TIDMMER
RNS Number : 1274I
Mears Group PLC
03 August 2023
Mears Group PLC
("Mears" or the "Group" or the "Company")
Interim Results for the 6 months ended 30 June 2023
Record first half performance with an improved full year trading
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 2023 ("H1
2023").
Financial Highlights
-- Strong Group revenues up 8% year-on-year to GBP525.6m (2022: GBP485.0m)
-- Adjusted profit before tax(1) increased by 18% to GBP21.3m (2022: GBP18.1m)
-- Operating margins (pre-IFRS 16) continue to strengthen to 4.0%(2) (2022: 3.9%)
-- Excellent cash performance with average daily adjusted net
cash of GBP57.4m (2022: GBP28.4m)(3)
-- Cash conversion at 117% of EBITDA (2022: 134%)
-- Adjusted net cash(3) on 30 June 2023 of GBP116.1m (2022: GBP89.9m)
-- Interim dividend of 3.70p (2022: 3.25p), an increase of 14%,
reflecting continued strong cash performance and positive
outlook
-- GBP20m share buyback program underway and well advanced
Change
Continuing operations H1 2023 H1 2022 %
Revenue GBP525.6m GBP485.0m +8%
Statutory profit before tax GBP21.2m GBP17.9m +18%
Adjusted profit before tax GBP21.3m GBP18.1m +18%
Statutory diluted EPS 14.09p 12.70p +11%
Adjusted diluted EPS(4) 13.74p 12.70p +8%
Interim dividend per share 3.70p 3.25p +14%
Average daily net cash GBP57.4m GBP28.4m
---------------------------- --------- --------- --------
* - see Alternative Performance Measures for definitions and
reconciliation to statutory measures
Operational Highlights
-- Sustained high levels of customer satisfaction 90% (FY22:
88%) and further improvement in employee engagement and workforce
retention
-- Positive momentum in bidding pipeline underpins organic growth strategy
-- The Group secured both its key bidding targets in the first
half, contributing to an aggregate new contract award of GBP175m, a
bid conversion rate of 57% (by value) reflecting an increasingly
focused approach in new contract bidding
-- The Social Housing Decarbonisation Fund ('SHDF') Wave 2 saw
Mears submit successful grant applications for GBP47m, which will
contribute to a total works value of around GBP120m to be delivered
over the course of 2024 and 2025
-- Sole remaining bidder on the new North Lanarkshire contract
opportunity; 12-year contract with an annual value of GBP125m and
total contract sum of GBP1.5 billion
Current trading and outlook
-- The Board is delighted at the positive start to 2023 and this
momentum has continued into the second half. The Board anticipates
revenues for the full year of at least GBP1 billion and an Adjusted
profit before tax of at least GBP40m
A virtual presentation for analysts will be held at 10.00am
today on Microsoft Teams.
David Miles, Chief Executive Officer of the Group,
commented:
"We are delighted to deliver strong results for the first half
year, with record levels of revenues, profits, and daily net cash.
This strong momentum is expected to continue through the second
half, and we have today further increased our FY23 guidance. The
excellent financial performance is testimony to the strategic
actions taken in recent years, our investment in resilient
operating platforms, and a committed and engaged workforce with a
shared desire to deliver the highest level of customer service in
the affordable housing sector."
1. Adjusted profit before tax stated on continuing activities
before the amortisation of acquired intangibles of GBP0.12m (2022:
GBP0.12m).
2. Operating profit (pre-IFRS 16) before the amortisation of
acquired intangibles and after share of profit in associates.
3. Adjusted net cash / (debt) excludes IFRS 16 lease obligations
of GBP229.1m (2022: GBP211.9m).
4. The adjusted diluted EPS measure is further adjusted to
reflect a full tax charge.
For further information, contact: Tel: +44(0)1452 634 600
Mears Group PLC
David Miles
Andrew Smith
Lucas Critchley
Numis Tel: +44(0)207 260 1000
Julian Cater
Kevin Cruickshank
Panmure Gordon Tel: +44(0)207 886 2500
Tom Scrivens
James Sinclair-Ford
About Mears
Mears is the leading provider of services to the Affordable
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 around 5,500 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 deliver strong results for the first
half year, reporting record levels of revenues, profits, and daily
net cash. This strong momentum is expected to continue through the
second half, and the Group is increasing its FY23 guidance. The
strong financial performance is testimony to the strategic actions
taken in recent years, our investment in resilient operating
platforms, and a committed and engaged workforce with a shared
desire to deliver the highest level of customer service in the
affordable housing sector.
OPERATING REVIEW
Continuing activities H1 2023 H2 2022 H1 2022
GBPm GBPm GBPm
------------------------------------- -------- -------- --------
Revenue
Maintenance-led 271.6 263.7 271.6
Management-led 251.7 204.8 201.0
Development 2.3 6.2 12.3
------------------------------------- -------- -------- --------
Total 525.6 474.6 485.0
------------------------------------- -------- -------- --------
Operating profit measures:
Statutory operating profit 23.4 20.6 20.7
Adjusted operating profit (pre-IFRS
16)(*) 21.0 17.0 19.1
Operating profit margin (pre-IFRS
16)(*) 4.0% 3.6% 3.9%
Profit before tax measures:
Statutory profit before tax 21.2 17.0 17.9
Adjusted profit before tax(*) 21.3 17.1 18.1
------------------------------------- -------- -------- --------
* - see Alternative Performance Measures for definitions and
reconciliation to statutory measures
Group revenues increased by 8% to GBP526m (2022: GBP485m), and
we expect revenues to exceed GBP1 billion for the full year.
We continue to see elevated revenues within the Group's
Management-led activities and, whilst we have consistently
communicated our expectation that these volumes will reduce in the
medium term, it is evident that volumes will remain high over the
shorter term. We are working hard to accommodate these high volumes
through the most appropriate accommodation. We will always place
the wellbeing and safety of our customers at the forefront of our
delivery, and it is pleasing that our key performance metrics score
well.
We have passed the first anniversary of the RLAP contract, which
was mobilised in April 2022 through which the Group provides a wide
range of accommodation and property services to military services
personnel. We have a strong client relationship with the MoD, and
one where we hope, in the future, to deliver additional services.
We were also pleased to see our work with the Ministry of Justice
(MoJ) increase during the first half. Since 2021, we have delivered
transitional housing services and support to low and medium risk
prisoners upon their release. During the first half, we were
pleased to be awarded an additional geographical area which now
increases our operational scale with three regions in the North of
England. The Group is optimistic that there are further
opportunities to deliver specialist housing services to this key
client and vulnerable service user group.
Pleasingly, we have delivered a solid performance within our
Maintenance-led activities, where we continue to take a disciplined
approach in respect of securing new work. Maintenance-led activity
has reduced in recent years however, the Group is well placed to
reverse that trajectory and see a return to organic growth in this
area. The Group has secured a number of bidding successes during
the first half which are covered in detail below, and our success
in securing decarbonisation work will also augment our work in this
area.
The Group secured both its key bidding targets in the first
half, contributing to an aggregate new contract awards of GBP175m,
at a bid conversion rate of 57% (by value) reflecting an
increasingly focused approach when bidding new contract
opportunities. Moving forward, whilst the total value of bids
submitted is expected to be lower than historic levels, the
proportion of successful outcomes is anticipated to be higher. The
order book stands at GBP2.6bn (FY22: GBP2.9bn).
Importantly, both the new contracts for 2023 represent new work
to the Group:
Ø A2Dominion ('A2D'); the Group has been awarded a contract with
an estimated annual value of GBP10m for a base period of 10 years
with the potential for this to be extended up to a total of 26
years. The contact is to deliver repairs and maintenance services
through a joint venture arrangement to A2D's London housing stock.
This contract award builds upon an existing long term joint venture
relationship with A2D for repairs and maintenance services to the
housing stock outside of London, meaning that the Group will now be
delivering services across A2D's entire 40,000-unit portfolio. The
new contract will commence in October 2023.
Ø London Borough of Croydon ('Croydon') has awarded a 10-year
contract with an estimated annual value of GBP6m. The contract is
to deliver responsive repairs, voids refurbishments, and planned
maintenance works. Mears was selected as one of two providers, and
the Group is delighted to be working in the Borough again, after a
period of absence. The new contract commenced on 1 August 2023.
In addition, the Group is delighted to announce that it has been
notified by North Lanarkshire Council ('NLC') that Mears is now the
sole remaining bidder in the procurement of the Housing &
Corporate Maintenance and Investment Services Contract. The new
contract would see Mears provide 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). The contract would be for a period of up to 12
years, with an annual value in the region of GBP125m and a total
contract sum of GBP1.5 billion. Mears has successfully provided
housing maintenance works to NLC since 2012, with an annual value
of c. GBP60m, delivering high service levels together with
excellent engagement with all stakeholders which has all
contributed to reaching this advanced tender stage. The new
contract would be significantly larger than the current contract,
increasing the scope of works to be delivered.
Over recent years, Mears has looked to create an end-to-end
decarbonisation service to support our clients with the huge
challenge of improving social housing stock. The Group secured
three successful bids in respect of the first wave of Social
Housing Decarbonisation Funding (SHDF) applications, securing grant
funding of GBP5m which doubled-up when combined with client
funding. The bulk of this value will have been delivered by the end
of 2023. The SHDF Wave 2 saw Mears submit successful grant
applications of GBP47m, which will contribute to a total works
value of around GBP120m to be delivered over the course of 2024 and
2025. It is the grant funded element that represents new value to
the Group's order book. There will be additional opportunities for
the Group in Wave 3 and 4 of the SHDF funding applications.
The Group has reported adjusted Profit Before Tax of GBP21.3m
(2022: GBP18.1m) with adjusted operating margins, reported on a
pre-IFRS 16 basis, increasing to 4.0% (2022: 3.9%). The Group has
recognised the volatile economic backdrop and the cost-of-living
pressures being experienced across the Group's workforce and more
widely the supply chain, many of whom are SME enterprises from
within the communities we serve. The Group benefits from annual
contractual price increases across its contract portfolio and Mears
has sought to direct this additional resource to the supply chain
and the parts of the workforce most in need, as well as balancing
the needs of all stakeholders.
It is pleasing to see continued margin progression. We have,
thus far, dealt well with the macroeconomic headwinds and mitigated
inflationary pressures. Whilst there are signs that inflationary
pressures are reducing, it remains an area requiring careful
oversight. Most of our key contracts are achieving our target
margin of 5% and we remain confident that in time the Group margin
can return to that level. One area of the Group where financial
performance falls below par is in Community Housing through which
the Group delivers its homelessness solutions. This was the
original housing management activity and underpinned the Group's
success in securing our Central Government contracts. Whilst the
Community Housing activities are relatively small, with annual
revenues of circa GBP35m, it is important that it is profitable.
This is a key area of focus as we seek to drive margins back to
their historic norms.
We naturally take a relatively conservative stance when
forecasting margins over the medium term. Further to the delivery
of margin improvements in Community Housing, we are also mindful of
some potential margin pressure in Management-led activities as we
address the imbalance between the use of short-term contingency
accommodation and the use of long-term residential accommodation.
In addition, given the advanced stage of the bidding process, we
also expect to see a new contract start-up in North Lanarkshire
during 2024 which could also result in some margin dilution during
the mobilisation phase. We recognise that there are opportunities
to outperform, but these factors are why we currently continue to
forecast margins at the low end of the 4-5% range.
CASH FLOW AND WORKING CAPITAL MANAGEMENT
The Group has continued to deliver tremendous working capital
performance with EBITDA to operating cash in the first six months
of 116.9% (FY22: 122%), a closing cash balance of GBP116.1m (FY22:
GBP98.1m) and, of most significance, an average daily net cash
balance of GBP57.4m (FY22: GBP42.9m). 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 cash
culture.
H1 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
----------------------------------------- --------- -------- ---------
Average daily adjusted net cash / (debt) 57,425 28,365 42,880
Cash and cash equivalents at period end 116,138 89,859 98,138
----------------------------------------- --------- -------- ---------
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 3.70p (H1 2022: 3.25p; FY22 full year: 10.50p)
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 Group's Capital Allocation policy has been consistently well
communicated. The Board seeks to maintain a modest net cash
position. 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.
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 AASC contract. At
30 June, the Group had invested GBP10.2m and that figure is likely
to double over the course of the second-half year. 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 and provides
shareholders a solid return when taking a balanced view of the AASC
contract.
In May 2023, the Board approved a return of surplus capital of
up to GBP20 million to shareholders, being implemented through a
buyback programme of on-market purchases, to return surplus capital
to shareholders and reduce the Group's share capital. The programme
has progressed quicker than initially anticipated, and the current
programme is now expected to complete before the year end. The
current spend is c.GBP13.6m at an average share price of c.271p,
resulting in the cancellation of c.5.0m ordinary 1p shares. Once
complete, the Board will consider the options for continuing to
return surplus cash to shareholders.
The Company expects to commence the process for a reduction of
capital, which will require both the approval by shareholders and
confirmation by the Court. The proposed Capital Reduction is an
accounting procedure that changes the composition of reserves and
does not entail any reduction or distribution of cash or net
assets. The Capital Reduction is a means of avoiding a potential
restriction on the Company's future ability to either make dividend
payments and other distributions or to purchase its own shares.
INNOVATION
Adopting innovation to drive positive change is a central pillar
within the Group's strategic plan, and we have continued to develop
our IT capability.
Customer satisfaction is improving from its already high levels,
and the Group is on track to hit its 90% customer satisfaction
stretch target for 2023, with more contracts consistently
performing well and a reducing level of complaints. It is
imperative that 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. We have improved
our service offer to tenants through the introduction of our
Customer App, M&Me. We have received positive feedback from
tenants and, having now completed our proactive testing, this will
now be rolled out in the second half of 2023.
We are also increasingly utilising our in-house Mears Contract
Management ('MCM') platform to deliver real time information around
buildings performance and compliance measures such as legionella
checks, air quality and public building usage. W e have been
supporting client challenges around Damp & Mould risk
management via our deployable home monitoring Internet of Things
capability within MCM combined with our thermal imaging technology,
allowing us to assess and monitor individual properties regarding
any damp & mould risks.
The acquisition of IRT in 2022 has been a significant factor
behind the excellent progress made in securing decarbonisation
opportunities as detailed above. Combining our Repairs and
Maintenance data with energy performance statistics is giving us an
increasingly rich picture of our clients' housing stock. It leaves
us well placed to answer clients increasing demand for data to
support decision making and regulatory demands. It is important to
note that this work not only reduces carbon generated but also
helps tenants reduce their fuel bills significantly, which has
become even more important given utility price volatility and cost
of living challenges.
The Group will continue to direct investment towards its IT
systems and operating platforms. The strength of the Group's
Balance Sheet provides additional flexibility in this area should
opportunities arise.
WORKFORCE
Our workforce satisfaction and retention levels have both
improved significantly over the last 12 months and we pride
ourselves on the responsible approach we have taken with our
staff.
Reflecting the growth and change in our business, our workforce
has increased by over 6% in the last 12 months. We are seeing
growing numbers of people applying to Mears for employment and a
reduction in staff turnover by 3.5 percentage points to 21.1%. The
success of our long-term focus on improving Mears' position as an
employer can be seen in by the fact that we received our best ever
score on employee satisfaction from the independently run Best
Companies survey.
Mears was one of the first listed companies to have an Employee
Director on the Main Board. We now also have a Deputy Employee
Director, focussed on supporting people with disabilities, a Trades
Representative and an employee forum. This is helping ensure that
the Board remains very close to the needs of its workforce.
Mental health and wellbeing ('MHW') is an ever-increasing
priority for the business and an area where we continue to invest.
Our Compliance Committee and Wellbeing & Mental Health Steering
Group is working closely with key stakeholders across all group
operations, with a view to implementing an enhanced MHW strategy
that will ultimately lead to external accreditation of the group's
approach in 2024.
The Group-wide pay increase awarded at the beginning of the year
directed the highest percentage increases to the lowest paid and
was very well received by our staff. We continue to expand our
range of flexible benefits to help people manage the current cost
of living challenges. We continue to focus on and invest in our
staff at all levels reflecting both the growing and changing
demands of the business.
ESG
Increasingly, our clients require us to demonstrate progress on
the decarbonisation agenda and taking a lead on environmental
matters is an important part of our strategy. We have already made
a commitment to achieve net zero against scope 1 and 2 emissions by
2030 and the Board has reviewed our plan to achieve this in the
first half of 2023. A significant part of our plan depends on our
ability to increase electrification of the fleet. While a lot of
the required community infrastructure is not in place to achieve
this, we have commissioned expertise in this field to enable us to
be agile as the position improves. We have also made further
investments in our own people resource to make sure solid progress
continues to be made.
Good progress has also been made against our Governance plan.
For example, the launch of our Sustainable Procurement strategy
which has seen excellent Tier 1 Supplier compliance to ESG policy
and standards. We are grateful to all our suppliers who have shared
our commitment to responsible business practices.
We have made solid progress against our Social Plan. Best
Companies have now classified Mears as an 'outstanding' company to
work for and we have launched our Fairness & Inclusion
Approach, achieving silver accreditation status at the first
attempt of the EW Diversity and Inclusion Development Standard.
In terms of our general, ongoing, approach to health and safety,
the Group was delighted to receive its 21(st) consecutive ROSPA
Gold Award and in so doing, its 7(th) consecutive Order of
Distinction. The Compliance Committee's oversight of the group's
response to the Building Safety Act is ongoing and good progress
has been made.
The Compliance Committee is working closely with the operational
team and key stakeholders outside the business, to ensure the Group
is positioned to effectively respond to the increasing volumes in
our housing management business and the operational challenges that
this presents, to ensure our service provision remains safe and
compliant.
The Information Security team has made excellent progress with
the ongoing implementation of enhanced security controls, and this
was evidenced in the first half with the Group's technology
platforms and systems achieving accreditation against ISO27001 and
Cyber Essentials Plus.
Our Customer Scrutiny and ESG Boards have also continued to
provide valuable insight, support and challenge.
BOARD DEVELOPMENTS
Following the Company's Annual General Meeting in June 2023 it
was announced that Jim Clarke would be appointed Interim Chairman
and a process is now underway to appoint a new Chairperson.
The handover and transition from the current CEO David Miles to
Lucas Critchley is progressing in line with the previously stated
succession plan with Lucas expected to be in place by the end of
2023. A key part of this transition has involved the wider team who
have and will continue to play a huge part of the Group's success.
In particular, our senior team of around ten heads play a crucial
role in the day-to-day running of the business and are integral to
our customers and service delivery performance. Lucas Critchley
(CEO designate) and Andrew Smith (CFO) act as the conduit between
that senior team and the PLC Board and investors. Positively, after
stepping off the PLC Board, David Miles will remain as a key member
of the senior team with a particular focus on operations and client
relationships, whilst supporting succession more broadly.
OUTLOOK AND GUIDANCE
The Board is delighted with the strong trading performance and
this momentum has continued into the second half. The Board has
good visibility for the remainder of 2023 and anticipates revenue
for the year of at least GBP1 billion, operating margins for the
full year being at a similar level to the first half, and an
adjusted profit before tax of at least GBP40m.
The Group is well positioned for the longer term but remains
conservative when providing guidance for later years. The Board has
consistently referred to elevated revenues within its
Management-led activities and it is expected that this position
will normalise, but the timing is unclear. In addition, 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 result in a reduction in
revenues, whilst removing a significant operational challenge.
The Board recognises that over recent years, Maintenance-led
activity has reduced. However, the Group is well placed to reverse
that trajectory and see a return to organic growth in this area.
The Group has recorded several bidding successes during the first
half and our success in securing decarbonisation opportunities is
important.
Notwithstanding the Group's desire to deliver top-line growth,
the primary focus for the senior management team is directed
towards delivering a continued improvement in operating margin. The
Board remains highly selective and disciplined when securing new
work opportunities and continues to target an operating margin
(pre-IFRS 16) of 5% over the medium term.
The Board anticipates that the business will continue to deliver
strong free cashflows which will provide the Board flexibility when
considering its capital allocation priorities.
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 2023, H1 2022 and FY 2022 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 H1 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------------------------------- -------- -------- --------
Statutory profit before tax 21,188 17,935 34,944
Amortisation of acquisition intangibles 122 123 245
---------------------------------------------------------------------------------------- -------- -------- --------
Profit before amortisation of acquisition intangibles and tax ('Adjusted profit before
tax') 21,310 18,058 35,189
---------------------------------------------------------------------------------------- -------- -------- --------
Removal of IFRS 16 profit impact (see note i) 1,337 1,256 2,201
Net finance income (non-IFRS 16) (1,692) (170) (1,268)
---------------------------------------------------------------------------------------- -------- -------- --------
Operating profit pre-IFRS-16 before amortisation of acquisition intangibles ('Adjusted
operating
profit (pre-IFRS-16)') 20,955 19,144 36,122
---------------------------------------------------------------------------------------- -------- -------- --------
Amortisation of software intangibles 760 952 2,055
Depreciation and loss on disposal (non IFRS 16) 2,678 5,122 8,023
EBITDA pre-IFRS 16 and before amortisation of acquisition intangibles 24,393 25,218 46,200
IFRS 16 profit impact (see note ii) (1,337) (1,256) (2,201)
Finance costs (IFRS 16) 4,164 3,568 7,610
Depreciation and loss on disposal (IFRS 16) 23,984 21,659 43,259
EBITDA post-IFRS-16 before amortisation of acquisition intangibles 51,204 49,189 94,868
Amortisation of software intangibles (760) (952) (2,055)
Depreciation and loss on disposal (IFRS 16) (23,984) (21,659) (43,259)
Depreciation and loss on disposal (non-IFRS 16) (2,678) (5,122) (8,023)
Operating profit post IFRS 16 and before amortisation of acquisition intangibles 23,782 21,456 41,531
---------------------------------------------------------------------------------------- -------- -------- --------
(i) IFRS 16 Profit impact
H1 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------- -------- --------
Charge to income statement on a post-IFRS 16 basis (28,148) (25,227) (50,869)
Charge to Income Statement on a pre-IFRS 16 basis (26,811) (23,971) (48,668)
--------------------------------------------------- -------- -------- --------
Profit impact from the adoption of IFRS 16 (1,337) (1,256) (2,201)
--------------------------------------------------- -------- -------- --------
Alternative operating margin %
Continuing activities H1 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
---------------------------------------- ------- ------- -------
Revenue 525,641 484,971 959,613
Adjusted operating profit (pre-IFRS 16) 20,955 19,144 36,122
Operating profit margin (pre-IFRS 16) 4.0% 3.9% 3.8%
---------------------------------------- ------- ------- -------
Alternative Earnings per share measures
Diluted (continuing)
H1 2023 H1 2022 FY 2022
p p p
-------------------------------------------------- -------- ------- -------
Statutory earnings per share 14.09 12.70 24.51
Effect of amortisation of acquisition intangibles 0.11 0.11 0.22
Effect of full tax charge adjustment (0.46) (0.11) (0.22)
-------------------------------------------------- -------- ------- -------
Adjusted earnings per share 13.74 12.70 24.51
-------------------------------------------------- -------- ------- -------
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 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
-------------------------------------------- --------- -------- --------
Profit/(loss) attributable to shareholders: 15,996 14,393 27,813
Amortisation of acquisition intangibles 122 123 245
Full tax adjustment (520) (123) (245)
-------------------------------------------- --------- -------- --------
Adjusted earnings 15,598 14,393 27,813
-------------------------------------------- --------- -------- --------
Alternative Net cash/(debt) measures
The Group excludes the financial impact of 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 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
-------------------------------- --------- ---------- ---------
Cash and cash equivalents 116,138 89,859 98,138
Short-term financial assets 1,000 - 1,963
-------------------------------- --------- ---------- ---------
Adjusted net cash 117,138 89,859 100,101
Lease liabilities (current) (45,645) (38,276) (44,376)
Lease liabilities (non-current) (183,421) (173,664) (181,045)
-------------------------------- --------- ---------- ---------
Net debt (111,928) (122,081) (125,320)
-------------------------------- --------- ---------- ---------
Alternative 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.
Continuing activities H1 2023 H1 2022 FY 2022
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------- ------- ------- -------
EBITDA post-IFRS-16 before amortisation of acquisition intangibles 51,204 49,189 94,868
Cash inflow from operating activities 59,847 66,152 115,554
Cash conversion 117% 134% 122%
------------------------------------------------------------------- ------- ------- -------
Half-year condensed consolidated statement of profit or loss
For the six months ended 30 June 2023
Year
ended 31 December 2022
Six months ended 30 June 2022 (unaudited) (audited)
Note Six months ended 30 June 2023 (unaudited) GBP'000 GBP'000 GBP'000
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Continuing
operations
Sales revenue 3 525,641 484,971 959,613
Cost of sales (422,094) (386,100) (763,927)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Gross profit 103,547 98,871 195,686
Administrative
expenses (80,129) (78,168) (155,259)
Operating profit 23,418 20,703 40,427
Share of profits
of associates 241 630 858
Finance income 5 2,274 640 2,033
Finance costs 5 (4,745) (4,038) (8,374)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period before
tax 21,188 17,935 34,944
Tax expense 6 (4,488) (3,308) (6,441)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period from
continuing
operations 16,700 14,627 28,503
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Discontinued
operations
(Loss)/profit
for the period
from
discontinued
operations - (76) 542
Tax charge on
discontinued
operations 6 - - (48)
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
(Loss)/profit
for the period
after tax from
discontinued
operations - (76) 494
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period from
continuing and
discontinued
operations 16,700 14,551 28,997
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Attributable to:
Owners of Mears
Group PLC 15,996 14,317 28,307
Non-controlling
interest 704 234 690
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Profit for the
period 16,700 14,551 28,997
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Earnings per
share - from
continuing
operations
Basic 8 14.43 12.97p 25.07p
Diluted 8 14.09 12.70p 24.51p
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
Earnings per
share - from
continuing and
discontinued
operations
Basic 8 14.43 12.90p 25.51p
Diluted 8 14.09 12.63p 24.94p
---------------- ----- -------------------------------------------------- ------------------------------------------ ------------------------
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 2023
Year
Six months ended 30 June 2022 ended 31 December 2022
Six months ended 30 June 2023 (unaudited) (audited)
Note (unaudited) GBP'000 GBP'000 GBP'000
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Profit for the period 16,700 14,551 28,997
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Other comprehensive
income:
Which will not be
subsequently
reclassified to the
Consolidated
Statement of Profit
or Loss:
Actuarial (loss)/gain
on defined benefit
pension scheme 16 (491) 15,682 (3,041)
Pension guarantee
asset movements in
respect of actuarial
gain 16 - (5,363) (6,754)
Increase/(decrease)
in deferred tax
asset in respect of
defined benefit
pension schemes 123 (2,580) 2,449
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Other comprehensive
income for the
period (368) 7,739 (7,346)
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive
income for the
period 16,332 22,290 21,651
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Attributable to:
Owners of Mears Group
PLC 15,628 22,056 20,961
Non-controlling
interest 704 234 690
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive
income for the
period 16,332 22,290 21,651
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive
income for the period
attributable to
owners of Mears Group
PLC arises
from:
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Continuing operations 15,628 22,132 20,467
Discontinued
operations - (76) 494
--------------------- ----- ------------------------------ ------------------------------ ------------------------
Total comprehensive
income for the
period attributable
to owners of Mears
Group PLC 15,628 22,056 20,961
--------------------- ----- ------------------------------ ------------------------------ ------------------------
The accompanying notes form an integral part of these condensed
consolidated financial statements.
Half-year condensed consolidated balance sheet
As at 30 June 2023
As at 30 As at 30 As at 31 December 2022
June 2023 (unaudited) June 2022 (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
--------------------------- ---- -------------------------- --------------------------- --------------------------
Assets
Non-current
Goodwill 121,868 118,873 121,868
Intangible assets 7,475 6,030 7,452
Property, plant and
equipment 27,353 18,846 20,188
Right of use assets 215,548 200,665 213,432
Investments 917 1,343 1,271
Loan notes 4,265 3,673 4,073
Pension and other employee
benefits 16 23,181 43,756 23,672
Pension guarantee assets 16 3,136 7,904 3,136
403,743 401,090 395,092
--------------------------- ---- -------------------------- --------------------------- --------------------------
Current
Inventories 9 7,801 13,126 6,879
Trade and other receivables 10 125,668 156,705 128,334
Current tax assets - - 459
Short-term financial assets 1,000 - 1,963
Cash and cash equivalents 116,138 89,859 98,138
--------------------------- ---- -------------------------- --------------------------- --------------------------
250,607 259,690 235,773
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total assets 654,350 660,780 630,865
--------------------------- ---- -------------------------- --------------------------- --------------------------
Equity
Equity attributable to the
shareholders of Mears Group
PLC
Called up share capital 14 1,098 1,110 1,110
Share premium account 82,489 82,303 82,351
Share-based payment reserve 2,101 1,688 1,801
Merger reserve 7,971 7,971 7,971
Retained earnings 123,527 123,531 119,100
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total equity attributable
to the shareholders of
Mears Group PLC 217,186 216,603 212,333
Non-controlling interest 2,196 1,036 1,492
--------------------------- ---- -------------------------- --------------------------- --------------------------
Total equity 219,382 217,639 213,825
--------------------------- ---- -------------------------- --------------------------- --------------------------
Liabilities
Non-current
Pension and other employee
benefits 16 3,136 7,710 3,136
Deferred tax liabilities 4,744 9,301 4,898
Lease liabilities 183,421 173,664 181,045
Other non-current
liabilities 745 - 682
Non-current provisions 3,110 3,800 3,110
--------------------------- ---- -------------------------- --------------------------- --------------------------
195,156 194,475 192,871
--------------------------- ---- -------------------------- --------------------------- --------------------------
Current
Trade and other payables 11 184,006 205,620 171,013
Lease liabilities 45,645 38,276 44,376
Provisions 12 9,830 3,339 8,780
Current tax liabilities 331 1,431 -
Current liabilities 239,812 248,666 224,169
----------------------------- ------- ------- -------
Total liabilities 434,968 443,141 417,040
----------------------------- ------- ------- -------
Total equity and liabilities 654,350 660,780 630,865
----------------------------- ------- ------- -------
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 2023
Year ended 31 December 2022
Six months ended 30 June 2022 (unaudited) (audited)
Note Six months ended 30 June 2023 (unaudited) GBP'000 GBP'000 GBP'000
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Operating activities
Result for the
period before tax 21,188 17,935 34,944
Adjustments 15 30,657 31,288 60,524
Change in
inventories (923) 9,743 15,991
Change in trade and
other receivables 2,669 (13,264) 13,855
Change in trade,
other payables and
provisions 6,256 20,450 (9,760)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash inflow from
operating
activities of
continuing
operations before
taxation 59,847 66,152 115,554
Taxes paid (3,729) 322 (4,128)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash inflow from
operating
activities of
continuing
operations 56,118 66,474 111,426
Net cash
(outflow)/inflow
from operating
activities of
discontinued
operations - (212) (494)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash inflow from
operating
activities 56,118 66,262 110,932
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Investing activities
Additions to
property, plant and
equipment (9,861) (3,194) (8,052)
Additions to other
intangible assets (931) (494) (1,364)
Proceeds from
disposals of
property, plant and
equipment 17 - -
Expenditure on
acquisition of
subsidiary, net of
cash acquired - - (2,928)
Distributions from
associates 596 - 300
Maturity of amounts
placed on
short-term deposit
in excess of three
months 963 - (1,963)
Interest received 1,397 63 764
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash outflow
from investing
activities of
continuing
operations (7,819) (3,625) (13,243)
Net cash inflow from
investing
activities of
discontinued
operations - 5,000 7,333
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash
inflow/(outflow)
from investing
activities (7,819) 1,375 (5,910)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Financing activities
Proceeds from share
issue 139 39 87
Purchase of own
shares (3,258) - -
Loans provided to
other entities
(non-controlled) - - (225)
Repayment of loan
acquired with
subsidiary - - (37)
Discharge of lease
liabilities (22,456) (22,269) (43,169)
Interest paid (4,724) (4,022) (8,425)
Dividends paid -
Mears Group
shareholders - (6,103) (9,692)
Net cash outflow
from financing
activities of
continuing
operations (30,299) (32,355) (61,461)
Net cash outflow
from financing
activities of
discontinued
operations - (55) (55)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net cash outflow
from financing
activities (30,299) (32,410) (61,516)
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash and cash
equivalents,
beginning of period 98,138 54,632 54,632
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Net
increase/(decrease)
in cash and cash
equivalents 18,000 35,227 43,506
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
Cash and cash
equivalents, end of
period 116,138 89,859 98,138
-------------------- ----- --------------------------------------------------- ------------------------------------------- -----------------------------
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 2023 (unaudited)
Attributable to equity shareholders of the Company
----------------------------------------------------------
Share-
Share based Non-
Share premium payment Merger Retained controlling Total
capital account reserve reserve earnings interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ---------- ---------- ---------- ---------- ------------ --------
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
---------------------------------- ---------- ---------- ---------- ---------- ---------- ------------ --------
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
Purchase of own 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
---------------------------------- ---------- ---------- ---------- ---------- ---------- ------------ --------
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 2023
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 2023 were authorised
for issue in accordance with a resolution of the Directors on 3
August 2023.
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 2023 and 30 June 2022, together with
the audited results for the year ended 31 December 2022. The
half-year condensed consolidated financial statements for the six
months ended 30 June 2023 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 2022, 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 2022 were approved by the Board of Directors on 28 April
2023. 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 2023 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 2024.
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 2023 and 30 June 2024. As at 30 June 2023
and 3 August 2023, 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 58 of the
2022 Annual Report. The nature of the principal risks and
uncertainties faced by the Group has not changed significantly from
those set out on pages 48 to 51 of the 2022 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 2024
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 GBPnil. Further detail regarding the Group's stress
testing is provided on pages 59 and 60 of the 2022 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 that 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
2024. 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
2022.
3. Revenue
The Group's revenue disaggregated by pattern of revenue
recognition is as follows:
Six months ended 30 Six months ended 30
June 2023 June 2022
(unaudited) (unaudited)
GBP'000 GBP'000
-------------------------------------- ------------------- ---------------------
Revenue from contracts with customers
Repairs and maintenance 237,194 241,555
Contracting 31,485 47,384
Property income 231,009 171,771
Care services 9,909 10,029
Other 642 72
-------------------------------------- ------------------- ---------------------
510,239 470,811
Lease income 15,402 14,160
-------------------------------------- ------------------- ---------------------
525,641 484,971
-------------------------------------- ------------------- ---------------------
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 2023 Six months ended 30 June 2022
Maintenance Management Development Total Maintenance Management Development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Revenue 271,628 251,680 2,333 525,641 271,613 201,021 12,337 484,971
---------------------- ----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Profit/(loss)
before tax and
amortisation of
acquisition
intangibles 11,207 10,120 (17) 21,310 5,362 12,964 (269) 18,057
Amortisation of
acquisition
intangibles (122) (122)
---------------------- ----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Profit before
tax 21,188 17,935
Tax expense (4,488) (3,308)
---------------------- ----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Profit/(loss)
for the year 16,700 14,627
---------------------- ----------- ---------- ----------- -------- ----------- ---------- ----------- --------
5. Finance income and finance costs
Six months ended 30 Six months ended 30
June 2023 June 2022
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------------------------------- ------------------- -------------------
Interest charge on overdrafts and loans (334) (368)
Interest on lease obligations (4,165) (3,574)
Other interest expense (246) (5)
Finance costs on bank loans, overdrafts and leases (4,745) (3,947)
Interest charge on net defined benefit scheme obligation - (91)
---------------------------------------------------------------- ------------------- -------------------
Total finance costs (4,745) (4,038)
---------------------------------------------------------------- ------------------- -------------------
Interest income resulting from short-term bank deposits 1,470 43
Interest income resulting from net defined benefit scheme asset 583 380
Other interest income 221 217
---------------------------------------------------------------- ------------------- -------------------
Finance income 2,274 640
---------------------------------------------------------------- ------------------- -------------------
Net finance charge (2,471) (3,398)
---------------------------------------------------------------- ------------------- -------------------
6. Tax expense
Tax recognised in the Consolidated Statement of Profit or
Loss:
Six months ended 30 Six months ended 30
June 2023 June 2022
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------------------------------------------------------- ------------------- -------------------
United Kingdom corporation tax 4,519 3,262
Adjustment in respect of previous periods - -
---------------------------------------------------------------------------- ------------------- -------------------
Total current tax charge recognised in Consolidated Statement of Profit or
Loss 4,519 3,262
---------------------------------------------------------------------------- ------------------- -------------------
Total deferred taxation recognised in Consolidated Statement of Profit or
Loss (31) 46
---------------------------------------------------------------------------- ------------------- -------------------
Total tax charge recognised in Consolidated Statement of Profit or Loss on
continuing operations 4,488 3,308
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 4,488 3,308
---------------------------------------------------------------------------- ------------------- -------------------
7. Dividends
Six months ended 30 Six months ended 30
June 2023 June 2022
(unaudited) (unaudited)
GBP'000 GBP'000
--------------------------------------- ------------------- -------------------
Final 2022 dividend of 7.25p per share 7,956 6,103
--------------------------------------- ------------------- -------------------
The dividend disclosed within the half year condensed
consolidated statement of changes in equity represents the final
2022 dividend of 7.25p per share proposed in the 31 December 2022
financial statements and approved at the Group's Annual General
Meeting on 30 June 2023.
The Board is recommending an interim dividend of 3.70p (2022:
3.25p) per share. This is not recognised as a liability at 30 June
2023 and will be payable on 27 October 2023 to shareholders on the
register of members at the close of business on 6 October 2023.
8. 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 2023 June 2022 June 2023 June 2022 June 2023 June 2022
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
p p p p p p
------------------- ------------- ------------- ------------- ------------- ------------- -------------
Basic earnings per
share 14.43 12.97 - (0.07) 14.43 12.90
Diluted earnings
per share 14.09 12.70 - (0.07) 14.09 12.63
------------------- ------------- ------------- ------------- ------------- ------------- -------------
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 2023 June 2022
(unaudited) (unaudited)
Million Million
---------------------------------------------------------------------------- ------------------- -------------------
Weighted average number of shares in issue: 110.86 110.95
* Dilutive effect of share options 2.67 2.38
---------------------------------------------------------------------------- ------------------- -------------------
Weighted average number of shares for calculating diluted earnings per share 113.53 113.33
---------------------------------------------------------------------------- ------------------- -------------------
9. Inventories
As at 30 As at 30 As at 31 December
June 2023 June 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------- -------------- ------------- ------------------
Materials and consumables 982 1,472 1,329
Work in progress 6,819 11,654 5,550
-------------------------- -------------- ------------- ------------------
7,801 13,126 6,879
-------------------------- -------------- ------------- ------------------
10. Trade and other receivables
As at 30 As at 30 As at 31 December
June 2023 June 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------- -------------- ------------- ------------------
Trade receivables 20,082 27,685 21,483
Contract assets 73,887 103,380 84,797
Contract fulfilment costs 1,141 1,115 1,283
Prepayments and accrued income 19,896 16,121 13,257
Contingent consideration - 1,667 -
Other debtors 10,662 6,737 7,514
---------------------------------- -------------- ------------- ------------------
Total trade and other receivables 125,668 156,705 128,334
---------------------------------- -------------- ------------- ------------------
11. Trade and other payables
As at 30 As at 30 As at 31 December
June 2023 June 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------- -------------- ------------- ------------------
Trade payables 65,321 73,277 55,854
Accruals 63,438 64,979 60,278
Social security and other taxes 20,652 27,754 26,343
Contract liabilities 21,784 33,304 23,672
Other creditors 4,855 6,306 4,866
Dividends payable 7,956 - -
-------------------------------- -------------- ------------- ------------------
184,006 205,620 171,013
-------------------------------- -------------- ------------- ------------------
12. Provisions
A summary of the movement in provisions during the period is
shown below:
Legal provisions Total
Property provisions GBP'000 GBP'000 GBP'000
------------------------- ---------------------------- ---------------- --------
At 1 January 2023 835 7,945 8,780
Provided during the year 120 930 1,050
------------------------- ---------------------------- ---------------- --------
At 30 June 2023 955 8,875 9,830
------------------------- ---------------------------- ---------------- --------
The Group recognises provisions in respect of the expected costs
of reinstating several office properties to their original
condition on the expiry of the respective leases. During the
period, the Directors have increased their assessment of these
property dilapidations from GBP0.8m to GBP0.9m, largely reflecting
the underlying cost of the rectification works.
At the start of the period, the Group held legal provisions of
GBP7.9m, which included a single provision of GBP5.7m in respect of
a former client relationship where Mears was adjudged through an
adjudication process to have acted in breach of contract, and
ultimately be responsible for losses and damages. During the
period, the Directors have revised their initial estimate, based on
the availability of additional information, and have increased this
estimate by GBP0.8m to GBP6.5m. In addition, the Directors have
provided for other provisions related to various subcontractor and
employee related legal claims of GBP2.4m, an increase of GBP0.1m
during the period.
13. Financial instruments
Categories of financial instruments
As at 30 As at 30 As at 31 December
June 2023 June 2022 2022
(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 4,265 3,673 4,073
-------------------------------- -------------- ------------- ------------------
Current assets
Fair value (level 3)
-------------------------------- -------------- ------------- ------------------
Contingent consideration - 1,667 -
-------------------------------- -------------- ------------- ------------------
Amortised cost
Trade receivables 20,082 27,685 21,483
Other debtors 10,662 6,737 7,514
Short-term financial assets 1,000 - 1,963
Cash at bank and in hand 116,138 89,859 98,138
-------------------------------- -------------- ------------- ------------------
147,882 124,281 129,098
-------------------------------- -------------- ------------- ------------------
Non-current liabilities
Fair value (level 3)
Contingent consideration (494) - (438)
Amortised cost
Lease liabilities (183,421) (173,664) (181,045)
Deferred consideration (251) - (244)
(183,672) (173,664) (181,289)
-------------------------------- -------------- ------------- ------------------
Current liabilities
Amortised cost
Trade payables (65,321) (73,278) (55,854)
Lease liabilities (45,645) (38,276) (44,376)
Other creditors (4,595) (6,306) (4,614)
Deferred consideration (260) (252)
-------------------------------- -------------- ------------- ------------------
(115,821) (117,860) (105,096)
-------------------------------- -------------- ------------- ------------------
(147,775) (161,838) (153,587)
-------------------------------- -------------- ------------- ------------------
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
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------- -------- --------
Allotted, called up and fully paid
At 1 January 111,000,889 (2022: 110,926,510) ordinary shares of 1p each (audited) 1,110 1,109
Issue of 109,671 (2022:32,160) shares on exercise of share options 1 1
Cancellation of 1,279,191 (2022: zero) shares following purchase by the Group (13) -
---------------------------------------------------------------------------------- -------- --------
At 30 June 109,831,369 (2022: 110,958,670) ordinary shares of 1p each (unaudited) 1,098 1,110
---------------------------------------------------------------------------------- -------- --------
During the period 109,671 (2022:32,160) ordinary 1p shares were
issued in respect of share options exercised. In addition,
1,279,191 (2022: zero) ordinary 1p shares were repurchased by the
Group and cancelled.
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:
Year ended
Six months ended 30 Six months ended 30 31 December
June 2023 June 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------------------- ------------------- ------------
Depreciation 26,582 26,781 51,508
Loss on disposal of property, plant and equipment 80 - (224)
Amortisation 882 1,075 2,299
Share-based payments 300 375 599
IAS 19 pension movement 583 289 859
Share of profits of associates (241) (630) (858)
Finance income (2,274) (640) (2,033)
Finance cost 4,745 4,038 8,374
-------------------------------------------------- -------------------- ------------------- ------------
Total 30,657 31,288 60,524
-------------------------------------------------- -------------------- ------------------- ------------
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 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 2022, 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
2022.
The principal actuarial assumptions that have changed since 31
December 2022 are as follows:
As at 30
June 2023 As at 31 December 2022
(unaudited) (audited)
----------------------------- ------------- -----------------------
Discount rate 5.00% 3.80%
Retail prices inflation 3.00% 2.90%
Consumer prices inflation 2.60% 2.50%
Rate of increase of salaries 3.00% 2.90%
----------------------------- ------------- -----------------------
The amounts recognised in the Consolidated Balance Sheet and
major categories of plan assets are:
30 June 2023 31 December 2022
(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 123,880 116,444 240,324 128,023 133,689 261,712
Present value of funded scheme liabilities (100,698) (84,430) (185,128) (104,351) (98,412) (202,763)
------------------------------------------- --------- -------- --------- --------- -------- ---------
Funded status 23,182 32,014 55,196 23,672 35,277 58,949
Scheme surpluses not recognised as assets - (35,150) (35,150) - (38,413) (38,413)
------------------------------------------- --------- -------- --------- --------- -------- ---------
Pension asset/(liability) 23,182 (3,136) 20,046 23,672 (3,136) 20,536
------------------------------------------- --------- -------- --------- --------- -------- ---------
Pension guarantee assets - 3,136 3,136 - 3,136 3,136
------------------------------------------- --------- -------- --------- --------- -------- ---------
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, 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, 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 48
to 51 of the 2022 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
D J Miles A C M Smith
Chief Executive Officer Chief Finance Officer
david.miles@mearsgroup.co.uk andrew.smith@mearsgroup.co.uk
3 August 2023
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IR UPUACRUPWGQP
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