TIDMMER
RNS Number : 7694X
Mears Group PLC
28 April 2023
28 April 2023
Mears Group PLC
("Mears" or the "Group" or the "Company")
Preliminary Results for the year ended 31 December 2022
Strong financial and operational performance with positive
trading outlook
and GBP20m share buyback approved by the Board
Mears Group PLC, the leading provider of services to the Housing
sector in the UK, announces its preliminary financial results for
the year ended 31 December 2022 ("FY 2022").
Financial Highlights
-- Strong revenue recovery, Group revenues up 9% year-on-year to GBP959.6m (FY 2021: GBP878.4m)
-- Adjusted profit before tax(1) increased by 37% to GBP35.2m (FY 2021: GBP25.6m)
o Operating margins continue to strengthen to 3.8%(2) (FY 2021:
3.4%)
-- Exceptional cash performance with average daily adjusted net
cash of GBP42.9m (FY 2021: GBP0.4m)(3)
o Cash conversion at 122% of EBITDA (2020/2021 combined:
117%)
o Adjusted net cash(3) at 31 December 2022 of GBP100.1m (2021:
GBP54.6m)
-- Board is recommending a final dividend of 7.25p, bringing the
full year dividend for 2022 to 10.50p (2021: 8.00p) reflecting
continued strong cash performance and positive outlook
-- GBP20m share buyback approved by the Board. Return of surplus
capital, whilst maintaining a net cash position.
Change
Continuing operations FY 2022 FY 2021 %
--------------------------------------------- -------- -------- -------
Revenue (GBPm) 959.6 878.4 +9%
Statutory profit / (loss) before tax
(GBPm) 34.9 16.3
Adjusted profit / (loss) before tax(1)
(GBPm) 35.2 25.6 +38%
Statutory diluted EPS (p) 24.51 11.50
Adjusted diluted EPS(4) (p) 24.51 18.23 +34%
Dividend per share (p) 10.50 8.00 +31%
Average daily adjusted net cash / (debt)(3)
(GBPm) 42.9 0.4
--------------------------------------------- -------- -------- -------
Operational Highlights
-- Successful mitigation of most of the adverse impacts of
inflation, skills shortages and supply chain issues that affected
the wider industry in 2022
-- Sustained high levels of both customer satisfaction, 88%
(2021 86%) and employee engagement level
-- Developed further the Mears approach to ESG, including the
publication in May 2022 of the Group strategy for ESG and map to
zero carbon (Scope 1&2) by 2030
-- Positive momentum in bidding pipeline underpins organic growth strategy
o Awarded the Residential Living Accommodation Project ("RLAP")
contract providing a wide range of housing services to the Defence
Infrastructure Organisation ("DIO" or "MOD"), valued at GBP250m
over the initial 5 years.
o Mears worked with clients and submitted bids in the second
wave of Social Housing Development Fund (SHDF), securing over
GBP100m of potential work in the next 2 years.
o The Group is well placed in bidding new North Lanarkshire
contract estimated to generate more than GBP1.5bn of revenues over
12 years. The new contract is due to commence in January 2024.
o Order book now stands at GBP2.9bn (2021: GBP2.4bn), reflecting
the good progress on contract retentions and extensions.
Current trading and outlook
-- Mears has made a positive start to 2023 with current trading
in line with the Board's expectations
David Miles, Chief Executive Officer of the Group,
commented:
" I am delighted with the strong performance of the Group, and
these are a terrific set of financial results. Our market leading
position, based on a clear strategy and resilient operating
platform, has underpinned this performance, and positions the Group
for further sustainable growth in the medium-term."
1. Adjusted profit before tax stated on continuing activities
before non-underlying items of GBPnil (2021: GBP1.63m) and before
the amortisation of acquired intangibles of GBP0.25m (2021:
GBP7.65m).
2. Operating profit (pre-IFRS 16) before non-underlying items
and before the amortisation of acquired intangibles.
3. Adjusted Net cash / (debt) excludes IFRS 16 lease obligations
of GBP225.42m (2021: GBP216.89m) and includes Treasury deposits of
GBP1.93m (2021: GBPnil)
4. The adjusted diluted EPS measure is further adjusted to reflect a full tax charge.
For further information, contact:
Mears Group PLC Tel: +44(0)1452 634 600
David Miles
Andrew Smith
Lucas Critchley
Numis Securities Tel: +44(0)207 260 1000
Julian Cater
Kevin Cruickshank
Panmure Tel: +44(0)207 886 2500
Tom Scrivens
James Sinclair-Ford
About Mears
Mears is the leading provider of services to the Affordable
Housing sector, providing a range of services to individuals within
their homes. We manage and maintain around 450,000 homes across the
UK and work predominantly with Central Government and Local
Government typically through long-term contracts. We equally
consider the residents of the homes that we manage and maintain to
be our customers, and we take pride in the high levels of customer
satisfaction that we achieve.
Mears currently employs around 5,500 people and provides
services in every region of the UK. In partnership with our Housing
clients, we provide property management and maintenance services.
Mears has extended its activities to provide broader housing
solutions to solve the challenge posed by the lack of affordable
housing and to provide accommodation and support for the most
vulnerable.
We focus on long-term outcomes for people rather than short-term
solutions and invest in innovations that have a positive impact on
people's quality of life and on their communities' social,
economic, and environmental wellbeing. Our innovative approaches
and market leading positions are intended to create value for our
customers and the people they serve while also driving sustainable
financial returns for our providers of capital, especially our
shareholders.
CHAIRMAN'S STATEMENT
Introduction
This is my fourth and final letter to you as Chairman of Mears.
Having assumed the role in January 2019, I have decided not to seek
re-election at the 2023 AGM and will therefore stand down from the
Board at that time.
This period has seen both significant change for the Group and a
reaffirmation of the positive qualities which have for many years
made Mears a force for good.
Over the course of the last five years, Mears' contract estate
has been significantly improved. Within the housing business. there
has been considerable growth in the provision of accommodation and
support services and the Group is now a UK leader in that activity,
reflecting the considerable efforts which have been made to develop
effective, successful, and profitable relationships with Central
Government departments. In parallel, the financial performance and
business mix of the housing business has been improved. The Group
has also progressively exited other activities, namely domiciliary
care, property data management and housebuilding. Taken together,
these initiatives have transformed the Group's financial position:
cash generation has returned, and debt has been eliminated.
Mears is positioned to grow in its core housing activities. In
2022, this was epitomized by its success in winning the Ministry of
Defence RLAP contract, in retaining its long-standing relationship
with the London Borough of Tower Hamlets and in being short-listed
for the North Lanarkshire Future Integrated Housing Service
contract. Over the last five years, Mears has seen its average
contract size grow, both in terms of annual revenues and contract
length. Taken together, these developments leave Mears in a much
stronger position for the future with far greater visibility of
revenue and profit than hitherto.
At the same time, the cultural strengths of Mears continue to be
reinforced. It is integral to how Mears does business that it
places great emphasis on the welfare of and development
opportunities for its staff, that it provides its services in a
manner which is sensitive to the needs and lives of its customers
and that it adds value to the communities in which it operates. In
the last few years, we have created a new Customer Scrutiny Board
which works alongside the Group to oversee and help to improve our
service standards. We have reinforced the role of the Employee
Director with the creation of a new deputy director post with a
strong focus on disability and neurodiversity, become one of the
best large companies in the UK to work for and continued our
excellent record in promoting effective health and safety for our
staff and contractors.
In 2022, Mears was declared Employer of the Year by the
Chartered Institute of Housing. Our efforts to create equality of
opportunity for our workforce can be seen in improving gender pay
gap data, an increase in the proportion of women in senior roles
and in our efforts to try to ensure that our local workforces
better reflect the ethnic mixes of the communities which they
serve. And we have continued to promote and measure the social
value which we create through a myriad of small schemes up and down
the country. While we seek to be the leading provider of housing
services and solutions to the affordable housing market in the UK,
we do so by working to help staff, customers and communities
thrive.
Results
2022 was, for the first time in three years, broadly unaffected
by the Covid restrictions which have created so much economic and
social damage over recent years. Our results also demonstrate the
benefit which has been gained both from our strategic changes and
from our continuous focus on operating improvements across our
activities. Revenue from continuing activities reached GBP959.6m, a
record for the Group, and an increase of 9% over 2021, while
adjusted profit before tax was GBP35.2m, an increase of 37% over
that achieved in 2021. Adjusted Diluted earnings per share rose by
35% to 24.51p.
Cash generation was once again very strong. The adjusted
year-end net cash balance reached GBP100.1m and average net cash
throughout the year was GBP42.9m, both numbers some GBP40m higher
than in 2021. This is the result of a third consecutive year of
100% conversion of profits to cash, a tremendous achievement by the
management team and staff across the Group.
This performance was delivered against a backdrop of very
different inflation levels and expectations from those of the last
decade. Many of our contracts provide for annual price adjustments
referenced to a cost index, although these do not necessarily
provide full protection as to either timing or amount. We have
worked hard to ensure that our procurement processes limit the
consequences of higher levels of inflation. Consistent with our
focus on staff welfare, we have improved the terms and conditions
for staff and implemented a pay increase which was delivered
disproportionately to those at lower pay levels. Nevertheless, we
have and continue to experience labour shortages and we are
constantly reflecting on how we can best attract and retain good
people.
Both financially and operationally, the most significant
contracts for the Group are those under which we provide
accommodation and support for asylum seekers in the north-east of
England, Scotland, and Northern Ireland. The number of service
users continued to grow in 2022 and these higher numbers are likely
to persist in 2023. The continued use of temporary hotel
accommodation, while inevitable, is not the preferred solution and
we are working hard to increase the number of residential
properties which we can use. The development of these contracts has
imposed very considerable pressures on the operating teams who run
them, and the Board is grateful for their continuing efforts and
success.
The Group commenced the new RLAP contract for the Ministry of
Defence which has mobilised very smoothly. We look forward to
continuing our successful partnership with the MoD for many years
to come. We successfully rebid work for repairs for the London
Borough of Tower Hamlets and won a new contract with the London
Borough of Havering. Most importantly, the Group was shortlisted
for the new integrated housing service contract with North
Lanarkshire Council and discussions will continue with that client
to ensure that if selected, we are ready to commence work, as
intended, next January. This contract is worth GBP1.8bn over 12
years and, if successful, would deliver significant growth for
Mears in 2024 and future years.
Dividend
Against the background of the Group's considerable success in
2022, the Board has decided to propose a final dividend of 7.25
pence per share, bringing the total for the year to 10.50 pence, an
increase of 31% on 2021. Our policy remains to progressively grow
the dividend, keeping cover at between 2 times and 2.5 times
normalised earnings.
Consistent with the Group's capital allocation strategy,
underpinned by tremendous operating cash generation and strong
Balance Sheet, the Board has approved the launch of a GBP20m share
buyback programme.
Strategy
Following a period of strategic reorientation, the Group is now
unequivocally focused on being the leader in the UK in providing
high-quality housing services to the public sector. That focus
distinguishes us from many of our peers who operate broader
businesses. It is also leading some Local Authorities and Housing
Associations to discuss with us ways in which we can support their
housing repair operations. We will seek to grow our business where
we believe that there are opportunities to work in partnership with
these providers in a cost-effective and value-creating way.
We focus on innovation and customer satisfaction as key
determinants of successful performance and delivery for clients. We
continue to invest in our in-house IT operations delivery system,
which now permits tenants to report the need for repairs and
monitor their progress completely online. Our commitment to
innovation was illustrated by the acquisition earlier this year of
IRT Surveys Limited. While financially this was a relatively small
deal, it brought into the Group the capability to deliver new
data-led solutions for clients by assessing the energy performance
of housing portfolios, optimising budgets, and providing solutions
for the most efficient and cost effective way to complete
retrofits. This capability will be crucial to our success in
delivering cost-effective decarbonisation solutions for clients as
the public sector embarks on what will be a long multi-year
programme of work to contribute to the achievement of the nation's
net zero targets.
ESG
Mears published its ESG Strategic Approach 2022-2030 earlier
this year. This document sets out clear targets in each of the
areas of environmental, social and governance and the Board
regularly reviews progress against these targets. Mears has also
created a small ESG Board with several independent members whose
function is to support and challenge the Group in the achievement
of its ESG objectives. We are proud of the efforts which the Group
has made over many years in demonstrating the positive impact which
our activities can have on our workforce, our clients, and our
communities and our ESG strategy is consistent with that deeply
embedded cultural approach to how we work.
Board developments
Toward the end of 2022, the term of our Employee Director,
Claire Gibbard, concluded. The Board is grateful to Claire for her
contribution and especially her success in devising and creating
the new Employee Forum, a mechanism to allow individuals from
across the Group to meet and collectively discuss and make
recommendations. As described in the report of the Nominations
Committee, the Group ran a process to select Claire's successor and
we were pleased to announce the appointment of Hema Nar with effect
from 1 January 2023. Hema has worked for the Group since 2020 as a
bid manager within the business development function.
Also at the end of 2022, Alan Long, who joined Mears 17 years
ago and served as an Executive Director for 9 years, stepped down
from the Board. Alan has been critical in developing the Group's
workforce initiatives, its social value work and its governance
endeavours as well as playing a key role in winning new business
and in promoting and overseeing effective operational improvement.
I would like to take this opportunity on behalf of the Board to
thank Alan for all he achieved with Mears in his time with us and
to wish him well for the future.
Lucas Critchley joined the Board as an Executive Director at the
start of 2023. Lucas is the Group COO and will succeed David Miles
as Group CEO later this year. Lucas joined the business as a
graduate in 2004 and has worked across both the operations and
business support functions.
Finally, as noted above, I have decided to step down from the
Board with effect from the 2023 AGM. Chris Loughlin, the current
Senior Independent Director, will succeed me as chairman.
David Miles
In December 2022, Mears announced that David Miles would step
down as CEO during 2023 to be succeeded by Lucas Critchley. David
has worked for the Group for almost 27 years, twelve of those as
CEO. When he joined Mears, the business had just 5 branches, 83
employees and a turnover of some GBP12m. Since that time, and under
his stewardship first as COO and then CEO, the Group has grown to
its current size with some 75 branches, over 5,000 employees and
turnover approaching GBP1billion. Much of the credit for this
successful growth must go to David who has been central to the
Group's development throughout that period.
As importantly, David has been the driving force behind the
culture which underpins all that Mears does, combining the need to
generate profit and to deliver a return to our owners with the need
to provide value to all our stakeholders, staff, clients, service
users and the communities in which we operate. In 2023 and for the
future, it will be essential for companies to show that they can
and do create social value as well as profits in delivering their
services. David's focus on this area over many years has been
prescient and paved the way for Mears to be recognized as the most
trusted private provider working with the public sector.
On behalf of the Board, I would like to thank David for his
unique service over so many years and for all the value which he
has created and bequeaths to us.
Conclusion
Mears is a very successful Group and punches above its weight in
many respects. It has a long and successful future ahead of it as a
leader in providing housing services to the public sector. It will
continue to be seen as a group which shows how the pursuit of
profit for owners can and should be combined with the creation of
value for all other stakeholders. In this respect, it is a model
for others to follow.
CHIEF EXECUTIVE OFFICER BUSINESS REVIEW
2022 was a tremendous year for the Group. The strong operational
and financial performance is further evidence that the strategic
actions of recent years and our resilient operating platform are
delivering positive results and have positioned the Group well for
the future. Mears' market leadership and long track-record for
quality and operating excellence ensures that we are seen as a
trusted partner to Local and Central Government as they seek to
address their challenges.
2022 2021 2020
GBPm GBPm GBPm
---------------------------------------------------- ------ ------ -------
Revenue 959.6 878.4 805.8
Operating profit before tax measures:
Statutory operating profit/(loss)(1) 41.3 24.4 (6.3)
Adjusted operating profit/(loss) (post-IFRS 16)(2) 41.5 33.7 6.6
Adjusted operating profit/(loss) (pre-IFRS 16)(2) 36.1 29.6 0.6
Adjusted operating margin (pre-IFRS 16) 3.8% 3.4% 0.1%
---------------------------------------------------- ------ ------ -------
Profit before tax measures
Statutory profit/(loss) before tax 34.9 16.3 (15.2)
Adjusted profit/(loss) before tax(2) 35.2 25.6 (3.4)
---------------------------------------------------- ------ ------ -------
1. Operating profit/(loss) includes share of profit in
associates.
2. Adjusted measures are defined in the Alternative Performance
Measures section of the Finance Review.
The Group delivered strong revenue growth, up 9% to GBP959.6m,
underpinned by the increased volumes experienced within the Asylum
Accommodation and Support Contract ('AASC'). Except for AASC,
revenues have been relatively consistent across the remaining
contract estate, with a small reduction in our traditional repair
activities.
Adjusted profit before tax for the year was GBP35.2m (2021:
GBP25.6m), benefitting from both higher revenues and strengthening
operating margins, reflecting the positive steps taken by the Group
over the previous two years. Some actions resulted in a reduction
in revenues but they improved profitability. The business has seen
the quality of its secured forward order-book improve in terms of
both pricing and longevity, and the Directors will continue to be
disciplined when bidding new work. Whilst the business has
experienced some inflationary and other supply chain pressures, the
senior management team have taken steps to absorb the impact. This
is covered in greater detail below.
The AASC contract was secured in 2019. The Group anticipated
annual revenues of around GBP120m; the contract has seen revenue of
more than double this original expectation with higher service user
volumes. This was due to the impact of Covid-19 and situations
where residential dispersal accommodation has not been available.
The Group is working with the Home Office to accommodate these
higher volumes in suitable accommodation. A significant focus is
being directed towards sourcing a higher volume of residential
properties that can support both the short-term and longer-term
requirements. Whilst the use of temporary hotel accommodation in
AASC is not preferred, we have and will always continue to place
the wellbeing and safety of the service user at the forefront of
our delivery. The Group expects these elevated service user numbers
to be present across 2023. I would like to place on record my
thanks to the Mears operational teams who have done an incredible
job in supporting such large numbers of vulnerable people in the
most challenging circumstances.
A key operational highlight saw a successful outcome for the
Group on the retender of the Residential Living Accommodation
Project contract ("RLAP") with the Defence Infrastructure
Organisation. Under this contract, Mears provides a wide range of
accommodation and property services to service personnel and their
families across the UK. Services include property search, selection
and leasing, relocation services, tenancy management, responsive
repairs, and maintenance. Mears had been successfully providing
similar services since 2016 under the predecessor Substitute
Service Accommodation contract. The new contract is for a period of
up to seven years and has an annual value of around GBP50m. The new
contract mobilised in April 2022 and has started well with both
operational and financial metrics showing good progress.
On a similar note, the Group was delighted to successfully
retain its responsive repairs contract with the London Borough of
Tower Hamlets, with a total value of GBP75m over the initial
five-year term (with an option to extend for further 5 years).
Under the contract Mears will provide a full range of responsive
repairs, voids, and planned works services in around 11,500
properties. Strong customer service and customer satisfaction
scores were fundamental in retaining this material contract. This
award builds on a relationship between Mears and the Council that
stretches back over 15 years.
I am pleased with the progress made over recent years to improve
the quality of the Group's forward order book. Since the start of
the pandemic, the Group has taken robust action to prune its
operations and to ensure resources are directed towards those
contractual relationships which can provide high levels of customer
service and sustainable financial returns, and reflective of the
investment of time and resources. Whilst the Group had previously
taken steps to exit a small number of contracts, some of those
demobilisations concluded during 2022. This approach has resulted
in some loss of revenue. However, the priority for the Board has
been to drive an improvement to operating margins and improve the
quality of the contract portfolio.
The increased focus on operating margin has extended into the
bid room where the Group remains highly selective. The Group was
pleased to secure a new 10-year contract with London Borough of
Havering, delivering repairs and maintenance to around 12,000 homes
with an estimated annual value of GBP5m. This new contract
mobilisation went well which was an excellent achievement given the
current backdrop of supply chain pressures and skill shortages and
reflects the strength of the Mears operating model.
Over the course of the past two years, the Group has seen a high
number of existing contracts coming up for re-bid. Positively
through this period, the Group has enjoyed several contract
extensions (Orbit, Livin and MoJ) and a number of retentions (RLAP,
Tower Hamlets, Redbridge, and South Cambridgeshire). Whilst I am
pleased with the contract retention rate, it is inevitable that a
busy period of re-bids will result in some loss of work.
Consequently, in September 2022, the Group bid farewell to its work
with Welwyn Hatfield Borough Council, with an annual value of circa
GBP15m, after more than 20-years' service.
Supply chain and inflationary pressures
Given the challenging economic backdrop and the volatility
experienced during 2022, a key concern from all our stakeholders is
how the Group has managed current inflationary headwinds, labour
shortages and challenges within the supply chain.
Positively, most of our customer contracts include an
entitlement to an annual price adjustment which is typically
benchmarked against a cost index. Whilst this provides the Group
significant protection, the Group is not immune to cost pressures,
and there may be disparity in the level and timing of the increases
received. The increases experienced in the cost of energy has added
a significant headwind in respect of the AASC contract where the
Group provides light and heating in respect of the c.6,000
dispersed residential properties. The Group has benefitted from the
short-term support provided by Government, but energy costs remain
a significant uncertainty in respect of that single contract.
Our procurement procedures have meant that we have not
experienced significant problems with material supply. Where lead
times have lengthened, we manage and plan for this in our
operational delivery. The Mears model has always been to prioritise
the investment in, and retention of, our own staff, with lesser
reliance on sub-contracted and other short-term labour. However,
the Group is dependent upon a network of specialist SME
subcontractors, and we recognise the difficulties they will be
experiencing within their own workforce and supply chains.
Where client spending is funded through social rents, the
introduction of the social housing rent cap may encourage clients
to look for cost reductions, notwithstanding the fact that much of
the Group's activities are backed by legislation and can be
considered non-discretionary. Some areas of planned capital spend,
and initiatives such as Decarbonisation, could be subject to cost
cutting, however this is only a relatively small part of the
Group's revenues.
The Directors have recognised the ongoing challenge of retaining
and recruiting skilled labour and have endeavoured to balance the
pressures being felt by the Group's employees, with what is
affordable to the business. Retaining a workforce that is motivated
and feels valued is critical. The Group made further improvements
during the period to holiday and sick pay entitlements and other
terms and conditions, and the 2023 Pay Review applied a flat
increase of GBP2,000 per annum per employee, which ensured that
those at the lower end of the pay-scale received higher
proportional increases. The Directors awarded an enhanced increase
to its front-line Care Workers who are now all paid more than the
Real Living Wage rate. The Directors will continue to monitor
workforce pay, recognising the importance of being reactive to the
Cost-of-Living pressures being felt by many of our Mears'
colleagues. The Board would recognise that labour shortages are
proving a constraint on our ability to pursue certain new
opportunities and we continue to invest and innovate to attract
the best talent.
Customer satisfaction
Mears conducts over 3,000 surveys per month and has an
independently chaired Customer Scrutiny Board, that reports both to
the Board and externally on our performance. Key developments are
tried and tested with this group which has customer representation
across our core Housing services.
In 2022, overall customer satisfaction was 88% (2021: 86%) and
we are pleased to see low levels of complaints across the Group. We
seek to resolve complaints efficiently and quickly, with learnings,
where appropriate, being transferred into revised operational
practices. We continue to enhance the ability for tenants to
interact with us digitally while recognising that for many tenants,
more traditional routes are still preferred. In 2022, we developed
and launched a mobile customer app, which provides residents with
more choice and convenience, allowing us to create a more personal
service.
De-carbonisation
2022 has seen Mears create a leading end to end decarbonisation
service to support our clients with the huge
challenge of improving social housing stock. Social Housing
landlords need to achieve a minimum EPC rating of C for their stock
by 2030. This starts with the ability to help measure existing
carbon efficiency, enabling us to design a program to cost
effectively deliver improvements and then to measure success. The
success of this work was seen first by us working with three
clients on the Social Housing Development Fund (SHDF). All three
bids were successful, and the resulting work is now being
implemented.
The second wave of SHDF bids resulted in Mears working with
clients to submit bids, which if successful, might result in over
GBP100m of work over the next 2 years. Further waves of SHDF
funding will follow in 2023 and for the foreseeable future. Our
ability to support clients was extended by the acquisition of IRT
Surveys Limited ('IRT'). IRT technology can model the clients
housing stock and make clear recommendations on what precise work
should be delivered and the grant funding available. I am delighted
in the positive impact IRT has already made and we expect to see
significant opportunity in 2023.
ORDER BOOK AND PIPELINE
The order book stands at GBP2.9bn (31 December 2021: GBP2.4bn),
enhanced by a number of contract extensions. The Group secured
contracts in 2022 YTD valued at over GBP165m with a win rate (by
value) of 30%. The key orders secured are detailed below.
Contracts awarded in 2022 Base Extension Annual Base contract New / Retention
term option value value / Extension
(years) (years) GBPm GBPm
------------------------------- --------- ---------- ------- -------------- ----------------
Tower Hamlets Homes 5 5 15 75 Retention
South Cambridgeshire District
Council 5 - 7 35 Retention
London Borough of Havering 10 - 5 50 New
------------------------------- --------- ---------- ------- -------------- ----------------
Over the course of the last two years, the Group has seen a high
number of existing contracts approaching re-bid. Positively, we are
now through this period, and the Board is pleased with its contract
retention rate. Looking forward, in the coming 12-months, there are
few rebids meaning much of the business development focus can be
directed towards supporting the Group's organic growth
ambitions.
We are seeing an increase in the levels of bid activity after
two years of reduced volume following the pandemic. The Group's
current bid pipeline for contracts to be awarded in 2023 is
currently standing at approximately GBP750m. The bid pipeline
comprises contracts which meet the Group's key bidding criteria
such as size, quality, and margin opportunity. This reported
pipeline excludes the large contract opportunity with North
Lanarkshire Housing and Corporate Maintenance and Investment
Services contract estimated to generate more than GBP1.5bn of
revenues over 12 years - to provide reactive maintenance,
compliance, servicing as well as programmes of works to the
Authority's approximately 37,000 homes and c.1,200 other
buildings.
HEALTH, SAFETY AND COMPLIANCE
Building on the success of achieving its 20th consecutive ROSPA
Gold Award, the health and safety function continues to perform
exceptionally well, with no form of regulatory
improvement/enforcement notices, or invoices for HSE Fees for
Intervention, being served.
In terms of developing risk, the Group has maintained its focus
on the fast-moving area of building safety and is making good
progress with its drive to implement robust management systems
designed to ensure compliance with the Building Safety Act and the
associated secondary legislation which is currently being enacted.
However, despite the advances made, this item will remain a key
area of focus and scrutiny for the Board moving forward.
Mental health and wellbeing is also an area which has received
enhanced scrutiny. The Mental Health and Wellbeing Steering
Committee, consisting of key stakeholders across all the Group's
operations has a mandate to drive oversight and provide internal
challenge to the business' relevant policies and strategic
approach. The Group has also increased the range of support
services available to its staff and their families, via its
Employee Assistance Programme.
The Information Security Team is now well established and making
excellent progress with the on-going implementation of enhanced
security controls and employee awareness initiatives, which has
enabled the business to secure high level, independent security
accreditations for its key, strategic contracts. Moving forward,
the team is focused on delivering the same validation programme to
all areas of the Group's operations.
WORKFORCE
Mears has invested in our workforce for many years and, for the
third year running, we have been listed in the Top 25 Sunday Times
Big Companies to work for. Each year we have also moved higher up
the league table, illustrating the ongoing improvement. This has
been further endorsed by Mears being named by the Chartered
Institute of Housing, an organisation in which almost all our
clients have members, as the Employer of the Year in 2022.
This long-term staff investment in our Workforce, is proving
particularly important at a time when employee resource has become
critical for many organisations. While we have not been immune to
the pressures, our approach has helped mitigate some of this risk.
This commitment starts at Board level, through our ongoing
appointment of an Employee Director, now with an employee forum
added to widen the circle of engagement with staff at all levels.
We have also added a Deputy Employee Director with a focus on
making Mears a better place to work for people with disabilities
and a Trades representative lead.
We recognise that it has been a difficult year financially for
many people, which is why once again, we have focussed on the
lowest paid to give the highest percentage rises. We have also
improved holidays, sick pay, and other family friendly benefits
across the Group. I am very proud of the multiple investments that
we have made here and the impact they have on recruitment,
retention and employee commitment.
I have been pleased with our progress on Equality, Diversity and
Inclusion and, as detailed above, the support given by our
dedicated Mental Health Steering Group, designed to help people who
need it, through what continues to be a challenging time for many
people.
ESG
Adopted by the board and published in May 2022 the 'Mears
Environmental, Social and Governance Strategic Approach 2022-2030'
sets out our current record in these areas and our ambitious
targets and plans. Details can be found on the ESG microsite on the
mearsgroup.co.uk website.
In 2022 the Group delivered GBP16,900 per employee of economic
and social value in local communities, as measured by the Social
Value portal. The Mears Foundation Charity supported 70 community
projects in the year including work to promote digital inclusion
and improve the welfare of asylum seekers.
Mears has an independently Chaired ESG Board that reports to the
main Mears Board. The role of the ESG Board, which has three
independent Directors, is to both support and challenge the
development of our ESG work. This is fundamental to our strategy,
which is founded on the goal to be seen as the most responsible
large private organisation working with the public sector. Again,
we set this goal with business development and sustainability in
mind. Demonstrating a responsible approach to business mitigates
key reputation risks with our clients and enables us to respond
well to tenders, for which ESG responses are becoming increasingly
important.
We have consulted on and launched Charters in Scotland and the
rest of the UK, in which we have clearly set out how we will do
business responsibly and we will transparently report each year, as
to how we have done against each of these commitments.
We have published our clear plan on how we intend to get to net
zero carbon emissions by 2030.
STRATEGY
The strengthening trading performance is evidence that the
strategic actions of recent years and Mears' resilient operating
platform and market leadership are delivering results and position
the Group well for sustainable growth over the medium term. Our
strategy, as a housing business working with the Public Sector, is
founded on four principles:
Key principle
--------------------------------------- ------------------------------------------------------------------------
To be recognised as the
most trusted large private * We have commented in the ESG section of this document
provider working with the on the positive progress made in 2022. In 2022 the
public sector Group delivered GBP16,900 per employee of economic
and social value in local communities
* Our success with gaining contract extensions and
success on rebids demonstrates the trust clients
place with us.
--------------------------------------- ------------------------------------------------------------------------
To have the highest levels
of customer service in the * We have achieved real consistency in our customer
affordable housing sector satisfaction scores through the year, where we
where we operate continue to target excellence rather than just
satisfactory feedback. Our scores increased overall
versus 2021.
* We are receiving an increasing number of requests
from Local Government and Housing Associations, who
currently operate a largely internal repairs
workforce (known as a DLO), for assistance in
resolving the problems that have increased for them
in the last two years. We will apply a selective
approach as to where we can help, without over
stretching our own resources. Our position as the
go-to provider is underpinned by our reputation that
we have built over many years.
--------------------------------------- ------------------------------------------------------------------------
To embrace innovation that
drives positive change such * We have made positive progress in winning carbon
as digital and carbon reduction reduction work and our enhanced capability will lead
to us securing additional work in 2023 and beyond.
* We are investing in the further development of our
inhouse core operating system MCM to support our core
housing activities. We continue with the development
of customer applications that enhance service and
lower cost, as demonstrated by the fact that it is
now possible for tenants to fully report and see
progress on their repair digitally.
* We have made our first bolt on acquisition, IRT,
which adds to our innovative carbon offer.
--------------------------------------- ------------------------------------------------------------------------
To maintain and grow a resilient
business with long term partnerships, * Our cash position is now very strong with an average
a strong balance sheet and daily net cash of GBP42.9m.
cash position, along with
a committed, engaged workforce
* We have secured new work with a contract value of
GBP165m and have continued to develop new
partnerships such as with the Ministry of Justice,
where we see significant opportunity for growth.
* We are now bidding on the largest housing contract
that we have ever bid, for North Lanarkshire, which
has a GBP150m annual contract value, for a potential
12 years.
* We still see too many tenders where price is the
dominating factor, but we will continue to follow our
long-standing commitment to quality and we will not
extend relationships, where price focus becomes more
important than quality and long-term value.
* Our focus will be on driving the longer-term larger
partnerships that we have with Central Government and
on Sustainable partnerships with Local Government
that both deliver service quality and enable us to
maintain a strong balance sheet, Arrangements that do
not meet these criteria will be exited.
--------------------------------------- ------------------------------------------------------------------------
DIVID AND CAPITAL ALLOCATION
Our capital allocation priorities are unchanged. We aim to
maintain a strong balance sheet with an average daily net cash
balance and consistent with this, the Board's priorities will be
to:
-- Retain low levels of underlying net cash
-- Modest levels of maintenance capex and digitisation spend
-- Small-scale property purchases on MOJ and AASC, if absolutely required
-- Progressive ordinary dividends; cover reducing towards 2x
-- Selective, small-scale acquisitions to enhance product capabilities
-- Returns of surplus cash to shareholders kept under review
In 2022, we have deployed all aspects of our capital allocation
policy:
-- We delivered strong free cash flows, reporting an average daily net cash of GBP42.9m.
-- We have invested to support organic growth with development
of our IT systems costing GBP1.1m during FY 2022, and a further
GBP8.1m incurred on PPE additions.
-- The Group has, to date, completed property acquisitions of
c.GBP5m to support the challenging AASC plans to our service users
from temporary solutions to dispersed residential
accommodation.
-- The Board is recommending a final dividend of 7.25p,
resulting in a total dividend for the year of 10.50p, an increase
of over 30% on 2021.
-- We completed the acquisition of IRT Surveys to enhance the
Group's offering focused on addressing fuel poverty,
decarbonisation and energy efficiency.
-- The Board has agreed that it intends to adopt a recurring
programme of share buy backs. The Board has approved an initial
buy-back of up to GBP20m of shares, recognising that this may take
around 18 months to complete.
The full year ordinary dividend of 10.50p represents dividend
cover of 2.33x. Our strong balance sheet, confidence in the outlook
and good cash generation, mean we intend to reduce dividend cover
progressively towards 2x over the coming years. Regarding potential
further share buybacks, we will review our financial position and
capital requirements on a regular basis and return surplus capital
to shareholders as appropriate.
FINANCE REVIEW
This section provides further key information in respect of the
financial performance and financial position of the Group to the
extent not already covered in detail within the Chief Executive
Officer's review.
ALTERNATIVE PERFORMANCE MEASURES (APM)
The Strategic Report includes both statutory and adjusted
performance measures, the latter of which are considered useful to
stakeholders in projecting a basis for measuring the underlying
performance of the business and exclude items which could distort
the understanding of performance in the year and between periods,
and when comparing the financial outputs to those of our peers. The
APMs have been set considering the requirements and views of the
Group's investors and debt funders among other stakeholders. The
APMs and KPIs are aligned to the Group's strategy and form the
basis of the performance measures for remuneration.
These APMs should not be considered as a substitute for or
superior to IFRS measures, and the Board has endeavoured to report
both statutory and alternative measures with equal prominence
throughout the Strategic Report and financial statements.
The APMs used by the Group are detailed below with an
explanation as to why management considers the APM to be useful in
helping users to have a better understanding as to the Group's
underlying performance. A reconciliation is also provided to map
each non-IFRS measure to its IFRS equivalent.
The Group defines normalised results as profit before the
amortisation of acquisition intangibles and other items that are
infrequent or one-off in nature and that management considers not
to be part of underlying trading. The normalised results are
further adjusted to reflect a full corporation tax charge of 19%,
which will increase to 23.5% in 2023. The Directors believe this
aids consistency when comparing to historical results and provides
less incentive for the Group to participate in schemes where the
primary intention is to reduce the tax charge.
A reconciliation between the statutory profit measures and the
normalised result for both 2022 and 2021 is detailed below. In
addition, the Group also provides an APM which reports results
before the impact of lease accounting under IFRS 16. Management has
provided this alternative measure at the request of several
shareholders and market analysts to allow those stakeholders to
properly assess the results of the Group over time. In particular,
the Directors use the pre-IFRS 16 measure to generate the Group's
headline operating margin; whilst this generates a lower operating
margin, it reflects how the underlying contracts have been tendered
and is also more aligned to cash generation.
For the purposes of assessing the Group's compliance with its
banking covenants, the Group utilises the 'EBITDA pre-IFRS 16 and
before non-underlying items' which is defined within the Group's
bank facility agreement.
Continuing activities (1) Note 2022 2021
GBP'000 GBP'000
----------------------------------------------------------------------------------- ----------- --------- ---------
Profit/(loss) before tax Statutory 34,944 16,333
Amortisation of acquired intangibles Note 4/13 245 7,654
Non-underlying items See below - 1,627
----------------------------------------------------------------------------------- ----------- --------- ---------
Profit/loss before non-underlying items, amortisation of acquired intangible and
tax APM 35,189 25,614
Removal of IFRS 16 profit impact See below 2,201 2,876
Finance costs (non-IFRS 16) Note 5 (1,268) 1,148
----------------------------------------------------------------------------------- ----------- --------- ---------
Operating profit pre-IFRS-16 before non-underlying items and amortisation of
acquired intangibles APM 36,122 29,638
Amortisation of software intangibles Note 4/13 2,055 2,123
Depreciation and loss on disposal (non-IFRS 16)(3) Note 14 8,023 5,884
----------------------------------------------------------------------------------- ----------- --------- ---------
EBITDA pre-IFRS 16 and before non-underlying items APM 46,200 37,644
IFRS 16 profit impact See below (2,201) (2,876)
Finance costs (IFRS 16) Note 5 7,610 6,921
Depreciation and loss on disposal (IFRS 16)(2) Note 15 43,259 43,386
----------------------------------------------------------------------------------- ----------- --------- ---------
EBITDA post-IFRS-16 before non-underlying items and amortisation of acquired
intangibles APM 94,868 85,075
Amortisation of software intangibles Note 13 (2,055) (2,123)
Depreciation and loss on disposal (IFRS 16)(2) Note 15 (43,259) (43,386)
Depreciation and loss on disposal (non-IFRS 16)(3) Note 14 (8,023) (5,884)
----------------------------------------------------------------------------------- ----------- --------- ---------
Operating profit post IFRS 16 and before non-underlying items APM 41,531 33,683
----------------------------------------------------------------------------------- ----------- --------- ---------
1. Operating profit/(loss) and EBITDA measures include share of
profits of associates.
2. Includes profit on disposal of GBP228,000 (2021:
GBP27,000).
3. Includes loss on disposal of GBP2,000 (2021: GBP272,000).
The profit impact in respect of IFRS 16 is detailed below:
2022 2021
GBP'000 GBP'000
---------------------------------------------------- --------- ---------
Charge to income statement on a post-IFRS 16 basis (50,869) (50,307)
Charge to income statement on a pre-IFRS 16 basis (48,668) (47,431)
---------------------------------------------------- --------- ---------
Profit impact from the adoption of IFRS 16 (2,201) (2,876)
---------------------------------------------------- --------- ---------
Non underlying items
Non-underlying items are items which are considered outside
normal operations. They are material to the results of the Group
through either their size or nature. These items have been
disclosed separately in the adjusted result above to provide a
better understanding as to the underlying performance of the Group.
The Directors do not believe there are any items during 2022 which
could be considered outside normal operations.
2022 2021
GBP'000 GBP'000
--------------------------------------------- ---------- ---------
Repayment or waiver of furlough entitlement - 1,627
--------------------------------------------- ---------- ---------
In the prior year, the Directors elected to voluntarily
repayment and waiver of amounts paid and due under the Coronavirus
Job Retention Scheme ('furlough'). The Directors considered this
voluntary repayment to be a non-trading item and, by its nature,
unique and non-recurring. The size of this item is considered
material and the Directors believe it would distort the readers'
understanding of the financial results of the Group.
Amortisation of acquisition intangibles
2022 2021
GBP'000 GBP'000
------------------------------------------- --------- ---------
Amortisation charge 245 7,654
-------------------------------------------- --------- ---------
A charge for amortisation of acquisition intangibles arose in
the year of GBP0.2m (2021: GBP7.7m). The charge within the
comparative period predominantly related to the MPS acquisition in
2018, resulting in intangible assets being identified associated
with the order book and customer relationships. This MPS intangible
was fully amortised during 2021. The Directors have consistently
explained their rationale for adjusting for this charge within the
Group's alternative profit measure. Whilst the 2022 PBT on an IFRS
basis has increased by 114%, the adjusted measure has increased by
37%, and the Directors believe the lower figure is more reflective
of the Group's performance.
The Directors estimate that, in the absence of further
acquisitions, the amortisation charge moving forwards will be circa
GBP0.2m per annum. On this basis, and in the absence of new
significant acquisitions, the Directors anticipate that this APM
adjustment will not be applied from 2023.
Earnings per share (EPS)
A reconciliation between the statutory measure for profit for
the year attributable to shareholders before and after adjustments
for both basic and diluted EPS is:
Diluted (continuing) Diluted (discontinued) Diluted (continuing and discontinued)
2022 2021 2022 2021 2022 2021
p p p p p p
------------------------ ----------- ---------- ------------ ----------- ------------------- -------------------
Earnings per share 24.51 11.50 0.44 0.99 24.94 12.49
Effect of amortisation
of acquisition
intangibles 0.22 6.77 - - 0.22 6.77
Effect of full tax
charge adjustment (0.22) (1.21) (0.05) (0.32) (0.26) (1.53)
Effect of
non-underlying items - 1.17 - - - 1.17
------------------------ ----------- ---------- ------------ ----------- ------------------- -------------------
Normalised earnings per
share 24.51 18.23 0.39 0.67 24.90 18.90
------------------------ ----------- ---------- ------------ ----------- ------------------- -------------------
Continuing Discontinued Continuing and discontinued
2022 2021 2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- --------- --------- --------- -------------- --------------
Profit attributable to shareholders 27,813 12,997 494 1,122 28,307 14,119
Amortisation of acquisition intangibles 245 7,654 - - 245 7,654
Full tax adjustment (245) (1,365) (55) (361) (300) (1,726)
Exceptional costs - 1,318 - - - 1,318
----------------------------------------- --------- --------- --------- --------- -------------- --------------
Normalised earnings 27,813 20,604 439 761 28,251 21,365
----------------------------------------- --------- --------- --------- --------- -------------- --------------
Net cash/(debt)
The Group excludes the financial impact of IFRS 16 from its
adjusted net debt measure. This adjusted net debt measure has been
introduced to align the net borrowing definition to the Group's
banking covenants, which are required to be stated before the
impact of IFRS 16.
The Group utilises leases as part of its day-to-day business
providing over 10,000 residential properties to vulnerable service
users and key workers. The Group does not recognise these lease
obligations as traditional debt instruments given a significant
proportion of these leases have break provisions which allow the
Group to cancel the associated lease obligation with minimal
associated cost. A reconciliation between the reported net
cash/(debt) and the adjusted measure is detailed below:
Note 2022 2021
GBP'000 GBP'000
--------------------------------------------------------- ----------- ---------- ----------
Cash and cash equivalents 98,138 54,632
Cash deposits (reported in Short-term financial assets) 1,963 -
Revolving Credit Facility - -
--------------------------------------------------------- ----------- ---------- ----------
Adjusted net cash/(debt) APM 100,101 54,632
Lease liabilities (current) Note 20 (44,376) (41,600)
Lease liabilities (non-current) Note 20 (181,045) (175,290)
--------------------------------------------------------- ----------- ---------- ----------
Total Statutory (125,320) (162,258)
--------------------------------------------------------- ----------- ---------- ----------
DISCONTINUED ACTIVITIES
2022 2021
GBP'000 GBP'000
----------------------------------------------------------- --------- ---------
Expenditure (261) (160)
Increase in fair value of contingent consideration 803 1,100
Profit for the year before tax on discontinued operations 542 940
Tax on discontinued operations (48) 182
----------------------------------------------------------- --------- ---------
Profit for the year after tax on discontinued operations 494 1,122
----------------------------------------------------------- --------- ---------
As detailed within the 2020 Annual Report, the Group completed
disposals of both the Domiciliary Care and Planning Solutions
businesses. The consideration payable to the Company in respect of
the Planning solutions business, 'Terraquest', was structured with
a mix of cash and contingent consideration, together with loan
notes and a minority shareholding which gives the Group some
continued participation at a low level.
The final contingent consideration in respect of Terraquest was
settled during 2022 at GBP7.33m versus the fair value carried in
the prior year of GBP6.50m. This additional profit has been
recognised within discontinued activities.
A small amount of expenditure was incurred in respect of these
historical businesses which is recognised in discontinued
operations.
TAXATION
Mears does not engage in artificial tax planning arrangements
but takes advantage of available tax reliefs. The tax position in
any transaction is aligned with the commercial reality and any tax
planning is consistent with the spirit as well as the letter of tax
law. Mears has a low appetite for risk and when making decisions
regarding tax reputational and commercial as well as financial
risks are considered. Given the Group's activities are largely
involved in servicing public sector clients, the risk of
reputational damage flowing from a tax compliance failure is higher
than in other sectors. This leads the Group to take a risk averse
approach if there is an element of uncertainty regarding a
particular treatment.
The Group 'normalises' its headline EPS measure to reflect a
full tax charge. In so doing, the Board has removed from its
primary performance measure any potentially positive impact that
could be achieved through reducing the Group's corporation tax
charge.
Taxes paid
Further detail in respect of the taxes paid during 2022 are
detailed below:
Taxes borne Tax collected Total
GBPm GBPm GBPm
--------------------------- ------------ -------------- ------
Corporation tax 5.7 0.0 5.7
VAT and IPT 0.6 110.2 110.8
Construction industry tax 0.0 7.3 7.3
Income taxes 0.8 23.4 24.2
National insurance 12.5 16.8 29.3
--------------------------- ------------ -------------- ------
Total 19.5 157.7 177.2
--------------------------- ------------ -------------- ------
BALANCE SHEET
Overall, the Group reported an increase in net assets from
GBP201.0m to GBP213.8m driven by retained profits generated in the
year, net of a reduction in the pension surplus. The key balance
sheet categories are reported below together with a brief footnote
to provide further explanation:
Note 2022 2021 Note 2022 2021
GBPm GBPm GBPm GBPm
Non-current Assets Current Liabilities
Goodwill 1 121.9 118.9 Trade payables 7 (171.0) (184.0)
Intangible assets 2 7.5 6.6 Current lease liabilities 4 (44.4) (41.6)
PPE 3 20.2 20.7 Provisions 10 (8.8) (4.5)
Right of use assets 4 213.4 204.9 (224.2) (230.1)
Investments & Loan
Notes 5 5.3 4.2 Non-current Liabilities
Pension assets 6 26.8 50.6 Pension liabilities 6 (3.1) (17.0)
395.1 406.0 Deferred tax liability 11 (4.9) (6.7)
Non-current lease
Current Assets liabilities 4 (181.0) (175.3)
Other non-current
Inventories 7 6.9 22.9 liabilities 12 (0.7) -
Trade receivables 7 128.3 148.3 Non-current provisions 13 (3.1) (3.8)
Corporation tax
asset 8 0.5 2.2 (192.9) (202.8)
Bank, Cash and
Deposits 9 100.1 54.6 Total liabilities (417.0) (432.9)
-------------------------- -------- --------
235.8 228.0
Total assets 630.8 633.9 Total Net Assets 213.8 201.0
===================== ====== ====== ========================== ======== ========
1. This is goodwill generated from previous acquisitions; the
carrying value is tested at least annually for impairment.
2. This includes software development costs of GBP5.0m (2021:
GBP4.0m) which primarily relates to in-house developments to our
key operational IT platforms. This was increased by the acquisition
of IRT which saw a new balance of GBP1.1m acquired and
consolidated; this is being written off over the estimated useful
economic life, which is typically 5 years in respect of the Mears
IT system development but 10-years in respect of the IRT asset.
This balance also includes acquisition intangibles of GBP2.4m
(2021: GBP2.6m) relating to customer relationships identified and
valued on acquisitions and being amortised over the estimated
useful economic life of 20 years.
3. Property, plant, and equipment (PP&E) is stated at
historical cost of GBP47.9m (2021: GBP57.3m) less accumulated
depreciation of GBP27.7m (2021: GBP36.6m), giving a net carrying
value of GBP20.2m (2021: GBP20.7m). Mears historically has a track
record of delivering organic growth in the core Housing activities
with a low requirement for capital expenditure. When the Group
secures a new contract, the Group will typically open an office in
that locality delivering services to this single client; whilst
Mears will typically lease the site office, improvements are often
required to ensure that the property is set up to deliver the
required services, and IT infrastructure and equipment is also
required, and all this spend is typically capitalised.
4. Leasing properties for rental to tenants is an important part
of the Mears' Housing offering. As a result, Mears currently holds
leases for over 10,000 residential property leases and this number
is increasing over time. The way in which the Group manages and
balances the operational and financial risks associated with its
contractual obligations and leasing commitments is important. The
Group seeks to strike a balance between its operational
requirements and the negative financial impact of IFRS 16.
A significant number of leases provide Mears a one-way break
option which typically provides the ability to exit the lease,
having given 30-days' notice. This provides the Group ultimate
flexibility if volumes reduce. Where the Group does not have the
right to break, leases are typically matched to the underlying
contract length which gives comfort that an obligation will not
remain once the requirement for that asset has passed. The Group
has a high number of short-term leases which, as a practical
expedient within IFRS 16, are not required to be reflected on the
Balance Sheet, but can result in a greater operational risk if
suitable properties are in short supply.
In addition to the residential property leases, the Group holds
over 3,500 other leases relating to vehicles and offices.
5. This predominantly relates to an investment over which the
Group has significant influence but which it does not control. This
is categorised as an associate. It is presumed that the Group has
significant influence where it has between 20% and 50% of the
voting rights in the investee unless indicated otherwise; the
carrying value reflects the cost of each investment together with
the Group's share of the profit generated by that entity since
acquisition.
Loan notes are linked to the disposal of Terraquest in 2020. The
Group received GBP3.16m in loan notes accruing an interest rate of
10% per annum, payable on redemption. This carrying value,
inclusive of accrued interest, has increased to GBP4.1m.
6. The Group participates in two principal Group defined benefit
pension schemes together with a further 15 individual defined
benefit schemes where the Group has received Admitted Body status
in a Local Government Pension Scheme (LGPS). These are covered in
greater detail below.
7. Working capital balances include trade receivables, trade
payables and inventories; further explanation is provided within
the working capital management section that follows.
8. All Group profits are chargeable to Corporation Tax at the
headline rate of 19%, which increases to 25% in April 2023. The
Group is required to make quarterly payments, meaning any creditor
outstanding at the period end is relatively low, and in the case of
the last two period ends, the Group has been due a Corporation Tax
refund.
9. The Group has reported a cash balance at the year-end of
GBP98.1m. Whilst the spot number at the Balance Sheet date drives a
key metric, of more importance is the Group's treasury performance
over 365-days. This is covered in greater detail below. In addition
to the reported cash number, the Group held treasury deposits of
GBP2.0m. However, given the deposits maturity was greater than
3-months, it is not included within the cash figures, but instead
classed as a Financial Asset.
10. A provision is a liability of uncertain timing or amount.
Provisions can be distinguished from other liabilities such as
trade payables and accruals because there is uncertainty about the
timing or amount of the future expenditure required in settlement.
The provision of GBP8.8m within current liabilities relates to a
number of legal claims where the Directors have made an assessment
as to the likely loss. Additional detail is provided within note 22
to the financial statements. The provision of GBP3.1m within
non-current liabilities relate to insurance losses which the Group
chooses to self-insure.
11. A Deferred Tax liability of GBP4.9m (2021: GBP6.7m) is
recognised on temporary differences between the treatment of items
for tax and accounting purposes. Tax losses generated in previous
years which are expected to be utilised against future profits are
recognised as a deferred tax asset and a subsequent charge arises
as those losses are utilised. Deferred tax is also recognised on
short-term temporary timing differences, primarily relating to
provisions. These differences are expected to reverse in the
following year and arise because tax relief is only available when
the costs are incurred. Capital allowances represent tax relief on
the acquisition of property, plant and equipment and are spread
over several years at rates set by legislation. These differ from
depreciation, which is an estimate of the use of an item of
property, plant, and equipment over its useful life. Deferred tax
is recognised on the difference between the remaining value of such
an asset for tax purposes and its carrying value in the
accounts.
12. Other payables include provisions relating to the Group's
insurance risks and a small number of contract related provisions
which arise when the unavoidable costs of meeting contractual
obligations exceed the remuneration expected to be received.
PENSIONS
The Group's defined benefit pension arrangement can be
categorised three ways:
-- Two principal Group pension schemes, where the Group is fully at risk over the long-term
-- Five indemnified defined benefit schemes where the Group has
received Admitted Body status in a Local Government Pension Scheme
(LGPS), but where the Group holds a back-to-back indemnity under
the associated customer contract which removes the Group's exposure
to changes in pension contributions and any future deficit
risk.
-- Ten other defined benefit schemes, the majority of which are
LGPS, but where there is no indemnity in place. However, the risk
attached to these schemes matches the time horizon of the
underlying contract; whilst not removing risk, it reduces the
period over which deficit can arise, and therefore the Group is
fully at risk over the medium term
The two principal Group schemes enjoy a strong financial
position and have done consistently over the last 10-years. Both
schemes are relatively mature, and most assets held are matched to
the underlying obligations. It was pleasing to reach a position
where both Group schemes have reached a position where they can be
considered largely self-sufficient. The Directors are really
pleased with the performance of the scheme managers and trustees
who have managed this pension risk so well over many years to reach
the position reported today.
The Directors are comfortable with the position of the
Indemnified and Other schemes. There is only a single scheme
reporting a deficit, and in that instance the Group benefits from
an indemnity. The Group enjoys a significant surplus on many of
other schemes, but these are not recognised as assets as there is
uncertainty around the ability to recover a surplus.
The pension disclosure is split on the face of the Balance Sheet
between non-current assets and non-current liabilities. In
addition, the pension guarantee assets are reported separately from
their associated liabilities which complies with accounting
standards but is less easy for the reader to understand how the
individual components fit together.
2022 2022 2022 2022 2021 2021 2021 2021
Group Indemnified Other TOTAL Group Indemnified Other TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ------------ --------- ---------- ---------- ------------ --------- ----------
Total scheme
assets 128,023 63,848 52,596 261,712 196,912 214,330 81,749 493,483
Total obligations (104,351) (50,995) (36,748) (202,763) (159,261) (198,887) (76,423) (435,089)
------------------- ---------- ------------ --------- ---------- ---------- ------------ --------- ----------
Funded status 23,672 12,853 15,848 58,949 37,651 15,443 5,326 58,394
Surpluses not
recognised
as assets 0 (15,989) (15,848) (38,413) 0 (28,418) (9,320) (37,738)
------------------- ---------- ------------ --------- ---------- ---------- ------------ --------- ----------
Pension surplus
/ liability 23,672 (3,136) 0 20,536 37,651 (12,975) (3,994) 20,656
Guarantee asset 0 3,136 0 3,136 0 12,975 0 12,975
------------------- ---------- ------------ --------- ---------- ---------- ------------ --------- ----------
Net position 23,672 0 0 23,672 37,651 0 (3,994) 33,631
------------------- ---------- ------------ --------- ---------- ---------- ------------ --------- ----------
CASH FLOW AND WORKING CAPITAL MANAGEMENT
The Group has delivered excellent operating cash flows over
recent years with strong underlying EBITDA to operating cash
conversion. Mears has always fostered a strong 'cash culture',
whereby the Group's front-line operations understand that invoicing
and cash collection are intrinsically linked, and that a works
order is not complete until the monies are banked. This culture has
underpinned strong cash performance over many years. The reported
cash conversion has been enhanced further as the working capital
absorbed within the Group's Development activities which has seen
working capital reduced to below GBP2m (2021: GBP12m). However,
without this enhancement, the Group would still have delivered
EBITDA to operating cash of more than 110%.
2022 2021
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Profit before tax 34,944 16,333
Net finance costs 6,341 8,069
Amortisation of acquisition intangibles 245 7,654
Depreciation and amortisation 53,562 51,392
--------------------------------------------- --------- ---------
EBITDA 95,092 83,448
Other adjustments 376 (1,213)
Change in inventories 15,991 12,944
Change in operating receivables 13,855 (2,244)
Change in operating payables and provisions (9,760) (32,573)
--------------------------------------------- --------- ---------
Operating cash flow 115,554 60,362
--------------------------------------------- --------- ---------
EBITDA to operating cash conversion 122% 72%
--------------------------------------------- --------- ---------
The Group reported an adjusted net cash position at the year-end
of GBP100.1m (2021: GBP54.6m). Whilst it is pleasing to report a
strong cash position within the year-end balance sheet, of much
greater significance is the performance over the 365-day period.
Positively, the strong year end performance is also mirrored in the
average daily adjusted net cash for the year at GBP42.9m (2021:
GBP0.4m).
2022 2021
GBP'000 GBP'000
---------------------------------- --------- ---------
Average daily adjusted net cash 42,880 400
Adjusted net cash at 31 December 100,101 54,632
---------------------------------- --------- ---------
The average month end trade receivable and trade payable balance
reflects strong working capital management during the period. The
significant reduction is largely due to the unwind of working
capital from Development activities which released around GBP10m
during the period. The core Housing activities have historically
absorbed a relatively low level of working capital when compared to
the size of the business and the profit generated. The business has
benefitted from payments received on account; however, even if
excluding this temporary benefit, the adjusted measure would
reflect strong performance.
2022 2021
GBPm GBPm
------------- -------------------------------------------------- --------
Receivables 153.7 181.5
Payables (159.7) (165.1)
---------------------------------------------------- ----------- --------
Net working capital (6.0) 16.5
---------------------------------------------------- ----------- --------
Banking and financial covenants
The Group has a simple approach to its debt funding
arrangements, holding a single revolving credit facility (RCF)
which provides a total commitment of GBP70m, but allows the Group
to draw down monies as required, mirroring an overdraft facility.
The Board is grateful for the tremendous support that has been
provided to the Group by its banking partners. A number of those
relationships extend over decades.
The financial covenants included within the RCF, which are
tested twice-yearly on 30 June and 31 December, are detailed below.
Given the Group traded on a net-cash basis throughout 2022, and
enjoyed an associated finance credit, there is significant
headroom. Nevertheless, the Directors have completed a Viability
Review and stress testing the Group's resilience given several
downside scenarios.
Covenant Formulae Covenant ratio
---------------- ----------------------------------------------------------------------------- ---------------
Leverage Consolidated net borrowing divided by Adjusted consolidated EBITDA* 3.00x
Interest cover Adjusted consolidated EBITDA* divided by Consolidated net finance charges** 3.50x
---------------- ----------------------------------------------------------------------------- ---------------
* Adjusted EBITDA on a rolling 12-month basis, pre-IFRS 16, and
stated before non-underlying items and share-based payments.
** Net finance charges comprise all commission, fees, and other
finance charges payable in respect of financial indebtedness. This
excludes income/costs relating to Group pension arrangements.
A margin ratchet ranging from 1.75-2.75% is applied to drawdowns
under the RCF, determined by the Group's leverage ratio at each
quarter end. This margin is payable in addition to the Sterling
Overnight Index Average (SONIA) being the Bank of England risk-free
rate for Sterling markets. Given the strong liquidity and cash
performance, the Board's expectation would be for the margin
payable during 2023 to be at the bottom end of the range.
Consolidated statement of profit or loss
For the year ended 31 December 2022
Note 2022 2021
GBP'000 GBP'000
Continuing operations
----- ---------- ----------
Sales revenue 2 959,613 878,420
----- ---------- ----------
Cost of sales (763,927) (697,933)
----- ---------- ----------
Gross profit 195,686 180,487
----- ---------- ----------
Administrative expenses (155,259) (156,940)
----- ---------- ----------
Operating profit 4 40,427 23,547
----- ---------- ----------
Share of profits of associates 16 858 855
----- ---------- ----------
Finance income 5 2,033 835
----- ---------- ----------
Finance costs 5 (8,374) (8,904)
----- ---------- ----------
Profit for the year before tax 34,944 16,333
----- ---------- ----------
Tax expense 8 (6,441) (3,192)
----- ---------- ----------
Profit for the year from continuing operations 28,503 13,141
----- ---------- ----------
Discontinued operations
----- ---------- ----------
Profit from discontinued operations 9 542 940
----- ---------- ----------
Tax (charge)/credit on discontinued operations 8 (48) 182
----- ---------- ----------
Profit for the year after tax from discontinued operations 494 1,122
----- ---------- ----------
Profit for the year from continuing and discontinued operations 28,997 14,263
----- ---------- ----------
Attributable to:
----- ---------- ----------
Owners of Mears Group PLC 28,307 14,119
----- ---------- ----------
Non-controlling interest 690 144
----- ---------- ----------
Profit for the year 28,997 14,263
----- ---------- ----------
Earnings per share - from continuing operations
----- ---------- ----------
Basic 11 25.07p 11.72p
----- ---------- ----------
Diluted 11 24.51p 11.50p
----- ---------- ----------
Earnings per share - from continuing and discontinued operations
----- ---------- ----------
Basic 11 25.51p 12.73p
----- ---------- ----------
Diluted 11 24.94p 12.49p
----- ---------- ----------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Note 2022 2021
GBP'000 GBP'000
Profit for the year 28,997 14,263
----- --------- ---------
Other comprehensive income:
----- --------- ---------
Which will be subsequently reclassified to the Consolidated Statement of Profit or Loss:
----- --------- ---------
Cash flow hedges:
----- --------- ---------
* gains arising in the year - 1,023
----- --------- ---------
* reclassification to the Consolidated Statement of
Profit or Loss - (85)
----- --------- ---------
Decrease in deferred tax asset in respect of cash flow hedges 25 - (178)
----- --------- ---------
Which will not be subsequently reclassified to the Consolidated Statement of Profit or
Loss:
----- --------- ---------
Actuarial (loss)/gain on defined benefit pension schemes 29 (3,041) 59,721
----- --------- ---------
Pension guarantee asset movements in respect of actuarial gain 29 (6,754) (19,018)
----- --------- ---------
Increase/(decrease) in deferred tax in respect of defined benefit pension schemes 25 2,449 (8,809)
----- --------- ---------
Other comprehensive income for the year (7,346) 32,654
----- --------- ---------
Total comprehensive income for the year 21,651 46,917
----- --------- ---------
Attributable to:
----- --------- ---------
Owners of Mears Group PLC 20,961 46,773
----- --------- ---------
Non-controlling interest 690 144
----- --------- ---------
Total comprehensive income for the year 21,651 46,917
----- --------- ---------
Total comprehensive income for the year attributable to owners of Mears Group PLC arises
from:
----- --------- ---------
Continuing operations 20,467 45,651
----- --------- ---------
Discontinued operations 494 1,122
----- --------- ---------
Total comprehensive income for the year attributable to owners of Mears Group PLC 20,961 46,773
----- --------- ---------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated balance sheet
As at 31 December 2022
Note 2022 2021
GBP'000 GBP'000
Assets
----- --------- ---------
Non-current
----- --------- ---------
Goodwill 12 121,868 118,873
----- --------- ---------
Intangible assets 13 7,452 6,610
----- --------- ---------
Property, plant and equipment 14 20,188 20,712
----- --------- ---------
Right of use assets 15 213,432 204,949
----- --------- ---------
Investments 16 1,271 713
----- --------- ---------
Loan notes and other non-current receivables 24 4,073 3,476
----- --------- ---------
Pension and other employee benefits 29 23,672 37,651
----- --------- ---------
Pension guarantee assets 29 3,136 12,975
----- --------- ---------
395,092 405,959
----- --------- ---------
Current
----- --------- ---------
Inventories 17 6,879 22,869
----- --------- ---------
Trade and other receivables 18 128,334 148,305
----- --------- ---------
Current tax assets 459 2,154
----- --------- ---------
Short-term financial assets 24 1,963 -
----- --------- ---------
Cash and cash equivalents 24 98,138 54,632
----- --------- ---------
235,773 227,960
----- --------- ---------
Total assets 630,865 633,919
----- --------- ---------
Equity
----- --------- ---------
Equity attributable to the shareholders of Mears Group PLC
----- --------- ---------
Called up share capital 26 1,110 1,109
----- --------- ---------
Share premium account 82,351 82,265
----- --------- ---------
Share-based payment reserve 1,801 1,313
----- --------- ---------
Merger reserve 7,971 7,971
----- --------- ---------
Retained earnings 119,100 107,578
----- --------- ---------
Total equity attributable to the shareholders of Mears Group PLC 212,333 200,236
----- --------- ---------
Non-controlling interest 1,492 802
----- --------- ---------
Total equity 213,825 201,038
----- --------- ---------
Liabilities
----- --------- ---------
Non-current
----- --------- ---------
Pension and other employee benefits 29 3,136 16,995
----- --------- ---------
Deferred tax liabilities 25 4,898 6,676
----- --------- ---------
Lease liabilities 20 181,045 175,290
----- --------- ---------
Other non-current liabilities 21 682 -
----- --------- ---------
Non-current provisions 23 3,110 3,800
----- --------- ---------
192,871 202,761
----- --------- ---------
Current
Trade and other payables 19 171,013 184,047
--- -------- --------
Lease liabilities 20 44,376 41,600
--- -------- --------
Provisions 22 8,780 4,473
--- -------- --------
Current liabilities 224,169 230,120
--- -------- --------
Total liabilities 417,040 432,881
--- -------- --------
Total equity and liabilities 630,865 633,919
--- -------- --------
The financial statements were approved and authorised for issue
by the Board of Directors and were signed on its behalf on 30 March
2023.
D J Miles A C M Smith
Director Director
Company number: 03232863
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated cash flow statement
For the year ended 31 December 2022
2022 2021
Note GBP'000 GBP'000
------------------------------------------------------------------------------- ---- -------- --------
Operating activities
Result for the year before tax 34,944 16,333
Adjustments 27 60,524 65,902
Change in inventories 15,991 12,944
Change in trade and other receivables 13,855 (2,244)
Change in trade, other payables and provisions (9,760) (32,573)
------------------------------------------------------------------------------- ---- -------- --------
Cash inflow from operating activities of continuing operations before taxation 115,554 60,362
Taxes paid (4,128) (3,752)
------------------------------------------------------------------------------- ---- -------- --------
Net cash inflow from operating activities of continuing operations 111,426 56,610
Net cash (outflow)/inflow from operating activities of discontinued operations 9 (494) 59
------------------------------------------------------------------------------- ---- -------- --------
Net cash inflow from operating activities 110,932 56,669
------------------------------------------------------------------------------- ---- -------- --------
Investing activities
Additions to property, plant and equipment (8,052) (7,587)
Additions to other intangible assets (1,364) (1,182)
Proceeds from disposals of property, plant and equipment - 46
Expenditure on acquisition of subsidiary, net of cash acquired 28 (2,928) -
Loans repaid by related parties - 500
Distributions from associates 16 300 1,108
Amounts placed on short-term deposit in excess of three months 24 (1,963) -
Interest received 764 413
------------------------------------------------------------------------------- ---- -------- --------
Net cash outflow from investing activities of continuing operations (13,243) (6,702)
Net cash inflow from investing activities of discontinued operations 9 7,333 500
------------------------------------------------------------------------------- ---- -------- --------
Net cash outflow from investing activities (5,910) (6,202)
------------------------------------------------------------------------------- ---- -------- --------
Financing activities
Proceeds from share issue 87 40
Net cash movement in revolving credit facility - (40,000)
Loans provided to other entities (non-controlled) (225) -
Repayment of loan acquired with subsidiary 28 (37) -
Discharge of lease liabilities (43,169) (40,258)
Interest paid (8,425) (8,844)
Dividends paid - Mears Group shareholders 10 (9,692) (2,773)
------------------------------------------------------------------------------- ---- -------- --------
Net cash outflow from financing activities of continuing operations (61,461) (91,835)
Net cash outflow from financing activities of discontinued operations 9 (55) (220)
------------------------------------------------------------------------------- ---- -------- --------
Net cash outflow from financing activities (61,516) (92,055)
------------------------------------------------------------------------------- ---- -------- --------
Cash and cash equivalents, beginning of year 54,632 96,220
------------------------------------------------------------------------------- ---- -------- --------
Net increase/(decrease) in cash and cash equivalents 43,506 (41,588)
------------------------------------------------------------------------------- ---- -------- --------
Cash and cash equivalents, end of year 98,138 54,632
------------------------------------------------------------------------------- ---- -------- --------
Consolidated statement of changes in equity
For the year ended 31 December 2022
Attributable to equity shareholders of the Company
Share Share Share- Hedging Merger Retained Non- Total
capital premium based reserve reserve earnings controlling equity
GBP'000 account payment GBP'000 GBP'000 GBP'000 interest GBP'000
GBP'000 reserve GBP'000
GBP'000
--------- ------------- ---------
At 1 January 2021 1,109 82,225 1,312 (760) 7,971 63,536 658 156,051
--------- --------- --------- --------- --------- ---------- ------------- ---------
Net result for the year - - - - - 14,119 144 14,263
--------- --------- --------- --------- --------- ---------- ------------- ---------
Other comprehensive
income - - - 760 - 31,894 - 32,654
--------- --------- --------- --------- --------- ---------- ------------- ---------
Total comprehensive
income for the year - - - 760 - 46,013 144 46,917
--------- --------- --------- --------- --------- ---------- ------------- ---------
Deferred tax on
share-based payments - - - - - 228 - 228
--------- --------- --------- --------- --------- ---------- ------------- ---------
Issue of shares - 40 - - - - - 40
--------- --------- --------- --------- --------- ---------- ------------- ---------
Share options - value of
employee services - - 575 - - - - 575
--------- --------- --------- --------- --------- ---------- ------------- ---------
Share options -
exercised or lapsed - - (574) - - 574 - -
--------- --------- --------- --------- --------- ---------- ------------- ---------
Dividends - - - - - (2,773) - (2,773)
--------- --------- --------- --------- --------- ---------- ------------- ---------
At 1 January 2022 1,109 82,265 1,313 - 7,971 107,578 802 201,038
--------- --------- --------- --------- --------- ---------- ------------- ---------
Net result for the year - - - - - 28,307 690 28,997
--------- --------- --------- --------- --------- ---------- ------------- ---------
Other comprehensive
income - - - - - (7,346) - (7,346)
--------- --------- --------- --------- --------- ---------- ------------- ---------
Total comprehensive
income for the year - - - - - 20,961 690 21,651
--------- --------- --------- --------- --------- ---------- ------------- ---------
Deferred tax on
share-based payments - - - - - 142 - 142
--------- --------- --------- --------- --------- ---------- ------------- ---------
Issue of shares 1 86 - - - - - 87
--------- --------- --------- --------- --------- ---------- ------------- ---------
Share options - value of
employee services - - 599 - - - - 599
--------- --------- --------- --------- --------- ---------- ------------- ---------
Share options -
exercised or lapsed - - (111) - - 111 - -
--------- --------- --------- --------- --------- ---------- ------------- ---------
Dividends - - - - - (9,692) - (9,692)
--------- --------- --------- --------- --------- ---------- ------------- ---------
At 31 December 2022 1,110 82,351 1,801 - 7,971 119,100 1,492 213,825
--------- --------- --------- --------- --------- ---------- ------------- ---------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Notes to the financial statements - Group
For the year ended 31 December 2022
1. Accounting policies
Accounting policies are detailed in their respective notes,
where relevant. Policies that are not specific to a particular note
are detailed below.
Basis of preparation
The financial information in this announcement does not
constitute the Group's or the Company's statutory accounts as
defined in section 434 of the Companies Act 2006 for the years
ended 31 December 2022 or 2021 but is derived from those accounts.
Statutory accounts for 2021 have been delivered to the registrar of
companies, and those for 2022 will be delivered in due course. The
auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements of the Group have been
prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 and
United Kingdom adopted international accounting standards. The
financial statements are prepared under the historical cost
convention as modified by the revaluation of contingent
consideration, derivative financial instruments and share-based
payments. They are presented in Sterling and all values are rounded
to the nearest thousand (GBP'000).
The accounting policies remain unchanged from the previous year
except for the modification of a number of standards with effect
from 1 January 2022. The adoption of these amendments had no
material effect on the Group's financial statements.
The preparation of financial statements in accordance with IFRS
requires the use of estimates and judgements that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the year. Although these estimates are based on
management's best knowledge of the amounts, actual results may
ultimately differ from those estimates. The most significant
judgements and estimates made by management in these financial
statements are set out in the accounting policies to which they
relate.
Government and societal responses to climate change are still
developing and are interdependent upon each other, and consequently
financial statements cannot capture all possible future outcomes as
these are not yet known. There were no material impacts of climate
change in determining asset and liability valuations and the timing
of future cash flows to be incorporated into these financial
statements.
Mears Group PLC is incorporated and domiciled in England and
Wales (registration number 03232863). Its registered office and
principal place of business is 1390 Montpellier Court, Gloucester
Business Park, Brockworth, Gloucester GL3 4AH. Mears Group PLC's
shares are listed on the Main Market of the London Stock
Exchange.
Basis of consolidation
The Consolidated Balance Sheet includes the assets and
liabilities of the Company and its subsidiaries and is made up to
31 December 2022. Entities for which the Group has the ability to
exercise control over financial and operating policies are
accounted for as subsidiaries. Control is achieved where the
Company has existing rights that give it the current ability to
direct the activities that affect the Company's returns and
exposure or rights to variable returns from the entity. Interests
acquired in entities are consolidated from the effective date of
acquisition and interests sold are consolidated up to the date of
disposal.
All significant intercompany transactions and balances between
Group enterprises, including unrealised profits arising from
intra-group transactions, are eliminated on consolidation; no
profit is taken on sales between Group companies.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and the
non-controlling shareholders' share of changes in equity since the
date of the combination. Total comprehensive income is attributed
to non-controlling interests even if this results in the
non-controlling interest having a deficit balance.
A joint venture is a joint arrangement whereby the parties that
have joint control have the rights to the net assets of the
arrangement. Associates are entities over which the Group does not
have control, but has significant influence. Investments in joint
ventures and associates are accounted for using the equity method
of accounting. Under this method, the Group's share of
post-acquisition profits or losses is recognised in the
Consolidated Statement of Profit or Loss; the cost of the
investment in a given joint venture or associate, together with the
Group's share of that entity's post-acquisition changes to
shareholders' funds, is included in investments within the
Consolidated Balance Sheet.
Going concern
The Directors consider that, as at the date of approving the
financial statements, there is a reasonable expectation that the
Group and Company have adequate resources to continue in
operational existence for the period until 30 June 2024. When
making the assessment, management considers whether the Group will
be able to maintain adequate liquidity headroom above the level of
its borrowing facilities and to operate within the financial
covenants applicable to those facilities, which will be measured at
30 June 2023, 31 December 2023 and 30 June 2024. At 31 December
2022, the Group had GBP70m of committed borrowing facilities,
maturing in December 2026; however, no amount was drawn on the
facility. The principal borrowing facilities are subject to
covenants, as detailed with the Financial review section of the
Strategic Report on page 58 of the Annual Report. The Principal
Risks and Uncertainties section of the Strategic Report on page 48
of the Annual Report also details the principal risks and
uncertainties and how the Group manages its risks. The Group has
modelled its cash flow outlook for the period to 30 June 2024 and
the forecasts indicate significant liquidity headroom will be
maintained above the Group's borrowing facilities and that
financial covenants will be met throughout the period, including
the covenant tests at 30 June 2023, 31 December 2023 and 30 June
2024.
The Group has carried out stress tests against the base case to
determine the performance levels that would result in a breach of
covenants or a reduction of headroom against its borrowing
facilities to GBPnil. The Directors have modelled a number of
downside scenarios. Further detail is provided in the Going Concern
section of the Report of the Directors on page 99 of the Annual
Report. After making these assessments, the Directors consider any
scenario or combination of scenarios that could cause the business
to be no longer a going concern to be implausible. The Directors
have a reasonable expectation that the Company and its subsidiaries
have adequate resources to continue in operational existence for
the period to 30 June 2024. Accordingly, they continue to adopt the
going concern basis in preparing the Annual Report and
Accounts.
Fair value
The Group measures certain assets and liabilities at fair value
on a recurring basis, including its interest rate swaps, contingent
consideration and assets in the Group's defined benefit pension
schemes.
Trade and other receivables, trade and other payables and other
loans are initially measured at fair value and are subsequently
held at amortised cost. Other assets are measured at fair value
when they are assessed for impairment or on classification as held
for sale.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Group uses
valuation techniques that maximise the use of relevant observable
inputs using the following valuation hierarchy, ordered from
highest to lowest priority:
Level 1 - Quoted prices in active markets for identical assets
or liabilities.
Level 2 - Inputs other than quoted prices included in level 1
that are observable either directly or indirectly.
Level 3 - Unobservable inputs, typically derived from the
Group's own information with any necessary adjustments to eliminate
factors specific to the Group.
For assets and liabilities measured at fair value on a recurring
basis, the Group determines whether transfers have occurred between
levels in the hierarchy by assessing the lowest level input that is
significant to the most recent measurement.
Details of the particular valuation techniques used by the Group
are provided in the relevant notes for each type of asset or
liability measured at fair value.
Use of judgements and estimates
The preparation of financial statements requires management to
make estimates and judgements that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of income and expenditure during the reported
period. The estimates and associated judgements are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
The estimates and underlying judgements are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
In the preparation of these consolidated financial statements,
key estimates and judgements have been made by management
concerning provisions necessary for certain liabilities, estimates
used in forecasts used to assess future profitability, the discount
rates used and other judgements when recognising right of use
assets for lease accounting, the timing of revenue recognition, the
recoverability of contract assets and work in progress, actuarial
estimates in respect of defined benefit pension schemes, the fair
value of acquired intangibles and other similar evaluations. Actual
amounts could differ from those estimates. Further details of key
estimates and judgements are provided in the appropriate notes.
New standards and interpretations not yet applied
IFRS 17 - 'Insurance Contracts' is a new standard effective for
accounting periods commencing on or after 1 January 2023. In
addition, a number of standards have been modified with effect for
accounting periods commencing on or after 1 January 2023. These
include IAS 1 - 'Presentation of Financial Statements', IAS 8 -
'Accounting Policies, Changes in Accounting Estimates and Errors'.
None of these amendments are expected to have a material effect on
the Group's financial statements.
2. Revenue
Accounting policy
Revenue is recognised in accordance with IFRS 15 'Revenue from
Contracts with Customers'. IFRS 15 provides a single,
principles-based, five-step model to be applied to all sales
contracts. It is based on the transfer of control of goods and
services to customers. The detail below sets out the principal
types of contract and how the revenue is recognised in accordance
with IFRS 15.
Repair and maintenance contracts
For contracts in this category, the customer raises orders on
demand, for example to carry out responsive repairs. Revenue is
derived from a mixture of lump-sum periodic payments and task-based
payments depending on the terms of the individual contract.
Where a lump-sum payment is in place it may cover the
administrative element of the contract or may cover the majority of
the tasks undertaken within that contract with exclusions to this
being charged in addition to the lump-sum charge. For the works
covered by the lump-sum payment, the performance obligation is
being available to deliver the goods and services in the scope of
the contract, not the performance of the individual works orders
themselves. Revenue is recognised on a straight-line basis as
performance obligations are being met over time.
For works orders not covered by a lump-sum payment, each works
order represents a distinct performance obligation and, as the
customer controls the asset being enhanced through the works, the
performance obligation is satisfied over time. Each works order can
be broken down into one or more distinct tasks which are either
complete or not complete. The stage of completion of the works
order is assessed by looking at which tasks are complete. The
transaction price for partly completed works orders is recognised
as cost plus expected margin. The transaction price for completed
works orders is the invoice value, which is typically determined by
a pricing schedule referred to as a Schedule of Rates that provides
a transaction price for each particular task.
Some contracts may include an element of variable revenue based
on certain KPIs. These are recognised either at a point in time or
over time, depending on the nature of the KPI and the contractual
agreement in which it is contained. Where there is uncertainty in
the measurement of variable consideration, at both the start of the
contract and subsequently, management will consider the facts and
circumstances of the contract in determining either the most likely
amount of variable consideration when the outcome is binary, or the
expected value based on a range of possible considerations.
Included within this assessment will be the extent to which there
is a high probability that a significant reversal in variable
consideration revenues will not occur once the uncertainty is
subsequently resolved. This assessment will include consideration
of the following factors: the total amount of the variable
consideration; the proportion of consideration susceptible to
judgements of customers or third parties, for example KPIs; the
length of time expected before resolution of the uncertainty; and
the Group's previous experience of similar contracts.
Property income
Where the Group is acting as principal, lessor operating lease
revenue is recognised in revenue on a straight-line basis over the
tenancy.
Where the Group is providing a management service, Mears
recognises revenue as an agent (the net management fee) on a
straight-line basis. Where significant initial costs are required
to make good the housing to perform Housing Management activities,
the costs directly attributable to the initial upgrade will be
recognised as costs incurred to fulfil a contract and held within
current assets, to the extent that it is determined that costs are
recoverable.
Where the Group is providing an accommodation and support
service, revenue is recognised at a point in time for each night
that the accommodation is occupied.
Some contracts may include an element of variable revenue based
on certain KPIs. This is recognised on the same basis as above.
Where the Group enters into arrangements with customers for the
provision of housing, an assessment is made as to whether this
income is recognised under IFRS 15 or IFRS 16. The contract between
the Group and the customer is deemed to contain a lease where the
contract conveys the right to control an identified asset for a
period of time in exchange for consideration. In this instance, the
rental income is recognised on a straight-line basis over the life
of the lease. All such sub-leased residential property leases are
classified as operating leases. Revenue in respect of sub-leased
residential property is disclosed separately.
Care services
The standalone selling prices for providing care are overtly
stated in the contract, and the method of application of the rate
of charge is on a unit of time basis, usually expressed as a rate
per visit. Revenue will be recognised in respect of this single
performance obligation, by reference to the chargeable rate and
time for completed care visits in the period.
From time to time, care contracts with customers include a fixed
fee per period for performing a consistent scope of care services.
For these contract types, the revenue recognition is consistent
with lump-sum payments included in repair and maintenance
contracts, as described above.
Mobilisation
Across all revenue types, where a contract includes a
mobilisation element, consideration is initially given to whether
the mobilisation element contains any discrete performance
obligations. If this is the case, an element of the total contract
price is allocated to those performance obligations and recognised
either at a point in time or over time, depending on the nature of
the performance obligation. Mobilisation income is included in the
revenue category to which the contract relates.
Where amounts are received for mobilisation elements that are
not performance obligations, these amounts are allocated to the
performance obligations in the contract to which they relate.
No revenue was recognised during 2021 or 2022 in respect of
mobilisation performance obligations.
Contracting projects
For contracting projects, the contract states the scope and
specification of the construction works to be carried out, for a
fixed price. Mears is continuously satisfying this single
performance obligation as cost is incurred, determining progress
against the performance obligation on either an input or an output
basis. The customer controls the site or output as the work is
being performed on it and therefore revenue is recognised over time
where there is an enforceable right to payment for works completed
to date and the work completed does not create an asset with an
alternative use to the Group. An assessment is made of costs
incurred to date and the costs required to complete the project. If
a project is not deemed to be profitable, the unavoidable costs of
fulfilling the contract are provided for immediately. This category
also includes construction contracts where an end customer has not
yet been identified and the revenue is recognised at the point of
sale of the property, rather than over time.
Other
From time to time, the Group receives revenue that does not fall
within any of the categories above but is not individually
significant enough to require a specific policy. In these cases,
the revenue is considered separately and recognised in accordance
with IFRS 15.
Key sources of estimation uncertainty
Contract recoverability
Determining future contract profitability requires estimates of
future revenues and costs to complete. In making these assessments
there is a degree of inherent uncertainty. The Group utilises the
appropriate expertise in determining these estimates and has
well-established internal controls to assess and review the
expected outcome.
Critical judgements in applying the Group's accounting
policies
Revenue recognition
The estimation techniques used for revenue and profit
recognition in respect of contracting and variable consideration
contracts require judgements to be made about the stage of
completion of certain contracts and the recovery of work in
progress, mobilisation costs and contract assets. Each contract is
treated on its merits and subject to a regular review of the
revenue and costs to complete that contract.
The Group's revenue disaggregated by pattern of revenue
recognition is as follows:
2022 2021
GBP'000 GBP'000
Revenue from contracts with customers
--------- ---------
Repairs and maintenance 451,063 481,647
--------- ---------
Contracting 83,463 101,599
--------- ---------
Property income 376,296 240,641
--------- ---------
Care services 19,544 19,446
--------- ---------
Other 345 295
--------- ---------
930,711 843,628
--------- ---------
Lease income 28,902 34,792
--------- ---------
959,613 878,420
--------- ---------
A total of GBP24.3m of revenue was recognised in respect of the
balance of contract liabilities at the start of the year (2021:
GBP13.2m).
Repairs and maintenance and care service revenue is typically
invoiced between one and 30 days from completion of the performance
obligation. Contracting revenue is typically invoiced based on the
stage of completion of the overall contract. Property income is
typically invoiced monthly in advance. Payment terms for revenue
invoiced are typically 30 to 60 days from the date of invoice.
A maturity analysis of future minimum lessor income as at 31
December is shown in the table below:
2022 2021
GBP'000 GBP'000
Less than 1 year 3,245 7,535
--------- ---------
Between 1 and 2 years 1,537 2,365
--------- ---------
Between 2 and 3 years 1,531 2,060
--------- ---------
Between 3 and 4 years 1,531 1,750
--------- ---------
Between 4 and 5 years 1,150 1,544
--------- ---------
Over 5 years 393 812
--------- ---------
9,387 16,066
--------- ---------
3. Segment reporting
Accounting policy
Segment information is presented in respect of the Group's
operating segments based on the format that the Group reports to
its chief operating decision maker for the purpose of allocating
resources and assessing performance.
The Group considers that the chief operating decision maker
comprises the Executive Directors of the business.
During the year, the Directors revisited the Group's segmental
reporting, resulting in a change in the disclosure with respect to
reportable segments. As there has been no change during the year in
the financial information reported to the chief operating decision
maker, the change has been accounted for as a correction of the
prior year, in accordance with IAS 8, paragraph 49, and the prior
year comparative figures have been amended accordingly.
The Executive Directors manage the group as a single Housing
business, but information provided to the Board and historically to
stakeholders has included a split between Maintenance, Management
and Development. Therefore, the Directors have concluded that
providing segmental information along the same lines would be
helpful to the users of the financial statements.
2022 2021
Maintenance Management Development Total Maintenance Management Development Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Revenue 535,336 405,776 18,501 959,613 572,377 280,422 25,621 878,420
----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Profit/(loss)
before tax and
amortisation of
acquisition
intangibles 12,022 24,281 (1,114) 35,189 12,718 12,554 (1,285) 23,987
----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Amortisation of
acquisition
intangibles (245) (7,654)
Profit before
tax 34,944 16,333
Tax expense (6,441) (3,192)
----------- ---------- ----------- -------- ----------- ---------- ----------- --------
Profit/(loss)
for the year 28,503 13,141
----------- ---------- ----------- -------- ----------- ---------- ----------- --------
The revenues in respect of the Housing with Care element of the
business are included within Maintenance as these services do not
include the provision of a property. In the Chief Executive
Officer's review in the 2021 Annual Report, these figures were
included in the 'Management-led' line.
All revenue and all non-current assets arise within the United
Kingdom. All of the revenue reported is external to the Group. The
Group's largest single customer relationship is in respect of the
Asylum Accommodation and Support Contract (AASC) with the Home
Office, included within the Management segment. At the time that
this contract was won, the Group expected to report annual revenues
of around GBP120m, which would, under normal conditions, amount to
around 15% of Group revenues. The AASC contract has experienced
elevated volumes as a result of a backlog linked to the challenges
of Covid-19. As a result, this customer relationship accounted for
over 30% of Group revenues in 2022 and this elevated position has
continued into 2023. In the longer term, this contract is expected
to reduce back down to a normal level. No other customer comprises
more than 10% of reported revenue.
For the purposes of the disaggregation of revenue in note 2, all
Property income and Lease income is included within the Management
segment and the Development segment contains only Contracting
Revenue. All other revenue is included within the Maintenance
segment.
4. Operating costs
Operating costs, relating to continuing activities, include the
following:
2022 2021
GBP'000 GBP'000
Share-based payments 599 575
--------- ---------
Depreciation 51,508 49,029
--------- ---------
Amortisation of acquisition intangibles 245 7,654
--------- ---------
Amortisation of other intangibles 2,055 2,123
--------- ---------
Loss on disposal of property, plant and equipment 2 273
--------- ---------
Profit on disposal of right of use assets (227) (27)
--------- ---------
A current year charge of GBP5.7m has been incurred in respect of
a matter referred to adjudication ruling in favour of a former
client for breach of contract (see note 22).
Fees payable for audit and non-audit services during the year
were as follows:
2022 2021
GBP'000 GBP'000
In respect of continuing activities:
--------- ---------
Fees payable to the auditor for the audit of the Group's financial statements 416 150
--------- ---------
Other fees payable to the auditor in respect of:
--------- ---------
auditing of accounts of subsidiary undertakings pursuant to legislation 500 600
--------- ---------
additional fees in respect of the prior year audit 65 273
--------- ---------
Total auditor's remuneration 981 1,023
--------- ---------
5. Finance income and finance costs
2022 2021
GBP'000 GBP'000
Interest charge on overdrafts and loans (625) (1,408)
--------- ---------
Interest charge on hedged items - (310)
--------- ---------
Interest on lease obligations (7,617) (6,952)
--------- ---------
Other interest (58) (3)
--------- ---------
Finance costs on bank loans, overdrafts and leases (8,300) (8,673)
--------- ---------
Interest charge on defined benefit pension obligation (74) (231)
--------- ---------
Total finance costs (8,374) (8,904)
--------- ---------
Interest income resulting from short-term bank deposits 870 1
--------- ---------
Interest income resulting from defined benefit pension asset 769 106
--------- ---------
Income from settlement of hedge instruments - 395
--------- ---------
Other interest income 394 333
--------- ---------
Finance income 2,033 835
--------- ---------
Net finance charge (6,341) (8,069)
--------- ---------
Gains and losses on hedged items recognised in other comprehensive income
--------- ---------
Gains/(losses) arising in the year - 1,023
--------- ---------
Reclassification to the Consolidated Statement of Profit or Loss - (85)
--------- ---------
Changes in mark-to-market of interest rate swaps - 938
--------- ---------
6. Employees
Staff costs during the year were as follows:
2022 2021
GBP'000 GBP'000
Wages and salaries 165,348 166,304
--------- ----------
Social security costs 16,795 16,425
--------- ----------
Other pension costs 8,797 8,552
--------- ----------
190,940 191,281
--------- ----------
The average number of employees of the Group during the year
was:
2022 2021
Site workers 2,482 2,873
------ ------
Carers 558 664
------ ------
Office and management 1,950 1,860
------ ------
4,990 5,397
------ ------
7. Share-based employee remuneration
Accounting policy
All share-based payment arrangements are recognised in the
consolidated financial statements in accordance with IFRS 2.
The Group operates equity-settled share-based remuneration plans
for its employees. All employee services received in exchange for
the grant of any share-based remuneration are measured at their
fair values. These are indirectly determined by reference to the
fair value (excluding the effect of non-market-based vesting
conditions) of the share options awarded. Their value is determined
at the date of grant and is not subsequently remeasured unless the
conditions on which the award was granted are modified. The fair
value at the date of the grant is calculated using the Monte Carlo
option pricing model and the cost is recognised on a straight-line
basis over the vesting period. Adjustments are made to reflect
expected and actual forfeitures during the vesting period. For Save
As You Earn (SAYE) plans, employees are required to contribute
towards the plan. This non-vesting condition is taken into account
in calculating the fair value of the option at the grant date.
All share-based remuneration is ultimately recognised as an
expense in the Consolidated Statement of Profit or Loss. For
equity-settled share-based payments there is a corresponding credit
to the share-based payment reserve.
Upon exercise of share options, the proceeds received net of any
directly attributable transaction costs up to the nominal value of
the shares issued are allocated to share capital, with any excess
being recorded as share premium.
As at 31 December 2022 the Group maintained three (2021: three)
active share-based payment schemes for employee remuneration.
Details of the share options outstanding and movement during the
year are as follows:
2022 2021
Number Weighted average exercise Number Weighted average exercise
'000 price '000 price
p p
------- ------- --------------------------
Outstanding at 1 January 4,827 110 5,292 131
------- -------------------------- ------- --------------------------
Granted 442 1 544 1
------- -------------------------- ------- --------------------------
Forfeited or lapsed (643) 108 (965) 177
------- -------------------------- ------- --------------------------
Exercised (74) 116 (44) 92
------- -------------------------- ------- --------------------------
Outstanding at 31 December 4,552 99 4,827 110
------- -------------------------- ------- --------------------------
The weighted average share price at the date of exercise for
share options exercised during the period was 199p. At 31 December
2022, 0.7m options had vested and were still exercisable at prices
between 1p and 429p. These options had a weighted average exercise
price of 245p and a weighted average remaining contractual life of
4.3 years.
The fair values of options granted were determined using the
Monte Carlo option pricing model. Significant inputs into the
calculation include the market price at the date of grant, the
exercise price and share price volatility. Furthermore, the
calculation incorporates an estimate of the future dividend yield
and the risk-free interest rate. The share price volatility was
determined from the daily log normal distributions of the Company
share price over a period commensurate with the expected life as
calculated back from the date of grant. The risk-free interest rate
utilised the zero-coupon bond yield derived from UK Government
bonds as at the date of calculation for a life commensurate with
the expected life. Adjustments are made to reflect expected and
actual forfeitures during the vesting period due to failure to
satisfy service conditions.
There were 0.44m options granted during the year and 0.64m
options that lapsed during the year. The market price at 31
December 2022 was 208p and the range during 2022 was 182p to
224p.
All share-based employee remuneration will be settled in equity.
The Group has no legal obligation to repurchase or settle the
options.
The Group recognised the following expenses related to
share-based payments:
2022 2021
GBP'000 GBP'000
Giving rise to share-based payment reserve:
--------- ---------
SAYE 165 295
--------- ---------
CSOP - 133
--------- ---------
LTIP 434 147
--------- ---------
599 575
--------- ---------
The Group is currently running three active schemes, detailed
below:
Share save plan (Save As You Earn)
Options are available to all employees. Options are granted for
a period of three years. Options are exercisable at a price based
on the quoted market price of the Company's shares at the time of
invitation, discounted by up to 20%. Options are forfeited if the
employee leaves Mears Group before the options vest, which impacts
on the number of options expected to vest. If an employee stops
saving but continues in employment, this is treated as a
cancellation, which results in an acceleration of the share-based
payment charge.
Company Share Option Plan
The Company operates a discretionary unapproved share plan and a
Company Share Option Plan. Options are exercisable at a price below
market value at the date of grant and often at nominal value. The
vesting period is three years. If the options remain unexercised
after a period of 10 years from the date of grant, the options
expire. Options are forfeited if the employee leaves Mears Group
before the options vest. No awards to Executive Directors are
proposed under these plans.
Long-term incentive plan
The LTIP provides for awards of free shares (i.e. either
conditional shares or nil or nominal cost options) normally on an
annual basis which are eligible to vest after three years subject
to continued service and the achievement of challenging performance
conditions. The first award under this scheme was made during 2021.
Options are granted under this scheme to key senior management
subject to performance conditions as detailed on page 92 of the
Remuneration Report within the Annual Report.
8. Tax expense
Accounting policy
Current tax assets and/or liabilities comprise those obligations
to, or claims from, fiscal authorities that are unpaid at the
balance sheet date. They are calculated according to the tax rates
and tax laws applicable to the accounting periods to which they
relate, based on the taxable profit for the year.
Where an item of income or expense is recognised in the
Consolidated Statement of Profit or Loss, any related tax generated
is recognised as a component of tax expense in the Consolidated
Statement of Profit or Loss. Where an item is recognised directly
to equity or presented within the Consolidated Statement of
Comprehensive Income, any related tax generated is treated
similarly.
Deferred taxation is the tax expected to be repayable or
recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and corresponding tax
bases used in the computation of taxable profit and is accounted
for using the balance sheet liability method.
Deferred taxation liabilities are generally recognised on all
taxable temporary differences in full with no discounting. Deferred
taxation assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised. However, deferred tax is not
provided on the initial recognition of goodwill, nor on the initial
recognition of an asset or liability, unless the related
transaction is a business combination or affects tax or accounting
profit.
Deferred taxation is calculated using the tax rates and laws
that are expected to apply in the period when the liability is
settled or the asset is realised, provided they are enacted or
substantively enacted at the balance sheet date. The carrying value
of deferred taxation assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available against which taxable
temporary differences can be utilised. Deferred tax is charged or
credited to either the Consolidated Statement of Profit or Loss,
the Consolidated Statement of Comprehensive Income or equity to the
extent that it relates to items charged or credited. Deferred tax
relating to items charged or credited directly to equity is also
credited or charged to equity.
Tax recognised in the Consolidated Statement of Profit or
Loss:
2022 2021
GBP'000 GBP'000
United Kingdom corporation tax 6,449 2,407
--------- ---------
Adjustment in respect of previous periods (675) (450)
--------- ---------
Total current tax charge recognised in Consolidated Statement of Profit or Loss 5,774 1,957
--------- ---------
Deferred taxation charge:
--------- ---------
on defined benefit pension obligations (41) 154
--------- ---------
on share-based payments 27 -
--------- ---------
on capital allowances 65 806
--------- ---------
on amortisation of acquisition intangibles (65) (1,372)
--------- ---------
on short-term temporary timing differences 149 (45)
--------- ---------
on corporate tax losses 264 1,003
--------- ---------
other timing differences 18 (50)
--------- ---------
statutory rate changes - 742
--------- ---------
Adjustment in respect of previous periods 250 (3)
--------- ---------
Total deferred taxation recognised in Consolidated Statement of Profit or Loss 667 1,235
--------- ---------
Total tax charge recognised in Consolidated Statement of Profit or Loss on continuing
operations 6,441 3,192
--------- ---------
Total tax charge/(credit) recognised in Consolidated Statement of Profit or Loss on
discontinued
operations 48 (182)
--------- ---------
Total tax charge recognised in Consolidated Statement of Profit or Loss 6,489 3,010
--------- ---------
The charge for the year can be reconciled to the result for the
year as follows:
2022 2021
GBP'000 GBP'000
Profit for the year on continuing operations before tax 34,944 16,333
--------- ---------
Profit for the year on discontinued operations before tax 542 940
--------- ---------
Result for the year before tax 35,486 17,273
--------- ---------
Result for the year multiplied by standard rate of corporation tax in the United Kingdom for
the period of 19.0% (2021: 19.0%) 6,742 3,282
--------- ---------
Effect of:
--------- ---------
expenses not deductible for tax purposes 362 112
--------- ---------
income not subject to tax (264) -
--------- ---------
tax impact of employee share schemes 129 102
--------- ---------
tax losses not previously recognised in deferred tax - (593)
--------- ---------
impact of statutory rate changes - 742
--------- ---------
adjustment in respect of prior periods (480) (635)
--------- ---------
Actual tax charge 6,489 3,010
--------- ---------
Deferred tax is recognised on both temporary differences between
the treatment of items for tax and accounting purposes. Deferred
tax on the amortisation of acquisition intangibles is a temporary
difference and arises because no tax relief is due on this kind of
amortisation.
Tax losses generated in previous years which are expected to be
utilised against future profits are recognised as a deferred tax
asset and a subsequent charge arises as those losses are utilised.
No deferred tax asset is recognised in respect of losses of
GBP25.5m (2021: GBP25.5m) across several entities in the Group as
it is not expected that they will be eligible to be utilised
against profits in the future.
Deferred tax is also recognised on short-term temporary timing
differences, primarily relating to provisions. These differences
are expected to reverse in the following year and arise because tax
relief is only available when the costs are incurred.
Capital allowances represent tax relief on the acquisition of
property, plant and equipment and are spread over several years at
rates set by legislation. These differ from depreciation, which is
an estimate of the use of an item of property, plant and equipment
over its useful life. Deferred tax is recognised on the difference
between the remaining value of such an asset for tax purposes and
its carrying value in the accounts.
The UK Budget 2021 announcements on 3 March 2021 included
measures to support economic recovery as a result of the ongoing
Covid-19 pandemic. These included an increase to the UK's main
corporation tax rate to 25%, which is due to be effective from 1
April 2023. These changes were substantively enacted at the balance
sheet date and hence have been reflected in the measurement of
deferred tax balances at the period end, to the extent those
balances are expected to impact on current tax after 1 April
2023.
The following tax has been charged to other comprehensive income
or equity during the year:
2022 2021
GBP'000 GBP'000
Deferred tax charge/(credit) recognised in other comprehensive income
--------- ---------
on defined benefit pension obligations (2,449) 8,809
--------- ---------
on cash flow hedges - 178
--------- ---------
Total deferred tax charge/(credit) recognised in other comprehensive income (2,449) 8,987
--------- ---------
Deferred tax recognised directly in equity
--------- ---------
Deferred tax credit:
--------- ---------
on share-based payments (142) (228)
--------- ---------
Total deferred tax recognised in equity (142) (228)
--------- ---------
9. Discontinued activities
During 2020, the Group completed the disposal of its Domiciliary
Care business and disposed of its Planning Solutions business.
A small amount of expenditure was incurred in respect of the
Domiciliary Care business during 2022, primarily in respect of
costs for a number of leased properties that were not included in
the sale and whose leases came to an end in March 2022. These
transactions are recognised in discontinued operations.
In addition, the consideration for the disposal of the Planning
Solutions business included a contingent element that was received
during 2022. The amount received of GBP7.3m exceeded the fair value
carried at 31 December 2021 and the resultant profit in 2022 of
GBP0.8m has been recognised in discontinued operations, along with
a small amount of costs associated with agreeing the final
value.
The results of the operations which have been included in the
consolidated financial statements are as follows:
2022 2021
GBP'000 GBP'000
Revenue and profits
--------- ---------
Sales revenue - 57
--------- ---------
Cost of sales - (53)
--------- ---------
Administrative expenses (261) (161)
--------- ---------
Increase in fair value of contingent consideration 803 1,100
--------- ---------
Finance costs - (3)
--------- ---------
Profit for the year before tax on discontinued operations 542 940
--------- ---------
Tax on discontinued operations (48) 182
--------- ---------
Profit for the year after tax on discontinued operations 494 1,122
--------- ---------
The results of all disposed businesses prior to their disposal
are presented within discontinued cash flows in the Consolidated
Cash Flow Statement.
The results of the operations which have been included in the
Consolidated Cash Flow Statement are as follows:
2022 2021
GBP'000 GBP'000
Operating activities
--------- ---------
Result for the year before tax 542 940
--------- ---------
Net finance costs - 3
--------- ---------
Share-based payments - -
--------- ---------
Depreciation and amortisation - -
--------- ---------
Net profit on disposal of investments - -
--------- ---------
Fair value movement (803) (1,100)
--------- ---------
Change in operating receivables - -
--------- ---------
Change in operating payables (233) 34
--------- ---------
Net cash outflow from operating activities before taxation (494) (123)
--------- ---------
Taxes repaid - 182
--------- ---------
Net cash (outflow)/inflow from operating activities (494) 59
--------- ---------
Investing activities
--------- ---------
Proceeds from disposal of subsidiaries 7,333 500
--------- ---------
Net cash inflow from investing activities 7,333 500
--------- ---------
Financing activities
--------- ---------
Discharge of lease liabilities (55) (217)
--------- ---------
Interest paid - (3)
--------- ---------
Net cash outflow from financing activities (55) (220)
--------- ---------
Net increase in cash and cash equivalents 6,784 339
--------- ---------
10. Dividends
Accounting policy
Dividend distributions payable to equity shareholders are
included in 'Current financial liabilities' when the dividends are
approved in a general meeting prior to the balance sheet date.
The following dividends were paid on ordinary shares in the
year:
2022 2021
GBP'000 GBP'000
Final 2021 dividend of 5.5p (2021: final 2020 dividend of 0p) per share 6,092 -
--------- ---------
Interim 2022 dividend of 3.25p (2021: interim 2021 dividend of 2.5p) per share 3,600 2,773
--------- ---------
9,692 2,773
--------- ---------
The Directors recommend a final dividend of 7.50p per share.
This has not been included within the consolidated financial
statements as no obligation existed at 31 December 2022.
11. Earnings per share
Continuing Discontinued Continuing and discontinued
2022 2021 2022 2021 2022 2021
p p p p p p
------ ------ ------- ------ -------------- --------------
Earnings per share 25.07 11.72 0.44 1.01 25.51 12.73
------ ------ ------- ------ -------------- --------------
Diluted earnings per share 24.51 11.50 0.43 0.99 24.94 12.49
------ ------ ------- ------ -------------- --------------
For the purpose of calculating earnings per share, earnings have
been calculated as follows:
Continuing Discontinued Continuing and discontinued
2022 2021 2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------- -------------- --------------
Profit for the year 28,503 13,141 494 1,122 28,997 14,263
--------- --------- --------- --------- -------------- --------------
Attributable to non-controlling interests (690) (144) - - (690) (144)
--------- --------- --------- --------- -------------- --------------
Earnings 27,813 12,997 494 1,122 28,307 14,119
--------- --------- --------- --------- -------------- --------------
The calculation of EPS is based on a weighted average of
ordinary shares in issue during the year. The diluted EPS is based
on a weighted average of ordinary shares calculated in accordance
with IAS 33 'Earnings per Share', which assumes that all dilutive
options will be exercised. IAS 33 defines dilutive options as those
whose exercise would decrease earnings per share or increase loss
per share from continuing operations.
2022 2021
Million Million
Weighted average number of shares in issue: 110.96 110.93
--------- ---------
* Dilutive effect of share options 2.52 2.13
--------- ---------
Weighted average number of shares for calculating diluted earnings per share 113.48 113.06
--------- ---------
12. Goodwill
Accounting policy
Goodwill arises on the acquisition of subsidiaries and
represents any excess of the cost of the acquired entity over the
Group's interest in the fair value of the entity's identifiable
assets and liabilities acquired and is capitalised as a separate
item. Goodwill is recognised as an intangible asset.
Under the business combinations exemption of IFRS 1, goodwill
previously written off directly to reserves under UK GAAP is not
recycled to the Consolidated Statement of Profit or Loss on
calculating a gain or loss on disposal.
Impairment
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows: CGUs. Goodwill is allocated to those CGUs that are expected
to benefit from synergies of the related business combination and
represent the lowest level within the Group at which management
monitors the related cash flows.
Goodwill or CGUs that include goodwill and those intangible
assets not yet available for use are tested for impairment at least
annually. All other individual assets or CGUs are tested for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised in the Consolidated Statement
of Profit or Loss for the amount by which the asset's or CGU's
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal
discounted cash flow evaluation. Impairment losses recognised for
CGUs, to which goodwill has been allocated, are credited initially
to the carrying amount of goodwill. Any remaining impairment loss
is charged pro-rata to the other assets in the CGU. With the
exception of goodwill, all assets are subsequently reassessed for
indications that an impairment loss previously recognised may no
longer exist.
Goodwill arising on consolidation Purchased goodwill Total
GBP'000 GBP'000 GBP'000
Gross carrying amount
---------------------------------- ------------------- ---------
At 1 January 2021 and 1 January 2022 114,831 4,042 118,873
---------------------------------- ------------------- ---------
Acquisition of subsidiary 2,995 - 2,995
---------------------------------- ------------------- ---------
At 31 December 2022 117,826 4,042 121,868
---------------------------------- ------------------- ---------
Accumulated impairment losses
---------------------------------- ------------------- ---------
At 1 January 2021, at 1 January 2022 and at 31 - - -
December 2022
---------------------------------- ------------------- ---------
Carrying amount
---------------------------------- ------------------- ---------
At 31 December 2022 117,826 4,042 121,868
---------------------------------- ------------------- ---------
At 31 December 2021 114,831 4,042 118,873
---------------------------------- ------------------- ---------
Goodwill on consolidation arises on the excess of cost of
acquisition over the fair value of the net assets acquired on
purchase of a company.
Purchased goodwill arises on the excess of cost of acquisition
over the fair value of the net assets acquired on the purchase of
the trade and assets of a business by the Group.
Goodwill is not amortised but is reviewed for impairment on an
annual basis or more frequently if there are any indications that
goodwill may be impaired. Goodwill acquired in a business
combination is allocated to groups of CGUs according to the level
at which management monitors that goodwill. Goodwill is carried at
cost less accumulated impairment losses.
The CGU groupings to which goodwill is allocated cannot be
larger than the operating segments of the business. Following the
review of the Group's segmental disclosures, the Directors
reassessed the CGU groupings for goodwill, resulting in the
previous Housing grouping being split between Maintenance and
Management. The revised calculations showed that no impairment is
required at either 31 December 2022 or 31 December 2021.
The carrying value of goodwill is allocated to the following
groups of CGUs:
Goodwill arising on consolidation Purchased goodwill Total
2022 2021 2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----------------- ---------- --------- --------- ---------
Maintenance 65,290 62,295 4,042 4,042 69,332 66,337
----------------- ----------------- ---------- --------- --------- ---------
Management 33,447 33,447 - - 33,447 33,447
----------------- ----------------- ---------- --------- --------- ---------
Housing with Care 19,089 19,089 - - 19,089 19,089
----------------- ----------------- ---------- --------- --------- ---------
117,826 114,831 4,042 4,042 121,868 118,873
----------------- ----------------- ---------- --------- --------- ---------
The Group's cash inflows are largely independent at the
individual branch level and each branch is therefore considered a
CGU. However, the goodwill of the Group contributes to the cash
inflows of multiple CGUs. It is therefore allocated to groups of
CGUs and monitored for internal management purposes primarily at
the operating segment level. The goodwill of Housing with Care is
separately monitored and therefore allocated to a separate group of
CGUs to which it relates.
An asset is impaired if the carrying value exceeds the CGU's
recoverable amount, which is based on value in use. At 31 December
2022 impairment reviews were performed by comparing the carrying
value with the value in use for the groups of CGUs to which
goodwill has been allocated.
The value in use for each group of CGUs is calculated from the
Board-approved one-year budgeted cash flows and extrapolated cash
flows for the next four years discounted at a post-tax discount
rate of over a five-year period with a terminal value. The
impairment reviews incorporated a terminal growth assumption, which
is conservative when compared with the UK long-term growth rate and
the underlying demographics, which will be positive for the Group's
core markets.
The estimated growth rates are based on knowledge of the
relevant sector and market and represent management's base level
expectations for future growth. Changes to revenue and direct costs
are based on past experience and expectation of future changes
within the markets of the CGUs. All CGUs have the same access to
the Group's treasury function and borrowing arrangements to finance
their operations.
Management considers that reasonably possible changes in these
assumptions would not cause a CGU's carrying amount to exceed its
recoverable amount.
The rates used were as follows:
Post-tax discount rate Pre-tax Volume Terminal
discount rate growth rate (years 1-5) growth
rate
Maintenance 11.25% 14.43% 2.00% 1.70%
----------------------- --------------- ------------------------- ---------
Management 11.25% 13.38% 2.00% 1.70%
----------------------- --------------- ------------------------- ---------
Housing with Care 11.25% 14.55% 3.00% 1.90%
----------------------- --------------- ------------------------- ---------
13. Other intangible assets
Accounting policy
In accordance with IFRS 3 (Revised) 'Business Combinations', an
intangible asset acquired in a business combination is deemed to
have a cost to the Group of its fair value at the acquisition date.
The fair value of the intangible asset reflects market expectations
about the probability that the future economic benefits embodied in
the asset will flow to the Group. Where an intangible asset might
be separable, but only together with a related tangible or
intangible asset, the group of assets is recognised as a single
asset separately from goodwill where the individual fair values of
the assets in the group are not reliably measurable. Where the
individual fair values of the complementary assets are reliably
measurable, the Group recognises them as a single asset provided
the individual assets have similar useful lives. Intangible assets
are amortised over the useful economic life of those assets.
Development costs incurred on software development are
capitalised when all the following conditions are satisfied:
-- Completion of the software module is technically feasible so
that it will be available for use.
-- The Group intends to complete the development of the module
and use it.
-- The software will be used in generating probable future
economic benefits.
-- There are adequate technical, financial and other resources
to complete the development and to use the software.
-- The expenditure attributable to the software during its
development can be measured reliably.
Development costs not meeting the criteria for capitalisation
are expensed as incurred. Careful judgement by management is
applied when deciding whether the recognition requirements for
development costs have been met. This is necessary as the economic
success of any development is uncertain and may be subject to
future technical problems at the time of recognition. Judgements
are based on the information available at each balance sheet date.
In addition, all internal activities related to the research and
development of new software are continually monitored by
management.
The cost of an internally generated intangible asset comprises
all directly attributable costs necessary to create, produce and
prepare the asset to be capable of operating in the manner intended
by management. Directly attributable costs include employee costs
incurred on software development.
Amortisation commences upon completion of the asset and is shown
within other administrative expenses. Until the asset is available
for use on completion of the project, the assets are subject to
impairment testing only. Development expenditure is amortised over
the period expected to benefit.
The identifiable intangible assets and associated periods of
amortisation are as follows:
Order book
* over the period of the order book, typically three
years
Client relationships
* over the period expected to benefit, typically five
years
-----------------------------------------------------------
Supplier relationships
* over the period expected to benefit, typically two
years
-----------------------------------------------------------
Development expenditure
* over the useful life of the resulting software,
typically five to ten years
-----------------------------------------------------------
Software * 25% p.a., reducing balance
-----------------------------------------------------------
The useful economic lives of intangible assets are reviewed
annually and amended if appropriate.
Acquisition intangibles
Client Order Supplier Total Development Software Total
relationships book relationships acquisition expenditure GBP'000 intangibles
GBP'000 GBP'000 GBP'000 intangibles GBP'000 GBP'000
GBP'000
-------------- ------------ ------------- ------------
Gross carrying
amount
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 1 January 2021 65,987 17,770 2,172 85,929 19,960 - 105,889
-------------- --------- -------------- ------------ ------------ ------------- ------------
Additions - - - - 1,182 - 1,182
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 1 January 2022 65,987 17,770 2,172 85,929 21,142 - 107,071
-------------- --------- -------------- ------------ ------------ ------------- ------------
Reclassification - - - - - 6,087 6,087
-------------- --------- -------------- ------------ ------------ ------------- ------------
Additions - - - - 1,090 274 1,364
-------------- --------- -------------- ------------ ------------ ------------- ------------
Acquired with
subsidiary - - - - 1,117 - 1,117
-------------- --------- -------------- ------------ ------------ ------------- ------------
Disposals (61,097) (17,770) (2,172) (81,039) - (85) (81,124)
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 31 December
2022 4,890 - - 4,890 23,349 6,276 34,515
-------------- --------- -------------- ------------ ------------ ------------- ------------
Amortisation
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 1 January 2021 59,782 14,105 1,739 75,626 15,058 - 90,684
-------------- --------- -------------- ------------ ------------ ------------- ------------
Provided in the
year 3,556 3,665 433 7,654 2,123 - 9,777
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 1 January 2022 63,338 17,770 2,172 83,280 17,181 - 100,461
-------------- --------- -------------- ------------ ------------ ------------- ------------
Reclassification - - - - - 5,426 5,426
-------------- --------- -------------- ------------ ------------ ------------- ------------
Provided in the
year 245 - - 245 1,849 206 2,300
-------------- --------- -------------- ------------ ------------ ------------- ------------
Eliminated on
disposal (61,097) (17,770) (2,172) (81,039) - (85) (81,124)
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 31 December
2022 2,486 - - 2,486 19,030 5,547 27,063
-------------- --------- -------------- ------------ ------------ ------------- ------------
Carrying amount
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 31 December
2022 2,404 - - 2,404 4,319 729 7,452
-------------- --------- -------------- ------------ ------------ ------------- ------------
At 31 December
2021 2,649 - - 2,649 3,961 - 6,610
-------------- --------- -------------- ------------ ------------ ------------- ------------
Development expenditure is an internally developed intangible
asset and relates largely to the development of the Group's Housing
job management system. During the year, the Group acquired a
subsidiary, IRT Surveys Limited, which itself had internally
developed software for the purpose of assessing residential
properties for decarbonisation retrofits. More details of this
acquisition can be found in note 28.
Development expenditure is amortised over its useful economic
life of either five or ten years, depending on the resulting
software. The weighted average remaining economic life of the asset
is 3.9 years (2021: 3.1 years).
During the year, a reclassification was made for purchased
software that had historically been recognised in Fixtures,
fittings and equipment in Property, Plant and Equipment. This
software is now recognised in Software above. The net book value of
the software reclassified was GBP0.7m.
During the year, intangible assets that had been fully amortised
in either the current or a prior period were reviewed and, where
appropriate, disposed of, resulting in a reduction in gross
carrying amount and accumulated amortisation.
All amortisation is included within other administrative
expenses.
14. Property, plant and equipment
Accounting policy
Items of property, plant and equipment are stated at historical
cost, net of depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow into the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the
Consolidated Statement of Profit or Loss during the financial
period in which they are incurred.
Freehold land is not depreciated. Depreciation on other assets
is calculated to write down the cost less estimated residual value
over their estimated useful economic lives. The rates generally
applicable are:
Freehold buildings * 2% p.a., straight line
Leasehold improvements
* over the period of the lease, straight line
---------------------------------------------------
Plant and machinery * 20% p.a., straight line
---------------------------------------------------
Equipment * 20% p.a., straight line
---------------------------------------------------
Fixtures and fittings * 50% p.a., straight line
---------------------------------------------------
Motor vehicles * 25% p.a., reducing balance
---------------------------------------------------
During the period, the Group reviewed its estimation of the
useful economic lives of plant and machinery and equipment. As a
result of this review, the rates of depreciation generally
applicable for these categories were changed to 20% straight line
from 25% reducing balance. The current year impact of this change
in estimate of GBP2.1m was recognised as an expense during the year
in Administrative expenses.
Residual values are reviewed annually and updated if
appropriate. The carrying value is reviewed for impairment in the
period if events or changes in circumstances indicate the carrying
value may not be recoverable. An asset's carrying value is written
down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within
administrative expenses in the Consolidated Statement of Profit or
Loss.
Identifying whether there are indicators of impairment in
respect of property, plant and equipment involves some judgement
and a good understanding of the drivers of value behind the asset.
At each reporting period an assessment is performed in order to
determine whether there are any such indicators, which involves
considering the performance at both a contract and business level,
and any significant changes to the markets in which we operate.
This is not considered to be a critical judgement or an area of
significant uncertainty.
Freehold Leasehold Plant and Fixtures, Motor Assets Total
property improvements machinery fittings and vehicles under GBP'000
GBP'000 GBP'000 GBP'000 equipment GBP'000 construction
GBP'000 GBP'000
Gross carrying
amount
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 1 January 2021 926 19,170 2,049 35,647 984 5,839 64,615
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Additions 101 5,225 9 2,051 - 216 7,602
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Disposals - - (500) (8,343) - - (8,843)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Transfer to
inventories - - - - - (6,055) (6,055)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 1 January 2022 1,027 24,395 1,558 29,355 984 - 57,319
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Reclassification - - - (6,087) - - (6,087)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Additions 1,635 4,508 - 1,988 - - 8,131
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Acquired with
subsidiary - - - 10 19 - 29
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Disposals - (2) (1,166) (10,386) (488) - (12,042)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 31 December
2022 2,662 28,901 392 14,880 515 - 47,350
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Depreciation
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 1 January 2021 68 8,888 1,551 28,042 966 1,500 41,015
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Provided in the
year 30 3,241 118 2,222 5 - 5,616
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Eliminated on
disposals - - (426) (8,098) - - (8,524)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Transfer to
inventories - - - - - (1,500) (1,500)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 1 January 2022 98 12,129 1,243 22,166 971 - 36,607
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Reclassification - - - (5,426) - - (5,426)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Provided in the
year 17 3,914 227 3,856 7 - 8,021
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Eliminated on
disposals - (2) (1,166) (10,384) (488) - (12,040)
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 31 December
2022 115 16,041 304 10,212 490 - 27,162
---------- -------------- ----------- -------------- ---------- ------------------ ---------
Carrying amount
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 31 December
2022 2,547 12,860 88 4,668 25 - 20,188
---------- -------------- ----------- -------------- ---------- ------------------ ---------
At 31 December
2021 929 12,266 315 7,189 13 - 20,712
---------- -------------- ----------- -------------- ---------- ------------------ ---------
During the year, a reclassification was made for purchased
software that had historically been recognised in Fixtures,
fittings and equipment. This software is now recognised in Software
in Intangible assets. The net book value of the software
reclassified was GBP0.7m.
15. Right of use asset
Accounting policy
Where an asset is subject to a lease, the Group recognises a
right of use asset and a lease liability on the balance sheet. The
right of use asset is measured at cost, which matches the initial
measurement of the lease liability and any costs expected at the
end of the lease, and then depreciated on a straight-line basis
over the lease term.
The lease liability is measured at the present value of the
future lease payments discounted using the Group's incremental
borrowing rate. Lease payments include fixed payments, variable
payments based on an index and payments arising from options
reasonably certain to be exercised.
The Group has elected to account for short-term leases and
leases of low value assets using the practical expedients. Instead
of recognising a right of use asset and a lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right of use assets and
lease liabilities are presented separately.
Critical judgements in applying the Group's accounting
policies
The Group holds more than 15,000 leases across its portfolio of
residential properties, offices and vehicles. Whilst the Group
endeavours to standardise the form of leases, operational demands
dictate that many leases have specific wording to address
particular operational needs and also to manage the associated
operational and financial risks. As such, each lease requires
individual assessment and the Group is required to make key
judgements which include:
-- the identification of a lease;
-- assessing the right to direct the use of the underlying
asset;
-- determining the lease term; and
-- the assessment as to the level of future lease payments,
including fixed and variable payments.
The most typical challenges encountered and which form the key
judgements are:
-- where the lease contains a one-way no-fault break in Mears'
favour, the Group measures the obligation based on the Group's best
estimate of its future intentions;
-- where the lessor has a right of substitution meaning that the
lessor can swap one property for another without Mears'
approval;
-- where Mears does not in practice have the right to control
the use of the asset and the key decision making rights are
retained by the supplier;
-- where a wider agreement for a supply of services includes a
lease component which meets the definition of a lease under IFRS
16; and
-- the assessment of the fixed lease payments where the lease
obligation to the landlord is based on a pass-through arrangement
in which Mears only makes lease payments to the owner to the extent
that the property is occupied and to the extent that rents are
received from the tenant.
Key sources of estimation uncertainty
Additions and remeasurements to right of use assets in respect
of lease agreements are equivalent to the present value (or change
in present value) of the relevant lease obligation. Unless there is
an interest rate implicit in the lease itself, the Group's
Incremental Borrowing Rate (IBR) is used to calculate the present
value of future lease payments. Estimation is required in deriving
an appropriate IBR. The Directors believe that the best
approximation for IBR is the currently applicable margin from the
grid contained within the Group's rolling credit facility (RCF)
agreement, added to an appropriate base rate. The Group's RCF is
linked to SONIA, so that is considered the most appropriate base
rate to use.
The sensitivity of the lease liability to the assumptions used
in these estimations is indicated in note 20.
Investment property
Included within right of use assets are certain properties
classified as investment properties in accordance with IAS 40.
These properties are held primarily in order to earn rentals. The
Group has chosen to apply the cost model to all investment property
and therefore measurement is in line with IFRS 16 as described in
the Leased assets accounting policy.
Properties that generate rentals but are primarily held for the
provision of social benefits are not considered to meet the
definition of investment property.
Assets that are sub-leased to Assets that are used directly within the
customers business
Investment Residential Residential Offices Motor vehicles Total
property property property GBP'000 GBP'000 GBP'000
GBP'000 GBP'000 GBP'000
------------------- -------------- ---------- ------------------- ---------
Gross carrying
amount
------------------- --------------- -------------- ---------- ------------------- ---------
At 1 January 2021 27,528 112,039 75,307 11,076 37,906 263,856
------------------- --------------- -------------- ---------- ------------------- ---------
Additions* 417 5,824 29,646 1,262 12,895 50,044
------------------- --------------- -------------- ---------- ------------------- ---------
Disposals - (4,674) (1,487) (910) (19,761) (26,832)
------------------- --------------- -------------- ---------- ------------------- ---------
At 1 January 2022 27,945 113,189 103,466 11,428 31,040 287,068
------------------- --------------- -------------- ---------- ------------------- ---------
Additions* 2,193 3,438 38,441 608 8,008 52,688
------------------- --------------- -------------- ---------- ------------------- ---------
Disposals - (3,019) (5,921) (1,529) (1,491) (11,960)
------------------- --------------- -------------- ---------- ------------------- ---------
At 31 December 2022 30,138 113,608 135,986 10,507 37,557 327,796
------------------- --------------- -------------- ---------- ------------------- ---------
Depreciation
------------------- --------------- -------------- ---------- ------------------- ---------
At 1 January 2021 3,030 17,151 19,612 4,568 19,454 63,815
------------------- --------------- -------------- ---------- ------------------- ---------
Provided in the
year 1,553 8,609 21,589 1,741 9,921 43,413
------------------- --------------- -------------- ---------- ------------------- ---------
Eliminated on
disposals - (4,140) (795) (910) (19,264) (25,109)
------------------- --------------- -------------- ---------- ------------------- ---------
At 1 January 2022 4,583 21,620 40,406 5,399 10,111 82,119
------------------- --------------- -------------- ---------- ------------------- ---------
Provided in the
year 1,615 7,428 25,422 1,799 7,222 43,486
------------------- --------------- -------------- ---------- ------------------- ---------
Eliminated on
disposals - (2,901) (5,516) (1,529) (1,295) (11,241)
------------------- --------------- -------------- ---------- ------------------- ---------
At 31 December 2022 6,198 26,147 60,312 5,669 16,038 114,364
------------------- --------------- -------------- ---------- ------------------- ---------
Carrying amount
------------------- --------------- -------------- ---------- ------------------- ---------
At 31 December 2022 23,940 87,461 75,674 4,838 21,519 213,432
------------------- --------------- -------------- ---------- ------------------- ---------
At 31 December 2021 23,362 91,569 63,060 6,029 20,929 204,949
------------------- --------------- -------------- ---------- ------------------- ---------
* Additions includes both new underlying assets and
remeasurement of the right of use asset for changes in the lease
terms.
Investment property included above represents properties held by
the Group primarily to earn rentals, rather than for use in the
Group's other activities. The amount included in lease income in
note 2 in respect of these properties is GBP2.3m (2021: GBP1.7m).
Direct operating expenses arising from investment property that
generated rental income during the period was GBP3.6m (2021:
GBP3.3m). The carrying value of the right of use asset in respect
of investment property is considered to be approximately equal to
its fair value.
16. Investments
Accounting policy
Investments include those over which the Group has significant
influence but which it does not control. These are categorised as
associates. It is presumed that the Group has significant influence
where it has between 20% and 50% of the voting rights in the
investee unless indicated otherwise. The Group also holds
investments in joint ventures where the Group and other parties
have joint control over their activities.
The basis by which associates and joint ventures are
consolidated in the Group financial statements is through the
equity method, as outlined in the basis of consolidation.
In addition to associates and joint ventures, the Group holds
investments in entities over which it does not exert significant
influence. These are accounted for at fair value through profit or
loss.
Associates Other investments Total
GBP'000 GBP'000 GBP'000
At 1 January 2021 901 65 966
----------- ------------------ ---------
Share of profit 855 - 855
----------- ------------------ ---------
Distributions received (1,108) - (1,108)
----------- ------------------ ---------
At 1 January 2022 648 65 713
----------- ------------------ ---------
Share of profit 858 - 858
----------- ------------------ ---------
Distributions received (300) - (300)
----------- ------------------ ---------
At 31 December 2022 1,206 65 1,271
----------- ------------------ ---------
Other investments represents the Group's 6.16% holding in Mason
Topco Limited, which is mandatorily held at fair value through
profit or loss. There have been no changes in the fair value of the
investment during the year (2021: none).
Associates
Set out below is the investment in an associate as at 31
December 2022, which in management's opinion is significant to the
Group:
Carrying value
Nature of Proportion Country of 2022 2021
relationship held registration GBP'000 GBP'000
--------------- ----------- ------------------ ---------
Pyramid Plus South LLP Associate 30% England and Wales 1,206 648
--------------- ----------- ------------------ --------- ---------
Pyramid Plus South LLP is a repairs and maintenance service
provider that is central to one of the Group's contracts. The
Group's client for the contract holds the remaining 70% interest in
the entity.
During the year, the Group received distributions of GBP0.3m
(2021: GBP1.1m) from Pyramid Plus South LLP. Summarised financial
information for Pyramid Plus South LLP for the year is shown
below:
2022 2021
GBP'000 GBP'000
Revenue and profits
--------- ---------
Revenue 21,600 19,866
--------- ---------
Expenses (18,738) (17,017)
--------- ---------
Profit for the year 2,862 2,849
--------- ---------
Other comprehensive income - -
--------- ---------
Total comprehensive income 2,862 2,849
--------- ---------
Share of profit at 30% 858 855
--------- ---------
Net assets
--------- ---------
Non-current assets - -
--------- ---------
Current assets 7,795 6,498
--------- ---------
Current liabilities (3,763) (4,291)
--------- ---------
Non-current liabilities - -
--------- ---------
Total assets less total liabilities 4,032 2,207
--------- ---------
Cash and cash equivalents of GBP2.5m (2021: GBP1.9m) were
included in current assets above.
The subsidiary undertakings within the Group at 31 December 2022
are shown below:
Proportion held Country of registration Nature of business
3c Asset Management Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Careforce Group Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Helcim Group Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Helcim Homes Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
IRT Energy Limited 100% Scotland Dormant
---------------- ------------------------ -----------------------------
IRT Surveys Limited 100% Scotland Housing technology provider
---------------- ------------------------ -----------------------------
Let to Birmingham Limited 100% England and Wales Housing management services
---------------- ------------------------ -----------------------------
Manchester Working Limited 80% England and Wales Housing services
---------------- ------------------------ -----------------------------
Mears Energy Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Estates Limited 100% England and Wales Grounds maintenance
---------------- ------------------------ -----------------------------
Mears Extra Care Limited 100% England and Wales Provision of care
---------------- ------------------------ -----------------------------
Mears Facility Management Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Home Improvement Limited 100% England and Wales Housing services
---------------- ------------------------ -----------------------------
Mears Homecare Limited 100% England and Wales Provision of care
---------------- ------------------------ -----------------------------
Mears Homes Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Housing Management Limited 100% England and Wales Housing management services
---------------- ------------------------ -----------------------------
Mears Housing Management (Holdings) 100% England and Wales Intermediate holding company
Limited
---------------- ------------------------ -----------------------------
Mears Housing Portfolio (Holdings) Limited 100% England and Wales Intermediate holding company
---------------- ------------------------ -----------------------------
Mears Housing Portfolio 4 Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Insurance Company Limited 99.99% Guernsey Insurance services
---------------- ------------------------ -----------------------------
Mears Learning Limited 90% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Limited 100% England and Wales Housing services
---------------- ------------------------ -----------------------------
Mears New Homes Limited 100% England and Wales House building
---------------- ------------------------ -----------------------------
Mears Property Company Limited 100% England and Wales Property acquisition
---------------- ------------------------ -----------------------------
Mears Property Company 2 Limited 100% Scotland Property acquisition
---------------- ------------------------ -----------------------------
Mears Scotland (Housing) Limited 100% Scotland Dormant
---------------- ------------------------ -----------------------------
Mears Scotland (Services) Limited 66.67% Scotland Dormant
---------------- ------------------------ -----------------------------
Mears Scotland LLP 66.67% Scotland Housing services
---------------- ------------------------ -----------------------------
Mears Social Housing Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Mears Supported Living Limited 100% Scotland Provision of care
---------------- ------------------------ -----------------------------
Mears Wales Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
MHM Property Services Limited 100% England and Wales Maintenance services
---------------- ------------------------ -----------------------------
Morrison Facilities Services Limited 100% Scotland Maintenance services
---------------- ------------------------ -----------------------------
MPM Housing Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
MPS Housing Limited 100% England and Wales Housing services
---------------- ------------------------ -----------------------------
O&T Developments Limited 100% England and Wales Housing management services
---------------- ------------------------ -----------------------------
Omega Housing Limited 100% England and Wales Housing registered provider
---------------- ------------------------ -----------------------------
Plexus UK (First Project) Limited 100% England and Wales Housing registered provider
---------------- ------------------------ -----------------------------
Scion Group Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Scion Property Services Limited 100% England and Wales Dormant
---------------- ------------------------ -----------------------------
Scion Technical Services Limited 100% England and Wales Maintenance services
---------------- ------------------------ -----------------------------
Tando Homes Limited 100% England and Wales Housing management services
---------------- ------------------------ -----------------------------
Tando Property Services Limited 100% England and Wales Housing management services
---------------- ------------------------ -----------------------------
All subsidiary undertakings prepare accounts to 31 December.
The Group includes the following three subsidiaries with
non-controlling interests: Manchester Working Limited, Mears
Learning Limited and Mears Scotland LLP. The table below sets out
selected financial information in respect of those
subsidiaries:
2022 2021
GBP'000 GBP'000
Revenue and profits
--------- ---------
Revenue 63,061 54,447
--------- ---------
Expenses and taxation (61,764) (54,539)
--------- ---------
Profit for the year 1,297 (92)
--------- ---------
Other comprehensive expense - -
--------- ---------
Total comprehensive income 1,297 (92)
--------- ---------
Profit/(loss) for the year allocated to non-controlling interests 690 144
--------- ---------
Total comprehensive expense allocated to non-controlling interests - -
--------- ---------
Net assets
--------- ---------
Non-current assets 93 178
--------- ---------
Current assets 19,643 14,985
--------- ---------
Current liabilities (13,074) (10,339)
--------- ---------
Non-current liabilities (1,963) (1,393)
--------- ---------
Total assets less total liabilities 4,699 3,431
--------- ---------
Equity shareholders' funds 3,207 2,629
--------- ---------
Non-controlling interests 1,492 802
--------- ---------
Total equity 4,699 3,431
--------- ---------
The following UK subsidiaries will take advantage of the audit
exemption set out within Section 479A of the Companies Act 2006 for
the year ended 31 December 2022:
Registration
number
IRT Surveys Limited SC227199
-------------
Let to Birmingham Limited 08757503
-------------
Mears Estates Limited 03720903
-------------
Mears Extra Care Limited 03689426
-------------
Mears Homecare Limited 02744787
-------------
Mears Home Improvement Limited 03716517
-------------
Mears Housing Management Limited 03662604
-------------
Mears Housing Management (Holdings) Limited 04726480
-------------
Mears Housing Portfolio (Holdings) Limited 10908305
-------------
Mears Housing Portfolio 4 Limited 10952906
-------------
Mears New Homes Limited 08780839
-------------
Mears Property Company Limited 14425736
-------------
Mears Property Company 2 Limited SC750308
-------------
Mears Supported Living Limited SC662805
-------------
MHM Property Services Limited 07448134
-------------
Morrison Facilities Services Limited SC120550
-------------
MPM Housing Limited 03528320
-------------
MPS Housing Limited 11655167
-------------
O&T Developments Limited 05692853
-------------
Scion Group Limited 03905442
-------------
Scion Technical Services Limited 03671450
-------------
Tando Homes Limited 09260353
-------------
Tando Property Services Limited 07405761
-------------
17. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable
value. Cost is the actual purchase price of materials.
Work in progress is included in inventories after deducting any
foreseeable losses and payments on account not matched with
revenue. Work in progress represents costs incurred on new build
residential construction projects where the eventual sale will be
of the completed property. Work in progress is stated at the lower
of cost and net realisable value. Cost comprises materials, direct
labour and any sub-contracted work that has been incurred in
bringing the inventories and work in progress to their present
location and condition.
2022 2021
GBP'000 GBP'000
Materials and consumables 1,329 1,650
--------- ---------
Work in progress 5,550 21,219
--------- ---------
6,879 22,869
--------- ---------
The Group consumed inventories totalling GBP93.9m during the
year (2021: GBP167.3m). No items are being carried at fair value
less costs to sell (2020: GBPnil).
18. Trade and other receivables
Accounting policy
Trade receivables represent amounts due from customers in
respect of invoices raised. They are initially measured at their
transaction price and subsequently remeasured at amortised
cost.
Retention assets represent amounts held by customers for a
period following payment of invoices, to cover any potential
defects in the work. Retention assets are included in trade
receivables and are therefore initially measured at their
transaction price.
Contract assets represent revenue recognised in excess of the
total of payments on account and amounts invoiced.
Critical judgements and key sources of estimation
uncertainty
The estimation techniques used for revenue in respect of
contracting require judgements to be made about the stage of
completion of certain contracts and the recovery of contract
assets. Each contract is treated on its merits and subject to a
regular review of the revenue and costs to complete that contract.
Contract assets represent revenue recognised in excess of the total
of payments on account and amounts invoiced.
However, due to the estimation uncertainty across numerous
contracts each with different characteristics, it is not practical
to provide a quantitative analysis of the aggregated judgements
that are applied, and management does not believe that disclosing a
potential range of outcomes on a consolidated basis would provide
meaningful information to a reader of the accounts.
2022 2021
GBP'000 GBP'000
Current assets:
--------- ---------
Trade receivables 21,483 28,571
--------- ---------
Contract assets 84,797 97,680
--------- ---------
Contract fulfilment costs 1,283 1,242
--------- ---------
Prepayments and accrued income 13,257 9,277
--------- ---------
Contingent consideration - 6,531
--------- ---------
Other debtors 7,514 5,004
--------- ---------
Total trade and other receivables 128,334 148,305
--------- ---------
Included in trade receivables is GBP4.3m (2021: GBP4.9m) in
respect of retention payments due in more than one year.
Trade receivables are normally due within 30 to 60 days and do
not bear any effective interest rate. All trade receivables and
accrued income are subject to credit risk exposure.
The maximum exposure to credit risk in relation to trade
receivables and accrued income at the balance sheet date is the
fair value of trade receivables and accrued income. The Group's
customers are primarily a mix of Local and Central Government and
Housing Associations where credit risk is minimal. The Group's
customer base is large and unrelated and, accordingly, the Group
does not have a significant concentration of credit risk with any
one counterparty.
The amounts presented in the balance sheet in relation to the
Group's trade receivables and accrued income balances are presented
net of loss allowances. The Group measures loss allowances at an
amount equal to lifetime expected credit losses using both
quantitative and qualitative information and analysis based on the
Group's historical experience, and forward-looking information.
The ageing analysis of trade receivables is as follows:
2022 2021
Gross Expected Carrying Gross Expected Carrying
amount due credit loss value amount due credit loss value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ ------------- ---------
Not past due 18,661 (986) 17,675 27,641 (1,110) 26,531
------------ ------------- --------- ------------ ------------- ---------
Less than three months past due 3,051 (504) 2,547 2,063 (429) 1,634
------------ ------------- --------- ------------ ------------- ---------
More than three months past due 1,946 (685) 1,261 5,873 (5,467) 406
------------ ------------- --------- ------------ ------------- ---------
Total trade receivables 23,658 (2,175) 21,483 35,577 (7,006) 28,571
------------ ------------- --------- ------------ ------------- ---------
For expected credit losses with large organisations, such as
Government bodies or Housing Associations, expected credit losses
are calculated on an individual basis, taking account of all the
relevant factors applicable to the amount outstanding. The Group
has no history of defaults with these types of customers, so
expected credit losses relate to specific disputed balances.
For individual tenant customers, expected credit losses are
calculated based on the Group's historical experience of default by
applying a percentage based on the age of the customer's balance.
During 2022, the Directors took the decision to write off debts of
GBP3.0m in respect of historical ex-tenants where the prospect of
recovery is limited. These debts had already been fully provided
over a number of years, so there was no impact on the carrying
value of trade receivables as a result of this decision.
The movement in expected credit loss during the period is shown
below:
2022 2021
GBP'000 GBP'000
As at 1 January 7,006 8,165
--------- ---------
Changes in amounts provided 1,208 196
--------- ---------
Amounts utilised (6,039) (1,355)
--------- ---------
As at 31 December 2,175 7,006
--------- ---------
The movement in contract assets during the period is shown
below:
2022 2021
GBP'000 GBP'000
As at 1 January 97,680 88,594
---------- ----------
Recognised on completion of performance obligations 906,415 843,628
---------- ----------
Invoiced during the year (919,298) (834,542)
---------- ----------
As at 31 December 84,797 97,680
---------- ----------
Included in other debtors is an amount of GBP2.9m (2021:
GBP2.9m) recoverable from the Group's fronting insurers. An equal
and opposite amount is also included within other creditors.
19. Trade and other payables
2022 2021
GBP'000 GBP'000
Trade payables 55,854 69,555
--------- ---------
Accruals 60,278 51,343
--------- ---------
Social security and other taxes 26,343 29,724
--------- ---------
Contract liabilities 23,672 27,843
--------- ---------
Other creditors 4,866 5,582
--------- ---------
171,013 184,047
--------- ---------
Due to the short duration of trade payables, management
considers the carrying amounts recognised in the Consolidated
Balance Sheet to be a reasonable approximation of their fair
value.
The movement in contract liabilities during the period is shown
below:
2022 2021
GBP'000 GBP'000
As at 1 January 27,843 25,330
--------- ---------
Revenue recognised in respect of contract liabilities (24,296) (13,197)
--------- ---------
Payments received in advance of performance obligations being completed 20,125 15,710
--------- ---------
As at 31 December 23,672 27,843
--------- ---------
Contract liabilities relate to payments received from the
customer on the contract, and/or amounts invoiced to the customer
in advance of the Group performing its obligations on contracts
where revenue is recognised either over time or at a point in time.
These amounts are expected to be recognised within revenue within
one year of the balance sheet date.
Included in other creditors is an amount of GBP2.9m (2021:
GBP2.9m) payable to the Group's fronting insurers. An equal and
opposite amount is also included within other debtors reflecting
the subsequent reimbursement due to the Group's insurance
captive.
20. Lease liabilities
Lease liabilities are separately presented on the face of the
Consolidated Statement of Financial Position as shown below:
2022 2021
GBP'000 GBP'000
Current 44,376 41,600
--------- ---------
Non-current 181,045 175,290
--------- ---------
225,421 216,890
--------- ---------
The Group had not committed to any leases which had not
commenced at 31 December 2022. The majority of the Group's property
leases contain variable lease payments that vary annually either by
reference to an index, such as the Consumer Prices Index (CPI), or
based on market conditions each year. The potential impact of this
variation depends on future events and therefore cannot be
quantified, but the Group would typically expect commensurate
adjustments to income derived from these properties.
A smaller number of property leases contain termination or
extension options. Management has assessed whether it is reasonably
certain that the longer term will apply. In some cases, a portfolio
of leases with similar lease terms is considered together and,
where a rolling notice period is available to the Group, an average
expected lease life may be applied.
The Group has elected not to recognise a lease liability for
short-term leases and leases of low value. Payments made under such
leases are expensed on a straight-line basis. Certain leases
incorporate variable lease payments that are not included in the
measurement of lease liabilities in accordance with IFRS 16. The
expense relating to payments not included in the measurement of the
lease liability is as follows:
2022 2021
GBP'000 GBP'000
Short-term leases 46,683 46,780
--------- ---------
Low value leases 1,096 879
--------- ---------
Variable lease payments 1,236 1,550
--------- ---------
The portfolio of short-term leases to which the Group is
committed at the end of the reporting period is not dissimilar to
the portfolio to which the above disclosure relates.
Other disclosures relating to lease liabilities are provided in
the table below:
Note 2022 2021
GBP'000 GBP'000
Depreciation of right of use assets during the year 15 43,486 43,413
----- --------- ---------
Additions during the year 15 52,688 50,044
----- --------- ---------
Carrying value at the year end 15 213,432 204,949
----- --------- ---------
Interest on lease liabilities during the year - continuing activities 5 7,617 6,952
----- --------- ---------
Total cash outflow in respect of leases during the year 27 50,827 47,399
----- --------- ---------
The Group's lease liabilities are subject to changes in certain
key assumptions in estimating the IBRs used to calculate the
liabilities. The IBRs used during the year ranged from 2.79% to
6.90%. The impact of an increase in all IBRs applied during 2022 by
0.5% is a GBP0.4m reduction in the lease liability and a GBP0.1m
reduction in profit before tax.
21. Other non-current liabilities
Other non-current liabilities of GBP0.7m (2021: GBPnil) consist
of deferred and contingent consideration due in more than one year,
as described in note 24.
22. Provisions
Critical judgements and key sources of estimation
uncertainty
By definition, provisions require estimates to be made of future
outcomes and the eventual outflow may differ significantly from the
amount recognised at the end of the year. The Directors have
estimated provisions based on all relevant information available to
them. For individually material provisions further information has
been provided on the maximum likely outflow, in addition to the
best estimate.
A summary of the movement in provisions during the year is shown
below:
Onerous contract provisions Property provisions GBP'000 Legal provisions Total
GBP'000 GBP'000 GBP'000
At 1 January 2022 1,400 730 2,343 4,473
---------------------------- ---------------------------- ----------------- ---------
Provided during the year 1,400 360 8,419 10,179
---------------------------- ---------------------------- ----------------- ---------
Utilised during the year (2,800) (255) (2,817) (5,872)
---------------------------- ---------------------------- ----------------- ---------
At 31 December 2022 - 835 7,945 8,780
---------------------------- ---------------------------- ----------------- ---------
In the year ended 31 December 2021, the Group identified a small
number of maintenance contracts where the estimate of unavoidable
costs of meeting contractual obligations exceeded the remuneration
expected to be received. These were categorised as onerous
contracts of GBP1.4m at 1 January 2022. The contracts all
terminated during the course of 2022 and there is no remaining
onerous contract provision.
Property provisions have been recognised during the year in
respect of the expected costs of reinstating several office
properties to their original condition.
At 1 January 2022, legal provisions of GBP2.3m related to
various sub-contractor and employee related legal claims which were
largely settled during the year. One of the subcontractor claims
increased during the year and is still unresolved, with a provision
of GBP1.5m at 31 December 2022. This is expected to be utilised
within one year.
During the year, the Group took legal advice in respect of one
particularly challenging client relationship and, believing that
the client was acting in breach of contract, served a notice of
termination. This matter was subsequently referred to Adjudication
and the outcome of that process has ruled in favour of the former
client. The consequence of this is that the former client can rely
upon the Adjudicator's decision to bring a claim for damages. The
Group has received an initial indication of damages from the
claimant of GBP9.3m, however the claimant has refused to provide
sufficient detail to support this figure, and the Directors dispute
a number of estimates and assumptions which underpin the value. The
Directors have carried out their own assessment, mindful of the
limitation of the information provided. The Directors have
considered a range of possible outcomes and have provided a sum of
GBP5.7m, which they believe represents the best estimate of the
likely outcome.
23. Non-current provisions
Accounting policy
The Group self-insures certain fleet and liability risks. A
provision for claims incurred but not received is recognised in
respect of these potential claims. The value of this provision is
estimated based on past experience of claims.
2022 2021
GBP'000 GBP'000
Non-current provisions 3,110 3,800
--------- ---------
Non-current provisions represent self-insured claims incurred
but for which the final cost hasn't been agreed. GBP2.0m of the
provision was utilised during the year and GBP1.3m of additional
amounts were provided. The timing of the utilisation of the
provision is uncertain as it depends upon the timing of insurance
claims against the Group. However, the majority of the carrying
value is expected to be utilised in more than one year and, as
such, the provision is considered to be non-current.
24. Financial instruments
Accounting policy
The Group uses a limited number of financial instruments
comprising cash and liquid resources, borrowings, interest rate
swaps and various items such as trade receivables and trade
payables that arise directly from its operations. The main purpose
of these financial instruments is to finance the Group's
operations. The Group seeks to finance its operations through a
combination of retained earnings and borrowings and investing
surplus cash on deposit. The Group uses financial instruments to
manage the interest rate risks arising from its operations and
sources of finance but has no interests in the trade of financial
instruments.
Financial assets and liabilities are recognised in the
Consolidated Balance Sheet when the Group becomes party to the
contractual provisions of the instrument. The principal financial
assets and liabilities of the Group are as follows:
Financial assets
Investments in unlisted equities that do not convey control or
significant influence over the underlying entity are recognised at
fair value. They are subsequently remeasured at fair value with any
changes being recognised in the Consolidated Statement of Profit or
Loss.
Contingent consideration is held by the Group in order to
collect the associated cash flows but until the amount is
determined, these are not solely payments of principal and interest
and therefore these assets are measured both initially and
subsequently at fair value, with any changes being recognised in
the Consolidated Statement of Profit or Loss.
Loan notes and other non-current debtors are held by the Group
in order to collect the associated cash flows and not for trading.
They are therefore initially recognised at fair value and
subsequently measured at amortised cost, less any provision for
impairment.
Financial assets generated from goods or services transferred to
customers are presented as either trade receivables or contract
assets. All of the Group's trade receivables are short-term in
nature, with payments typically due within 60 days of the works
being performed. The Group's contracts with its customers therefore
contain no significant financing component.
Mears recognises a loss allowance for expected credit losses on
financial assets subsequently measured at amortised cost using the
'simplified approach'. Individually significant balances are
reviewed separately for impairment based on the credit terms agreed
with the customer. Other balances are grouped into credit risk
categories and reviewed in aggregate.
Trade receivables and cash at bank and in hand are
non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. Trade receivables are
initially recorded at fair value net of transaction costs, being
invoiced value less any provisional estimate for impairment should
this be necessary due to a loss event. Trade receivables are
subsequently remeasured at invoiced value, less an updated
provision for impairment. Any change in their value through
impairment or reversal of impairment is recognised in the
Consolidated Statement of Profit or Loss.
Cash and cash equivalents include cash at bank and in hand and
bank deposits available with no notice or less than three months'
notice from inception that are subject to an insignificant risk of
changes in value. Bank overdrafts are presented as current
liabilities to the extent that there is no right of offset with
cash balances. The Group considers its revolving credit facility to
be an integral part of its cash management.
Following initial recognition, financial assets are subsequently
remeasured at amortised cost using the effective interest rate
method.
Financial liabilities
The Group's financial liabilities are trade payables, lease
liabilities, deferred and contingent consideration and other
creditors. They are included in the Consolidated Balance Sheet line
items 'Trade and other payables', 'Lease liabilities' and 'Other
non-current liabilities'.
All interest related charges are recognised as an expense in
'Finance costs' in the Consolidated Statement of Profit or Loss
with the exception of those that are directly attributable to the
construction of a qualifying asset, which are capitalised as part
of that asset.
Bank and other borrowings are initially recognised at fair value
net of transaction costs. Gains and losses arising on the
repurchase, settlement or cancellation of liabilities are
recognised respectively in finance income and finance costs.
Borrowing costs are recognised as an expense in the period in which
they are incurred with the exception of those which are directly
attributable to the construction of a qualifying asset, which are
capitalised as part of that asset.
Trade payables on normal terms are not interest bearing and are
stated at their fair value on initial recognition and subsequently
at amortised cost.
Categories of financial instruments
2022 2021
GBP'000 GBP'000
Non-current assets
---------- ----------
Fair value (level 3)
---------- ----------
Investments - other investments 65 65
---------- ----------
Amortised cost
---------- ----------
Loan notes and other non-current debtors 4,073 3,476
---------- ----------
Current assets
---------- ----------
Fair value (level 3)
---------- ----------
Contingent consideration - 6,531
---------- ----------
Amortised cost
---------- ----------
Trade receivables 21,483 28,571
---------- ----------
Other debtors 7,514 5,004
---------- ----------
Short-term financial assets 1,963 -
---------- ----------
Cash at bank and in hand 98,138 54,632
---------- ----------
129,098 88,207
---------- ----------
Non-current liabilities
---------- ----------
Fair value (level 3)
---------- ----------
Contingent consideration (438) -
---------- ----------
Amortised cost
---------- ----------
Lease liabilities (181,045) (175,290)
---------- ----------
Deferred consideration (244) -
---------- ----------
(181,289) (175,290)
---------- ----------
Current liabilities
---------- ----------
Amortised cost
---------- ----------
Trade payables (55,854) (69,555)
---------- ----------
Lease liabilities (44,376) (41,600)
---------- ----------
Other creditors (4,614) (5,582)
---------- ----------
Deferred consideration (252) -
---------- ----------
(105,096) (116,737)
---------- ----------
(153,587) (193,748)
---------- ----------
The amount recognised as an allowance for expected credit losses
on trade receivables during 2022 was GBP1.2m (2021: GBP0.2m).
The IFRS 13 hierarchy level categorisation relates to the extent
the fair value can be determined by reference to comparable market
values. The classifications range from level 1, where instruments
are quoted on an active market, through to level 3, where the
assumptions used to arrive at fair value do not have comparable
market data.
The fair values of investments in unlisted equity instruments
are determined by reference to an assessment of the fair value of
the entity to which they relate. This is typically based on a
multiple of earnings of the underlying business.
There have been no transfers between levels during the year.
Fair value information
The fair value of the Group's financial assets and liabilities
approximates to the book value as disclosed above.
Financial risk management
The Group's activities expose it to a variety of financial
risks: market risk (including interest rate risk and price risk);
credit risk; and liquidity risk. The main risks faced by the Group
relate to the availability of funds to meet business needs and the
risk of credit default by customers. The Group's overall risk
management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
Group's financial performance.
Risk management is carried out under policies and guidelines
approved by the Board of Directors.
Borrowing facilities
The Group's borrowing facilities are drawn on as required to
manage its cash needs. Banking facilities are reviewed regularly
and extended and replaced in advance of their expiry.
The Group had total borrowing facilities of GBP73.0m with
Barclays Bank PLC, HSBC Bank PLC and Citi, of which GBPnil was
utilised at 31 December 2022.
The facilities comprise a committed four-year GBP60.0m revolving
credit facility and unsecured overdraft facilities of GBP13.0m.
Details of the Group's banking covenants are provided on page 58
of the Annual Report.
Interest rate risk management
The Group finances its operations through a mixture of retained
profits and bank borrowings from major banking institutions at
floating rates of interest based on SONIA.
The Group's policy is to accept a degree of interest rate risk,
provided the effects of the various potential changes in rates
remain within certain prescribed parameters.
At 31 December 2022 the Group had minimal exposure to movements
in interest rates as it had no drawn borrowings.
Liquidity risk management
The Group seeks to manage liquidity risk by ensuring sufficient
liquidity is available to meet foreseeable needs and to invest cash
assets safely and profitably.
Management monitors rolling forecasts of the Group's liquidity
reserve (comprising undrawn borrowing facilities and cash and cash
equivalents) on the basis of expected cash flows. This is generally
carried out at a local level in the operating companies of the
Group in accordance with the practice and limits set by the Group.
These limits vary by location and take into account the liquidity
and nature of the market in which the entity operates.
The quantum of committed borrowing facilities of the Group is
regularly reviewed and is designed to exceed forecast peak gross
debt levels. For short-term working capital purposes, the Group
utilises bank overdrafts as required. These facilities are
regularly reviewed and are renegotiated ahead of their expiry
date.
The table below shows the undiscounted maturity profile of the
Group's financial liabilities:
Within 1 year 1-2 years 2-5 years Over 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2022
-------------- ---------- ---------- ------------- ---------
Non-derivative financial liabilities
-------------- ---------- ---------- ------------- ---------
Trade and other payables 55,854 - - - 55,854
-------------- ---------- ---------- ------------- ---------
Lease liabilities 47,320 37,821 68,502 116,218 269,861
-------------- ---------- ---------- ------------- ---------
Other creditors 4,614 4,614
-------------- ---------- ---------- ------------- ---------
Deferred and contingent consideration 260 860 1,120
-------------- ---------- ---------- ------------- ---------
2021
-------------- ---------- ---------- ------------- ---------
Non-derivative financial liabilities
-------------- ---------- ---------- ------------- ---------
Trade and other payables 69,555 - - - 69,555
-------------- ---------- ---------- ------------- ---------
Lease liabilities 42,302 30,769 63,899 123,394 260,364
-------------- ---------- ---------- ------------- ---------
Other creditors 5,582 - - - 5,582
-------------- ---------- ---------- ------------- ---------
Credit risk management
The Group's credit risk is primarily attributable to its trade
receivables, contract assets and work in progress.
Trade receivables are normally due within 30 to 60 days. Trade
and other receivables included in the Consolidated Balance Sheet
are stated net of an expected credit loss provision which has been
estimated by management following a review of individual receivable
accounts. There is no Group-wide rate of provision and provision
made for debts that are overdue is based on prior default
experience and known factors at the balance sheet date. Receivables
are written off against the expected credit loss provision when
management considers that the debt is no longer recoverable.
Housing customers are typically Local and Central Government and
Housing Associations. The nature of these customers means that
credit risk is minimal. Other trade receivables contain no specific
concentration of credit risk as the amounts recognised represent a
large number of receivables from various customers.
The Group continually monitors the position of major customers
and incorporates this information into its credit risk controls.
External credit ratings are obtained where appropriate.
Details of the ageing of trade receivables are shown in note
18.
Loan notes receivable
The loan notes included within non-current assets were received
as part of the disposal of the Terraquest Group. They are repayable
in December 2028 and accrue interest at 10% per annum. Their
carrying value including accumulated interest at 31 December 2022
was GBP3.8m (2021: 3.5m).
Short-term financial assets
Short-term financial assets are fixed-term deposits with
financial institutions with a maturity of more than three months at
inception. Similar deposits with a maturity of three months or less
at inceptions are presented within cash and cash equivalents. All
short-term financial assets have a maturity at inception of 12
months or less and are held for the purpose of generating
returns.
Deferred and contingent consideration receivable
The table below shows the movements in deferred and contingent
consideration receivable:
Deferred Contingent Total
GBP'000 GBP'000 GBP'000
At 1 January 2021 500 5,431 5,931
--------- ----------- ---------
Movement in fair value of contingent consideration - 1,100 1,100
--------- ----------- ---------
Received during the year (500) - (500)
--------- ----------- ---------
At 1 January 2022 - 6,531 6,531
--------- ----------- ---------
Movement in fair value of contingent consideration - 802 802
--------- ----------- ---------
Received during the year - (7,333) (7,333)
--------- ----------- ---------
At 31 December 2022 - - -
--------- ----------- ---------
Deferred and contingent consideration payable
The table below shows the movements in deferred and contingent
consideration payable:
Deferred Contingent Total
GBP'000 GBP'000 GBP'000
At 1 January 2021 and 1 January 2022 - - -
--------- ----------- ---------
Fair value of deferred and contingent consideration on acquisition of IRT 496 438 934
--------- ----------- ---------
At 31 December 2022 496 438 934
--------- ----------- ---------
Deferred consideration payable is initially measured at fair
value by discounting the contractual amount due using a discount
rate based on the assessed cost of debt for the Group. It is
subsequently measured at amortised cost.
Contingent consideration payable is measured at fair value based
on the Director's expectation of the amount that will be payable.
The factors determining the amount payable are detailed in note 28.
This figure is then discounted at a rate in line with the weighted
average cost of capital of the Group. The value of contingent
consideration could vary by up to GBP0.4m based on the factors
detailed in note 28.
Capital management
The Group's objectives when managing capital are:
-- to safeguard the Group's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders;
-- to provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk;
and
-- to maintain an optimal capital structure to reduce the cost
of capital.
The Group sets the amount of capital in proportion to risk. The
Group manages the capital structure and makes adjustments to it in
light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
25. Deferred taxation
Deferred tax is calculated on temporary differences under the
liability method.
Deferred tax relates to the following:
Balance sheet Consolidated statement of profit or Other movements
loss
At 31 December At 31 December 2022 2021 2022 2021
2022 2021 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
----------------- ----------------- ------------------ --------- ---------
Pension schemes (5,800) (8,315) 66 (1,003) 2,449 (8,809)
----------------- ------------------ ----------------- ------------------ --------- ---------
Share-based
payments 704 588 (26) 79 142 228
----------------- ------------------ ----------------- ------------------ --------- ---------
Cash-flow hedges - - - - - (178)
----------------- ------------------ ----------------- ------------------ --------- ---------
Tax losses - 249 (249) (1,030) - -
----------------- ------------------ ----------------- ------------------ --------- ---------
Provisions - 149 (149) 73 - -
----------------- ------------------ ----------------- ------------------ --------- ---------
Acquisition
intangibles (601) (662) 61 1,213 - -
----------------- ------------------ ----------------- ------------------ --------- ---------
Capital
allowances 317 647 (330) (676) - -
----------------- ------------------ ----------------- ------------------ --------- ---------
Leases 625 668 (43) 107 - -
----------------- ------------------ ----------------- ------------------ --------- ---------
Fair value of
software
development (143) - 3 - (146) -
----------------- ------------------ ----------------- ------------------ --------- ---------
(4,898) (6,676) (667) (1,237) 2,445 (8,759)
----------------- ------------------ ----------------- ------------------ --------- ---------
Other movements are recognised in the Consolidated Statement of
Comprehensive Income in respect of pension schemes and in the
Consolidated Statement of Changes in Equity in respect of
share-based payments. Deferred tax on the fair value of software
development was recognised directly in the balance sheet on the
acquisition of IRT Surveys, as described in note 28.
In accordance with IFRS 2 'Share-based Payment', the Group has
recognised an expense for the consumption of employee services
received as consideration for share options granted. A tax
deduction will not arise until the options are exercised. The tax
deduction in future periods is dependent on the Company's share
price at the date of exercise. The estimated future tax deduction
is based on the options' intrinsic value at the balance sheet
date.
The cumulative amount credited to the Consolidated Statement of
Profit or Loss is limited to the tax effect of the associated
cumulative share-based payment expense. The excess has been
credited directly to equity. This is presented in the Consolidated
Statement of Comprehensive Income.
In addition to those recognised, unused tax losses totalling
GBP25.5m (2021: GBP25.5m) have not been recognised as management
does not consider that it is probable that they will be
recovered.
Intangible assets acquired as part of a business combination are
capitalised at fair value at the date of the acquisition and
amortised over their useful economic lives. The UK tax regime
calculates tax using the individual financial statements of the
members of the Group and not the consolidated accounts. Hence, the
tax base of acquisition intangible assets arising on consolidation
is GBPnil. Furthermore, no UK tax relief is available on the
majority of acquisition intangibles within individual entities, so
the tax base of these assets is also GBPnil. The estimated tax
effect of this GBPnil tax base is accounted for as a deferred tax
liability which is released over the period of amortisation of the
associated acquisition intangible asset.
26. Share capital and reserves
Classes of reserves
Share capital represents the nominal value of shares that have
been issued.
Share premium represents the difference between the nominal
value of shares issued and the total consideration received.
Share-based payment reserve represents employee remuneration
which is credited to the share-based payment reserve until the
related share options are exercised. Upon exercise the share-based
payment reserve is transferred to retained earnings.
The merger reserve relates to the difference between the nominal
value and total consideration in respect of acquisitions, where the
Company was entitled to the merger relief offered by the Companies
Act 2006.
Share capital
2022 2021
GBP'000 GBP'000
Allotted, called up and fully paid
--------- ---------
At 1 January 110,926,510 (2021: 110,881,897) ordinary
shares of 1p each 1,109 1,109
--------- ---------
Issue of 74,379 (2021: 44,613) shares on exercise of 1 -
share options
--------- ---------
At 31 December 111,000,889 (2021: 110,926,510) ordinary
shares of 1p each 1,110 1,109
--------- ---------
During the year 74,379 (2021: 44,613) ordinary 1p shares were
issued in respect of share options exercised.
27. Notes to the Consolidated Cash Flow Statement
The following non-operating cash flow adjustments have been made
to the result for the year before tax:
2022 2021
GBP'000 GBP'000
Depreciation 51,508 49,024
--------- ---------
(Profit)/loss on disposal of assets (224) 245
--------- ---------
Amortisation 2,299 9,777
--------- ---------
Share-based payments 599 575
--------- ---------
IAS 19 pension movement 859 (933)
--------- ---------
Share of profits of associates (858) (855)
--------- ---------
Finance income (2,033) (835)
--------- ---------
Finance cost 8,374 8,904
--------- ---------
Total 60,524 65,902
--------- ---------
Movements in financing liabilities during the year are as
follows:
Revolving Lease Total
credit facility liabilities GBP'000
GBP'000 GBP'000
At 1 January 2021 39,353 209,071 248,424
----------------- ------------- ---------
Inception of new leases* - 50,044 50,044
----------------- ------------- ---------
Termination of leases - (1,750) (1,750)
----------------- ------------- ---------
Interest 966 6,955 7,921
----------------- ------------- ---------
Arrangement fees 647 - 647
----------------- ------------- ---------
Cash outflows including in respect of interest (40,966) (47,430) (88,396)
----------------- ------------- ---------
At 1 January 2022 - 216,890 216,890
----------------- ------------- ---------
Inception of new leases* - 52,688 52,688
----------------- ------------- ---------
Termination of leases - (947) (947)
----------------- ------------- ---------
Interest 424 7,617 8,041
----------------- ------------- ---------
Arrangement fees 201 - 201
----------------- ------------- ---------
Cash outflows including in respect of interest (625) (50,827) (51,452)
----------------- ------------- ---------
At 31 December 2022 - 225,421 225,421
----------------- ------------- ---------
* Including modifications to existing leases resulting in a
change in lease liabilities.
Cash outflows in respect of lease liabilities include GBP7.6m
(2021: GBP6.9m) in respect of interest paid and GBP43.2m (2021:
GBP40.3m) in respect of discharge of the underlying lease
liabilities. In 2021, an additional GBP0.2m was included in cash
outflows from financing activities of discontinued operations, in
respect of lease liabilities.
28. Business combinations
Accounting policy
Business combinations are accounted for using the acquisition
method. The acquisition method involves the recognition at fair
value of all identifiable assets and liabilities, including
contingent liabilities of the subsidiary at the acquisition date,
regardless of whether or not they were recorded in the financial
statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are
included in the Consolidated Balance Sheet at their fair values,
which are also used as the bases for subsequent measurement in
accordance with the Group accounting policies. Goodwill is stated
after separating out identifiable intangible assets. Goodwill
represents the excess of acquisition cost over the fair value of
the Group's share of the identifiable net assets of the acquired
subsidiary at the date of acquisition.
Where applicable, the consideration for an acquisition includes
any assets or liabilities arising from a contingent consideration
arrangement, measured at fair value at the acquisition date.
Subsequent changes in such fair values as well as any other changes
in the assets and liabilities acquired, are adjusted against the
cost of acquisition where they result from additional information
obtained up to one year from the acquisition date about facts and
circumstances that existed at the acquisition date. All other
subsequent changes in the fair value of contingent consideration
classified as an asset or liability are recognised in accordance
with IFRS 9 in the Consolidated Statement of Profit or Loss.
For transactions with non-controlling parties that do not result
in a change of control, the difference between the fair value of
the consideration paid and the amount by which the non-controlling
interest is adjusted is recognised in equity.
Any business combinations prior to 1 January 2010 were accounted
for in accordance with the standards in place at the time, which
differ in the following respects: transaction costs directly
attributable to the acquisition formed part of the acquisition
costs; contingent consideration was recognised if, and only if, the
Group had a present obligation, the economic outflow was more
likely than not and a reliable estimate was determinable; and
subsequent adjustments to the contingent consideration were
recognised as part of goodwill.
Critical judgements and key sources of estimation
uncertainty
The allocation of the purchase consideration between goodwill
and the fair value of the acquired intangible assets involved
judgement and estimation in respect of certain key assumptions that
underpin the value of the software development intangible. In
particular, the useful life of the underlying software resulting
from the development expenditure is a key input into the valuation.
If the valuation of the intangible assets was changed, this would
result in a complementary change in the amount of goodwill
recognised.
On 12 August 2022 the Group acquired the entire issued share
capital of IRT Surveys Limited (IRT). IRT provides a range of
data-led services focused on addressing fuel poverty,
decarbonisation and energy efficiency. IRT has developed a
proprietary technology platform (DREam) that has been engineered to
assess the energy performance of housing portfolios and provide
solutions for the most efficient way to complete retrofits.
The acquisition was undertaken in order to enhance the Group's
offering in its Housing segment, particularly with respect to
future decarbonisation projects that will be increasingly important
to clients in reaching their Net Zero targets.
The total consideration for the transaction was up to GBP4.3m
made up of GBP3.2m cash paid on the acquisition date plus up to
GBP1.1m of consideration payable over the course of two years and
partly contingent on the performance of IRT in that time. The
Directors have assessed the fair value of this contingent
consideration as GBP0.9m based on the present value of the expected
consideration to be paid.
The effect of the acquisition of IRT is disclosed below:
GBP'000
Assets
--------
Non-current
--------
Intangible assets 1,117
--------
Property, plant and equipment 29
--------
Current
--------
Trade and other receivables 213
--------
Cash and cash equivalents* 224
--------
Total assets 1,583
--------
Liabilities
--------
Current
--------
Trade and other payables (332)
--------
Lease liabilities (3)
--------
Non-current
--------
Lease liabilities (11)
--------
Total liabilities (346)
--------
Net assets acquired at fair value 1,237
--------
Deferred tax recognised in respect of fair value adjustments (146)
--------
1,091
--------
Goodwill 2,995
--------
4,086
--------
Satisfied by:
--------
* cash 3,152
--------
* fair value of deferred consideration 496
--------
* fair value of contingent consideration 438
--------
4,086
--------
* Cash and cash equivalents includes GBP0.05m in respect of the
exercise price of share options held by employees of IRT and
exercised immediately prior to acquisition.
The only significant fair value adjustment to the carrying value
of IRT assets and liabilities was for the intangible asset in
respect of software development, which was increased by GBP0.6m
from the carrying value. The Group engaged a third-party expert in
order to determine the fair value of this asset, using the excess
earnings method. The fair value adjustment will be amortised over
10 years, in line with the underlying development expenditure. Due
to the relatively short period between the acquisition and the year
end, the initial accounting for the acquisition remains
provisional. However, the Directors do not anticipate significant
movements in the values recognised above in the remaining
measurement period.
The valuation of the software development intangible is
primarily sensitive to changes in the estimated useful life of the
software. This estimated useful life was arrived at through
discussions with the developers of the obsolescence rate of the
software, taking into account historical information and expected
future developments. Reducing the estimated useful life of the
software by two years would result in a GBP0.3m reduction in its
fair value.
The Directors consider that the value assigned to goodwill
represents the benefits arising from the enhanced offering now
available to the Group's existing and future clients. This synergy
would not necessarily be available to typical market participants
and therefore results in a higher proportion of goodwill arising
from this acquisition.
Deferred consideration of GBP0.5m is payable in two instalments,
both one year and two years after acquisition. Contingent
consideration is payable two years after acquisition with an
undiscounted range of GBPnil to GBP0.6m based upon the increase in
the number of properties serviced by the DREam platform over the
course of the two years.
The fair value of Trade and other receivables at acquisition was
as disclosed in the table above. The gross contractual amounts
receivable were GBP0.3m and GBP0.1m was not expected to be
collected as at the date of acquisition. There has been no change
in the Group's assessment of the recoverability of those amounts
since acquisition.
In the period ended 31 December 2022, the acquisition
contributed revenue of GBP0.2m and an operating loss of GBP0.1m.
Costs relating to the acquisition of GBP0.1m have been expensed in
the year and are recognised in Administrative expenses in the
Consolidated Statement of Profit or Loss.
For the year ended 31 December 2022, had the acquisitions taken
place on 1 January 2022, the combined Group full year revenue is
estimated at GBP960.0m and the combined Group profit for the year
before taxation is estimated at GBP34.9m.
Included within Trade and other payables in the table above is
GBP0.04m of bank loans which were repaid following acquisition.
29. Pensions
Accounting policy
Retirement benefit obligations
The Group operates both defined benefit and defined contribution
pension schemes as follows:
Defined contribution pensions
A defined contribution plan is a pension plan under which the
Group pays fixed contributions to an independent entity. The Group
has no legal obligations to pay further contributions after payment
of the fixed contribution.
The contributions recognised in respect of defined contribution
plans are expensed as they fall due. Liabilities and assets may be
recognised if underpayment or prepayment has occurred and are
included in current liabilities or current assets as they are
normally of a short-term nature.
The assets of the schemes are held separately from those of the
Group in an independently administered fund.
Defined benefit pensions
The Group contributes to defined benefit schemes which require
contributions to be made to separately administered funds.
A defined benefit plan is a pension plan that defines an amount
of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of
service and salary. The legal obligations for any benefits from
this kind of pension plan remain with the Group, even if plan
assets for funding the defined benefit plan have been set
aside.
Scheme liabilities are measured using the projected unit funding
method, applying the principal actuarial assumptions at the balance
sheet date. Assets are measured at market value. In accordance with
IFRIC 14, the asset that is recognised is restricted to the amount
by which the IAS 19 service cost is expected, over the lifetime of
the scheme, to exceed funding contributions payable in respect of
accruing benefits.
Where the Group has a contractual obligation to make good any
deficit in its share of an LGPS but also has the right to recover
the costs of making good any deficit from the Group's client, the
fair value of that guarantee asset has been recognised and
disclosed. Movements in the guarantee asset are taken to the
Consolidated Statement of Profit or Loss and to the Consolidated
Statement of Comprehensive Income to match the movement in pension
assets and liabilities.
The Group recognises the pension liability and guarantee assets
separately on the face of the Consolidated Balance Sheet.
Actuarial gains and losses are taken to the Consolidated
Statement of Comprehensive Income as incurred. For this purpose,
actuarial gains and losses comprise both the effects of changes in
actuarial assumptions and experience adjustments arising because of
differences between the previous actuarial assumptions and what has
actually occurred.
Other movements in the net surplus or deficit are recognised in
the Consolidated Statement of Profit or Loss, including the current
service cost, any past service cost and the effect of curtailments
or settlements. The net interest cost is also charged to the
Consolidated Statement of Profit or Loss. The amount charged to the
Consolidated Statement of Profit or Loss in respect of these plans
is included within operating costs.
When the Group ceases its participation in a defined benefit
pension scheme, the difference between the carrying value of the
scheme as calculated on an IAS 19 basis and any deficit payment or
surplus receipt due are recognised in the Consolidated Statement of
Profit or Loss as a settlement.
The Group's contributions to the scheme are paid in accordance
with the rules of the scheme and the recommendations of the scheme
actuary.
Defined benefit assets
Scheme assets for LGPS have been estimated by rolling forward
the published asset position from the previous year using market
index returns over the period. This is considered to provide a good
estimate of the fair value of the scheme assets and the values will
be updated to actuals each time a triennial valuation takes
place.
Defined benefit liabilities
A number of key estimates have been made, which are given below,
and which are largely dependent on factors outside the control of
the Group:
-- inflation rates;
-- mortality;
-- discount rate; and
-- salary and pension increases.
Details of the particular estimates used are included in this
note. Sensitivity analysis for these key estimates is included
below.
Where the Group has a contractual obligation to make good any
deficit in its share of an LGPS but also has the right to recover
the costs of making good any deficit from the Group's client, the
fair value of that asset has been recognised and disclosed. The
right to recover costs is limited to exclude situations where the
Group causes the scheme to incur service costs in excess of those
which would have been incurred were the members employed within
Local Government. Management has made judgements in respect of
whether any of the deficit is as a result of such situations.
The right to recover costs is also limited to situations where
the cap on employer contributions to be suffered by the Group is
not set so as to contribute to reducing the deficit in the scheme.
Management, in conjunction with the scheme actuaries, has made
judgements in respect of the predicted future service cost and
contributions to the scheme to reflect this in the fair value of
the asset recognised.
Key sources of estimation uncertainty
The net position on defined benefit pension schemes is a key
source of estimation uncertainty. Given the importance of this area
and to ensure appropriate estimates are made based on the most
relevant information available, management has continued to engage
with third party advisers in assessing each of the underlying
assumptions. The discount rate is derived from the return on
corporate bond yields, and whilst this is largely observable, any
change in discount rates in the future could have a material impact
on the carrying value of the defined benefit obligation. Similarly,
inflation rates and mortality assumptions impact the defined
benefit obligation as they are used to model future salary
increases and the duration of pension payments. Whilst current
assumptions use projected future inflation rates and the most up to
date information available on expected mortality, if these
estimates change, the defined benefit obligation could also change
materially in future periods.
Defined contribution schemes
The Group operates a defined contribution Group personal pension
scheme for the benefit of certain employees. The Group contributes
to personal pension schemes of certain Directors and senior
employees. The Group operates a stakeholder pension plan available
to all employees. During the year, the Group contributed GBP4.4m
(2021: GBP4.0m) to these schemes.
Defined benefit schemes
The Group participated in 17 (2021: 23) principal defined
benefit schemes on behalf of a number of employees which require
contributions to be made to separately administered funds.
These pension schemes are operated on behalf of Mears Group PLC,
Mears Limited, Morrison Facilities Services Limited and their
subsidiary undertakings. The assets of the schemes are administered
by trustees in funds independent from the assets of the Group.
The Group schemes are no longer open to new members and have no
particular concentration of investments, so expose the Group only
to typical risks associated with defined benefit pension schemes
including the risk that investments underperform compared with
movements in the scheme liabilities.
In certain cases, the Group will participate under Admitted Body
status in the LGPS. The Group will contribute for a finite period
up until the end of the particular contract. The Group is required
to pay regular contributions as detailed in the scheme's schedule
of contributions. In some cases, these contributions are capped and
any excess can be recovered from the body from which the employees
originally transferred. Where the Group has a contractual right to
recover the costs of making good any deficit in the scheme from the
Group's client, the fair value of that asset has been recognised as
a separate pension guarantee asset. Certain judgements around the
value of this asset have been made and are discussed in the
judgements and estimates disclosure within the accounting
policies.
The disclosures in respect of the two (2021: two) Group defined
benefit schemes and the 15 (2021: 21) other defined benefit schemes
in this note have been aggregated. Details of movements in pension
guarantee assets are presented in a separate table.
Costs and liabilities of the schemes are based on actuarial
valuations. The latest full actuarial valuations for the schemes
were updated to 31 December 2022 by qualified independent actuaries
using the projected unit funding method.
The principal actuarial assumptions at the balance sheet date
are as follows:
2022 2021
Rate of increase of salaries 3.00% 3.00%
----------- -----------
Rate of increase for pensions in payment - based on CPI with a cap of 5% 2.55% 2.55%
----------- -----------
Rate of increase for pensions in payment - based on RPI with a cap of 5% 2.80% 2.90%
----------- -----------
Rate of increase for pensions in payment - based on CPI with a cap of 3% 2.05% 2.15%
----------- -----------
Rate of increase for pensions in payment - based on RPI with a cap of 3% 2.20% 2.35%
----------- -----------
Discount rate 4.75% 2.00%
----------- -----------
Retail prices inflation 3.00% 3.00%
----------- -----------
Consumer prices inflation 2.60% 2.60%
----------- -----------
Life expectancy for a 65-year-old male* 21.5 years 21.5 years
----------- -----------
Life expectancy for a 65-year-old female* 24.1 years 24.1 years
----------- -----------
* This assumption is set on a scheme-by-scheme basis, taking
into account the demographics of the relevant members. The figures
disclosed are an average across all schemes.
The amounts recognised in the Consolidated Balance Sheet and
major categories of plan assets are:
2022 2021
Group Other Total Group Other Total
schemes schemes GBP'000 schemes schemes GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- ---------- ----------
Quoted assets
---------- --------- ---------- ---------- ---------- ----------
Equities - 59,914 59,914 - 139,695 139,695
---------- --------- ---------- ---------- ---------- ----------
Bonds 103,829 21,380 125,209 109,157 62,509 171,666
---------- --------- ---------- ---------- ---------- ----------
Property 4,193 957 5,150 5,075 22,893 27,968
---------- --------- ---------- ---------- ---------- ----------
Pooled investment vehicles
---------- --------- ---------- ---------- ---------- ----------
Multi-asset funds 17,417 1,068 18,485 75,002 4,085 79,087
---------- --------- ---------- ---------- ---------- ----------
Alternative asset funds 4,783 78 4,861 9,840 226 10,066
---------- --------- ---------- ---------- ---------- ----------
Return seeking funds 2,035 746 2,781 2,035 333 2,368
---------- --------- ---------- ---------- ---------- ----------
Other assets
---------- --------- ---------- ---------- ---------- ----------
Equities - 14,447 14,447 - 14,133 14,133
---------- --------- ---------- ---------- ---------- ----------
Bonds - 4,004 4,004 - 3,170 3,170
---------- --------- ---------- ---------- ---------- ----------
Property - 10,174 10,174 - 4,275 4,275
---------- --------- ---------- ---------- ---------- ----------
Derivatives 1,822 291 2,113 1,979 331 2,310
---------- --------- ---------- ---------- ---------- ----------
Cash and other 6,153 20,639 26,792 4,470 44,921 49,391
---------- --------- ---------- ---------- ---------- ----------
Investment liabilities
---------- --------- ---------- ---------- ---------- ----------
Derivatives (12,209) (9) (12,218) (10,646) - (10,646)
---------- --------- ---------- ---------- ---------- ----------
Group's estimated asset share 128,023 133,689 261,712 196,912 296,571 493,483
---------- --------- ---------- ---------- ---------- ----------
Present value of funded scheme liabilities (104,351) (98,412) (202,763) (159,261) (275,828) (435,089)
---------- --------- ---------- ---------- ---------- ----------
Funded status 23,672 35,277 58,949 37,651 20,743 58,394
---------- --------- ---------- ---------- ---------- ----------
Scheme surpluses not recognised as assets - (38,413) (38,413) - (37,738) (37,738)
---------- --------- ---------- ---------- ---------- ----------
Pension asset/(liability) 23,672 (3,136) 20,536 37,651 (16,995) 20,656
---------- --------- ---------- ---------- ---------- ----------
Pension guarantee assets - 3,136 3,136 - 12,975 12,975
---------- --------- ---------- ---------- ---------- ----------
The amounts recognised in the Consolidated Statement of Profit
or Loss are as follows:
2022 2021
Group Other Total Group Other Total
schemes schemes GBP'000 schemes schemes GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Current service cost 1,705 3,553 5,258 2,154 4,277 6,431
--------- --------- --------- --------- --------- ---------
Settlement and curtailment - (242) (242) - (687) (687)
--------- --------- --------- --------- --------- ---------
Administration costs 409 - 409 545 - 545
--------- --------- --------- --------- --------- ---------
Total operating charge 2,114 3,311 5,425 2,699 3,590 6,289
--------- --------- --------- --------- --------- ---------
Net interest (769) (464) (1,233) (69) 282 213
--------- --------- --------- --------- --------- ---------
Effects of limitation of recognisable surplus
related to net interest - 643 643 - 152 152
--------- --------- --------- --------- --------- ---------
Total charged to the result for the year 1,345 3,490 4,835 2,630 4,024 6,654
--------- --------- --------- --------- --------- ---------
Cumulative actuarial gains and losses recognised in other
comprehensive income (OCI) are as follows:
2022 2021
Group Other Total Group Other Total
schemes schemes GBP'000 schemes schemes GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Return on plan assets in excess of that recorded in
net interest (70,326) (25,802) (96,128) 12,093 11,691 23,784
--------- --------- --------- --------- --------- ---------
Actuarial gain arising from changes in demographic
assumptions 8 (34) (26) 292 1,001 1,293
--------- --------- --------- --------- --------- ---------
Actuarial gain/(loss) arising from changes in
financial assumptions 58,597 86,474 145,071 17,044 31,648 48,692
--------- --------- --------- --------- --------- ---------
Actuarial gain/(loss) arising from liability
experience (2,994) (737) (3,731) 4,364 8,032 12,396
--------- --------- --------- --------- --------- ---------
Effects of limitation of recognisable surplus
related to OCI movements - (48,227) (48,227) - (26,444) (26,444)
--------- --------- --------- --------- --------- ---------
Total gains and losses recognised in OCI (14,715) 11,674 (3,041) 33,793 25,928 59,721
--------- --------- --------- --------- --------- ---------
Changes in the present value of the defined benefit obligations
are as follows:
2022 2021
Group Other Total Group Other Total
schemes schemes GBP'000 schemes schemes GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Present value of obligations at 1 January 159,261 275,828 435,089 181,184 320,186 501,370
--------- --------- ---------- --------- --------- ---------
Current service cost 1,705 3,553 5,258 2,154 4,277 6,431
--------- --------- ---------- --------- --------- ---------
Interest on obligations 3,144 4,094 7,238 2,413 3,808 6,221
--------- --------- ---------- --------- --------- ---------
Plan participants' contributions 210 470 680 236 540 776
--------- --------- ---------- --------- --------- ---------
Benefits paid (4,358) (6,407) (10,765) (5,026) (6,348) (11,374)
--------- --------- ---------- --------- --------- ---------
Contract transfer - (92,419) (92,419) - (2,212) (2,212)
--------- --------- ---------- --------- --------- ---------
Settlements - (1,004) (1,004) - (3,742) (3,742)
--------- --------- ---------- --------- --------- ---------
Actuarial gain arising from changes in demographic
assumptions (8) 34 26 (292) (1,001) (1,293)
--------- --------- ---------- --------- --------- ---------
Actuarial (gain)/loss arising from changes in
financial assumptions (58,597) (86,474) (145,071) (17,044) (31,648) (48,692)
--------- --------- ---------- --------- --------- ---------
Actuarial (gain)/loss arising from liability
experience 2,994 737 3,731 (4,364) (8,032) (12,396)
--------- --------- ---------- --------- --------- ---------
Present value of obligations at 31 December 104,351 98,412 202,763 159,261 275,828 435,089
--------- --------- ---------- --------- --------- ---------
Changes in the fair value of the plan assets are as follows:
2022 2021
Group Other Total Group Other Total
schemes schemes GBP'000 schemes schemes GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Fair value of plan assets at 1 January 196,912 296,571 493,483 185,436 288,491 473,927
--------- ---------- ---------- --------- --------- ---------
Expected return on plan assets 3,913 4,558 8,471 2,482 3,526 6,008
--------- ---------- ---------- --------- --------- ---------
Employer's contributions 2,081 1,432 3,513 2,236 3,279 5,515
--------- ---------- ---------- --------- --------- ---------
Plan participants' contributions 210 470 680 236 540 776
--------- ---------- ---------- --------- --------- ---------
Benefits paid (4,358) (6,407) (10,765) (5,026) (6,348) (11,374)
--------- ---------- ---------- --------- --------- ---------
Scheme administration costs (409) - (409) (545) - (545)
--------- ---------- ---------- --------- --------- ---------
Contract transfer - (136,371) (136,371) - (1,553) (1,553)
--------- ---------- ---------- --------- --------- ---------
Settlements - (762) (762) - (3,055) (3,055)
--------- ---------- ---------- --------- --------- ---------
Return on plan assets above that recorded in net
interest (70,326) (25,802) (96,128) 12,093 11,691 23,784
--------- ---------- ---------- --------- --------- ---------
Fair value of plan assets at 31 December 128,023 133,689 261,712 196,912 296,571 493,483
--------- ---------- ---------- --------- --------- ---------
Changes in the fair value of guarantee assets are as
follows:
2022 2021
GBP'000 GBP'000
Fair value of guarantee assets at 1 January 12,975 30,705
--------- ---------
Transferred in on scheme entry 525 5,710
--------- ---------
Transferred out on scheme exit (4,768) (6,369)
--------- ---------
Recognised in the Consolidated Statement of Profit or Loss
--------- ---------
Guarantee asset movement in respect of service cost 1,053 1,707
--------- ---------
Guarantee asset movement in respect of net interest 105 240
--------- ---------
Recognised in other comprehensive income
--------- ---------
Guarantee asset movement in respect of actuarial losses (6,754) (19,018)
--------- ---------
Fair value of guarantee assets at 31 December 3,136 12,975
--------- ---------
Funding arrangements are agreed for each of the Group's defined
benefit pension schemes with their respective trustees. The
employer's contributions expected to be paid during the financial
year ending 31 December 2023 amount to GBP3.5m.
Each of the schemes manages risks through a variety of methods
and strategies to limit downside in falls in equity markets,
movement in inflation and movement in interest rates.
The Group's defined benefit obligation is sensitive to changes
in certain key assumptions. The sensitivity analysis below,
prepared using the same methods and assumptions used above, shows
how a reasonably possible increase or decrease in a particular
assumption, in isolation, results in an increase or decrease in the
present value of the defined benefit obligation as at 31 December
2022.
Decrease Increase
GBP'000 GBP'000
Rate of inflation - decrease/increase by 0.1% (2,435) 2,435
--------- ---------
Rate of increase in salaries - decrease/increase by 0.1% (723) 723
--------- ---------
Discount rate - decrease/increase by 0.1% 3,013 (3,013)
--------- ---------
Life expectancy - decrease/increase by 1 year (6,533) 6,533
--------- ---------
30. Capital commitments
The Group had no capital commitments at 31 December 2022 or at
31 December 2021.
31. Contingent liabilities
The Group has guaranteed that it will complete certain Group
contracts that it has commenced. At 31 December 2022 these
guarantees amounted to GBP13.1m (2021: GBP15.7m).
The Group had no other contingent liabilities at 31 December
2022 or at 31 December 2021.
32. Related party transactions
Identity of related parties
The Group has a related party relationship with its pension
schemes, its subsidiaries and its Directors.
Pension schemes
Details of contributions to pension schemes are set out in note
29.
Subsidiaries
The Group has a central treasury arrangement in which all
subsidiaries participate. Management does not consider it
meaningful to set out details of transfers made in respect of this
treasury arrangement between companies, nor does it consider it
meaningful to set out details of interest or dividend payments made
within the Group.
Transactions with key management personnel
The Group has identified key management personnel as the
Directors of Mears Group PLC.
Key management personnel held the following percentage of voting
shares in Mears Group PLC:
2022 2021
% %
Directors 0.5 0.6
----- -----
Key management personnel's compensation is as follows:
2022 2021
GBP'000 GBP'000
Salaries including social security costs 1,714 1,659
--------- ---------
Contributions to defined contribution pension schemes 134 134
--------- ---------
Share-based payments 434 146
--------- ---------
2,282 1,939
--------- ---------
Further details of Directors' remuneration are disclosed within
the Remuneration Report.
Dividends totalling GBP0.06m (2021: GBP0.02m) were paid to
Directors during the year.
Transactions with other related parties
During the year the Group provided maintenance services to
Pyramid Plus South LLP, an entity in which the Group is a 30%
member, totalling GBP10.2m (2021: GBP10.2m). Pyramid Plus South LLP
also made recharges of certain staff costs to the Group totalling
GBP0.2m (2021: GBP0.2m). At 31 December 2022, GBP1.0m (2021:
GBP1.0m) was due to the Group in respect of these transactions.
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END
FR BLGDSSBDDGXR
(END) Dow Jones Newswires
April 28, 2023 02:00 ET (06:00 GMT)
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