Mears Grp PLC - Trading Update
RNS Number : 9131F
Mears Group PLC
17 November 2015
 

For Immediate Release

17 November 2015

 

Mears Group PLC

("Mears" or "the Group")

Trading Update

 

Mears, the provider of support services to the Social Housing and Care sectors in the UK, today releases a Trading update for the period from 1 January 2015 to date.

 

Mears continues to deliver a solid trading performance.  At a Group level, the Board expects earnings, before exceptional items, to be in line with its expectations for the 2015 full year. We are particularly pleased with the performance of our Social Housing division, which accounts for 80% of Group revenues and is seeing a solid pipeline of opportunities. This strong performance has offset a more challenging environment within Care.

 

Mears has visibility of consensus forecast revenues of 97% for 2015; whilst this is slightly lower than anticipated, the stronger Social Housing margin is expected to compensate for any revenue shortfall. The visibility of consensus forecast revenue for 2016 of 88% is ahead of recent years, reflecting the strong progress made.

 

Social Housing

 

Mears continues to see the positive trends reported within its interim results statement released in August 2015.

 

The momentum of new contract bidding continues to accelerate although this will be to the benefit of future revenues rather than the current year.  The Social Housing operating margin continues to improve, driven from the ex-Morrison business together with a changing sales mix towards higher margin Housing Management services.

 

The Group has further extended its services in Housing Management with over 4,000 homes now under management across the country; the ongoing shortage of social housing being the prime driver for this growth. Our key offering focuses on work with Registered Providers, private landlords, investors and developers to create frameworks in which to provide and manage housing.  Mears is not an asset holder and focuses on managing assets for the benefit of owners, client public sector bodies and residents.

 

Since our interim results, the Social Housing division has secured new contracts of circa £100m. These wins bring orders secured for the year to date to £300m with the new contract win rate for the year to date on competitively tendered works at 33% by value. Notable successes include:

 

·   London Borough of Greenwich - Mears has been awarded two lots in respect of the Asset Management Housing Repairs framework. This is a four year contract worth approximately £12m.

·   London Borough - Mears has been engaged by a London Borough to arrange the purchase and refurbishment of 400 homes, currently under private ownership. The key aim is to provide the Borough with an alternative, affordable housing supply to replace the significant bed and breakfast accommodation costs incurred by the Borough.  Mears is engaged to identify funding partners, purchase properties on behalf of the client, carry out refurbishment works and act as managing agent for the portfolio; the contract will be operated by the Borough and Mears for 40 years and is valued at circa £50 million.  The operation is expected to mobilise in December 2015 and the purchase and refurbishment phase to continue over a period of 24 months.  This is typical of a large number of opportunities and we continue to anticipate strong organic growth in this area.

·   London Borough of Hammersmith & Fulham - Mears, through its own Registered Provider, has been successful in its bid for two framework opportunities with London Borough of Hammersmith & Fulham for the provision of existing residential accommodation on a leaseback basis for homeless households.  The homes will be sourced through a mix of existing housing and refurbished properties with a full management and maintenance service for the 25 year term. The initial portfolios will be in tranches of 40 homes. It is anticipated that this contract will mobilise in early 2016. The contract is valued at circa £20m.

 

In addition, and not included within the order book secured, we are pleased to confirm that following the submission of the final tender, Milton Keynes Council and Mears are jointly seeking to finalise the terms of a proposed partnership arrangement. This will enable both parties to make proposals for consideration by Milton Keynes Council's Cabinet and Mears to enter into a joint venture to deliver a range of activities in accordance with the tender opportunity.   Both Milton Keynes Council and Mears are fully committed to the engagement of the required resources to ensure that all matters are progressed to permit a recommendation be put to Milton Keynes Council Cabinet and the Mears Board for approval.  We will provide an update on this position when all relevant matters are concluded. The proposed partnership would represent one of the largest new contracts ever awarded to Mears.   

 

Care

 

The trends reported in the interim results have continued, and in the short term, trading remains challenging.

 

The acquisition of the Care at Home business from Care UK ('CAH') in May 2015 significantly increased the scale of Mears within the domiciliary care market, making Mears the second largest provider in the UK. The integration of CAH into the existing Mears Care business is now substantially complete; notably we now have a single Care management team operating under a single Mears brand. The acquired CAH business is trading in line with our expectations at the time of the acquisition.

 

We have commenced an intensive business planning process with particular focus on carer retention and recruitment which continues to be the primary challenge.  The business planning process will also assess the impact of the National Living Wage ('NLW') in April 2016. We are optimistic a significant number of commissioners will support the significant increase in our cost base with matching increases in our charge rates. The NLW will increase our selectivity and encourage us to place increased focus on commissioners with a desire to move towards more innovative, outcomes based solutions which better fit Mears' long-term model.

 

Discontinued activities

 

The Group disposed of its Mechanical and Electrical division in 2013 leaving a number of residual amounts to be recovered over a five year period to 2018. Certain contractual performance guarantees from the Group remained in place in the period since disposal and fall away as the underlying commitments unwind.  Our original expectation was that the post disposal period would experience a cash in-flow for the Group which up to December 2014 had been the case.  However, the carrying value of amounts recoverable has been reassessed and the Group now anticipates writing off in full all unsecured amounts. This exceptional item is expected to be in the region of £8 million including a cash out-flow of circa £4 million.

 

Financial position

Mears continues to benefit from a strong balance sheet. Robust working capital management has always been, and remains, a cornerstone of our business. We have maintained a particular focus on efficient cash management and we anticipate strong profit to cash conversion for the full year.

 

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

 

"Our Social Housing business has delivered a strong performance. The number of new bidding opportunities has continued to accelerate and I am pleased our conversion rate has strengthened. I continue to be delighted at the progress being made with developing our Housing Management business; the speed of change in this area is particularly exciting and we are well placed to benefit.

 

"The current state of Social Care Funding is in the news on an almost daily basis and our Care business, in common with the rest of the industry, continues to find the current market conditions challenging. There is a significant disparity between the short and long-term Care opportunity. In the short-term, the position appears negative although I believe the business has underperformed in terms of recruitment and retention and it is an area on which I am placing significant focus. In the long-term, we continue to see significant opportunity in the Care sector and we remain confident that we have the right strategy. We believe Mears is well placed strategically to take advantage of industry evolution.

 

"I am pleased with the overall progress of Mears in 2015. The Group is well positioned to take advantage of future opportunities and we look forward to updating the market with further successes."

 

 

For further information, contact:

 

Mears Group PLC

                 

David Miles, Chief Executive

Tel: +44(0)7778 220 185

Andrew Smith, Finance Director

Tel: +44(0)7712 866 461

Bob Holt, Chairman       

Tel: +44(0)7778 798 816

Alan Long, Executive Director   

Tel: +44(0)7979 966 453

www.mearsgroup.co.uk

 

 

Buchanan

 

Richard Darby/ Sophie McNulty/ Sophie Cowles                               Tel: +44(0)20 7466 5000

www.buchanan.uk.com

 

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 UK social housing stock. Mears also provides care, on a daily basis, to over 30,000 service users.

 


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