Mears Group interim results: record order book offsets profit and margin pressure

Mears Group's first-half results are a story of investment before reward. The housing services specialist has retained major contracts, won two substantial new customers and built a record order book, but the cost of starting that work has weighed on profit margins.

For investors in Mears Group PLC, the important question is whether the near-term pressure is the acceptable price of stronger long-term revenue visibility. The Board appears confident that it is, confirming full-year guidance and raising the interim dividend by 11%.

Mears Group's key interim figures

Metric	H1 2026	H1 2025	Change
Revenue excluding divested FM activities	£555.6 million	£544.2 million	+2%
Maintenance-led revenue	£305.7 million	£287.0 million	+7%
Management-led revenue	£249.9 million	£257.2 million	-3%
Adjusted operating margin, pre-IFRS 16	5.2%	5.6%	-40 basis points
Adjusted profit before tax	£28.9 million	£32.2 million	-10%
Adjusted diluted earnings per share	25.26p	27.82p	-9%
Operating cash conversion	92%	105%	-13 percentage points
Average daily adjusted net cash	£29.7 million	£67.7 million	-57%
Interim dividend per share	6.20p	5.60p	+11%

The top-line performance was resilient rather than spectacular. Revenue excluding the sold Facilities Management business rose 2%, with a deliberate shift taking place between Mears' two core activity types.

Maintenance-led revenue increased 7% to £305.7 million, comprising 4% organic growth and 3% from the acquisition of Pennington Choices. Management-led revenue fell 3% to £249.9 million as activity under the Asylum Accommodation and Support contract, known as AASC, continued to normalise.

Why adjusted profit fell while statutory profit rose

There is an accounting contrast worth understanding.

Adjusted profit before tax fell 10% to £28.9 million, reflecting the cost of mobilising new contracts. Mears says a new contract will typically move from an initial loss to its full tendered margin over around 24 months.

Statutory profit before tax, however, rose 18% to £38.0 million. This included a £9.4 million profit from selling the non-core Morrison Facilities Services business. The disposal completed in March for £18.0 million in cash consideration.

That one-off gain makes the statutory comparison look stronger, but adjusted profit provides the clearer view of underlying trading. On that basis, this was a weaker first half for earnings, albeit one that management says was in line with expectations.

The £4.2 billion order book is the standout figure

The strongest part of the announcement is Mears' order book, which reached an all-time high of £4.2 billion, compared with £3.3 billion a year earlier excluding Facilities Management.

Contract retentions with Cross Keys Homes, Livin, Moat Homes, Thurrock Council and Leeds City Council contributed more than £1 billion of new orders. Mears also secured two significant new relationships:

• Birmingham City Council, worth an estimated £450 million over an initial ten years.
• Rooftop Housing Group, worth an estimated £150 million over ten years.

In total, maintenance contracts with an annual value of £179 million and total contract value of £1.44 billion are due to be mobilised during 2026.

This follows the strong contract momentum and new order wins previously reported by Mears. An intensive two-year period of contract rebidding has now largely concluded, leaving fewer renewals over the next three years and improving revenue visibility.

That visibility matters. It reduces the immediate risk of a large part of the existing contract base disappearing at once and allows bidding resources to focus more heavily on new customers.

Margin pressure is likely to continue for now

The main trade-off is profitability.

Adjusted operating margin before IFRS 16 fell from 5.6% to 5.2%. IFRS 16 is the accounting standard governing leases, and Mears also reports a pre-IFRS 16 measure because this better reflects how management assesses contract performance and banking covenants.

The company expects the margin pressure from new contract starts to continue in the immediate term. Full-year guidance is for a pre-IFRS 16 operating margin of 5.0% to 5.2%, towards the lower end of Mears' medium-term 5% to 6% range.

This is not necessarily a sign that the new work is unattractive. It reflects upfront mobilisation costs and the time required for contracts to mature. Nevertheless, investors will want evidence that these contracts move towards their expected margins without operational problems or additional working capital demands.

Cash generation remains healthy, but the buffer has reduced

Mears converted 92% of EBITDA into operating cash, meeting its target of more than 90%. Period-end adjusted net cash was £70.5 million, and the Group maintained an adjusted net cash position throughout the half.

Average daily adjusted net cash fell sharply, however, from £67.7 million to £29.7 million. The company attributed this to several previously reported cash outflows during the second half of 2025, including property purchases, acquisitions, dividends and the unwinding of negative working capital. A further £13.6 million was used to buy the company's own shares during H1 2026.

The Board has approved a £20 million buyback programme. Since 2023, buybacks have reduced the ordinary share count by 30.3 million shares at a total cash cost exceeding £100 million.

Alongside those buybacks, the interim dividend rises 11% to 6.20p per share. It will be paid on 1 October 2026 to shareholders on the register on 11 September, with the shares trading ex-dividend from 10 September.

What could go wrong?

There are several points requiring attention despite the impressive order book.

First, Mears will lose its Orbit Housing contract, which generates around £30 million in annual revenue, in March 2027. Management describes that contract as financially challenging and demanding on working capital, so the earnings impact may be less severe than the revenue loss suggests, but the business will still need replacing.

Second, the timing of AASC revenue normalisation remains uncertain. Mears expects annual AASC revenue eventually to settle at around £200 million, with management-led revenue forecast to fall from £515 million in 2025 to around £470 million in 2026.

Third, the balance sheet includes an £18.3 million contract asset relating to a disputed maintenance contract. The Directors estimate possible outcomes at £2.0 million above or below that carrying value, with resolution expected during the financial year.

Finally, the wave of contract starts increases execution risk. Winning work is valuable only if it can be mobilised efficiently and converted into sustainable cash and profit.

Guidance holds as Mears rebalances the business

Mears has maintained FY26 market expectations of £1.04 billion in revenue and £50.7 million of adjusted profit before tax. Maintenance-led revenue is expected to grow around 8% to 9%, while management-led revenue reduces as AASC activity normalises.

The strategic direction is clear: a greater focus on core housing maintenance, compliance and asset management, supported by long-term public-sector contracts. The sale of Facilities Management and integration of Pennington Choices reinforce that focus.

These results are less eye-catching than the 37% profit increase reported in Mears' 2024 preliminary results, but the order book may prove more important for the next phase of growth.

The near-term numbers show softer adjusted earnings and margins. The longer-term picture shows stronger contract coverage, rising maintenance revenue and continued cash returns to shareholders. Investors now need to watch how quickly that record order book turns into mature, profitable contracts.

The full figures and disclosures are available in the original company announcement.