Mears Group PLC
("Mears" or "the
Group" or "the Company")
Preliminary Results for the year ended
31 December 2023
Strong financial and
operational performance with positive trading outlook
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 2023
("FY23").
Financial Highlights
|
FY 2023
|
FY
2022
|
Change
|
Revenue (£m)
|
1,089.3
|
959.6
|
+14%
|
Profit before tax (£m)
|
46.9
|
34.9
|
+34%
|
Statutory diluted EPS (p)
|
31.94
|
24.51
|
+30%
|
Adjusted diluted EPS1
(p)
|
31.24
|
24.69
|
+27%
|
Dividend per share (p)
|
13.00
|
10.50
|
+24%
|
Adjusted net cash2
£m
|
109.1
|
100.1
|
+9%
|
Average daily adjusted net
cash2 (£m)
|
76.5
|
42.9
|
+78%
|
· Group
revenues up 14% year-on-year to £1,089.3m (FY22:
£959.6m).
· Profit
before tax increased by 34% to £46.9m (FY22: £34.9m).
o Adjusted operating margin continues to strengthen to
4.7%3 (FY22: 3.7%).
· Excellent cash performance with average daily adjusted net
cash of £76.5m (FY22: £42.9m)2
o Cash
conversion at 123% of EBITDA (FY22: 122%).
o Adjusted net cash2
at 31 December 2023 of £109.1m (FY22:
£100.1m).
· The
Board is recommending a final dividend of 9.30p, bringing the full
year dividend for 2023 to 13.00p (FY22: 10.50p) reflecting
continued strong cash performance and the Board's confidence in the
Group's prospects.
· The
Board has executed a number of buyback
programmes of on-market share purchases.
o £33m
of share buybacks were completed in FY23; 12.2m Ordinary shares
representing c11.0% of the Group's issued share capital at the
start of FY23 were bought and cancelled.
o A
third buyback programme totaling up to £20m is on-going.
· Mears
has made a strong start to 2024. The Board continues to anticipate
a reduction in management-led revenues as the elevated activity
level seen across FY23 normalises, although the timing remains
uncertain. Adjusted profit before tax in FY24 is expected to be of
a similar quantum to FY23.
Strategic Highlights
· The
Group secured aggregate new contract awards of around £175m during
FY23, at a bid conversion rate of over 70% (by value), reflecting
an increasingly focused approach when bidding for new contract
opportunities.
· The
Social Housing Decarbonisation Fund ('SHDF') Wave 2 saw Mears
submit successful grant applications of c.£40m on behalf of
clients. This will contribute a total works value of around £120m
to be delivered over the course of 2024 and 2025.
· The
Group remains well-placed in bidding a new contract with North
Lanarkshire Council ('NLC') to provide reactive maintenance,
compliance, servicing, and planned works. The contract would
commence in July 2024 for a period of up to 12 years, with an
annual value in the region of £125m and a total contract sum of
over £1.5 billion, doubling the existing work with this key
client.
· The
Group was proud of the positive feedback received through the
Sunday Times Best Big Companies to Work For survey reflecting
Mears' commitment to improving conditions and career development
for employees.
Lucas
Critchley, Chief Executive Officer of the Group,
commented:
"We are
delighted to have delivered strong growth in revenues, profits and
cash generation in 2023. The Group is recognised as a
leading housing specialist, and we continually look to evolve our
capabilities to further strengthen our market position. The Board
believe that the Group is well-positioned for the future and is
pleased that the strong trading momentum
built in 2023 has continued into 2024."
1. The adjusted diluted EPS
measure is adjusted to reflect a full tax charge at 23.5% (FY22:
19.0%).
2. Adjusted net cash excludes
IFRS 16 lease obligations of £254.4m (2022:
£225.4m) and includes treasury deposits of
£7.1m (FY22: £2.0m).
3. Adjusted operating margin
is stated before the impact of IFRS 16, as detailed in the Finance
Review.
For further
information, contact:
|
|
|
|
Mears Group
PLC
|
Tel: +44(0)1452 634
600
|
Andrew Smith
|
|
Lucas Critchley
|
|
|
|
Deutsche
Numis
|
Tel: +44(0)207 260
1000
|
Julian Cater
|
|
Kevin Cruickshank
|
|
|
|
Panmure
Gordon
|
Tel: +44(0)207 886
2500
|
Tom Scrivens
|
|
James Sinclair-Ford
|
|
About
Mears
Mears is a leading provider of services to the
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 over 5,000 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
I am delighted to present my first statement as
Chairman, and it is pleasing to be able to report a year of
excellent progress against our strategic objectives. The continued
strong trading performance is evidence that the strategic actions
of recent years, the investment in our operating platforms, and our
market leadership are delivering positively and position the Group
well for the future.
Results
Revenue has reached £1,089m, an increase of 14%
over 2022. Profit before tax was £46.9m, an increase of 34% over
that achieved in 2022. Adjusted diluted earnings per share rose by
27% to 31.24p. It is an important milestone for the Group to see
earnings per share move back above 30p, and this has been an key
factor in delivering the strong returns to shareholders in the last
12-months.
It is reassuring that cash generation was once
again very strong. The adjusted year-end net cash balance reached
£109.1m and average net cash throughout the year was £76.5m. This
is the result of a fourth consecutive year of over 100% conversion
of profits to cash, while growing the business: a tremendous
achievement by the management team and staff across the Group. It
reflects the quality of the business and its underlying
earnings.
During the period, the Group mobilised new
works under our Rented Living Accommodation Project ('RLAP') for
the Ministry of Defence, providing housing and support to those
travelling to the UK under the Afghan Relocation and Assistance
Policy. This is further evidence of Central Government increasingly
looking to Mears to provide specialist housing support.
Our
people
Mears has invested in its workforce over many
years, and I was delighted to see that the Group was listed in the
top 10 of the Sunday Times Best Big Companies to Work For. The
commitment to our workforce starts at Board level, evidenced by the
appointment several years ago of an Employee Director who works
closely with a Deputy Employee Director and Trade Representative to
ensure that our people are at the forefront of our decision making
and that the Board has a good understanding of our employees'
views. It is pleasing to see that this is also reflected in a
further reduction in staff turnover.
It was immensely satisfying to see a successful
conclusion to the Group's 2020 Sharesave scheme which reached
maturity in December 2023. The scheme, with an exercise price of
93p, was granted at the end of a year that had been greatly
impacted by the Covid-19 pandemic and a period in which the Group
was even more dependent upon the hard work and commitment of our
colleagues. The grant at that time gave the Board the opportunity
to show its gratitude for the commitment shown through that period.
The recent maturity saw over £7m of value shared across 500 of our
colleagues which was a tremendous outcome.
Dividend and
capital allocation
Given the excellent trading performance of the
Group, the continued strong cash performance and the positive
outlook, the Board is pleased to propose a final dividend of 9.30p
per share, bringing the total for the year to 13.00p, an increase
of 24% on 2022 and an increase of over 60% against 2021. Our policy
remains to progressively grow the dividend, keeping cover at
between 2 - 2.5 times adjusted earnings.
The Group's capital allocation policy has been
consistently communicated and remains robust. The Board currently
seeks to maintain an appropriate net cash position.
The Board continues to keep under review its capital
allocation priorities, which extends to small-scale M&A
opportunities that could enhance its service
capabilities.
During FY23, the Board approved a return of
surplus capital of c.£33m to shareholders, that was implemented
through a buyback programme of on-market purchases. The 2023
buyback, which was delivered over two programmes during an
eight-month period, saw the purchase and cancellation of 12.2m
ordinary shares of 1p each at an average price of 272.7p,
representing c.11.0% of the Group's issued share capital at the
start of the year. The strong momentum reported in FY23 has
continued into FY24 and, following the receipt of authority from
shareholders at a General Meeting held in February 2024, the Board
announced its intention to purchase up to a further £20m of shares,
and this third buyback programme is on-going.
As reported previously, the Group has utilised
its balance sheet strength to fund property acquisitions to support
the urgent requirement for additional properties within the Asylum
Accommodation and Support Contract ('AASC'). At the end of 2023,
the Group had invested £22m in this area. Whilst it is not the
Group's long-term strategy to carry property assets on the Group's
balance sheet, this has been an important step in meeting the
requirement for additional capacity, to fulfil our client's
needs.
ESG
I thank the ESG Board for its diligent work
over the year. Mears takes good governance seriously. Alongside our
resident led Your Voice
Scrutiny Board, the ESG Board adds an extra layer of professional
advice and assurance. The Board's guidance is imperative, ensuring
that we are driving forward on both our legal and ethical
obligations to reach our Net Zero targets.
Board
developments and succession planning
During 2023, Kieran Murphy and Chris Loughlin
stepped down from the Board. Kieran reshaped the Mears' Board
during his time as Chairman and provided wise counsel and
stewardship through a period impacted by the pandemic. Chris
brought considerable commercial and operational input to the Board.
On behalf of the Board, I would like to take the opportunity to
thank Kieran and Chris for their service to Mears and wish them
both well for the future.
In December 2023, the Board welcomed the
arrival of Nick Wharton as a Non-Executive Director and Chair of
the Audit and Risk Committee. Nick is a Chartered Accountant with
extensive finance and corporate governance experience gained both
in the UK and internationally, through executive and non-executive
positions under both public and private equity ownership, and
further improves the balance of skills and capabilities held by the
Board.
During 2023, the Group's Employee Director,
Hema Nar, elected for her position to become a non-statutory
appointment. This will enable Hema to solely focus on being an
effective link between the Board and the workforce. During 2023,
the Group has greatly enhanced this function, with the addition of
both a Deputy Employee Director and a Trade Representative. These
three individuals perform regular branch visits, are highly visible
and are in frequent contact with the Executive team. This has
become an increasingly valuable channel of communication. Hema will
continue to attend and present at every Board meeting. The change
to a non-statutory position will not dilute the importance or
significance of the role.
Succession planning has been a key area of
focus for the Board in recent years. The transition of the CEO role
from David Miles to Lucas Critchley has been well-communicated and
this changeover has gone smoothly. The Board recognises the pivotal
role that David played in driving the culture of the business and
Mears' brand. The transition of the CEO duties to Lucas is now
complete, and David stepped off the PLC Board at the end of 2023.
David remains a key member of the senior management team and has
committed to continue to provide support to the business with
particular focus on client engagement, customer service and driving
commercial performance at a local branch level over the
medium-term.
Although the current Board is smaller in terms
of headcount, I believe there is a strong cultural alignment with
the business and the Board has the requisite skills and experience
to operate effectively in the coming years.
The Board and Nominations Committee will
continue to focus on succession planning across the senior
executive team. I am continually impressed by the quality and
strength of our senior management team operating across the
business in support of the Executive. The Group has a strong
track-record of developing talent internally, evidenced by both
Lucas and Andrew Smith (CFO) having developed within the business
prior to their Board appointments. I can already see a number of
the senior team who will, in time, have the opportunity to develop
further as leaders of the business over the long-term.
Looking
forward
The Board is delighted with the strong trading
performance reported in FY23, and this momentum has continued into
FY24. We anticipate another strong trading result in FY24 and
communicated a significant upgrade to market expectations in
January 2024.
The Group is well positioned for the longer
term, but management remains conservative when providing guidance
for later years. The Board has consistently referred to elevated
revenues within its management-led activities and it is expected
that this position will normalise, although the timing is unclear.
The Board is increasingly confident that the Group is well
positioned to deliver further improvements in operating margins,
which it expects will contribute to mitigating the profit impact
from this reduction in revenues.
The Group is delivering well against the
strategic goals set within the extensive business planning process
concluded in 2021. The Board is now challenging the Executive team
to carry out a further detailed refresh. The housing market
continues to present significant opportunities for Mears. The Board
is also challenging the Executive team to consider opportunities
within adjacent markets and continue to identify emerging
opportunities created through innovation and changes in technology.
The strength of the Group's balance sheet and net cash position
provides the opportunity to pursue a number of options to deliver
shareholder value.
CHIEF
EXECUTIVE'S REVIEW
Introduction
It is pleasing to report another strong trading
performance in FY23. The Group has benefitted from the strategic
redirection of the business over the last five years, having exited
from a number of non-core activities and applying a rigorous
approach to improving operating margins. The Group is recognised as
a leading housing specialist to the public sector. There is an
increasing reliance upon Mears by our Local and Central Government
clients and Housing Associations for the Group's expertise and
problem-solving capabilities. We will continually look to evolve
our capabilities in this area to further strengthen our market
position and believe that the Group is well placed to do
so.
Operational
Review
|
2023
£m
|
2022
£m
|
Change
|
Revenue
|
|
|
|
Maintenance-led
|
543.3
|
535.3
|
+1%
|
Management-led
|
543.3
|
405.8
|
+34%
|
Development
|
2.7
|
18.5
|
|
Total
|
1,089.3
|
959.6
|
+14%
|
|
|
|
|
Operating profit before tax
measures:
|
|
|
|
Statutory operating
profit1
|
52.2
|
41.3
|
+26%
|
Adjusted operating profit (pre-IFRS
16)2
|
51.4
|
35.9
|
+43%
|
Adjusted operating margin (pre-IFRS
16)
|
4.7%
|
3.7%
|
|
|
|
|
|
Profit before tax measure
|
|
|
|
Statutory profit before tax
|
46.9
|
34.9
|
+34%
|
1. Operating profit
includes share of profit in associates.
2. Adjusted measures are
defined in the Alternative Performance Measures section of the
Finance Review.
Revenues increased by 14% to £1.09bn. Our
maintenance-led activities reported an increase of 1% to £543.3m
which was impacted by the full-year effect of a number of contract
losses in 2022, which were reported previously. It is
reassuring that the Group has absorbed these losses and still
delivered revenue growth. The Executive team believes that,
following a number of years which have seen a reduction in
maintenance-led revenues, this has plateaued. Moving forward, the
Executive team believes that the current market dynamics and our
continually developing offering to clients can deliver modest
growth in the traditional maintenance-led activities, supported by
additional spending in respect of decarbonisation.
Management-led activities have reported strong
growth, with revenues growing by 34% to £543.3m. It is a tremendous
achievement that an area of the business which the Group entered
less than 10-years ago, and has been grown almost entirely
organically, now comprises half the Group's revenues. As reported
previously, the Group has experienced elevated revenues within the
Group's asylum services with volumes
being significantly higher than originally envisaged. The Executive
team anticipates these revenues will normalise, although the timing
is uncertain. It is positive that the Group has seen increased
activity in both the Ministry of Defence and Ministry of Justice
contracts ('RLAP' and 'CAS3' respectively), and the Group sees
further opportunities to provide additional services to both of
these important clients.
It is particularly important that the business
has continued to report strong progress in adjusted operating
margin, with the headline measure increasing to 4.7% (2022: 3.8%).
Notwithstanding the Group's strategic ambitions to deliver revenue
growth, the primary focus of the senior team over recent years has
been to see the operating margin return towards its
historical level of 5.0%. As previously reported, the
actions taken to exit non-core activities, prune the contract
estate to remove suboptimal arrangements, drive efficiencies at a
contract level, and maintain a disciplined approach to securing new
works, all continue to drive improvement to the operating
margin.
One area of the business where trading has been
unacceptable, is in respect of the Community Housing business. This
is only a small part of the Group's operations, reporting revenues
of c.£35m in 2023, in which the challenging regulatory and
operational environment has resulted in an operating loss in the
period. The Executive team will continue to focus on improving
trading in this area. Some of the contractual obligations in this
part of the Group mean it will not be a quick fix. The result for
the period includes an impairment to right of use assets of £6.2m
and onerous contract provisioning of £4.2m relating to these
Community Housing activities. This is detailed within the notes to
the preliminary results.
The Executive team is mindful that the elevated
revenues within the management-led activities have delivered
additional economies of scale and an increased overhead recovery,
which is a further factor behind an increasing operating margin.
However, the Executive team is confident that, as the
management-led revenues normalise, and some of this increased
overhead recovery diminishes, that this will be mitigated by
efficiency improvements within the business which will continue to
drive improvement to margin.
Business
development
We have seen a shift among some client
organisations towards large, long-term relationships that are broad
in scope. We believe that these types of opportunities play to
Mears' strengths and present future opportunities. Clients are
increasingly seeking the competence and confidence from dealing
with a market leader, while the regulatory environment, and the
detailed compliance process around elements of work such as
decarbonisation, serve to further reduce the pool of serious
competitors. This makes the comprehensive Mears offer attractive to
clients that are looking to package contracts in this
way.
Mears has successfully provided housing
maintenance works to NLC since 2012, with an annual value of c.
£60m, delivering high service levels together with excellent
engagement with all stakeholders. Accordingly, the Group remains
well-placed in the tender by North Lanarkshire Council ('NLC') of
the Housing and Corporate Maintenance and Investment Services
Contract, a bidding process that commenced in 2022. The new
contract would see Mears providing reactive maintenance, statutory
compliance, servicing, and inspection services, as well as
programmes of planned works to the Council's housing assets
(approximately 37,000 homes) and corporate assets (approximately
1,200 buildings). The contract is for a period of up to 12 years,
with an annual value in the region of £125m and a total contract
sum of over £1.5bn.
With the exception of the NLC tender, the last
12-months has been a relatively quiet period of new contract
bidding. Positively, the Group secured both of its key bidding
targets contributing to an aggregate new contract awards of around
£175m, at a bid conversion rate of over 70% (by value). This
reflects an increasingly focused approach when bidding for new
contract opportunities. The Executive team anticipates that the
total value of bids submitted in the future will be lower than
historical levels, but the proportion of successful outcomes is
anticipated to be higher. Importantly, both the contracts secured
in FY23 represent new work to the Group:
Ø London Borough of
Croydon ('Croydon') has awarded to Mears a 10-year contract with an
estimated annual value of £6m. The contract is to deliver
responsive repairs, voids refurbishments, and planned maintenance
works. Mears was selected as one of two providers, and the Group is
delighted to be working in the Borough again, after a period of
absence. The new contract commenced on 1 August 2023.
Ø A2Dominion ('A2D'):
the Group has been awarded a contract with an estimated annual
value of c.£10m for a base period of 10 years with the potential
for this to be extended up to a total of 26 years. This contract
award builds upon an existing long-term relationship with A2D for
repairs and maintenance services to the housing stock outside of
London, meaning that the Group will now be delivering services
across A2D's entire 38,000-unit portfolio. The new contract
commenced in October 2023. The contract will deliver services
through a pre-existing joint venture with A2D, in which the Group
holds a 30% interest. Therefore, whilst the A2D relationship is
very significant for the Group, the revenue is not included within
the Group's consolidated revenue. The profit contribution is
introduced as a share of profit in an associate, the Group's margin
expectation against the notional revenue, is consistent with other
housing contracts.
FY24 is again expected to be a period of
focused bidding activity with the Group targeting a small number of
new bidding opportunities where the mix of quality, price, size,
longevity, supply chain and cultural fit meets the Group's bidding
criteria. This highly qualified pipeline contains some exciting
opportunities. The Executive team is mindful that FY25 is likely to
be a busy period of rebidding, as a number of existing contracts
are approaching expiry and contractual extensions have been
previously utilised. A total annual contract value of c.£100m is
expected to be re-bid during that calendar year. Whilst the Group
has an excellent record of retentions, rebids naturally bring some
risk and can distract from bidding for incremental revenue
opportunities with new and existing clients.
Decarbonisation
Over recent years, Mears has created an
end-to-end decarbonisation service through investment in expertise
and technology to support our clients with the huge challenge of
improving social housing stock. In 2023, Central Government
committed £3.8bn of Social Housing Decarbonisation Funding (SHDF)
to be allocated in England and Wales over a 10-year period. The
Group secured three successful bids in respect of the first wave of
SHDF applications, securing grant funding on behalf of clients of
£5m which doubled-up when combined with client funding. The bulk of
this value was delivered by the end of FY23. The SHDF Wave 2 saw
Mears submit successful grant applications of c.£40m, which will
contribute to a total works value of around £120m to be delivered
over the course of 2024 and 2025. It is the grant funded element
that represents new value to the Group's order book. There will be
additional opportunities for the Group in the interim Wave 2.2, and
Waves 3 and 4 of the SHDF funding applications.
Our market
environment
The housing market continues to present
opportunity for Mears to support clients both in its traditional
areas and some emerging new ones.
The demand for social housing, temporary
accommodation and care provision continued through 2023 and
provided a solid market for innovation, partnership working and
outsourced services and capabilities.
The changes going through the sector are
arguably as great as at any point in recent history and follow a
period of significant macro-economic challenges. Our optimism about
the future growth is based on the developments we see in our
markets, which are summarised below.
Political and
regulatory
|
· The
Social Housing (Regulation) Act 2023 received Royal Assent. New
consumer standards and a new regulatory regime will come into
force.
· £3.8bn
has been allocated to the Social Housing Decarbonisation fund with
similar schemes in devolved nations. Data on the energy efficiency
of housing in England and Wales shows that
most of the Local Authorities have less than half of their
dwellings achieving EPC band C or higher. The Government is
targeting social homes to reach band C by 2035
· The
Decent Homes and Minimum Energy Efficiency standards (MEES) are
under review. Both are expected to set higher standards for the
sector and a transition period will be agreed for this
improvement.
· The
Regulator's review of damp and mould has demanded better
information on stock condition and faster resolution of the
issue.
· The
Procurement Act 2023 will bring with it an enhanced focus on social
value within the supply chain.
· The
Building Safety Act 2022 has raised standards, in particular within
high rise buildings, especially in relation to fire
safety.
· The
compliance environment is tightening further, creating
opportunities.
|
Economic
|
· The period of
high interest rates has challenged a number of social housing
providers, with high debt burdens.
· The 7% rent
increase cap imposed in 2023/24 put pressure on providers but this
cap has been removed in 2024/25, which should provide financial
improvement to the sector.
· The
cost-of-living crisis has affected customers and
colleagues.
|
Skills
|
· UK-wide skills
shortage in trade related roles, particularly those with the right
skills to undertake new Net Zero works. This requires a long-term
commitment to workforce development to resolve.
|
Technology
|
· Data and cyber
security issues have increased in the sector with several landlords
reporting issues. The Transparency, Influence and Accountability
Standards in relation to the diverse needs of tenants, come into
force in 2024.
· There is
increased use of data, analytics, automation, and AI in the housing
sector. Many tenants are feeling "left behind" by some of these
developments.
|
Customer
expectations
|
· The newly
regulated consumer standards in 2024, will further raise
expectations and require high quality service solutions and data
management.
|
Our Pathway to
Net Zero
We have launched
Our Pathway to Net Zero and made this available
via our website. We have recruited a Net Zero Manager to
co-ordinate our pathway going forward.
The primary focus for 2023 was the development
of detailed plans to transition our fleet of company vehicles to
electric alternatives by 2030 - this is important to the success of
our strategy as 96% (2021 baseline) of our Scope 1 emissions (and
91% when combining Scope 1 and 2) are from our vehicle fleet. Mears
has completed a comprehensive fleet infrastructure and transition
planning project to gain a deeper understanding of the detailed
steps we need to undertake to transition 85% our fleet to zero
carbon alternatives by 2030. We have created a clear transition
plan to decarbonise our fleet within the trajectory set out within
Our Pathway to Net Zero for implementation from 2024
onwards.
Workforce
We are proud of our achievement of being in the
top 10 of the Sunday Times Best Big Companies to Work For survey.
This reflects years of commitment to improving conditions and
career development for our staff. We see the benefits in low staff
turnover, low vacancies, and the ability to grow the skills of our
people, to meet the need of changing client requirements. We also
recognise the strong correlation between staff satisfaction,
customer satisfaction and financial performance.
We value the fact that we have an Employee
Director, a Deputy Employee Director focused on supporting people
with disabilities, a Trade Representative and a Group wide employee
forum. They enable the Board to stay close to our front-line staff
and to ensure that decisions are made with the impact on the
workforce fully understood.
Customer and
client engagement
We monitor our success with customers and
clients through a number of measures including the ability to win
and retain work, as well as directly measuring the satisfaction of
clients and tenants/ service users.
We maintain an independently chaired Customer
Scrutiny Board, which produces a report on its findings which is
published openly. All our key service changes are reviewed and
optimised as well as investigating areas that require
improvement.
Our main areas of focus in 2023 were around
enhancing the ways that customers could interact with us digitally.
While we recognise that this is important to many people, we have
not lost sight of the need to maintain the more personal ways of
contact that many of our customers still prefer.
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
(APMs)
The Strategic Report includes both
statutory and adjusted performance measures. APMs are
considered useful to stakeholders in assessing the underlying
performance of the business, adjusting for 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 International Financial
Reporting Standards (IFRS) measures, and the Board has endeavoured
to report both statutory and alternative measures with equal
prominence throughout the Strategic Report and preliminary
results.
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.
A reconciliation between the statutory profit
measures and the alternative adjusted measures for both 2023 and
2022 is detailed below.
|
Note
|
2023
£'000
|
2022
£'000
|
Profit before tax
|
Statutory
|
46,918
|
34,944
|
IFRS 16 profit impact
|
See below
|
9,093
|
2,201
|
Finance income (non-IFRS 16)
|
Note 5
|
(4,655)
|
(1,268)
|
Operating
profit pre-IFRS 161
|
APM
|
51,356
|
35,877
|
Amortisation of software and acquisition
intangibles
|
Note 13
|
1,879
|
2,300
|
Depreciation and loss on disposal (non-IFRS
16)3
|
Note 14
|
7,385
|
8,023
|
EBITDA
pre-IFRS 161
|
APM
|
60,620
|
46,200
|
IFRS 16 profit impact
|
See below
|
(9,093)
|
(2,201)
|
Finance costs (IFRS 16)
|
Note 5
|
9,898
|
7,610
|
Depreciation, loss on disposal and impairment
(IFRS 16)2
|
Note 15
|
56,951
|
43,259
|
EBITDA
post-IFRS 161
|
APM
|
118,375
|
94,868
|
Amortisation of software and acquisition
intangibles
|
Note 13
|
(1,879)
|
(2,300)
|
Depreciation, loss on disposal and impairment
(IFRS 16)2
|
Note 15
|
(56,951)
|
(43,259)
|
Depreciation and loss on disposal (non-IFRS
16)3
|
Note 14
|
(7,385)
|
(8,023)
|
Operating
profit post-IFRS 161
|
APM
|
52,161
|
41,286
|
1 Operating profit
and EBITDA measures include share of profits of
associates.
2 Includes profit
on disposal of £180,000 (2022: £228,000) and impairment of
£6,223,000 (2022: £nil)
3 Includes loss on
disposal of £80,000 (2022: £2,000).
|
Note
|
2023
£'000
|
2022
£'000
|
Revenue
|
Statutory
|
1,089,327
|
959,613
|
Adjusted operating profit pre-IFRS
16
|
APM
|
51,356
|
35,877
|
Adjusted operating margin %
|
APM
|
4.7%
|
3.7%
|
The Group's adjusted PBT measure has
historically been reported before charges for the amortisation of
acquisition intangibles. The Directors consistently explained their
rationale for adjusting for this charge, which is a treatment
understood and supported by the Group's investors. This charge has
historically been significant; for instance, in 2021 it was £7.7m.
However, in the absence of significant recent acquisitions, the
amortisation charge has reduced to £0.2m per annum and, at this
level, is considered de minimis. As indicated in the previous year,
this adjustment has not been applied in 2023 and the comparative
measure for 2022 has been adjusted.
The Group provides an APM which reports results
before the impact of lease accounting under IFRS 16. 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.
Management has also 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 addition, this is the measure used for the
purposes of assessing the Group's compliance with its banking
covenants.
EARNINGS PER SHARE (EPS)
The alternative earnings measure is adjusted
to reflect a full corporation tax charge of 23.5% (2022:
19.0%), which will increase to 25.0% in 2024. The Directors believe
this aids consistency when comparing to historical results and
provides less incentive for the Group to participate
in artificial schemes where the primary intention
is to reduce the tax charge. 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)
|
|
2023
p
|
2022
p
|
2023
p
|
2022
p
|
2023
p
|
2022
p
|
Earnings per share
|
31.94
|
24.51
|
0.00
|
0.44
|
31.94
|
24.95
|
Effect of full tax charge adjustment
|
(0.70)
|
(0.22)
|
-
|
(0.05)
|
(0.70)
|
(0.26)
|
Normalised earnings per share
|
31.24
|
24.29
|
-
|
0.39
|
31.24
|
24.68
|
|
Continuing
|
Discontinued
|
Continuing and
discontinued
|
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Profit attributable to shareholders
|
35,204
|
27,813
|
-
|
494
|
35,204
|
28,307
|
Full tax adjustment
|
(768)
|
(245)
|
-
|
(55)
|
(768)
|
(300)
|
Normalised earnings
|
34,436
|
27,568
|
-
|
439
|
34,436
|
28,007
|
NET CASH/(DEBT)
The Group excludes the financial impact of IFRS
16 from its adjusted net cash/(debt) measure. This adjusted net
cash/(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 does not recognise 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
|
2023
£'000
|
2022
£'000
|
Cash and cash equivalents
|
|
138,756
|
98,138
|
Short-term financial assets
|
|
7,090
|
1,963
|
Overdrafts and other credit
facilities
|
|
(36,699)
|
-
|
Adjusted net cash
|
APM
|
109,147
|
100,101
|
Lease liabilities (current)
|
Note 20
|
(54,492)
|
(44,376)
|
Lease liabilities (non-current)
|
Note 20
|
(199,948)
|
(181,045)
|
Net debt (including IFRS 16 lease
obligations)
|
Statutory
|
(145,293)
|
(125,320)
|
IFRS 16 - LEASE ACCOUNTING
The profit impact in respect of IFRS 16, which
was included within the APM analysis above, is detailed
below:
|
2023
£'000
|
2022
£'000
|
Charge to income statement on a post-IFRS 16
basis
|
(60,626)
|
(50,869)
|
Charge to income statement on a pre-IFRS 16
basis
|
(57,756)
|
(48,668)
|
Profit impact from the adoption of IFRS 16 and
before impairment
|
(2,870)
|
(2,201)
|
Impairment of right of use
assets
|
(6,223)
|
-
|
Profit impact from the adoption of IFRS
16
|
(9,093)
|
(2,201)
|
Leasing properties has become an integral part
of the Group's service offering. The Group delivers a number of
contracts to Central Government which include the provision of over
10,000 individual residential properties as part of a wider service
offering. In addition, the Group provides over 2,000 property units
for rental as part of the Group's Community Housing activities to
address Local Authority demand for temporary housing. The
associated customer contracts are typically long-term, and the
underlying commercial pricing mechanism applies a margin to the
annual lease payment. Revenue is broadly consistent over time,
increasing by an annual indexation adjustment with the associated
lease payments following a similar mechanism.
Accounting standards require that, where a
contract is identified as a lease under the rules of IFRS 16, the
Group recognises its right to use a leased asset and a lease
liability representing its obligation to make lease payments. The
depreciation cost of the lease asset is typically charged to profit
within cost of sales, whilst the interest cost of the newly
recognised lease liability is charged to finance costs. On the
basis that depreciation is required to be charged on a
straight-line basis, whilst the interest element is charged on an
amortised cost basis, this results in a higher charge being applied
to the income statement in the early years of a lease, with this
impact reversing over the later years. Ultimately, IFRS 16 has no
impact on the lifetime profitability of the contracts and there are
no cash flow impacts, but the standard alters the phasing over
time, front-loading the cost.
Where leasing arrangements are over the
long-term, the differential in the charge applied to the income
statement under IFRS 16 compared to the lease payment can be
significant, whilst the revenue recognition associated with these
leases remains at a consistent level, aligned to the respective
lease payment. It is for this reason that the Group has
consistently utilised an APM to report profits on a pre-IFRS 16
basis. In doing so, the mismatch between the recognition of revenue
and the associated cost is addressed.
IFRS 16 and
IAS 36; depreciation and impairment of right of use
asset
Under IAS 36, the Directors are required to
carry out an impairment review at 31 December 2023, for each asset
or group of assets with separately identifiable cash inflows, if
there is considered to be an indication of impairment. The
Directors recognise that for each Community Housing scheme, the
relevant group of right of use assets has identifiable cash inflows
and therefore the Directors are required to assess whether there
are any indicators of impairment for each of these housing schemes.
Notably, the Directors recognise that:
· Property yields
have increased during FY23. This measure is closely correlated to
discount rates, and an increasing discount rate will result in a
reduction in the Value in Use.
· The Directors
also note that property maintenance costs have increased during
FY23, impacted by increasing regulation attached to affordable
housing. An increase in the costs attached to property leasing, to
the extent that it cannot be passed onto the customer or recovered
through other mechanisms mentioned above, will reduce the Value in
Use. Property costs are not expected to reduce, and the Directors
recognise that an ageing asset may incur further cost over
time.
· Largely as a
result of the above, a number of the Community Housing schemes have
delivered shortfalls against previous forecasts.
IFRS 16
carrying values
The Directors identified indicators of
impairment on a number of Community Housing scheme assets and the
future cash flows were modelled on those assets in order to derive
a measurement for the Value in Use which was compared to the
carrying value of the respective assets; the significant majority
of the carrying value relates to right of use assets and, to a much
lesser extent, some leasehold improvements in tangible assets. In
aggregate, an impairment charge of £6.2m was applied in the year.
The additional charge applied to FY23 will be mirrored by a
reduction in depreciation in future periods and ultimately has no
impact on the lifetime profitability of any of the underlying
contracts.
The table below highlights the acceleration of
the recognition of cost through the adoption of IFRS 16; the right
of use asset is being charged on a straight-line basis whilst the
interest element is charged on the remaining balance outstanding.
This position would be expected to reverse over the remaining lease
terms, resulting in a reduced charge to the income
statement:
|
Note
|
2023
£'000
|
2022
£'000
|
Lease obligations at 31 December
|
20
|
254,440
|
225,421
|
Right of use asset at 31 December
|
15
|
233,649
|
213,432
|
Future lifetime profit impact as at the balance
sheet date, from the adoption of IFRS 16 compared to the future
lease payment
|
|
20,791
|
11,989
|
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.
Further detail in respect of the taxes paid
during 2023 are detailed below:
|
Taxes borne
£m
|
Tax collected
£m
|
Total
£m
|
Corporation Tax
|
10.9
|
0.0
|
10.9
|
VAT and Insurance Premium
Tax1
|
0.6
|
117.9
|
118.5
|
Construction Industry Scheme
|
0.0
|
6.2
|
6.2
|
Income taxes
|
0.9
|
26.6
|
27.5
|
National Insurance
|
17.8
|
11.8
|
29.6
|
Total
|
30.2
|
162.5
|
192.7
|
1 VAT excludes the disallowance of input tax recovery on the
Group's exempt supplies.
BALANCE SHEET
The Group reported a reduction in net assets
from £213.8m to £200.6m. The significant distribution to
shareholders through both ordinary dividend and share buybacks has
reduced the net asset position in the year, but the strong profit
generation has ensured a robust position has been maintained. The
key movements are detailed below:
|
£m
|
Net assets at 1 January 2023
|
213.8
|
Profit after tax
|
36.7
|
Dividends
|
(11.8)
|
Share buybacks including purchases
by EBT
|
(38.2)
|
Reduction in pension net surplus
|
(4.4)
|
Other equity movements
|
4.5
|
Net assets at 31 December 2023
|
200.6
|
The key balance sheet categories are reported
below together with a brief note to provide
further explanation:
Assets
|
2023
£m
|
2022
£m
|
Goodwill
|
121.9
|
121.9
|
Intangible assets
|
7.0
|
7.5
|
Property, plant and equipment
('PPE')
|
38.5
|
20.2
|
Right of use assets
|
233.6
|
213.4
|
Investments and loan notes
|
5.1
|
5.3
|
Pension assets
|
19.8
|
26.8
|
Total
non-current assets
|
426.0
|
395.1
|
Inventories
|
1.5
|
6.9
|
Trade receivables
|
126.7
|
128.3
|
Corporation tax asset
|
-
|
0.5
|
Bank, cash and short-term financial
assets
|
145.8
|
100.1
|
Total current
assets
|
274.0
|
235.8
|
Total
assets
|
700.0
|
630.8
|
· Goodwill was
generated from previous acquisitions and is tested annually for
impairment.
· Intangible assets
primarily relate to in-house developments to the key operational IT
platforms and are amortised over their useful economic life of c.5
years.
· PPE additions are
typically low given the Mears operating model is not capital
intensive. During FY23, the Group made property additions of £22.1m
to support the requirements of the AASC.
· As detailed
above, leasing properties has become an integral part of the
Group's service offering. The Group recognises its right to use a
leased asset in accordance with IFRS 16.
· Loan notes of
£4.5m were received on the disposal of Terraquest in 2020 and
include interest accruing annually at 10%.
· Investments
relate primarily to our A2 Dominion partnership over which the
Group has significant influence but which it does not
control.
· Pension
accounting is covered in detail below.
· Working capital
balances include trade receivables and inventories; further
explanation is provided below. The net cash balance is also
detailed below, combining the Bank, Cash and short-term financial
assets with the overdraft and other credit facilities.
Liabilities
|
2023
£m
|
2022
£m
|
Overdraft and other credit
facilities
|
(36.7)
|
-
|
Trade payables
|
(187.0)
|
(171.0)
|
Current lease liabilities
|
(54.5)
|
(44.4)
|
Provisions
|
(8.4)
|
(8.8)
|
Total current
liabilities
|
(286.6)
|
(224.2)
|
Pension liabilities
|
(0.2)
|
(3.1)
|
Deferred tax liability
|
(2.9)
|
(4.9)
|
Non-current lease liabilities
|
(199.9)
|
(181.0)
|
Other non-current liabilities
|
-
|
(0.7)
|
Non-current provisions
|
(9.8)
|
(3.1)
|
Total
non-current liabilities
|
(212.8)
|
(192.9)
|
Total
liabilities
|
(499.4)
|
(417.0)
|
Total net
assets
|
200.6
|
213.8
|
· As detailed
above, leasing properties has become an integral part of the
Group's service offering. Where a contract is identified as a lease
under the rules of IFRS 16, the Group recognises a lease liability
representing its obligation to make lease payments. Liabilities
falling due within 12 months are categorised as current, with the
remainder non-current.
· All Group profits
are chargeable to corporation tax at the headline rate of 23.5%
(2022: 19.0%), which increases to 25% for 2024.. The Group is
required to make quarterly payments, meaning any creditor
outstanding at the period end is relatively low.
· 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 opening
provision of £8.8m predominantly relates to a number of legal
claims. The closing provision predominantly relates to onerous
contract provisioning where the Directors have made an assessment
as to the likely future loss. Additional detail is provided within
note 21 to the preliminary results.
· Non-current
provision relates to insurance losses which the Group chooses to
self-insure.
· A deferred tax
liability of £2.9m (2022: £4.9m) is recognised on temporary
differences between the treatment of items for tax and accounting
purposes.
DEFINED BENEFIT PENSION
ARRANGEMENTS
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.
· Four 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.
· Nine other
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 Directors are comfortable with the position
on both the guaranteed and other schemes. The Group enjoys a
significant surplus on many of these schemes, but these are
not recognised as assets as there is uncertainty around the
ability to recover a surplus.
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 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 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 in respect
of the four indemnified schemes are reported separately from their
associated liabilities.
|
2023
Group
£'000
|
2023
Guarantee
£'000
|
2023
Other
£'000
|
2023
Total
£'000
|
Total scheme assets
|
129,494
|
54,137
|
57,426
|
241,057
|
Total obligations
|
(109,659)
|
(40,890)
|
(42,452)
|
(193,001)
|
Funded status
|
19,835
|
13,247
|
14,974
|
48,056
|
Surpluses not recognised
as assets
|
-
|
(13,247)
|
(15,146)
|
(28,393)
|
Pension surplus / (liability)
|
19,835
|
-
|
(172)
|
19,663
|
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 fosters 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 impact of the increase in provisioning, which by its nature is
a non-cash item in the period, has driven a further increase in the
reported cash conversion measure. However, without this
enhancement, the Group would still have delivered EBITDA to
operating cash of c.110%.
|
2023
£'000
|
2022
£'000
|
Profit before tax
|
46,918
|
34,944
|
Net finance costs
|
5,242
|
6,341
|
Depreciation and amortisation
|
9,264
|
10,323
|
Right of use asset depreciation and
impairment
|
56,951
|
43,259
|
EBITDA
|
118,375
|
94,868
|
Other adjustments
|
(204)
|
376
|
Change in inventories
|
5,416
|
15,991
|
Change in operating receivables
|
1,290
|
13,855
|
Change in operating payables and
provisions
|
20,346
|
(9,760)
|
Operating cash
flow
|
145,224
|
115,330
|
EBITDA to
operating cash conversion
|
123%
|
122%
|
The Group reported an adjusted net cash
position at the year-end of £109.1m (2022: £100.1m). 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 £76.5m (2022: £42.9m). During FY23, the Group implemented a
share buyback programme of on-market purchases which resulted in
the purchase and cancellation of 12.2m ordinary shares of 1p each
at an average price of 272.7p, a cash outflow of c.£33m. In
addition, the Group acquired 1.7m shares for a cash consideration
of £4.7m on behalf of the Employee Benefit Trust. The average daily
net cash, adjusted for a full year impact of the share buyback, was
£50.3m, which the Board consider to be a better indication of the
opening liquidity position moving into FY24.
|
2023
£'000
|
2022
£'000
|
Average daily adjusted net cash
|
76,515
|
42,880
|
Adjusted net cash at 31 December
|
109,147
|
100,101
|
SHARE BUYBACKS
During FY23, the Board approved and completed a
return of surplus capital of c.£33m to shareholders, being
implemented through a buyback programme of on-market purchases. The
buyback saw the purchase and cancellation of 12.2m ordinary shares
over an eight-month period, representing c11.0% of the Group's
issued share capital at the start of the year. Whilst the Board was
pleased to have delivered a significant buyback over a relatively
short period, the majority of purchases were during the second-half
and, as such, much of the EPS accretion will not be seen until
FY24. This is shown in the table below:
|
Number
'000
|
Number of shares in issue at 1 January
2023
|
111,001
|
Part year impact of share buybacks and
cancellations
|
(3,922)
|
Part-year impact of option exercises
|
300
|
Weighted
average number of shares in issue in FY23 for calculating earnings
per share in FY23
|
107,379
|
Full year impact of share movements in
2023
|
(5,828)
|
Number of
shares in issue at 31 December 2023 which will form the basis for
calculating earnings per share in FY24
|
101,551
|
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 £70m but allows the
Group to draw down monies as required, mirroring an overdraft
facility. The Group also has an overdraft facility which is carved
out from this facility to provide additional flexibility. The Board
is grateful for the tremendous support that has been provided to
the Group by its banking partners over several 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 2023, and enjoyed an associated finance credit, there is
significant headroom. Nevertheless, the Directors have
completed a Viability Review and stress tested 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 are stated on a pre-IFRS 16 basis and 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). Given the
strong liquidity and cash performance, the Board's expectation
would be for the margin payable during 2024 to be at the bottom end
of the range.
Consolidated statement of profit or
loss
For the year ended 31 December 2023
|
Note
|
2023
£'000
|
2022
£'000
|
Continuing operations
|
|
|
|
Sales revenue
|
2
|
1,089,327
|
959,613
|
Cost of sales
|
|
(870,557)
|
(763,927)
|
Gross profit
|
|
218,770
|
195,686
|
Administrative expenses
|
|
(167,096)
|
(155,259)
|
Operating profit
|
4
|
51,674
|
40,427
|
Share of profits of associates
|
16
|
486
|
858
|
Finance income
|
5
|
5,939
|
2,033
|
Finance costs
|
5
|
(11,181)
|
(8,374)
|
Profit for the year before tax
|
|
46,918
|
34,944
|
Tax expense
|
8
|
(10,258)
|
(6,441)
|
Profit for the year from continuing
operations
|
|
36,660
|
28,503
|
Discontinued operations
|
|
|
|
Profit from discontinued operations
|
9
|
-
|
542
|
Tax charge on discontinued operations
|
8
|
-
|
(48)
|
Profit for the year after tax from discontinued
operations
|
|
-
|
494
|
Profit for the year from continuing and
discontinued operations
|
|
36,660
|
28,997
|
Attributable to:
|
|
|
|
Owners of Mears Group PLC
|
|
35,204
|
28,307
|
Non-controlling interest
|
|
1,456
|
690
|
Profit for the year
|
|
36,660
|
28,997
|
Earnings per share - from continuing
operations
|
|
|
|
Basic
|
11
|
32.90p
|
25.07p
|
Diluted
|
11
|
31.94p
|
24.51p
|
Earnings per share - from continuing and
discontinued operations
|
|
|
|
Basic
|
11
|
32.90p
|
25.51p
|
Diluted
|
11
|
31.94p
|
24.94p
|
The accompanying accounting policies and notes
form an integral part of these preliminary results.
Consolidated statement of comprehensive
income
For the year ended 31 December 2023
|
Note
|
2023
£'000
|
2022
£'000
|
Profit for the year
|
|
36,660
|
28,997
|
Other comprehensive income that will not be
subsequently reclassified to the Consolidated Statement of Profit
or Loss:
|
|
|
|
Actuarial loss on defined benefit pension
schemes
|
26
|
(5,521)
|
(3,041)
|
Pension guarantee asset movements in respect of
actuarial gain
|
26
|
(408)
|
(6,754)
|
Deferred tax credit in respect of defined
benefit pension schemes
|
23
|
1,482
|
2,449
|
Other comprehensive income for the
year
|
|
(4,447)
|
(7,346)
|
Total comprehensive income for the
year
|
|
32,213
|
21,651
|
|
|
|
|
Attributable to:
|
|
|
|
Owners of Mears Group PLC
|
|
30,757
|
20,961
|
Non-controlling interest
|
|
1,456
|
690
|
Total comprehensive income for the
year
|
|
32,213
|
21,651
|
|
|
|
|
Total comprehensive income for the year
attributable to owners of Mears Group PLC arises from:
|
|
|
|
Continuing operations
|
|
30,757
|
20,467
|
Discontinued operations
|
|
-
|
494
|
Total comprehensive income for the year
attributable to owners of Mears Group PLC
|
|
30,757
|
20,961
|
The accompanying accounting policies and notes
form an integral part of these preliminary results.
Consolidated balance sheet
As at 31 December 2023
|
Note
|
2023
£'000
|
2022
£'000
|
Assets
|
|
|
|
Non-current
|
|
|
|
Goodwill
|
12
|
121,868
|
121,868
|
Intangible assets
|
13
|
7,046
|
7,452
|
Property, plant and equipment
|
14
|
38,533
|
20,188
|
Right of use assets
|
15
|
233,649
|
213,432
|
Investments
|
16
|
622
|
1,271
|
Loan notes and other non-current
receivables
|
22
|
4,458
|
4,073
|
Pension and other employee benefits
|
26
|
19,835
|
23,672
|
Pension guarantee assets
|
26
|
-
|
3,136
|
|
|
426,011
|
395,092
|
Current
|
|
|
|
Inventories
|
17
|
1,463
|
6,879
|
Trade and other receivables
|
18
|
126,690
|
128,334
|
Current tax assets
|
|
-
|
459
|
Short-term financial assets
|
22
|
7,090
|
1,963
|
Cash and cash equivalents
|
22
|
138,756
|
98,138
|
|
|
273,999
|
235,773
|
Total assets
|
|
700,010
|
630,865
|
Equity
|
|
|
|
Equity attributable to the shareholders of Mears
Group PLC
|
|
|
|
Called up share capital
|
24
|
1,016
|
1,110
|
Share premium account
|
24
|
2,332
|
82,351
|
Share-based payment reserve
|
|
1,883
|
1,801
|
Treasury shares
|
24
|
(5,122)
|
-
|
Merger reserve
|
|
7,971
|
7,971
|
Retained earnings
|
|
189,428
|
119,100
|
Total equity attributable to the shareholders of
Mears Group PLC
|
|
197,508
|
212,333
|
Non-controlling interest
|
|
2,948
|
1,492
|
Total equity
|
|
200,456
|
213,825
|
Liabilities
|
|
|
|
Non-current
|
|
|
|
Pension and other employee benefits
|
26
|
172
|
3,136
|
Deferred tax liabilities
|
23
|
2,905
|
4,898
|
Lease liabilities
|
20
|
199,948
|
181,045
|
Other non-current liabilities
|
|
-
|
682
|
Non-current provisions
|
21
|
9,785
|
3,110
|
|
|
212,810
|
192,871
|
Current
|
|
|
|
Overdraft and other short-term
borrowings
|
22
|
36,699
|
-
|
Trade and other payables
|
19
|
187,035
|
171,013
|
Lease liabilities
|
20
|
54,492
|
44,376
|
Provisions
|
21
|
8,406
|
8,780
|
Current tax liabilities
|
|
112
|
-
|
Current liabilities
|
|
286,744
|
224,169
|
Total liabilities
|
|
499,554
|
417,040
|
Total equity and liabilities
|
|
700,010
|
630,865
|
The preliminary results were approved and
authorised for issue by the Board of Directors and were signed on
its behalf on 10 April 2024.
L J
CRITCHLEY
A C M SMITH
DIRECTOR
DIRECTOR
Company
number:
03232863
The accompanying accounting policies and notes
form an integral part of these preliminary results.
Consolidated cash flow statement
For the year ended 31 December 2023
|
Note
|
2023
£'000
|
2022
£'000
|
Operating activities
|
|
|
|
Result for the year before tax
|
|
46,918
|
34,944
|
Adjustments
|
25
|
71,253
|
60,524
|
Change in inventories
|
|
5,416
|
15,991
|
Change in trade and other receivables
|
|
1,290
|
13,855
|
Change in trade, other payables and
provisions
|
|
20,346
|
(9,760)
|
Cash inflow from operating activities of
continuing operations before taxation
|
|
145,223
|
115,554
|
Taxes paid
|
|
(9,330)
|
(4,128)
|
Net cash inflow from operating activities of
continuing operations
|
|
135,893
|
111,426
|
Net cash outflow from operating activities of
discontinued operations
|
9
|
-
|
(494)
|
Net cash inflow from operating
activities
|
|
135,893
|
110,932
|
Investing activities
|
|
|
|
Additions to property, plant and
equipment
|
|
(24,347)
|
(8,052)
|
Additions to other intangible assets
|
|
(1,499)
|
(1,364)
|
Proceeds from disposals of property, plant and
equipment
|
|
17
|
-
|
Expenditure on acquisition of subsidiary, net of
cash acquired
|
|
-
|
(2,928)
|
Distributions from associates
|
16
|
1,135
|
300
|
Movement in short-term cash deposits held for
investment purposes
|
22
|
(5,127)
|
(1,963)
|
Interest received
|
|
4,167
|
764
|
Net cash outflow from investing activities of
continuing operations
|
|
(25,654)
|
(13,243)
|
Net cash inflow from investing activities of
discontinued operations
|
9
|
-
|
7,333
|
Net cash outflow from investing
activities
|
|
(25,654)
|
(5,910)
|
Financing activities
|
|
|
|
Proceeds from share issue
|
|
2,557
|
87
|
Purchase of own shares
|
|
(37,887)
|
-
|
Net cash inflow from other credit
facilities
|
25
|
11,244
|
-
|
Loans provided to other entities
(non-controlled)
|
|
-
|
(225)
|
Repayment of loan acquired with
subsidiary
|
|
-
|
(37)
|
Discharge of lease liabilities
|
|
(48,149)
|
(43,169)
|
Interest paid
|
|
(11,081)
|
(8,425)
|
Dividends paid - Mears Group
shareholders
|
10
|
(11,760)
|
(9,692)
|
Net cash outflow from financing activities of
continuing operations
|
|
(95,076)
|
(61,461)
|
Net cash outflow from financing activities of
discontinued operations
|
9
|
-
|
(55)
|
Net cash outflow from financing
activities
|
|
(95,076)
|
(61,516)
|
Cash and cash equivalents, beginning of
year
|
25
|
98,138
|
54,632
|
Net increase in cash and cash
equivalents
|
|
15,163
|
43,506
|
Cash and cash equivalents, end of
year
|
25
|
113,301
|
98,138
|
Consolidated statement of changes in
equity
For the year ended 31 December 2023
|
Attributable to
equity shareholders of the Company
|
Non-
controlling
interest
£'000
|
Total
equity
£'000
|
Share
capital
£'000
|
Share
premium
account
£'000
|
Share-
based
payment
reserve
£'000
|
Treasury
reserve
£'000
|
Merger
reserve
£'000
|
Retained
earnings
£'000
|
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
|
Tax charge 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 1 January 2023
|
1,110
|
82,351
|
1,801
|
-
|
7,971
|
119,100
|
1,492
|
213,825
|
Net result for the year
|
-
|
-
|
-
|
-
|
-
|
35,204
|
1,456
|
36,660
|
Other comprehensive income
|
-
|
-
|
-
|
-
|
-
|
(4,447)
|
-
|
(4,447)
|
Total comprehensive income for the
year
|
-
|
-
|
-
|
-
|
-
|
30,757
|
1,456
|
32,213
|
Tax credit on share-based payments
|
-
|
-
|
-
|
-
|
-
|
867
|
-
|
867
|
Issue of shares
|
27
|
2,530
|
-
|
-
|
-
|
-
|
-
|
2,557
|
Purchase of treasury shares
|
-
|
-
|
-
|
(5,122)
|
-
|
-
|
-
|
(5,122)
|
Cancellation of shares
|
(121)
|
-
|
-
|
-
|
-
|
(33,043)
|
-
|
(33,164)
|
Capital reduction
|
-
|
(82,549)
|
-
|
-
|
-
|
82,549
|
-
|
-
|
Share options - value of employee
services
|
-
|
-
|
1,040
|
-
|
-
|
-
|
-
|
1,040
|
Share options - exercised or lapsed
|
-
|
-
|
(958)
|
-
|
-
|
958
|
-
|
-
|
Dividends
|
-
|
-
|
-
|
-
|
-
|
(11,760)
|
-
|
(11,760)
|
At 31 December 2023
|
1,016
|
2,332
|
1,883
|
(5,122)
|
7,971
|
189,428
|
2,948
|
200,456
|
The accompanying accounting policies and notes
form an integral part of these preliminary results.
Notes to the preliminary results -
Group
For the year ended 31 December 2023
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 2023 or 2022 but is derived from those accounts.
Statutory accounts for 2022 have been delivered to the registrar of
companies, and those for 2023 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 preliminary results of the Group have been
prepared in accordance with United Kingdom adopted International
Accounting Standards. The preliminary results are prepared under
the historical cost convention as modified by the revaluation of
contingent consideration and assets in the Group's defined benefit
pension schemes. They are presented in Sterling and all values are
rounded to the nearest thousand (£'000).
Mears Group PLC is the ultimate parent company
of the Group. It is incorporated and resident 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 2023. 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.
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 do not consider going
concern to be a critical accounting judgement. In reaching this
determination, the Directors have taken account of the Group's
trading for 2023 and the budget for 2024.
The Group reported a net cash position of
£109.1m on 31 December 2023, but the Directors believe that the
average daily net cash, after adjusting for the full year impact of
the share buybacks, averaged £50m during 2023, provides a better
indication of the underlying position and is a better indicator of
the Group's liquidity. The Group has modelled its cash flow outlook
for the period to 30 June 2025 and the base forecast indicates
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 on 30 June
2024, 31 December 2024 and 30 June 2025.
The Board approved a budget for 2024 which
reflects margin and profit growth compared to the prior year. The
2024 budget is considered to be the base case projection for
assessing Going Concern and is based on the following
assumptions:
· Forecast built up on a contract-by-contract basis for the next
twelve months and rolled forward. The forecast for 2024 is based
upon revenues generated from existing customer relationships, and a
business that is generating contract margins that are in-line with
recent run-rates.
· The
forecast assumes no new work is secured. The base case assumes that
contracts are resecured on retender, but reflects some revenue
reduction from existing clients, when it is currently anticipated
that there may be no further opportunity upon expiry of the current
contract.
· The
model also reflects the normalisation of the Asylum (AASC)
contract, with revenues reducing to a level closer to the original
expectation.
· The
model assumes no significant changes in working capital
performance.
· The
model assumes small scale property purchases to augment the
delivery of the AASC contract.
· Future
dividends continue in line with current policy.
· A
share buyback programme is assumed to be completed equating to 10%
of the issued share capital at the start of the current financial
year. No further buybacks have been assumed beyond the current
shareholder authority.
The Group is well positioned, underpinned by
the non-discretionary nature of the Group's activities and public
sector client group. The Board has communicated its capital
allocation policy to stakeholders, and a key pillar of this policy
is to maintain a net cash position on a daily basis.
In making its going concern assessment, the
Directors are required to consider as to whether there is a
reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for at least 12
months following the signing of these financial statements. The
Board has adopted a going concern period for this purpose up to 30
June 2025. This assessment 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 on 30 June
2024, 31 December 2024 and 30 June 2025. On 31 December 2023, the
Group held £70m of committed borrowing facilities, maturing in
December 2026. The principal borrowing facilities are subject to
covenants as detailed within the banking and financial covenants
sub-section of the Finance Review section of the Strategic Report.
The Strategic Report also details the principal risks and
uncertainties and how the Group manages its risks.
In making its assessment of Going Concern, the
Board has confirmed that there have been no post balance sheet
changes that have a material impact on the business or affect
liquidity.
A range of scenarios that encompass the
principal risks have been applied to the base case and are set out
below. These downside cases were prepared by management to
illustrate the impact of adverse changes in key variables used
within the base case forecast and projections. These downside cases
were intended to illustrate a reasonable worst-case scenario that
could affect solvency or liquidity in "severe but plausible"
scenarios.
The Directors have considered three scenarios
and the following sensitivities have been applied to each downside
case:
· Downside case 1: a significant reduction of 50% in revenue
relating to the Group's largest contract (AASC).
· Downside case 2: a significant margin dilution event, possibly
caused by significant operational failure, labour shortages or
supply chain disruption. The downside scenario modelled a 1.5%
reduction in operating margin. Given the low-margin nature of the
business, a small increase in the cost base which is not recovered
in charge rate increases can cause significant margin
dilution.
· Downside case 3: an event linked to a Cyber breach, impacting
upon lead operating systems causing an additional 20-days revenue
tied up in working capital.
No mitigating actions were included within any
of these downside scenarios which was considered conservative and
unrealistic. Before applying mitigations, none of the three
downside cases detailed above resulted in the Group exhausting its
liquidity or breaching covenants. Mitigating actions that
would be available to management include a reduction in central
overheads, a reduction in discretionary capital expenditure,
changes to capital allocation policy (including the ordinary
dividend) and more robust working capital management around
covenant test dates. In addition, upsides that are available to the
base case includes generating an improved margin at a local
contract level over and above the current run-rate and securing new
contract awards.
The Viability Review concluded that
climate-related risks would not have a significant impact on the
business within the five-year viability review period. As such,
climate was not modelled in respect of the shorter Going Concern
review period.
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 £nil. The Directors carried out reverse
stress testing, increasing the severity of the assumptions to
measure the trigger points at which the going concern of the Group
could be impacted. A reverse stress test was conducted to identify
the magnitude of trading profit decline required before the Group
breaches its debt covenants. All stress test scenarios would
require a very severe deterioration compared to the base case
forecasts.
In the most extreme reverse stress
test:
· The
Directors modelled a reduction in profit which would trigger a
breach in covenants. The base case annualised profit of c.£40m
would need to decline to an annualised loss in excess of £40m. This
profit reduction is considered to be remote given Mears' long-term
historical performance. During a Covid-impacted year ended 31
December 2020, Mears reported a loss before tax of
c.£15m.
· The
Directors modelled a reduction in revenue which would trigger a
breach is covenants. Revenue would need to decline by in excess of
40% when compared to the base case, to result in a breach of
covenants. This revenue reduction is considered to be remote given
the high proportion of Mears' revenue that is attached to long-term
contractual arrangements. During a Covid-impacted year ended 31
December 2020, Mears' revenue declined by less than
10%.
After making these assessments, the Directors
consider any scenario or combination of scenarios which could cause
the business to be no longer a going concern to be remote. The
Directors have a reasonable expectation that the Company and its
subsidiaries have adequate resources to continue in operational
existence until 30 June 2025. 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
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 preliminary results,
key estimates and judgements have been made by management
concerning the following:
-
provisions necessary for certain liabilities, including
discount rates used in estimating such provisions;
-
estimates used in forecasts used to assess future
profitability;
-
discount rates used when conducting impairment
reviews;
-
the discounts used and other judgements involved in the
recognition of right of use assets for lease accounting;
-
the timing of revenue recognition;
-
the recoverability of contract assets; and
-
actuarial estimates in respect of defined benefit pension
schemes.
Actual amounts could differ from those
estimates. Further details of key estimates and judgements are
provided in the appropriate notes.
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 key performance indicators
(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.
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.
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.
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
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:
|
2023
£'000
|
2022
£'000
|
Revenue from contracts with customers
|
|
|
Repairs and maintenance
|
453,981
|
451,063
|
Contracting
|
70,980
|
83,463
|
Property income
|
516,769
|
376,296
|
Care services
|
20,058
|
19,544
|
Other
|
1,005
|
345
|
|
1,062,793
|
930,711
|
Lease income
|
26,534
|
28,902
|
|
1,089,327
|
959,613
|
Repairs and maintenance and care service
revenue is typically invoiced between 1 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:
|
2023
£'000
|
2022
£'000
|
Less than 1 year
|
4,591
|
3,245
|
Between 1 and 2 years
|
2,871
|
1,537
|
Between 2 and 3 years
|
2,871
|
1,531
|
Between 3 and 4 years
|
2,163
|
1,531
|
Between 4 and 5 years
|
1,282
|
1,150
|
Over 5 years
|
5,178
|
393
|
|
18,956
|
9,387
|
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.
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, management has
concluded that providing segmental information along the same lines
would be helpful to the users of the preliminary
results.
|
2023
|
2022
|
Maintenance
£'000
|
Management
£'000
|
Development
£'000
|
Total
£'000
|
Maintenance
£'000
|
Management
£'000
|
Development
£'000
|
Total
£'000
|
Revenue
|
543,279
|
543,345
|
2,703
|
1,089,327
|
535,336
|
405,776
|
18,501
|
959,613
|
Impairments of right of use
assets
|
-
|
6,223
|
-
|
6,223
|
-
|
-
|
-
|
-
|
Profit/(loss) before tax
|
22,061
|
25,711
|
(854)
|
46,918
|
11,777
|
24,281
|
(1,114)
|
34,944
|
Tax expense
|
|
|
|
(10,258)
|
|
|
|
(6,441)
|
Profit for the year
|
|
|
|
36,660
|
|
|
|
28,503
|
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 £120m, which would, under normal
conditions, amount to around 15% of Group revenues. The AASC has
experienced elevated volumes as a result of a backlog linked to the
challenges of the Covid-19 pandemic. As a result, this customer
relationship accounted for over 40% of Group revenues in 2023 and
this elevated position has continued into 2024. In the longer term,
this contract is expected to reduce back 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:
|
Note
|
2023
£'000
|
2022
£'000
|
Share-based payments
|
7
|
1,040
|
599
|
Depreciation of property, plant and
equipment
|
14
|
7,305
|
8,021
|
Depreciation of right of use assets
|
15
|
50,908
|
43,486
|
Impairment of right of use assets
|
15
|
6,223
|
-
|
Amortisation of acquisition
intangibles
|
13
|
244
|
245
|
Amortisation of other intangibles
|
13
|
1,635
|
2,055
|
Loss on disposal of property, plant and
equipment
|
|
54
|
2
|
Loss on disposal of intangibles
|
|
26
|
-
|
Profit on disposal of right of use
assets
|
|
(180)
|
(227)
|
Increase in onerous contract
provisions
|
21
|
8,784
|
-
|
Increase in other provisions
|
21
|
5,738
|
3,617
|
Fees payable for audit and non-audit services
during the year were as follows:
|
2023
£'000
|
2022
£'000
|
In respect of continuing activities:
|
|
|
Fees payable to the auditor for the audit of the
Group's financial statements
|
457
|
416
|
Other fees payable to the auditor in respect
of:
|
|
|
· auditing of
accounts of subsidiary undertakings pursuant to
legislation
|
550
|
500
|
· additional fees
in respect of the prior year audit
|
145
|
65
|
Total auditor's remuneration
|
1,152
|
981
|
5. FINANCE INCOME AND FINANCE COSTS
|
2023
£'000
|
2022
£'000
|
Interest charge on overdrafts and
loans
|
(638)
|
(625)
|
Interest on lease obligations
|
(9,899)
|
(7,617)
|
Finance costs on bank loans, overdrafts and
leases
|
(10,537)
|
(8,242)
|
Other interest
|
(642)
|
(58)
|
Interest charge on defined benefit pension
obligation
|
(2)
|
(74)
|
Total finance costs
|
(11,181)
|
(8,374)
|
Interest income resulting from short-term
deposits
|
4,360
|
870
|
Interest income resulting from defined benefit
pension asset
|
1,164
|
769
|
Other interest income
|
415
|
394
|
Finance income
|
5,939
|
2,033
|
Net finance charge
|
(5,242)
|
(6,341)
|
6. EMPLOYEES
Staff costs during the year were as
follows:
|
2023
£'000
|
2022
£'000
|
Wages and salaries
|
176,226
|
165,348
|
Social security costs
|
18,666
|
16,795
|
Other pension costs
|
6,963
|
8,797
|
|
201,855
|
190,940
|
The average number of employees of the Group
during the year was:
|
2023
|
2022
|
Site workers
|
2,443
|
2,482
|
Carers
|
559
|
558
|
Office and management
|
2,134
|
1,950
|
|
5,136
|
4,990
|
7. SHARE-BASED EMPLOYEE REMUNERATION
Accounting policy
All share-based payment arrangements are
recognised in the preliminary results 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 2023 the Group maintained four
(2022: three) active share-based payment schemes for employee
remuneration.
Details of the share options outstanding and
movement during the year are as follows:
|
2023
|
2022
|
Number
'000
|
Weighted average exercise price
p
|
Number
'000
|
Weighted average exercise price
p
|
Outstanding at 1 January
|
4,552
|
99
|
4,827
|
110
|
Granted
|
1,132
|
1
|
442
|
1
|
Forfeited or lapsed
|
(418)
|
177
|
(643)
|
108
|
Exercised
|
(2,713)
|
94
|
(74)
|
116
|
Outstanding at 31 December
|
2,553
|
48
|
4,552
|
99
|
The weighted average share price at the date of
exercise for share options exercised during the period was 279p. At
31 December 2023, 0.5m options had vested and were still
exercisable at prices between 1p and 429p. These options had a
weighted average exercise price of 238p and a weighted average
remaining contractual life of 4.5 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 1.13m options granted during the year
and 0.42m options that lapsed during the year. The market price at
31 December 2023 was 310p and the range during 2023 was 195p to
311p.
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:
|
2023
£'000
|
2022
£'000
|
Giving rise to share-based payment
reserve:
|
|
|
All-employee schemes
|
188
|
165
|
Executive schemes
|
852
|
434
|
|
1,040
|
599
|
The Group is currently running four active
schemes, detailed below:
Sharesave plan (All-employee scheme)
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 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 (Executive scheme)
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 (Executive scheme)
The Long-Term Incentive Plan provides for awards
of free shares (i.e. either conditional shares 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.
Deferred Share Bonus Plan (Executive scheme)
The Deferred Share Bonus Plan relates to annual
bonus payments where typically 33% are deferred into shares and
vest subject to continued employment. Individuals may be able to
receive a dividend equivalent payment on deferred bonus shares at
the time of vesting equal to the value of dividends that would have
accrued during the vesting period. The dividend equivalent payment
may assume the reinvestment of dividends on a cumulative basis.
Clawback provisions may apply for three years from the date of
payment of any bonus or the grant of any deferred bonus share
award.
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 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:
|
2023
£'000
|
2022
£'000
|
United Kingdom corporation tax
|
10,854
|
6,449
|
Adjustment in respect of previous
periods
|
39
|
(675)
|
Total current tax charge recognised in
Consolidated Statement of Profit or Loss
|
10,893
|
5,774
|
Deferred taxation charge:
|
|
|
· on defined
benefit pension obligations
|
480
|
(41)
|
· on share-based
payments
|
(119)
|
27
|
· on capital
allowances
|
(483)
|
65
|
· on amortisation
of acquisition intangibles
|
(75)
|
(65)
|
· on short-term
temporary timing differences
|
-
|
149
|
· on corporate
tax losses
|
-
|
264
|
· other timing
differences
|
57
|
18
|
Adjustment in respect of previous
periods
|
(495)
|
250
|
Total deferred taxation recognised in
Consolidated Statement of Profit or Loss
|
(635)
|
667
|
Total tax charge recognised in Consolidated
Statement of Profit or Loss on continuing operations
|
10,258
|
6,441
|
Total tax charge recognised in Consolidated
Statement of Profit or Loss on discontinued operations
|
-
|
48
|
Total tax charge recognised in Consolidated
Statement of Profit or Loss
|
10,258
|
6,489
|
The charge for the year can be reconciled to
the result for the year as follows:
|
2023
£'000
|
2022
£'000
|
Profit for the year on continuing operations
before tax
|
46,918
|
34,944
|
Profit for the year on discontinued operations
before tax
|
-
|
542
|
Result for the year before tax
|
46,918
|
35,486
|
Result for the year multiplied by standard rate
of corporation tax in the United Kingdom for the period of 23.5%
(2022: 19.0%)
|
11,039
|
6,742
|
Effect of:
|
|
|
· expenses not
deductible for tax purposes
|
88
|
362
|
· income not
subject to tax
|
(352)
|
(264)
|
· tax impact of
employee share schemes
|
(61)
|
129
|
· adjustment in
respect of prior periods
|
(456)
|
(480)
|
Actual tax charge
|
10,258
|
6,489
|
Deferred tax is recognised on temporary
differences between the treatment of items for both 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 £1.4m (2022: £25.5m) across several entities in the Group
as it is not expected that they will be eligible to be utilised
against profits in the future. The reduction in unrecognised losses
during the year is due to those in respect of two dormant Group
entities being written off, as there was no prospect of them being
utilised in future.
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.
Relief is provided from UK Corporation Tax on
the difference between the exercise price of share options
exercised by employees and their market value at the point of
exercise. During 2023, an all-employee share scheme vested that had
been granted in 2020 when the Group's share price was significantly
lower. This resulted in significant relief on the exercise of the
share options that is not anticipated to reoccur.
The following tax has been charged to other
comprehensive income or equity during the year:
|
2023
£'000
|
2022
£'000
|
Deferred tax credit recognised in other
comprehensive income
|
|
|
· on defined
benefit pension obligations
|
(1,482)
|
(2,449)
|
Total deferred tax credit recognised in other
comprehensive income
|
(1,482)
|
(2,449)
|
Current tax credit recognised directly in
equity
|
|
|
· on
share-based payments
|
(991)
|
-
|
Total current tax credit recognised
in equity
|
(991)
|
-
|
Deferred tax charge/(credit) recognised directly
in equity
|
|
|
· on share-based
payments
|
124
|
(142)
|
Total deferred tax charge/(credit) recognised in
equity
|
124
|
(142)
|
BEPS Pillar
Two
Pillar Two legislation has been enacted in the
UK and will be effective for the Group's financial year beginning 1
January 2024. The Group has performed an assessment of its
potential exposure to Pillar Two income taxes based on the most
recent information available regarding the financial performance of
the constituent entities in the Group. Based on the assessment
performed, the Pillar Two effective tax rate is above 15% and
management is not currently aware of any circumstances under which
this might change. Therefore, the Group does not expect a potential
exposure to Pillar Two top-up taxes.
9. DISCONTINUED ACTIVITIES
During 2020, the Group completed the disposal of
its Domiciliary Care business and disposed of its Planning
Solutions business. The 2022 financial statements recognised profit
after tax and operating cash outflows of £0.5m in respect of
discontinued activities, as well as a £7.3m cash inflow
representing the final receipt of contingent consideration in
respect of the Planning Solutions business. There are no amounts
recognised in 2023 and further details of the disposals are
available in the prior year financial statements.
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:
|
2023
£'000
|
2022
£'000
|
Final 2022 dividend of 7.25p (2022: final 2021
dividend of 5.50p) per share
|
7,932
|
6,092
|
Interim 2023 dividend of 3.70p (2022: interim
2022 dividend of 3.25p) per share
|
3,828
|
3,600
|
|
11,760
|
9,692
|
The Directors recommend a final dividend of
9.30p per share. This has not been recognised within the
preliminary results as no obligation existed at 31 December
2023.
11. EARNINGS PER SHARE
|
Continuing
|
Discontinued
|
Continuing and
discontinued
|
2023
p
|
2022
p
|
2023
p
|
2022
p
|
2023
p
|
2022
p
|
Earnings per share
|
32.90
|
25.07
|
-
|
0.44
|
32.90
|
25.51
|
Diluted earnings per share
|
31.94
|
24.51
|
-
|
0.43
|
31.94
|
24.94
|
For the purpose of calculating earnings per
share (EPS), earnings have been calculated as follows:
|
Continuing
|
Discontinued
|
Continuing and
discontinued
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Profit for the year
|
36,660
|
28,503
|
-
|
494
|
36,660
|
28,997
|
Attributable to non-controlling
interests
|
(1,456)
|
(690)
|
-
|
-
|
(1,456)
|
(690)
|
Earnings
|
35,204
|
27,813
|
-
|
494
|
35,204
|
28,307
|
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.
|
2023
Millions
|
2022
Millions
|
Weighted average number of shares in
issue:
|
106.99
|
110.96
|
Dilutive effect of share options
|
3.23
|
2.52
|
Weighted average number of shares for
calculating diluted earnings per share
|
110.22
|
113.48
|
The opening number of shares in issue for 2024
is shown below:
|
|
2024
Millions
|
Opening number of shares in issue
|
|
101.55
|
Treasury shares to exclude
|
|
(1.89)
|
Opening number of shares in issue for
calculating earnings per share
|
|
99.66
|
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 Generally Accepted Accounting Practice (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: Cash Generating Units (CGUs). Goodwill is
allocated to those groups of CGUs, that are expected to benefit
from synergies of the related business combination and represent
the lowest level within the Group at which goodwill is monitored
for internal management purposes.
Goodwill or groups of 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 groups of 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 group of CGUs. 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
£'000
|
Purchased goodwill
£'000
|
Total
£'000
|
Gross carrying
amount
|
|
|
|
At 1 January 2022
|
114,831
|
4,042
|
118,873
|
Acquisition of subsidiary
|
2,995
|
-
|
2,995
|
At 1 January
2023 and 31 December 2023
|
117,826
|
4,042
|
121,868
|
Accumulated
impairment losses
|
|
|
|
At 1 January
2022, 1 January 2023 and 31 December 2023
|
-
|
-
|
-
|
Carrying
amount
|
|
|
|
At 31 December
2023
|
117,826
|
4,042
|
121,868
|
At 31 December 2022
|
117,826
|
4,042
|
121,868
|
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 carrying value of goodwill is allocated to
the following groups of CGUs:
|
Goodwill arising on
consolidation
|
Purchased
goodwill
|
Total
|
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Maintenance (excluding Housing with
Care)
|
65,290
|
65,290
|
4,042
|
4,042
|
69,332
|
69,332
|
Management
|
33,447
|
33,447
|
-
|
-
|
33,447
|
33,447
|
Housing with Care
|
19,089
|
19,089
|
-
|
-
|
19,089
|
19,089
|
|
117,826
|
117,826
|
4,042
|
4,042
|
121,868
|
121,868
|
|
|
|
|
|
|
| |
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 30 September 2023 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 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 the carrying amount of
a group of CGUs to exceed its recoverable amount.
The rates used were as follows:
|
Post-tax discount rate
|
Pre-tax
discount rate
|
Volume
growth rate (years 1-5)
|
Terminal
growth
rate
|
Maintenance
|
10.90%
|
14.93%
|
2.00%
|
1.50%
|
Management
|
10.90%
|
13.21%
|
2.00%
|
1.50%
|
Housing with Care
|
10.90%
|
15.00%
|
3.00%
|
1.50%
|
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. 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
|
Client relationships
|
over the period expected to benefit
|
Supplier relationships
|
over the period expected to benefit
|
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
|
Development
expenditure £'000
|
Software
£'000
|
Total
intangibles £'000
|
Client
relationships £'000
|
Order
book
£'000
|
Supplier
relationships £'000
|
Total
acquisition intangibles £'000
|
Gross carrying amount
|
|
|
|
|
|
|
|
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 1 January 2023
|
4,890
|
-
|
-
|
4,890
|
23,349
|
6,276
|
34,515
|
Additions
|
-
|
-
|
-
|
-
|
1,041
|
458
|
1,499
|
Disposals
|
-
|
-
|
-
|
-
|
(5,996)
|
(4,012)
|
(10,008)
|
At 31 December 2023
|
4,890
|
-
|
-
|
4,890
|
18,394
|
2,722
|
26,006
|
Amortisation
|
|
|
|
|
|
|
|
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 1 January 2023
|
2,486
|
-
|
-
|
2,486
|
19,030
|
5,547
|
27,063
|
Provided in the year
|
244
|
-
|
-
|
244
|
1,415
|
220
|
1,879
|
Eliminated on disposal
|
-
|
-
|
-
|
-
|
(5,996)
|
(3,986)
|
(9,982)
|
At 31 December 2023
|
2,730
|
-
|
-
|
2,730
|
14,449
|
1,781
|
18,960
|
Carrying amount
|
|
|
|
|
|
|
|
At 31 December 2023
|
2,160
|
-
|
-
|
2,160
|
3,945
|
941
|
7,046
|
At 31 December 2022
|
2,404
|
-
|
-
|
2,404
|
4,319
|
729
|
7,452
|
Development expenditure is an internally
developed intangible asset and relates to the development of the
Group's Housing job management system and decarbonisation
assessment software.
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 3.8 years (2022: 3.9 years).
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 or expected useful
life of the improvements, 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
|
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
property
£'000
|
Leasehold
improvements
£'000
|
Plant
and
machinery
£'000
|
Fixtures,
fittings
and
equipment
£'000
|
Motor
vehicles
£'000
|
Total
£'000
|
Gross carrying amount
|
|
|
|
|
|
|
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 1 January 2023
|
2,662
|
28,901
|
392
|
14,880
|
515
|
47,350
|
Additions
|
22,126
|
682
|
-
|
2,893
|
44
|
25,745
|
Disposals
|
-
|
(2,839)
|
(209)
|
(2,375)
|
-
|
(5,423)
|
At 31 December 2023
|
24,788
|
26,744
|
183
|
15,398
|
559
|
67,672
|
Depreciation
|
|
|
|
|
|
|
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 1 January 2023
|
115
|
16,041
|
304
|
10,212
|
490
|
27,162
|
Provided in the year
|
220
|
5,172
|
40
|
1,850
|
23
|
7,305
|
Eliminated on disposals
|
-
|
(2,839)
|
(200)
|
(2,289)
|
-
|
(5,328)
|
At 31 December 2023
|
335
|
18,374
|
144
|
9,773
|
513
|
29,139
|
Carrying amount
|
|
|
|
|
|
|
At 31 December 2023
|
24,453
|
8,370
|
39
|
5,625
|
46
|
38,533
|
At 31 December 2022
|
2,547
|
12,860
|
88
|
4,668
|
25
|
20,188
|
15. RIGHT OF USE ASSETS
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.
In 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
· an 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. Management 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
assumption 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 leased primarily in order to earn
rentals from sub-leasing. The Group has chosen to apply the cost
model to all investment property and therefore measurement is in
line with IFRS 16 as described above.
|
|
Investment property
|
Assets that are used directly within
the business
|
Total
£'000
|
|
|
Residential
property
£'000
|
Residential
property
£'000
|
Offices
£'000
|
Motor
vehicles
£'000
|
Gross carrying amount
|
|
|
|
|
|
|
At 1 January 2022
|
|
141,134
|
103,466
|
11,428
|
31,040
|
287,068
|
Additions*
|
|
5,631
|
38,441
|
608
|
8,008
|
52,688
|
Disposals
|
|
(3,019)
|
(5,921)
|
(1,529)
|
(1,491)
|
(11,960)
|
At 1 January 2023
|
|
143,746
|
135,986
|
10,507
|
37,557
|
327,796
|
Additions*
|
|
8,816
|
59,148
|
869
|
10,073
|
78,906
|
Disposals
|
|
(998)
|
(4,877)
|
(992)
|
(2,956)
|
(9,823)
|
At 31 December 2023
|
|
151,564
|
190,257
|
10,384
|
44,674
|
396,879
|
Depreciation
|
|
|
|
|
|
|
At 1 January 2022
|
|
26,203
|
40,406
|
5,399
|
10,111
|
82,119
|
Provided in the year
|
|
9,043
|
25,422
|
1,799
|
7,222
|
43,486
|
Eliminated on disposals
|
|
(2,901)
|
(5,516)
|
(1,529)
|
(1,295)
|
(11,241)
|
At 1 January 2023
|
|
32,345
|
60,312
|
5,669
|
16,038
|
114,364
|
Provided in the year
|
|
8,747
|
32,183
|
1,710
|
8,268
|
50,908
|
Impairments
|
|
6,223
|
-
|
-
|
-
|
6,223
|
Eliminated on disposals
|
|
(930)
|
(3,960)
|
(992)
|
(2,383)
|
(8,265)
|
At 31 December 2023
|
|
46,385
|
88,535
|
6,387
|
21,923
|
163,230
|
Carrying amount
|
|
|
|
|
|
|
At 31 December 2023
|
|
105,179
|
101,722
|
3,997
|
22,751
|
233,649
|
At 31 December 2022
|
|
111,401
|
75,674
|
4,838
|
21,519
|
213,432
|
* Additions includes
both new underlying assets and remeasurement of the right of use
asset for changes in the lease terms.
The Group previously sub-divided assets that are
sub-leased to customers between investment property and other
residential property. Having reviewed the details of other
residential properties, management considers that all sub-leased
properties meet the definition of investment property.
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 £26.5m
(2022: £28.9m). Direct operating expenses of £24.0m (2022: £25.8m),
excluding impairments, arose from investment property that
generated rental income during the period. The carrying value of
the right of use asset in respect of investment property is
considered to be approximately equal to its fair value.
Impairment
In respect of its investment property, the Group
has seen a deterioration in trading, predominantly as a result of
increased regulation together with above-inflation maintenance and
service cost increases. The poor financial performance combined
with increasing interest rates were recognised by management as an
indicator of impairment on certain portfolios of investment
property assets.
In carrying out impairment assessments,
management prepared detailed cash flow forecasts for the life of
the underlying leases on these properties and discounted them using
an appropriate rate, in order to estimate the value in
use.
In many cases, the Group's customer contract
associated with these portfolios benefits from Nominations
Agreements with Local Authorities, which contain income protection
clauses. The discount rate for each portfolio of properties was
therefore set by reference to publicly available market yield
information, adjusted for the relative risk associated with each
scheme, taking account of any income protections, as well as other
risk factors such as maintenance responsibilities. This resulted in
a range of discount rates being applied, from 6.6% to
7.5%.
As a result of management's impairment review,
several portfolios were identified where the value in use was lower
than the carrying amount of the right of use asset. As such, an
impairment has been applied to those properties as detailed in the
table above. The impact of the impairment on the Statement of
profit or loss has been recognised within cost of sales.
Included within the impairment above were two
individually significant properties. The first is due to run until
2041 and its future cash flow forecast was discounted at 6.6%,
resulting in an impairment of £3.3m. The second is due to continue
until 2038 and its future cash flow forecast was discounted at
7.2%, resulting in an impairment of £1.8m. All other impairments in
aggregate totalled £1.1m.
If all discount rates used had been 0.5
percentage points lower, the overall impairment would have been
£0.8m lower. If annual net cash inflows were 10% (or £0.3m) higher
across all properties, the impairment would have been £2.3m
lower.
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 preliminary results 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
£'000
|
Other investments
£'000
|
Total
£'000
|
At 1 January 2022
|
648
|
65
|
713
|
Share of profit
|
858
|
-
|
858
|
Distributions received
|
(300)
|
-
|
(300)
|
At 1 January 2023
|
1,206
|
65
|
1,271
|
Share of profit
|
486
|
-
|
486
|
Distributions received
|
(1,135)
|
-
|
(1,135)
|
At 31 December 2023
|
557
|
65
|
622
|
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 (2022:
none).
Associates
Set out below is the investment in an associate
as at 31 December 2023, which in management's opinion is
significant to the Group:
|
Nature of
relationship
|
Proportion
held
|
Country of
registration
|
Carrying value
|
2023
£'000
|
2022
£'000
|
Pyramid Plus South LLP
|
Associate
|
30%
|
England and Wales
|
557
|
1,206
|
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 £1.1m (2022: £0.3m) from Pyramid Plus South LLP.
Summarised financial information for Pyramid Plus South LLP for the
year is shown below:
|
2023
£'000
|
2022
£'000
|
Revenue and profits
|
|
|
Revenue
|
24,802
|
21,600
|
Expenses
|
(23,183)
|
(18,738)
|
Profit for the year
|
1,619
|
2,862
|
Other comprehensive income
|
-
|
-
|
Total comprehensive income
|
1,619
|
2,862
|
Share of profit at 30%
|
486
|
858
|
Net assets
|
|
|
Non-current assets
|
-
|
-
|
Current assets
|
7,497
|
7,795
|
Current liabilities
|
(4,666)
|
(3,763)
|
Non-current liabilities
|
-
|
-
|
Total assets less total liabilities
|
2,831
|
4,032
|
Cash and cash equivalents of £1.9m (2022:
£2.5m) were included in current assets above.
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 subcontracted work that has been
incurred in bringing the inventories and work in progress to their
present location and condition.
|
2023
£'000
|
2022
£'000
|
Materials and consumables
|
1,463
|
1,329
|
Work in progress
|
-
|
5,550
|
|
1,463
|
6,879
|
The Group consumed inventories totalling £86.3m
during the year (2022: £93.9m). No items are being carried at fair
value less costs to sell (2022: £nil).
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.
|
2023
£'000
|
2022
£'000
|
Current assets
|
|
|
Trade receivables
|
23,230
|
21,483
|
Contract assets
|
79,703
|
84,797
|
Contract fulfilment costs
|
768
|
1,283
|
Prepayments and accrued income
|
18,929
|
13,257
|
Other debtors
|
4,060
|
7,514
|
Total trade and other receivables
|
126,690
|
128,334
|
Included in trade receivables is £3.4m (2022:
£4.3m) 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:
|
2023
|
2022
|
Gross
amount due
£'000
|
Expected
credit loss
£'000
|
Carrying
value
£'000
|
Gross
amount due
£'000
|
Expected
credit loss
£'000
|
Carrying
value
£'000
|
Not past due
|
20,110
|
(158)
|
19,952
|
18,661
|
(986)
|
17,675
|
Less than three months past due
|
2,168
|
(627)
|
1,541
|
3,051
|
(504)
|
2,547
|
More than three months past due
|
2,674
|
(937)
|
1,737
|
1,946
|
(685)
|
1,261
|
Total trade receivables
|
24,952
|
(1,722)
|
23,230
|
23,658
|
(2,175)
|
21,483
|
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.
The movement in expected credit loss during the
year is shown below:
|
2023
£'000
|
2022
£'000
|
At 1 January
|
2,175
|
7,006
|
Changes in amounts provided
|
1,482
|
1,208
|
Amounts utilised
|
(1,935)
|
(6,039)
|
At 31 December
|
1,722
|
2,175
|
The movement in contract assets during the year
is shown below:
|
2023
£'000
|
2022
£'000
|
At 1 January
|
84,797
|
97,680
|
Recognised on completion of performance
obligations
|
1,050,778
|
906,415
|
Invoiced during the year
|
(1,055,872)
|
(919,298)
|
At 31 December
|
79,703
|
84,797
|
Included in other debtors is an amount of £2.3m
(2022: £2.9m) recoverable from the Group's fronting insurers. The
Group manages its insurance risk through a captive insurance
company. Whilst the Group is effectively paying a premium to
itself, the premium passes through a third party fronting insurer,
which results in a matching other debtor and other
creditor.
19. TRADE AND OTHER PAYABLES
|
2023
£'000
|
2022
£'000
|
Trade payables
|
58,651
|
55,854
|
Accruals
|
72,147
|
60,278
|
Social security and other taxes
|
22,203
|
26,343
|
Contract liabilities
|
28,491
|
23,672
|
Other creditors
|
5,543
|
4,866
|
|
187,035
|
171,013
|
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
year is shown below:
|
2023
£'000
|
2022
£'000
|
At 1 January
|
23,672
|
27,843
|
Revenue recognised in respect of contract
liabilities
|
(12,015)
|
(24,296)
|
Payments received in advance of performance
obligations being completed
|
16,834
|
20,125
|
At 31 December
|
28,491
|
23,672
|
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
£2.3m (2022: £2.9m) payable to the Group's fronting insurers as
described in note 18.
20. LEASE LIABILITIES
Lease liabilities are separately presented on
the face of the Consolidated Statement of Financial Position as
shown below:
|
2023
£'000
|
2022
£'000
|
Current
|
54,492
|
44,376
|
Non-current
|
199,948
|
181,045
|
|
254,440
|
225,421
|
The Group had not committed to any leases which
had not commenced at 31 December 2023. 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 extension or termination options
will be exercised, which is then reflected in the valuation.. 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:
|
2023
£'000
|
2022
£'000
|
Short-term leases
|
57,281
|
46,683
|
Low value leases
|
948
|
1,096
|
Variable lease payments
|
979
|
1,236
|
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
|
2023
£'000
|
2022
£'000
|
Depreciation of right of use assets during the
year
|
15
|
50,908
|
43,486
|
Impairment of right of use assets during the
year
|
15
|
6,223
|
-
|
Additions to right of use assets during the
year
|
15
|
78,906
|
52,688
|
Carrying value of right of use assets at the
year end
|
15
|
233,649
|
213,432
|
Interest on lease liabilities during the
year
|
5
|
9,899
|
7,617
|
Total cash outflow in respect of leases during
the year
|
25
|
58,048
|
50,827
|
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 5.54% to 7.47%. The impact of an increase in all IBRs applied
during 2023 by 0.5 percentage points would be a £0.5m reduction in
the lease liability and a £0.1m reduction in profit before
tax.
21. 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.
Management 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.
The carrying value of each class of provisions
is shown below:
|
2023
|
2022
|
Current
£'000
|
Non-current
£'000
|
Total
£'000
|
Current
£'000
|
Non-current
£'000
|
Total
£'000
|
Onerous contract provisions
|
1,898
|
6,886
|
8,784
|
-
|
-
|
-
|
Property provisions
|
520
|
761
|
1,281
|
475
|
360
|
835
|
Insurance provisions
|
2,623
|
1,388
|
4,011
|
2,305
|
805
|
3,110
|
Legal and other provisions
|
3,365
|
750
|
4,115
|
6,000
|
1,945
|
7,945
|
Total provisions
|
8,406
|
9,785
|
18,191
|
8,780
|
3,110
|
11,890
|
A summary of the movement in provisions during
the year is shown below:
|
Onerous contract provisions
£'000
|
Property provisions £'000
|
Insurance provisions £'000
|
Legal and other provisions
£'000
|
Total
£'000
|
At 1 January 2023
|
-
|
835
|
3,110
|
7,945
|
11,890
|
Provided during the year
|
8,784
|
491
|
2,227
|
3,020
|
14,522
|
Utilised during the year
|
-
|
-
|
(1,326)
|
(6,850)
|
(8,176)
|
Unused amounts reversed
|
-
|
(45)
|
-
|
-
|
(45)
|
At 31 December 2023
|
8,784
|
1,281
|
4,011
|
4,115
|
18,191
|
Onerous
contract provisions
During the year, the Group has identified a
small number of contracts, with remaining terms ranging from less
than 1 year to 33 years, under which the unavoidable costs of
meeting the obligations under the contract exceed the economic
benefit expected to be received under it. These unavoidable costs
are the lower of the cost of fulfilling the contract and any
compensation or penalties of exiting from the contract.
The largest single component within onerous
contract provisions is £4.2m relating to a single Community Housing
contract which is reported within the Management segment. The
remaining balance of £4.6m is attached to the Maintenance
segment.
In identifying the excess of costs over
expected economic benefits, the Group has prepared cash flow
forecasts for the lifetime of each contract, based on management's
best estimates. For contracts where the time value of money is
material, these cash flow forecasts have then been discounted using
an appropriate discount rate. The forecasts have modelled real cash
flows and as such, a real discount rate has been
applied.
Recognising that by their nature there is
variability in future-looking cash flow forecasts, an appropriate
risk factor has been applied when selecting the discount rates,
resulting in rates that are lower than the real risk-free rate. The
range of discount rates used is between 0.3% and 1.5%, depending on
the relative uncertainty of the cash flows.
If the discount rates used were 0.5 percentage
points higher in each case, the onerous contract provision would
have been £0.3m lower.
The provisions recognised are also sensitive to
the underlying cash flow forecasts. If the anticipated annual net
cash outflow, ranging from £0.2m to £1.3m across the different
contracts and forecast years, was 10% lower, the onerous contract
provision would have been £0.9m lower.
Property
provisions
Property provisions represent the expected costs
of reinstating several office properties to their original
condition upon termination of the lease.
Insurance
provisions
The Group self-insures certain fleet and
liability risks. Provisions for claims are recognised in respect of
both claims received but not concluded, which are expected to be
settled within one year, and claims incurred but not received,
which are treated as non-current. The value of these provisions is
estimated based on past experience of claims.
Legal and
other provisions
Legal and other provisions primarily relate to
previously completed customer contracts where management is aware
of probable liabilities and future losses associated with work
defects. This also includes other supply chain claims.
The opening provision at 1 January 2023 included
one abnormally large claim where a former customer asserted that
the Group had acted in breach of contract, the Group having
previously served a notice of termination. The matter had been
referred to adjudication with a total claim value of £9.3m, against
which management, having considered a range of possible outcomes,
had provided a sum of £5.7m, which was believed to represent the
best estimate of the likely outcome. The matter concluded with a
final loss of £6.6m plus interest.
The closing provision includes one customer
related defects claim which is the subject of active litigation,
against which management has provided £1.6m (2022: £1.5m) (against
a total claim value of £6.9m). Management has received external
technical support and believes this provision represents the best
estimate of the likely outcome. A separate supply chain claim
relating to the value of works delivered is the subject of
litigation, against which management has provided £0.5m (2022:
£0.5m) against a claim value of £5.1m, much of which is considered
to be without merit and liability denied.
The remaining claims account for a provision of
£2.0m, but the range of possible outcomes is narrow and any risk to
the downside is not material.
22. FINANCIAL INSTRUMENTS
Accounting policy
The Group uses a limited number of financial
instruments comprising cash and liquid resources, borrowings 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 at short notice that are
subject to an insignificant risk of changes in value. Bank
overdrafts are presented as current liabilities in the Consolidated
Balance Sheet but are included within cash and cash equivalents
within the Statement of Cash Flows, as they are used as part of the
Group's cash management process and regularly repaid. The Group
also considers its revolving credit facility to be an integral part
of its cash management, although this facility has not been
utilised during 2022 or 2023.
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'.
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.
Critical judgements
Included within financial
liabilities is a credit facility arising from banking arrangements
to provide supplier financing. Judgement has been required to
determine whether the cash flows arising from this facility are
financing or operating in nature, and whether the cash flows from
the financial institution are deemed to be cash flows of the Group.
Management has determined that this facility is financing in
nature, as it allows suppliers to receive cash earlier than they
would under our normal payment cycle, and that the cash flows of
the financial institution related to these transactions are, in
substance, cash flows of the Group and should be reflected in the
cash flow statement of the Group (see other credit facilities in
note 25).
|
2023
£'000
|
2022
£'000
|
Non-current assets
|
|
|
Fair value (level 3)
|
|
|
Investments - other investments
|
65
|
65
|
Amortised cost
|
|
|
Loan notes and other non-current
debtors
|
4,458
|
4,073
|
Current assets
|
|
|
Amortised cost
|
|
|
Trade receivables
|
23,230
|
21,483
|
Other debtors
|
4,060
|
7,514
|
Short-term financial assets
|
7,090
|
1,963
|
Cash at bank and in hand
|
138,756
|
98,138
|
|
173,136
|
129,098
|
Non-current liabilities
|
|
|
Fair value (level 3)
|
|
|
Contingent consideration
|
-
|
(438)
|
Amortised cost
|
|
|
Lease liabilities
|
(199,948)
|
(181,045)
|
Deferred consideration
|
-
|
(244)
|
|
(199,948)
|
(181,289)
|
Current liabilities
|
|
|
Fair value (level 3)
|
|
|
Contingent consideration
|
(581)
|
-
|
|
|
|
Amortised cost
|
|
|
Overdrafts and other short-term
borrowings
|
(36,699)
|
-
|
Trade payables
|
(58,651)
|
(55,854)
|
Lease liabilities
|
(54,492)
|
(44,376)
|
Other creditors
|
(4,710)
|
(4,614)
|
Deferred consideration
|
(252)
|
(252)
|
|
(154,804)
|
(105,096)
|
|
(177,674)
|
(153,587)
|
The amount recognised as an allowance for
expected credit losses on trade receivables during 2023 was £1.5m
(2022: £1.2m).
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 a revolving credit facility of
£70.0m with Barclays Bank PLC, HSBC Bank PLC and Citi. In order to
assist with short term day-to-day treasury requirements, this
facility includes an overdraft carve out with Barclays Bank PLC of
£10m, which was temporarily increased to £22.3m at the year end,
leaving £47.7m available to draw on the revolving credit
facility.
The Group pays a margin over and above SONIA on
bank borrowings when it uses its facility. The margin is based on
the ratio of Group consolidated net borrowings to Group
consolidated adjusted EBITDA and could have varied between 1.75%
and 2.75% during the year.
Details of the Group's banking covenants are
provided within the Annual Report.
Overdrafts and other short-term borrowings
At 31 December 2023, the Group had overdrafts of
£25.5m (2022: £nil) and other credit facilities of £11.2m (2022:
£nil). Overdrafts were utilised alongside highly liquid cash
equivalents, such as money market facilities, for the purposes of
cash management during the year. For the purpose of the
Consolidated Cash Flow Statement overdraft facilities have been
included within cash and cash equivalents.
Other credit facilities are short-term
borrowings due within no more than 60 days and are also used as
part of the Group's cash management process.
The entire balance of overdrafts and other
short-term borrowings was repaid in full on 2 January
2024.
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 2023, the Group had minimal
exposure to interest rate risk relating to borrowing
costs.
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 carried out centrally for the Group as a whole in
accordance with internal practice and limits.
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
£'000
|
1-2 years
£'000
|
2-5 years
£'000
|
Over 5 years
£'000
|
Total
£'000
|
2023
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
Overdrafts and other short-term
borrowings
|
36,699
|
-
|
-
|
-
|
36,699
|
Trade payables
|
58,651
|
-
|
-
|
-
|
58,651
|
Lease liabilities
|
58,492
|
44,707
|
88,428
|
114,418
|
306,045
|
Other creditors
|
4,710
|
-
|
-
|
-
|
4,710
|
Deferred and contingent consideration
|
833
|
-
|
-
|
-
|
833
|
2022
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
Trade 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
|
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 2023 was £4.2m (2022: £3.8m).
Short-term financial assets
Short-term financial assets are fixed-term
deposits with financial institutions held for investment purposes
rather than for cash management. All short-term financial assets
have a maturity at inception of 12 months or less and are held for
the purpose of generating returns.
Contingent consideration receivable
The table below shows the movements in
contingent consideration receivable:
|
|
|
£'000
|
At 1 January 2022
|
|
|
6,531
|
Movement in fair value of contingent
consideration
|
|
|
802
|
Received during the year
|
|
|
(7,333)
|
At 1 January
2023 and 31 December 2023
|
|
|
-
|
Deferred and contingent consideration payable
The table below shows the movements in deferred
and contingent consideration payable:
|
Deferred
£'000
|
Contingent
£'000
|
Total
£'000
|
At 1 January 2022
|
-
|
-
|
-
|
Fair value of deferred and contingent
consideration on acquisition of IRT Surveys Limited
|
496
|
438
|
934
|
At 1 January 2023
|
496
|
438
|
934
|
Unwinding of discount on deferred
consideration
|
16
|
-
|
16
|
Movement in fair value of contingent
consideration
|
-
|
143
|
143
|
Paid during the year
|
(260)
|
-
|
(260)
|
At 31 December
2023
|
252
|
581
|
833
|
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 management's expectation of the amount that
will be payable. This figure is then discounted at an appropriate
rate. The value of contingent consideration could vary by up to
£0.6m based on the number of active properties being managed by
software developed by the acquired business at the second
anniversary of acquisition.
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.
23. DEFERRED TAXATION
Deferred tax is calculated on temporary
differences under the liability method.
Deferred tax relates to the
following:
|
Consolidated
Balance Sheet
|
Consolidated
Statement of Profit or Loss
|
Other
movements
|
At 31 December 2023
£'000
|
At 31 December 2022
£'000
|
2023
£'000
|
2022
£'000
|
2023
£'000
|
2022
£'000
|
Pension schemes
|
(4,799)
|
(5,800)
|
(481)
|
66
|
1,482
|
2,449
|
Share-based payments
|
698
|
704
|
118
|
(26)
|
(124)
|
142
|
Tax losses
|
-
|
-
|
-
|
(249)
|
-
|
-
|
Provisions
|
-
|
-
|
-
|
(149)
|
-
|
-
|
Acquisition intangibles
|
(540)
|
(601)
|
61
|
61
|
-
|
-
|
Capital allowances
|
1,295
|
317
|
978
|
(330)
|
-
|
-
|
Leases
|
569
|
625
|
(56)
|
(43)
|
-
|
-
|
Fair value of software development
|
(128)
|
(143)
|
15
|
3
|
-
|
(146)
|
|
(2,905)
|
(4,898)
|
635
|
(667)
|
1,358
|
2,445
|
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.
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 £1.4m (2022: £25.5m) 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 £nil. 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 £nil. The
estimated tax effect of this £nil tax base is accounted for as a
deferred tax liability which is released over the period of
amortisation of the associated acquisition intangible
asset.
24. 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.
Treasury shares are equity instruments of the
Group that are reacquired. They are recognised at cost and deducted
from equity as a separate reserve.
The 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
|
2023
£'000
|
2022
£'000
|
Allotted, called up and fully paid
|
|
|
At 1 January: 111,000,889 (2022: 110,926,510)
ordinary shares of 1p each
|
1,110
|
1,109
|
Issue of 2,713,031 (2022: 74,379) shares on
exercise of share options
|
27
|
1
|
Cancellation of 12,162,838 (2022: nil) shares
following share buybacks
|
(121)
|
-
|
At 31 December:
101,551,082 (2022: 111,000,889) ordinary shares of 1p
each
|
1,016
|
1,110
|
During the year 2,713,031 (2022: 74,379)
ordinary 1p shares were issued in respect of share options
exercised. In addition, 12,162,838 (2022: nil) shares were
repurchased by the Group and cancelled.
Share premium
|
|
|
£'000
|
At 1 January 2022
|
|
|
82,265
|
Issue of shares on exercise of share
options
|
|
|
86
|
At 1 January 2023
|
|
|
82,351
|
Issue of shares on exercise of share
options
|
|
|
2,530
|
Capital reduction
|
|
|
(82,549)
|
At 31 December
2023
|
|
|
2,332
|
On 11 October 2023, following approval by the
High Court, the Group cancelled the entire amount of its share
premium account, resulting in an increase in distributable reserves
of £82.5m. The balance at 31 December 2023 reflects the excess of
the exercise price over the nominal value of shares issued after 11
October 2023.
Treasury shares
|
|
Thousands
|
£'000
|
At 1 January 2022 and 1 January 2023
|
|
-
|
-
|
Acquired by the EBT
|
|
1,891
|
5,122
|
At 31 December
2023
|
|
1,891
|
5,122
|
25. 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:
|
2023
£'000
|
2022
£'000
|
Depreciation
|
58,213
|
51,508
|
Impairment of right of use assets
|
6,223
|
-
|
Profit on disposal of assets
|
(101)
|
(224)
|
Amortisation
|
1,879
|
2,299
|
Share-based payments
|
1,040
|
599
|
IAS 19 pension movement
|
(758)
|
859
|
Share of profits of associates
|
(486)
|
(858)
|
Finance income
|
(5,939)
|
(2,033)
|
Finance cost
|
11,182
|
8,374
|
Total
|
71,253
|
60,524
|
Movements in financing liabilities during the
year are as follows:
|
Revolving
credit facility
£'000
|
Other credit facilities
£'000
|
Lease
liabilities
£'000
|
Total
£'000
|
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 capital
and interest
|
(625)
|
-
|
(50,827)
|
(51,452)
|
At 1 January 2023
|
-
|
-
|
225,421
|
225,421
|
Inception of new leases*
|
-
|
-
|
78,907
|
78,907
|
Termination of leases
|
-
|
-
|
(1,739)
|
(1,739)
|
Increase in facility
|
-
|
11,244
|
-
|
11,244
|
Interest
|
502
|
-
|
9,899
|
10,401
|
Arrangement fees
|
38
|
-
|
-
|
38
|
Cash outflows including in respect of capital
and interest
|
(540)
|
-
|
(58,048)
|
(58,588)
|
At 31 December 2023
|
-
|
11,244
|
254,440
|
265,684
|
* Including
modifications to existing leases resulting in a change in lease
liabilities.
Cash outflows in respect of lease liabilities
include £9.9m (2022: £7.6m) in respect of interest paid and £48.1m
(2022: £43.2m) in respect of discharge of the underlying lease
liabilities.
Other credit facilities are banking facilities
that allow suppliers to receive cash from the financial institution
at a date earlier than our normal payment cycle. The increase in
the facility is a net movement over the year (see note 22, critical
judgements).
For the purpose of the Consolidated Cash Flow
Statement, cash and cash equivalents comprise the following at 31
December:
|
2023
£'000
|
2022
£'000
|
Bank and cash
|
2,755
|
98,138
|
Readily available deposits
|
136,000
|
-
|
|
138,755
|
98,138
|
Bank overdrafts
|
(25,454)
|
-
|
Cash and cash equivalents
|
113,301
|
98,138
|
26. 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, or
to the amount of any unconditional right to a refund, if
greater..
Where the Group has a contractual obligation to
make good any deficit in its share of a Local Government Pension
Scheme (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
Assets for Group schemes are based on the latest
asset information provided by the scheme administrators.
Scheme assets for Other schemes 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 any 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 £4.5m (2022: £4.4m) to these schemes.
Defined benefit schemes
The Group participated in 16 (2022: 17)
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, Mears Extra Care 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. The
Group has an unconditional right to a refund of any surplus within
the Group schemes and has therefore recognised those surpluses in
accordance with IFRIC 14
Management is aware of the High Court ruling in
the case of Virgin Media Ltd v NTL Pension Trustees II Ltd &
Others, regarding amendments to benefits for contracted out
schemes. The Group is waiting for the outcome of an appeal
scheduled for June 2024, as well as confirmation from the
Government as to whether it intends to issue new regulations in
response. The pension scheme administrators and trustees have not
as yet carried out a search or review of historical actuarial
certification dating back to 1997 and, as such, management is not
in a position to assess whether either Group scheme will be
impacted, or to quantify any impact. It remains unclear whether
this case could have an impact on the Other schemes in which the
Group participates.
In certain cases, the Group will participate
under Admitted Body status in the LGPS. The Group will contribute
for a finite period 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.
Upon exiting an LGPS, the surplus or deficit
position of the scheme will be calculated by the Scheme Actuary on
a funding basis. This is a different basis from IAS 19 and
therefore may result in a different surplus or deficit position.
Where the scheme is in surplus on a funding basis on exit, the
pension authority has discretion over whether and to what extent
the surplus will be distributed to the outgoing
employer.
The disclosures in respect of the two (2022:
two) Group defined benefit schemes and the 14 (2022: 15) other
defined benefit schemes in this note have been aggregated. Details
of movements in pension guarantee assets are presented in a
separate table.
The costs and liabilities of the schemes are
based on actuarial valuations. The latest full actuarial valuations
for the schemes were updated to 31 December 2023 by qualified
independent actuaries using the projected unit funding
method.
The principal actuarial assumptions at the
balance sheet date are as follows:
|
2023
£'000
|
2022
£'000
|
Rate of increase of salaries
|
2.80%
|
3.00%
|
Rate of increase for pensions in payment - based
on CPI with a cap of 5%
|
2.40%
|
2.55%
|
Rate of increase for pensions in payment - based
on RPI with a cap of 5%
|
2.70%
|
2.80%
|
Rate of increase for pensions in payment - based
on CPI with a cap of 3%
|
2.00%
|
2.05%
|
Rate of increase for pensions in payment - based
on RPI with a cap of 3%
|
2.15%
|
2.20%
|
Discount rate
|
4.50%
|
4.75%
|
Retail prices inflation
|
2.80%
|
3.00%
|
Consumer prices inflation
|
2.40%
|
2.60%
|
Life expectancy for a 65-year-old
male*
|
21.0 years
|
21.5 years
|
Life expectancy for a 65-year-old
female*
|
23.6 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 are:
|
2023
|
2022
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Quoted assets
|
|
|
|
|
|
|
Equities
|
1,473
|
45,399
|
46,872
|
-
|
59,914
|
59,914
|
Bonds
|
94,184
|
17,576
|
111,760
|
103,829
|
21,380
|
125,209
|
Property
|
-
|
520
|
520
|
-
|
957
|
957
|
Pooled investment vehicles
|
|
|
|
|
|
|
Multi-asset funds
|
20,381
|
470
|
20,851
|
17,417
|
1,068
|
18,485
|
Alternative asset funds
|
2,724
|
-
|
2,724
|
4,783
|
78
|
4,861
|
Return seeking funds
|
1,923
|
784
|
2,707
|
2,035
|
746
|
2,781
|
Other assets
|
|
|
|
|
|
|
Equities
|
-
|
14,507
|
14,507
|
-
|
14,447
|
14,447
|
Bonds
|
-
|
4,121
|
4,121
|
-
|
4,004
|
4,004
|
Property
|
2,008
|
9,137
|
11,145
|
4,193
|
10,174
|
14,367
|
Derivatives
|
2,790
|
-
|
2,790
|
1,822
|
291
|
2,113
|
Cash and other
|
6,040
|
19,049
|
25,089
|
6,153
|
20,639
|
26,792
|
Investment liabilities
|
|
|
|
|
|
|
Derivatives
|
(2,029)
|
-
|
(2,029)
|
(12,209)
|
(9)
|
(12,218)
|
Group's estimated asset share
|
129,494
|
111,563
|
241,057
|
128,023
|
133,689
|
261,712
|
Present value of funded scheme
liabilities
|
(109,659)
|
(83,342)
|
(193,001)
|
(104,351)
|
(98,412)
|
(202,763)
|
Pension surplus/deficit
|
19,835
|
28,221
|
48,056
|
23,672
|
35,277
|
58,949
|
Scheme surpluses not recognised as
assets
|
-
|
(28,393)
|
(28,393)
|
-
|
(38,413)
|
(38,413)
|
Pension asset/(liability) recognised
|
19,835
|
(172)
|
19,663
|
23,672
|
(3,136)
|
20,536
|
Pension guarantee assets
|
-
|
-
|
-
|
-
|
3,136
|
3,136
|
The amounts recognised in the Consolidated
Statement of Profit or Loss are as follows:
|
2023
|
2022
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Current service cost
|
843
|
1,595
|
2,438
|
1,705
|
3,553
|
5,258
|
Settlement and curtailment
|
-
|
58
|
58
|
-
|
(242)
|
(242)
|
Administration costs
|
347
|
-
|
347
|
409
|
-
|
409
|
Total operating charge
|
1,190
|
1,653
|
2,843
|
2,114
|
3,311
|
5,425
|
Net interest
|
(1,162)
|
(1,528)
|
(2,690)
|
(769)
|
(464)
|
(1,233)
|
Effects of limitation of recognisable surplus
related to net interest
|
-
|
1,528
|
1,528
|
-
|
643
|
643
|
Total charged to the result for the
year
|
28
|
1,653
|
1,681
|
1,345
|
3,490
|
4,835
|
Actuarial gains and losses recognised in other
comprehensive income (OCI) are as follows:
|
2023
|
2022
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Return on plan assets in (below)/above that
recorded in net interest
|
(1,877)
|
7,741
|
5,864
|
(70,326)
|
(25,802)
|
(96,128)
|
Actuarial gain/(loss) arising from changes in
demographic assumptions
|
1,840
|
202
|
2,042
|
8
|
(34)
|
(26)
|
Actuarial (loss)/gain arising from changes in
financial assumptions
|
(2,058)
|
(579)
|
(2,637)
|
58,597
|
86,474
|
145,071
|
Actuarial loss arising from liability
experience
|
(3,671)
|
(11,547)
|
(15,218)
|
(2,994)
|
(737)
|
(3,731)
|
Effects of limitation of recognisable surplus
related to OCI movements
|
-
|
4,428
|
4,428
|
-
|
(48,227)
|
(48,227)
|
Total (losses)/gains recognised in
OCI
|
(5,766)
|
245
|
(5,521)
|
(14,715)
|
11,674
|
(3,041)
|
Changes in the present value of the defined
benefit obligations are as follows:
|
2023
|
2022
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Present value of obligations at 1
January
|
104,351
|
98,412
|
202,763
|
159,261
|
275,828
|
435,089
|
Current service cost
|
843
|
1,595
|
2,438
|
1,705
|
3,553
|
5,258
|
Interest on obligations
|
4,855
|
3,205
|
8,060
|
3,144
|
4,094
|
7,238
|
Plan participants' contributions
|
201
|
455
|
656
|
210
|
470
|
680
|
Benefits paid
|
(4,480)
|
(1,505)
|
(5,985)
|
(4,358)
|
(6,407)
|
(10,765)
|
Contract transfer
|
-
|
(30,284)
|
(30,284)
|
-
|
(92,419)
|
(92,419)
|
Settlements
|
-
|
(460)
|
(460)
|
-
|
(1,004)
|
(1,004)
|
Actuarial (gain)/loss arising from changes in
demographic assumptions
|
(1,840)
|
(202)
|
(2,042)
|
(8)
|
34
|
26
|
Actuarial loss/(gain) arising from changes in
financial assumptions
|
2,058
|
579
|
2,637
|
(58,597)
|
(86,474)
|
(145,071)
|
Actuarial loss arising from liability
experience
|
3,671
|
11,547
|
15,218
|
2,994
|
737
|
3,731
|
Present value of obligations at 31
December
|
109,659
|
83,342
|
193,001
|
104,351
|
98,412
|
202,763
|
Changes in the fair value of the plan assets
are as follows:
|
2023
|
2022
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Group
schemes
£'000
|
Other
schemes
£'000
|
Total
£'000
|
Fair value of plan assets at 1
January
|
128,023
|
133,689
|
261,712
|
196,912
|
296,571
|
493,483
|
Expected return on plan assets
|
6,017
|
4,733
|
10,750
|
3,913
|
4,558
|
8,471
|
Employer's contributions
|
1,957
|
1,236
|
3,193
|
2,081
|
1,432
|
3,513
|
Plan participants' contributions
|
201
|
455
|
656
|
210
|
470
|
680
|
Benefits paid
|
(4,480)
|
(1,505)
|
(5,985)
|
(4,358)
|
(6,407)
|
(10,765)
|
Scheme administration costs
|
(347)
|
-
|
(347)
|
(409)
|
-
|
(409)
|
Contract transfer
|
-
|
(33,782)
|
(33,782)
|
-
|
(136,371)
|
(136,371)
|
Settlements
|
-
|
(1,004)
|
(1,004)
|
-
|
(762)
|
(762)
|
Return on plan assets (below)/above that
recorded in net interest
|
(1,877)
|
7,741
|
5,864
|
(70,326)
|
(25,802)
|
(96,128)
|
Fair value of plan assets at 31
December
|
129,494
|
111,563
|
241,057
|
128,023
|
133,689
|
261,712
|
Changes in the fair value of guarantee assets
are as follows:
|
2023
£'000
|
2022
£'000
|
Fair value of guarantee assets at 1
January
|
3,136
|
12,975
|
Transferred in on scheme entry
|
-
|
525
|
Transferred out on scheme exit
|
(3,136)
|
(4,768)
|
Recognised in the Consolidated Statement of
Profit or Loss
|
|
|
Guarantee asset movement in respect of service
cost
|
408
|
1,053
|
Guarantee asset movement in respect of net
interest
|
-
|
105
|
Recognised in other comprehensive
income
|
|
|
Guarantee asset movement in respect of actuarial
losses
|
(408)
|
(6,754)
|
Fair value of guarantee assets at 31
December
|
-
|
3,136
|
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 2024 amount to
£3.2m.
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 2023. This analysis excludes the impact on pension
schemes with a guarantee in place as there would be no net impact
on the balance sheet for these schemes.
|
£'000
|
£'000
|
Rate of inflation - decrease/increase by
0.1%
|
(1,766)
|
1,766
|
Rate of increase in salaries - decrease/increase
by 0.1%
|
(380)
|
380
|
Discount rate - decrease/increase by
0.1%
|
2,110
|
(2,110)
|
Life expectancy - decrease/increase by 1
year
|
(5,480)
|
5,480
|
27. CAPITAL COMMITMENTS
The Group had no capital commitments at 31
December 2023 or at 31 December 2022.
28. CONTINGENT LIABILITIES
The Group has guaranteed that it will complete
certain Group contracts that it has commenced. At 31 December 2023
these guarantees amounted to £11.1m (2022: £13.1m).
The Group had no other contingent liabilities at
31 December 2023 or at 31 December 2022.
29. 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 26.
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:
|
2023
%
|
2022
%
|
Directors
|
0.3
|
0.5
|
Key management personnel's compensation is as
follows:
|
2023
£'000
|
2022
£'000
|
Salaries including social security
costs
|
1,783
|
1,714
|
Contributions to defined contribution pension
schemes
|
56
|
134
|
Share-based payments
|
694
|
434
|
|
2,533
|
2,282
|
Further details of Directors' remuneration are
disclosed within the Remuneration Report.
Dividends totalling £0.04m (2022: £0.06m) 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 £12.1m (2022: £10.2m). Pyramid Plus South
LLP also made recharges of certain staff costs to the Group
totalling £0.2m (2022: £0.2m). At 31 December 2023, £1.4m (2022:
£1.0m) was due to the Group in respect of these transactions.
Pyramid Plus also owed the Group £0.1m (2022: £0.6m) in respect of
agreed distributions.