Outlook
Maintenance:
- Recovery in activity levels expected during the second half, as working arrangements progressively return towards more normal levels.
Management:
- Levels of demand to remain strong, with some easing in the operational challenges.
The Board continues to evaluate Mears' portfolio of businesses, and where assets are seen as peripheral to the Group's core strategy of providing services to the Housing sector in the UK, actions are being taken in order to deliver the best financial return for shareholders, and accelerate the Board's stated desire to see a reduction in debt levels.
The Group is progressing well with its planned disposal of its the Scotland Domiciliary Care business and expects to complete the disposal during 2020.
While the Covid crisis has impacted short-term financial performance, the business remains resilient, volumes are returning and win rates are healthy.
David Miles, Chief Executive Officer of the Group, commented:
"The Mears' business has acted with a great sense of responsibility and professionalism during the Covid-19 pandemic, both in terms of ensuring the ongoing resilience of our operations and supporting the Communities where we work. Our people have performed valiantly in the most challenging of circumstances. Service quality levels to our local and central government clients, and to our many vulnerable service users, have remained at their traditionally high levels throughout the period. Inevitably, the Covid-19 crisis has impacted short-term financial performance in these results, particularly as Maintenance contract volumes reduced to emergency-only to protect the safety of staff and service users alike."
Activity levels are returning to normal, and I am very confident as to the financial stability and the long-term wellbeing of the Group. The Group has taken positive and considered actions during the Covid-19 period to ensure that the Group is stronger than ever and well positioned once the UK sees a return towards normality.
Covid-19
The considerable challenges generated by Covid-19 have had a significant impact on the Group in the first half of the financial year. Mears' response to these challenges was swift and decisive. Service levels have remained at their traditionally high levels, with many clients directly complimenting the exceptional performance of the workforce. The Group's IT systems enabled a swift transfer to remote working for many staff. The Group adapted quickly to the new methods required for managing the business, benefiting from the investment made in the core systems over many years.
Mears is seen as a valued partner by its customers, evidence of the close working relationships which have developed over many years. While some of our activities continued at pre Covid-19 levels, in other areas, especially maintenance, work was deferred. Detailed discussions were held with all clients about the basis on which a reduced service could be delivered, whilst ensuring the safety of Mears' staff and vulnerable service users. The Group expects to see a recovery in activity levels during the second half of the year, assuming that infection levels remain relatively low, as working arrangements in the core maintenance business progressively return towards more normal levels by the end of the year.
In adapting to new ways of working, the primary focus has always been the safety and well-being of our staff and of the individual customers to whom housing and care services are provided. As with many peers, access to PPE was difficult at times but the established procurement routes, together with the support of many clients, helped to keep staff fully protected. Mears was one of the first to call for additional support for care staff and it is pleasing to see society is now recognising the vital role delivered by carers.
The Group's success depends upon the commitment and engagement of its workforce. Significant extra effort has been put into workforce management, including amongst those staff that have been furloughed. Mears was already in the Sunday Times list of top 25 Big Companies to work for, but in a staff survey carried out in June, our scores reached a new high, reflecting the efforts made on communication and keeping staff safe. The Group is pleased to put on record its recognition of the dedication and commitment shown by all of our staff and our appreciation to all.
It has been necessary, regrettably, to place some staff into the Government's furlough arrangements for a period of time. Top-up payments were made to support the lowest paid and a staff hardship fund was created to provide additional relief. All furloughed staff are expected to return to work by the end of September.
Results
Mears has delivered good performance in the most challenging of circumstances. Strong customer relationships enabled the Group to agree interim arrangements quickly in respect of service levels whilst mitigating financial risk.
Group revenue for the six months to 30 June 2020 reduced to £407.0m (2019: £439.2m) with a reduction in Maintenance revenues to £261.7m (2019: £323.3m) was partly offset by an increase in Management revenues delivered by the new Asylum Accommodation and Support Contract ('AASC') which commenced in September 2019. As a result of the impact upon the business of Covid-19, the Group delivered a loss before tax and before the amortisation of acquisition intangibles of £5.8m (2019: profit before tax £16.7m). This is detailed below.
Covid-19 has had a significant impact on the Group's activities and the associated financial results, causing both a loss of revenue and additional costs. A conservative estimate of the cost of protective equipment, the irrecoverable costs of furloughed employees and restructure costs in the first half amounted to in excess of £2.5m. The results for the first half include all the loss of revenue, under-recovery of overheads and other incremental costs within the operating result.
The Group delivered a solid cash performance given the circumstances, with average daily net debt of £121.2m (2019: £110.7m), representing a reduction in the opening underlying daily net debt from January 2020 of £126.1m.
Given the on-going uncertainty around the future course of the Covid-19 pandemic in the UK, the Board believes that it is inappropriate to declare an interim dividend. It remains the Board's intention to return to a progressive dividend policy once it is confident that activity and working practices have returned to normal and that it would be prudent financially to do so.
Results Presentation and Interim Results Statement
You can view our Half Year Results Presentation here.
You can view our Interim Results Statement here.
