Interim Results

Mears Group PLC 30 August 2000 Mears Group PLC - Unaudited Interim Statement For The Six Months Ended 30 June 2000 Chairman's Statement I am pleased to announce record profits for the six months ended 30th June 2000. Profits before tax were up 106% at £850,115 compared with £411,954 for the comparable period last year, and compared to £1,069,040 for the full year ended 31st December 1999. Turnover at £38,412,892 was up 135% compared to £16,322,377 for the first six months of 1999 and compared to £47,455,954 for the full year ended 31st December 1999. Earnings per share, after the amortisation of goodwill increased by 131% to 1.41p (1999: 0.61p). The Board has declared an interim dividend of 0.15p (1999: 0.1p) payable on 10th November 2000 to shareholders on the register on 20th October 2000. Trading Review The results include a full six months contribution from Haydon & Company Ltd. Haydon, which was acquired by the Group on 1st September 1999 had been loss-making for the two years prior to acquisition. I am delighted to confirm that following a substantial reorganisation and the closure of two business units, that the Haydon business is now performing well. Haydon have withdrawn, as the Group intended, from the Railway infrastructure refurbishment market. In addition the Group have terminated those Haydon contracts which were not able to produce improved profits. There have been some excellent returns from the original Haydon core business of mechanical and electrical contracting and those Haydon contracts which have been absorbed into other Mears operations. It is important to remember the simple economics of the Haydon acquisition, where the Group received a discount against net assets of £4 million to pay for closure costs, redundancies and the early termination of unprofitable contracts. As at 30th June 2000 the Haydon reorganisation was largely complete, the head office of Haydon in Dorset has been closed, with all Group administration now centralised in Gloucester. The Finance team headed by Andrew Smith and the IT department headed by John Brett have provided the Group with an excellent administration centre able to absorb a business substantially larger than in the past. In the first half of the year the Haydon subsidiary incurred a trading loss of £536,796 and also incurred costs for redundancy of £128,054. An amount of £664,850 of negative goodwill has been released, as an exceptional item so as to ensure that the true trading performance of the Group is accurately demonstrated. We are still therefore withholding £893,506 of negative goodwill from the Haydon acquisition which will be released to profits as and when all contingencies have been extinguished. Most importantly we now have in Haydon a business generating turnover of around £35 million which is performing well and has cost the Group a minimal sum. The rest of the Group has performed excellently with margins continuing to increase across the various sectors in which the Group operates. The order book continues to grow with a current value of £110 million demonstrating once again the ability of the management team to seek out and exploit long term contract opportunities. The Government have indicated recently that a substantial amount of funds are to be committed to Local Authority housing and educational establishments. As the leading provider of building maintenance services to the public sector the Group is well positioned to exploit those market opportunities. I look forward to the second half of the current year and beyond, where these government initiatives could provide improved trading situations. The Group is operating at levels ahead of budgeted expectations and the board continue to look for acquisition opportunities to expand both the range of facility services that are provided and to increase the national coverage of the Group. The Group has an excellent management team who have demonstrated, again, an ability to absorb substantial additional workloads and increase profitability year on year. The team has been built with a specific aim in mind; to provide a profitable platform for the future where both employees and shareholders can share the rewards. The management team are working on a number of initiatives with other support service providers and the Group's suppliers in an attempt to establish partnership arrangements for preferred bidding situations in the future. The Board is mindful of the excellent support received from the Group's suppliers and customers. The Group have undertaken a review of its corporate and social responsibilities. The 'Investor in People' award is being heightened within the Group, so as to ensure that all employees can participate in both training and social initiatives. The first Mears 'Team Initiative' has been launched to improve recycling throughout the Group. The Group have appointed Old Mutual Securities as both nominated stockbroker and lead nominated advisor. I would like to thank Fiske and Company Plc for their excellent support since the Group became a member of the Alternative Investment Market of the London Stock Exchange. I am extremely proud of the performance that these results demonstrate; I don't underestimate the level of commitment required from the large majority of the employees of the Group. R HOLT Chairman 30 August 2000 Unaudited Consoldated Profit and Loss Account For the six months ended 30 June 2000 Note 6 months to 6 months to Year to 30 June 30 June 31 December 2000 1999 1999 £ £ £ Turnover 1 38,412,892 16,322,377 47,455,954 Cost of sales (30,024,608) (12,422,042) (37,855,760) ------------ ------------ ------------ Gross profit 8,388,284 3,900,335 9,600,194 Administrative (7,930,393) (3,418,229) (9,952,116) expenses Exceptional items 664,850 -- 1,580,804 - write back of negative goodwill - redundancy 2 (128,054) -- -- costs ------------ ------------ ----------- Operating profit 994,687 482,106 1,228,882 Net interest (144,572) (70,152) (159,842) ------------ ------------ ----------- Profit on ordinary activities before 850,115 411,954 1,069,040 taxation Tax on profit on ordinary activities 3 (162,000) (125,000) (190,926) ------------ ------------ ---------- Profit on ordinary activities after 688,115 286,954 878,114 taxation Equity minority 10,320 -- 19,104 interests ------------ ----------- ---------- Profit for the 698,435 286,954 897,218 financial period Dividends 4 (78,397) (47,136) (256,194) ------------ ----------- ---------- Profit retained 620,038 239,818 641,024 ------------ ----------- ---------- Earnings per share 5 Basic 1.41p 0.61p 1.90p ------------ ---------- ---------- Diluted earnings 1.36p 0.52p 1.70p per share ----------- ---------- ---------- Unaudited Consolidated Balance Sheet As at 30 June 2000 Note As at As at As at 30 June 30 June 31 December 2000 1999 1999 £ £ £ Fixed assets Intangible assets - 2,254,498 2,378,915 2,315,874 positive goodwill Intangible assets - (893,506) -- (1,558,356) negative goodwill Tangible assets 1,012,664 447,540 1,017,702 Investments 19 19 19 ---------- ---------- ----------- 2,373,675 2,826,474 1,775,239 Current assets Stocks 4,901,591 3,175,038 3,282,137 Debtors 18,794,944 5,594,258 18,325,307 Cash at bank and in 1,241,233 40,407 2,878,176 hand ---------- ---------- ----------- 24,937,768 8,809,703 24,485,620 Creditors: amounts falling due within (22,646,726) (7,814,567) (22,157,142) one year ------------ ----------- ------------ Net current assets 2,291,042 995,136 2,328,478 ------------ ----------- ------------ Total assets less current liabilities 4,664,717 3,821,610 4,103,717 Creditors: amounts falling due after (500,000) (700,000) (600,000) more than one year Provisions for liabilities and (6,500) (6,500) (6,500) charges ----------- ---------- ------------ 4,158,217 3,115,110 3,497,217 ----------- ---------- ------------ Capital and reserves Called up share 522,645 471,363 471,363 capital Share premium account 2,135,343 2,135,343 2,135,343 Other reserve (249,898) (249,898) (249,898) Profit and loss 1,797,114 775,870 1,177,076 account ----------- ---------- ------------ Equity shareholders' 9 4,205,204 3,132,678 3,533,884 funds Equity minority (46,987) (17,568) (36,667) interests ----------- ---------- ----------- 4,158,217 3,115,110 3,497,217 ----------- ---------- ----------- Unaudited Consolidated Cash Flow Statement For the six months ended 30 June 2000 Note 6 months to 6 months to Year to 30 June 30 June 31 December 2000 1999 1999 £ £ £ Net cash inflow from operating activities 6 (636,156) (1,354,965) 1,488,070 Returns on investments and servicing of finance Interest received -- -- 995 Interest paid (161,918) (68,603) (140,268) Finance lease and hire purchase interest paid (474) (1,549) (2,789) ---------- ---------- ---------- Net cash outflow from returns on investments and servicing of (162,392) (70,152) (142,062) finance Taxation paid (68,383) (10,764) (279,181) Capital expenditure Purchase of intangible fixed assets -- (338,495) (338,495) Purchase of tangible (178,400) (105,346) (471,469) fixed assets Sale of tangible fixed 9,336 -- 19,695 assets Purchase of investment -- (19) (19) ---------- --------- ---------- Net cash outflow from capital expenditure (169,064) (443,860) (790,288) ---------- ---------- ---------- Acquisitions Purchase of subsidiary undertakings (771,110) -- (576,409) Net cash acquired with subsidiary -- -- 7,684 undertakings ---------- ---------- ---------- Net cash outflow from (771,110) -- (568,725) acquisitions ---------- ---------- ---------- Equity dividends paid -- -- (188,545) Financing Issue of shares 51,282 -- -- Repayment of (100,000) (100,000) (200,000) borrowings Receipts from -- -- 500,000 borrowings Capital element of finance leases and (19,956) (8,926) (14,955) hire purchase rentals ----------- ---------- ---------- Net cash (outflow)/inflow from (68,674) (108,926) 285,045 financing ----------- ---------- ---------- Decrease in cash 7 (1,875,779) (1,988,667) (195,686) ----------- ----------- ---------- Notes for the Unaudited Financial Statements For the six months ended 30 June 2000 1. Turnover and profit on ordinary activities before taxation Turnover and profit on ordinary activities before taxation are attributable to the following activities carried out entirely within the UK. Turnover Profit before Net assets Taxation 6 months 6 months 6 months 6 months As at As at to to to to 30 June 30 June 30 June 30 June 30 June 30 June 2000 1999 2000 1999 2000 1999 £ £ £ £ £ £ Maintenance services 34,650,150 13,558,224 688,466 279,795 3,628,932 2,628,591 Motor vehicle distribution 3,762,742 2,764,153 161,649 132,159 529,285 486,519 ---------- ---------- --------- -------- -------- -------- 38,412,892 16,322,377 850,115 411,954 4,158,217 3,115,110 ---------- --------- --------- -------- --------- -------- 2. Exceptional items The redundancy costs reflect the closure of Haydons head office together with the streamlining of certain underperforming activities. 3. Taxation The tax charge for the six months ended 30 June 2000 has been based on the estimated tax rate for the full year before adjustments. 4. Dividends 6 months to 6 months to 30 June 2000 30 June 1999 £ £ Ordinary shares - Interim dividend of 0.15p (1999:0.10p) 78,397 47,136 per share Payable on 10 November 2000 ---------- ---------- 5. Earnings per share The calculation of the basic earnings per share is based on the earnings attributable to the ordinary shareholders divided by the weighted average number of shares in issue during the period. The calculation of the diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options and other dilutive potential ordinary shares. Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below: 6 months to 30 June 2000 6 months to 30 June 1999 Weighted Weighted average Per average Per number of share number of share Earnings shares amount Earnings shares amount £ pence £ pence Basic earnings per share Profit attributable to ordinary shareholders 698,435 49,503,229 1.41p 286,954 47,136,365 0.61p Dilutive effect of securities Options -- 1,874,963 -- -- 7,867,337 -- Diluted earnings per share Adjusted -------- ---------- -------- -------- ---------- ----- earnings 698,435 51,378,192 1.36p 286,954 55,003,702 0.52p -------- ---------- -------- -------- ---------- ----- 6. Net cash (outflow)/inflow from operating activities 6 months to 6 months to Year to 30 June 30 June December 2000 1999 1999 £ £ £ Operating profit 994,687 482,106 1,228,882 Depreciation and amortisation (428,155) 117,379 (1,286,947) (Profit)/loss on disposal of fixed assets (1,217) -- 9,881 Increase in stocks (1,619,454) (2,176,956) (2,265,943) Increase in debtors (469,637) (716,926) (2,296,213) Increase in creditors 887,620 939,432 6,098,410 ------------ ----------- ------------ Net cash (outflow)/inflow from operating activities (636,156) (1,354,965) 1,488,070 ------------ ----------- ------------ 7. Reconciliation of net cash flow to movement in net debts 6 months to 6 months to Year to 30 June 30 June December 2000 1999 1999 £ £ £ Decrease in cash in the period (1,875,779) (1,988,667) (195,686) Cash outflow/(inflow) from debt financing 100,000 100,000 (300,000) Cash outflow from finance leases and hire purchase contracts 19,956 8,926 14,955 ----------- ----------- ---------- Change in net funds resulting from cash flows and movement in net funds in the period (1,755,823) (1,879,741) (480,731) Net debt at start of period (1,132,135) (651,404) (651,404) ----------- ----------- ----------- Net debt at end of period (2,887,958) (2,531,145) (1,132,135) ----------- ----------- ----------- 8. Analysis of changes in net debt At At 1 January 30 June 2000 Cashflow 2000 £ £ £ Cash at bank and in hand 2,878,176 (1,636,943) 1,241,233 Overdrafts (2,690,315) (238,836) (2,929,151) ------------ ----------- ----------- 187,861 (1,875,779) (1,687,918) Debt (1,300,040) 100,000 (1,200,040) Finance leases and hire purchase contracts (19,956) 19,956 -- ------------ ----------- ------------ (1,132,135) (1,755,823) (2,887,958) ------------ ----------- ------------ 9. Reconciliation of movements in equity shareholders' funds 6 months to 6 months to Year to 30 June 30 June December 2000 1999 1999 £ £ £ Profit for the financial period 698,435 286,954 897,218 Dividends (78,397) (47,136) (256,194) ---------- ---------- ---------- 620,038 239,818 641,024 Issue of shares 51,282 -- -- ---------- ---------- ---------- Net increase in equity 671,320 239,818 641,024 shareholders' funds Equity shareholders' funds at start of period 3,533,884 2,892,860 2,892,860 ---------- ---------- ---------- Equity shareholders' funds at end of period 4,205,204 3,132,678 3,533,884 ---------- ---------- ---------- 10. Preparation of interim financial information The interim financial statements have been prepared on a basis consistent with the accounting policies disclosed in the Annual Report and Accounts for the year ended 31 December 1999. The consolidated results for the year ended 31 December 1999 have been extracted from the financial statements for that year and do not constitute full statutory accounts for the Group. The Group accounts for the year ended 31 December 1999 received an unqualified audit report and did not include a statement under section 237(2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies. 11. Interim financial statements Further copies of the interim statements are available from the registered office of Mears Group PLC at The Leaze, Salter Street, Berkeley, Gloucestershire GL13 9DB, or on www.mearsgroup.co.uk.

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