Mears : Annual Report and Accounts 2021

A CLIMATE

FOR CHANGE

Mears Group PLC Annual Report and

Accounts 2021

Mears today

Mears is one of the UK's leading and most trusted providers of a wide range of specialist Housing services to Local and Central Government.

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Help clients address UK housing shortage

Our services are non-discretionary Required by legislation

Often funded from ring-fenced resourcesAverage contract length is 7 years Lump-sum and volume-based arrangements

Ancillary growth opportunities Mobilisation payments Indexation

Contents

STRATEGIC REPORT

• 01 Highlights

• 02 Specialists in housing solutions

• 04 2021 accreditations

• 06 Chairman's letter

• 10 Chief Executive Officer's review

• 16 Case studies

• 20 Market drivers

• 22 Our value creation model

• 24 Our strategy

• 26 Key performance indicators

• 28 Listening to our stakeholders

• 30 Section 172 statement

• 33 ESG

• 46 Risk management

• 50 Principal risks and uncertainties

• 55 Financial review

• 62 Financial viability review

CORPORATE GOVERNANCE

• 64 Our corporate governance compliance statement

• 65 Chairman's introduction

• 66 Board of Directors

• 68 Roles and responsibilities

• 69 Corporate governance framework

• 70 Key Board activities

• 71 Stakeholder engagement

• 73 Board composition, development and evaluation

• 74 Report of the Nominations Committee

• 76 Report of the Audit and Compliance Committees

• 82 Report of the Remuneration Committee

• 98 Report of the Directors

• 100 Statement of Directors' responsibilities

FINANCIAL STATEMENTS

• 101 Independent auditor's report

• 112 Consolidated statement of profit or loss

• 113 Consolidated statement of comprehensive income

• 114 Consolidated balance sheet

• 115 Consolidated cash flow statement

• 116 Consolidated statement of changes in equity

• 117 Notes to the financial statements - Group

• 156 Parent Company balance sheet

• 157 Parent Company statement of changes in equity

• 158 Notes to the financial statements - Company

SHAREHOLDER INFORMATION

• 168 Five-year record (unaudited)

• 169 Shareholder and corporate information

Trusted client relationships Reputation for quality, customer service, and operational excellence Track record of innovation

Low working capital requirements Delivers strong operating cash flows Low capex requirements and strengthened balance sheet Capital allocation focused on organic growth, very low debt, and a progressive dividend policy

Highlights

Financial highlights

Group revenue

Net debt (inclusive of lease obligations)

£881.5m £256.2m

2019 2019

£805.8m £152.2m

2020 2020

£878.4m £162.3m

2021 2021

Adjusted profit/(loss) before tax**

Reported profit/(loss) before tax*

£32.4m £20.3m

2019 2019

£(3.4)m

2020 2020

£25.6m

2021 2021

Strategic highlights

New client relationship with the Ministry of Justice to provide housing services

Significant capabilities to support the decarbonisation of the UK's housing stock including an end-to-end offer for clients, enabling projects to be designed, funded, implemented and measured

£(15.2)m

Good progress in managing the controlled closure of our Development activities, releasing working capital absorbed in that area

£16.3m

Excellent working capital management

Underlying net debt (before lease obligations) at close to zero

STRATEGIC REPORT

CORPORATE GOVERNANCE

Adjusted net cash/(debt) (exclusive of lease obligations)EBITDA to cash conversion***

£(51.0)m

2019 2019

113%

£56.9m 185%

2020 2020

£54.6m

2021 2021

Statutory diluted EPS*

Adjusted diluted EPS*

15.6p 23.7p

2019 2019

(10.7)p

2020 2020

11.5p

2021 2021

Order book

Accident frequency rate

£2.5bn 0.23

2019 2019

£2.6bn

2020 2020

£2.4bn

2021 2021

* On continuing activities.

72%

(2.3)p

18.2p

0.15

0.19

** On continuing activities, stated before exceptional costs and amortisation of acquisition intangibles. *** Being EBITDA divided by cash inflow from operating activities of continuing operations.

ESG highlights

Staff delivered 1,500 local community projects generating over £29.4m of social value

Plans to eliminate our carbon footprint by 2030

Awarded Order of Distinction by the Royal Society for the Prevention of Accidents (RoSPA), having achieved Gold Award standard in our safety record for 19 consecutive yearsRecognised as one of the Best Big Companies to work for by the Sunday Times

Reconciliations between the statutory figures and the alternative performance measures are reconciled on pages 55 and 56 of the Financial review. The Financial review also provides detailed analysis of the financial impact from the discontinued operations.

FINANCIAL STATEMENTSSHAREHOLDER INFORMATION

Strategic Report

Specialists in housing solutions

OUR PURPOSE

Working together to help people and communities thrive. This is the guiding principle that defines our brand and drives our activities. It is what makes Mears distinctive and is the starting point for all of our activities.

OUR VISION

To be the leading provider of housing services and solutions to the affordable housing market in the UK.

OUR VALUES

Our business at a glance

WHAT WE DO

Mears has a single-minded focus on the housing market and delivering services to the residents of these homes. We operate within the affordable housing sector, which is an area that will see continued investment given the significant housing shortage and the rising number of people who are regarded as statutorily homeless. We are also a key player in the Net Zero agenda. As the largest provider of repairs and maintenance to the social housing sector, we are already delivering Net Zero housing solutions with our partners.

OUR SERVICES

Our core services are in the maintenance and management of homes. Increasingly we operate an intelligent approach to maintenance, using technology and experience to operate preventative maintenance programmes that reduce levels of emergency repairs. As regards management, we collect rent and ensure homes are managed and maintained to a decent standard, whilst often providing other welfare services to the tenants. Our particular focus is on providing sustainable alternatives to homelessness, helping reduce the rising problems created by the housing shortage in the UK.

OUR CUSTOMERS

We work predominantly with Central Government and Local Government, in the delivery of housing services. These are typically through long-term contracts. We equally consider the residents of the homes that we manage and/or maintain to be our customers, and we take pride in the high levels of customer satisfaction that we achieve.

LONG-TERM DRIVERS

The shortage of housing in the UK has made investment in housing both a political and an economic priority. The Social Housing White Paper will lead to greater focus on tenant engagement and safety. UK carbon reduction targets will also mean that significant further investment in housing is needed, including the replacement of gas boilers.

We are already seeing rising investment in our markets and a greater attention to the quality of delivery.

Demographic change is also a key long-term driver, given the growing and ageing population of the UK. This will create opportunity for more specialist housing, where management and maintenance services can be effectively combined through a single partner.

REVENUE £M

Maintenance-led contracts

2020 2021

Management-led contacts

2020

2021

Development

536.9

544.4

253.8

308.4

15.1

2020 2021

25.6

Great service will see an increase in volume, meaning revenues are expected to increase to c. £13m in 2022. We also retained our Supported Living contract- which delivers revenues in excess of £5m per year in Aberdeenshire

We are providing housing and support to over 20,000 asylum seekers across Scotland, Northern Ireland and parts of the north of England. The contract delivers annual revenues in excess of £100m in Darlington, Glasgowand BelfastAwarded a contract with the Ministry of Justice to provide transitional housing services and support to low and medium risk prisoners upon their release.

The contract mobilised in July 2021 with annual revenues of circa £10m in the North West and North East

see page 17

Won a 7-year extension of our long-standing maintenance partnership with United Welsh, worth £70m, in CaerphillyAppointed in 2016 to deliver a range of services to council stock, the contract reports revenues in excess of £40m per annum. We also worked with our client to secure £3m of Central Government funding to deliver decarbonisation works.

Milton Keynes

WHERE WE OPERATE

We operate across the UK through a range of local branches and facilities with a national coverage. A sample of our branches and recent contract wins is given below.

Maintaining over 8,000 homes with Livin since 2008, we have recently received a further contract extension to 2026. We have also worked with the client to secure funding of £2.2m to deliver energy efficiency improvements to its homes in County Durham

see page 19

Awarded new Rented Living Accommodation Project (RLAP) contract, providing a wide range of housing services to the Defence Infrastructure Organisation. The new contract is for a period of up to 7 years and has a contract value of approximately £55m per annum in Basingstoke

Orbit Housing contract extension to 2027; delivering maintenance services and reporting revenues of over £20m per annum in Kent

STRATEGIC REPORT

CORPORATE GOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION