Mears Group (LSE:MER) — Interim results for the period ended 30th June 2020

0:03 Good morning, ladies and gentlemen, and welcome to the MEARS PLC Investor Presentation relating to the interim results for the period ending 06/30/2020. Throughout this presentation, investors will be on listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted I'd like to also remind you that this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand over to Lucas Critchley, Chief Transformation Officer at MEARS GROUP PLC. Good morning.

0:49 Good morning. Thank you, Mark. Good morning, everyone. Thanks very much for giving up some time this morning. I'll get started. I'll jump straight in, and I'll I'll move on to slide two. So I'm Lucas Critchley. I'm chief transformation officer at MEARS GROUP. The slide deck that I'm gonna run through this morning was presented by David and Andrew to analysts on Tuesday morning shortly after the r and s release, and then that deck's subsequently been delivered to shareholders through a roadshow across the course of this week, which which is fairly typical for us through interims, finals, and and and equally any sort of capital markets day... Days we do through the the course of the year as well. So the agenda I'm gonna run through today, again, a very fairly... A very standard agenda for us at both interims and finals.

1:40 Typically, David will... Would normally run through the operational review before handing across to Andrew to do the finance review, with David then covering off the strategic section and the outlook. The outlook itself will look slightly different this year with no guidance being given at this time off the back of the period with... The COVID period we've just been through. But I'll come on to that later on and give a bit more bit more depth around that when we get there. So as much as I plan to go through this interim slide deck this morning, what I'd also try to do is give some additional information about the makeup of the group and the services we provide and also a bit of context of where each part of the group is at within its sort of evolution as well. I'm very conscious that this is a this is a different audience, which will have varying degrees of understanding of of the MEARS GROUP business. So what I'll try and do is get that balance right between delivering the the interim presentation, also giving some of that background and context about who we are and what we do as well.

2:40 A quick bit of background on myself. I've been with MEARS for sixteen years. I was previously the managing director of the South Part of our maintenance business prior to moving into this group role that I'm in now about three years ago. I work closely with the chief executive, David, particularly around business change. So that includes new contract mobilizations, transitioning acquired businesses, and also contract turnaround where that's required as well. However, I'm still heavily involved in the the day to day operational running of the business as well, which is fairly typical of the senior team and, think, a strength of the senior team in in in MEARS. So in terms of today's session, I'll run through what David would have done, so the operational and strategic sections, and I'll also pick out some highlights from the finance section of the presentation as well.

3:33 Presentation will hopefully last about forty minutes, leaving us with about twenty minutes for question and answer at the end. As Mark said, you can submit questions through the portal, and I'll pick those up at the end. Anything I don't get to today, I'll ensure that we come back to come back to you by close of play on Monday at the latest. So the operational review of the of the period at the first half of the year. Just before I jump into this, I want to give some very brief context about the size and shape of the group. So we are a housing specialist, and there's a few bits of the group I'm gonna talk about today, which is just worth me giving some very brief background on. We're a housing specialist that that delivers services in two key areas with two key client groups. So we provide maintenance, and we provide management of housing.

4:24 So the maintenance business, largely with local government clients, is where we respond to calls from social housing housing tenants to deliver responsive repairs and maintenance, and that's tap washers and toilet seats, all the way up to sort of kitchen and bathroom refurbishments in their homes on behalf of the social landlords. The other part of the group is the management part, and that's where we manage property largely on behalf of central government clients, and that's for a range of of of end users. So homelessness is a big part of the management business unit and asylum accommodation also. So I'll I'll I'll develop a bit more as two parts of the group as we go through. The other bits to listen out for, I'll I'll try and be very conscious of trying to explain as I'm going through any parts of the group that I'm talking about.

5:14 We've also got the domiciliary care part of the business, which is not part of the long term plan. We've exited the Scottish... The England and Wales part of the domiciliary care business, and and we're optimistic that Scottish part will follow later in the year. I'll touch on why we've exited that part of the business through the presentation. The other noncore part of the business is funded development. Again, we're very clear on where we're heading with that, and we're in the process of exiting funded development. And there's one other sort of noncore part of the business I'll touch on later as well. But very much in terms of going forward, heading into 2021, a housing specialist providing maintenance and management services to local and central government clients. One of the real strengths of the group is the longevity of relationships, typically 5% operating margins but over long, long contracts, ten years up to as much as thirty years in some cases. And that's a very brief counter through what the shape of the group looks like.

6:10 So we've had to take a slightly different approach to these first two slides this time. Typically, this would be a single slide with some highlights of of of h one. It's split into two this this time, and it... That... I think that reflects the the sort of the nature of the of the six months we've just been through, really. So we split it into into some strategic highlights and some some financial highlights. So in terms of operations, 2019 started really well. Through January and February, we were we're making really good progress against our strategic commitments, and those strategic commitments include things like exiting domiciliary care and winding funded development and some of the other bullets that I'll come on to on the slide there as well. We're making really good progress there whilst also hitting our numbers as well, which is obviously hugely important.

6:57 And if anything, January, February and into early March, we're probably slightly ahead on both of those two metrics. So a positive start to the year and then, of course, COVID arrived. I'd like to think we responded very quickly. We had a meeting of all the senior team mid March where we were... I think we were fairly clear by that point. That was the last time we were gonna be sat in a room together for a while, and we responded quickly, diligently, and and as is the MEARS way with a very strong operational and customer customer focus to to manage those challenges. And I think we've done a good job of that, and I think the h one numbers that you see when set against that hugely challenging backdrop, I think, are sound. I mentioned on the first bullet there the AASC contract, the asylum accommodation contract with the home office, a central government client, that's become fully embedded, mobilized in September last year. And early this year, it was delivering operationally very well, commercially exactly where we anticipated it would be, which is a, yeah, a success that shouldn't be underestimated.

8:01 The challenge there in recent months has been operational challenges through COVID and the restrictions and trying to manage that part of the business through those restrictions and also in some increasing volumes that we're seeing in that area as well, which I'll come on to. We've 2020 on We've been the second of That's happened, that's been completed, and we anticipate we're optimistic that the Scottish part of that business will exit in H2. And the unwinding of our funded development business has progressed really well as well. COVID has delayed that undoubtedly, and what was hopefully going to be something that would be concluded by the end of 'twenty is more likely to be a 2021 conclusion now.

8:53 A really important point to note, procurement and bidding activity has reduced through the COVID period, as you probably expect, but our maintenance contract win has been really positive. So the largest part of our group, the longest running part of our group has seen an 80% win rate, which is unprecedented, really. Do in the we've been a in that in able focus. So I said our operational performance as a result has been excellent. And And importantly, we've remained in a very strong, comfortable place in terms of liquidity as well, which I don't think should be sort of overlooked or taken for granted.

9:40 Some of the financial highlights from from h one. COVID clearly had a a huge impact, a material impact on our on our h one numbers, and and the numbers that I'll I'll be talking to you about today and that you you may have seen ahead of today's session are unrecognizable from any previous MEARS period and and hopefully from any future MEARS period as well. But that's not to say that they haven't been... Those numbers haven't been extremely resilient, and I'll talk you through the makeup of some of those numbers today as well. If I was to describe the impact on the two core parts of our business, you'll see that they've been affected in very different ways. So firstly, the maintenance business has been hugely affected. At its peak, we lost about 85% of volume in the maintenance business or that proportion of the volume in that part of the business stopped.

10:31 And really, all we were delivering through that period were emergency works only. Of course, all of this is work in people's homes. So as lockdown arrived, it became emergency services only. And that was a it was a letter from government at that time, central government at that time, to every single social tenant explaining that the the the repair service they should expect through the coming weeks and months would be emergencies only. And that's things like loss of power, loss of heating and hot water, major leaks, really, things which were going to threaten the health and safety of our customers. And that really resulted in us delivering sort of 15 of what we would typically be doing in the maintenance business through that period. We're really fortunate that we've received a great deal of support through that period from our customers, and that's why you'll see this discrepancy, this positive discrepancy between work volumes falling off a cliff and revenues not reducing to quite the same extent.

11:29 Also, that helped at that time was a public procurement note from central government, which was guidance to all public bodies and, in turn, all of our clients, really, housing associations, local authorities, central government departments, to support contractors and service providers through this period. That guidance really helped. And when you add to that the strength of our existing customer relationships, it's allowed us to navigate this this period, yeah, as I say, reasonably well. In management, it's been a slightly different challenge. So workloads have been largely unaffected, particularly in the asylum accommodation contract that I've mentioned. Where we have seen some slight downturn is in our homelessness accommodation and also our substitute accommodation for for the MOD contract, the the outside the wire housing for service personnel.

12:20 But I think it's fair to say the greatest challenges in management through this period have been operational rather than commercial. Also worth noting that liquidity has remained really resilient. We did extend facilities early in lockdown. We felt it was prudent to do to do so, but with no real expectation that those extend... Extended facilities would be required, and that's absolutely proved to be the case and and remains the case today. So I've mentioned the two the two different parts of our business. We're gonna get slightly more detail on what h one has looked like for maintenance and management. The group itself, particularly as we go into 2021, is very... It's got a very clear service offer to customers, very clear structure internally as well. It is it is maintenance and it is management.

13:16 And I think that leaves with a really neat group. So the very large group, but a very neat group where... Which sits absolutely within sort of the sweet spot of our core competencies. So in terms of maintenance, a business that we've been in for twenty five years plus, we've had a huge amount of client support through the COVID period. A small number of clients didn't support us and weren't prepared to go sort of over and above their contractual obligations to support us through this period didn't feel that they should follow the the government guidance through that public procurement note that I mentioned. Yeah. And I'll come back to to to the response to that later on. Again, something I'll touch on shortly in terms of how the maintenance revenues have been affected is is this different approach to our contracts, this sort of scheduler rates approach to our maintenance contracts where we effectively get paid for what we do, and this lump sum approach to our maintenance contracts where we get paid to deliver a service irrespective of work volumes going up and down within that. So I'll do a touch on a bit of detail on that later, which I think explains the h one outturn that you'll see in those maintenance revenue numbers.

14:27 We've been through a bit of a journey in terms of COVID and our maintenance business, which really started with with lockdown with the with the communication from central government that all social tenants could expect was a emergency service, and that's where volumes reduced to about 15% of anticipated levels. There was then a second letter that said, as lockdown eased, that we would now be a... They could... Social tenants could now expect to receive essential repairs as well. And that was actually... That sounds quite... Like, it's not that much of a difference between emergency and essential, but that did result in a... In starting this process of volumes of work coming back. So rather than just looking after the health and safety of customers, it was around ensuring the long term fabric of the property was in good order as well. So that that expanded the... Our ability to deliver works back into people's homes as well. And and in terms of that journey, I've mentioned the 15% through the early part of lockdown, that rose to about 43% of top typical work volumes following letter two by sort of half year.

15:32 And we're in late August now, we're back up to about 57% of typical work volumes as we head into September. Expect that to continue, that trend to continue across the coming months as long as there's no second spike or not too many local lockdowns, particularly in the areas that we work. But we are awaiting a final letter from central government to go out, which says, so effectively, back to normal, that you can expect full full range of repairs services. And and as that arrives shortly thereafter, we'd hope to get back to to typical work volumes. Our people, we directly employ wherever we can, and our people have worked tirelessly, diligently, yeah, with huge passion, I think, to to keep themselves safe, to keep our customers safe, and to deliver good quality services, which is... Through which has been a hugely challenging period, particularly in those early days of lockdown when everyone was getting their heads around exactly what this meant what this meant. So we've... Yeah. We've really kept our promises to our customers with...

16:32 Through this period, which has been... Which is really important to us. As much as 30% of the workforce was furloughed at one point, this is reduced significantly as the work volumes have come back down to less than 200 people still on the furlough scheme at the moment, and that will taper off over the coming weeks as the as the work volumes return. A lot of procurement and bidding activity has been delayed through this period, as you'd expect, but that's presented some opportunities for us as well, opportunities to extend or negotiate existing embedded relationships. And I'll give some detail on that later, but that's been a real positive for us actually and again speaks to the strength of some of our customer relationships. Bidding will start ramping up later this year and certainly into 2021.

17:18 And for a number of reasons, we feel we're really, really well placed as we go into that period to, yes, to have a good run on new business. So that was maintenance. Management, the other part of the group. Client support was probably probably even easier in management with largely central government clients as you'd expect. So many of those clients have gone sort of above and beyond to work with us through this period, and we've actually seen some extra volumes in certain areas, particularly in the asylum accommodation contract. The two areas that we have seen a downturn is our homeless accommodation, where local authorities have been, through the COVID period, were tasked with managing their managing their homeless homeless need, and in many cases, hotel accommodation to meet that short term challenge.

18:12 Those those volumes will come back as we come out of COVID, but some, yes, some short term reduction in volumes in our homelessness accommodation part of the management business. And the other area is the substitute accommodation contract where there was a period early in lockdown where where the property that we look after, that we manage for service personnel who live outside of military bases, we we do that nationally for the MOD. There was a slowdown there with people not moving house and and and staying where they were for a period of time. That's coming back now. And again, that's only a short term issue. Those volumes will return. There remains a significant future opportunity within the management business, and that really comes from everything we see in the news every day at the moment. So asylum seeker numbers rising, homelessness need increasing.

19:04 You know, it's a huge issue prior to COVID. It'll be an even greater issue as we come out of COVID. And just housing need pressures generally, it's a real national challenge. And I think we're really well placed to benefit from that later this year and certainly going into 2021. With that comes a responsibility on ourselves, I think, to be really selective and ensure that we maintain our position as a partner of choice for both local and central government. Slide nine, this is a really important slide for me with a really important message within it, I think, about the approach of the group generally. We've we've built the group by investing and by investing in client relationships, long term commitments with opportunities to develop relationships and, in turn, develop our contracts with clients over a long period of time.

20:00 We've invested in systems. We have market leading IT systems to deliver the type of work that we deliver. Again, some of those, we began developing some twenty five years ago, and it improved and improved. And and those systems put us in a really good place. So when lockdown arrived and overnight, it was home working, it was operatives going directly from their home to their first job in the morning. It was all business as usual for us, really. The the the ability to work remotely, strong client IT interfaces as well. Yeah. All all business as usual, and we've seen very little disruption in our ability to deliver services as a result of all that upfront investments in IT. And that puts us in a really strong position, I think, as I say, when bidding activity starts again, we'll be able to meet the challenges that customers are going to be presenting us with about how they want their services delivered going forward.

20:49 We've invested in our people. We've always been hugely committed to apprenticeships and a and a large national apprenticeship scheme. We've always been committed to direct employment as well. I mean, there's always been a sort of a question asked of us, well, could you not just subcontract all of this work, particularly on maintenance and refurbishment work? Or just subcontract it. Potentially, there's better margins there. Potentially, you're placing risk elsewhere. Never been part of our business model. We always directly employ directly employ out of the communities within which we work, and that service really well. The idea of trying to work with a subcontract model through the COVID period when subcontractors will have been struggling with liquidity issues of their own and still trying to main... And us then still, in turn, trying to maintain services would have been a really tough place to be. So I think, again, our our investment in our people has has paid dividends.

21:41 And finally, liquidity. We have very strong relationships with the banks. That's relationships that have been built over a number of years, and and a credit to to Andrew, the the finance director, regular correspondence, regular communication. And when it came to that conversation about extending our facilities, that was a that was a relatively straightforward conversation. We have taken some criticism historically around taking such a long term view, not being... You know, we don't really deal with short term short termism. And I think through this period, it's paid us back in spades, and I we're think so glad that we haven't deviated from from the MEARS way of doing things. So I'll counter through the finance section. I'll pick out some important points as we go.

22:28 Clearly, I'm happy to respond to any detailed questions you've got on numbers, and and Andrew, likewise, will be well... Will be happy to do so. We'll look to respond to any questions that we don't... That I don't answer today in writing, I sort of close the play Monday. So I think the income statement itself represents a a challenging period. It's worth noting that domiciliary care is treated as a discontinued activity in in our numbers. And just one other point to make there really is all the downsides incurred within the period of bet have been dealt within normal trading. That's always been the MEARS approach, and that approach has continued even through these most challenging of times. So the segmental reporting.

23:13 A couple of things to to to note. Our funded development arm has been unwinding, and that's the... Again, reflected in these numbers. That's been delayed by COVID. And it's also worth noting for any of you who've seen MEARS numbers previously, our housing with care number is now included within within the management line. Development, we're very clear on where we're going with that at some point across the next twelve to eighteen months. That will no longer be there, so we will be reporting a management line and a maintenance line going forward. Internally, we talk very much in terms of local government, central government, but, yeah, that's how you can expect to see our numbers presented going forward. So what stands out here really is the differing impacts on revenue and in turn profit across the two core areas, maintenance and management. And I think that clearly reflects the differing COVID journeys that those two business units have been through that I described earlier.

24:11 What we include on this slide also is a breakdown of h one revenue split into q one and q two. And again, that shows the clearly shows the impact of COVID as lockdown hit in late March. Development itself has been mothballed through COVID with effectively closed sites, stopped work on the development of new homes. Very small numbers as we unwind this development business. We are talking small numbers of properties still to be completed, very few, and a relatively small number of properties still to be sold as well. But yes, through COVID, that is going to add some delays to that unwinding. It's just worth noting that the loss there against development in H1 reflects some restructuring costs but also some revaluation of the portfolio.

24:57 Very hopeful that H2 will see a breakeven position in development, but I think more importantly, we're very clear on where we're going. That won't form a part of the group in the medium and long term. So the intention here on this slide is just to give a bit more detail about the impact that COVID has had on those maintenance revenues. As I say, the management revenues have been largely unaffected. So that... Yeah. Yeah. I thought it was worth spending a bit of time just just looking at those maintenance revenues and how they've been affected. So as we reverted to emergency repairs, what we've seen there is a reduction to about 15% of our typical anticipated volumes. And as I mentioned previously, what you see there is that disconnect, and again, a positive disconnect between volumes and then the resulting revenues. There's a few reasons for this. So 20% of our contracts within the maintenance portfolio operate on this lump sum basis, and effectively, we get paid to deliver a service irrespective of volumes of work received.

26:03 Now as you can imagine, through normal trading, those fluctuations in work volumes are very minimal, have been huge through the COVID period. So our revenue on those 20% of contracts within the portfolio has been maintained. You could almost argue we've been better off as a result of having no work coming through the door on those contracts. However, what we've had to do is clearly is make some very prudent cost accruals to ensure that we're ready to deliver that work as it comes back on through the coming months. The other 80% of the maintenance portfolio is scheduler rates linked. We effectively get paid for what we do. And in these areas, we're very reliant on the strength of our client relationships and gaining our client support to help us through this period. In the vast majority of cases, we've received direct cost recovery and also recovery of local overheads. What we haven't had is is the luxury of recovering profit, I suppose, absolutely, quite rightly through that period, and not all of our central overhead has has been recovered as well through those interim negotiated arrangements, if you like. And all of that goes into the numbers that you see for h one.

27:13 There have been some areas where we've not received client support, and we've had to take some very difficult decisions to exit some of those contracts. In turn, there's also been some additional costs relating to furlough top up and some restructuring costs as well. And again, as I mentioned earlier, all expensed in the period that they were incurred as is the MEARS way. The expectation from central government throughout the COVID period has been that clients would pay early where possible and certainly on time to support contractors and service providers through the through the period. And I have to say that clients have been generally excellent in doing exactly that and and supporting us, and and that's really helped with our management of working capital through this period.

27:59 In some areas where we've negotiate those negotiated those interim arrangements, it's actually resulting us going from raising multiple, you know, sometimes thousands of invoices in a month to be paid on those sort of transactional maintenance contracts, and that being replaced with a single monthly invoice for for these interim arrangements. So it's actually been been beneficial in that respect in terms of getting paid on some on some occasions early, but certainly on time. So I think we... And I think we've got a very positive working capital position in h one considering the huge challenges that we've been presented with. We're really hopeful that that come the end of this year, we can we can sort of achieve a a sort of a breakeven position in terms of the bottom line with the auto a a working capital position, which broadly reflects where we started the year as well. And I think with the challenges that that 2020 has brought, that would be a that be a fantastic achievement and puts in standards in really good stead going into 2021.

29:01 So clearly, liquidity could have been a significant issue through h one. But I think due to sort of diligent operational and financial management, we've been in a relatively comfortable position, which I don't think should be taken for granted or overlooked. There's some huge challenges out there for a number of businesses, for most businesses through this period. And, yeah, we're we're we're fortunate that as a result of everything I've I've sort of talked through in the first part of this presentation that we've managed to deal with that liquidity challenge relatively comfortably. And just worth mentioning again, as I said, we did prudently increase our revolving credit facility early in lockdown. There was never any intention of needing to use that, and that absolutely remains the case. There's nothing of huge note to mention on the balance sheet, though one very clear particularly on the asylum accommodation to contract where we're able transitioning the housing portfolio away from purely a private rented sector model to property that we have greater control over in terms of the quality of those properties and the management of those properties. And that does have a balance sheet, an impact on that right of use asset number in the balance sheet.

30:27 That's a big part of our offer to the home office in terms of the asylum accommodation contract. So you should expect to see that number increase across h two and into 2021. The period itself shows very little movement in that number, which is understandable. There's been sort of a general slowdown in our our transition from the PRS approach to our to our preferred approach and the home office's preferred approach. And and not only that, but the number of leases starting and ending have sort of netted each other off in that period. But, yeah, and a number to note going forward if if you're gonna follow the MEARS numbers. So, finally, I'm gonna run through a bit of a strategic update. So we've been through this period of sort of strategic repositioning.

31:13 We went through a strategic review twelve, eighteen months ago and made some fairly major decisions about how we wanted the group to look going forward. And and this... And that's become very, very clear in in in recent months. Our sort of clear unique offer has really come into quite sharp focus, and that is everything I've talked about already as being a a a housing provider delivering services in two key key areas, maintenance and management to two key customer bases, and that's local government and and central government. We made the decision that domiciliary care wasn't gonna be for us in the medium and long term. We made a decision that funded development for a number of reasons wasn't right for us and wasn't right for our investor base. We're well down the road with with with moving on both of those two parts of the group and leaving us with this sort of really neat really neat, tidy group with a really clear and compelling service offering to customers, and and we think an equally compelling offer to to investors as well.

32:18 What it also allows us to do is deliver what we're good at, strong long term relationships with local and central government clients, And all of that work that we're delivering in the maintenance business and the management business sit absolutely within the sweet spot of our core competencies. All parts of the business will be delivering a appropriate level of return on capital employed as we go into 2021 as funded development disappears we exit domiciliary care. And importantly, both of these key areas of the group have huge opportunities for growth revenue growth and also margin improvement as we go into 2021. Another important slide here, and this shows the broad changes in our core business revenues from 'nineteen to 'twenty one. So clearly, 'twenty is going to be a complete anomaly in anyone's numbers really. And what we wanted to do is paint a bit of a picture of where our revenues have will head from 'nineteen across to 'twenty one.

33:25 Business, to going of the we're the on the left hand side is where we were in '19, the 866,000,000 of maintenance management revenues. And as we move across from left to right, you'll see a number of different items on the bottom axis there. Some of these were absolutely known and and well communicated, and some of these, I suppose, we couldn't have envisaged, really. So if I start with the first one, which is the acquired NPS portfolio. Well, when we acquired that business, we we knew the portfolio we were inheriting wasn't perfect. And as we've gone through that process of transitioning the NPS business into the group, we've we've cleansed that portfolio.

34:17 We've absorbed it into the group. We've got much better operational and commercial controls over those contracts now. However, there was always likely to be a proportion of that that wasn't ultimately gonna fit or wasn't gonna stay within the group, and and and that was expected, and that's the 20,000,000 you can see there of a reduction in revenue. Secondly, number of contracts that we made decisions that, again, weren't for us long long term. So that's contracts where we made a decision that we weren't gonna rebid or equally contracts where clients have decided to make, for whatever reason, make decisions to head in a slightly different direction. I'll touch on one of those, which is a really good example shortly. Now that block there is not necessarily a negative. It may see reduction in... Some reduction in revenue, but doesn't necessarily mean reduction in profit, doesn't necessarily mean ending of relationships, and I'll I'll give an example of that in a couple of slides time.

35:09 The next two that we come to, absolutely, we didn't envisage, and we didn't envisage COVID coming along and the impact that was gonna have on us as a group and and ultimately on our on our maintenance forward order book as well. So if we jump across to the 30,000,000, I mentioned a couple of times earlier in the presentation where we've had this huge amount of support from some some really fantastic customers to to help us through this period. And I think that's testament to to working with people for a long time, delivering for them for a long time, and building strong relationships. There were a small number of customers who, for whatever reason, didn't feel that they could support. And, actually, on those SOR tech type contracts, those get paid for what you do type contracts, said, well, I'm sorry if you're delivering less work, but we're gonna pay you for for the work you do.

35:54 Clearly, where we've got a branch set up, we've got a direct employed workforce. We've got vans. We've got an office. We've got IT. We've got operatives. Yeah. There's a big cost there to potentially only be generating a very small amount of revenue, you know, 20 or 30 emergency repairs a week at a £100 each. Yeah. You can you can see the losses which would be incurred pretty quickly. We're a business that always takes a long term view, always looks to support our clients wherever we can. And I suppose if that had been a a two week impact, a four week impact even, we may have we may have been able to take a different decision. However, yeah, it was... Became apparent pretty quickly that COVID wasn't gonna go go away quickly, and it would have been it would have been naive of us and and and probably not the right thing to do in terms of our shareholder base to continue with contracts where we have no visibility of recovery.

36:46 So yes, with a heavy heart, we decided to exit a number of contracts there, and that's the 30,000,000 you see. Similarly, but slightly different, the 20,000,000 just to the left there was exiting some contracts that weren't performing, and that's not performing for a number of reasons. We would... We were having con... Conversations with these clients for a number of months leading up to COVID arriving, and I suppose COVID was the point at which we had discussions with those clients about are things gonna change? Can we do things slightly differently? And when it became apparent that wasn't an option, then, yeah, it was the right time to exit those as well. As we jump across one more to the right, you then see the full year benefits of the asylum accommodation contract that was mobilized September last year. It did about 45,000,000 of revenue in the in the '19 number. The full year benefit sees about another 60,000,000 of revenue on top of that. So a real positive there as that's ramped up.

37:41 And the volumes and revenues in that contract are really, really robust. We don't expect to see any reduction in that going forward at all, and that will certainly do that 100,000,000 plus per year that we were anticipating, if not if not a a tad more. Then finally, come to the end of that graph, and we see the upcoming opportunities. There's a number of rebids still to go through. We've made huge progress on retentions and rebids, which I'll come on to on the next slide. Over the course of the last eighteen months or so, still a few opportunities to to go out and to try and resecure across the next six to twelve months in that area. And we've also got a big pipeline of opportunities as well where we'd be hopeful of picking up some of that work as well. In terms of the retention work, work on the basis we retain the vast majority of our contracts. Sometimes they change slightly.

38:29 The the the size and scope of them change slightly, but our our record of retention is outstanding, again, as you'll see on the following slide. And current... And and historically, our win rate on new business would typically be sort of a one in three. Having said that, you could see the 80% I mentioned earlier. So it's it's possible as we come out of COVID that, yeah, it's our time to some extent in terms of all those... The upfront investment we've made in people, in IT, that we're really well placed to to to have a really good run and possibly beat that one in three across the next twelve, twenty four months. So there's a really high level of detail on this slide. Yeah. An unusual level of detail. I think both ourselves and and and others as well would generally talk about contract a, contract b.

39:17 Well, we've actually talked about the detail within our our our forward order book in in maintenance here and showed you some progress. I think this is quite a useful slide to give you an indication of what our forward order book looks like. And an important point for me is that there's there's a number of routes for us to maintaining existing relationships. So it's not just a case of a contract comes to an end. We rebid it. We are the win or lose. There's a number of other options we have available to us. So, again, off the back of long term strong relationships to maintain contracts without just going through that sort of formal bid process. So some of the examples you can see there are a contract extension and and, you know, the Cross Keys contract in Peterborough, the East Kent housing contract, Lambeth, Milton Keynes, all opportunities to extend, and we've we've negotiated and concluded on those with with customers, and that knocks those contract completion dates back, in some cases, several years. So some real positives over the last twelve months in in that respect.

40:17 We have also got those contracts where they have come to an end, they have been retendered, and we have won them. And I'd like to think that our previous performance has a... Has some bearing on our ability to to re win those contracts. So a Rothenburg council, Crawley Homes are are good examples of that, and and an Exeter City Council being the most recent. There's then also this opportunity to negotiate contracts. So I mentioned earlier those contracts where we have either made a decision not to retender, so that that slight change in our forward order book, or customers have made a decision to go in a slightly different direction. Brighton's a really good example of that. So we've worked with Brighton for a long time and a fantastic relationship there. Due to sort of political pressures, the decision was made to take that service back in house, but that wasn't the end of our relationship with Brighton. And in April this year, off the back of a negotiation, which lasted about twelve months, we've supported them to take their service back in house and deliver it through a through a direct council workforce.

41:16 However, however, we still have a huge part to play there. We provide infrastructure to the council. We manage all of their subcontractors, all their material procurement, their their vans, their IT, and we're on hand to deliver works for them where required as well. So, yeah, slight reduction in revenue, but potentially some opportunities to make similar, if not better, margins, but probably more importantly, slightly lower risk margins as well. And North Lanning is another example where there's been some negotiation there, and I'll touch on that on the following slide. So we've had some some really positive successes, a couple of wins in recent months, but the two contracts I just want to briefly pick up on here are the MOD contract and the North Lanarkshire contract. So the MOD contract is the inside the wire military bases across the country managing and maintaining that property.

42:12 Clearly, we have expertise in both areas. We can manage and we can maintain, But the procurement process reached a point at which we had to make a decision. It was one or the other, and that was the client's desire. So we've decided to go with the management contract, and we've been shortlisted down to the to the very last stage of that procurement process. And it's a contract that has got fantastic strategic fit for us. We already do the substitute accommodation outside the wire off the military bases and do a really, really good job of that with some ex... An excellent client relationship. So strategically, in terms of our skill set, in terms of our clients, it fits really, really well, and that procurement process will be concluded in h two. Yeah. And we're hopeful on that MOD opportunity.

42:59 The other one to note there is the North Lanarkshire opportunity. So we've been delivering repairs and maintenance services to North Lanarkshire for a number of years, we negotiated an extension to that to that contract, two and a half year extension recently. Now they are gonna go for a major reprocurement, and that was anticipated to have kicked off around this time, really. But again, because of COVID and other reasons, they felt it was prudent just to push that back a little bit. So that will still come out, and we're talking about a 4... A 300,000,000 per annum contract value, fifteen years in duration, £4,500,000,000 contract. And when that's procured, we'll have the opportunity to we'll be really keen to bid that. And should we be successful, then our maintenance contract will just roll into that. Should we not be successful, we'll continue to deliver our maintenance contract through to its its natural end. So, yeah, the negotiation there has been a a real positive for us.

43:57 But, yeah, a a huge opportunity and one that we'll we'll look forward to coming out probably at some point in '20... Late twenty twenty one. And two other really good contract wins, as I say, in the last... In in recent weeks in... With the Cornwall contract, which is absolutely sort of wraps in all of our key skill sets and is a really good example of what our... Us as a group can deliver, and we're probably the the only show in town really in terms of that multifaceted contract that delivers management, maintenance and care services, and Exeter City Council, which is a... An atypical MEARS maintenance contract. So I'll just conclude now with a short outlook.

44:43 So maintenance, the focus in h two will be all around recovery, volumes coming back, and we're... As I say, I I I talked through some numbers there. We're seeing volumes ramping up, and we're we're managing that restart, if you like, in a really diligent way, working very closely with our customers about what restart plans look like, what the expectation is of of clearing work over the coming months. And that's that's something that, yeah, is our bread and butter, and it's going very well so far, touch wood. We're anticipating bid bidding activity started to come back in late twenty twenty and certainly into 2021, and we we feel we're in a strong position to to benefit from that. And we'll go into 2021 with a a really high quality forward order book. In terms of management, a key focus continues to be the asylum accommodation contract and continue to deliver very strong operationally very strongly through what is clearly a challenging period with COVID, but also with increasing volumes. Those increasing volumes are positive for us commercially, which is great, but important that we manage that operationally really well and continue to stay in line with the plan and ensure that our 2021 numbers on the asylum contract are where they need to be because that will be a material contribution to the overall group numbers. And secondly, in management, the MOD contract that I just mentioned, a strategically important contract for us, and that procurement will be concluded

46:13 later this year. And finally, in terms of the wider group, we'll be working really hard in H2 to conclude on those areas that we've strategically made a decision to exit. So DomCare, really optimistic that will be concluded in the coming months and certainly in H2. Of And we're the we've the the disappear. But more importantly, we're very very clear pleased on where we're heading with that, and that will be wound in a controlled manner. We have one final part of our non core non core portfolio to conclude on as well. So all of our non core business was a key part of that strategic review eighteen months ago and made clear decisions on domiciliary care, on funded development.

47:10 And the final part is a business within the group called TerraQuest, which runs a planning portal with central government. Fantastic piece of business, something that contributes incredibly well to the group, but absolutely is non core in terms of our how... Our housing business and the the management approach and the maintenance approach. So we've got some options around that as well, which we'll look to progress through h two. Perfect. Thank you, Lucas. Thank you very much indeed. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted today. I'd like to remind you that a recording of this presentation, along with a copy of the slides and published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform.

48:02 And before we enter into the Q and A, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Lucas, I know I haven't given you an awful lot of time to review the submitted questions today. But perhaps I could just hand over to you and ask you if you could read out the question and then perhaps give your response where it's appropriate. If there are any, of course, that we can't address today, obviously, we've got the option to review those post the meeting as well. So if I may hand over back to you, that'd be great. Thank you. Great. Thank you, Mark. Yeah. I'll just pick up on a on a couple of questions submitted here. So thanks very much for for for listening to the presentation and and and for submitting some questions as well. It's really, really useful.

48:52 So the first question here, you mentioned typical contract length. How does that translate into visibility on revenues? Yeah. I I think it's a it's a absolute strength of the group, really, revenue visibility. So if you take a typical repairs and maintenance contract, you're looking at an average of about seven years in duration. So we don't really look at anything which is less than five years in duration. In terms of how secure that revenue is, it's... You know, historically, we deliver contracts well, so you can expect to run through to to the end of that contract period. So, yeah, like I say, min... Our maintenance, minimum of five years, typically an average of about seven years, and that gives that real security around our 21 revenue, 22 revenues.

49:43 And I would say, certainly, in terms of an investor case, that would be one of our absolute strengths, security of revenue. Historically, there may be some criticism that we're not the, in some respects, most exciting of businesses, but through challenging periods, think I think it's... That's one of our real strengths. The... Some of the longer contracts, particularly in the management area, so our more homes contract homelessness accommodation with London Borough Bromley, London Borough Of Wolf And Forest, for example, they run up to thirty year terms. So I wouldn't suggest that they're they're the norm, hence, the average of about seven years for our contracts across the group, but we do have those really long term contracts as well. And if anything, the trend has been towards our average contract length increasing in recent years as a result of those types of contracts coming on stream. So, yeah, revenue visibility is is is excellent as a result of that.

50:39 I'm just gonna scroll down. There's a question here around dividend. Yeah. As you will have seen in the RS statement, we didn't think... Feel it was appropriate to to pay a dividend at this time. I can only sort of reiterate the the group's approach, really. We're we're keen to return to a progressive dividend as as soon as is possible. Clearly, we'll have to see what H two brings. We're optimistic about h two, but COVID is... Brings probably the the greatest level of uncertainty we've ever ever had to deal with. So, yeah, the the board strategy is clear. We want to we want to return to a a progressive dividend approach to to to paying dividends as soon as possible. Okay. I've got a question here about the win rate. So first half win rate of 80% is great, but do you see competition weakening in the current environment and providing an opportunity?

51:33 Yeah. It does feel like there's a bit of a tailwind in terms of our ability to win work in maintenance and management. Competition itself, there's probably less players in the maintenance market now than there has been any any time across the last... Well, certainly, my sixteen years, the last the last twenty years, really. It tends to be the same same customer... Same businesses that we see tendering for each opportunity. And there are a number of the larger players, larger sort of more construction focused players who are no longer looking at repairs and maintenance, and, yeah, Kia would be an example of that. So, yeah, potentially, is weakening. There will be other other players in the market. So some of those small, meat, and medium sized contractors picking up some of the smaller contracts with smaller local authorities and housing associations, but we haven't seen any of those break into that sort of top tier, the the atypical MEARS type contract repairs and maintenance contracts yet. So, yeah, potentially opportunity there.

52:40 And just one point to add to that as well, really, I mentioned the Cornwall District Council contract that we've just secured, and there's still some way to go to understand exactly what that may look like, how big that may be over the coming years. But we're... We've been selected as their strategic partner. And really, we were the only... As I said in... During the presentation, the only show in town on those types of opportunity. If a if a authority is looking for a single provider to to build, not fund, not funds, so not funded development, but build, we still develop. We... It's the funding that we'll no longer be involved with. So to look to develop, to manage, to maintain, and provide care, so a large extra care scheme, for example, yeah, we are the only single single provider who can deliver that service. So, yeah, that's it. That's definitely a a huge opportunity in the coming years.

53:36 Perfect. I think I think that does it, Mark. I think that does. Thank you very, very much indeed. I'm also mindful of time as we're coming up to to the hour. So I I think, obviously, if there are any questions that come in post this, obviously, as we said, they'll be available for for the company to review. Be then I'll answer you Great. Well, thanks very much for your time, everyone, this morning. This is a platform that we haven't used before, and I think we're keen to use going forward. So any feedback would be really appreciated. Typically, it's interims around this time of the year in in August. It's finals sort of third, fourth week of March, and we do look to do one or two capital market days through the course of the year as well.

54:28 Really happy to take calls from individuals as well, both myself and Andrew and David, Chief Executive and Finance Director, to talk more about our business. Equally keen to do... We do quite a number of visits to branches and days out to look at our operations as well. So, yeah, thanks for your time, and I look forward to the next one. Brilliant. Thank you very much, Lucas, and thank you for updating investors today as part of your roadshow. Could I ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting from our website, then the feedback page will appear. If you accessed it via the link sent to you by email, it will take a few moments, but you'll be asked to log back in and then submit your feedback. So on behalf of MEARS GROUP, Investor Meet company, I'd like to thank you for attending today's session.

55:19 Thank you very much, and good day.