Interim Results
08/08/2024 07:00
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RNS Number : 6253Z Mears Group PLC 08 August 2024
Mears Group PLC
("Mears" or the "Group" or the "Company")
Interim Results for the 6 months ended 30 June 2024
Excellent first half performance and positive outlook
Mears Group PLC, the leading provider of services to the Affordable Housing
sector in the UK, announces its interim financial results for the six months
ended 30 June 2024 ("H1 2024").
Financial Highlights
· Revenues up 10% year-on-year to £580.0m (2023: £525.6m)
· Profit before tax increased by 44% to £30.5m (2023: £21.2m)
· Operating margin (pre-IFRS 16) continues to strengthen to 5.2%
(2023: 4.0%)
· Strong conversion of EBITDA to Operating cash reflecting quality
of earnings
· Cash conversion at 119% of EBITDA (2023: 117%)
· Average daily net cash of £66.4m (2023: £57.4m)
· Normalised diluted EPS up 68% to 22.84p (2023: 13.63p) driven by
profit growth and augmented by a 12% reduction in the shares in issue over the
last twelve months
· Interim dividend of 4.75p (2023: 3.70p), an increase of 28%,
reflecting continued strong cash performance and Board's confidence in future
prospects
· Completed third share buyback programme; £20.0m cash
consideration, 5.6m shares at an average price of 359p, bringing the total of
cash returned via buybacks to £53m since May 2023
· Further Employee Benefit Trust ('EBT') purchases; £6.2m of cash
consideration, 1.7m shares at an average price of 365p
H1 2024 H1 2023 Change %
Revenue £580.0m £525.6m +10%
Statutory profit before tax £30.5m £21.2m +44%
Statutory diluted EPS 23.12p 14.09p +64%
Normalised diluted EPS* 22.84p 13.63p +68%
Interim dividend per share 4.75p 3.70p +28%
Average daily net cash* £66.4m £57.4m +16%
* - see Alternative Performance Measures for definitions and reconciliation to
statutory measures
Operational Highlights
· Sustained high levels of customer satisfaction 90% (FY23: 90%)
· Further progress in employee engagement and workforce retention
· Positive momentum in bidding pipeline underpins organic growth
strategy
o Securing the award of the new North Lanarkshire Council ('NLC') contract.
The new contract opportunity is for a minimum of eight years and is expected
to deliver annual revenues of over £125m, a significant increase on the
previous contract
· Solid progress in supporting clients in securing grants through
the Social Housing Decarbonisation Fund ('SHDF'). To date, the Group has
secured over £50m of funding through Waves 1 and 2, including £10m of
funding secured during the first half. The Group is currently submitting
applications in respect of Wave 3 and is well positioned
Current trading and outlook
· The positive momentum achieved in the first six months of 2024 has
continued into the second half. The Board now anticipates revenue for the full
year of approximately £1.1bn, with adjusted profit before tax in a range of
£53m-£55m, ahead of current market expectations.
· Whilst the Board remains cautious around the expected normalisation
of Management-led activities, the enhanced operational and commercial focus is
driving improvements to the underlying business to mitigate the profit impact
from any revenue reduction in FY25 and beyond.
Lucas Critchley, Chief Executive Officer of the Group, commented:
"Trading in the first half has been excellent across the Group and is
reflected in a strong set of interim numbers. We have made good progress in
the first half, with a focus on developing and broadening the range of
services we offer to clients. In addition, an increased operational focus,
making fuller use of the Group's IT system capabilities, is resulting in
operational and commercial improvements, and is evident in the continued
progress in operating margins."
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 Tel: +44(0)1452 634 600
Andrew Smith
Lucas Critchley
Deutsche Numis Tel: +44(0)207 260 1000
Julian Cater
Kevin Cruickshank
Panmure Liberum Tel: +44(0)20 3100 2000
Tom Scrivens
James Sinclair-Ford
About Mears
Mears is a leading provider of services to the Housing sector, providing a
range of services to individuals within their homes. We manage and maintain
around 450,000 homes across the UK and work predominantly with Central
Government and Local Government, typically through long-term contracts. We
equally consider the residents of the homes that we manage and maintain to be
our customers, and we take pride in the high levels of customer satisfaction
that we achieve.
Mears currently employs over 5,000 people and provides services in every
region of the UK. In partnership with our Housing clients, we provide property
management and maintenance services. 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.
INTERIM STATEMENT
INTRODUCTION
The Board is delighted to report another strong period of trading. The Group
has continued to deliver strong operational performance, and it is pleasing to
see this evident in excellent financial results. Our singular focus on
Housing, underpinned by an extensive knowledge and understanding of the
market, and a strong empathy for our service users and tenants, is a positive
and enables the Group to continue developing its services. The Group has
benefited over many years from its market-leading, proprietary IT system and
this is an area where we are continuing to invest, recognising that
enhancement of the system's functionality is required to support a broader
service offering to our clients and to increase the addressable market
opportunity.
OPERATING REVIEW
H1 2024 H1 2023 FY 2023
£m £m £m
Revenue
Maintenance-led 280.1 271.6 543.3
Management-led 299.9 251.7 543.3
Development - 2.3 2.7
Total 580.0 525.6 1,089.3
Operating profit measures:
Statutory operating profit 34.2 23.7 52.2
Adjusted operating profit (pre-IFRS 16)(*) 30.3 20.8 51.4
Operating profit margin (pre-IFRS 16)(*) 5.2% 4.0% 4.7%
Profit before tax measures:
Statutory profit before tax 30.5 21.2 46.9
* - see Alternative Performance Measures for definitions and reconciliation to
statutory measures
It is particularly encouraging to see strong financial performance in all
areas of the business. Group revenues increased to £580m, an increase of
10%, all organic. Operating margin (pre IFRS 16) was also up strongly at 5.2%
(2023: 4.0%) and profit before tax was £30.5m, an increase of 44% (2023:
£21.2m).
The Group continues to see an elevated level of revenue in its Management-led
activities, predominantly driven by immigration-related services. As expected,
the run-rate stepped down late in the first half, which will be fully
reflected in the second-half trading. However, revenues remain at levels that
are above those originally envisaged and it remains hard to predict when this
will reduce to a normalised level. The normalisation has been slower than
expected and the Group is focussed on maintaining operating margins through a
period where it will be rebalancing the property portfolio used to house
service users.
The Group has seen an extension to the services that it delivers to the MOD,
with a new workstream linked to the Afghan Resettlement Accommodation
Programme, aiding those individuals and their families who assisted the UK
Government, supporting them in their relocation and with accommodation. The
mobilisation commenced late in FY23 and went live at the start of FY24 and it
is expected that Mears will deliver this service over the next three years.
Securing the award of the new North Lanarkshire Council ('NLC') contract was a
particular highlight of the first half. The previous contract was already the
Group's largest Maintenance-led contract and, as such, a key contract
retention target for the Group. Mears has worked closely with NLC since 2012,
with a shared commitment to deliver excellent services to residents. Contract
performance had been consistently high. Mears, following a tender process
which ran for over two years, was identified as the only viable bidder that
could deliver against the Council's ambitious vision. The new contract
opportunity is expected to deliver annual revenues of over £125m, doubling
the revenues delivered under the former contract. The contract runs for a
minimum of eight years, plus a further four years subject to extensions. The
new contract will see the Group providing reactive maintenance, statutory
compliance, servicing and inspection services, as well as programmes of
planned works to the Council's housing assets (approximately 37,000 homes) and
corporate assets (approximately 1,200 buildings).
With the exception of the NLC tender, the first half has been a quiet period
for new contract bidding. The Group was pleased to renew its contract with
Medway Council, a relationship held since 2010. The new contract will see the
Group providing reactive maintenance, voids, planned and energy works to the
Council's housing stock of over 3,000 units. The new contract, with a base
contract length of six years (and up to 12 years subject to extension),
carries an increased annual value of £7m.
The Group has previously stated that it expected 2025 to be a busy period of
re-bidding, with several existing contracts expiring during that year. It is
positive therefore that a number of these contracts have now been extended
beyond 2025, reducing the potential distraction from such a high number of
rebids in a single period.
There was one new bidding opportunity where the Group had considered itself to
be well placed, which was not converted; whilst the Group scored well in terms
of its quality submission, the pricing was at a level which was not
acceptable. The Group will continue to maintain a disciplined bidding approach
and will not compromise on pricing, remaining focused on delivering an
operating margin of over 5%.
Management has stated its ambition to see the Group operating margin return to
its historical level and has previously detailed the various steps taken to
deliver margin improvements, including exiting certain low margin contracts,
adopting an increasingly disciplined approach to new contract bidding, and
driving commercial improvements. This enabled the headline pre-IFRS 16
operating profit margin to pass through the 5.0% level in the period. Whilst
the underlying performance of the business has strengthened over recent years,
the elevated Management-led revenues naturally bring economies of scale and
high overhead absorption. The focus of the Board is to maintain the operating
margin at this higher level once the current Management-led revenues have
normalised.
The business has introduced a reinvigorated commercial review process across
the core business which places increased emphasis upon fully utilising the
Mears Contract Management ('MCM') frontline system and ensuring strict
adherence to business processes, measured by a focussed set of key performance
measures. Whilst the commercial review process has enforced a strict regime of
compliance with business processes, it has been very pleasing to see the
extent to which this process has been embraced by local branch managers.
Visible improvements, both financial and non-financial, are being delivered
across every branch, while sustaining key elements of local autonomy.
Over recent years, Mears created an end-to-end decarbonisation service to
support clients with the huge challenge of improving social housing stock. The
Group has continued to perform well in supporting clients in securing grants
through the SHDF. The original Government commitment was to provide £3.8bn of
funding over a 10-year period and is released in 'waves' over that period. To
date, c. £1.0bn of funding has been awarded, of which Mears has secured over
£50m of matched funding for its clients, which typically makes-up around 40%
of the project value. Mears will deliver around £120m of decarbonisation and
retrofit works through 2024 and 2025. The figures quoted include works
secured with Eastbourne Homes, Thurrock Borough Council and Gentoo during the
first half, accounting for in excess of £20m of retrofit works. The next
tranche of SHDF funding, Wave 3, is estimated to be £1.25bn, and will
underpin the Group's decarbonisation activity in 2026 to 2028. The acquisition
of IRT in 2022 has been a significant factor in the excellent progress made in
securing opportunities in this area.
DELIVERING OUR STRATEGY
During the first half, the Group has placed particular emphasis towards
delivering long-term growth to its Maintenance-led activities which has been
one area where the Group has fallen short of its previously stated ambitions.
The Group is extending its service capabilities to areas such as asset
management and compliance where there is a significant and growing market
opportunity, driven by increasing regulation. In addition, the Group is also
expanding its capacity to support the increasing opportunities around retrofit
and other associated planned works. The first half has seen an acceleration of
investment in the Group's front-line IT platform, MCM, to support this
expansion in services.
During the first half, there has been significant focus placed on updating the
Group's long-term Strategic Plan. This review is ongoing and whilst it is too
early to communicate the finer detail, the focus thus far has been upon
evolving the business to strengthen Mears' capability to deliver revenue and
margin growth within our core business, underpinned by the capabilities and
resilience of the Group's best-in-class IT system.
No strategic plan can be successfully delivered without a team with both the
right skills and capabilities, and a cultural alignment to Mears' values. The
focus and investment that the Group has placed in its workforce over several
years is vital now, and the Group will continue to invest in this area.
The senior team at Mears have engaged over many years with a greater number of
MPs (including prospective MPs) representing the communities in which we
serve. A change in Central Government does not detract from this open and
transparent way of supporting, listening and communicating with our
communities. Relationships do not get created on the back of a singular event
or change. The Group recognises that a change of Government will bring new
ideas and policies which may impact on the services provided by the Group,
however importantly, Mears already holds many positive relationships within
the new Government, which has a good understanding of Mears' service
capability and values.
CASH FLOW AND WORKING CAPITAL MANAGEMENT
The Group has continued to deliver a strong cash performance, with conversion
of EBITDA to operating cash in the first six months of 119% (2023: 117%), a
closing adjusted net cash balance of £107.3m (H1 2023: £117.1m, FY23:
£109.1m) and, of most significance, an average daily net cash balance of
£66.4m (H1 2023: £57.4m, FY23: £76.5m). The strength of the Group's
operating cash flows reflects both the underlying quality of the earnings, and
the Group's operating systems which underpin a strong cash culture.
H1 2024 H1 2023 FY 2023
£'000
£'000
£'000
Average daily adjusted net cash 66,399 57,425 76,515
Adjusted net cash at period end 107,264 117,138 109,147
DIVIDEND AND CAPITAL ALLOCATION
Given the excellent trading performance of the Group in the first half,
coupled with continued strong cash performance, the Board is pleased to
declare an interim dividend of 4.75p (H1 2023: 3.70p; FY23 full year: 13.00p)
reflecting its confidence in the prospects of the Company. This interim
dividend is in line with the Board's stated progressive dividend policy.
As reported previously, the Group has utilised its Balance Sheet strength to
fund property acquisitions to support the urgent requirement for additional
properties within the Asylum Accommodation and Support Contract ('AASC')
contract. The Group purchased properties in FY23 for a cash cost of £22.1m.
At 30 June, the Group had invested a further £15.6m. The Board anticipates
selling the bulk of properties purchased in 2023 as part of a sale and
leaseback transaction, enabling the Group to recycle those monies to acquire
further properties. Whilst it is not the Board's long-term desire to carry
property assets on the Group's Balance Sheet, this has been an important step
in delivering strong performance under the AASC contract and provides
shareholders with a solid return when taking a balanced view of the AASC
contract and a vital support for a key client.
In February 2024, the Board approved a return of surplus capital of up to £20
million to shareholders, and this was implemented through a buyback programme
of on-market purchases. This resulted in the purchase and cancellation of
5.58m ordinary 1p shares at an average price of 359p. Buybacks have reduced
the Group's ordinary share count over the last 18 months from 110.9m to 96.1m,
a reduction of 13%. In addition, during the first half year, the Directors
authorised the Employee Benefit Trust ('EBT') to purchase a further 1.70m
ordinary shares at an average price of 365p, for a total cash cost of £6.2m.
Since the half year end the EBT purchased a further 1.47m ordinary shares at
an average price of 369p, for a total cash cost of £5.4m. The EBT currently
holds 4.5m shares eliminating the need to issue new shares in respect of the
future exercise of share options.
WORKFORCE
The development of our workforce remains a strategic priority for the Group.
As such, we were pleased to maintain our position in the Best Companies survey
as one of the Best Big Companies to work for in the UK. The first half of the
year has also seen high levels of staff retention and where there are
vacancies, we have been successful in attracting high quality applicants to
the Group. We put particular emphasis on the recruitment of apprentices and
receive thousands of applications for the wide range of roles we have across
the Group. We continue to pay apprentices more than the required minimum
levels and we are investing towards making the overall apprentice programme
best-in-class in our industry.
We are proud of the progress we have made in supporting our workforce around
mental health and wellbeing. We benchmarked our workforce with the mental
health charity MIND in the first half of 2024 and were pleased to receive a
Silver Award, despite this being the first year we have had this important
and independent verification. This is obviously helpful to the Group, given
the often stressful and difficult challenges faced by Mears staff in
delivering our services.
We continue to evolve our structure to support the delivery of the Strategic
Plan. We envisage a significant further investment in staff at all levels. We
are confident this will further strengthen the Group and support the
broadening of our service offer, ensuring that we have the expertise and
capacity to support business development and operational delivery.
ESG
We have a very clear ESG plan, which reflects our ambition to be seen as the
responsible partner to the public sector. The first half of 2024 has seen the
development of the transition plan for our vehicle fleet to EV by 2030. As the
Fleet accounts for around 90% of our carbon emissions, this is obviously an
important focus of our carbon reduction strategy.
We remain proud of the fantastic work our people do in our communities every
day. While we commit to all our staff having two days of volunteering per
year, many of our staff do much more, for which we remain very grateful.
OUTLOOK AND GUIDANCE
The Board is pleased with the strong trading performance and this momentum has
continued into the second half.
As anticipated, the elevated level of revenue in the Management-led segment
has already seen a reduction in the second half, although this remains at
levels above the Board's original expectations. The Board has a high level of
visibility for the remainder of 2024, anticipating revenue for the full year
of around £1.1bn and, given the strong first half performance and continuing
momentum, a profit before tax for the full year in a range of £53m-£55m. It
remains challenging for the Board to forecast beyond the current year as it is
hard to predict when the elevated Management-led activities will return to a
normal volume and property mix. The Group is working hard to address the
imbalance between the use of short-term contingency accommodation and the use
of long-term residential accommodation which will drive this reduction in
revenues.
In the Group's Maintenance-led activities, Mears is well positioned. The
success in securing the new North Lanarkshire contract will deliver growth in
the short-term. The political and economic drivers in the Social Housing
market play to Mears' strengths, and the Group continues to develop its
service offering to adapt to the changing demands and requirements of its
clients. This broader service offering will drive growth over the medium and
long-term.
A key focus for the senior management team has been the operating margin, and
the first half margin of 5.2% is a significant milestone. It is important that
the Group can continue to deliver an underlying margin of 5% (or higher) for
the long-term. Notwithstanding this, the Group's Balance Sheet strength
provides the business with the freedom to make additional investment to
deliver improvements to the business which will bring benefit over the
long-term, whilst recognising such operating expenditure can at times bring
some short-term margin dilution.
The new Strategic Plan will be finalised during the second half. This will
include a detailed review of the Group's capital allocation policy and plans
for any further additional returns to shareholders, and the Board looks
forward to updating the market on this in due course.
ALTERNATIVE PERFORMANCE MEASURES ('APM')
The Strategic Report includes both statutory and adjusted performance
measures. APMs are considered useful to stakeholders in assessing the
underlying performance of the business, adjusting for items that could distort
the understanding of performance in the 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.
These APMs should not be considered as a substitute for or superior to
International Financial Reporting Standards (IFRS) measures, and the Board has
endeavoured to report both statutory and alternative measures with equal
prominence throughout the Strategic Report and financial statements.
The APMs used by the Group are detailed below with an explanation as to why
management considers the APM to be useful in helping users to have a better
understanding as to the Group's underlying performance. A reconciliation is
also provided to map each non-IFRS measure to its IFRS equivalent.
(i) Alternative profit measures
A reconciliation between the statutory profit measures and the alternative
adjusted measures for both 2024 and 2023 is detailed below.
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
Profit before tax 30,507 21,188 46,918
IFRS 16 profit impact 1,911 1,337 9,093
Finance income (non-IFRS 16) (2,085) (1,692) (4,655)
Adjusted Operating profit pre-IFRS 161 30,333 20,833 51,356
Amortisation of software and acquisition intangibles 1,164 882 1,879
Depreciation and loss on disposal (non-IFRS 16)3 4,627 2,678 7,385
Adjusted EBITDA pre-IFRS 161 36,124 24,393 60,620
IFRS 16 profit impact (1,911) (1,337) (9,093)
Finance costs (IFRS 16) 5,807 4,164 9,898
Depreciation, loss on disposal and impairment (IFRS 16)2 29,391 23,984 56,951
EBITDA post-IFRS 161 69,411 51,204 118,376
Amortisation of software and acquisition intangibles (1,164) (882) (1,879)
Depreciation, loss on disposal and impairment (IFRS 16)2 (29,391) (23,984) (56,951)
Depreciation and loss on disposal (non-IFRS 16)3 (4,627) (2,678) (7,385)
Adjusted Operating profit post-IFRS 161 34,229 23,660 52,161
1 Operating profit and EBITDA measures include share of profits of
associates.
2 Includes profit on disposal of £262,000 (H1 2023: £nil, FY 2023:
£180,000) and impairment of £800,000 (H1 2023: £nil, FY 2023: £6,223,000).
3 Includes profit on disposal of £nil (H1 2023: £80,000, FY 2023: loss
of £101,000).
(ii) Adjusted operating margin (%) measure
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
Revenue 580,043 525,641 1,089,327
Adjusted operating profit pre IFRS 16 30,333 20,833 51,356
Adjusted operating margin % 5.2% 4.0% 4.7%
A reconciliation detailing the IFRS 16 profit impact is detailed below:
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
Charge to income statement on a post-IFRS 16 basis (34,399) (28,148) (60,626)
Charge to income statement on a pre-IFRS 16 basis (33,288) (26,811) (57,756)
Profit impact from the adoption of IFRS 16 and before impairment (1,111) (1,337) (2,870)
Impairment of right of use assets (800) - (6,223)
Profit impact from the adoption of IFRS 16 (1,911) (1,337) (9,093)
(iii) Normalised diluted earnings per share (EPS)
The alternative earnings measure is adjusted to reflect a full corporation tax
charge of 25.0% (2023: 23.5%). The Directors believe this aids consistency
when comparing to historical results and provides less incentive for the Group
to participate in artificial schemes where the primary intention is to reduce
the tax charge. 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:
H1 2024 H1 2023 FY 2023
p p p
Diluted earnings per share 23.12 14.09 31.94
Effect of full tax charge adjustment (0.28) (0.46) (0.70)
Normalised diluted earnings per share 22.84 13.63 31.24
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
Profit attributable to shareholders 22,725 15,996 35,204
Full tax adjustment (269) (520) (768)
Normalised earnings 22,456 15,476 34,436
(iv) Adjusted net cash measure
The Group excludes the financial impact of IFRS 16 from its adjusted net cash
measure. This adjusted net cash 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. Whilst it is pleasing to report a
strong cash position at the year end, of much greater significance is the
performance throughout the period. The average daily adjusted net cash is a
simple average utilising the closing adjusted net cash at the end of each day,
and divided by the number of calendar days in the period.
The Group does not recognise lease obligations as traditional debt instruments
given a significant proportion of these leases have break provisions which
allow the Group to cancel the associated lease obligation with minimal
associated cost. A reconciliation between the reported net debt and the
adjusted measure is detailed below:
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
Cash and cash equivalents 107,264 116,138 138,756
Short-term financial assets - 1,000 7,090
Overdrafts and other credit facilities - - (36,699)
Adjusted net cash 107,264 117,138 109,147
Lease liabilities (current) (51,416) (45,645) (54,492)
Lease liabilities (non-current) (209,634) (183,421) (199,948)
Net debt (including IFRS 16 lease obligations) (153,786) (111,928) (145,293)
(v) Cash conversion % measure
In addition to the average daily net cash measure, the Group also measures the
cash inflow from operating activities as a proportion of EBITDA and this cash
conversion percentage is a key performance measure, reflecting the Group's
ability to convert profit into cash. The Board targets a measure of more than
90%, and performance that is greater than 100% is considered outstanding. The
strength of the Group's operating cash flows reflects both the underlying
quality of the earnings, and the Group's operating systems which underpin a
strong cash culture.
H1 2024 H1 2023 FY 2023
£'000 £'000 £'000
EBITDA 69,411 51,204 118,375
Cash inflow from operating activities 82,489 59,847 145,223
Cash conversion % 119% 117% 123%
Half-year condensed consolidated statement of profit or loss
For the six months ended 30 June 2024
Note Six months ended 30 June 2024 (unaudited) £'000 Six months ended 30 June 2023 (unaudited) Year
£'000
ended 31 December 2023
(audited)
£'000
Continuing operations
Sales revenue 3 580,043 525,641 1,089,327
Cost of sales (447,310) (422,094) (870,557)
Gross profit 132,733 103,547 218,770
Administrative expenses (99,137) (80,129) (167,096)
Operating profit 33,596 23,418 51,674
Share of profits of associates 633 241 486
Finance income 5 2,526 2,274 5,939
Finance costs 5 (6,248) (4,745) (11,181)
Profit for the period before tax 30,507 21,188 46,918
Tax expense 6 (7,358) (4,488) (10,258)
Profit for the period from continuing operations 23,149 16,700 36,660
Attributable to:
Owners of Mears Group PLC 22,725 15,996 35,204
Non-controlling interest 424 704 1,456
Profit for the period 23,149 16,700 36,660
Earnings per share
Basic 8 23.63p 14.43p 32.90p
Diluted 8 23.12p 14.09p 31.94p
All results are in respect of continuing operations.
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 2024
Note Six months ended 30 June 2024 Six months ended 30 June 2023 Year
(unaudited) £'000 (unaudited) ended 31 December 2023
£'000
(audited)
£'000
Profit for the period 23,149 16,700 36,660
Other comprehensive income:
Which will not be subsequently reclassified to the Consolidated Statement of
Profit or Loss:
Actuarial gain/(loss) on defined benefit pension scheme 411 (491) (5,521)
Pension guarantee asset movements in respect of actuarial gain - - (408)
(Decrease)/increase in deferred tax asset in respect of defined benefit (103) 123 1,482
pension schemes
Other comprehensive income for the period 308 (368) (4,447)
Total comprehensive income for the period 23,457 16,332 32,213
Attributable to:
Owners of Mears Group PLC 23,033 15,628 30,757
Non-controlling interest 424 704 1,456
Total comprehensive income for the period 23,457 16,332 32,213
All results are in respect of continuing operations.
The accompanying notes form an integral part of these condensed consolidated
financial statements.
Half-year condensed consolidated balance sheet
As at 30 June 2024
Note As at 30 As at 30 As at 31 December 2023 (audited)
£'000
June 2024 (unaudited) £'000 June 2023 (unaudited) £'000
Assets
Non-current
Goodwill 121,868 121,868 121,868
Intangible assets 6,552 7,475 7,046
Property, plant and equipment 51,930 27,353 38,533
Right of use assets 237,868 215,548 233,649
Investments 1,108 917 622
Loan notes 4,669 4,265 4,458
Pension and other employee benefits 16 21,577 23,181 19,835
Pension guarantee assets 16 - 3,136 -
445,572 403,743 426,011
Current
Inventories 9 792 7,801 1,463
Trade and other receivables 10 133,190 125,668 126,690
Short-term financial assets - 1,000 7,090
Cash and cash equivalents 107,264 116,138 138,756
241,246 250,607 273,999
Total assets 686,818 654,350 700,010
Equity
Equity attributable to the shareholders of Mears Group PLC
Called up share capital 14 961 1,098 1,016
Share premium account 2,537 82,489 2,332
Share-based payment reserve 2,184 2,101 1,883
Treasury shares (9,517) - (5,122)
Merger reserve 7,971 7,971 7,971
Retained earnings 182,467 123,527 189,428
Total equity attributable to the shareholders of Mears Group PLC 186,603 217,186 197,508
Non-controlling interest 3,372 2,196 2,948
Total equity 189,975 219,382 200,456
Liabilities
Non-current
Pension and other employee benefits 16 52 3,136 172
Deferred tax liabilities 3,340 4,744 2,905
Lease liabilities 209,634 183,421 199,948
Other non-current liabilities - 745 -
Non-current provisions 12 7,713 3,110 9,785
220,739 195,156 212,810
Current
Overdraft and other short-term borrowings - - 36,699
Trade and other payables 11 214,377 184,006 187,035
Lease liabilities 51,416 45,645 54,492
Provisions 12 9,368 9,830 8,406
Current tax liabilities 943 331 112
Current liabilities 276,104 239,812 286,744
Total liabilities 496,843 434,968 499,554
Total equity and liabilities 686,818 654,350 700,010
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 2024
Note Six months ended 30 June 2024 (unaudited) £'000 Six months ended 30 June 2023 (unaudited) Year ended 31 December 2023
£'000
(audited)
£'000
Operating activities
Result for the period before tax 30,507 21,188 46,918
Adjustments 15 39,032 30,657 71,253
Change in inventories 671 (923) 5,416
Change in trade and other receivables (6,887) 2,669 1,290
Change in trade, other payables and provisions 19,166 6,256 20,346
Cash inflow from operating activities before taxation 82,489 59,847 145,223
Taxes paid (6,775) (3,729) (9,330)
Net cash inflow from operating activities 75,714 56,118 135,893
Investing activities
Additions to property, plant and equipment (19,497) (9,861) (24,347)
Additions to other intangible assets (792) (931) (1,499)
Proceeds from disposals of property, plant and equipment - 17 17
Distributions from associates 147 596 1,135
Movement in short-term cash deposits held for investment purposes 7,090 963 (5,127)
Interest received 2,126 1,397 4,167
Net cash inflow/(outflow) from investing activities (10,926) (7,819) (25,654)
Financing activities
Proceeds from share issue 206 139 2,557
Proceeds from distribution of shares from treasury 6 - -
Purchase of own shares (26,261) (3,258) (37,887)
Net cash flow from other credit facilities (11,244) - 11,244
Discharge of lease liabilities (27,001) (22,456) (48,149)
Interest paid (6,531) (4,724) (11,081)
Dividends paid - Mears Group shareholders - - (11,760)
Net cash outflow from financing activities (70,825) (30,299) (95,076)
Cash and cash equivalents, beginning of period 113,301 98,138 98,138
Net increase/(decrease) in cash and cash equivalents (6,037) 18,000 15,163
Cash and cash equivalents, end of period 107,264 116,138 113,301
All results are in respect of continuing operations.
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 2024 (unaudited)
Attributable to equity shareholders of the Company
Share Share Share- Treasury shares Merger Retained Non- Total
capital
premium
based
reserve
earnings
controlling
equity
account
payment £'000
interest
£'000
reserve £'000 £'000
£'000
£'000
£'000
£'000
At 1 January 2023 1,110 82,351 1,801 - 7,971 119,100 1,492 213,825
Net result for the period - - - - - 15,996 704 16,700
Other comprehensive income - - - - - (368) - (368)
Total comprehensive income for the period - - - - - 15,628 704 16,332
Issue of shares 1 138 - - - - - 139
Cancellation of shares (13) - - - - (3,245) - (3,258)
Share options - value of employee services - - 300 - - - - 300
Dividends - - - - - (7,956) - (7,956)
At 30 June 2023 1,098 82,489 2,101 - 7,971 123,527 2,196 219,382
At 1 January 2024 1,016 2,332 1,883 (5,122) 7,971 189,428 2,948 200,456
Net result for the period - - - - - 22,725 424 23,149
Other comprehensive income - - - - - 308 - 308
Total comprehensive income for the period - - - - - 23,033 424 23,457
Issue of shares 1 205 - - - - - 206
Purchase of treasury shares - - - (6,265) - - - (6,265)
Cancellation of shares (56) - - - - (19,940) - (19,996)
Share options - value of employee services - - 1,050 - - - - 1,050
Share options - exercised or lapsed - - (749) 1,870 - (1,115) - 6
Dividends - - - - (8,939) - (8,939)
At 30 June 2024 961 2,537 2,184 (9,517) 7,971 182,467 3,372 189,975
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 2024
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 2024 were authorised for issue in accordance with a resolution
of the Directors on 7 August 2024.
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 2024 and 30 June 2023, together with the audited results for the
year ended 31 December 2023. The half-year condensed consolidated financial
statements for the six months ended 30 June 2024 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. 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
2023, which have been prepared in accordance with United Kingdom adopted
International Accounting Standards in conformity with the requirements of the
Companies Act 2006.
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 2023 were approved by
the Board of Directors on 10 April 2024. 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 2024 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 2025. 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
2024 and 30 June 2025. As at 30 June 2024 and 7 August 2024, the Group had
£70m of committed borrowing facilities of which none was drawn. The principal
borrowing facilities are subject to covenants as detailed on page 42 of the
2023 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
53 of the 2023 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 2025 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. The Group's existing debt
facilities run to December 2026.
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 £nil. Further detail
regarding the Group's stress testing is provided on pages 43 and 44 of the
2023 Annual Report and the same scenarios were modelled to support the
assessment of the Directors in this interim statement. After making these
assessments, the Directors believe any scenario or combination of scenarios
which could cause the business to no longer be a going concern to be
implausible. The Directors have a reasonable expectation that the Company and
its subsidiaries have adequate resources to continue in operational existence
until 30 September 2025. 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 2023.
3. Revenue
The Group's revenue disaggregated by pattern of revenue recognition is as
follows:
Six months ended 30
June 2024 Six months ended 30
(unaudited) June 2023
£'000
(unaudited)
£'000
Revenue from contracts with customers
Repairs and maintenance 234,772 237,194
Contracting 34,446 31,485
Property income 286,809 231,009
Care services 10,684 9,909
Other 358 642
567,069 510,239
Lease income 12,974 15,402
580,043 525,641
4. Segment reporting
Segment information is presented in respect of the Group's operating segments
based on the format that the Group reports to its chief operating decision
maker for the purpose of allocating resources and assessing performance.
Six months ended 30 June 2024 Six months ended 30 June 2023
Maintenance Management Total Maintenance Management Development Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 280,077 299,966 580,043 271,628 251,680 2,333 525,641
Impairment of right of use assets - (800) (800) - - - -
Profit/(loss) before tax 9,216 21,291 30,507 11,085 10,120 (17) 21,188
Tax expense (7,358) (4,488)
Profit for the year 23,149 16,700
5. Finance income and finance costs
Six months ended 30 Six months ended 30
June 2024 June 2023
(unaudited)
(unaudited)
£'000
£'000
Interest charge on overdrafts and loans (343) (334)
Interest on lease obligations (5,808) (4,165)
Other interest expense (92) (246)
Finance costs on bank loans, overdrafts and leases (6,243) (4,745)
Interest charge on net defined benefit scheme obligations (5) -
Total finance costs (6,248) (4,745)
Interest income resulting from short-term bank deposits 1,850 1,470
Interest income resulting from net defined benefit scheme assets 463 583
Other interest income 213 221
Finance income 2,526 2,274
Net finance charge (3,722) (2,471)
6. Tax expense
Tax recognised in the Consolidated Statement of Profit or Loss:
Six months ended 30 Six months ended 30
June 2024 June 2023
(unaudited) (unaudited)
£'000
£'000
United Kingdom corporation tax 7,606 4,519
Adjustment in respect of previous periods - -
Total current tax charge recognised in Consolidated Statement of Profit 7,606 4,519
or Loss
Total deferred taxation recognised in Consolidated Statement of Profit or Loss (248) (31)
Total tax charge recognised in Consolidated Statement of Profit or Loss 7,358 4,488
7. Dividends
Six months ended 30 Six months ended 30
June 2024 June 2023
(unaudited) (unaudited)
£'000
£'000
Final 2023 dividend of 9.30p per share 8,939 7,956
The dividend disclosed within the half year condensed consolidated statement
of changes in equity represents the final 2023 dividend of 9.30p per share
proposed in the 31 December 2023 financial statements and approved at the
Group's Annual General Meeting on 13 June 2024.
The Board is recommending an interim dividend of 4.75p (2023: 3.70p) per
share. This is not recognised as a liability at 30 June 2024 and will be
payable on 3 October 2024 to shareholders on the register of members at the
close of business on 13 September 2024. The shares will go ex-dividend on 12
September 2024.
8. Earnings per share
Six months ended 30 Six months ended 30
June 2024 June 2023
(unaudited) (unaudited)
p p
Basic earnings per share 23.63 14.43
Diluted earnings per share 23.12 14.09
All results relate to continuing activities. 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 2024 June 2023
(unaudited) (unaudited)
Million Million
Weighted average number of shares in issue: 96.16 110.86
· Dilutive effect of share options 2.15 2.67
Weighted average number of shares for calculating diluted earnings per share 98.31 113.53
9. Inventories
As at 30 As at 30 As at 31 December
June 2024 June 2023 2023
(unaudited) (unaudited) (audited)
£'000
£'000
£'000
Materials and consumables 792 982 1,463
Work in progress - 6,819 -
792 7,801 1,463
10. Trade and other receivables
As at 30 As at 30 As at 31 December
June 2024 June 2023 2023
(unaudited) (unaudited) (audited)
£'000
£'000
£'000
Trade receivables 19,915 20,082 23,230
Contract assets 80,983 73,887 79,703
Contract fulfilment costs 164 1,141 768
Prepayments and accrued income 28,702 19,896 18,929
Other debtors 3,426 10,662 4,060
Total trade and other receivables 133,190 125,668 126,690
11. Trade and other payables
As at 30 As at 30 As at 31 December
June 2024 June 2023 2023
(unaudited) (unaudited) (audited)
£'000
£'000
£'000
Trade payables 67,149 65,321 58,651
Accruals 73,837 63,438 72,147
Social security and other taxes 30,675 20,652 22,203
Contract liabilities 28,398 21,784 28,491
Other creditors 5,379 4,855 5,543
Dividends payable 8,939 7,956 -
214,377 184,006 187,035
12. Provisions
A summary of the movement in provisions during the period is shown below:
Onerous contract provisions £'000 Property provisions £'000 Insurance provisions £'000 Legal and Total
£'000
other provisions
£'000
At 1 January 2024 8,784 1,281 4,011 4,115 18,191
Provided during the period - 160 24 850 1,034
Utilised during the period (1,130) - - (1,014) (2,144)
At 30 June 2024 7,654 1,441 4,035 3,951 17,081
At the start of 2024, the Group carried various provisions relating to
expected outflows of uncertain timing or amount. Further details of these
provisions as they stood at 31 December 2023 can be found in the 2023 Annual
Report.
The utilisation of the onerous contract provision has been in line with
expectations at 31 December 2023. Two legal provisions have been settled
during the period, also in line with expectations. There has been an increase
in the amount provided in respect of two legal provisions and an additional
£0.35m has been recognised in respect of a new claim received during the
period.
13. Financial instruments
Categories of financial instruments
As at 30 As at 30 As at 31 December
June 2024 June 2023 2023
(unaudited) (unaudited) (audited)
£'000
£'000
£'000
Non-current assets
Fair value (level 3)
Investments - other investments 65 65 65
Amortised cost
Loan notes 4,669 4,265 4,458
Current assets
Amortised cost
Trade receivables 19,915 20,082 23,230
Other debtors 3,426 10,662 4,060
Short-term financial assets - 1,000 7,090
Cash at bank and in hand 107,264 116,138 138,756
130,605 147,882 173,136
Non-current liabilities
Fair value (level 3)
Contingent consideration - (494) -
Amortised cost
Lease liabilities (209,634) (183,421) (199,948)
Deferred consideration - (251) -
(209,634) (183,672) (199,948)
Current liabilities
Fair value (level 3)
Contingent consideration (595) - (581)
Amortised cost
Overdrafts and other short-term borrowings - - (36,699)
Trade payables (67,149) (65,321) (58,651)
Lease liabilities (51,416) (45,645) (54,492)
Other creditors (4,526) (4,595) (4,710)
Deferred consideration (258) (260) (252)
Dividends payable (8,939) (7,956) -
(132,288) (123,777) (154,804)
(207,178) (155,731) (177,674)
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 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).
The fair value of contingent consideration payable is determined based on the
Directors' expectation of the amount that will be payable, discounted at an
appropriate rate.
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.
14. Share capital and reserves
2024 2023
Share capital £'000 £'000
Allotted, called up and fully paid
At 1 January 101,551,082 (2023: 111,000,889) ordinary shares of 1p each 1,016 1,110
(audited)
Issue of 138,880 (2023:109,671) shares on exercise of share options 1 1
Cancellation of 5,575,561 (2023: 1,279,191) shares following purchase by the (56) (13)
Group
At 30 June 96,114,401 (2023: 109,831,369) ordinary shares of 1p each 961 1,098
(unaudited)
During the period 138,880 (2023:109,671) ordinary 1p shares were issued in
respect of share options exercised. In addition, 5,575,561 (2023: 1,279,191)
ordinary 1p shares were repurchased by the Group and cancelled.
Treasury shares
Thousands £'000
At 1 January 2024 1,891 5,122
Acquired by the EBT 1,700 6,265
Distributed to employees by the EBT (599) (1,870)
At 30 June 2024 2,992 9,517
15. 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:
Six months ended 30 Six months ended 30 Year ended
June 2024 June 2023 31 December
(unaudited) (unaudited) 2023
£'000
£'000 (audited)
£'000
Depreciation 33,481 26,582 58,213
Impairment of right of use assets 800 - 6,223
(Profit)/loss on disposal of property, plant and equipment (262) 80 (101)
Amortisation 1,287 882 1,879
Share-based payments 1,050 300 1,040
IAS 19 pension movement (413) 583 (758)
Share of profits of associates (633) (241) (486)
Finance income (2,526) (2,274) (5,939)
Finance cost 6,248 4,745 11,182
Total 39,032 30,657 71,253
16. 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
Local Government Pension Schemes. 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 all schemes included within Other schemes, the Group does not have an
unconditional right to benefit from any surplus and therefore, where such
schemes are in a surplus position, the surplus is not recognised.
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 2023, using the sensitivities to movements in
these assumptions calculated at that time. 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
2023.
The principal actuarial assumptions that have changed since 31 December 2023
are as follows:
As at 30 As at 31 December 2023
June 2024 (audited)
(unaudited)
Discount rate 5.10% 4.50%
Retail prices inflation 2.90% 2.80%
Consumer prices inflation 2.50% 2.40%
Rate of increase of salaries 2.90% 2.80%
The amounts recognised in the Consolidated Balance Sheet and major categories
of plan assets are:
30 June 2024 31 December 2023
(unaudited) (audited)
Group Other Total Group Other Total
schemes schemes £'000 schemes schemes £'000
£'000 £'000 £'000 £'000
Group's estimated asset share 124,249 113,794 238,043 129,494 111,563 241,057
Present value of funded scheme liabilities (102,672) (75,853) (178,525) (109,659) (83,342) (193,001)
Funded status 21,577 37,941 59,518 19,835 28,221 48,056
Scheme surpluses not recognised as assets - (37,993) (37,993) - (28,393) (28,393)
Pension asset/(liability) 21,577 (52) 21,525 19,835 (172) 19,663
Pension guarantee assets - - - - - -
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 1.5%, although an element
of the increase would be mitigated by an increase in the pension guarantee
assets or a reduction in the unrecognised surplus, as described above.
17. 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,
Brockworth, Gloucester, GL3 4AH or www.mearsgroup.co.uk.
18. 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 53 of the 2023 Annual
Report and Accounts and is not expected to change over the next six months.
19. 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.
By order of the Board
L J
Critchley
A C M Smith
Chief Executive
Officer
Chief Finance Officer
lucas.critchley@mearsgroup.co.uk
andrew.smith@mearsgroup.co.uk
7 August 2024
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