compliance
· The acquisition of CAH significantly increases the scale of Mears within the domiciliary care market, now the second biggest provider in the
Outlook:
· Order book at
· Bidding opportunities into the longer term expected to remain at historical levels
· Visibility of 96% of consensus forecast revenue for 2015 and 85% for 2016 (2014: being 95% and 85% respectively)
Commenting,
"I am pleased with the progress Mears has made in the first half of 2015.
"Our
"Our Care business has delivered a solid performance in a market that has been challenging. There is a significant disparity between the short and long-term Care opportunity. In the short-term, the position appears negative. The Government's decision to delay reforms to social care funding would appear to leave it with no plan for Social Care, with funding reform having gone backwards five years. The recent Budget announcement regarding the National Living Wage has further increased pressures on Councils, Trusts and Care Providers. The sector has reached breaking point with a number of our competitors looking for the exit. However, in the long-term, we continue to see significant opportunity in the Care sector. We remain confident that we have the right strategy and we believe Mears is well placed strategically to take advantage of industry evolution.
"We have had a good first half year and we look forward to updating you with further successes over the course of the second half."
A presentation for analysts will be held at
For further information, contact:
|
Tel: +44(0)7778 220 185 |
|
Tel: +44(0)7712 866 461 |
|
Tel: +44(0)7778 798 816 |
|
Tel: +44(0)7979 966 453 |
|
Buchanan
Notes for editors
Mears is a leading provider to Local Authorities, Registered Social Landlords and the NHS. We deliver repairs and maintenance services and personal care services directly into communities and people's own homes.
Increasingly our growth is coming from Housing management services, that help reduce homelessness and more complex and integrated care solutions to the NHS that enable people to stay in their own homes for longer.
Mears employs in excess of 17,000 people and provides maintenance and repairs services to circa 15% of the
Interim Statement
We are pleased to announce solid interim results for the six months ended
The headline financials, which are in line with our expectations, are detailed below;
· Revenues show a small increase to
· Operating margins at a Group level reflect continued improvement, increasing to 4.9% (2014: 4.7%).
o
o The Care operating margin was reduced to 4.6% (2014: 7.8%). The underlying Care operating margin reduced from 7.8% to 5.8% reflecting the diluting impact from organic reduction in revenues and a continued investment in our Care workforce combined with an intensive period of new contract mobilisations. In addition, the result from the newly acquired Care
· The net finance charge increase to
· The margin improvement delivered an increased profit before tax and amortisation of 3% to
· The integration of CAH, following its acquisition in late
· We have continued to deliver solid cash flows with cash generated as a proportion of EBITDA at 92% for the rolling twelve month period to
· The Group has reported all transactions within normal trading. In particular, the trading losses and the costs of integration following the acquisition of CAH have been presented within the Group's headline financial measures. It remains the Board's strong preference to keep normalising adjustments to a minimum, notwithstanding the short-term impact to earnings.
· We have 96% visibility of consensus forecast revenue for the current year and in excess of 85% for 2016.
The Board is declaring an interim dividend of 3.10p per share payable on
Service quality remains a key differentiator; we are pleased that our
Revenue stream |
Commentary |
Maintenance |
|
Day to day, Housing Revenue Account (HRA) funded, non-discretionary, maintenance spend H1 2015 revenue (H1 2014 |
The changes to Housing finance in 2012 had a positive impact on the level of funding within the ring-fenced Housing Revenue Accounts of Registered Social Landlords (RSLs), providing additional opportunities to generate income. A large proportion of RSLs are reporting large surpluses which we see as positive. As previously reported, these changes resulted in a short-term delay in bidding opportunities with activity at a low level in both 2014 and 2015. This has resulted in a reduced number of new contract mobilisations during this time. The expiration of a number of contracts during 2014 which have not, at the half year stage, been fully replaced in 2015, resulted in a small reduction in revenues when comparing H1 2015 with H1 2014. On a sequential basis, H1 2015 delivered 2% growth on H2 2014. On a positive note, it was previously anticipated that three of the Group's flagship maintenance contracts would come up for rebid during 2015; all three have been similarly impacted by these delays and have been extended.
Whilst the recent announcement to reduce social rents by 1% per annum for the next four years will have an impact on the income of RSLs, this change should be considered together with other measures that provide opportunities to increase income; overall the changes to Housing finance over the last three years have been positive for RSLs. The recent change will inevitably require RSLs to review their business plans, however we do not anticipate any overall negative impact to our revenues.
We believe we are starting to come out of the quiet period for bidding with a number of new opportunities now at an advanced stage. We expect the bidding opportunities over the long-term to remain at historical levels and our organic growth aspiration remains at 5-10% per annum. |
Capital works, predominantly HRA funded H1 2015 revenue (H1 2014
|
The benefits enjoyed by RSLs following the changes to Housing finance similarly impact positively in respect of capital works opportunities. Whilst our main focus remains maintenance, we look to augment this with capital works opportunities. Our organic growth aspiration in this area is 5% per annum. |
Fuel Poverty H1 2015 revenue (H1 2014
|
The Government continues to look for solutions to tackle fuel poverty and carbon reduction challenges in housing. However, since the Government's decision to spread the ECO funding over more years, this area has reported reduced activity. Mears maintains a small team typically targeting fuel poverty opportunities within our existing client relationships. For the avoidance of doubt, there is no impact to Mears in respect of the scrapping of the Green Deal; as we stated at the time of its introduction, this was never a solution for fuel poverty within
|
Housing Management |
|
Housing and property management H1 2015 revenue (H1 2014
|
There are currently over 64,000 households, the vast majority housing families, who are legally homeless and being supported by Local Authorities. It is predicted that these numbers will increase over the next few years as more people become homeless and the supply of suitable accommodation reduces. The shortage of safe and secure housing is a significant challenge faced by Mears' clients today. We anticipate Local Authorities having increased responsibility to provide more social homes and remove the reliance upon those private landlords who provide properties which are not of a uniformly high standard. Mears provides a range of options for local authorities.
The acquisition of Omega in
|
Mears In-sourcing solutions H1 2015 revenue (H1 2014
|
Our in-sourcing offering was developed in anticipation of an increase in the level of outsourced work being taken back in-house by Housing Associations following the VAT rate being increased to 20% and given the restriction they suffer upon the recovery of input VAT. Whilst the sector has seen a number of such transfers, they have typically been contracts of a small size. We see any further increase in the number of in-sourced solutions as an opportunity. This provides the opportunity to deliver higher margins with a low revenue and working capital requirement. In addition we provide a stand-alone 24/7 call centre service to a number of RSLs and we have recently extended this white collar offering to income management and planning application administration. |
Business Development
Whilst the quantum of new contract wins is relatively low, the short-term delay in new bidding opportunities has been widely communicated over the last twelve months. The bidding opportunities available to the Group over the longer term remain at historical levels. Our service delivery remains strong and we feel well positioned to benefit now that we are seeing the market improve.
Since the Group extended its services to Housing Management, accelerated by the acquisition of Omega in 2014, the Group has successfully grown the business with some 3,500 homes now under management across the country.
Our key offering is to work with RSLs, private landlords, investors and developers to create structures to provide and manage housing. Our not-for-profit Registered Provider enables us to offer our partners a regulated body which provides security and good governance. Mears is not a property developer or asset holder and will focus on managing assets for the benefit of owners, client public sector bodies and residents.
The Private Rented Sector (PRS) in the
In parallel with growing homelessness, there is a national need to build new homes for social, affordable rent. Mears, through its Registered Provider, is working with house builders and investors to bring forward stalled development sites where the affordable housing elements can be funded without grants to provide rented and shared ownership tenures.
This is an exciting, immature market with a significant disparity between supply and demand. Given the urgency for our clients to find solutions to ease the homelessness issue, the current opportunity pipeline is particularly buoyant. In the short-term our bid pipeline comprises a small number of strategically important bids.
Care
The Board is pleased with the progression of the Care division, mindful that the financial results do not properly reflect the momentum that is building in this area.
Prospects for the
The acquisition of CAH in
The Care division reported revenues of
Social Care has seen a significant reduction in funding over the last few years, but these pressures have in turn created a momentum for change which is starting to support Mears' long-term vision for a more integrated and better commissioned range of services, delivered by a sustainable workforce. The recent Budget announcement regarding the new National Living Wage, while creating immediate financial pressures on Councils and Trusts, will also continue to encourage the development of a more outcome orientated system that fits well with Mears' capabilities.
The Government's decision to delay reforms to Social Care funding demonstrates the apparent inability of successive governments to make headway on this issue. The postponement to the end of this parliament makes it almost certain that these reforms will not happen. The most critical consequence is that the money the Coalition Government had committed to find to pay for the reforms has been lost. There is no commitment to reinvest this money in social care; some
Within this framework of financial pressure we have seen some significant change:
· We have continued to win two out of three of the Care tenders we bid for, however these bids have predominantly been for a single lead provider for a particular zone, as opposed to a previous practice of multi-provider, framework contracts. The most advanced example of this being at
· Commissioners are now recognising the need to improve pay and conditions for staff. We have already seen charge rates over the last 18 months on our winning tenders rise by over 10% and we expect this trend to continue with the introduction of the National Living Wage. Mears has taken a long-term approach to this by investing significantly in care worker pay rates and developing more sustainable contracts, which is creating the workforce we need to deliver to long-term opportunities in the sector.
· Provider consolidation continues, including our own recent acquisition of CAH. In an increasingly regulated environment and the new requirements of the Care Act to more actively consider provider financial stability, scale and diversity of service is continuing to rise in importance. This is evidenced by the significant reduction in number of providers per let contract. The initial mobilisation of CAH into Mears has begun well and has been well received by clients. While as indicated, we will need to invest in improving some of the services and, in particular, carer pay and conditions, we are confident that this will prove to be an excellent acquisition for the Group. We also continue to look at other acquisitions that can further strengthen the Group.
· Greater integration between the NHS and Social Care is now an absolute necessity and is gathering pace, although we would still prefer this to be faster. The
Looking at the first half of the year as a whole, we have secured
In summary, the immediate environment for our Care services remains challenging but we continue to strongly believe we are the best placed provider to support and deliver the change needed in the sector and we remain very optimistic over the medium to longer term.
Balance Sheet
Strong working capital management has always been and remains a cornerstone of our business. Our internally developed IT systems have a strong financial focus and this is a driving force behind efficient cash management. The IT system is also central to the valuation of work in progress and amounts recoverable on contracts ensuring that valuations are robust.
We are pleased to report a net debt position at
Total shareholders' equity rose from
Corporate governance and risk management
The Board continues to set itself high standards of corporate governance. Our Corporate Governance Report issued within our Annual Report 2014 detailed how we approach governance.
We have reviewed and updated the Group's risk register. The senior management teams play a central role in reviewing and challenging the Group's risks. The Group risk team presented risk management training modules to all levels of management via the Group development programme to further increase our strong risk management ethos.
The key risks of the Group as at
Our people
We commend our employees for their commitment and energy throughout another significant period for the Group. We continue to be impressed by their quality, professionalism and loyalty.
Mears has a diverse workforce of over 17,000 staff and almost 400 apprentices; the vast majority live in the areas that they work. Diversity and respect for all is core to our induction programme and our training on recruitment and customer care.
We were delighted to be named as a Social Mobility Business Champion in recognition of the work that we do to actively promote opportunities to people living in areas of above average levels of disadvantage. Throughout 2015, we will be working with the Government and 11 of the UKs most high profile companies to develop a new benchmark for social mobility which builds on our existing work.
We continue to invest in the future generation. During the first half, Mears opened its new national training academy in
Our corporate strategy includes the establishment of an internal talent scheme which recognises the potential of our existing workforce and maximises the likelihood of retaining our most promising people. We have broadened this management development to cover senior leadership, branch manager and supervisory levels. These bespoke programmes call on internal experts and external specialists in order to create an effective scheme, combining the best of Mears with the latest in leadership thinking and wider-industry best practice. We focus on enhancing and strengthening skills in order to improve performance, as well as stretching delegates who have the potential to take on more senior roles in the future.
Positive outlook for the Group
We operate in robust and defensive markets where spend is largely non-discretionary. We continue to place great emphasis on winning high quality contracts that provide clear and sustainable margins with good cash flow dynamics. Our dedication to providing our clients with first class service and value remains undiminished.
We expect our
We see the development of our Housing Management services as an important extension of our
We are confident that further opportunities in Care will grow from health and social care outsourcing and the implementation of new localised commissioning models. Consequently, we will continue to move further up the acuity chain, with an increased focus on organic growth, extending our Nurseplus model across our clients with this growth being supported by in-fill acquisitions.
We have had a good first half and we look forward to updating you with further successes over the course of the second half.
david.miles@mearsgroup.co.uk
Chief Executive Officer
bob.holt@mearsgroup.co.uk
Chairman
17 August 2015
Half year condensed consolidated income statement
For the six months ended 30 June 2015
|
|
Six months ended |
Six months ended |
||
|
|
30 June 2015 |
30 June 2014 |
||
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
Sales revenue |
3 |
|
430,022 |
|
428,071 |
Cost of sales |
|
|
(318,011) |
|
(315,781) |
Gross profit |
|
|
112,011 |
|
112,290 |
Other administration expenses |
|
(91,601) |
|
(93,071) |
|
Operating result before intangible amortisation |
3 |
20,410 |
|
19,219 |
|
Amortisation of acquisition intangibles |
|
(4,519) |
|
(4,750) |
|
Total administration expenses |
|
|
(96,120) |
|
(97,821) |
Operating profit |
3 |
|
15,891 |
|
14,469 |
Net finance charge |
4 |
|
(1,199) |
|
(512) |
Profit for the period before tax |
|
|
14,692 |
|
13,957 |
Tax expense |
5 |
|
(2,487) |
|
(3,976) |
Profit for the period |
|
|
12,205 |
|
9,981 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of the Company |
|
|
11,460 |
|
10,185 |
Non-controlling interests |
|
|
745 |
|
(204) |
Profit for period |
|
|
12,205 |
|
9,981 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
Basic |
7 |
|
11.28p |
|
9.89p |
Diluted |
7 |
|
11.16p |
|
9.75p |
Half year condensed consolidated statement of comprehensive income
For the six months ended 30 June 2015
|
Six months |
Six months |
|
ended |
ended |
|
30 June |
30 June |
|
2015 |
2014 |
|
£'000 |
£'000 |
Net result for the period |
12,205 |
9,981 |
Other comprehensive income for the period |
|
|
Which will be subsequently reclassified to the Income Statement: |
|
|
Cash flow hedges: |
|
|
- (losses)/gains arising in the period |
151 |
(43) |
- reclassification to Income Statement |
243 |
387 |
Decrease in deferred tax asset in respect of cash flow hedges |
(72) |
(79) |
Which will not be subsequently reclassified to the Income Statement: |
|
|
Actuarial gain on defined benefit pension scheme |
- |
- |
Other comprehensive income for the period |
322 |
265 |
Total comprehensive income for the period |
12,527 |
10,246 |
|
|
|
Attributable to: |
|
|
Equity holders of the parent |
11,782 |
10,450 |
Non-controlling interests |
745 |
(204) |
Total comprehensive income for the period |
12,527 |
10,246 |
Half year condensed consolidated balance sheet
As at 30 June 2015
|
|
As at |
As at |
As at |
|
|
30 June |
31 December |
30 June |
|
|
2015 |
2014 |
2014 |
|
Note |
£'000 |
£'000 |
£'000 |
Assets |
|
|
|
|
Non-current |
|
|
|
|
Goodwill |
|
192,470 |
192,003 |
158,786 |
Intangible assets |
|
34,299 |
35,375 |
31,918 |
Share of net assets of joint ventures |
|
- |
1,856 |
- |
Property, plant and equipment |
|
16,841 |
15,880 |
14,778 |
Pensions and other employee benefits |
|
15,131 |
15,131 |
14,731 |
Deferred tax asset |
|
9,499 |
8,573 |
9,848 |
|
|
268,240 |
268,818 |
230,061 |
Current |
|
|
|
|
Inventories |
|
9,341 |
8,468 |
10,771 |
Trade and other receivables |
|
158,651 |
142,616 |
160,977 |
Cash at bank and in hand |
|
63,606 |
66,634 |
72,664 |
|
|
231,598 |
217,718 |
244,412 |
Total assets |
|
499,838 |
486,536 |
474,473 |
Equity |
|
|
|
|
Equity attributable to the shareholders of |
|
|
|
|
Called up share capital |
9 |
1,019 |
1,011 |
1,011 |
Share premium account |
|
58,086 |
56,714 |
56,656 |
Share-based payment reserve |
|
2,353 |
1,653 |
1,350 |
Hedging reserve |
|
(640) |
(962) |
(583) |
Merger reserve |
|
46,214 |
46,214 |
46,214 |
Retained earnings |
|
96,353 |
92,179 |
81,182 |
Total equity shareholders' funds |
|
203,385 |
196,809 |
185,830 |
Non-controlling interest |
|
(1,259) |
(2,347) |
(774) |
Total equity |
|
202,126 |
194,462 |
185,056 |
Liabilities |
|
|
|
|
Non-current |
|
|
|
|
Long-term borrowing and overdrafts |
|
57,500 |
57,500 |
55,000 |
Pension and other employee benefits |
|
8,372 |
8,372 |
6,107 |
Deferred tax liabilities |
|
9,039 |
9,418 |
9,265 |
Financing liabilities |
|
451 |
788 |
420 |
Other liabilities |
|
26,392 |
25,956 |
1,253 |
|
|
101,754 |
102,034 |
72,045 |
Current |
|
|
|
|
Short-term borrowings and overdrafts |
|
10,291 |
5,300 |
15,000 |
Trade and other payables |
|
173,608 |
182,098 |
193,130 |
Financing liabilities |
|
533 |
580 |
409 |
Current tax liabilities |
|
4,240 |
2,062 |
2,464 |
Dividend payable |
|
7,286 |
- |
6,369 |
Current liabilities |
|
195,958 |
190,040 |
217,372 |
Total liabilities |
|
297,712 |
292,074 |
289,417 |
Total equity and liabilities |
|
499,838 |
486,536 |
474,473 |
Half year condensed consolidated cash flow statement
For the six months ended 30 June 2015
|
|
Six months |
Twelve months |
Six months |
|
|
ended |
ended |
ended |
|
|
30 June |
30 June |
30 June |
|
|
2015 |
2015 |
2014 |
|
Note |
£'000 |
£'000 |
£'000 |
Operating activities |
|
|
|
|
Result for the period before tax |
|
14,692 |
30,413 |
13,957 |
Adjustments |
10 |
8,905 |
20,402 |
8,694 |
Change in inventories and operating receivables |
|
(2,717) |
21,371 |
(9,925) |
Change in operating payables |
|
(12,330) |
(26,736) |
(3,189) |
Cash inflow from continuing operating activities before taxes paid |
|
8,550 |
45,450 |
9,537 |
Taxes paid |
|
(1,665) |
(2,939) |
(1,011) |
Net cash inflow from operating activities |
|
6,885 |
42,511 |
8,526 |
Investing activities |
|
|
|
|
Additions to property, plant and equipment |
|
(1,809) |
(3,214) |
(2,557) |
Additions to other intangible assets |
|
(1,454) |
(2,297) |
(642) |
Proceeds from disposals of property, plant and equipment |
|
- |
106 |
- |
Acquisition of subsidiary undertaking, net of cash |
|
(11,421) |
(32,744) |
(897) |
Interest received |
|
78 |
148 |
6 |
Net cash outflow from investing activities |
|
(14,606) |
(38,001) |
(4,090) |
Financing activities |
|
|
|
|
Proceeds from share issue |
|
1,380 |
1,438 |
578 |
Finance lease payments |
|
(244) |
(305) |
|
Interest paid |
|
(1,434) |
(3,240) |
(1,902) |
Dividends paid |
|
- |
(9,252) |
- |
Net cash outflow from financing activities |
|
(298) |
(11,359) |
(1,324) |
Cash and cash equivalents at beginning of period |
|
3,834 |
2,664 |
(448) |
Net (decrease)/increase in cash and cash equivalents |
|
(8,019) |
(6,849) |
3,112 |
Cash and cash equivalents at end of period |
|
(4,185) |
(4,185) |
2,664 |
|
|
|
|
|
Cash and cash equivalents is comprised as follows: |
|
|
|
|
- cash at bank and in hand |
|
63,606 |
63,606 |
72,664 |
- borrowings and overdrafts |
|
(67,791) |
(67,791) |
(70,000) |
Cash and cash equivalents |
|
(4,185) |
(4,185) |
2,664 |
|
|
|
|
|
Cash conversion key performance indicator |
|
|
|
|
Cash inflow from operating activities |
|
8,550 |
45,450 |
9,537 |
EBITDA |
|
23,447 |
49,611 |
22,351 |
Conversion (%) |
|
36.4% |
91.6% |
42.7% |
Half year condensed consolidated statement of changes in equity
For the six months ended 30 June 2015
|
Attributable to equity shareholders of the Company |
|
|
|||||
|
|
Share |
Share-based |
|
|
|
|
|
|
Share |
premium |
payment |
Merger |
Hedging |
Retained |
Non-controlling |
Total |
|
capital |
account |
reserve |
reserve |
reserve |
earnings |
interests |
equity |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 1 January 2014 |
1,007 |
56,082 |
1,050 |
46,214 |
(848) |
77,366 |
(570) |
180,301 |
Net result for the period |
- |
- |
- |
- |
- |
10,185 |
(204) |
9,981 |
Other comprehensive income |
- |
- |
- |
- |
265 |
- |
- |
265 |
Total comprehensive income/(expense) for the period |
- |
- |
- |
- |
265 |
10,185 |
(204) |
10,246 |
Issue of shares |
4 |
574 |
- |
- |
- |
- |
- |
578 |
Share option charges |
- |
- |
300 |
- |
- |
- |
- |
300 |
Dividends |
- |
- |
- |
- |
- |
(6,369) |
- |
(6,369) |
At 30 June 2014 |
1,011 |
56,656 |
1,350 |
46,214 |
(583) |
81,182 |
(774) |
185,056 |
At 1 January 2015 |
1,011 |
56,714 |
1,653 |
46,214 |
(962) |
92,179 |
(2,347) |
194,462 |
Net result for the period |
- |
- |
- |
- |
- |
11,460 |
745 |
12,205 |
Other comprehensive income |
- |
- |
- |
- |
322 |
- |
- |
322 |
Total comprehensive income for the period |
- |
- |
- |
- |
322 |
11,460 |
745 |
12,527 |
Issue of shares |
8 |
1,372 |
- |
- |
- |
- |
- |
1,380 |
Share option charges |
- |
- |
700 |
- |
- |
- |
- |
700 |
On acquisition |
- |
- |
- |
- |
- |
- |
343 |
343 |
Dividends |
- |
- |
- |
- |
- |
(7,286) |
- |
(7,286) |
At 30 June 2015 |
1,019 |
58,086 |
2,353 |
46,214 |
(640) |
96,353 |
(1,259) |
202,126 |
Notes to the half year condensed consolidated statements
For the six months ended 30 June 2015
1. Corporate information
2. Basis of preparation and accounting principles
(a) Basis of preparation
The half year condensed consolidated financial statements for the six months ended 30 June 2015 have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Services Authority and with IAS 34 'Interim Financial Reporting'. The half year condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2014, which have been prepared in accordance with IFRS as adopted by the European Union.
This half year condensed consolidated financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2014 were approved by the Board of Directors on 17 March 2015. These accounts, which contained an unqualified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.
The half year condensed consolidated financial statements for the six months ended 30 June 2015 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
There have been no significant changes to estimates of amounts reported in prior financial years.
(b) Significant accounting policies
The accounting policies adopted in the preparation of the half year condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2014 with the exception of the adoption of Improvements to IFRS 2011-2013 Cycle which was effective from 1 January 2015. These revisions to standards did not materially affect the financial statements.
3. Segment reporting
Segment information is presented in respect of the Group's business segments. Segments are determined by reference to the internal reports reviewed by the chief operating decision maker.
The Group operated two business segments during the period:
Social Housing - services within this segment comprise a full repairs and maintenance service to Local Authorities and other Registered Social Housing Landlords in the
Care - services within this segment comprise personal care services for people in their own homes.
All of the Group's activities are carried out within the
|
Six months ended |
Six months ended |
||
|
30 June 2015 |
30 June 2014 |
||
|
|
Operating |
|
Operating |
|
Revenue |
result |
Revenue |
result |
|
£'000 |
£'000 |
£'000 |
£'000 |
Social Housing |
366,545 |
18,203 |
364,865 |
15,257 |
Care |
63,477 |
2,907 |
63,206 |
4,912 |
|
430,022 |
21,110 |
428,071 |
20,169 |
Long-term incentive plans |
- |
(700) |
- |
(950) |
Operating result before intangible amortisation |
- |
20,410 |
- |
19,219 |
Amortisation of acquisition intangibles |
- |
(4,519) |
- |
(4,750) |
|
- |
15,891 |
- |
14,469 |
Finance costs, net |
|
(1,199) |
|
(512) |
Tax expense |
|
(2,487) |
|
(3,976) |
|
|
12,205 |
|
9,981 |
|
|
|
4. Net finance charge
|
Six months |
Six months |
|
ended |
ended |
|
30 June |
30 June |
|
2015 |
2014 |
|
£'000 |
£'000 |
Interest charge on overdrafts and short-term loans |
(1,041) |
(1,061) |
Interest charge on interest rate swap (effective hedges) |
(243) |
(387) |
Interest charge on interest rate swap (ineffective hedges) |
(143) |
- |
Interest charge on defined benefit obligation |
(225) |
(300) |
Finance costs |
(1,652) |
(1,748) |
Interest income resulting from short-term bank deposits |
78 |
6 |
Interest income resulting from defined benefit obligation |
375 |
1,230 |
Net finance charge |
(1,199) |
(512) |
5. Tax expense
The tax charge for the six months ended 30 June 2015 has been based on the estimated tax rate for the full year.
Tax recognised in the Income Statement:
|
Six months |
Six months |
|
ended |
ended |
|
30 June |
30 June |
|
2015 |
2014 |
|
£'000 |
£'000 |
|
3,391 |
3,833 |
Adjustment in respect of previous periods |
- |
- |
Total current tax recognised in Income Statement |
3,391 |
3,833 |
Total deferred taxation recognised in Income Statement |
(904) |
143 |
Total tax expense recognised in Income Statement |
2,487 |
3,976 |
6. Dividends
The interim dividend of 3.10p (2014: 2.85p) per share is not recognised as a liability at 30 June 2015 and will be payable on 3 November 2015 to shareholders on the register at the close of business on 16 October 2015. The dividend disclosed within the half-year Condensed Consolidated Statement of Changes in Equity represents the final dividend of 7.15p (2014: 6.30p) per share proposed in the 31 December 2014 financial statements and approved at the Group's Annual General Meeting on 3 June 2015 (not recognised as a liability at 31 December 2014).
7. Earnings per share
|
Basic |
Diluted |
||
|
Six months |
Six months |
Six months |
Six months |
|
ended |
ended |
ended |
ended |
|
30 June |
30 June |
30 June |
30 June |
|
2015 |
2014 |
2015 |
2014 |
|
p |
p |
p |
p |
Earnings per share |
11.28 |
9.89 |
11.16 |
9.75 |
Effect of amortisation of acquisition intangibles |
4.45 |
4.71 |
4.40 |
4.63 |
Effect of full tax adjustment |
(0.96) |
(0.05) |
(0.94) |
(0.04) |
Normalised earnings per share |
14.77 |
14.55 |
14.62 |
14.34 |
|
|
|
|
|
A normalised EPS is disclosed in order to show performance undistorted by amortisation of intangibles and exceptional costs. The Group defines normalised earnings as excluding the amortisation of acquisition intangibles and adjusted to reflect a full tax charge. The Directors believe that this normalised 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. The profit attributable to shareholders before and after adjustments for both basic and diluted EPS is:
|
|
Six months |
Six months |
|
|
ended |
ended |
|
|
30 June |
30 June |
|
|
2015 |
2014 |
|
|
£'000 |
£'000 |
Profit attributable to shareholders: |
|
11,460 |
9,981 |
- amortisation of acquisition intangibles |
|
4,519 |
4,750 |
- full tax adjustment |
|
(971) |
(46) |
Normalised earnings |
|
15,008 |
14,685 |
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.
|
Six months |
Six months |
|
ended |
ended |
|
30 June |
30 June |
|
2015 |
2014 |
|
Millions |
Millions |
Weighted average number of shares in issue: |
101.62 |
100.90 |
- dilutive effect of share options |
1.03 |
1.50 |
Weighted average number of shares for calculating diluted earnings per share |
102.65 |
102.40 |
8. Fair value measurement of financial instruments
IAS 34 requires that interim financial statements include certain of the disclosures about fair value of financial instruments set out in IFRS 13 and IFRS 7. These disclosures include the classification of fair values within a three-level hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement, as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
· Level 3: unobservable inputs for the asset or liability.
The following table shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 30 June 2015, 31 December 2014 and 30 June 2014:
|
As at |
As at |
As at |
|
30 June |
31 December |
30 June |
|
2015 |
2014 |
2014 |
|
£'000 |
£'000 |
£'000 |
Financial liabilities |
|
|
|
Fair value (Level 2) |
|
|
|
Interest rate swaps - effective |
(544) |
- |
(829) |
Interest rate swaps - ineffective |
(440) |
(1,368) |
- |
Fair value (Level 3) |
|
|
|
Contingent consideration in respect of acquisitions |
(21,055) |
(21,045) |
(1,574) |
|
(22,039) |
(22,413) |
(2,403) |
The fair values of interest rate swaps have been calculated by a third party expert discounting estimated future cash flows on the basis of market expectations of future interest rates (Level 2).
The fair values of deferred and contingent consideration have been calculated by the Directors by reference to expected future income and expenditure in respect of the acquired businesses.
There were no transfers between Level 1 and Level 2 during the six-month period to 30 June 2015 or the year to 31 December 2014.
The reconciliation of the carrying values of financial instruments classified within Level 3 is as follows:
|
As at |
As at |
As at |
|
30 June |
31 December |
30 June |
|
2015 |
2014 |
2014 |
|
£'000 |
£'000 |
£'000 |
Balance, beginning of period |
21,045 |
1,836 |
1,836 |
Increase due to new acquisitions in the period |
- |
20,000 |
- |
Paid in respect of acquisitions |
- |
(387) |
(282) |
Released on re-assessment |
- |
(424) |
- |
Unwinding of discounting |
10 |
20 |
20 |
Balance, end of period |
21,055 |
21,045 |
1,574 |
Contingent consideration represents an estimate of future consideration likely to be payable in respect of acquisitions. Contingent consideration is discounted for the likelihood of payment and for the time value of money. Contingent consideration becomes payable based upon the profitability of acquired businesses.
The carrying value of the following financial assets and liabilities is considered a reasonable approximation of fair value:
· trade and other receivables;
· cash and cash equivalents; and
· trade and other payables.
9. Share capital
|
Six months |
Six months |
|
ended |
ended |
|
30 June |
30 June |
|
2015 |
2014 |
|
£'000 |
£'000 |
Allotted, called up and fully paid |
|
|
At 1 January 101,134,142 (2014: 100,661,649) ordinary shares of 1p each |
1,011 |
1,007 |
Issue of 770,458 (2014: 440,641) ordinary shares of 1p each on exercise of share options |
8 |
4 |
At 30 June 2015 101,904,600 (2014: 101,102,290) ordinary shares of 1p each |
1,019 |
1,011 |
770,458 (2014: 440,641) ordinary 1p shares were issued in respect of share options exercised. The difference between the nominal value of £0.08m and the total consideration of £1.4m has been credited to the share premium account.
10. Notes to the half year condensed consolidated cash flow statement
The following non-operating cash flow adjustments have been made to the pre-tax result for the period:
|
Six months |
Year |
Six months |
|
ended |
ended |
ended |
|
30 June |
30 June |
30 June |
|
2015 |
2015 |
2014 |
|
£'000 |
£'000 |
£'000 |
Depreciation |
2,395 |
4,092 |
2,667 |
Profit/(loss) on disposal of property, plant and equipment |
- |
3 |
1 |
Intangible amortisation |
5,161 |
13,427 |
5,214 |
Share-based payment charges |
700 |
1,070 |
300 |
IAS 19 pension movement |
(700) |
(1,195) |
(930) |
Net finance charge |
1,349 |
3,005 |
1,442 |
Total |
8,905 |
20,402 |
8,694 |
11. Acquisitions
On 29 May 2015, the Group acquired 100% of the share capital of Care
The provisional effect of the acquisition on the Group's assets was as follows:
|
|
|
|
|
Provisional book and fair value |
||
|
CAH |
Other |
Total |
|
£'000 |
£'000 |
£'000 |
Assets |
|
|
|
Non-current |
|
|
|
Property, plant and equipment |
893 |
38 |
931 |
Deferred Tax asset |
971 |
28 |
999 |
Current |
|
|
|
Inventories |
37 |
0 |
37 |
Debtors |
12,660 |
1,493 |
14,153 |
Cash |
- |
383 |
383 |
Total assets |
14,561 |
1,942 |
16,503 |
Liabilities |
|
|
|
Current |
|
|
|
Creditors |
(5,513) |
(1,134) |
(6,647) |
Short term borrowings |
(1,262) |
- |
(1,262) |
Total Liabilities |
(6,775) |
(1,134) |
(7,909) |
Net assets acquired |
7,786 |
808 |
8,594 |
Intangibles capitalised |
2,431 |
200 |
2,631 |
Deferred tax liability recognised in respect of intangibles capitalised |
(486) |
(40) |
(526) |
Net assets acquired |
9,731 |
968 |
10,699 |
Goodwill capitalised |
467 |
- |
467 |
|
10,198 |
968 |
11,166 |
Satisfied by: |
|
|
|
Cash |
10,198 |
344 |
10,542 |
Fair value of previously held equity interest |
- |
281 |
281 |
Fair value of non-controlling interest |
- |
343 |
343 |
|
10,198 |
968 |
11,166 |
The fair value of assets acquired is considered to be provisional due to the scale and complexity of the transaction. The full exercise to determine the intangible assets acquired is still to be completed, thus these numbers are also provisional.
The Directors consider the value assigned to goodwill represents the benefits to the Group of improvements in the delivery of Social Housing and Housing management.
In the period, the acquisition of CAH delivered revenue and an operating loss before the amortisation of acquisition intangibles of £5.0m and (£0.49m) respectively. For the period to 30 June 2015, had the acquisitions taken place on 1 January 2015, the combined Group full year revenue for the period is estimated at £455.8m. Given the allocation of area and central overheads within the acquired CAH business, the impact upon Group profits cannot be accurately estimated.
12. Half year condensed consolidated financial statements
Further copies of the Interim Report are available from the registered office of
13. Principal risks and uncertainties
The nature of the principal risks and uncertainties faced by the Group has not changed significantly from those set out on pages 22 to 25 of the 2014 Annual Report and Accounts and is not expected to change over the next six months. Those risks and uncertainties are separated into three principal risks and five additional risks. The three principal risks are: reputation; people; and health and safety. The five additional risks are: markets; integrity, ethics, anti-bribery and corruption; taxation, legal and regulatory; business continuity; and liquidity.
14. Forward-looking statements
This report contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of
The Directors confirm, to the best of their knowledge, that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the Interim Report includes a fair review of the information required by Rules 4.2.4, 4.2.7 and 4.2.8 of the Disclosure and Transparency Rules of the
The names and functions of the Directors of
By order of the Board
D J Miles A C M Smith
Chief Executive Officer Finance Director
david.miles@mearsgroup.co.uk andrew.smith@mearsgroup.co.uk
17 August 2015
This information is provided by RNS