TIDMMER
RNS Number : 8489U
Mears Group PLC
04 August 2022
Mears Group PLC
("Mears" or the "Group" or the "Company")
Interim Results for the 6 months ended 30 June 2022
Mears Group PLC, the leading provider of services to the Housing
sector in the UK, announces its interim financial results for the 6
months ended 30 June 2022 ("H1 2022").
Strong first half performance with an improved full year trading
outlook
Financial summary
Continuing operations H1 2022 H1 2021 Change %
Revenue GBP485.0m GBP443.7m +9.3%
Statutory profit before tax GBP17.9m GBP5.6m
Adjusted profit before tax GBP18.1m GBP11.1m +62.7%
Statutory diluted EPS 12.70p 4.13p
Adjusted diluted EPS 12.70p 8.01p +58.6%
Dividend per share 3.25p 2.50p +30.0%
Average daily net cash /
(debt) GBP28.4m (GBP8.1m)
---------------------------- --------- --------- ----------
Note - see Alternative Performance Measures for definitions and
reconciliation to statutory measures
Financial highlights
-- Trading in the first half has been excellent across the Group
with good growth in revenues, margins, profits, and cash
-- Group revenues up 9.3% year-on-year to GBP485.0m (H1 2021: GBP443.7m)
-- Adjusted profit before tax up 62.7% at GBP18.1m (H1 2021: GBP11.1m)
o Operating margins strengthened further to 3.9% (H1 2021:
3.1%)
-- Average daily adjusted net cash of GBP28.4m (H1 2021: GBP8.1m adjusted net debt)
o Cash conversion at 134% of EBITDA
o Adjusted net cash (pre-IFRS 16) at 30 June 2022 of GBP89.9m
(31 December 2021: GBP54.6m)
-- Board is declaring an interim dividend of 3.25p per share, an
increase of 30% (H1 2021: 2.50p) in line with its progressive
dividend policy
Operating and strategic highlights
-- Mears benefits from the increasing regulatory drivers and
operational complexity in clients' housing needs
-- Contractual indexation mechanisms and a collaborative
approach with clients has helped to mitigate the supply chain,
inflationary and labour market challenges during the period
-- Positive momentum in pipeline conversion underpins organic growth strategy
o Strong win-rate of tenders in H1 of 40% has contributed
GBP165m to the current order book of GBP2.3bn (FY 2021: GBP2.4bn),
reflecting successful contract retentions and extensions
o Good progress on North Lanarkshire bid (estimated at GBP1.8bn)
and MoJ (8 additional regions), provides additional upside
potential
o A further GBP0.75bn of target opportunities identified for
contracts to be awarded in 2023
-- Launch of Mears' ESG Strategic Approach 2022-2030
Current trading, outlook, and full year guidance
-- The trading momentum experienced in the first half has continued into H2 2022
-- Whilst mindful of the well-publicised macroeconomic headwinds
many businesses are facing, the Board is confident in its outlook
for the second half of the year, and is upwardly revising its
expectations for the full year
-- Revenues for the full year are now expected to be materially
ahead of current market consensus, being in excess of GBP910m, with
adjusted profit before tax to be at least GBP32m, representing 25%
growth versus the prior year
David Miles, Chief Executive Officer of the Group,
commented:
"I'm delighted to report that the trading and operational
performance in the first half has been excellent across the Group
and is reflected in this strong set of interim results. Our
continued momentum is evidence that our core strategy and resilient
operating platform is yielding a market leadership position, which
is key to delivering incremental results and positions the Group
for further sustainable growth.
"Mears' market leadership and long track-record for quality and
operating excellence ensures that we are seen as a trusted partner
to Local and Central Government as they seek to address or
alleviate the challenges within the UK's affordable housing
sector."
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) ("MAR") prior to its release as part
of this announcement and is disclosed in accordance with the
Company's obligations under Article 17 of those Regulations.
For further information, contact:
Mears Group PLC
David Miles
Lucas Critchley
Andrew Smith
Joe Thompson, Investor Relations Tel: +44(0)7980 844 580
www.mearsgroup.co.uk
About Mears
Mears is the leading provider of services to the Affordable
Housing sector in the UK: responsible for the maintenance of c.10%
of the UK's social housing stock; and managing over 10,000 homes
for local and central government.
Mears currently employs around 5,500 people and provides
services in every region of the UK. In partnership with our Housing
clients, we maintain, repair, and upgrade the homes of hundreds of
thousands of people in communities from remote rural villages to
large inner-city estates. Mears has extended its activities to
provide broader housing solutions to solve the challenge posed by
the lack of affordable housing and to provide accommodation and
support for the most vulnerable.
We focus on long-term outcomes for people rather than short-term
solutions and invest in innovations that have a positive impact on
people's quality of life and on their communities' social,
economic, and environmental wellbeing. Our innovative approaches
and market leading positions are intended to create value for our
customers and the people they serve while also driving sustainable
financial returns for our providers of capital, especially our
shareholders.
CHIEF EXECUTIVE OFFICER REVIEW
INTRODUCTION
Trading and operational performance in the first half has been
excellent across the Group and is reflected in this strong set of
interim results. The strong trading performance is evidence that
the strategic actions of recent years and our resilient operating
platform are delivering positive results and has positioned the
Group well for sustainable growth.
The long-term structural challenge of the UK's aging social and
affordable housing stock has been compounded by the more recent
pressures of the pandemic, de-carbonisation commitments and fuel
poverty. Meanwhile, political pressure and legislation are
increasing regulation and scrutiny to drive higher standards across
the sector. Mears' market leadership and long track-record for
quality and operating excellence ensures that we are seen as a
trusted partner to Local and Central Government as they seek to
address and alleviate these challenges.
OPERATING REVIEW
The financial performance across the Group was strong throughout
the period.
Continuing activities H1 2022 H2 2021 H1 2021
GBPm GBPm GBPm
------------------------------------- -------- -------- --------
Revenue
Maintenance-led 272.5 257.9 286.5
Management-led 200.2 168.9 139.5
Development 12.3 7.9 17.7
------------------------------------- -------- -------- --------
Total 485.0 434.7 443.7
------------------------------------- -------- -------- --------
Operating profit measures:
Statutory operating profit 20.7 14.7 9.7
Adjusted operating profit (pre-IFRS
16) 19.1 15.9 13.7
Operating profit margin (pre-IFRS
16) 3.9% 3.7% 3.1%
Profit before tax measures:
Statutory profit before tax 17.9 10.7 5.6
Adjusted profit before tax 18.1 14.5 11.1
------------------------------------- -------- -------- --------
Note - see Alternative Performance Measures for definitions and
reconciliation to statutory measures
Maintenance-led activities
The Group's Maintenance-led contracts made good progress in the
first half, delivering revenues of GBP272.5m, up 5.7% on H2 2021.
Reactive maintenance activities have returned to normal levels, and
Mears has been focussed on working through the order backlog which
built up as a result of the Covid pandemic.
Planned maintenance activities remain below pre-pandemic levels,
as clients' primary focus has been on day-to-day maintenance
activities. While the return of planned works has been slower than
expected, and timing remains uncertain, this spend is
non-discretionary over the longer-term and remains a relatively
small component of the Group's maintenance-led revenues
(<10%).
The first half saw the start of a new 10-year contract with
London Borough of Havering, delivering repairs and maintenance to
around 12,000 homes with an estimated annual value of GBP5m. This
new contract mobilisation went well, with additional resource
applied through the centralised 'Task Team', ensuring that the
Group delivered a high level of customer service from day one. This
is an excellent achievement given the current backdrop of supply
chain pressures and skill shortages and reflects the strength of
the Mears operating model.
Management-led activities
The Group's management-led activities continued to perform
strongly in the first half, with revenues up 44% year-on-year and
19% from H2 2021. This was driven by the Asylum Accommodation and
Support Contract ('AASC') which experienced further increases to
volumes across the entire process, with a net increase of service
users during the period. The Group had expected some degree of
normalisation in service user numbers during FY 2022, but this has
not occurred and looks less likely in the short-term. The Mears
operational teams have done an incredible job in supporting such
large numbers of vulnerable people, including those requiring
dispersal accommodation.
As reported previously, Mears was successful in extending the
term of its contract with the Ministry of Justice (MoJ) to provide
transitional housing services for low and medium risk prisoners on
release. This pilot contract was in respect of two geographical
regions. As a result of the success of the pilot, the MoJ has
launched a tender process to extend the service nationally and
Mears is bidding on a further eight regions with an aggregate
annual value of approximately GBP35m.
As both AASC and MOJ contracts expand in terms of user numbers
and regional coverage, the Group is reviewing selective property
purchases on a small scale in certain areas where suitable
leasehold accommodation is in short supply, thereby maintaining
appropriate service levels.
The Group's Residential Living Accommodation Project contract
("RLAP") with the Defence Infrastructure Organisation mobilised on
1 April. Under the contract, Mears will provide a wide range of
accommodation and property services to service personnel and their
families across the UK. Services include property search, selection
and leasing, relocation services, tenancy management, responsive
repairs and maintenance. Mears has been successfully providing
similar services since 2016 under the predecessor Substitute
Service Accommodation contract. The new contract is for a period of
up to 7 years and has an annual value of around GBP50m. The new
contract has started well with both operational and financial
metrics showing good progress.
Supply chain
The Group has deployed significant resource in managing the
current inflationary headwinds and availability of materials within
its supply chain. The Group benefits from annual price adjustment
mechanisms which are structured within all customer contracts, and
are typically benchmarked against RPI, CPI or other bespoke
maintenance related indices. Most contractual increases are
effective in April of each year, being aligned to our clients'
financial years. However, the Group is not immune to the
accelerating cost pressures being widely experienced across the UK.
Only through careful planning, strong financial management and a
collaborative approach with our clients, were cost pressures able
to be managed without impacting on operating margins.
Our procurement procedures have meant that we have not
experienced significant problems with material supply. Where lead
times have lengthened, we manage and plan for this in our
operational delivery. There are early signs that these supply
issues appear to be easing.
The Mears model has always been to prioritise the investment in,
and retention of, our own staff, with lesser reliance on
sub-contracted and other short-term labour, especially relative to
our peers. The Group made several improvements during the period to
employee remuneration, holiday and sick pay entitlements and other
terms and conditions. We have always been proud of our track record
on employee welfare and engagement, and this has been recognised in
Mears again being voted one of the Top 25 Big Companies in the UK
to work for (Sunday Times). In line with national trends, our
employee turnover has slightly increased in recent months but
remains low relative to the industry. In common with the rest of
the industry, the recruitment of skilled staff remains difficult
and lead times are increasing. These labour shortages are proving a
constraint on our ability to pursue certain new opportunities. We
continue to invest and innovate to attract the best talent.
Customer satisfaction
Mears conducts several thousand surveys each month and has an
independently Chaired Customer Scrutiny Board, that reports both to
the Board and externally on our performance. Key developments are
tried and tested with this group which has customer representation
both from our maintenance and management services
In the first half of 2022, overall customer satisfaction was 87%
(2021: 86%) and we are pleased to see complaint levels remaining
low across the Group. Those complaints that we do have are also
being resolved efficiently and quickly, with all learnings being
transferred into revised operational practices. We continue to
enhance the ability for tenants to interact with us digitally while
recognising that for many tenants, the more traditional routes are
still preferred.
De-carbonisation
We have an end-to-end carbon reduction service in place for our
clients' housing stock. This starts with the ability to help
measure existing carbon efficiency, enables us to design a
programme to cost effectively deliver improvements and then to
measure success. In the short term, the cost-of-living crisis has
given further urgency to this work, as have energy availability
concerns brought on by the situation in the Ukraine.
We have already secured three pieces of work for our clients
through the Social Housing Decarbonisation Fund ("SHDF") first
wave, which will be delivered from Q3 2022. The second wave of
funding will be available in the Autumn, and we are confident that
we will secure additional work at this point. Further SHDF funding
waves will follow in future years and the forthcoming ECO 4 pot
will also bring opportunity. While we recognise that the level of
overall funding currently available does not allow this opportunity
to be delivered in full, we will work with our clients to ensure
that the maximum possible is achieved within whatever funding
constraints exist.
We have made the commitment to achieve Net Zero on Scope 1 and 2
emissions by 2030. This means the electrification of our fleet and
enabling further efficiencies in our working practices.
Development
The Group remains on track to complete its exit from Development
by the end of FY 2022. A further 22 units were sold in the first
half, generating GBP12.3m of revenues (H1 FY2021: GBP17.7m). As of
30 June 2022, there remains 12 completed units and 2 units under
construction. Cashflow was positive in the period, with the spot
working capital utilisation as at 30 June 2022 reducing to GBP4.3m
(31 December 2021: GBP12.0m). Realised pricing has been in-line
with carrying values.
CASH FLOW AND WORKING CAPITAL MANAGEMENT
Mears has always fostered a strong 'cash culture', whereby the
Group's front-line operations understand that invoicing and cash
collection are intrinsically linked, and that a works order is not
complete until cash is collected in full. This culture has
underpinned strong cash performance over many years. The Group has
delivered strong cash generation in the first half, with EBITDA to
operating cash conversion of 134%. The reported cash conversion has
been enhanced further as the working capital absorbed within the
Group's Development activities, which have been in run-off phase
for the past 2-years, has delivered a permanent release of around
GBP5.3m in the half. In addition, the Group has continued to
benefit from payments received on account from customers,
increasing in the period by approximately GBP5.5m to GBP33.3m at 30
June 2022. After adjusting for these two items, which could be
considered non-underlying in nature, the Group has delivered EBITDA
to operating cash conversion of 108%.
Whilst it is pleasing to report a strong cash position within
the period end balance sheet, of much greater significance is the
daily cash performance over the 181-day period. The healthy period
end balance is a reflection of the average daily net cash figure
during the first half year of GBP28.4m, which represents a
significant improvement from the prior year, where the Group had a
daily net debt position of GBP8.1m.
H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
----------------------------------------- --------- -------- ---------
Average daily adjusted net cash / (debt) 28,365 (8,082) 400
Adjusted net cash/ (debt) at period end 89,859 47,591 54,632
----------------------------------------- --------- -------- ---------
ORDER BOOK AND PIPELINE
The order book stands at GBP2.3bn (31 December 2021: GBP2.4bn),
reflecting the timing of contract renewals over the last twelve
months. The Group secured contracts in 2022 YTD valued at over
GBP165m with a win rate (by value) of 40%. The key orders secured
are detailed below:
Contracts awarded in Type Base Extension Annual Base New /
2022 to date term option value contract Retention
(years) (years) GBPm value / Extension
GBPm
---------------------------- ------------- --------- ---------- ------- ---------- -------------
Tower Hamlets Homes Maintenance 5 5 15 75 Retention
South Cambridgeshire
District Council Maintenance 5 - 7 37 Retention
London Borough of Havering Maintenance 10 - 5 50 New
SHDF (various) Maintenance 1 - 15 15 New
Ministry of Justice Management 2 - 10 10 Extension
---------------------------- ------------- --------- ---------- ------- ---------- -------------
Over the course of the past eighteen months, the Group has seen
a high number of existing contracts approaching re-bid. Positively
through this period, the Group has enjoyed several contract
extensions (Orbit, Livin and MoJ) and a number of retentions (RLAP,
Tower Hamlets, Redbridge and South Cambridgeshire). The Board is
pleased with its contract retention rate, but it is inevitable that
a busy period of re-bids will result in some loss of work.
Consequently, the Group will see its work with Welwyn Hatfield
Borough Council, with an annual value of circa GBP15m, come to an
end in October 2022, after more than 20-years' service. Looking
forward, the Group expects the coming eighteen months to be
weighted towards new bidding opportunities. We are seeing an
increase in the levels of bid activity after two years of reduced
volume as a result of Covid. The Group's current bid pipeline for
contracts to be awarded in 2023 is currently standing at
approximately GBP750m. The bid pipeline comprises contracts which
meet the Group's key bidding criteria such as size, quality, and
margin opportunity. Furthermore, in the coming 12-months, there are
few rebids meaning much of the business development focus can be
directed towards supporting the Group's organic growth
ambitions.
This reported pipeline excludes the following larger contract
bid opportunities:
-- North Lanarkshire Housing and Corporate Maintenance and
Investment Services contract estimated to generate more than
GBP1.8bn of revenues over 12 years - to provide reactive
maintenance, compliance, servicing as well as programmes of works
to the Authority's approximately 37,000 homes and c.1,200 other
buildings.
-- Ministry of Justice CAS 3 temporary accommodation programme
in a further eight regions estimated at annual revenues of
GBP35m.
HEALTH, SAFETY AND COMPLIANCE
The group's ethos of ensuring the health, safety, and wellbeing
of our people and those we serve is always at the heart of
everything we do. Pleasingly, the group received its 20th
consecutive ROSPA Gold Award and in so doing, was also awarded
ROSPA's coveted Order of Distinction.
In terms of current primary focus, following the recent
implementation of the new Building Safety Act, the Group is working
closely with all necessary stakeholders, both internal and
external, to ensure the Group's operational teams are compliant and
able to meet the challenges this legislation poses. Building safety
will likely remain a rapidly developing area of regulation for
years to come and the Board will ensure that the Group always
remains vigilant and agile.
The Compliance Committee's scrutiny of the Group's data security
function commenced as planned and is proceeding well. The
Information Security Team has initiated a new security strategy
designed to enhance controls, drive improved compliance, and secure
high level, external accreditation of the governance process.
WORKFORCE
Mears has invested in our workforce for many years and for the
third year running, we have been listed in the Top 25 Sunday Times
Big Companies to work for. This has been further endorsed by Mears
being named by the Chartered Institute of Housing, an organisation
in which almost all our clients have members, as the Employer of
the Year in 2022.
This long-term staff investment in our Workforce, is proving
particularly important at a time where resource has become critical
for many organisations. While we have not been immune to the
pressures, our approach has helped mitigate some of this risk. This
commitment starts at Board level, through our ongoing appointment
of an Employee Director, now with an employee forum added to widen
the circle of engagement with staff at all levels.
Alongside our comprehensive training programmes, we also now
have an MBA program, to support the succession planning of future
senior managers and Directors. We are also investing in new skills,
such as those required for the emerging carbon opportunity,
including developing apprentices with skills in this space.
ESG
As a responsible service-provider to the public sector, Mears
has always been committed to the lives of the end users we support,
the communities in which they live, the quality of our staff
experience and more recently the environmental agenda. This is a
core commitment we give to our public sector clients and
accordingly is a core purpose for the company and those who work
within it. Recognising that clients and investors now review these
attributes within the Environmental, Social and Governance (ESG)
framework, Mears has brought together its existing work in these
areas and enhanced its ambitions and plans in a single charter.
Adopted by the Board and published in May 2022 the 'Mears
Environmental, Social and Governance Strategic Approach 2022-2030'
sets out our current record in these areas and our ambitious
targets and plans for the future. Details can be found on the ESG
section of our website www.mearsgroup.co.uk/esg/esg .
Mears has an independently Chaired ESG Board that reports to the
main Mears Board. The role of the ESG Board, which has three
independent Directors, is to both support and challenge the
development of our ESG work. This is fundamental to our strategy,
which is founded on the goal to be seen as the most responsible
large private organisation working with the public sector. Again,
we set this goal with business development and sustainability in
mind. Demonstrating a responsible approach to business mitigates
key reputation risks with our clients and enables us to respond
well to tenders, for which ESG responses are becoming increasingly
important. Indeed, the Scottish Government is making it clear that
larger organisations, must demonstrate strong ESG arrangements,
especially around carbon reduction, if they are even to be allowed
to bid for public sector work. Standards are also being raised in
the rest of the UK. We have already consulted on and launched a set
of commitments, a Charter, as to how we will fulfil our ESG
responsibilities in Scotland and are currently consulting on a
similar Charter for the rest of the UK. This will complete before
the end of 2022.
STRATEGY
The strengthening trading performance is evidence that the
strategic actions of recent years and Mears' resilient operating
platform and market leadership are delivering results and position
the Group well for sustainable growth over the medium term. Our
strategy, as a housing business working with the Public Sector, is
founded on four principles:
Key principle H1 2022 progress
--------------------------- ------------------------------------------------------------------
To be recognised * Launch of Mears ESG Strategic Approach 2022-2030
as the most trusted
large private provider
working in Housing
with the public
sector
--------------------------- ------------------------------------------------------------------
To have the highest
levels of customer * While Covid created a repairs backlog with some
service in the affordable clients, it is pleasing to note that customer service
housing sector where levels are now recovering towards Mears' usual high
we operate standards.
* We are receiving an increasing number of requests
from Local Government and Housing Associations, who
currently operate a largely internal repairs
workforce (known as a DLO), for assistance in
resolving the problems that have increased for them
in the last two years. We will apply a selective
approach as to where we can help, without over
stretching our own resources. Our position as the
go-to provider is underpinned by our reputation that
we have built over many years.
--------------------------- ------------------------------------------------------------------
To embrace innovation
that drives positive * The carbon section of this document reports on the
change such as digital positive progress in winning carbon reduction work
and carbon reduction and how our enhanced capability will lead to us
securing additional work in 2022 and beyond.
* We are investing in the further development of our
in-house core operating system MCM to support both
maintenance and management. We continue with the
development of customer applications that enhance
service and lower cost, as demonstrated by the fact
that it is now possible for tenants to fully report
and see progress on their repair digitally.
* We will continue to review potential small bolt on
acquisitions that can further broaden our housing and
de-carbonisation capabilities.
--------------------------- ------------------------------------------------------------------
To maintain and
grow a resilient * Our cash position is very strong, with an average
business with long daily net cash of GBP28m for the first half of 2022.
term partnerships,
a strong balance
sheet, along with * We have secured new work with a contract value of
a committed, engaged GBP165m and have developed new partnerships such as
workforce with the Ministry of Justice, where we see
significant opportunity for growth.
* We are now bidding on the largest maintenance
contract that we have ever bid, this being for North
Lanarkshire, which has a GBP150m annual contract
value, for a potential 12 years.
* We still see too many tenders where price is the
dominating factor, but we will continue to follow our
long-standing commitment to quality and we will not
extend relationships, where price focus becomes more
important than quality and long-term value.
* In housing management, our focus will be on driving
the longer-term larger partnerships that we have with
Central Government and on sustainable partnerships
with Local Government that both deliver service
quality and enable us to maintain a strong balance
sheet. Arrangements that do not meet these criteria
will be exited.
--------------------------- ------------------------------------------------------------------
CURRENT TRADING, OUTLOOK, AND GUIDANCE
The Board is mindful of the well-publicised macroeconomic
headwinds and as such, looks to maintain a level of conservatism
when forecasting. In addition, the continuing elevated performance
of the Management-led activities brings some short-term financial
betterment, but the medium-term focus is to deliver both a
reduction in service user numbers and revenues. The precise timing
and phasing for this reduction is uncertain. Positively, as
detailed above, the Group has a number of new bidding opportunities
to fill any gaps, as the management-led activities return to normal
levels.
The Board is delighted at the strong trading performance of the
Group during the first half of FY 2022 and this momentum has
continued into the second half. Revenues for the full year are now
expected to be materially ahead of market consensus, being in
excess of GBP910m, with adjusted profit before tax to be at least
GBP32m, representing 25% growth versus the prior year.
DIVID AND CAPITAL ALLOCATION
Given the excellent trading performance of the Group in the
first half, the continued strong cash performance and the positive
pipeline outlook, the Directors are pleased to declare an interim
dividend of 3.25p (H1 2021: 2.50p; FY 2021 full year: 5.50p)
reflecting the Board's confidence in the prospects of the Company.
This interim dividend is in-line with the Board's stated
progressive dividend policy.
The Board continues to keep under review its capital allocation
priorities, which extends to small-scale M&A opportunities that
could enhance its product capabilities, particularly in data
collection and measurement for decarbonisation projects.
The Group's de-geared balance sheet and cash conversion in
excess of 100% (EBITDA to operating cashflow) facilitates this
on-going investment in product capabilities, supply chain and
employee development and helps underpin long term sustainable
growth prospects and improving shareholder returns.
ALTERNATIVE PERFORMANCE MEASURES ('APM')
The Interim Results includes both statutory and adjusted
performance measures, the latter of which are useful to
stakeholders in projecting a basis for measuring the underlying
performance of the business and excludes items that could distort
the understanding of performance in the half-year and between
periods, and when comparing the financial outputs to those of our
peers. The APMs have been set considering the requirements and
views of the Group's investors and debt funders among other
stakeholders. The APMs and KPIs are aligned to the Group's strategy
and form the basis of the performance measures for Executive
remuneration.
These APMs should not be considered to be a substitute for or
superior to IFRS measures, and the Board has endeavored to report
both statutory and alternative measures with equal prominence
throughout the Interim Results.
The APMs used by the Group are detailed below along with an
explanation as to why management considers the APM to be useful in
helping users to have a better understanding of the Group's
underlying performance. A reconciliation is also provided to map
each non-IFRS measure to its IFRS equivalent.
Alternative Profit Measures
A reconciliation between the statutory profit measures and the
adjusted results for both H1 2022, H1 2021 and FY 2021 is detailed
below.
The Group provides an APM which reports results before the
impact of the change in lease accounting introduced by IFRS 16.
Management have provided this alternative measure at the request of
several shareholders and market analysts to allow those
stakeholders to properly assess the results of the Group over-time.
In particular, the Directors use the pre-IFRS 16 measure to
generate the Group's headline operating margin; whilst this
generates a lower operating margin, it reflects how the underlying
contracts have been tendered and is also more aligned to cash
generation. The Group's banking covenants utilise adjusted profit
measurements which are reported before IFRS 16 and stakeholders
require better visibility of the Group's adjusted profit for that
purpose.
Continuing activities (1) H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
---------------------------------------------------- --------- --------- ---------
Statutory profit before tax 17,935 5,645 16,333
Non-underlying items (see note ii) 123 5,454 9,281
---------------------------------------------------- --------- --------- ---------
Profit before non-underlying items and tax
('Adjusted profit before tax') 18,058 11,099 25,614
---------------------------------------------------- --------- --------- ---------
Removal of IFRS 16 profit impact (see note
i) 1,256 1,359 2,876
Net finance (income)/costs (non-IFRS 16) (170) 1,260 1,148
---------------------------------------------------- --------- --------- ---------
Operating profit pre-IFRS-16 before non-underlying
items ('Adjusted operating profit (pre-IFRS-16)') 19,144 13,718 29,638
---------------------------------------------------- --------- --------- ---------
Amortisation of software intangibles 952 1,090 2,123
Depreciation and loss on disposal (non IFRS
16) 5,122 2,604 5,884
EBITDA pre-IFRS 16 and before non-underlying
items 25,218 17,412 37,644
IFRS 16 profit impact (see note i) (1,256) (1,359) (2,876)
Finance costs (IFRS 16) 3,568 3,249 6,921
Depreciation and loss on disposal (IFRS 16) 21,659 20,896 43,386
EBITDA post-IFRS-16 before non-underlying
items 49,189 40,198 85,075
Amortisation of software intangibles (952) (1,090) (2,123)
Depreciation and loss on disposal (IFRS 16) (21,659) (20,896) (43,386)
Depreciation and loss on disposal (non-IFRS
16) (5,122) (2,604) (5,884)
Operating profit post IFRS 16 and before
non-underlying items 21,456 15,608 33,683
---------------------------------------------------- --------- --------- ---------
(i) Non-underlying items
Non-underlying items are items which are considered outside
normal operations. They are material to the results of the Group
either through their size or nature. These items have been
disclosed separately in the adjusted result above to provide a
better understanding of the underlying performance of the
Group.
H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- --------
Repayment of furlough payments received - 1,627 1,627
Amortisation of acquisition intangibles 123 3,827 7,654
----------------------------------------- -------- -------- --------
123 5,454 9,281
----------------------------------------- -------- -------- --------
A charge for amortisation of acquisition intangibles arose in
the period of GBP0.1m (H1 2021: GBP3.8m). This charge has
historically been much larger however the most significant of the
Group's acquisition related intangibles were fully amortised in
2021. The Group's shareholders and market analysts typically add
back this item in their analysis and the Group's alternative
performance measure is aligned to that approach. Management
believes that reporting profit figures that exclude this item can
help the reader to better understand the underlying performance of
the business.
During 2021, the Directors elected to voluntarily repay to HMRC
amounts previously received of GBP1.1m and, in addition, to not
submit a claim for a further amount of GBP0.5m under the
Coronavirus Job Retention Scheme ('furlough'). Given the strong
performance of the business in 2021, the Directors believed that to
continue to claim furlough was no longer necessary and was not
within the spirit of the legislation. Several Mears' clients looked
to the Group to continue to utilise the furlough scheme and the
cost reduction was passed to those clients as part of the open book
reconciliation, leaving Mears Group PLC to subsidise this voluntary
repayment. The Directors believe that the repayment of furlough
should be disclosed within non-underlying items; this voluntary
repayment is not a trading item and by its nature is unique and
non-recurring.
(ii) IFRS 16 Profit impact
H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
------------------------------------------- --------- --------- ---------
Charge to income statement on a post-IFRS
16 basis (25,227) (24,145) (50,307)
Charge to Income Statement on a pre-IFRS
16 basis (23,971) (22,786) (47,431)
------------------------------------------- --------- --------- ---------
Profit impact from the adoption of IFRS
16 (1,256) (1,359) (2,876)
------------------------------------------- --------- --------- ---------
Alternative operating margin %
Continuing activities H1 H1 2021 FY 2021
2022
GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- --------
Revenue 484,971 443,731 878,420
Adjusted operating profit (pre-IFRS 16) 19,144 13,718 29,638
Operating profit margin (pre-IFRS-16) 3.9% 3.1% 3.4%
----------------------------------------- -------- -------- --------
Alternative Earnings per share measures
Diluted (continuing)
--------------------------
H1 2022 H1 2021 FY 2021
p p p
------------------------------------- -------- ------- -------
Statutory earnings per share 12.70 4.13 11.50
Effect of non-underlying items 0.11 4.56 7.94
Effect of full tax charge adjustment (0.11) (0.68) (1.21)
Adjusted earnings per share 12.70 8.01 18.23
------------------------------------- -------- ------- -------
A reconciliation between the statutory measure for profit for
the year attributable to shareholders before and after adjustments
for both basic and diluted EPS is:
Continuing
-----------------------------
H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
-------------------------------------------- --------- -------- --------
Profit/(loss) attributable to shareholders: 14,393 4,672 12,996
Non-underlying items 123 5,161 8,972
Full tax adjustment (123) (769) (1,365)
Adjusted earnings 14,393 9,064 20,603
-------------------------------------------- --------- -------- --------
Alternative Net cash/(debt) measures
The Group excludes the financial impact from IFRS 16 from its
adjusted net debt measure. This adjusted net debt measure has been
introduced to align the net borrowing definition to the Group's
banking covenants, which are required to be stated before the
impact of IFRS 16. The Group utilises leases as part of its
day-to-day business providing around 10,000 residential properties
to vulnerable service users and key workers. A significant
proportion of these leases have break provisions and the lease
terms are aligned to the Group's customer contracts to mitigate
risk. The Group does not recognise these lease obligations as
traditional debt instruments given the Group's ability to break
these leases and in so doing, cancelling the associated lease
obligation. A reconciliation between the reported net cash/(debt)
and the adjusted measure is detailed below:
H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
------------------------------------ --------- ---------- ---------
Cash and cash equivalents 89,859 92,203 54,632
Long-term borrowings and overdrafts - (44,612) -
------------------------------------ --------- ---------- ---------
Adjusted net cash 89,859 47,591 54,632
Lease liabilities (current) (38,276) (34,814) (41,600)
Lease liabilities (non-current) (173,664) (168,131) (175,290)
------------------------------------ --------- ---------- ---------
Net debt (122,081) (155,354) (162,258)
------------------------------------ --------- ---------- ---------
Alternative Cash conversion measure
Continuing activities H1 2022 H1 2021 FY 2021
GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- --------
EBITDA post-IFRS-16 before non-underlying
items 49,189 40,198 85,075
Non-underlying items (excluding amortisation) - (1,627) (1,627)
----------------------------------------------- -------- -------- --------
EBITDA post-IFRS-16 before non-underlying
items 49,189 38,571 83,448
Cash inflow from operating activities 66,152 20,969 60,362
Cash conversion 134% 54% 72%
----------------------------------------------- -------- -------- --------
The Group has delivered strong cash generation in the first
half, with EBITDA to operating cash conversion of 134%. The Group
benefited from a number of temporary cash benefits as a result of
Covid-19; notably a deferral of the Group's March 2020 VAT
liability of GBP16.0m together with contract payments received on
account relating to interim Covid-19 arrangements. To remove this
temporary impact, the Directors previously reported performance for
the eighteen-month period to 30 June 2021 (cash conversion 131%)
and for the twenty-four-month period to 31 December 2021 (cash
conversion 117%) .
Half-year condensed consolidated statement of profit or loss
For the six months ended 30 June 2022
Year
ended 31 December 2021
Six months ended 30 June 2021 (unaudited) (audited)
Note Six months ended 30 June 2022 (unaudited) GBP'000 GBP'000 GBP'000
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Continuing
operations
Sales revenue 3 484,971 443,731 878,420
Cost of sales (386,100) (354,542) (697,933)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Gross profit 98,871 89,189 180,487
Administrative
expenses (78,168) (79,492) (156,940)
Operating profit 20,703 9,697 23,547
Share of profits
of associates 630 457 855
Finance income 5 640 264 835
Finance costs 5 (4,038) (4,773) (8,904)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period before
tax 17,935 5,645 16,333
Tax expense 6 (3,308) (1,031) (3,192)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period from
continuing
operations 14,627 4,614 13,141
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Discontinued
operations
(Loss)/profit
for the period
from
discontinued
operations 7 (76) 885 940
Tax charge on
discontinued
operations 6 - - 182
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
(Loss)/profit
for the period
after tax from
discontinued
operations (76) 885 1,122
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period from
continuing and
discontinued
operations 14,551 5,499 14,263
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Attributable to:
Owners of Mears
Group PLC 14,317 5,557 14,119
Non-controlling
interest 234 (58) 144
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period 14,551 5,499 14,263
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Earnings per
share - from
continuing
operations
Basic 9 12.97p 4.21p 11.72p
Diluted 9 12.70p 4.13p 11.50p
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Earnings per
share - from
continuing and
discontinued
operations
Basic 9 12.90p 5.01p 12.73p
Diluted 9 12.63p 4.91p 12.49p
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Half-year condensed consolidated statement of comprehensive
income
For the six months ended 30 June 2022
Year
Six months ended 30 June 2021 ended 31 December 2021
Six months ended 30 June 2022 (unaudited) (audited)
Note (unaudited) GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Profit for the period 14,551 5,499 14,263
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Other comprehensive income:
Which will be subsequently reclassified to the Consolidated
Statement of Profit or Loss:
Cash flow hedges:
* gains arising in the period - 441 1,023
* reclassification to the Consolidated Statement of
Profit or Loss - 465 (85)
Decrease in deferred tax asset in respect of cash flow
hedges - (172) (178)
Which will not be subsequently reclassified to the Consolidated
Statement of Profit or Loss:
Actuarial gain on defined benefit pension scheme 17 15,682 36,959 59,721
Pension guarantee asset movements in respect of actuarial
gain 17 (5,363) (18,654) (19,018)
Decrease in deferred tax asset in respect of defined
benefit pension schemes (2,580) (3,375) (8,809)
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Other comprehensive income for the period 7,739 15,664 32,654
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive income for the period 22,290 21,163 46,917
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Attributable to:
Owners of Mears Group PLC 22,056 21,221 46,773
Non-controlling interest 234 (58) 144
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive income for the period 22,290 21,163 46,917
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive income for the period attributable to owners
of Mears Group PLC arises
from:
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Continuing operations 22,132 20,336 45,651
Discontinued operations (76) 885 1,122
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive income for the period attributable to owners
of Mears Group PLC 22,056 21,221 46,773
---------------------------------------------------------------- ----- ------------------------------ ------------------------------ ------------------------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Half-year condensed consolidated balance sheet
As at 30 June 2022
As at 30 As at 30 As at 31 December 2021
June 2022 (unaudited) June 2021 (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
--------------------------- ---- -------------------------- --------------------------- --------------------------
Assets
Non-current
Goodwill 118,873 118,873 118,873
Intangible assets 6,030 10,916 6,610
Property, plant and
equipment 18,846 23,610 20,712
Right of use assets 200,665 194,073 204,949
Investments 1,343 1,423 713
Loan notes 3,673 3,318 3,476
Pension and other employee
benefits 17 43,756 16,436 37,651
Pension guarantee assets 17 7,904 14,256 12,975
Deferred tax asset - 458 -
--------------------------- ---- -------------------------- --------------------------- --------------------------
401,090 383,363 405,959
--------------------------- ---- -------------------------- --------------------------- --------------------------
Current
Inventories 10 13,126 21,709 22,869
Trade and other receivables 11 156,705 152,968 148,305
Current tax assets - 894 2,154
Cash and cash equivalents 89,859 92,203 54,632
--------------------------- ---- -------------------------- --------------------------- --------------------------
259,690 267,774 227,960
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total assets 660,780 651,137 633,919
--------------------------- ---- -------------------------- --------------------------- --------------------------
Equity
Equity attributable to the
shareholders of Mears Group
PLC
Called up share capital 15 1,110 1,109 1,109
Share premium account 82,303 82,249 82,265
Share-based payment reserve 1,688 1,507 1,313
Hedging reserve - (26) -
Merger reserve 7,971 7,971 7,971
Retained earnings 123,531 84,023 107,578
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total equity attributable
to the shareholders of
Mears Group PLC 216,603 176,833 200,236
Non-controlling interest 1,036 600 802
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total equity 217,639 177,433 201,038
--------------------------- ---- -------------------------- --------------------------- --------------------------
Liabilities
Non-current
Long-term borrowing and
overdrafts - 44,612 -
Pension and other employee
benefits 17 7,710 20,812 16,995
Deferred tax liabilities 9,301 - 6,676
Interest rate swaps 14 - 90 -
Lease liabilities 173,664 168,131 175,290
Non-current provisions 3,800 3,667 3,800
--------------------------- ---- -------------------------- --------------------------- --------------------------
194,475 237,312 202,761
--------------------------- ---- -------------------------- --------------------------- --------------------------
Current
Trade and other payables 12 205,620 201,058 184,047
Interest rate swaps 14 - 176 -
Lease liabilities 38,276 34,814 41,600
Provisions 13 3,339 344 4,473
Current tax liabilities 1,431 - -
Current liabilities 248,666 236,392 230,120
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total liabilities 443,141 473,704 432,881
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total equity and
liabilities 660,780 651,137 633,919
--------------------------- ---- -------------------------- --------------------------- --------------------------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Half-year condensed consolidated cash flow statement
For the six months ended 30 June 2022
Year ended 31 December 2021
Six months ended 30 June 2021 (unaudited) (audited)
Note Six months ended 30 June 2022 (unaudited) GBP'000 GBP'000 GBP'000
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Operating activities
Result for the period before tax 17,935 5,645 16,333
Adjustments 16 31,288 33,100 65,902
Change in inventories 9,743 9,548 12,944
Change in trade and other
receivables (13,264) (6,962) (2,244)
Change in trade, other payables
and provisions 20,450 (20,362) (32,573)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash inflow from operating
activities of continuing
operations before taxation 66,152 20,969 60,362
Taxes paid 322 (2,253) (3,752)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash inflow from operating
activities of continuing
operations 66,474 18,716 56,610
Net cash (outflow)/inflow from
operating activities of
discontinued operations (212) 67 59
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash inflow from operating
activities 66,262 18,783 56,669
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Investing activities
Additions to property, plant and
equipment (3,194) (2,534) (7,587)
Additions to other intangible
assets (494) (629) (1,182)
Proceeds from disposals of
property, plant and equipment - 21 46
Loans repaid by related parties - 500 500
Distributions from associates - - 1,108
Interest received 63 160 413
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash outflow from investing
activities of continuing
operations (3,625) (2,482) (6,702)
Net cash inflow from investing
activities of discontinued
operations 5,000 - 500
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash inflow/(outflow) from
investing activities 1,375 (2,482) (6,202)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Financing activities
Proceeds from share issue 39 24 40
Net movement in revolving credit
facility - 5,260 (40,000)
Discharge of lease liabilities (22,269) (20,962) (40,258)
Interest paid (4,022) (4,547) (8,844)
Dividends paid - Mears Group
shareholders (6,103) - (2,773)
Net cash outflow from financing
activities of continuing
operations (32,355) (20,225) (91,835)
Net cash outflow from financing
activities of discontinued
operations (55) (93) (220)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash outflow from financing
activities (32,410) (20,318) (92,055)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash and cash equivalents,
beginning of period 54,632 96,220 96,220
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net increase/(decrease) in cash
and cash equivalents 35,227 (4,017) (41,588)
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash and cash equivalents, end
of period 89,859 92,203 54,632
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
The Group considers its
revolving credit facility to be
an integral part of its cash
management:
* Cash and cash equivalents 89,859 92,203 54,632
* Revolving credit facility - (44,612) -
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash and cash equivalents,
including revolving credit
facility 89,859 47,591 54,632
-------------------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Half-year condensed consolidated statement of changes in
equity
For the six months ended 30 June 2022 (unaudited)
Attributable to equity shareholders of the Company
------------------------------------------------------------
Share-
Share based Non-
Share premium payment Hedging Merger Retained controlling Total
capital account reserve reserve reserve earnings interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
At 1 January 2021 1,109 82,225 1,312 (760) 7,971 63,536 658 156,051
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Net result for the period - - - - - 5,557 (58) 5,499
Other comprehensive income - - - 734 - 14,930 - 15,664
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Total comprehensive income for
the period - - - 734 - 20,487 (58) 21,163
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Issue of shares - 24 - - - - - 24
Share options - value of
employee services - - 195 - - - - 195
At 30 June 2021 1,109 82,249 1,507 (26) 7,971 84,023 600 177,433
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
At 1 January 2022 1,109 82,265 1,313 - 7,971 107,578 802 201,038
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Net result for the period - - - - - 14,317 234 14,551
Other comprehensive income - - - - - 7,739 - 7,739
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Total comprehensive income for
the period - - - - - 22,056 234 22,290
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
Issue of shares 1 38 - - - - - 39
Share options - value of
employee services - - 375 - - - - 375
Dividends - - - - - (6,103) - (6,103)
At 30 June 2022 1,110 82,303 1,688 - 7,971 123,531 1,036 217,639
-------------------------------- --------- -------- -------- -------- -------- --------- ------------ --------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Notes to the half-year condensed consolidated financial
statements
For the six months ended 30 June 2021
1. Corporate information
Mears Group PLC is a public limited company incorporated in
England and Wales whose shares are publicly traded. The half-year
condensed consolidated financial statements of the Company and its
subsidiaries for the six months ended 30 June 2022 were authorised
for issue in accordance with a resolution of the Directors on 4
August 2022.
2. Basis of preparation and accounting principles
(a) Basis of preparation
The financial information comprises the unaudited results for
the six months ended 30 June 2022 and 30 June 2021, together with
the audited results for the year ended 31 December 2021. The
half-year condensed consolidated financial statements for the six
months ended 30 June 2022 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority, with IAS 34 'Interim Financial Reporting', as contained
in UK-adopted international accounting standards, and with the
Accounting Standards Board's 2017 statement 'Half-yearly financial
reports'. 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 2021,
which have been prepared in accordance with International
Accounting Standards in conformity with the requirements of the
Companies Act 2006 and United Kingdom adopted International
accounting standards.
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 2021 were approved by the Board of Directors on 31 March
2022. Those accounts, which contained an unqualified audit report
under Section 495 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 2022 have not been audited or reviewed
by an auditor pursuant to the Auditing Practices Board guidance on
the Review of Interim Financial Information.
There have been no significant changes to estimates of amounts
reported in prior financial years.
Going concern
The Directors consider that, as at the date of approving the
interim financial statements, there is a reasonable expectation
that the Group and Company have adequate resources to continue in
operational existence for the period to at least 30 September 2023.
When making this assessment, management considers whether the Group
will be able to maintain adequate liquidity headroom above the
level of its borrowing facilities and to operate within the
financial covenants applicable to those facilities which will be
measured at 31 December 2022 and 30 June 2023. As at 30 June 2022
and 4 August 2022, the Group had GBP70m of committed borrowing
facilities of which none was drawn. The principal borrowing
facilities are subject to covenants as detailed on page 61 of the
2021 Annual Report. The nature of the principal risks and
uncertainties faced by the Group has not changed significantly from
those set out on pages 50 to 54 of the 2021 Annual Report and are
not expected to change over the next 12 months. The Group has
modelled its cash flow outlook for the period to 30 September 2023
and the forecasts indicate significant liquidity headroom will be
maintained above the Group's borrowing facilities and that
financial covenants will be met throughout the period, including
the covenant tests at 31 December 2022 and 30 June 2023. The
Group's existing debt facilities run to December 2025.
The Group has carried out stress tests against the base case to
determine the performance levels that would result in a breach of
covenants or a reduction of headroom against its borrowing
facilities to GBPnil. Further detail regarding the Group's stress
testing is provided in the Business Planning and Financial
Viability section on pages 62 and 63 of the 2021 Annual Report and
the same scenarios were modelled to support the assessment of the
Directors in this interim statement. Combining these scenarios
shows that the Group would remain viable even in the event of a
severe business failure over an extended period.
Consequently, the Directors consider any scenario which would
cause the business to be no longer a going concern to be
implausible. The Group has continued to trade profitably during the
first half of 2022 and has several mitigating actions under its
control including minimising capital expenditure to critical
requirements, reducing levels of discretionary spend, rationalising
its overhead base and curtailing future dividend payments which,
should they be required, could be implemented in order to be able
to meet the covenant tests and to continue to operate within
borrowing facility limits.
After making these assessments, the Directors have a reasonable
expectation that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the interim statement.
(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
2021.
3. Revenue
The Group's revenue disaggregated by pattern of revenue
recognition is as follows:
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
-------------------------------------- ------------------- ---------------------
Revenue from contracts with customers
Repairs and maintenance 241,555 248,245
Contracting 47,384 59,384
Property income 171,771 109,789
Care services 10,029 9,678
Other 72 127
-------------------------------------- ------------------- ---------------------
470,811 427,223
Lease income 14,160 16,508
-------------------------------------- ------------------- ---------------------
484,971 443,731
-------------------------------------- ------------------- ---------------------
All of the above categories fall exclusively within the Housing
segment.
4. Segment reporting
The Group had one continuing operating segment during the
period:
-- Housing - following the disposal of the Group's domiciliary
care operations, all services provided by the Group fall within
this segment. This includes housing repairs and maintenance
services, a full housing management service and Care services
directly related to housing provision.
All of the Group's activities are carried out within the United
Kingdom and the Group's principal reporting to its chief operating
decision maker is not segmented by geography.
5. Finance income and finance costs
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------------------------------- ------------------- -------------------
Interest charge on overdrafts and loans (368) (873)
Interest charge on hedged items - (465)
Interest on lease obligations (3,574) (3,249)
Other interest (5) -
Finance costs on bank loans, overdrafts and finance leases (3,947) (4,587)
Interest charge on net defined benefit scheme obligation (91) (186)
---------------------------------------------------------------- ------------------- -------------------
Total finance costs (4,038) (4,773)
---------------------------------------------------------------- ------------------- -------------------
Interest income resulting from short-term bank deposits 43 2
Interest income resulting from net defined benefit scheme asset 380 104
Other interest income 217 158
---------------------------------------------------------------- ------------------- -------------------
Finance income 640 264
---------------------------------------------------------------- ------------------- -------------------
Net finance charge (3,398) (4,509)
---------------------------------------------------------------- ------------------- -------------------
6. Tax expense
Tax recognised in the Consolidated Statement of Profit or
Loss:
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------------------------------------------- ------------------- -------------------
United Kingdom corporation tax 3,262 1,717
Adjustment in respect of previous periods - -
---------------------------------------------------------------------------- ------------------- -------------------
Total current tax charge recognised in Consolidated Statement of Profit or
Loss 3,262 1,717
---------------------------------------------------------------------------- ------------------- -------------------
Total deferred taxation recognised in Consolidated Statement of Profit or
Loss 46 (686)
---------------------------------------------------------------------------- ------------------- -------------------
Total tax charge recognised in Consolidated Statement of Profit or Loss on
continuing operations 3,308 1,031
Total tax charge recognised in Consolidated Statement of Profit or Loss on
discontinued operations - -
---------------------------------------------------------------------------- ------------------- -------------------
Total tax charge recognised in Consolidated Statement of Profit or Loss 3,308 1,031
---------------------------------------------------------------------------- ------------------- -------------------
7. Discontinued activities
As described in the 2020 Annual Report, during 2020 the Group
completed the disposal of its Domiciliary Care business and its
Planning Solutions business. At the time of the disposals, the
Group was committed to a small number of unavoidable costs, largely
in respect of retained offices. The final costs in respect of these
commitments have been presented in discontinued operations for the
current period.
An element of the consideration receivable for the sale of the
Group's Planning Solutions business is contingent on the
performance of the disposed business against a profit target in the
financial year ending 31 December 2021. This contingent
consideration is carried at fair value and the increase in fair
value of GBP0.1m during the period was recognised in the
Consolidated Statement of Profit or Loss and is also presented in
discontinued operations.
The results of the discontinued operations are detailed
below:
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------------------------------------ ------------------- -------------------
Revenue and profits
Sales revenue - 127
Cost of sales - (53)
Administrative expenses (212) (36)
Increase in fair value of contingent consideration 136 849
Finance costs - (2)
------------------------------------------------------ ------------------- -------------------
(Loss)/profit for the year on discontinued operations (76) 885
------------------------------------------------------ ------------------- -------------------
8. Dividends
The following dividends were paid on ordinary shares in the
year:
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------------------- ------------------- -------------------
Final 2021 dividend of 5.5p per share 6,103 -
------------------------------------- ------------------- -------------------
The Board is recommending an interim dividend of 3.25p (2021:
nil) per share. This is not recognised as a liability at 30 June
2022 and will be payable on 28 October 2022 to shareholders on the
register of members at the close of business on 7 October 2022.
9. Earnings per share
Continuing
Continuing Discontinued and discontinued
---------------------------- ---------------------------- ----------------------------
Six months Six months Six months Six months Six months Six months
ended 30 ended 30 ended 30 ended 30 ended 30 ended 30
June 2022 June 2021 June 2022 June 2021 June 2022 June 2021
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
p p p p p p
------------------- ------------- ------------- ------------- ------------- ------------- -------------
Basic earnings per
share 12.97 4.21 (0.07) 0.80 12.90 5.01
Diluted earnings
per share 12.70 4.13 (0.07) 0.78 12.63 4.91
------------------- ------------- ------------- ------------- ------------- ------------- -------------
The profit attributable to shareholders for both basic and
diluted EPS is:
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
-------------------------------------------------------- ------------------- -------------------
Continuing profit attributable to shareholders 14,393 4,672
Discontinued (loss)/profit attributable to shareholders (76) 885
Profit attributable to shareholders 14,317 5,557
-------------------------------------------------------- ------------------- -------------------
The calculation of EPS is based on a weighted average of
ordinary shares in issue during the period. 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. IAS 33 defines dilutive options
as those whose exercise would decrease earnings per share or
increase loss per share from continuing operations.
Six months ended 30 Six months ended 30
June 2022 June 2021
(unaudited) (unaudited)
Million Million
---------------------------------------------------------------------------- ------------------- -------------------
Weighted average number of shares in issue: 110.95 110.90
* Dilutive effect of share options 2.38 2.32
---------------------------------------------------------------------------- ------------------- -------------------
Weighted average number of shares for calculating diluted earnings per share 113.33 113.22
---------------------------------------------------------------------------- ------------------- -------------------
10. Inventories
As at 30 As at 30 As at 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------- -------------- ------------- ------------------
Materials and consumables 1,472 3,341 1,650
Work in progress 11,654 18,368 21,219
-------------------------- -------------- ------------- ------------------
13,126 21,709 22,869
-------------------------- -------------- ------------- ------------------
11. Trade and other receivables
As at 30 As at 30 As at 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------- -------------- ------------- ------------------
Trade receivables 27,685 47,094 28,571
Contract assets 103,380 85,188 97,680
Contract fulfilment costs 1,115 1,201 1,242
Prepayments and accrued income 16,121 9,915 9,277
Deferred consideration - 500 -
Contingent consideration 1,667 6,280 6,531
Other debtors 6,737 2,790 5,004
---------------------------------- -------------- ------------- ------------------
Total trade and other receivables 156,705 152,968 148,305
---------------------------------- -------------- ------------- ------------------
Contingent consideration of GBP1.7m (June 2021: GBP6.3m) is
receivable in respect of the disposal of the Group's Planning
Solutions business. The guaranteed amount of contingent
consideration of GBP5.0m was received in March 2022 and the
carrying value at 30 June 2022 represents the remaining amount due,
which is expected to be received in the second half of the
year.
12. Trade and other payables
As at 30 As at 30 As at 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------- -------------- ------------- ------------------
Trade payables 73,277 108,486 69,555
Accruals 64,979 47,770 51,343
Social security and other taxes 27,754 30,559 29,724
Contract liabilities 33,304 11,736 27,843
Other creditors 6,306 2,507 5,582
-------------------------------- -------------- ------------- ------------------
205,620 201,058 184,047
-------------------------------- -------------- ------------- ------------------
13. Provisions
A summary of the movement in provisions during the year is shown
below:
Onerous contract provisions Legal provisions Total
GBP'000 Property provisions GBP'000 GBP'000 GBP'000
------------------------- --------------------------- ---------------------------- ---------------- --------
At 1 January 2022 1,400 730 2,343 4,473
Utilised during the year (1,400) (175) (59) (1,634)
Provided during the year - - 500 500
------------------------- --------------------------- ---------------------------- ---------------- --------
At 30 June 2022 - 555 2,784 3,339
------------------------- --------------------------- ---------------------------- ---------------- --------
At 31 December 2021, the Group identified a small number of
maintenance contracts where the estimate of unavoidable costs of
meeting contractual obligations exceed the remuneration expected to
be received. These were categorised as onerous contracts. In each
case, the Group has triggered the contractual break clause and the
respective contracts concluded in the early part of 2022.
Property provisions were recognised during 2021 in respect of
the expected costs of reinstating several properties to their
original condition. The remainder of this provision is expected to
be utilised within one year.
Legal provisions relate to sub-contractor and employee related
legal claims which are also expected to be utilised within one
year.
14. Financial instruments
Categories of financial instruments
As at 30 As at 30 As at 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------- -------------- ------------- ------------------
Non-current assets
Fair value (level 3)
----------------------------------- -------------- ------------- ------------------
Investments - other investments 65 65 65
----------------------------------- -------------- ------------- ------------------
Amortised cost
----------------------------------- -------------- ------------- ------------------
Loan notes 3,673 3,318 3,476
----------------------------------- -------------- ------------- ------------------
Current assets
Fair value (level 3)
----------------------------------- -------------- ------------- ------------------
Contingent consideration 1,667 6,280 6,531
----------------------------------- -------------- ------------- ------------------
Amortised cost
Trade receivables 27,685 47,094 28,571
Deferred consideration - 500 -
Other debtors 6,737 2,790 5,004
Cash at bank and in hand 89,859 92,203 54,632
----------------------------------- -------------- ------------- ------------------
124,281 142,587 88,207
----------------------------------- -------------- ------------- ------------------
Non-current liabilities
Fair value (level 2)
Interest rate swaps - effective - (19) -
Interest rate swaps - ineffective - (71) -
----------------------------------- -------------- ------------- ------------------
Interest rate swaps - (90) -
----------------------------------- -------------- ------------- ------------------
Amortised cost
Long-term borrowing and overdrafts - (44,612) -
Lease liabilities (173,664) (168,131) (175,290)
(173,664) (212,743) (175,290)
----------------------------------- -------------- ------------- ------------------
Current liabilities
Fair value (level 2)
Interest rate swaps - effective - (25) -
Interest rate swaps - ineffective - (151) -
----------------------------------- -------------- ------------- ------------------
Interest rate swaps - (176) -
----------------------------------- -------------- ------------- ------------------
Amortised cost
Trade payables (73,278) (108,486) (69,555)
Lease liabilities (38,276) (34,814) (41,600)
Other creditors (6,306) (2,507) (5,582)
----------------------------------- -------------- ------------- ------------------
(117,860) (145,807) (116,737)
----------------------------------- -------------- ------------- ------------------
(161,838) (206,566) (193,748)
----------------------------------- -------------- ------------- ------------------
The IFRS 13 hierarchy level categorisation relates to the extent
the fair value can be determined by reference to comparable market
values. The classifications range from level 1, where instruments
are quoted on an active market, through to level 3, where the
assumptions used to arrive at fair value do not have comparable
market data.
The amount of contingent consideration receivable is determined
by performance against a profit target of the disposed business in
the financial year ending 31 December 2021. The fair value of this
contingent consideration has been calculated by management with
reference to draft income and expenditure of the disposed business
and the terms of the sale (level 3).
A 1% change in the eventual profit of the disposed business
would result in an approximately GBP0.3m change in the fair value
of the contingent consideration.
The increase in the fair value of contingent consideration of
GBP0.1m during the period was recognised in the Consolidated
Statement of Profit or Loss and presented in discontinued
operations, as detailed in note 8.
The fair values of investments in unlisted equity instruments
are determined by reference to an assessment of the fair value of
the entity to which they relate. This is typically based on a
multiple of earnings of the underlying business (level 3).
There have been no transfers between levels during the
period.
Fair value information
The fair value of the Group's financial assets and liabilities
approximates to the book value, as disclosed above.
Contingent consideration
The table below shows the movements in consideration
receivable:
Contingent
GBP'000
----------------------------------------- ----------
At 1 January 2022 (audited) 6,531
Movement in fair value during the period 136
Consideration received (5,000)
------------------------------------------ ----------
At 30 June 2022 (unaudited) 1,667
------------------------------------------ ----------
The balance of contingent consideration is expected to be
received within one year.
15. Share capital
2022 2021
GBP'000 GBP'000
---------------------------------------------------------------------------------- -------- --------
Allotted, called up and fully paid
At 1 January 110,926,510 (2021: 110,881,897) ordinary shares of 1p each (audited) 1,109 1,109
Issue of 32,160 (2020: 16,753) shares on exercise of share options 1 -
---------------------------------------------------------------------------------- -------- --------
At 30 June 110,958,670 (2021: 110,898,650) ordinary shares of 1p each (unaudited) 1,110 1,109
---------------------------------------------------------------------------------- -------- --------
During the period 32,160 (2020: 16,753) ordinary 1p shares were
issued in respect of share options exercised.
16. Notes to the Consolidated Cash Flow Statement
The following non-operating cash flow adjustments have been made
to the result for the period before tax:
Year ended
Six months ended 30 Six months ended 30 31 December
June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------------------- ------------------- ------------
Depreciation 26,781 23,506 49,024
Loss on disposal of property, plant and equipment - (33) 245
Amortisation 1,075 4,917 9,777
Share-based payments 375 195 575
IAS 19 pension movement 289 545 (933)
Equity accounted income from investments (630) (457) (855)
Finance income (640) (160) (835)
Finance cost 4,038 4,587 8,904
-------------------------------------------------- -------------------- ------------------- ------------
Total 31,288 33,100 65,902
-------------------------------------------------- -------------------- ------------------- ------------
17. Pensions
The Group contributes to defined benefit schemes which require
contributions to be made to separately administered funds. The
assets of the schemes are administered by trustees in funds
independent from the assets of the Group.
In certain cases, the Group will participate under Admitted Body
status in the LGPS. The Group will contribute for a finite period
up until the end of the particular contract. The Group is required
to pay regular contributions as detailed in the scheme's schedule
of contributions. In some cases, these contributions are capped and
any excess can be recovered from the body from which the employees
originally transferred. Where the Group has a contractual right to
recover the costs of making good any deficit in the scheme from the
Group's client, the fair value of that asset has been recognised as
a separate pension guarantee asset.
For the purposes of the interim financial statements management
has estimated the movements in pension liabilities by reference to
the changes in principal assumptions since 31 December 2021, using
the sensitivities calculated at that time to movements in these
assumptions. The movements in pension assets have been estimated by
reference to market index returns over the period for different
asset classes in line with the asset portfolios held at 31 December
2021.
The principal actuarial assumptions that have changed since 31
December 2021 are as follows:
As at 30
June 2022 As at 31 December 2021
(unaudited) (audited)
----------------------------- ------------- -----------------------
Discount rate 3.80% 2.00%
Retail prices inflation 2.90% 3.00%
Consumer prices inflation 2.50% 2.60%
Rate of increase of salaries 2.90% 3.00%
----------------------------- ------------- -----------------------
The amounts recognised in the Consolidated Balance Sheet and
major categories of plan assets are:
30 June 2022 31 December 2021
(unaudited) (audited)
------------------------------- -------------------------------
Group Other Group Other
schemes schemes Total schemes schemes Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- --------- --------- --------- --------- --------- ---------
Group's estimated asset share 149,054 295,815 444,869 196,912 296,571 493,483
Present value of funded scheme liabilities (105,298) (190,566) (295,864) (159,261) (275,828) (435,089)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Funded status 43,756 105,249 149,005 37,651 20,743 58,394
Scheme surpluses not recognised as assets - (112,959) (112,959) - (37,738) (37,738)
------------------------------------------- --------- --------- --------- --------- --------- ---------
Pension asset/(liability) 43,756 (7,710) 36,046 37,651 (16,995) 20,656
------------------------------------------- --------- --------- --------- --------- --------- ---------
Pension guarantee assets - 7,904 7,904 - 12,975 12,975
------------------------------------------- --------- --------- --------- --------- --------- ---------
The movements in the net pension assets/liabilities for the six
months ended 30 June 2022 are:
Group Other
schemes schemes Total
GBP'000 GBP'000 GBP'000
----------------------------------------------------------- -------- -------- --------
Pension asset/(liability) at 1 January 2022 (audited) 37,651 (16,995) 20,656
Recognised in the Consolidated Statement of Profit or Loss 257 (549) (292)
Recognised in other comprehensive income 5,848 9,834 15,682
Pension asset/(liability) at 30 June 2022 (unaudited) 43,756 (7,710) 36,046
----------------------------------------------------------- -------- -------- --------
Changes in the fair value of guarantee assets are as
follows:
GBP'000
----------------------------------------------------------- -------
Fair value of guarantee assets at 1 January 2022 (audited) 12,975
Recognised in the Consolidated Statement of Profit or Loss 292
Recognised in other comprehensive income (5,363)
------------------------------------------------------------ -------
Fair value of guarantee assets at 30 June 2022 (unaudited) 7,904
------------------------------------------------------------ -------
The Group's defined benefit obligation is sensitive to changes
in certain key assumptions. A 0.1% reduction in the net discount
rate (the base discount rate less the rate of inflation) would
result in an increase in the present value of the defined benefit
obligation of approximately 1.8%, although an element of the
increase would be mitigated by an increase in the pension guarantee
assets, as described above.
18. Half-year condensed consolidated financial statements
Further copies of the Interim Report are available from the
registered office of Mears Group PLC at 1390 Montpellier Court,
Gloucester Business Park, Gloucester, GL3 4AH or
www.mearsgroup.co.uk.
19. 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 50
to 54 of the 2021 Annual Report and Accounts and is not expected to
change over the next six months.
20. Forward-looking statements
This report contains certain forward-looking statements with
respect to the financial condition, results of operations and
businesses of Mears Group PLC. These statements involve risk and
uncertainty because they relate to events and depend upon
circumstances that will occur in the future. There are a number of
factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements.
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 UK Financial Conduct Authority.
The names and functions of the Directors of Mears Group PLC are
as listed in the Group's Annual Report for 2021.
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
4 August 2022
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