Social housing contractor Mears cancels dividend and prepares for revenue fall as services reduce

News25 Mar 2020Luke Cross

Social housing repairs and maintenance contractor Mears is focusing on cash management as non-discretionary services and payments “per activity" look set to drop off amid the coronavirus outbreak, it told the financial markets today.

Picture: Getty

Sharelines

Social housing contractor Mears cancels dividend and prepares for revenue fall as services reduce #ukhousing #socialhousingfinance

Social housing repairs and maintenance contractor Mears is focusing on cash management as non-discretionary services and payments “per activity” look set to drop off amid the virus outbreak, it told the financial markets #ukhousing #socialhousingfinance

In an update to the markets this morning (25 March 2020), the publicly listed housing and care contractor said it is not exposed to counterparty risk as more than 90 per cent of its revenue comes from contracts with local and central government bodies.

It pointed out that the UK government has made a clear commitment that invoices will be settled quickly to maintain cash flow to the supply chain and to protect jobs, and given all public sector contracting authorities “a clear directive to put in place the most appropriate payment measures to support supplier cash flow”.

Part of its housing activities is regarded by central government as essential services, it added, as it continues to deliver emergency maintenance services.

It said: “Our housing clients will wish to ensure that those services continue to be delivered.

“The company believes that these services, which amount to around 30 per cent of group revenues, will continue to be paid for and delivered.”

But it said other non-discretionary, revenue-generating housing services will be classified as lower priority in the current environment.

Local authorities may choose to defer these works and Mears said it expects to see a reduction in these activities in the short term.

It said: “Where these services are paid under a block arrangement, clients are expected to continue to make payments under the contract.

“However where services are paid on a ‘per activity’ basis, this will result in an immediate revenue reduction.”

It added that these types of services account for around half of group revenues and that the firm is in discussions with its local authority customers “to agree alternative pricing mechanisms which would allow the group to retain those employees engaged on those activities and more broadly support the local supply chain”.

The large majority of Mears’ housing revenue – which amounted to £750m of its £870m total income in 2018 – is in maintenance, followed by management and then development.

The group said it is actively focused on cash conservation and cost management.

Mears said it has received strong support from funders about increasing its facilities over the next month, which would ensure sufficient headroom should the current emergency continue for an extended period.

Mears has a £170m committed revolving credit facility that expires in November 2022. Average daily net debt was £114.4m for 2019.

Banking covenants include consolidated net debt to consolidated EBITDA (before exceptional items) at 3.00x, and consolidated EBITDA (before exceptional items) to consolidated net finance charges at 3.50x.

But it will not be paying a final dividend.

It added: “The board has concluded, given the overriding importance of cash management, that it would currently be inappropriate to pay a dividend and therefore it confirms that it will not declare a final dividend with its final results when they are published in the near future.”

The decision will be kept under review.

David Miles, chief executive of Mears, said that the group is well placed to “battle through these short-term challenges” and that the “long-term goal continues to be delivering controlled growth, improved profitability and reduced indebtedness”.

He said: “The rapidly evolving public health emergency created by COVID-19 will place increased demands on the group’s services, its people and its finances.

“We are taking all the necessary steps to overcome these challenges.

“I am confident that our staff will rise to the challenge of effective delivery in these difficult circumstances and that the group will come through well. I thank all of our stakeholders for their forbearance and their support in these uniquely challenging times.”