Mears Regulatory News (MER)

22 Aug 2006 07:00

Mears Group PLC22 August 2006 MEARS GROUP PLCANNOUNCEMENT OF INTERIM RESULTSSIX MONTHS TO 30 JUNE 2006 Mears Group PLC is once again pleased to announce record results for the sixmonths ended 30 June 2006. The highlights for the six months include: • Turnover up 22.5% • Social housing turnover up 28.7% • Profit before tax up 23.4% • Diluted earnings per share up 24.6% • Interim dividend up 28.6% • Major contract awards £170m • Order book increased to £1.1 billion • Operating cash conversion of 101.9% • Market forecast turnover for 2007 is 78% secured • Market forecast turnover for 2008 is 64% secured Bob Holt, Chairman, said: "I am excited by the opportunities and believe Mears is in a great position asthe market moves towards a more integrated and long-term approach to support forthe community. I am confident that our full year results will again be at thetop end of market expectations and re-iterate our commitment to deliveringimpressive sustainable growth into the future." For further information contact Bob Holtbob.holt@mearsgroup.co.uk07778 798816 Stuart Blackstuart.black@mearsgroup.co.uk07971 151320 David Robertsondavid.robertson@mearsgroup.co.uk07887 705357 Chairman's Statement You would expect me to be pleased with these half-year figures and I am. AgainMears Group PLC has kept its promises, delivering strong, consistent growth thatstands out in a very competitive sector. We place particular importance on enhancing the scale and quality of our orderbook, exercising very firm financial management and investing our shareholders'funds wisely. Our objective is to deliver a good performance consistently,year-on-year. These results demonstrate the value of that approach. Strong momentum in our core marketTurnover growth of 28.7% in social housing underlines the opportunities in ourcore market and our ability to win new business. For the most part our growth isorganic and driven by careful investment in people, processes andinfrastructure. We understand our market, we understand our strengths and wetake a long-term view. Success comes from evolving the business today so we areready to help clients meet their next set of challenges tomorrow. We use acquisitions to strengthen our core business. For example, our recentacquisition of Glasgow-based, social housing repairs and maintenance providerLaidlaw Scott Limited gives us an excellent foundation in Scotland, where thereare plenty of new business opportunities for Mears. We will acquire companieswhenever we think they can add significant long-term value to our core business. Strong leadership position in an evolving marketOur market is entering a period of transition. There are three key aspects tothis: First, we are experiencing a significant increase in opportunities in ourcore repair and maintenance market. Further, we are also seeing a strong linkbetween the award of Decent Homes contracts having initially secured the repairand maintenance contract. Second, we continue to see substantial investment in existing housing stockthrough the Government's Decent Homes Programme and we expect this to continuefor at least another six years. Third, I believe the Government-led 'Sustainable Communities' agenda willprovide opportunities for the best companies in social housing to have an evenmore profound effect on quality of life for people in this country. Our recentThought Leader conference brought industry leaders together to discuss thisarea. I believe our work with sustainable communities will be a logicalextension of our existing community-led partnership approach to social housing.We have always thought about tenants first and buildings second. Looking aheadAnyone who has followed this company since we listed on the AlternativeInvestment Market in 1996 will know we have achieved a compound annual growthrate in profits of 42%. I am confident that our full year results will again beat the top end of market expectations and re-iterate our commitment todelivering impressive sustainable growth into the future. Finally, I would like to add that we do not judge our performance solely interms of money. Corporate Social Responsibility is at the heart of this company,as the 'Our communities' section in this report shows. I'm pleased that Mearscontinues to develop imaginative and effective ways to support the widercommunity and ensure we act as a good corporate citizen. Over the last sixmonths, for example, we have launched a new drive and aim to achieve a neutralposition on carbon emissions within 2 years. I believe commitments such as these make Mears a better, stronger and moresustainable business. I am excited by the opportunities and believe Mears is in a great position asthe market moves towards a more integrated and long-term approach to support forthe community. Bob HoltChairmanbob.holt@mearsgroup.co.uk 21 August 2006 Operating and Financial review TurnoverIn the six months to 30 June 2006 we grew turnover to £118.0m (2005: £96.3m), anincrease of 22.5%. Within this overall figure social housing turnover was up28.7%, reflecting a strong performance in winning new business. Operating resultWe achieved an operating result before share option charges of £5.6m (2005:£4.6m), a 22.8% increase. The Group maintained its operating margin despite therapid increase in turnover and we continue to invest in our infrastructure aheadof the projected organic growth. Share option chargesThe share option charge in the first half of 2006 was £0.3m, up from £0.2m in2005. There is no cash impact from this new expense which arises from theadoption of International Financial Reporting Standards. FinanceThe Group again maintained its broadly neutral cash position throughout the sixmonths to 30 June 2006 and achieved a net interest receipt of £0.02m (2005:£0.01m). The Group's focus on tight working capital control remains acornerstone of our offering given the tremendous scale of growth beinggenerated. Tax expense£1.4m has been provided for a tax charge (2005: £1.2m). The effective rate inthe first half of 2006 of 26.2% (2005: 28.3%) is low due to the impact of acorporation tax deduction received on the exercise of share options. Earnings per share (EPS)Basic EPS increased 24.9% to 6.68p (2005: 5.35p). Our diluted EPS of 6.17p wasup 24.6% on the comparative 2005 figure of 4.95p. All figures are stated afterthe impact of share-based payments. DividendThe dividend increase is in line with our earnings growth. An interim dividendof 0.9p per share is declared (2005: 0.7p), a 28.6% uplift. The dividend ispayable on 6 November 2006 to shareholders on the register on 20 October 2006. Cash flowThe cash flow position continues to underline our strength as a business. A netcash inflow of £1.3m was achieved in the first half of this year (2005: £1.7minflow). The Group converted 101.9% of operating profit into operating cash flow(2005: 114.8%). Some £2.1m was used to acquire the business of Laidlaw ScottLimited and £0.1m was absorbed on the settlement of deferred consideration onprevious acquisitions. A further £0.6m was invested in new technology andoperational bases. Our net cash position at 30 June 2006 was £8.3m, up from£6.9m at the start of the year. AcquisitionThe acquisition of the entire share capital of Laidlaw Scott Limited was settledwith an initial payment of £2.1m for net assets of £0.5m plus an additionalpayment of up to £2.9m subject to future performance to 31 December 2007. Thebusiness was substantially debt free and generated a profit before tax of £0.4mon a turnover of £6.0m in the year to 31 August 2005. The business is performing in line with our expectations and as a result of thisacquisition we are now jointly pursuing our first three tender opportunities inScotland. We continue to seek out quality businesses with the potential to help us furtherour strategic objectives and improve or broaden our services. While we monitoropportunities to acquire a business in Wales, we continue to develop organicgrowth opportunities in the area. We have been able to gain an invitation totender for a significant contract with the Integrate Consortium which representsa number of local authorities in Wales. Order bookThe visibility of our earnings continues to improve. £170m of new work wassecured in the period from 10 customers. Our order book now stands at £1,080m(2005: £960m). The element of market forecast turnover secured for 2007 is 78%with some 64% of the 2008 projection. We continue to place great emphasis on winning good quality contracts that canprovide clear and sustainable margins. We also hold a healthy mix of DecentHomes and repairs and maintenance work, giving us a balanced position in thesocial housing market that is not reliant on clients' future discretionaryspending. Total equityTotal shareholders' equity value rose by £2.9m in the first half year from£28.1m to £31.0m at 30 June 2006. RestructuringSix months ago we reorganised our social housing business, changing it from twobusiness units into three. This change addressed the need to strengthen ourcapability in the strong Midlands and Wales markets, where we are already busyand see potential for strong further growth. Our restructuring created a new Midlands and Wales business unit and we promotedthe North Operations Director, Duncan Williams, to head this unit. Clive Turnerhas been recruited to run our North of England and Scotland business unit. DavidMiles continues to head the South business unit. This reorganisation was carriedout seamlessly and we are very pleased with the way the three units arefunctioning. Mobilised contractsOver the last six months four key contracts have come on-stream. These are:• London Borough of Greenwich, five-year Decent Homes contract.• Portsmouth City Council, three-year repair and maintenance contract.• Kensington Housing Trust, five-year repair and void maintenance contract.• Nottingham City Homes, five-year Decent Homes contract. Major contract winsWe have achieved a number of major successes, winning contracts valued at £170min total over the last six months. Highlights included:• Ealing Homes - The addition of a new Decent Homes contract to add to ourexisting repairs and maintenance contract. We are one of the client's corepartners and believe we are in a strong position to gain a significant share.Our client has already secured funding of £205m with potential for furtheradditional funding.• GM Procure - We have been appointed as a primary contractor partner with GMProcure to deliver Decent Homes services to authorities in the North West. Againwe believe our existing contract with Stockport Metropolitan Borough Council hasbeen instrumental in securing this work.• Maidstone Housing Trust - A five-year repair and maintenance contract.• Orbit Homes in Kent and Sussex - A five-year repair and maintenance contract.• Twynham Housing Association in Dorset and Hampshire - A two-year repair andvoid maintenance contract.• Cross Keys Homes in Peterborough - We have secured two contracts with anexisting customer to provide the gas maintenance and cyclical decorating for aperiod of five and seven years respectively.• Town and Country Housing Association in Kent and Sussex - We have secured anew five-year Decent Homes contract. Training and developmentWe are now an established Investor in People and we are meeting the challenge ofthe skills shortage in our sector through a comprehensive national programme ofemployee development, together with structured work experience and trainingprogrammes for prospective employees. This year we will take all of our trade professionals through a trade-based NVQprogramme and we are developing a unique Mears Professional Development Customerand Community Care NVQ to further raise our customer service standards. AwardsWe are delighted that since the start of the year we have received severalawards recognising our commitment to customers, staff and investors: • Mears was awarded TPAS (Tenant Participation Advisory Service) QualityStandard Mark, which assesses the quality of resident involvement withcontractors, tenants and landlords. This is the first time TPAS has awarded itsquality mark to a supplier or contractor.• We were awarded 'Partnering Contractor of the Year' at the UK HousingExcellence Awards.• Mears and Richmond Housing Partnership won the 'Making Partnerships Work'award at the London Excellence Awards.• The Group achieved Age Positive Employer Champion status from the Departmentof Work and Pensions.• Mears was awarded Occupational Health and Safety Gold Award from RoSPA.• At the South West Financial and Corporate Communications Awards we weresuccessful in the following categories: • 'Best Overall Winner: Company of the Year', • 'Best Commitment to Environmental and Social Responsibility' • 'Best South West Chairman/Chief Executive Communicator of the Year'. We believe we are well placed to continue delivering on 'improving homes,improving neighbourhoods, improving lives'. Stuart Black, Chief Executivestuart.black@mearsgroup.co.uk David Robertson, Finance Directordavid.robertson@mearsgroup.co.uk 21 August 2006 Our communities CSR strategyWe work in some of the most socially deprived areas of the country. Along withour professional commitment to tenants, we feel a strong sense of responsibilitytowards the wider community and we work towards achieving three specific aims: • To support and strengthen the communities in which we work.• To recruit employees locally whenever we can.• To encourage employees to volunteer their time and skills to specific community projects. Helping a local community to thrive increases the quality of life for tenantsand makes our job that little bit easier. It's also rewarding for our employees,especially as 90% of our people live in the community they support. Employee volunteeringIn 2006 our staff are on track to volunteer more than 10,000 hours to communitywork, an increase of more than 30% on 2005. We support upwards of 140 projects,including: The Daisy Chain Project in StocktonMears employees have helped this award-winning project for children with specialneeds by providing landscaping services and helping to improve working areas.St Lukes in WakefieldOur work here has included supporting the refurbishment of an old schoolbuilding and the building of a media centre.Shacklewell School in HackneyMears and our employees have sponsored and supported the school's Breakfast Cluband Reading Buddy schemes. Partnership with ShelterWe are delighted by the success of our partnership with Shelter, which involves:• Supporting initiatives that improve communities.• Volunteer work with Shelter clients.• Fundraising activity by Mears employees, with a target of £100,000 this year. So far Mears employees have carried out fundraising and volunteering for a rangeof Shelter services, including Shelter's DIY skills service, which gives peoplethe skills to carry out basic repair work to their homes. Employees also tookpart in the 2006 Flora London Marathon, in Shelter's Three-Peaks Challenge andin the BUPA Great North Run, raising over £10,000 for Shelter. Thought Leader conferencesOur second Thought Leader conference - 'Delivering Sustainable Communities' -was a great success, attracting a diverse group of leaders from the socialhousing industry and generating valuable discussion and debate. We ran this withsupport from the Chartered Institute of Housing, the Tenant ParticipationAdvisory Service and Shelter. We will continue to support open communicationwithin our industry through the Thought Leader conferences. Unaudited consolidated income statementFor the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000-------------------------------------------------------------------------------Sales revenue 1 117,998 96,295 203,543Cost of sales (85,974) (68,710) (144,954)--------------------------------------------------------------------------------Gross profit 32,024 27,585 58,589Administrative expenses (26,431) (23,029) (48,302)--------------------------------------------------------------------------------Operating result before share-based payments 1 5,593 4,556 10,287Share option charges (270) (235) (515)--------------------------------------------------------------------------------Operating result 5,323 4,321 9,772Finance income 45 40 70Finance costs (30) (34) (92)--------------------------------------------------------------------------------Result for the period before tax 5,338 4,327 9,750Tax expense 2 (1,400) (1,223) (2,540)--------------------------------------------------------------------------------Net result for the period 3,938 3,104 7,210------------------------------------------------------------------------------- Earnings per shareBasic 4 6.68p 5.35p 12.40pDiluted 4 6.17p 4.95p 11.45p------------------------------------------------------------------------------- Unaudited consolidated balance sheetAs at 30 June 2006 As at As at As at Note 30 June 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000________________________________________________________________________________ AssetsNon-currentGoodwill 14,610 11,069 10,647Property, plant and equipment 5,941 5,593 5,827Deferred tax asset 5 3,300 2,835 3,500------------------------------------------------------------------------------- 23,851 19,497 19,974-------------------------------------------------------------------------------CurrentInventories 5,963 4,816 5,363Trade and other receivables 33,783 34,331 29,511Construction contracts 2,625 2,529 2,341Cash at bank and in hand 14,136 11,688 9,774------------------------------------------------------------------------------- 56,507 53,364 46,989-------------------------------------------------------------------------------Total assets 80,358 72,861 66,963------------------------------------------------------------------------------- EquityEquity attributable to the shareholdersCalled up share capital 592 580 588Share premium account 4,223 3,384 3,960Share-based payment reserve 1,220 760 1,040Retained earnings 24,969 18,310 22,466------------------------------------------------------------------------------- 31,004 23,034 28,054-------------------------------------------------------------------------------Minority interests - 97 --------------------------------------------------------------------------------Total equity 31,004 23,131 28,054------------------------------------------------------------------------------- LiabilitiesNon-currentOther liabilities 3,280 1,713 855------------------------------------------------------------------------------- 3,280 1,713 855-------------------------------------------------------------------------------CurrentShort term borrowings and overdrafts 5,874 7,185 2,832Trade and other payables 38,206 38,940 33,215Current tax liabilities 1,701 1,782 1,764Pension and other employee benefits 293 110 243-------------------------------------------------------------------------------Current liabilities 46,074 48,017 38,054-------------------------------------------------------------------------------Total liabilities 49,354 49,730 38,909-------------------------------------------------------------------------------Total equity and liabilities 80,358 72,861 66,963 Unaudited consolidated statement of recognised income and expenseFor the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000-------------------------------------------------------------------------------Actuarial losses on defined benefit pension scheme (50) (22) (101)(Decrease)/Increase in deferred tax asset 5 (260) 680 1,270-------------------------------------------------------------------------------Net (expense)/income recognised directly to equity (310) 658 1,169Profit for the financial period 3,938 3,104 7,210Total recognised income and expense for the period 3,628 3,762 8,379------------------------------------------------------------------------------- Unaudited consolidated cash flow statementFor the six months to 30 June 2006 Six months Six months Year to Note to 30 June to 30 June 31 Dec 2006 2005 2005 £'000 £'000 £'000-------------------------------------------------------------------------------Operating activitiesResult for the period before tax 5,338 4,327 9,750Adjustments 6 975 888 1,974Change in inventories (535) (2,717) (735)Change in operating receivables (3,371) (3,872) (1,442)Change in operating payables 3,015 6,334 1,120-------------------------------------------------------------------------------Cash inflow from operating activities before taxes paid 5,422 4,960 10,667Taxes paid (1,523) (875) (2,271)------------------------------------------------------------------------------- 3,899 4,085 8,396------------------------------------------------------------------------------Investing activitiesAdditions to property, plant and equipment (622) (1,850) (3,125)Proceeds from disposals of property, plant and equipment - - 330Acquisition of subsidiary undertaking, net of cash (2,220) (550) (755)Sale of associated undertaking - 30 -Interest received 45 48 67------------------------------------------------------------------------------- (2,797) (2,322) (3,483)--------------------------------------------------------------------------------Financing activitiesProceeds from share issue 267 23 607Discharge of finance lease liability (17) (58) (75)Interest paid (32) (43) (96)Dividends paid - - (1,225)-------------------------------------------------------------------------------- 218 (78) (789)--------------------------------------------------------------------------------Cash and cash equivalents at beginning of period 6,942 2,818 2,818Net increase in cash and cash equivalents 1,320 1,685 4,124-------------------------------------------------------------------------------Cash and cash equivalents at end of period 8,262 4,503 6,942------------------------------------------------------------------------------- Cash and cash equivalents is comprised as follows:Cash at bank and in hand 14,136 11,688 9,774Short term borrowings and overdrafts (5,874) (7,185) (2,832)--------------------------------------------------------------------------------Cash and cash equivalents 8,262 4,503 6,942------------------------------------------------------------------------------- Unaudited notes to the financial statementsFor the six months to 30 June 2006 1. Segment reportingThe Group operates three business segments: social housing, mechanical andelectrical (M&E) and vehicle distribution. All of the Group's activities arecarried out within the United Kingdom. Six months to June 2006 -------------------------------------------------------------------------------- Social Vehicle Business housing M&E distribution Total segments £'000 £'000 £'000 £'000-------------------------------------------------------------------------------Revenue 88,027 25,982 3,989 117,998-------------------------------------------------------------------------------Operating result pre share-based payments 4,903 523 167 5,593------------------------------------------------------------------------------- Six months to June 2005 -------------------------------------------------------------------------------- Social Vehicle Business housing M&E distribution Total segments £'000 £'000 £'000 £'000-------------------------------------------------------------------------------Revenue 68,394 23,470 4,431 96,295-------------------------------------------------------------------------------Operating result pre share-based payments 3,910 462 184 4,556------------------------------------------------------------------------------- 2. Tax expenseThe tax charge for the six months ended 30 June 2006 has been based on theestimated tax rate for the full year. 3. DividendsThe following dividends were declared on ordinary shares in the six months to 30June 2006: Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000-------------------------------------------------------------------------------Final 2005 dividend of 1.90p (2005: final 2004 dividend of 1.40p) per share 1,125 815-------------------------------------------------------------------------------No dividends were paid during the six months to 30 June 2006. The proposedinterim dividend of 0.90p (2005: 0.70p) per share has not been included withinthe interim financial statements as no obligation existed at 30 June 2006. 4. Earnings per shareBasic earnings per share is based on equity earnings of £3.94m (2005: £3.10m)and 58.99m (2005: 57.94m) ordinary shares at 1p each, being the average numberof shares in issue during the period.For diluted earnings per share the average number of shares in issue isincreased to 63.84m (2005: 62.65m) to reflect the potential dilution effect ofemployee share schemes. 5. Deferred taxationThe Group asset for deferred tax as at 30 June 2006, which relates entirely toshare-based payments, is £3.3m (2005: £2.8m). Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000-------------------------------------------------------------------------------At beginning of period 3,500 2,100Credit to income statement 60 55(Debit)/credit to consolidated statement of recognised income and expense (260) 680------------------------------------------------------------------------------- 3,300 2,835------------------------------------------------------------------------------- The cumulative amount credited to the income statement is limited to the taxeffect of the associated cumulative share-based payment expense. The excess hasbeen credited directly to equity. This is presented in the consolidatedstatement of recognised income and expense. 6. Notes to consolidated cash flow statementThe following non operating cash flow adjustments have been made to the pre-taxresult for the period: Six months Six months to 30 June to 30 June 2006 2005 £'000 £'000-------------------------------------------------------------------------------Depreciation 707 641Loss on disposal of fixed assets 13 17Share-based payments 270 235Finance income (45) (48)Finance cost 30 43-------------------------------------------------------------------------------Total 975 888------------------------------------------------------------------------------- 7. Preparation of interim financial informationThe interim financial statements have been prepared on a basis consistent withthe accounting policies disclosed in the Annual Report and Accounts for the yearended 31 December 2005. The consolidated results for the year ended 31 December 2005 have been extractedfrom the financial statements for that year and do not constitute full statutoryaccounts for the Group. The Group accounts for the year ended 31 December 2005received an unqualified audit report and did not include a statement undersection 237 (2) or (3) of the Companies Act 1985 and have been filed with theRegistrar of Companies. 8. Interim financial statementsFurther copies of the interim financial statements are available from theregistered office of Mears Group PLC at 1390 Montpellier Court, GloucesterBusiness Park, Brockworth, Gloucester, GL3 4AH or www.mearsgroup.co.uk. This information is provided by RNS The company news service from the London Stock Exchange