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Trading statements

Mears delivers solid trading performance

28 June 2016 08:18

Care support services firm Mears (MER) delivered a solid trading performance and anticipates reporting results for the half year in line with management expectations.

The group achieved 97% visibility of the £973 million consensus revenue forecast for 2016 and 85% visibility of the £1.03 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 on 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 the company saw a significant extension to the scope of works. The contract is valued at &million;250 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 £195 million over the initial three year term.

All new mobilisations are progressing well. 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 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 £45 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.

Mears was awarded additional areas to its existing home group contract. Mears was 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 won 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 £35 million.

Mears was successful in re-securing the Sedgefield contract. The contract, which provides responsive and planned maintenance to around 8,500 homes, is valued at £110 million over the ten year contract term. The new contract starts in July 2016.

The company was also successful, subject to the conclusion of a standstill period, in being appointed as commercial adviser in respect to the 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. The Manchester City Council joint venture is the last material re-bid, with the contract due to expire in March 2017 and the tender process is ongoing.

CARE

The care business, which accounts for circa 17% of 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).

At this time, we implemented rate increases covering approximately 75% of our care business which, in aggregate, has delivered a blended increase in charge rates of around 6%.

Mears commenced a detailed contract-level review by contract which is expected to conclude over the coming weeks.

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 is for an initial five year period with an option to extend for a further two years and is valued at over £100m. 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.

Mears was 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 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.

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

As previously reported, the group recently amended and extended its revolving working capital facility. The total commitment under the facility increased from £120m to £140m together with a reduction in pricing.

The directors anticipate reporting a small net debt position at 30 June 2016.

At 8:18am: (LON:MER) Mears Group PLC share price was +1.5p at 355.5p

Story provided by StockMarketWire.com

Related Company: MER

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