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Report and Accounts
- Interim Management Statement
2nd November 2010
2 November 2010
Mears Group PLC
("Mears" or "the Group")
Interim Management Statement
Mears today releases its Interim Management Statement ("IMS") for the period from 1 July 2010 to date.
Key Highlights since 1 July 2010
Group order book of 2.6 billion with unprecedented forward visibility approaching 90% of consensus forecast revenues for 2011 and 75% for 2012.
New contracts awarded in 2010 to-date total 1 billion (including extensions).
Transformational year for Mears. Consolidation of market leading position in both core growth markets of Social Housing and Domiciliary Care.
Exceptional opportunities in both core growth markets.
Government Spending Review is positive for Mears.
Trading in line with management expectations before the mobilisation costs of several new contracts to be mobilised close to year end.
New contracts awarded to the Group's Social Housing Division to the value of 68 million (145 million including extensions).
Mobilisation of the 300 million Family Mosaic contract, delivering services to more than 20,000 homes throughout London.
Acquisition of Jackson Lloyd Limited, which operates social housing maintenance contracts in the North West of England.
Announced British Gas Strategic Partnership to target funding opportunities under the Carbon Emissions Reduction Target (CERT) and the Community Energy Savings Programme (CESP) within Mears' existing and growing Social Housing client base.
New Domiciliary Care contract awards estimated to be worth in the region of 12 million over an average period of 4 years.
Group bid pipeline in excess of 3.0 billion underpins the Board's confidence in the future.
Commenting, Bob Holt, Chairman, Mears Group, said:
"We are delighted with the progress that Mears has made in recent months. Our market leading position has been consolidated, our revenue visibility has improved and following the Government Spending Review, which we see as positive for the Group, we see substantial opportunities across the public sector. Our order book and bid pipeline have never been healthier.
"The provision of value for money services to the public sector is vital both for the UK economy and the future of Mears. It has long been recognised that in terms of quality of service Mears are second to none. Our continued bidding success further demonstrates the positioning of Mears as a first class public sector partner with whom customers desire to build long term partnerships. The partnership with British Gas provides further evidence of our leadership in providing solutions for our clients needs in the context of the Green Agenda.
"In our Social Housing Division, the bid pipeline for contract tenders stands at 2.8 billion and we continue to place great emphasis on winning good quality contracts that can provide clear and sustainable margins.
"The contract awards within our Domiciliary Care division reflect the strength of the Mears Care division.
"We continue to see unprecedented levels of opportunity within the public sector. We believe that the demand and opportunity for our two growth markets will continue to be strong and that Mears is very well placed to benefit from this."
Mears is continuing to experience solid trading across all divisions since announcing the interim results on 17 August 2010. The anticipated outcome for the full year results remains in line with management's expectations before taking account of the impact of a number of new contract mobilisations. As a result of the award of the additional contracts close to our financial year end there is likely to be costs of 0.6 million for mobilisation which will be incurred and expensed in the current period. These have resulted from the Administration of Connaught Partnerships Limited ("Connaught"), and are detailed below.
The bid pipeline remains in excess of 3.0 billion. The order book stands at 2.6 billion, with secured revenues of 95% of consensus forecast for 2010 and for future years currently approaching an unprecedented 90% for 2011 and 75% for 2012.
The social housing business continues its strong performance, particularly in repair and maintenance. Whilst the anticipated level of our reported revenue growth in social housing for the current year is likely to be marginally below our previous expectations, we have had tremendous successes in bidding new contract opportunities and this has been a particularly busy year for new contract mobilisations. With strong revenue visibility and a social housing bid pipeline of 2.8 billion, the Group is confident of enhanced growth in 2011.
Since 1 July 2010, the Group has completed the mobilisation of a 22 year partnership to provide a single 24 hour call centre service for all tenants of Family Mosaic and be responsible for responsive, void, gas maintenance, property surveying and estates management services. The value of the award is 300 million for the initial ten year period. This contract, which represents the largest contract ever mobilised by Mears, relates to more than 20,000 homes in London and the Home Counties.
On 14 September 2010, Mears announced that it had acquired a number of contracts from the Administrators to Connaught and as a result of the Administration, had seen other opportunities for the Group to extend its customer base. The Group is pleased with the progress made to date and remains in discussion with a number of former Connaught customers.
Most notably, we have been awarded a 4-year partnership to provide capital and cyclical works services to Homes for Islington. Homes for Islington is the Arms Length Management Organisation (ALMO) responsible for the management of the housing stock owned by the London Borough of Islington. The contract is valued at 48 million for the initial 4-year period, with an option to extend twice by up to three years each time (up to 10 years maximum giving a contract value of 120 million including extensions). The services to be provided include component renewal works involving redecoration, internal and external refurbishment works such as kitchen, heating and bathroom renewals, rewiring, and roof renewals. We are one of two partners appointed to deliver works to up to 22,000 tenanted and 8,000 leasehold properties.
The new contract start-up with the London Borough of Lambeth to provide responsive repairs, void refurbishment, estate management, decent homes and planned maintenance was originally anticipated to be an October 2010 mobilisation which has now been scheduled to start in April 2011. However, as a result of our acquisition of the prior Lambeth contract from the Administrators to Connaught, the Group had already mobilised a local site office together with a strong local management team and Mears is already undertaking maintenance services in the interim period until the commencement of the new contract.
Additionally, the Group is delighted to have been awarded two contracts with Exeter City Council worth 13 million (20.5 million with extensions). The first is a 5-year partnership to provide responsive repairs and voids services worth 7.5 million over a 5-year period. There is an option to extend the contract for a further 5 years. The second is also a 5 year contract to provide replacement heating systems valued at 5.5 million over the period. Exeter City Council is one of the largest landlords in the South West with a stock of over 5,000 properties.
Since 1 July 2010 there have been an exceptional number of opportunities to both strengthen and extend our position in both core growth markets. It has always been our strategy to invest in our operational structure and to expend overhead to put this in place before it is required. The validity of this strategy has never been better demonstrated than by the position we are now in and has allowed us to maximise the benefits from the large number of opportunities now available. In short, this has been a transformational year for the Group and whilst this investment comes as a cost in the short term the rewards are demonstrable in the revenue visibility for 2011 and 2012. We have never been better placed to exploit our market leading positions.
Mears typically anticipates a low margin from new contracts in the first year following mobilisation. At mobilisation, the primary focus is to ensure that robust processes are put in place for the delivery of excellent customer service. Mears has never capitalised any of these initial inefficiencies and the losses associated with new mobilisations are fully expensed in the period. Given the proximity of these latest new contract awards and associated mobilisations to the Group's year end, and given that we have achieved these further successes on the back of what has already been an intense period of new contract mobilisations, it is anticipated that costs for the period to 31 December 2010 in the region of 0.6 million will be incurred and expensed on these contracts. It is anticipated that all contracts mobilised during 2010 will make a positive contribution to 2011 and beyond.
The outlook for our business has never been better. Following the results of the HM Government's Comprehensive Spending Review ("CSR"), Mears believes that its Social Housing operations will continue to benefit from increased outsourcing opportunities in the sector as Local Authorities look to achieve further efficiency gains, particularly in the supply of essential repair and maintenance services. The significant majority of our Social Housing revenues are non-discretionary spend for services which our clients have a legal obligation to provide. The proposed changes to the system for housing benefit will, in our opinion, promote the migration away from private dwellings towards social housing. The changes to the housing finance system will provide Local Authorities opportunities to invest further in their housing stock which can only be positive for the leading service providers. In addition commitments have been made to build 150,000 new Social Homes and to meet funding commitments on the Decent Homes Program.
In Domiciliary Care, the Group has made significant progress. We believe that our Domiciliary Care division will see an increased level of opportunities as a result of the increased emphasis on care in the community and particularly as a result of the aim within Social Services funding to provide increased levels of care to people in their own homes. The Government has committed an extra 2 billion annual funding to Local Authorities for Social Care by 2014/15.
We have been awarded further significant contracts since July 2010, estimated to be worth in the region of 12 million over an average period of 4 years, reflecting ongoing trends in awarding consolidating contracts to providers with an excellent quality reputation and a capability to deliver against the emerging personalisation agenda.
The most notable success has been a new client relationship at Staffordshire County Council which has resulted in the award of a 3 year contract valued at 6.8 million. Our bid pipeline remains extremely healthy in this sector and we would expect to be able to make further positive announcements in the near future.
Update on the Acquisition of Jackson Lloyd Limited ("JL")
Mears acquired the entire share capital of JL for an initial cash consideration of 2.7 million. JL operates maintenance contracts with customers predominantly in the North West of England. An additional deferred consideration is payable up to a maximum of 1.0 million, subject to the achievement of performance criteria linked to contract retention and profitability. The consideration was satisfied from the Company's existing debt facilities. The completion balance sheet included a net debt of 2.1 million which was repaid immediately upon acquisition from the Group's existing banking facility.
The Group treats any acquisition with the same level of detailed focus as when mobilising new contracts. The mobilisation process is progressing well. The acquisition has been welcomed by the customers of JL. The main focus is on delivering a quality service and maximising customer satisfaction. The Group's operational support functions will be incorporated into the existing structures of JL and it is anticipated that the mobilisation and restructure will be completed before 31 December 2010.
Update on Strategic Partnership with British Gas
Mears in partnership with British Gas will target funding opportunities under the Carbon Emissions Reduction Target ("CERT") and the Community Energy Savings Programme ("CESP") within our existing and growing Social Housing client base. Our aim is to increase Mears' clients' share of British Gas's obligation funding streams. Mears has already targeted a number of existing clients and is undertaking property surveys on their entire housing stocks to identify the scope of works and the financial requirement.
Disposal of Datacare Business Systems Limited ("Datacare")
In September 2010, Mears completed the disposal of Datacare generating net proceeds of 1.0 million. Datacare was acquired earlier this year as part of the Supporta plc acquisition.
Financial Position and Cash Generation
The Group's revolving credit facility of 85 million is committed until June 2013 and provides significant headroom above our current working capital requirements.
New contract start-ups inevitably utilise cash during the mobilisation phase. In the case of our recent significant new mobilisations, the working capital requirements will prove to be demanding in the short-term. Strong working capital management has always been, and remains, a cornerstone of our business and significant focus will be given to maximise cash in-flows during this period of significant new mobilisations.
(tickers: MER.L MER.LN MER.PL)
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 Supporta, now commands a leading position in the UK Local Authorities' outsourced domiciliary care market, providing personal care services to people in their own homes.
Mears employs in excess of 12,000 people and provides maintenance and repairs services to 500,000 homes nationwide. Mears also provides over 150,000 hours of domiciliary care to 20,000 service users each week.
Mears Group PLC
Bob Holt, Chairman
Tel: +44(0)7778 798 816
Andrew Smith, Finance Director
Tel: +44(0)7712 866 461
Joint Broker - Investec
Keith Anderson/Daniel Adams
Tel: +44(0)20 7597 5970
Joint Broker - Collins Stewart
Mark Dickenson/Ileana Antypas
Tel: +44(0)20 7523 8350
Financial PR - Threadneedle Communications
Tel: +44(0)20 7653 9859
Trevor Bass/Alex White
IR - Hansard Communications
Tel: +44(0)20 7245 1100
John Bick/Kirsty Corcoran
Tel: +44(0)7872 061 007
This information is provided by RNS