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- Interim Management Statement
27th October 2009
27 October 2009
Mears Group PLC
("Mears"or "the Group")
Interim Management Statement("IMS")
Continued Strong Trading Across All Divisions
Mearstoday releases its IMS for the period from 1July2009to date.
Mearshascontinued toexperience strongtrading across all divisions since announcing the interim results in August 2009.The forecast full year resultsarein line with management's expectations.
The Group has announced new contract awards in excess of 450m since the annual results were publishedon10March 2009and we continue to build on this strong performance with an order book standing at over 1.7bn. The bid pipeline is strong and we are currently at advanced stages of negotiating further significant opportunities. We anticipate reporting a record year for growth in our order book.
The demand for our services has never been stronger.Our two growth markets Social Housing and Domiciliary Care, which account for approaching 90% of Group revenues,are defensive markets where spend is largely non discretionary and afford us substantial immunity from bad debts. Moreover as a result of our quality partnership relationships with first class public sector customers, we have not experienced any work delays from our public sector customers.
Our Social Housing division is well positioned in a consolidatingmarketand the outlook remains excellent.Thespend is largely non discretionaryand with 70% of revenues generated withHousing Associations, Housing Trusts and Arms Length Management Organisationsandwithless than 15% of revenues relating to Decent Homes, we do not expect this division to be significantly impacted byanycuts in public sector expenditure.
Since 1 July 2009, the Social Housing division has mobilisedthe following new contractawards:
Moat Homes manage a housing stock of 15,000 units predominantly based in the South East of England.This order relates to reactive and void maintenance worksandhas an annual contract value of 4m.This initial order is for a single year. The works mobilised in October 2009 and we are focussed on maximising customer satisfaction during this period.
Brighton & HoveCityCouncil
A ten-year partnership to provide housing stock upgrades, responsive repairs and comprehensive maintenance services. The contract is valued at 200 million for the ten-year periodand whilstitdoes not start until April 2010, a significantresource is being applied at this time.
Shoreline Housing Partnership
A six-year partnership with Shoreline Housing Partnership ("Shoreline") to provide responsive repairs and maintenance services. The contract is valued at 50 million for the six-year period and has a potential worth in excess of 80 million subject to an opportunity for a further four-year extension. This contract mobilised in July 2009.
Sedgefield Borough Homes
A 5-year partnership with Sedgefield Borough Homes carrying out Decent Homes services. The contract value to Mears is estimated to be 32 million. This contract mobilised in October 2009.
All costs relating to tender, contract set-up and the initiallosses andinefficienciesthat typically occurduring the period of contract mobilisation are written off as they are incurred.
Our robust bid pipeline reflects our confidence in the demand drivers for repair and maintenance spending of our public sector partners.There is an increasing trend towards the larger, more complex strategic partnership contracts that will naturally reward stronger players who can deal with a greater level of complexity. The Group is ideally placed to be a major beneficiary of this trend.Our current bid pipeline stands at 3.5 billion which naturally reaches a seasonal peak at this time given the high level of April 2010 mobilisations that are now approaching a late point in the tender process.
Furthermore, we are equally focused on assisting social housing landlords develop their in-house capabilities where they have decided not to outsource. We are in strong position to take the lead with these opportunities where flexibility and innovation are required.
Careforce, the Group's Domiciliary Care division,continues to build a presence across a growing geographical area.As we have seen, recent sector M&A activity has emphasised the strategic value placedupon the provision of domiciliary care services to Local Authorities and primary care trusts.The increasing trend of Local Authorities to procure services from fewer and larger care providers is entirely in line with our philosophy to work in partnership with our clients to provide improved outcome-based solutions for the long term.Wearethereforewellplaced to take a leading position in the consolidationand evolutionof the Domiciliary Care marketwhere we continue to see a convergence between our Social Housing and Care businesses.
Government remains committed to prioritising the agenda of housing in an ageing society and ensuringthat people stay comfortable and secure in their own homesas they grow older.The recent Green paper on the future of Social Care, combined withproposals from across the political partiesduring the Conference season, reflectstheemphasisplacedon Social Care as a key part of the political, economic andwelfareagenda. The Green paper calls for a level of free care for all people, no matter what their financial circumstances. Consultation on the paper continues into November this year. Investment in Social Care is arguably the most effective way to prevent future spiralling NHS costs. So,despite the current concerns for the future of public expenditure, this is one area where there appears real commitment to protect and indeed increase expenditure going forward. Greater focus is also being placed on the financial benefits from service integration, which is leading to a number of councils starting to more actively work with us on housing and care integration opportunities.
There are increasing opportunities to combine our Care and Repairsolutionsand thereby add further value to our customers.
Mechanical and Electrical (M&E)
The M&E division has continued to make a significant contribution both in terms of turnover and operating profit.The niche offering of linked to theLondon'exclusive and complex residential' housing market provides opportunities not offered by other providers.
Since 1 July 2009, the division has beenawarded acontractwith Bovis Lend Lease to provide M&E infrastructure and fit out works on theAthletesVillagefor the 2012 London Games. This contract awardis valued at 9 million andcomprises the first phase of the villageofapproximately300 apartments. In addition to this award, further material orders have been received which further enhance the visibility of revenues for 2010.Thisremainsa sound and well managed business.
Mearscontinues to benefit from a strong balance sheet with low gearing. We havemaintained ourstrong management of working capitaland cashconversion continues to be inline with our expectations.
Our strong cash flow continues to give us significant financial flexibility to take advantage of any acquisition opportunities that may arise.
It has always been the key focus of this Group to continually seek to strengthen the senior management team to ensure that we have in place a structure that can plan for and manage future growth. We have led the social housing sector for the past ten years and it is a tremendous accolade to the strength of our social housing brand that the best operators in this sector have a desire to join the best provider of these services. I am delighted that since 1 July we have announced thesignificantappointmentsof two senior social housing operators.
Jane Nelson has been appointed Managing Director of a new social housing business stream which will focus on working with social housing landlords to deliver alternative partnership benefits whilst retaining an in-house capacity to deliver excellent repairs and maintenance services. Jane was most recently at Kier Group where she was Chairman and Managing Director of Kier Building Maintenance's Southern region.
Graham Eden has been appointed Managing Director of our social housingLondonregion. Graham has worked in the sector for 29 years and was most recently Chief Operating Officer of Morrison Plc's Social Housing and Facilities Services business
Both Jane and Graham bring unparalleled experience of working at every level in the public sector. They are both very well known and highly respected figures in the industry andwereouridentified'transfer targets' for some time.
We haveclose to full visibility ofconsensus forecastrevenuesfor the current yearandin excess of 72%per centof next year'sforecastrevenues.We haveanexperienced management team which has been extremely successful in building ourrecordforward order book and we are well positioned ina veryactive contract bidding market.Additionally, our strengthened management structure will allow us to successfully deliver future growth.We remain confident in Mears'prospects for thefutureas we continue to grow the Group.
Mears Group PLC
Bob Holt, Chairman
Tel: +44(0)7778 798 816
Andrew Smith, Finance Director
Tel: +44(0)7712 866 461
Joint Broker - Investec, Keith Anderson/DanielAdams
Tel: +44(0)20 7597 5970
Joint Broker - Collins Stewart, Mark Dickenson/Piers Coombs
Tel: +44(0)20 7523 8350
PR - Threadneedle Communications, Trevor Bass/Alex White
Tel: +44(0)20 7936 9666
IR - Hansard Group, John Bick
Tel: +44(0)7872 061007
Mears Group is a leading social housing repairs and maintenance provider working in partnership with Local Authorities and Registered Social Housing Landlords and it has a growing presence in the domiciliary care market through its Careforce business, providing personal care to people in their own homes delivered through partnerships with Local Authorities. In addition, Mears subsidiary Haydon is a specialist, mechanical and engineering services business. The Group employs more than 8000 people to maintain, repair and upgrade hundreds of thousands of homes nationwide and provides in excess of 90,000 hours of domiciliary care to over 13,500 people each week.