Group performance
Trading performance continued in line with the Board’s expectations and the Group has delivered an operating profit throughout the second half of the financial year. Accordingly, the Group is expecting to report total revenues of around £825m (H1: £407m) for the full year and a small profit before tax (H1: £5.8m loss).1 Cash performance has been strong in the second half, with the Group’s average daily net debt position for the 5 months to 30 November reducing to £88m (H1: £121m), also benefiting from a £16m VAT deferral from the March-20 quarter end. Completion of the Terraquest disposal is expected shortly and taking into account the initial cash proceeds, the Group is expected to be net cash positive at year end2.
Operations
In our social housing Maintenance contracts, work volumes strengthened steadily through the third quarter reaching 79%3 in October (June 2020: 25%) as clients cautiously extended the scope of works permissible in people’s homes but PPE/social-distancing protocols continued to reduce operative productivity. The Group did not see a significant impact on work volumes in November during the second national lock-down and this resilience provides the Board reassurance when looking forward to 2021. The Group’s Central Government contracts, notably Key Worker and AASC, have continued to perform strongly through the second half, with the Group adapting well to changing service user needs and the higher work levels.
Strategic developments
The Group made excellent progress in the second half, completing its programme of strategic re-focussing with the sale of its Scottish Care business for up to £2.5m in September and the disposal of TerraQuest for up to £72m in December 2020.
In addition, as reported in our interim results, the Group took the strategic decision during H1 to withdraw from c. £50m of annualised Maintenance contract revenues which were either underperforming or where no financial support was forthcoming from clients through the first national lock down. The Group’s central support functions have also been rationalised in proportion to the reduction in revenues. These closures and cost reductions are now complete and expensed during the year.
Outlook
With local and/or national Covid-related restrictions likely to persist well into Q1 2021, near term forecasting inevitably remains difficult. However, 2021 should see the Group transition back to our more normalised levels. Our central case is that work volumes in Maintenance remain at or near current levels (c. 80%) until spring. By contrast, continued Covid-related restrictions are likely to keep user numbers elevated within our Central Government contracts before returning to more normalised levels in H2 2021.
David Miles, Chief Executive Officer of the Group, commented:
"In common with most businesses, 2020 has been a challenging year for the Group, but one the company and particularly its employees have risen to with great fortitude. We have also received great support from clients and customers. Despite the challenges, we have continued to provide the highest levels of service, plus made excellent progress on our strategic priorities. We exit the year as a singularly focussed Housing specialist and trusted partner to local and central government, bringing innovative solutions to help tackle many of the deep-rooted issues within the UK’s social and affordable housing sectors."
With a portfolio of high-quality contracts focused on our core Housing services and the Group’s strengthened balance sheet, we look to the future with confidence.
A conference call will be held for analysts and shareholders at 8.30am on 8 December 2020 hosted by David Miles, CEO and Andrew Smith, CFO. Joining instructions are below:
Dial-in: +44 20 3655 9505
Pin code: 1069383#
A recording of this call will be available in the Investor section of the Mears Group website later today.
For further information, contact:
Mears Group PLC
David Miles, Chief Executive Officer
Tel: +44(0)7778 220 185
Andrew Smith, Finance Director
Tel: +44(0)7712 866 461
Alan Long, Executive Director
Tel: +44(0)7979 966 453
Joe Thompson, Investor Relations
Tel: +44(0)7980 844 580
www.mearsgroup.co.uk
The person responsible for arranging the release of this announcement on behalf of Mears Group PLC is Ben Westran, Company Secretary.
Notes:
1. Total revenues and profit before tax is stated inclusive of part-year contribution from the TerraQuest business which is due to complete on 9 December 2020 and will be treated as discontinued. Adjusted operating profit and profit before tax is normalised, before exceptional items and before the amortisation of acquired intangibles.
2. Includes anticipated Day-1 disposal proceeds of £56m before costs of £3m and the benefit of c. £16m of VAT deferred for 1 year from March-20.
3. Maintenance work volumes as measured by number of jobs relative to historical average.
