Annual Financial Report

RNS Number : 9373C

Mears Group PLC

22 April 2013

 



22 April 2013

Mears Group PLC

("Mears" or "the Group")

2012 Annual Report and Accounts and Notice of 2013 AGM

The following documents have today been posted or otherwise made available to shareholders:

·      Annual Report and Accounts for the year ended 31 December 2012 (the "2012 Annual Report")

·      Notice of the Annual General Meeting ("AGM") and a circular with explanatory notes for shareholders about the resolutions to be proposed at the AGM ("AGM Circular and Notice")

·      Form of Proxy for the 2013 AGM

In accordance with Listing Rules, following the announcement on 19 March 2013 of Mears' final results for the year ended 31 December 2012, copies of each of those documents have today been submitted to the National Storage Mechanism, and will shortly be available for inspection at the National Storage Mechanism at www.morningstar.co.uk/uk/NSM

The 2012 Annual Report and AGM Circular and Notice are also available on the Company's website at www.mearsgroup.co.uk.

The Annual General Meeting will be held at 9.30am on Wednesday 5 June 2013 at Investec, 2 Gresham Street, London, EC2V 7QP.

In accordance with DTR 6.3.5, this announcement contains in the attached appendix information on the principal risk factors, a responsibility statement and details of related party transactions which has been extracted in full unedited text from the 2012 Annual Report. However, these extracts should be read in conjunction with the full 2012 Annual Report and is not a substitute for reading the full 2012 Annual Report. A condensed set of audited financial statements were appended to Mears' preliminary results announcement on 19 March 2013 together with a management report. References to page numbers and notes in the extracts are to page numbers and notes in the 2012 Annual Report.

For further information, contact:

Mears
David Miles, Chief Executive Andrew Smith, Finance Director Bob Holt, Chairman	Tel: [phone] Tel: [phone] Tel: [phone]
Joint Broker - Investec Keith Anderson/Daniel Adams	Tel: [phone]
Joint Broker - Canaccord Genuity Piers Coombs/Lucy Tilley	Tel: [phone]
Gable Communications              John Bick/Justine James           [e-mail]	Tel: [phone] Tel: [phone]

Appendix

Unedited extract from Annual Report and Accounts for the year 2012

Principal risks

The effective management of risks is a key feature in the continuing success of the Mears Group. Our approach is to identify principal risks and robustly mitigate the impact of these risks through a Group risk management process.

Key risk - Macro-economy

Mears' primary markets are subject to Government legislation and are dependent on the political environment, local or national, including public sector policy and funding. Any changes in policy or legislation that reduce expenditure during the life of contracts could have a detrimental effect on the Company's business. Also other market factors could damage business, e.g. economic failures and stock levels.

Mitigation

·      Awareness of and responsiveness to market developments, e.g. developing managed in-sourcing and joint venture products to give choice to clients

·      Business strategy - diversity of markets expanding from the original Social Housing sector business

·      Innovation around Government policy

·      Pensions policy to limit liability

Key risk - People

Mears is dependent on the management team along with a skilled and motivated workforce, otherwise the delivery of business objectives will be jeopardised.  Mears sees sound commercial management of contracts and the business as a whole as essential to our objectives. Management expertise is retained to maintain the right balance between our customer‑centric culture and our commercial requirements. We always want to provide value for money as well as legitimately bill our clients and at the same time achieve operating efficiency drawing from best practice.

Mitigation

·      New Group Learning & Development strategy with a strong central team

·      Recruitment and selection criteria for all appointments

·      High quality people to be secured and retained in key positions

·      Training programmes supplied and we have Investor in People certification

·      Formal assessment/capability testing for key management appointments

·      Succession planning for key positions

·      Expanded the Group's Senior Management Team to cope with existing and new business

·      Business unit budgets and regular monitoring of profit and loss performance and cash conversion

·      Risk mitigation plans showing Group, branch and regional lines of defence

Key risk - Reputation

The ultimate success of Mears relies upon maintaining a positive reputation in the public and amongst all stakeholders. Negative actions, behaviour, service and results will damage the business' reputation and will affect the future of Mears. This includes risk of negative publicity from actions of employees and suppliers. This could arise, amongst other reasons, from inappropriate communications, inaccurate client reporting or poor care and poor attention to vulnerable customers.

Mitigation

·      Strengthened corporate governance

·      Clear communications policy and strategy with a new Group Scheme of Delegated Authority, Daily Mears Matters news email and quarterly top 80 managers' meetings, which are cascaded to all employees

·      Internal auditing of KPI reporting

·      Care risk plan for dealing with vulnerable customers

·      Comprehensive health and safety policy and safe systems of working

·      Compliance management of bribery and corruption legislation, whistleblowing policy, internal audit resources

·      Upgrading of Group Fraud Risk Management Plan and anti-fraud policy

Key risk - Liquidity

There is a noticeable increase in client and market focus in the financial strength of the companies trading within the Group's core business sectors due to a number of main peer contractors going into liquidation.  Various stakeholders require reassurance that the Company has strong liquidity risk management including a long-term funding facility and the generation of sufficient cash from trading. Risks arise from short-term cash flow movements and renewal risk on maturity of facilities.

Mitigation

·      New funding facility secured in 2011 to service the Group's needs until 2016, target refinance one year before maturity

·      Business unit budgets and regular monitoring of financial performance

·      Long-term liquidity - annual cash flow forecasts for visibility of funding and compliance with banking covenants

·      Short-term liquidity - weekly three-month rolling cash flow forecast and detailed variance analysis

·      Robust management of work in progress and debt

·      Proactive identification of potential bad debt and management plans put in place between operations and finance teams

Key risk - Health and safety

Mears' services and operations involve a series of high risk activities ranging from dealing with vulnerable customers in need of care to our building related services, e.g. working at heights, working with gas and electricity and dealing with asbestos. Failure to have robust and safe systems of work could lead to serious personal injury or fatality.

Mitigation

·      Strong Group and regional safety, health and environmental (SHE) teams

·      Comprehensive safe systems of work and risk mitigation plans

·      Internal SHE auditing and third party external validation

·      Regular SHE communication and a national conference

·      Training of operations staff and the involvement of subcontractors

·      Annual Group SHE strategy and plan

·      Close involvement with regional and branch management

Key risk - Business retention and new business

A strong bid pipeline and order book are both essential to the success of the business.  Risk management planning is needed to ensure new tenders are won and existing contracts are retained. Successful re-tendering requires a combination of competitive pricing and client confidence in quality proposals based on evidence of historical delivery.

Mitigation

·      Strong Group Business Development team

·      Bid project management process with assigned bid leader

·      Expanding bid governance process under consolidated scheme of delegated authority, including audits

·      Risk plan to respond to sub-optimal market pricing

·      Commercial review of efficiency of delivery model for re-tendering and a plan to achieve best efficiency rates

·      Regional Managing Directors' performance review and client/management relationships

·      Contract development/improvement plans

Key risk - Business continuity

Mears recognises that there are considerable risks of business continuity in certain locations within our markets which could be caused by rioting, terrorism and natural catastrophe. In addition there are geographical risks that could threaten our business infrastructure, e.g. telecommunications failures. Vulnerable people depend upon our services; hence we must have disaster recovery and business continuity plans.

Mitigation

·      IT disaster recovery plan and back-up systems facility remote to business units

·      Business continuity plans for each regional/business unit in progress

·      Disaster scenario management training

·      Data back-up facility and protocol

·      Disaster recovery and business continuity plans to be tested annually

Key risk - Legal and regulatory

The Group is subject to numerous tax, legal and regulatory requirements.  A breach of any of these could result in legal proceedings, imposition of financial and other penalties or investigations, taking management focus away from core business and therefore disrupting the business.

Mitigation

·      Provision of information across the business about new laws and regulations

·      Head of Legal Services remit with an expanded team and external support

·      Induction of staff

·      Training of key staff on developments including the Bribery Act 2010

·      Policies and procedures issued and controls to comply with laws and regulations

·      Risk assessments

·      Internal governance control and audits

Key risk - Integrity, ethics, anti-bribery and corruption

There are inherent risks of bribery, fraud and corruption in some of the sectors we work in. It is important that we have an internal control framework and means of communication to be proactive where any risks materialise.

Mitigation

·      Group internal audit team

·      Confidential whistleblowing policy

·      Regular communication of Company policy

·      Comprehensive investigations and robust action on any negative findings

·      Business ethics code of conduct

·      Auditing of legitimate work valuation/billing from subcontractors and to our clients

·      Risk plan to implement controls for the anti-bribery and anti-corruption legislation

Key risk - Operational risk

The success of the Group is underpinned by the delivery of services profitably whilst exceeding our clients' expectations and our contractual obligations.

Mitigation

·      Senior Directors to attend a significant proportion of client and tenant group meetings to ensure there is no disconnect between our customer experience and other management information

·      Each division has its own risk register and subject to Group risk audit

·      A number of the key mitigants are covered within People and Health and Safety on page 24 and above respectively

·      Ensuring robust processes are put in place to control the procurement and management of subcontracting

·      The Group's IT systems have been developed to ensure maximum visibility of labour productivity and gross margin

·      Business unit budgets and regular monitoring of profit and loss performance and cash conversion

·      Any major contract failures relating to operations or commercial results are managed and improved by operating companies with Group support and scrutiny

Responsibility statement of the Directors in respect of the 2012 Annual Report

The Directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and Applicable Laws). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Group and the Company for that period. In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

·      so far as each Director is aware there is no relevant audit information of which the Company's auditor is unaware; and

·      the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of my knowledge:

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·      the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Related Party Transactions and Remuneration of key management personnel

Identity of related parties

The Group has a related party relationship with its pension schemes, its subsidiaries and with its Directors.

Pension schemes

Details of contributions to pension schemes are set out in note 26 to the financial statements.

Subsidiaries

The Group has a central treasury arrangement in which all subsidiaries participate. The Directors do not consider it meaningful to set out details of transfers made in respect of this treasury arrangement between companies, nor do they consider it meaningful to set out details of interest or dividend payments made within the Group.

Transactions with key management personnel

The Group has identified key management personnel as the Directors of Mears Group PLC.

Key management personnel held the following percentage of voting shares in Mears Group PLC:

	2012	2011
	%	%
Directors	0.4	0.9
Key management personnel's compensation is as follows:
	2012	2011
	£'000	£'000
Salaries	2,025	1,560
Contributions to defined contribution pension schemes	185	190
Share-based payments	50	60
	2,260	1,810

Further details of Directors' remuneration are disclosed within the Remuneration Report.

Transactions with other related parties

During the year the Group purchased customer care related services from Asert LLP, a company in which Mears Group PLC is a 50% partner, totalling £0.01m (2011: £0.01m). At 31 December 2012 the Group was owed £0.01m (2011: £0.02m) by Asert LLP. The Group also purchased call centre related services from Mears 24/7 LLP, a company in which Mears Limited is a 50% partner, totalling £2.1m (2011: £0.3m). At 31 December 2012 the Group owed £0.1m (2011: £nil) to Mears 24/7 LLP.

During the year Morrison Scotland LLP purchased goods and services totalling £3.3m from Morrison Scotland Services Limited. At 31 December 2012 Morrison Scotland LLP owed Morrison Scotland Services Limited £5.7m. At 31 December 2012 Morrison Scotland Services Limited owed Morrison Facilities Services Limited £10.9m. During the year Manchester Working Limited purchased goods and services totalling £0.01m from Morrison Facilities Services Limited. At 31 December 2012 Morrison Facilities Services Limited owed Manchester Working Limited £1.8m.

Notes for editors

Mears is a leading social housing repairs and maintenance service provider to Local Authorities and Registered Social Landlords in the UK and, following the acquisition of Careforce, Supporta and Choices, now commands a leading position in the UK Local Authorities' outsourced care market, providing personal care services to people in their own homes.

Mears employs in excess of 12,000 people and provides maintenance and repairs services to in excess of 10% of the UK social housing stock. Mears also provides over 160,000 hours of care to 20,000 service users each week.

 

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