TIDMMER
RNS Number : 4143C
Mears Group PLC
28 June 2016
For Immediate Release 28 June 2016
Mears Group PLC
("Mears" or "the Group")
Pre-Close Trading Update
Mears Group PLC (LSE: MER), the provider of support services to
the Housing and Care sectors in the UK, today issues a pre-close
trading update ahead of its interim results for the six months to
30 June 2016.
Mears continues to deliver a solid trading performance and
anticipates reporting results for the half year in line with
management expectations. The Group has now achieved 97% visibility
of the GBP973 million consensus revenue forecast for 2016 and 85%
visibility of the GBP1.03 billion consensus revenue forecast for
2017.
Housing
The Group continues to see a strong performance in its Housing
division, which accounts for circa 83% of Group revenues.
The Housing division has experienced a particularly busy period
of new contract mobilisations with a number of material contracts
starting during the period. Two were of particular note:
-- Mears formed a new Regeneration Partnership with Milton
Keynes Council called YourMK, focusing upon the regeneration of key
areas in Milton Keynes. The contract, which mobilised in April
2016, is initially delivering repairs and maintenance services to
nearly 11,500 homes and we are already seeing a significant
extension to the scope of works. The contract is valued at GBP250
million over five years.
-- Mears mobilised a Key Worker Housing contract providing a
full Housing Management service throughout the UK. This includes
sourcing properties, managing the application and allocation
process as well as the subsequent day to day administration. The
contract, which fully mobilised in April 2016, is valued at GBP195
million over the initial three year term.
All new mobilisations are progressing well. Typically the Group
anticipates a lower margin from a new contract during its
mobilisation phase, being a time when the primary focus is in
investing to establish excellent customer service. Accordingly,
whilst these new contracts will generate a lower margin at the half
year, operating margins can be expected to normalise during the
second half of the year.
In addition, Mears was pleased to be re-awarded a contract with
Sutton Housing Partnership to provide responsive repairs, voids and
planned maintenance services to around 6,000 homes. The contract
was previously awarded on an emergency basis following the
termination of the incumbent provider. The new award of a ten year
contract, valued at GBP45 million, is a reward for the Group's
willingness to take the contract at short-notice. The new contract
is due to mobilise in July 2016.
On a recurring theme, Mears is delighted to have been awarded
additional areas to its existing Home Group contract. Mears is the
incumbent contractor in both the South West and North East of
England, covering circa 20,000 homes. Mears has been awarded a five
year contract to deliver responsive repairs, voids, gas servicing
and planned maintenance services to a further 5,000 properties in
the Central region. In addition, Mears has also been awarded a
twelve month emergency contract to deliver the same range of
services to 10,000 properties in the North West region. These two
additional contracts, which were mobilised over a short timescale
in April 2016, are together valued at around GBP35 million.
As previously reported, this is an important year for three
material contract re-bids. We are pleased to report that Mears was
successful in re-securing our Sedgefield contract. The contract,
which provides responsive and planned maintenance to around 8,500
homes, is valued at GBP110 million over the ten year contract term.
The new contract starts in July 2016. In addition, we have been
notified that we have been successful, subject to the conclusion of
a standstill period, in being appointed as Commercial Adviser in
respect of our Gateshead contract. The new contract, which is due
to commence in April 2017, will see Mears take a greater role in
the strategic development of our partnership to an enlarged
insourcing solution. Our Manchester City Council joint venture is
the last material re-bid, with the existing contract due to expire
in March 2017 and the tender process is on-going.
The Housing division is pursuing a solid pipeline of new bidding
opportunities. Importantly, the Group is seeing a number of new
opportunities resembling our Milton Keynes award. The extension of
our services from maintenance to a wider housing management
offering has strengthened further our competitive advantage and
opened up exciting new opportunities that were not available to the
Group previously.
Care
The Care business, which accounts for circa 17% of the Group
revenues, continues to find the current market conditions
challenging. There remains a significant disparity between the
short and long-term Care opportunity in the UK. Mears continues to
focus upon improving carer recruitment and retention rates, which
remains a significant constraint to progress.
Much of the focus in the first six months of the year has been
with a view to managing the impact of the National Living Wage
(NLW) which came into force on 1 April 2016. At this time, we have
implemented rate increases covering approximately 75% of our Care
business which, in aggregate, has delivered a blended increase in
charge rates of around 6%. The dialogue with clients around NLW has
further emphasised the significant disparity between those clients
who recognise that more innovative, outcome based working practices
are key to sustainability and, at the other end of the scale, those
commissioners of care whose key driver remains the purchase of care
services at the lowest hourly rate. We have commenced a detailed
contract-level review by contract which we expect to conclude over
the coming weeks. We are placing greater emphasis upon maintaining
a smaller portfolio of good quality contracts, which can provide
clear and sustainable margins, whilst at the same time delivering a
first class experience to our service users.
As reported previously, Mears was appointed as primary provider
by Devon County Council ('Devon') for the provision of homecare
services across South Devon. The contract is fundamentally
different from the norm, with the client outsourcing to Mears its
Adult Social Care function, taking on responsibility for
commissioning, co-ordinating and supporting other local providers.
The contract represents an important step for Mears as it
replicates the journey that it took in Housing. The contract is for
an initial five year period with an option to extend for a further
two years and is valued at over GBP100m. The contract, which is the
largest care contract ever awarded to Mears, is currently in its
pre-mobilisation phase and is due to commence in July 2016.
Further to our Devon success, we are delighted to report that we
have been notified by Wiltshire Council, subject to completion of
the usual standstill period and Cabinet ratification, of its
intention to award Mears zones in the North and West regions of the
county, to add to our existing work in the South and East. This
will mean Mears will be the prime provider for the significant
majority of work across the county, which will double the overall
value of the work done by Mears. The additional work has been
awarded to Mears due to the high levels of service and partnership
working we have delivered under our existing contract. We believe
this is a further endorsement of our long-term strategy for
care.
In the long-term, Mears continues to see significant opportunity
in the Care sector and remains confident that it has the right
strategy.
Financial position
Mears continues to benefit from its financial strength and its
efficiency in managing working capital. As previously reported, the
Group has recently amended and extended its revolving working
capital facility. The total commitment under the facility increased
from GBP120m to GBP140m together with a reduction in pricing. The
Directors anticipate reporting a small net debt position at 30 June
2016.
Commenting, David Miles, Chief Executive, Mears Group, said:
"I am delighted with the solid progress made in the first half
of 2016.
"We anticipated the increasingly complex challenges that would
face our Housing clients and we broadened our offering accordingly.
However, I must say that the speed of industry change and growth in
new style opportunities has exceeded my expectations. Our early
move into Housing Management has put us in a strong position to
benefit from a healthy and wider pipeline of opportunities. We
continue to develop our offerings to strengthen our competitive
position.
"We continue to find the Care market challenging but we are
pleased with progress made in our key partnering contracts. I
remain confident that we have the right strategy and that Mears is
best placed to take advantage of industry evolution as it happens.
In the short-term we will look to place greater emphasis on
maintaining a portfolio of good quality contracts at clear,
sustainable margins.
"We continue to achieve high levels of service delivery and
customer satisfaction. This is particularly pleasing given the
number of new contracts mobilised in the period. The quality of our
service delivery continues to be our key differentiator and
underpins our success in winning new contracts in both of our core
growth sectors."
Mears will be announcing its interim results on Tuesday 16
August 2016.
For further information, contact:
Mears Group PLC
David Miles, Chief Tel: +44(0)7778 220 185
Executive
Andrew Smith, Finance Tel: +44(0)7712 866 461
Director
Bob Holt, Chairman Tel: +44(0)7778 798 816
Alan Long, Executive Tel: +44(0)7979 966 453
Director
www.mearsgroup.co.uk
Buchanan
Richard Darby/ Sophie McNulty/ Sophie Cowles Tel: +44(0)20 7466 5000
www.buchanan.uk.com
About Mears
Mears is a leading provider to Local Authorities, Registered
Social Landlords and the NHS. We deliver repairs and maintenance
services and personal care services directly into communities and
people's own homes.
Increasingly our growth is coming from Housing management
services, that help reduce homelessness and more complex and
integrated care solutions to the NHS that enable people to stay in
their own homes for longer.
Mears employs circa 18,000 people and provides maintenance and
repairs services to circa 15% of the UK social housing stock. Mears
also provides care, on a daily basis, to over 30,000 service
users.
This information is provided by RNS
The company news service from the London Stock Exchange
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June 28, 2016 02:00 ET (06:00 GMT)