Mears swings to profit after 'strong' revenue recovery

Housing service provider Mears Group reported a “strong” revenue recovery in its final results on Thursday, with group revenues up 9% year-on-year to £878.4m.

The London-listed firm said its adjusted profit before tax for the 12 months ended 31 December was “at the top end” of market expectations at £25.6m, swinging from a £3.4m loss in 2020.

Operating margins also continued to strengthen in the second half to 3.7%, compared to 3.1% in the first six months of the year.

Mears described an “excellent” cash performance, with average daily adjusted net cash of £0.4m, compared to adjusted net debt of £97.3m in the prior year.

The company’s two-year cash conversion stood at 117% of EBITDA, including the continued unwind of its development operations, while adjusted net cash at year-end slipped slightly to £54.6m from £56.9m at the end of 2020.

Its board recommended a final dividend of 5.5p, bringing the full year dividend for 2021 to 8p - up from nil for 2020 - due to the firm’s strong cash performance and positive outlook.

Looking ahead, Mears said it had made a positive start to 2022, with current trading in line with the board's expectations.

It described revenue and profit visibility for the current financial year as “excellent”, thanks to a strong start in management-led contracts, including continuing elevated activity levels on the asylum accommodation and support contract (AASC), and extensions to the Ministry of Defence and Ministry of Justice contracts.

Maintenance-led activities were also returning to normal levels, augmented by progress in securing decarbonisation works.

Cash and working capital management remained strong, with the company reporting a daily adjusted net cash balance for every day of the first quarter.

Mears said it was “generally well-positioned” in respect of sector-wide inflationary pressures, with the majority of contracts enjoying annual indexation.

However, given recent price volatility, particularly in energy prices, the group said it was managing its cost base “continuously”, in line with contractual mechanisms.

“These results are testament to the strength of the group's high-quality operations, trusted customer relationships and collaborative approach,” said chief executive officer David Miles.

“The positive trading performance across revenues, profits and cash was driven by good pipeline conversion, successful cost management and long-term investment in our people and our systems.

“The year has started well and Mears is well-positioned to manage the sector-wide inflationary cost pressures.”

Miles said the company was a “trusted partner” to its local and central government clients.

“With the fundamentals of our business in such good shape and the long-term challenges of affordable housing, public health and climate change high on the political agenda, we believe we are the housing partner of choice and look to the future with confidence.”

At 0939 BST, shares in Mears Group were down 1.46% at 203p.